In addition to ZADAXIN's potential use for the treatment of infectious diseases, we believe that ZADAXIN's role in activating and directing the body's immune response may also be valuable for the treatment of certain cancers. To that end, there are currently two ongoing trials evaluating ZADAXIN in combination with currently approved therapies for the treatment of malignant melanoma and hepatocellular carcinoma, or liver cancer.

The rate of new cases of malignant melanoma has been steadily increasing since the 1970s. The American Cancer Society estimates that in 2005 there will be 59,580 new cases and about 7,770 estimated deaths from malignant melanoma in the United States alone. If diagnosed early, the cure rate is high for malignant melanoma, however, if the melanoma has spread beyond the skin, the survival time is generally less than five months. Currently interferon alpha and the chemotherapy agent dacarbazine (DTIC) are approved to treat malignant melanoma.

Our partner in Europe, Sigma-Tau, is currently enrolling a targeted 320 stage 4 (metastatic) malignant melanoma patients in a phase 2 clinical trial in over 60 sites throughout Europe. Sigma-Tau estimates that enrollment should be completed by mid-2005.

This trial, funded and conducted by Sigma-Tau, is designed to demonstrate a clinical benefit from using ZADAXIN in combination with standard chemotherapy and low-dose interferon alpha. All patients in this four-arm study are receiving DTIC chemotherapy. In addition to receiving DTIC, each patient is randomly assigned to receive ZADAXIN, interferon alpha, or ZADAXIN (in specific doses, either 1.6 mg or 3.2 mg) plus interferon alpha. Patients are receiving six cycles of therapy for 6 months and will be observed for a period of 12 months after the end of therapy. The endpoints are tumor response and survival. The results of this clinical trial, if positive, are expected to be used in the design of a ZADAXIN combination therapy phase 3 clinical trial for malignant melanoma.

Additionally, we are conducting two phase 2 proof-of-concept trials in the U.S. to evaluate ZADAXIN's effectiveness in the treatment of hepatocellular carcinoma. We intend to gather data from these trials to report by the end of 2005. The first liver cancer pilot trial is evaluating ZADAXIN with chemoembolization, or TACE. The second trial, using radiofrequency ablation, or RFA, with ZADAXIN has enrolled very slowly due to the fact that the type of patient that had previously been considered a potential candidate for RFA, and would therefore qualify for our protocol, is now being placed on the liver transplantation list. At the time this trial began, RFA appeared to be a promising protocol treatment, but this has not proven to be true. Consequently, we will continue the first trial using TACE plus ZADAXIN, and we may incorporate the data from the RFA trial into that of the TACE protocol for final data analysis.

Our other proprietary drug development candidate SCV-07 is currently in the pre-clinical stages of development for the treatment of viral and other infectious diseases. Our objective is to identify a target indication and file an IND application for SCV-07 in the first half of 2005.

SCV-07 is a synthetic dipeptide that has demonstrated immunomodulatory activity by increasing T-cell differentiation and function, biological processes that are necessary for the body to fight off infection. We acquired exclusive worldwide rights, outside of Russia, to SCV-07 from Verta, Ltd., a biotechnology company located in St. Petersburg, Russia.

In September 2002, we reported final results from a phase 2 clinical study conducted by Verta in Russia of SCV-07 in tuberculosis at the Interscience Conference on Antimicrobial Agents and Chemotherapy (ICAAC). After 3 months, 80% (35/44) of tuberculosis patients treated with a five-day regimen of SCV-07 therapy in combination with anti-tuberculosis chemotherapy were no longer contagious, as measured by negative sputum cultures, compared to 37% (10/27) of patients whose treatment did not include SCV-07.

In May 2004, we entered into a collaborative agreement with Nektar Therapeutics to develop a pegylated formulation of ZADAXIN. Nektar will apply its Advanced PEGylation technology to ZADAXIN with the objective of improving the therapeutic use (less frequent dosing) and potential efficacy (through a higher concentration level in the body for a longer period of time). If the formulation is successful, pegylated ZADAXIN could lead to improved patient compliance due to less frequent dosing and would allow the drug to remain in the body at a higher concentration level for a longer period of time. In addition to potentially enhancing the use of ZADAXIN in the treatment of hepatitis C and hepatitis B, we believe that a pegylated formulation also could broaden the potential application of ZADAXIN in cancer therapy.

We seek regulatory approval for our products in disease areas with unmet medical need, significant market potential and where we have a proprietary position through patents covering use, process, or composition of matter for our products. For our lead product ZADAXIN, we are the licensee or owner of patents relating to the use of thymosin alpha 1 for certain diseases and its process of manufacture.

We are the exclusive licensee or owner of patents relating to the use of ZADAXIN as a therapy for HCV that do not expire until 2015 in the United States and until 2012 in Japan and the major commercial markets in Europe. In addition, patents relating specifically to the use of thymosin alpha 1 in treating HCV in non-responders to interferon alpha treatment have been issued to us in the United States and various international markets. In the United States, certain European countries and Japan, the period of patent protection may be extended depending on the relevant dates of patent grant and market authorization, and we may, depending on the timing of any future approval, be eligible for such an extension.

We are the exclusive licensee or owners of patents that have been issued in the United States, Japan, China and other international markets relating to the treatment of HBV using thymosin alpha 1. We are the licensee or owner of patents relating to the use of ZADAXIN as a therapy for HBV that do not expire until 2019 in the United States and Europe and 2012 in Japan. We are also the exclusive licensee of patents that have been issued in the United States, a majority of European countries, Japan, and other international markets that relate to the use of thymosin alpha 1 to treat small cell and non-small cell lung cancer. Several corresponding additional patent applications have been issued or patent applications are pending in other countries for each of the above named indications.

For process patents, we are either a patentee or exclusive licensee of use and process patents related to the method of making and therapeutic uses of thymosin alpha 1. Our process patents are directed to methods of making thymosin alpha 1 and have been issued in the United States, a majority of European countries, Japan, Canada, Hong Kong, Taiwan and South Korea. Although the composition of matter patents related to thymosin alpha 1 have expired in the major pharmaceutical markets, we have several composition of matter patents and applications directed to analogues and derivatives of thymosin alpha 1 which have been granted in the United States and in important international markets. Our commercialized product, and the product we are using in our clinical trials, is thymosin alpha 1 and not an analogue or derivative. However, we continue to seek additional proprietary rights relating to the use of thymosin alpha 1. We are the exclusive licensee of an issued U.S. patent relating to the composition of matter of SCV-07 and related compounds, as well as similar pending foreign patent applications.

In addition to our patent protection, we intend to use other means to protect our proprietary rights. We may pursue marketing exclusivity periods that are available under regulatory provisions in certain countries including the United States, Europe and Japan.

Orphan drug protection has been or may be sought where available if such protection also grants additional market exclusivity. We hold an orphan drug product designation for thymosin alpha 1 for hepatocellular carcinoma in the United States and Europe.

We have filed trademark applications worldwide for ZADAXIN and other trademarks that appear on our commercial packaging and promotional literature. Copyrights for the commercial packaging may prevent counterfeit products or genuine but unauthorized products from entering a particular country by parallel importation. We have implemented anti-counterfeiting measures on commercial packaging and we are registering the packaging with customs departments in countries where such procedures exist. We rely upon trade secrets, which we seek to protect in part by entering into confidentiality agreements with our employees, consultants, corporate partners, suppliers and licensees.

We, or our distributors on our behalf, have received approvals from the ministries of health to market and sell ZADAXIN in over 30 countries primarily in Asia, the Middle East and Latin America. ZADAXIN's approvals are principally for the treatment of HBV, with additional approvals in certain countries for the treatment of HCV, as a vaccine adjuvant, or as a chemotherapy adjuvant for cancer patients with weakened immune systems. We sell ZADAXIN in various international markets through our wholly owned subsidiary, SciClone Pharmaceuticals International Ltd. (SPIL).

China is currently our largest single market for ZADAXIN and accounted for 91%, 88% and 88% of ZADAXIN sales for the years ended December 31, 2004, 2003 and 2002, respectively. China is the world's most populous nation that accounts for approximately one third of the 350 million chronic HBV cases and approximately one fourth of the 170 million chronic HCV cases worldwide. We position ZADAXIN as a high quality, imported, premium priced product and market if for use by hospitals and pharmacies in the major metropolitan areas. SPIL employs approximately 90 medical representatives in China to promote physicians' knowledge and use of ZADAXIN. SPIL is an active participant in regional and international liver disease related medical conferences. To leverage our existing marketing capabilities, we are seeking to expand our product offerings by in-licensing or acquiring the marketing rights to other products that can be effectively and efficiently marketed to physicians by our medical representatives.

In China, the physicians' and their hospital pharmacies' orders for ZADAXIN are fulfilled by licensed ZADAXIN distributors who purchase their supplies from our selected importing agents. SPIL sells ZADAXIN to these well-established, government-licensed importing agents. Our sales are made on a no-return basis, except under limited terms regarding product quality. Sales terms to the importing agents in China typically are for payment in six months to accommodate the importing agents' costs of importation including duties and quality assurance testing fees and the long collection cycle associated with sales within the country. In 2004, China National Pharmaceutical Foreign Trade Corporation, China Meheco Corporation and Guang Dong South Pharaceutical Foreign Trade Co., Ltd accounted for 32%, 29% and 23% of our sales, respectively. No other customer accounted for more than 10% of sales in 2004. In 2003, China National Pharmaceutical Foreign Trade Corporation and China Meheco Corporation accounted for 52% and 14% of sales, respectively. No other customers accounted for more than 10% of sales in 2003. In 2002, China National Pharmaceutical Foreign Trade Corporation and Edward Keller Shanghai Ltd. accounted for 41% and 27% of sales, respectively. No other customers accounted for more than 10% of sales in 2002.

SPIL is registered in the Cayman Islands and has offices in Hong Kong, Beijing, Shanghai, Singapore and Sao Paulo. SPIL orders ZADAXIN from our European manufacturer and contracts with a third party for the storage of our finished goods inventory at warehousing facilities in Hong Kong. SPIL then distributes our product worldwide from these warehousing facilities based on purchase orders from our customers. Under our established distribution arrangements, local importers and distributors are responsible for the importation, inventory, distribution and invoicing of ZADAXIN.

ZADAXIN is manufactured for us by third parties under exclusive contract manufacturing and supply agreements. We closely monitor production runs of ZADAXIN and regularly conduct our own quality assurance audit programs. We believe the manufacturing facilities of our contract suppliers are in compliance with the FDA's current Good Manufacturing Practices, and the Japanese or European equivalents of such standards.

Contract suppliers in the United States manufacture ZADAXIN for process validation and for our phase 3 clinical trials in the United States. Contract suppliers in Europe manufacture ZADAXIN for our phase 2 and 3 clinical trials in Europe and for sale in other international markets where approved.

In the event of the termination of an agreement with any single supplier, we believe that we would be able to enter into arrangements with other suppliers with similar terms. We do not intend at this time to acquire or establish our own dedicated manufacturing facilities for any of our products. We believe that our current manufacturing partners have enough manufacturing capacity to meet potential market demand should ZADAXIN be approved in the major pharmaceutical markets of the United States, Europe and Japan.

Our competitors include biopharmaceutical companies, biotechnology firms, universities and other research institutions, both in the United States and abroad, that are actively engaged in research and development or marketing of products in the therapeutic areas we are pursing, particularly HCV, HBV and cancer. Currently, competitors are marketing drugs for HCV, HBV and cancer, or have products in clinical trials. We believe that the principal competitive factors in this industry for a marketed drug include the efficacy, safety, price, therapeutic regimen, manufacturing, quality assurance and associated patents and the capabilities of its marketer.

In addition, most of our competitors, particularly large biopharmaceutical companies, have substantially greater financial, technical, regulatory, manufacturing, marketing and human resource capabilities than SciClone. Most of them also have extensive experience in undertaking the pre-clinical and clinical testing and in obtaining the regulatory approvals necessary to market drugs. Additional mergers and acquisitions in the pharmaceutical industry may result in even more resources being concentrated with our competitors.

For the treatment of HCV, the only products approved by the FDA are interferon alpha, in both standard and pegylated forms, and ribavirin, which is useful only in combination with interferon alpha. There are currently two versions of pegylated interferon alpha being marketed, one by Schering-Plough under the trade name "Peg-Intron," the other by Roche under the trade name "PEGASYS." Schering-Plough markets ribavirin under the trade name "Rebetol" and Roche sells a separate brand of ribavirin under the trade name "COPEGUS."

In the United States, our product ZADAXIN is being evaluated in combination with pegylated interferon alpha for the treatment of HCV patients who have failed to respond to prior therapy with interferon alpha (standard or pegylated) plus ribavirin or with either form of interferon alpha alone. In Europe, ZADAXIN is being evaluated as part of a triple therapy of ZADAXIN, pegylated interferon alpha and ribavirin for the treatment of HCV genotype 1 non-responder patients. Each of the ZADAXIN HCV clinical trials is using the PEGASYS as the pegylated interferon alpha component. We intend to position ZADAXIN as a beneficial addition to current therapy, although we may not be successful.

Other companies are researching, developing, or marketing other products for use alone or in combination with standard or pegylated interferon alpha for clinical indications including HCV and HBV. Such competitive products include ribavirin, potentially improved ribavirin molecules and other products not yet in late stage clinical trials such as therapeutic vaccines, protease, polymerase and reverse transcriptase inhibitors. In addition, we expect continuing advancements in and increasing awareness of the use of therapeutics which boost the immune system to fight cancer and infectious diseases. These developments may create new competitors. Future clinical trials may or may not show ZADAXIN to have advantages or clinically significant synergistic value over such existing or future competitive products.

For the treatment of cancer, many companies are researching, developing, or marketing other products for use alone or in combination with other therapies.

As of December 31, 2004, we had 143 employees, 29 in the United States and 114 in foreign offices. The increase during 2004 is largely attributable to the hiring of additional medical representatives in China. From time to time, we engage the services of consultants worldwide with pharmaceutical and business backgrounds to assist in our product development and ZADAXIN commercialization activities. We plan to leverage our key personnel by continuing to make extensive use of clinical research organizations, contract laboratories, development consultants and collaborations with pharmaceutical companies to develop and market our products.

Regulation by governmental authorities in the United States and foreign countries is a significant factor in the manufacturing and marketing of our products, as well as in ongoing research and development activities and in pre-clinical and clinical trials and testing related to our products. When our products are manufactured, tested or sold in the United States, they will be regulated in accordance with the Federal Food, Drug, and Cosmetic Act, commonly referred to as the FD&C Act and the U.S. Public Health Service Act. In addition to obtaining FDA approval for each product, each manufacturing establishment must be registered with the FDA. Manufacturing establishments are subject to inspections by the FDA and by other federal, state and local agencies and must comply with current U.S. Good Manufacturing Practices (cGMP). In complying with cGMP standards, manufacturers must continue to expend time, money and effort in the area of production and quality assurance to ensure full technical compliance.

The steps required before a new drug or biological product may be distributed commercially in the United States generally include:

• conducting appropriate pre-clinical laboratory evaluations, including animal studies, in compliance with the FDA's Good Laboratory Practice (GLP) requirements, to assess the potential safety and efficacy of the product, and to characterize and document the product's chemistry, manufacturing controls, formulation and stability;

• submitting the results of these evaluations and tests to the FDA, along with manufacturing information and analytical data, in an IND, and receiving approval from the FDA that the studies proposed under the IND are allowed to proceed;

• obtaining approval of Institutional Review Boards (IRBs) to introduce the drug into humans in clinical studies;

• conducting adequate and well-controlled human clinical trials in compliance with the FDA's Good Clinical Practice (GCP) requirements that establish the safety and efficacy of the drug product candidate for the intended use, typically in the following three sequential, or slightly overlapping stages:

  • Phase 1: The drug is initially introduced into healthy human subjects or patients and tested for safety, dose tolerance, absorption, metabolism, distribution and excretion;

  • Phase 2: The drug is studied in patients to identify possible adverse effects and safety risks, to determine dose tolerance and the optimal dosage and to collect initial efficacy data;

  • Phase 3: The drug is studied in an expanded patient population at multiple clinical study sites, to confirm efficacy and safety at the optimized dose, by measuring a primary endpoint established at the outset of the study, and comparing it to that of established therapies, if any; and when required;

  • Phase 4: The drug is studied in an expanded patient population in a post-approval setting for continued monitoring of safety and sometimes continued efficacy;

• submitting to the FDA the results of pre-clinical studies, clinical studies, and adequate data on chemistry, manufacturing and control information to ensure reproducible product quality batch after batch, in an NDA or Biologics License Application (BLA); and

• obtaining FDA approval of the NDA or BLA, including inspection and approval of the product manufacturing facility as compliant with cGMP requirements, prior to any commercial sale or shipment of the pharmaceutical agent.

When used in connection with trials and filings in other countries, terms such as "phase 1," "phase 2," "phase 3," "phase 4," "new drug application" and "marketing application" refer to what we believe are comparable trials and filings in these other countries.

The process of obtaining regulatory approval is lengthy, uncertain, and requires the expenditure of substantial resources. Each NDA or BLA must be accompanied by a user fee, pursuant to the requirements of the Prescription Drug User Fee Act, or PDUFA, and its amendments. According to the FDA's fee schedule, effective through September 30, 2005, the user fee for an application requiring clinical data, such as an NDA or BLA, is $672,000. The FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes an annual product fee for prescription drugs and biologics ($41,710 for the fiscal year 2005), and an annual establishment fee ($262,000) on facilities used to manufacture prescription drugs and biologics. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on NDAs or BLAs for products designated as orphan drugs, unless the drug also includes a non-orphan indication, and if a contract manufacturer is used, the contract manufacturer is responsible for the establishment fee.

After FDA approval has been obtained, the FDA will require post-marketing reporting to monitor the side effects of the drug. Further studies may be required to provide additional data on the product's risks, benefits, and optimal use, and will be required to gain approval for the use of the product as a treatment for clinical indications other than those for which the product was initially tested. Results of post-marketing programs may limit or expand the further marketing of the product. Further, if there are any modifications to the drug, including changes in indication, labeling, or a change in the manufacturing process or manufacturing facility, an NDA or BLA supplement may be required to be submitted to the FDA.

Additionally, after the FDA has authorized a drug product to enter commercial distribution, numerous regulatory requirements apply. These include, among others, the cGMPs, which require manufacturers to follow extensive design, testing, control, documentation and other quality assurance procedures during the manufacturing process; labeling regulations; the FDA's general prohibition against promoting drug products for unapproved or "off-label" uses; and adverse event reporting regulations, which require that manufacturers report to the FDA if their drug may have caused or contributed to a death or serious injury. The FDA has broad post-market and regulatory and enforcement powers. Failure to comply with the applicable U.S. drug regulatory requirements could result in, among other things, warning letters, fines, injunctions, consent decrees, civil penalties, refunds, recalls or seizures of products (which would result in the cessation or reduction of production volume), total or partial suspension of production, withdrawals or suspensions of current product applications, and criminal prosecution. Adverse events related to a drug product in any existing or future markets could cause regulatory authorities to withdraw market approval for such product.

The FD&C Act includes provisions intended to facilitate and expedite the development and review of drugs and biological products intended for treatment of serious or life-threatening conditions that demonstrate the potential to address unmet medical needs for such conditions. These provisions set forth a procedure for designation of a drug as a "fast track product." Concurrent with or after an IND is filed, the sponsor may request designation as a fast track product, and the FDA is required to respond within 60 days.

An advantage of fast track designation is that sponsors may submit, and the FDA may commence review of, portions of an application before the complete application is submitted, provided that the FDA approves a schedule for submission of the completed application. The sponsor of a fast track product also may seek and obtain FDA approval based upon a determination that the product has an effect on a clinical endpoint or on a surrogate endpoint that is reasonably likely to predict clinical benefit. A product approved on this basis is subject to rigorous postmarket compliance requirements, and the sponsor may be required to conduct post-approval studies to validate and/or confirm the endpoint. The FDA may withdraw approval of a fast track product if, for example, the sponsor fails to conduct required post-approval studies or disseminates false or misleading promotional materials.

The Orphan Drug provisions of the FD&C Act provide incentives to drug and biologics suppliers to develop and supply drugs for the treatment of rare diseases, currently defined as diseases that affect fewer than 200,000 individuals in the United States or, for a disease that affects more than 200,000 individuals in the United States, where the sponsor does not realistically anticipate its product becoming profitable. Under these provisions, a supplier of a designated orphan product can seek tax benefits, and the holder of the first FDA approval of a designated orphan product will be granted a seven year period of marketing exclusivity for that product for the orphan indication. The marketing exclusivity of an orphan drug would prevent other sponsors from obtaining approval of the same drug for the same indication without a showing of clinical superiority. It would not prevent other types of drugs from being approved for the same use. We have been granted orphan designation by the FDA for ZADAXIN for treatment of hepatocellular carcinoma.

In the European Union, incentives for suppliers to develop medicinal products for the treatment of rare diseases are provided pursuant to the Orphan Medicinal Products Regulation (Regulation (EC) 141/2000). Orphan medicinal products are those products designed to diagnose, treat or prevent a condition which occurs so infrequently that the cost of developing and bringing the product to the market would not be recovered by the expected sale of the product. In the EU, the criterion for designation is a prevalence of the relevant condition in no more than 5 per 10,000 of the population. The incentives include, amongst others, a reduction in the fees payable in respect of the marketing authorization application, protocol assistance for clinical trials in support of the application, and marketing exclusivity once the authorization is granted. In the EU, marketing exclusivity is granted to products with an orphan drug designation for a period of 10 years during which the EU will not accept another application for a marketing authorization for the same therapeutic indication in respect of a similar medicinal product, unless the second applicant can show its product is safer, more effective or otherwise clinically superior. A similar medicinal product is defined as a medicinal product containing a similar active substance as contained in the authorized orphan medicinal product.

We have been granted orphan designation throughout the EU for ZADAXIN for treatment of hepatocellular carcinoma, and for CPX for the treatment of cystic fibrosis. However, it should be noted that, as in the United States, the granting of orphan drug status in the EU does not affect the likelihood of success of obtaining regulatory approval or marketing authorization for the relevant product in any way.

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

The Best Pharmaceuticals for Children Act provides an additional six months of marketing exclusivity for new or marketed drugs for certain pediatric testing conducted at the written request of the FDA. The Pediatric Research Equity Act authorizes FDA to require pediatric studies for drugs and biological products to ensure the drugs' or products' safety and effectiveness in children. This Act required that new NDAs, BLAs or supplements to NDAs or BLAs contain data assessing the safety and effectiveness for the claimed indication in all relevant pediatric subpopulations. Dosing and administration must be supported for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant deferrals for submission of data, or full or partial waivers.

We may seek the benefits of additional orphan, exclusivity, patent term extension, or fast track provisions, with respect to ZADAXIN but we cannot assure that we will be able to obtain any such benefits.

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

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

We are also subject to various federal, state and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with research work and preclinical and clinical trials and testing. The extent of government regulation that might result from future legislation or administrative action in these areas cannot be accurately predicted and could prevent or delay regulatory approval of any of our products.

The level of revenues and profitability of pharmaceutical companies may be affected by the continuing efforts of governmental and third party payors to contain or reduce the costs of health care through various means, including the extent and availability of reimbursement. We are unable to predict when any proposed health care reforms will be implemented, if ever, or the effect of the implemented reforms on our business. Our ability to commercialize future products will depend in part on the extent to which coverage and reimbursement for the products will be available from government and health administration authorities, private health insurers, and other third-party payors.

Our ability to successfully commercialize our products may depend in part on the extent to which coverage and reimbursement to patients for our products will be available from government health care programs, private health insurers and other third-party payors or organizations. Significant uncertainty exists as to the reimbursement status of new therapeutic products, such as ZADAXIN. In most of the markets in which we are currently approved to sell ZADAXIN, reimbursement for ZADAXIN under government or private health insurance programs is not yet widely available, and in many of these countries government resources and per capita income may be so low that our products will be prohibitively expensive. In the United States, Europe and Japan, proposed health care reforms could limit the amount of governmental or third-party reimbursement available for our products should they be approved for sale in these markets. Various governments and third-party payors are trying to contain or reduce the costs of health care through various means. We expect that there will continue to be legislative efforts and proposals to implement such government controls.

As of March 9, 2005, the executive officers of the Company, who are elected by and serve at the discretion of the Board of Directors, were as follows:

Alfred R. Rudolph, M.D. has served as our Chief Operating Officer since 1998. In July 2004, Dr. Rudolph and Mr. Waldron were appointed jointly to the Office of the President. Dr. Rudolph has over 30 years of experience in the biopharmaceutical industry. Since joining us in April 1997, Dr. Rudolph has been responsible for the clinical, research, regulatory, manufacturing, and quality assurance functions of our Company. Before joining us, Dr. Rudolph was President and Chief Operating Officer of Neptune Pharmaceuticals, Inc., a marine-based natural product screening company. Previously, Dr. Rudolph was Senior Vice President of T Cell Sciences, Inc., Director of Clinical Operations at Cetus Corporation, and Clinical Assistant Professor of Medicine at University of California, San Francisco. He began his pharmaceutical career with Bristol Myers, where he worked in cancer drug development. Dr. Rudolph earned a B.S. in Electrical Engineering from the University of Rochester, and completed his medical training in Hemotology-Oncology at Syracuse University.

Richard A. Waldron has served as our Chief Financial Officer since 2001. In July 2004, Mr. Waldron and Dr. Rudolph were appointed jointly to the Office of the President. Mr. Waldron has over 20 years of experience in the finance and management of biotechnology companies. Prior to joining us in March 2001, he was Vice President and Chief Financial Officer from June 1999 to August 2000 for Genelabs Technologies, Inc. and from July 1995 through March 1999, he was Vice President and Chief Financial Officer of GeneMedicine, Inc. From 1990 to 1995, he was a managing director and the head of finance for technology-based companies at Rauscher Pierce Refsnes, Inc., an investment banking firm. From 1985 to 1990, he was a senior vice president responsible for health care investment banking at Cowen & Company. Mr. Waldron received his M.B.A. degree with honors from Harvard University and his A.B. degree magna cum laude in Economics from Princeton University.

Hans P. Schmid has served as Managing Director for SciClone Pharmaceuticals International Ltd. since July 2004. He previously served as Vice President, Finance, Administration and Business Development since joining SciClone in May 2001. He has over 25 years of financial and pharmaceutical experience in the U.S. and international markets. Prior to joining SciClone, Mr. Schmid was Chief Financial Officer from December 1999 to April 2001 for Questcor Pharmaceuticals, Inc. and Senior Vice President, International Business Development from February 1997 to September 1999 for Oread, Inc., a contract pharmaceutical company. From 1985 to 1997 he worked at Syntex Corporation as Vice President of Finance and Administration for Pharmaceutical Operations Asia/Pacific region and at F. Hoffmann-LaRoche as Senior Vice President, Finance and Head of Administrative Services for Roche Bioscience. Previously he held financial and operational positions with Itel Corporation in Germany, Japan, England and the United States. He received his B.A. degree from the Commercial Trade School, Lucerne, Switzerland, and has studied International Business Management and Finance at San Francisco State University.

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

We currently lease approximately 22,000 square feet of office space at our headquarters in San Mateo, California and limited office space in Beijing, Hong Kong, Shanghai, Singapore, Tokyo and Sao Paulo. We believe that our existing facilities will be adequate for our current needs and that additional space will be available as needed.

None

No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2004.

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

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

We have not paid any dividends on our common stock during the fiscal years ended December 31, 2004, 2003, and 2002 and currently intend to retain any future earnings for use in our business.

The information required by Item 201(d) of Regulation S-K is incorporated by reference from the section entitled "Equity Compensation Plan Information" in Part III, Item 12 of this Form 10-K.

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

                                                                    Year Ended December 31,
                                               --------------------------------------------------------------------
                                                   2004          2003          2002          2001          2000
                                               ------------  ------------  ------------  ------------  ------------
Statement of Operations data:                                                                                      
Product sales................................ $ 22,765,000  $ 31,732,000  $ 17,101,000  $ 13,831,000  $ 15,357,000
Contract revenue.............................    1,631,000       806,000       671,000            --            --
                                               ------------  ------------  ------------  ------------  ------------
    Total revenues...........................   24,396,000    32,538,000    17,772,000    13,831,000    15,357,000
Cost of product sales........................    4,577,000     5,636,000     3,487,000     2,742,000     3,113,000
                                               ------------  ------------  ------------  ------------  ------------
Gross margin.................................   19,819,000    26,902,000    14,285,000    11,089,000    12,244,000
                                               ------------  ------------  ------------  ------------  ------------
Operating expenses:
Research and development.....................   17,994,000    18,949,000    11,647,000     8,561,000     4,182,000
Sales and marketing..........................    9,665,000     9,018,000     8,724,000     8,764,000     7,720,000
General and administrative...................    6,311,000     4,134,000     3,902,000     3,897,000     3,538,000
                                               ------------  ------------  ------------  ------------  ------------
    Total operating expenses.................   33,970,000    32,101,000    24,273,000    21,222,000    15,440,000
                                               ------------  ------------  ------------  ------------  ------------
Loss from operations.........................  (14,151,000)   (5,199,000)   (9,988,000)  (10,133,000)   (3,196,000)
Income from payment on note receivable from
  former officer.............................           --            --            --     3,497,000       400,000
Interest and investment income(1)............    1,285,000       266,000       323,000       751,000     1,066,000
Interest expense.............................     (361,000)     (361,000)     (361,000)     (334,000)      (36,000)
Other income (expense), net..................      (51,000)       19,000       (11,000)      (13,000)       49,000
                                               ------------  ------------  ------------  ------------  ------------
Net loss..................................... $(13,278,000) $ (5,275,000) $(10,037,000) $ (6,232,000) $ (1,717,000)

Basic and diluted net loss per share......... $      (0.30) $      (0.13) $      (0.29) $      (0.19) $      (0.06)
                                               ============  ============  ============  ============  ============
Weighted average shares used in computing
  basic and diluted net loss per share.......   44,626,337    39,568,199    35,002,003    32,356,287    29,904,924
                                               ============  ============  ============  ============  ============

                                                                                                                   
                                                                           December 31,
                                               --------------------------------------------------------------------
                                                   2004          2003          2002          2001          2000
                                               ------------  ------------  ------------  ------------  ------------
Balance Sheet data:                                                                                                
Cash, cash equivalents and investments....... $ 51,299,000  $ 62,975,000  $ 21,150,000  $ 16,468,000  $ 22,497,000
Working capital..............................   55,427,000    72,950,000    29,116,000    26,930,000    30,281,000
Total assets.................................   69,709,000    83,822,000    37,111,000    32,096,000    36,167,000
Other long-term liabilities..................    1,044,000       900,000            --            --            --
Total stockholders' equity...................   55,123,000    68,250,000    23,354,000    22,774,000    28,077,000
Convertible notes payable....................    5,600,000     5,600,000     5,600,000     5,600,000     4,000,000