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Friday, September 05, 2008 Refer to Appendix for important disclosure information Susquehanna Financial Group, LLLP, Member FINRA Biotechnology

Jason Kolbert SciClone Pharmaceuticals Rating: Neutral 212-514-4875 - [email protected] SCLN: $1.42 Price Target: N/A Brian Skorney SPIL Creates a Valuation Floor, but Can Zadaxin Succeed? 212-514-4897 - [email protected] Initiating Coverage with a Neutral Rating SciClone Pharmaceuticals We are initiating coverage of SciClone Pharmaceuticals with a Neutral rating. Our rating is SCLN $1.42 driven by our concerns for the outcome of the Sigma Tau EU trial for Zadaxin. We do Rating Neutral believe that the existing value of SPIL (SciClone Pharmaceutical International China Price Target N/A Limited), where Zadaxin is expected to reach $50 mln in top-line revenue this year, does 52-Week Range $1 - $3 justify a higher valuation; however, we believe investors are ignoring the value in SPIL in Mkt Cap $* $65.3 front of the Zadaxin outcome expected soon. Based on our analysis of the data, we Enterprise Value $* $49 believe that if statistical significance is reached, it will be only minimally so, and as such, Shares Outstanding* 46 we are not very enthusiastic for the outcome. We do believe a positive outcome opens the Avg Daily Vol 51 door for commercialization in Europe by Sigma Tau (SciClone picks up a manufacturing Net Cash Per Share 0.47 margin) and creates a partnership opportunity for U.S. rights. The problem we face with * mln the current Sigma Tau trial is that just a few patients can sway the outcome of the trial either way. We conclude that the therapeutic effect of Zadaxin in HCV (Genotype 1, non- FY Ends: December responders) is minimal, at a time when treatment options are expanding dramatically with EPS ($) 2007A 2008E Prior 2009E Prior direct-acting antivirals. We believe the better opportunity for the company is the pursuit of 1Q (0.01) (0.12) (0.07) 2Q (0.06) (0.01) (0.06) Zadaxin in metastatic melanoma, where Phase II results show potential, as well as 3Q (0.07) (0.07) (0.06) developing its earlier stage pipeline products and building its SPIL subsidiary. Based on 4Q (0.08) (0.08) (0.06) these latter events, shares may appear undervalued, but we believe investors should wait FY (0.22) (0.27) (0.25) until Zadaxin EU data is available before building a position in the stock. FY Rev* 37 51 64 HIGHLIGHTS * $ mln • $50 million plus in sales in 2009, mostly from SPIL. Zadaxin is currently sold in SCLN Share Price (LTM) more than 35 countries worldwide, but the bulk (>90%) of its sales comes from SciClone’s subsidiary in China, SPIL. We estimate net margins are close to 50%. Zadaxin is approved in China for Hepatitis B and a variety of other indications (such as surgical prophylaxis and others). Of interest is that generic Zadaxin is available at one- fifth its price in China, yet it still shows strong growth (15-20% CAGR) based on brand recognition and the quality message created by the SPIL sales force. We view Zadaxin’s China sales as an engine to fund U.S. development of the product. We also note the impressive patient experience base (Zadaxin has been prescribed for ~100,000 patients to date), and it is widely considered a safe and active agent/immunomodulator. We believe the current value of the SPIL franchise limits the downside risk against a negative outcome for the current EU trial (Sigma Tau trial in indicates split Hepatitis C). Positive Factor Source: SFG Research and company reports • Zadaxin – a TLR9 plus. Zadaxin is believed to operate partly through a TLR-9 mechanism and partly through another channel that we review in this report. Zadaxin is currently being developed for both Hepatitis C and metastatic melanoma with development partner Sigma Tau. Results of Sigma’s Phase III EU trial are expected this fall. We review our concerns regarding the current trial in the bullets below, but suffice it to say that the outcome of the Zadaxin trial is going to be very close and will hang on a few patients. There appears to be zero margin for error. Regardless of the outcome of the Sigma Tau trial, we believe the company’s best options lay in the pursuit of a pivotal trial in metastatic melanoma. Neutral Factor • 2008: a pivotal year for the company. The outcome of the European (Sigma Tau) trial for Zadaxin is around the corner and represents the next milestone for the company. Zadaxin has failed two prior U.S. trials, but we believe the trial design was at fault (based on incorrect Interferon treatment assumptions and a changing SOC environment). The bad news is that we still have reservations regarding the current clinical trial design and execution, which we review in great detail in this report. We believe that if Zadaxin does meet its primary endpoint with statistical significance it could play a modest role in the physician’s HCV treatment armamentarium and, more importantly, opens up a partnering window for U.S. rights. Neutral Factor • Success with the current EU trial leads to a U.S. trial. We believe that, short of an overwhelmingly clear signal (which we absolutely do not expect), the FDA will request a confirming U.S. pivotal trial (one trial if the Sigma Tau trial succeeds, likely two if the current trial misses its primary endpoint). The earliest we would expect to see Zadaxin

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in the U.S. marketplace for Hepatitis C would be in 2012. However, we note that Zadaxin could be approved in the EU based on the one Sigma Tau trial alone. SCLN benefits from Sigma Tau’s approval, as the company stands to receive what is essentially a manufacturing royalty (we assume ~15%), which will further contribute resources to the development of Zadaxin in the U.S. Neutral Factor • We are hopeful for a favorable outcome for Zadaxin, but success hinges on a handful of patients. We recently learned as part of our diligence effort that the current EU HCV non-responder trial (all patients have failed a pegylated IFN + Ribavirin) was designed to be all genotype 1 patients; however, the trial includes a significant number of non-genotype 1 patients (we estimate 75 out of 478). The problem is that the re-treatment response rate for non-genotype 1 patients is significantly higher vs. genotype 1, and the treatment effect for Zadaxin may be lower in genotypes 2/3. In essence, this new variable raises the trial risks of failure. Should Zadaxin fail in the Sigma Tau trial, we believe it becomes folly for the company to continue to pursue U.S. approval in HCV. Negative Factor • We have undertaken our own statistical analysis of the most recent interim data set; it will be a “close call” either way. Based on the company’s February interim data, 65 SVRs reported across both trial arms (patients population = 553), we see the outcome as being close. We are concerned that the trial may be underpowered to see a small therapeutic effect. Figures 20A and 20B review our analysis of a few scenarios: SVRs by drug vs. control arm and by genotype 1 vs. genotype 2/3, aggregate SVR percentages, and associated probabilities of success. We conclude from this analysis that based on our assumptions of what to expect for control SVR rates, the trial outcome has a slight positive skew of reaching statistical significance (see Scenario 1A, Figure 20A). This conclusion is based on a patient population in the trial that includes ~14% genotypes 2/3, which have historically significantly higher background SVR rates with SOC vs. genotype 1 patients. The assumptions that we make regarding which re-treatment response rate to use for genotype 1 vs. 2/3 is critical to the analysis. Based on three sources, Schering-Plough’s own review of the EPIC 3 study, the EMEA review of that same study, and the Jacobsen 2005 study, we see a wide range of baseline response rates: genotype 1: 2-8% (EASL), 4% (EASL audit), and 8.6% (Jacobson), and genotypes 2/3: 0-57% (EASL), 10% (EASL audit), and 27.3% (Jacobson). If the SVR rate for the control considering all genotypes (1, 2, and 3) is less than 9%, which in turn demands that the SVR rate for genotype 1 patients only in the control is less than 6.7%, we can conclude that Zadaxin is showing a statistically valid therapeutic effect. However, if these thresholds are exceeded, the Zadaxin Sigma Tau trial is unlikely to meet statistical significance (see Figure 20A, 20B). Negative Factor • Hepatitis C: Zadaxin could be a factor in changing the standard of care . . . We believe immunomodulation therapy without side- effects could become a key ingredient to future SOC in Hepatitis C that will include direct acting antiviral therapies (DAAV). In previous industry reports, we have discussed the efforts of other companies in this direction, such as Anadys, Romark, GlobeImmune, and Scynexia. However, SciClone/Sigma Tau is now engaged in a pivotal trial, and we consider SciClone the frontrunner in the immunomodulation field for HCV. We believe that with stakes so high in Hepatitis C, a variety of pharma partners could show interest to partner Zadaxin as part of an overall HCV product strategy. Positive Factor • . . . But the standard of care is a moving target. With SVR rates for prior treatment failures approaching ~40-50% for telaprevir, and GlobeImmune and Anadys (ANA773) developing potentially interferon-sparing HCV therapies, we wonder rhetorically whether SciClone/Sigma Tau have run the correct trial. With the SOC potentially changing so quickly in both DAAV and traditional interferon- based approaches, even a successful Zadaxin trial outcome later this year would not be interpreted as a “free pass” to a successful commercial therapy for HCV non-responders. Of concern is the scenario that Zadaxin scarcely meets its primary endpoint in the current Sigma Tau trial and, as a result, SciClone encounters slow enrollment rates in a pivotal U.S. Phase III trial because patients would prefer a randomized trial where they have a 50% chance of receiving telaprevir (or another DAAV) on top of SOC, versus a marginally effective Zadaxin on top of SOC. If this trend were to take hold, it could eventually result in the non-responder market being further split, restricting Zadaxin utility to SOC and telaprevir/other DAAV treatment failures. Negative Factor • Melanoma – efficacy without side-effects is key. The current Phase II data from Sigma Tau has been encouraging. The data demonstrated that in an LDH normal patient subset, doses at 3.2 mg Zadaxin + DTIC showed a median progression free survival of 14.4 months vs. SOC (DTIC + Interferon alpha) at 10.8 months (p=0.015, significant). These study results are encouraging and will form the basis for a pivotal U.S. trial. The company expects to receive an SPA prior to commencing the trial (expected to begin by year end). We believe that Zadaxin’s potential in metastatic melanoma could surpass the drug’s prospects in HCV. We caution, however, that in metastatic melanoma, the playing field is also changing rapidly, with Synta’s elesclomol a potentially SOC-shifting therapy. Positive Factor • Other products. RP101 is a nucleoside analog with the potential to prevent induction of resistance to chemotherapy, as well as induce apoptosis of cancer cells. The drug has been granted Orphan Drug Designation by the FDA for the adjunct treatment of pancreatic cancer, which, if approved, will allow for market exclusivity in the United States. RP101 is currently approved in several European countries for antiviral indications. SCLN acquired exclusive rights in April 2007 from Resistys, Inc. for the development and commercialization of RP101 in the U.S. and Canada. We view the molecule as promising but early stage, and therefore, we do not include any sales in our current forecast. Neutral Factor • SciClone plans to launch and commercialize DC Bead in China for the treatment of liver cancer in 2H08. DC Bead is an embolic agent with the capability of delivering a chemotherapeutic agent directly to the tumor. Liver cancer is one of the most prevalent and deadly forms of cancer in China, accounting for more than 300,000 deaths each year. We forecast a modest $10 mln in sales by 2012. Positive Factor • SPIL (SciClone China). SciClone Pharmaceuticals International China or “SPIL” China is a subsidiary of SciClone. SciClone’s China operation has developed over the past 12 years into a well-defined business entity with >150 sales representatives and relationships with >500 hospitals. The subsidiary has grown Zadaxin sales from $4 mln in 1998 to an estimated $46 mln in 2008, resulting in operating income of approximately $21 mln. We expect to see the launch of new products and/or product acquisitions to continue to build the company’s revenue in China. We believe that China alone justifies the company’s present valuation, but we have concerns with the possible outcome of the Zadaxin trial, and, as such, there may be an opportunity to build a position in the stock at a more distressed valuation (negative outcome of Sigma Tau trial) driven by the value inherent in SPIL. Positive Factor

Susquehanna Financial Group, LLLP Biotechnology 3

VALUATION We value SciClone using a sum of the parts analysis and a discounted EPS metric. In the sum of the parts valuation, we anticipate the Zadaxin launch for HCV in the U.S. marketplace in 2012 (pending a new confirming U.S. Phase III trial); however, we assign a 25% probability to the overall clinical success of Zadaxin in Hepatitis C, given the uncertainties of the current Sigma Tau trial (if the trial misses its primary endpoint, two Phase III trials would likely need to be conducted in the U.S.). We assume launch of Zadaxin in metastatic melanoma in 2012, with a higher 50% overall chance of success given the promising Phase II signals. Near-term upside will depend on the outcome of Sigma Tau’s current EU pivotal trial in HCV, which we believe is a risky proposition. Our sum of the parts valuation credits SCLN with $2.88 per share for China alone, which does suggest upside to the story; however, the model cannot reflect the psychological impact of a negative outcome (and the associated risk) for the Zadaxin trial. In the SOP model, we assign $0.23 (sales plus royalties), and $0.88 per share to Zadaxin HCV and metastatic melanoma, respectively, bringing the SOP valuation to $4.83 (including $0.47 cash per share). Using a discounted EPS metric, we arrive at a similar valuation of $5.51 per share. However, we believe investors should wait until Zadaxin EU data is available before building a position in the stock. RISKS The current EU trial (Zadaxin in Hepatitis C) fails to meet its primary endpoint, and the melanoma trial is slow to begin and enroll. SciClone China sales slow down and the company is forced to raise capital at unfavorable terms. On the more positive side, as we discuss in our thesis, the SigmaTau EU trial for Zadaxin in HCV could meet its endpoint. DISCUSSION SciClone Pharmaceuticals had its initial public offering in March 1992. The company was created to develop Thymalfasin, a TLR-9 immunomodulator that is in development for the treatment of Hepatitis C and several indications in oncology. Sixteen years later, the story has developed with many twists and turns, but the company’s goal remains the development of Thymalfasin, the brand name of which is Zadaxin. The company currently employs approximately 165 people, with 26 in the United States and the balance in foreign offices (with the majority in China). SciClone has a business development relationship with Sigma Tau, which is developing Thymalfasin for both Hepatitis C and metastatic melanoma in Europe. One aspect of the relationship includes SciClone contributions to Sigma’s R&D efforts in exchange for data rights; however, SciClone will also be supplying Zadaxin and will make a healthy manufacturing margin on all product sold. SciClone also will be able to use Sigma’s EU data as part of its U.S. filing strategy in Hepatitis C. In metastatic melanoma, we note that both companies will be jointly developing Zadaxin. SCLN’s corporate structure is relatively straightforward. In our model, we account for Sigma Tau’s sales with a royalty that covers “manufacturing.” We also show a corporate tax line in our model that is associated with product sales in China (Chinese/Hong Kong) taxes. Figure 1. Corporate Structure of SciClone

Source: SciClone General Company Overview Zadaxin is currently approved in more than 35 countries (in Italy as a vaccine adjuvant), and most recently in Russia (Hep B and C). The principal sales (estimated to be close to $45 mln in 2008) are in China, where it is sold for a variety of indications, from surgical prophylaxis (immunomodulation) to a treatment for Hepatitis B (the approved label). Interestingly, in 2003, as cases of SARS were breaking out in China, the demand for Zadaxin soared. The company donated product for prophylactics use of hospital personnel, and in doing so it established goodwill with the Chinese Government that still exists today. In China, there is no intellectual property regulation, and Zadaxin faces several generic versions; however, it still sells at an 80% price premium based on its brand/quality reputation that the company has built over the past several years.

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Zadaxin is principally being developed to treat the Hepatitis C virus (HCV) and in oncology (metastatic melanoma). Sigma Tau, SciClone’s development partner in the EU, is currently engaged in a pivotal trial in Hepatitis C and is planning to begin a pivotal study in metastatic melanoma. Other cancer indications are being explored as well. Results are expected by year end from the current EU Hepatitis C non- responders (genotype 1) trial. A central question we ask is that if Zadaxin meets statistical significance in the Sigma Tau trial and is approved in the EU, what role might it fill in the changing landscape? We currently expect the Hepatitis C treatment paradigm to shift over the coming decade as DAAVs become a reality, and in surprising news at the EASL meeting this year, we learned that telaprevir has shown significant efficacy in HCV non-responders (SVR12 50%). As such, we feel that Zadaxin in HCV non-responders, if approved, would have a tough time competing against DAAV therapies. One might assume that Zadaxin could be used as part of a regimen to treat DAAV re-treatment failures. Another role may ultimately become Zadaxin use as part of an interferon-sparing regimen. We believe Zadaxin is well suited to these roles, as it has a benign side-effect profile (thus far, no adverse effects of significance in any of its clinical trials have been recorded). Zadaxin could be an attractive candidate for partnership in the U.S. by any company currently interested in the Hepatitis C treatment space – which is essentially every large pharma company. As for metastatic melanoma, we believe Zadaxin holds significant potential in this indication. Given the benign AEs profile (unlike current therapies, such as DTIC or others in development, such as Medarex’s MDX-010), we believe that if efficacy is shown in a pivotal trial, the drug would be widely used by oncologists. In addition to Zadaxin, SciClone has earlier pipeline candidates: RP101, for the treatment of pancreatic cancer (potential to prevent induction of resistance to chemotherapy), and SCV-07, an early stage antiviral target for HCV. Further, SciClone China is set to launch DC Bead for the treatment of liver cancer in China during 2H08. DC Bead is a drug delivery embolization system intended for use in hypervascularized tumors, and its sales will supplement the company’s revenue stream from Zadaxin. We know that SciClone’s China sales force is ready and capable of marketing additional products beyond Zadaxin. Figure 2. Five-Year Company Stock Chart

SCLN 5 Year Price Chart

$9.00

$8.00 US Trials fails to meet primary endpoints.

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Figure 3. SCLN Product Pipeline Product Candidate Target Indication Partner Location FY07A FY08E FY09E FY10E FY11E FY12E FY13E ZADAXIN (thymalfasin) increases immune response Hepatitis B Virus China & Int'l Mkt'd - China and other locations DC Bead Liver Cancer (HCC) China III Launch (mid-year) ZADAXIN (thymalfasin) increases immune response Chronic HepC Sigma Tau - EU only EU & US III III Launch (mid-year) ZADAXIN (thymalfasin) increases immune response Malignant Melanoma US II II III NDA Launch SCV-07 Hep C Virus US I/II II II III III RP101 Pancreatic Cancer US & CanadaII II II III III III NDA DC Bead Liver Cancer (HCC) China III Launch (mid-year) Source: SciClone and SFG Research Financials The company currently has approximately $21 mln in cash and receivables of $17 mln, virtually no debt, and 46 mln shares are outstanding. Annual revenue this year should reach $50 mln vs. a burn rate (COGS, R&D, SG&A) of $63 mln for a net loss of $13 mln. The majority of SciClone’s current sales (~95%) come out of China (that revenue is broken out by the company) and report approximately 50% associated gross margin. As such, we see China as a key engine to fund current U.S. development programs for Zadaxin in HCV and melanoma.

Susquehanna Financial Group, LLLP Biotechnology 5

Figure 4. Catalysts Table Product Indication Event Timing Significance Zadaxin Hepatitis C Phase III Top-line Data for HCV in EU 3Q08 +++ Zadaxin Metastatic Melanoma Start of Phase III study in N=1,000 patients, SPA, mortality endpoint 2H-08 + DC Bea HCC Launch in China 2H08 + SCV-07 Hepatitis C POC data in HCV, genotype I failures 2H08 + SCV-07 Hepatitis C File CTA 2H08 + RP101 Pancreatic Cancer Full enrollment (n=153) of Phase II Pancreatic Cancer Trial - U.S. 1H09 + RP101 Pancreatic Cancer Top-Line (Phase II) data: RP101 + Gemzar vs. Gemzar 2010 + China In-license Product TBD 2009 +

Stock Significance Scale: + of moderate importance; ++ higher level; +++ highly Source: SFG Research and Company reports Valuation. In the case of SCLN, valuation models have little value, as near term, we expect the company’s value will be driven by the outcome of the Sigma Tau EU Hep C trial for Zadaxin. We choose to be Neutral on the stock as we believe the outcome of the trial is very much at risk. We provide a sum of the parts analysis and discounted EPS metrics to get a handle on some aspect of fundamental values. In the sum of the parts valuation, we anticipate the Zadaxin launch for HCV in the U.S. marketplace in 2012 (pending a new confirming U.S. Phase III trial); however, we assign a 50% probability to the overall clinical success of Zadaxin in Hepatitis C, given the uncertainties of the current Sigma Tau trial (if it fails, two Phase III trials would need to be run in the U.S.). We assume introduction of Zadaxin in metastatic melanoma in 2012, also with a 50% overall chance of success. We expect near-term upside will depend on the outcome of Sigma Tau’s current EU pivotal trial; however, bear in mind that increasing Zadaxin’s sales modeled in our long-range forecasts would be expected to result in long-term trending-up of the SCLN valuation over time independent of the outcome of Sigma Tau’s trial. Therefore, note that our sum of the parts valuation credits SCLN with $2.88 per share for China alone, which one could argue justifies the current trading levels and a Positive rating, but we are concerned that a negative outcome of the Sigma Tau trial would create a further distressed valuation. In the SOP model, we go on to assign $0.23 (sales plus royalties) and $0.88 per share to Zadaxin HCV and melanoma sales, respectively, bringing the SOP valuation to $4.83 (including $0.47 cash per share). Using a discounted EPS metric, we arrive at a similar valuation of $5.51 per share, but both of these models fail to completely anticipate the impact of a negative outcome of the Sigma Tau trial. In the sum of the parts model (Figure 5), we create the following assumptions: • We assume that China sales will peak at $75 million (this is likely driven mostly by Zadaxin, but other products such as DC Bead and new products yet to be acquired). These figures could prove low given recent growth trends with Zadaxin (approaching $45 mln this year in an environment where growth is occurring in the presence of several generic versions). We believe the infrastructure that the company has created is ready to market new products, and we do expect DC Bead as well as product acquisitions to contribute to future sales. • Zadaxin is approved in Europe, and SciClone essentially collects a manufacturing margin/royalty on EU sales. The $0.16 figure assumes a 50% probability of success. As we explain in this report, we believe the interim look suggests that Zadaxin has about a 50/50 chance of meeting its endpoint in the European trial. • Zadaxin HCV – U.S.: We assume SciClone will not be able to file in the U.S. on the EU trial data (if successful) and will be required to run a second confirming U.S.-based clinical trial. The probabilities of success are reduced if the Sigma Tau trial fails and SciClone is required to run two U.S. Phase III trials for Zadaxin. Hence, overall, we assume a 25% chance of success, with peak sales of $49 mln as per our market model. One might also argue that the peak sales figure is too low. We obtain this number by only including market share in HCV newly diagnosed patients of non-responders. The practical reality is that Zadaxin, if proven to work, likely has a role to play in the broader HCV audience. • Zadaxin metastatic melanoma – U.S.: We assume peak sales of $213 mln per our market model, which contributes $0.88 per share to our SOP. We assign a 50% overall probability to the success of this program given the encouraging Phase II data from Sigma Tau that will form the basis for a pivotal U.S. trial (expected to begin by year end). • Other revenue: We have modest input for other revenue that may include RP101, Zadaxin sales in Russia, and other ex U.S. countries, as well as in-license deals and partnership revenue. SOP conclusion. Currently, the majority of the value in SCLN is tied to sales in China; however, we see Zadaxin sales in China as just one component of the SCLN story. We believe that China alone can justify investment in SCLN shares, but we are concerned that a negative outcome of the EU trial would create a further distressed valuation for the company. Given the potential “tug-of-war” between disparate parts of the company, we believe a Neutral valuation is warranted. In other words, we believe the real potential in SCLN will be driven by the outcome of Zadaxin in Europe (near term) and its ability to be developed for the U.S. marketplace in HCV and metastatic melanoma.

Susquehanna Financial Group, LLLP Biotechnology 6

Figure 5. Sum of the Parts and Discounted EPS Valuation Metrics SCLN-Sum of the Parts LT Gr Disct Rt Yrs. to Mkt % Success Peak Sales MM'sTerm Val ZADAXIN - China & Curr Indications 3% 20% 0 100.0% $75 $441.18 NPV $2.88 ZADAXIN - HCV, EU "royalty" 3% 35% 1 50% $21 $65.64 NPV $0.16 ZADAXIN - HCV - US 3% 35% 4 25% $49 $152.66 NPV $0.07 ZADAXIN - MM, US 3% 35% 3 50% $213 $666.15 NPV $0.88 Other Revenue 5% 20% 5 25.0% $25 $166.67 NPV $0.11 Net Margin 30% MM Shrs OS 46.0 Total $4.36 Net Cash/Shr $0.47 Grand Total $4.83 Mkt cap. $222.19

Source: SFG Research EPS valuation model. In the EPS model, we assume “everything” is successful. Our methodology here is to evaluate revenue timeline, potential, associated expenses, and forecast the income statement. The inputs on individual product sales, such as Zadaxin in HCV in the EU, are derived from an EU-HCV model, which is part of the overall model. The valuation variables that we then layer on top of these assumptions are an EPS multiple and discount rate. We note that this model does not account for expansion of Zadaxin sales outside the markets defined, such as Russia and other countries. We also are not building into our model partnership deals and/or license revenue, which could create additional upside. We arrive at a discounted EPS valuation of $5.51, which is in-line with our earlier SOP metric. Valuation conclusion. Taken together, the $5.51 EPS and $4.83 SOP valuation metrics suggest we should have a Positive rating for SCLN shares, but we believe the outcome of the Zadaxin trial (a binary event) lies in front of the stock, and while our analysis of the probabilities does have a slightly favorable statistical skew, we believe “a few patients” either way can sway the outcome of the trial. As such, it is impossible to call. Only the actual clinical trial data will reveal the outcome. As such, we are most comfortable waiting for the outcome before recommending investors build a position in the stock.

Current Year 2008 Discount Rate Varies, Year Constant Enter Year to Calculate DCF from EPS 2013 2013 EPS Enter Earnings Multiple 30 $5.51 10% 15% 20% 25% 30% 35% Enter Discount Factor 35% 5 $2.56 $2.05 $1.65 $1.35 $1.11$ 0.92 Selected Year EPS$ 0.82 10 $5.11 $4.09 $3.31 $2.70 $2.22$ 1.84 NPV $ 5.51 Earnings 15 $7.67 $6.14 $4.96 $4.05 $3.33$ 2.75 20 $10.22 $8.18 $6.62 $5.39 $4.43$ 3.67 Multiple 25 $12.78 $10.23 $8.27 $6.74 $5.54$ 4.59 30 $15.33 $12.28 $9.92 $8.09 $6.65$ 5.51 35 $17.89 $14.32 $11.58 $9.44 $7.76$ 6.42 40 $20.44 $16.37 $13.23 $10.79 $8.87$ 7.34 Source: SFG Research Thymalfasin Zadaxin (thymalfasin), often referred to in medical literature as thymosin alpha 1 or T α1, is a peptide that has been evaluated for its immunomodulatory activities and related therapeutic potential in several diseases, including chronic Hepatitis B and C, acquired immunodeficiency syndrome (AIDS), primary immunodeficiency diseases, depressed response to vaccination, and cancer. The basis for effectiveness in these conditions is primarily through modulation of immunological responsiveness, as Zadaxin has been shown to have beneficial effects on numerous immune system parameters and to increase T-cell differentiation and maturation. This report summarizes data from clinical experience conducted with Zadaxin in more than 3,000 patients, in addition to studies conducted in vitro and to in vivo animal studies. Zadaxin should also be considered to act through activation of toll-like receptors pathway (TLR-9). Dr. Wen-Ming Chu, Assistant Professor of Molecular Microbiology and Immunology at Brown University, presented data on Zadaxin’s MOA. “Our study suggests that Zadaxin is able to elicit changes in gene expression, in both the immune system and virally infected cells, by promoting the activity of the nuclear transcription factor NF-kB through a pathway that includes the stimulation of toll-like receptors (TLRs) and their signaling pathway through the molecules TRAF-6 and IKKB. NF-kB plays a pivotal role in mediating the cellular response against viral infections and certain cancers.” (Source: Presentation of Zadaxin Mechanism of Action at American Association of Immunologists Conference, April 2005.) SciClone explains Zadaxin as a synthetic version of the naturally occurring peptide thymosin alpha 1, generically referred to as thymalfasin. The company’s previous studies have demonstrated that Zadaxin is able to elicit both immunomodulatory responses as well as direct antiviral effects. Zadaxin helps increase the production of CD-4, CD-8, and natural killer cells both by stimulating stem cell differentiation and by reducing T-cell apoptosis, or programmed cell death. Moreover, Zadaxin is able to shift the body’s immune response toward a T

Susquehanna Financial Group, LLLP Biotechnology 7 helper 1 (Th1) directed response by increasing the expression of Th1 cytokines, such as interleukin-2 (IL-2), that are associated with the eradication of virally infected and certain cancer cells. Zadaxin also appears to reduce the production of Th2 cytokines, such as interleukin- 4 (IL-4), which are often associated with persistence of infection. Zadaxin also is able to increase expression of surface-marker proteins (antigens), such as MHC class 1 molecules, on virally infected and certain cancer cells. These surface markers enable the body’s immune system to recognize and target virally infected and cancer cells for eradication. All of these effects can now be explained to result from the intracellular pathway revealed by Dr. Chu. Figure 6. Zadaxin Therapeutic Status Worldwide – Approved in More Than 35 Countries, with Russia Recently Added Location Indication Status Argentina, Azerbaijan, Brunei, Cambodia, China, Dominican Republic, India, Chronic Hepatitis B Currently Marketed Indonesia, Kuwait, Kyrgyzstan, Laos, Malaysia, Maldives, Malta, Mexico, Pakistan, Peru, Philippines, Singapore, Sri Lanka, Thailand, Ukraine, United Arab Emirates, Uzbekistan, Venezuela, Vietnam Argentina, Dominican Republic, Mexico Peru, Philippines, Singapore, Sri Chronic Hepatitis C Currently Marketed Lanka, Thailand, Ukraine, Venezuela Philippines Cancer Currently Marketed (adjuvant to chemotherapy) Argentina, Brazil, China, Dominican Republic, Hong Kong, Italy, Korea, Vaccine Adjuvant Currently Marketed Mexico, Myanmar, Philippines, Thailand, Uzbekistan Argentina, Bahrain, China, Dominican Republic, Hong Kong, Italy, Mexico, Influenza Vaccine Currently Marketed Philippines, South Korea, Thailand Adjuvant Brazil, Georgia, Myanmar, Peru Immunostimulant Currently Marketed Russia, Bangladesh, Kazakhstan, New Zealand Chronic Hepatitis B Registrations Filed Thailand Cancer Adjuvant Registration Filed Taiwan Chronic Hepatitis B Completed Phase III Europe Malignant Melanoma Phase II U.S. Liver Cancer Phase II Source: SciClone Zadaxin thymosin alpha 1, or thymalfasin, is marketed in many countries around the globe as a safe and effective treatment for chronic Hepatitis B when used alone or in combination with interferon (see Figure 6). Research indicates that Zadaxin may be useful in treating a number of other diseases as well, including Hepatitis C, non-small cell lung cancer, melanoma, and HIV/AIDS. In addition, Zadaxin is also indicated as a vaccine adjuvant to enhance the effectiveness of influenza and Hepatitis B vaccines. Viral Hepatitis B and C, diseases that afflict more than 500 million people worldwide, may lead to the development of liver cancer and cirrhosis. This is all consistent with our knowledge of other immune system modulators and our understanding of toll-like receptors. Zadaxin – Dual Mechanism of Action Zadaxin has a number of immunomodulatory activities, as well as direct influences on virally infected or cancerous cells. This dual mechanism of action is summarized and partially explained in the sections that follow. Figure 7. Zadaxin Mechanism of Action, Graphically Depicted (by SciClone)

Source: SciClone International

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Zadaxin seems to be able to stimulate an immune response by way of increased stem cell differentiation into certain lymphocytes (white blood cells) known as CD-4 and CD-8 cells. The CD-4 cells are particularly important in fighting viral infections, as they secrete cytokines (including IL-4, IL-2, and gamma interferon), which are small molecules that aid in eliciting a full immune response. Increased cytokine production leads to an up-regulation of MHC (major-histocompatability complex) molecules on the cell surface of the virally infected cells. MHC molecules present viral peptides to the lymphocytes, which further facilitates the immune response by allowing these lymphocytes to identify and interact with the virally infected cells, leading to their eventual destruction. The importance of increased immune activity in the case of virally infected cells is analogous in cancer cells, where the immune system’s response is suppressed by the cancer. Importantly, the administration of synthetic versions of cytokines has been common in the treatment of cancers, but has been less desirable because of deleterious side-effects, such as systemic inflammation. Clinical trial data appears to indicate that thymalfasin does not result in this side- effect profile. In fact, no severe adverse events were observed in any of the clinical trials of thymalfasin to date. As described on the SCLN international web site: “Zadaxin builds up the immune system by 1) Stimulating differentiation of stem cells (the cells that can produce virus fighters in the immune system); 2) Increasing the number of virus-fighting T cells – including CD4, CD8, and natural killer cells – that come from stem cells; 3) Slowing down the breakdown and removal (apoptosis) of T cells, which are the cells primarily responsible for the cellular immune response; 4) Increasing the number of helper cells (Th1 cells) that fight chronic viral infection; 5) Increasing the production of proteins (called cytokines) that help in the action and creation of more T cells in the immune response process. The particular proteins are interleukin-2 (IL-2) and interferon gamma (IFN-γ); and 6) Decreasing the production of the cytokines interleukin-4 (IL-4) and interleukin-10 (IL-10), which are counterproductive in the fight against chronic viral infections. Zadaxin directly targets virally infected or cancer cells by 1) Increasing the number of surface-marker proteins (MHC Class 1) that are responsible for identification and rejection of foreign agents, like viruses, from the body; 2) Slowing down the replication of viruses; and 3) Decreasing oxidative stress, which dramatically decreases viral replication.” Chemical Properties of Zadaxin Zadaxin (thymalfasin), originally isolated as a natural substance from thymus tissue, is a pure, synthetic amino-terminal acylated peptide of 28 amino acids (molecular weight 3,108 Daltons; see Figure 8). Some early studies utilized a partially purified thymic preparation (thymic fraction 5 or TF5) that contained about 1% thymalfasin; however, most studies have utilized synthetic preparations of Zadaxin made by solid phase peptide synthesis. Figure 8. Primary Structure of Thymalfasin

Source: SciClone Pharmaceuticals Intellectual Property Rights and Worldwide Rights SciClone has several method of use patents for thymalfasin, the most important of which are for Hepatitis C and melanoma. Composition of matter patents have expired. In HCV, the company has a method of use patent that covers the use of a triple therapy of thymalfasin, pegylated interferon, plus ribavirin in most key countries, including the United States, Europe, Australia, and Russia. These patents expire in 2021. For melanoma, SciClone, with partner Sigma Tau, filed applications in 2006 and 2007 for patents covering the use of thymalfasin in combination with DTIC in the United States and Europe, and has begun the application process in several other countries. SciClone expects to get the typical 20-year protection for these applications. Currently, Zadaxin is generically available in China, with no less than three generic brands selling their product at one-fifth the price of Zadaxin. SciClone has U.S. rights and “rest of world” rights outside of EU countries, where Sigma Tau has rights. Sigma Tau is one of the largest pharmaceutical companies in Italy. In the late 1990s, the company acquired rights to Zadaxin from Sclavo S.p.A. Today, the company is sharing information in a co-development project with SciClone for development of Thymosin-alpha1, which is being investigated in Hepatitis C, metastatic melanoma, and liver cancer. SciClone shares a modest amount of costs associated with these programs (approximately $2.5 mln in funding, $2 mln of which has been paid already), and the company will owe a $1.5 mln payment milestone on completion of the trial report in exchange for data sharing and use rights. Sigma Tau has rights to Thymosin-alpha 1 in major European countries, plus Normandy, Iceland, and Switzerland. SciClone retains rights to Eastern EU countries and rest of world. Sclavo S.p.A. originally had European rights to thymalfasin in the 1990s. SciClone re-acquired these rights back from Sclavo, and later licensed European rights to Sigma Tau in Rome, Italy. Orphan Status in Malignant Melanoma Zadaxin has been granted Orphan Drug Designation for the treatment of stage IIb through stage IV malignant melanoma by the U.S. Food and Drug Administration (FDA). Orphan Drug Designation could provide SciClone (and partner Sigma Tau) with seven years of market exclusivity in the United States should Zadaxin receive regulatory approval from the FDA for the treatment of malignant melanoma. SciClone and Schering-Plough Japan In the early 1990s, shortly after SciClone went public, the company signed a deal with Schering-Plough Japan to develop thymalfasin there as an adjuvant with Interferon therapy. At that time, interferon itself had only recently been discovered as a therapy for Hepatitis C and

Susquehanna Financial Group, LLLP Biotechnology 9 much was unknown about dosage, genotype, etc. (it was early days). Schering-Plough’s internal development capabilities in Japan left something to be desired, and the regional subsidiary essentially bungled the development of thymalfasin. As a result, SciClone sued Schering-Plough, and in 2006 a settlement was reached whereby SciClone received $8 mln from Schering-Plough Japan. While SciClone has no immediate plans to develop Zadaxin in Japan, those rights remain both an asset and a viable partner option today. SPIL (SciClone International Pharmaceuticals Limited); Zadaxin in China Zadaxin was launched in China in 1996. The brand is well established today with $45 mln in sales expected in 2008. The company has 140 medical representatives on the ground in China today and boasts relationships with more than 500 hospitals in China. Zadaxin is used mainly by liver specialists, but its use is spreading with oncology specialists and intensive care physicians as a broad immunostimulant. Geographically, the company plans to expand into China’s second- and third-tier cities. We are forecasting double-digit sales growth of approximately 15% (five-year CAGR) in China. Figure 9. Zadxin Sales and Profit in China: A Capital Source to Fund U.S. Development 2004 2005 2006 2007 2008E Zadaxin (Mln) China Sales $21 $26 $30 $34 $46 Operating Profit $10 $13 $15 $17 $21 % of Sales 48% 49% 50% 49% 46% Source: SciClone

Figure 10. Company Presentation Slide: Overview of SCLN’s Operations in China SciClone Positioned for Growth

• Successful launch of ZADAXIN brand (thymalfasin) in 1996 • Established sales and marketing business • Importation and extensive distribution channels • >120 dedicated Chinese medical representatives • Relationships with >500 hospitals • Strong presence in liver disease, cancer and intensive care • Expansion of clinical, regulatory and business development efforts

Source: SciClone Thymalfasin – Hepatitis C We see potential in Zadaxin, which is now being developed for Hepatitis C. Zadaxin may show promise as an interferon and/or ribavirin sparing drug when added to future therapies for Hepatitis C that are likely to include DAAVs. In the pages that follow, we review the market opportunity, clinical status, and timeline projections that enable us to construct a market model. Hepatitis C Epidemiology Hepatitis C is a viral infection of the liver. The Hepatitis C virus (HCV), a blood-borne virus, was first identified in 1989 as the non-A, non-B virus. Until the introduction of a highly sensitive anti-HCV test in 1992, there was no effective screening for the virus in the blood supply; during the prescreening period, the CDC estimates that about 230,000 people were newly infected with HCV each year from blood transfusions and blood products. Left untreated, about 20% of infected individuals eventually develop liver cirrhosis, and 10% of these develop serious decompensated liver disease or hepatocellular carcinoma. HCV infection is the primary cause of liver transplantation (more than half of all liver transplants) and the primary cause of death in 8,000 to 12,000 people each year. Today, the annual number of new infections has declined sharply to 35,000 cases per year as a result of implementation of effective testing, greater awareness of blood-borne infection risks, and the need for “safe sex” and avoidance of needle-sharing practices that were common in the pre-AIDS culture of the 1970s and 1980s. Nevertheless, in developed countries, the majority of persons with chronic Hepatitis C infection are current and former injecting drug users (Figure 11).

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Figure 11. Sources of HCV Infection Unknown Nosocomial, healthcare work, 5% perinatal 18%

Sexual 18% Injection Drug Use 68%

Source: Alter MJ et al. N Engl J Med . 1999;341:556-562 At present, about 3% of the world’s population is infected with HCV (Figure 12). Disease prevalence varies greatly in different parts of the world. Developed countries have a generally lower prevalence at 1-3%. The World Health Organization (WHO) estimates that worldwide there are 170 mln chronic HCV carriers, with 3-4 mln new cases diagnosed each year. We can put these figures into perspective by comparing them to the 40 mln worldwide infected with HIV. In Europe, the prevalence rate is more than double that of the U.S. at 8.9 mln; however, new infection rates are also expected to fall, as Europe implemented testing and reporting programs in the mid-1990s. The Eastern Mediterranean and Southeast Asian regions are estimated to harbor 21.3 million and 32.3 million cases, respectively. Figure 12. Worldwide Prevalence of Hepatitis C

Africa, 32 mln

W. Pacific, 62.2 mln

Americas, 13 mln

E. Mediterranean, 21 mln

Europe, 8 mln S.E. Asia 32.3 mln

Source: World Health Organization The U.S. market for HCV is large and underserved, with 5 mln individuals being chronically infected. Only 1.25 mln of those chronically infected have been diagnosed; of these, an estimated 500,000 are receiving treatment. Although the incidence of HCV has dramatically decreased since the early 1990s, the pool of infected persons is expected to continue to increase until peaking around 2015. As such, analysts are projecting the Hepatitis C market to quadruple over the next few years (Figure 13). Figure 13. Future Prevalence of HCV Projected HCV Market ($ mln)

$10,000.00 $9,000.00 $8,000.00 $7,000.00 $6,000.00 $5,000.00

Market $4,000.00 $3,000.00 $2,000.00 $1,000.00 $0.00 2006 2007 2008 2009 2010 2011 2012

Sources: SFG Research; Alter MJ et al. N Engl J Med . 1999;341:556-562

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The majority of the chronically infected individuals acquired the HCV infection during the 1960s to 1980s and are expected to significantly increase the morbidity, mortality, and costs of HCV disease over the next two decades. As such, the majority of those treated for the disease will be aged 30-49 years of age, with Blacks and Hispanics disproportionately affected (Figure 14). Figure 14. Prevalence of HCV-Infected: NHANES III Data

7.0 Blacks 6.0

5.0 Hispanics 4.0 3.0

Prevalence Whites 2.0 1.0

0.0 6-11 12-19 20-29 30-39 40-49 50-59 60-69 >=70 Age (y)

Sources: SFG Research; Alter MJ et al. N Engl J Med . 1999;341:556-562

Figure 15. Hepatitis C Market Potential

Source: SFG Research; Edlin B. Abstract presented at 56th AASLD meeting, November 11-15, 2005, San Francisco, California Clinical Status – Evolving Standard of Care “Doomed” Early Zadaxin Trials to Fail In the late 1990s, the standard of care for Hepatitis C therapy was still evolving rapidly. Interferon (in the mid-1980s) had been accepted as standard of care, and ribavirin and “PEG” IFNs would only arrive by the millennium. As a result, the early trials with Zadaxin in the 1990s were really exploratory in nature, as no one really understood what the patient dynamics, genotypes, and impact of immunomodulators would be on these patients. We have come to believe that with hindsight, a successful outcome for the early Zadaxin trials would have been a bit of a miracle, as the variables in the trial equation were not well understood. Still, these early trials did reveal many hints of efficacy and formed the basis for the current pivotal trial being run by Sigma Tau today, described below. Therapeutic Index – A Side Note Interestingly, the current dose schedules are originally based on some work done by Hoffman LaRoche (1979) when thymalfasin fraction 5 was used as a vaccine adjuvant. It was determined that 10% was actually thymalfasin – alpha 1, so that drove the dosing decision (which has been set at 1.6 mg). Current Study: Thymalfasin – Phase III Combination Trial Protocol for HCV A Phase III, multi-center, double-blind, randomized trial is nearly completed in n=553 HCV genotype 1 non-responders. The trial has been run in Europe by Sigma Tau. Patients have been randomized in a 1:1 ratio to either thymalfasin or placebo, where all patients received the standard of care (SOC: pegylated interferon-alpha and ribavirin). At 48 weeks of treatment, patients have been monitored twice during an observation period of 24 weeks, at week 60 and 72. The trial’s primary endpoint is sustained viralogic response (SVR), or the absence of HCV RNA measured at week 72. Secondary endpoints include the normalization of ALT (an enzyme whose increased levels indicate inflammation and/or liver damage) at weeks 48 and 72, absence of HCV RNA at week 48, and an improved liver biopsy. As of June 26, 2008, all patients have completed the trial, and all patients (responders) have had 24 weeks of follow-up. Unblinded data from the trial is expected in 4Q08.

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Thymalfasin – Phase III Triple Therapy Trial for HCV – Interim Blinded Results Unblinded trial results were released in February 2008 indicating that 171/553 patients responded to treatment (see Figure 16). Of the 171 responders, 150 had completed the 24-week follow-up period at week 72. Of the n=150 responder patients that were observed at 72 weeks, 54 patients achieved a sustained viralogic response (SVR). It has not been indicated whether these patients were on thymalfasin or in the control group. Full trial results are expected 3Q08. Figure 16. Trial Layout and Results from February 2008 Interim Look

Source: SciClone The data above shows that after 48 weeks of therapy, 171 patients (of the original n=553 patients enrolled) showed an end of treatment response, or ETR. From these 171 patients, we know that 150 had completed the trial and 54 of those achieved an SVR at week 72. From the remaining 21 patients who showed an ETR, 19 have reached the first follow-up at week 60, and 12 of those 19 have negative or no HCV RNA titers at this point. Typically with this trial design and protocol, 90% of patients showing no HCV RNA titers at week 60 become SVRs at the final follow up at week 72, the end of the trial. The last two patients have not yet reached the week 60 follow-up point. Based on these February 2008 interim results, we can begin to project possible outcomes for the trial data to be reported in 3Q08. Assumptions for Trial Conclusion and SFG Statistical Analysis In our meeting with SciClone management, they have shared with us possible outcomes based on what is known today from the interim look above. We have also conducted an independent analysis to better understand the possible outcomes of the trial. It is known that the trial is not purely genotype 1 individuals. Specifically, 478 (86.4%) are genotype 1, whereas 75 (13.6%) are genotypes 2, 3, or 4. The presence of genotype 2/3 individuals raises additional complexity and concern regarding the outcome of the trial, as the SVR rates under standard of care in genotypes 2 and 3 are typically significantly higher than 3-8% for historical controls quoted in the SciClone slides (see Figure 21). This raises the bar for the success of the trial, as we do not expect to see nearly as pronounced a treatment effect in genotype 2/3 individuals vs. genotype 1 individuals. To estimate the SVR rates historically in genotypes 1 and genotypes 2/3, we have consulted several sources. We have some guidance from the Schering-Plough EPIC-3 data released at EASL in April 2008 (Figure 17). We have also consulted the official EMEA review of the EPIC-3 trial as an additional audit of the data released by Schering-Plough. Third, we consulted the data published by Jacobson in 2005 (Jacobson IM, Gonzalez SA, Ahmed F, Lebovics E, Min A, et al.: A randomized trial of pegylated interferon alfa-2b plus ribavirin in the retreatment of chronic Hepatitis C. Am J Gastroenterol 2005; 100:2453-2462). Let us first examine the EASL data (Figure 17). Among prior non-responders, there is a striking disparity between SVR rates in genotype 1 (2-8%, maroon box) versus SVR rates in genotypes 2/3 (0% to 57%, blue box). We do caution that the absolute number of genotype 2/3 individuals is low (n=10), so the figures are somewhat less reliable than for genotype 1. Nonetheless, the results do suggest an average SVR in genotype 2/3 non-responders in the ~35-45% range.

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Figure 17. SVR Rates in Prior Non-Responders and Prior Relapsers by Genotype, from EPIC-3 Study

Source: T. Poynard, et al. and the EPIC3 Study Group. Sustained Viral Response Is Dependent On Baseline Characteristics In The Re-treatment Of Previous Interferon/Ribavirin Non-responders: Final Results From The EPIC3 Program. 43rd EASL Conference April 2008. Let us now turn to the EMEA audit of the above EASL data set (see Figure 18). The audit corroborates the approximate range for the SVR rate in genotype 1 non-responders (2-8%, see red box in Figure 18 → 4%). However, there is a significant discrepancy between EMEA’s audit for the genotype 2/3 individuals and the original EASL data. Note that only 10% (1/10, red box) of genotypes 2/3 display an SVR by EMEA’s measures. We imagine that the audit removed patients who were not true non-responders, either being reclassified as relapsers or non-compliant patients (note that total patient count decreased from n=196 [green box in Figure 18] in the EASL data for Peg-2a to n=172 [green box] after the audit). Figure 18. EMEA Review of EPIC-3 Study Data

Source: http://www.emea.europa.eu/humandocs/PDFs/EPAR/Pegintron/H-280-PI-en.pdf We sought a third metric to attempt to garner the best estimate for the SVR rate in genotype 2/3 non-responders. The Jacobson study comparing different dosing regimens of the SOC therapy (IFN/RBV) provides an additional guideline. Note that this study was not purely non-responders and contained 55/321 prior relapsers. Therefore, when interpreting the data below in Figure 19, we need to make some assumptions to correct the SVRs reported to attempt to reflect only non-responders. Let’s examine Figure 19 (Table 4 from the Jacobson 2005 American Journal of Gastroenterology paper), focusing on the maroon box. They reported a re-treatment SVR of 14% (42/295) for genotype 1, and 31% (8/26) for genotypes 2/3. We will assume that the distribution of prior relapsers among genotype 1 and genotypes 2/3 is in proportion to their respective representation in the trial (i.e., (295/321) × 55, or 51 prior relapsers in genotype 1 and (26/321) × 55, or 4 prior relapsers in genotypes 2/3). Secondly, we know that from Table 2 of their paper (not shown here) that 23 of the reported 50 SVRs were derived from prior relapsers. For simplicity, we will assume that two of the SVRs from prior relapsers were genotype 2/3, and therefore the remaining 21 SVRs from prior relapsers were genotype 2/3. Using this analysis, we reduce the SVR of 14% (42/295) for genotype 1 to (42 – 21)/(295 – 51), or 8.6% (21/244). Similarly, we reduce the SVR of 31% (8/26) for genotype 2/3 to (8 – 2)/(26 – 4), or 27.3% (6/22). This procedure gives us a reasonable estimate for the non-responder SVR rates by genotype in the Jacobson study.

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Figure 19. SVR Rates from 2005 Jacobson Study

Source: Jacobson IM, Gonzalez SA, Ahmed F, Lebovics E, Min A, et al : A randomized trial of pegylated interferon alfa-2b plus ribavirin in the re-treatment of chronic Hepatitis C. Am J Gastroenterol 2005; 100:2453-2462 In summary, we have established historical ranges/point estimates of SVRs for genotype 1 at 2-8% (EASL), 4% (EASL audit), and 8.6% (Jacobson) using three different assessments, estimates which are in-line with a commonly accepted ~6% overall SVR rate in genotype 1 non-responders on SOC. We have established historical ranges/point estimates of SVRs for genotypes 2/3 at 0-57% (EASL), 10% (EASL audit), and 27.3% (Jacobson) using three different assessments. We are now in a position to construct a statistical analysis of the range of trial outcomes (see Figures 20A, 20B). Based on what we know from the interim look, there were about 65 SVRs, corresponding to approximately 12% of the total n=553 patients who participated in the trial, and the trial was randomized 1:1 drug to control. We also know that 86.4% (478) are genotype 1 and 13.6% (75) are genotypes 2/3, from company reports. To estimate the approximate breakdown of SVRs by genotype, we will use the established historical ranges/point estimates as guidelines. For genotype 2, the range is quite large, and we select an intermediate value (~25%) as a starting point to begin our analysis, yielding 19 SVRs in genotypes 2/3. We then vary the number of SVRs in the genotype 1 control arm, maintaining total SVRs at 65. These results are presented as Scenario 1A in Figure 20A. The key take-away is that above an SOC SVR rate of ~6.7% for genotype 1, the trial loses significance (yellow row). As the historical SVR rates for genotype 1 encompass the 6.7% cut-off, the outcome of the trial is uncertain. In the Scenario 1B of Figure 20A, we model an increased treatment effect in genotype 2/3 patients. As would be expected, there are more ways in which the trial can succeed, but again the requirement for success is that the SOC SVR rate in genotype 1 not exceed ~7.11% (slightly less stringent). In Scenarios 2A and 2B presented in Figure 20B, we examine the possibility that the SOC SVR rates in the genotype 2/3 patients are more in line with the figures reported at EASL than the EASL audit or the Jacobson study. In this set of scenarios, it becomes much more difficult for the trial to work.

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Figure 20A. Statistical Analysis of Sigma Tau Trial Outcomes (Scenarios 1A, 1B) OVERALL Gen. 1 Gen. 2/3 TRIAL PROFILE 86.4% 13.6% DRUG 277 239 38 SOC 276 239 37

Scenario 1A: In this scenario, w e rely on our estimate established in the text that ~ 24% (9 out of the expected 37 genotype 2/3 patients on SOC) w ould be expected to show an SVR on SOC therapy. We further assume that thymalfasin has minimal treatment effect in genotypes 2/3 and therefore an SVR of ~ 26% is assumed for the genotype 2/3 drug arm (10 out of 38 genotype 2/3 patients). Together this yields 19 SVRs amongst genotype 2/3 patients and as 65 SVRs are predicted in total, 65 - 19 or 46 SVRs amongst genotype 1 patients. To complete the analysis, w e then systematically vary the proportion of patients in the SOC and DRUG arms for genotype 1 patients, from a strong treatment effect (10 SVRs on SOC, 36 SVRs on drug) dow n to no treatment effect (23 SVRs on SOC, 23 SVRs on drug), w hile leaving the total SVR count for genotype 1 patients unchanged at 46.

Analysis: The trial loses significance ( red p-values) w hen the spread betw een the aggregate (genotypes 1 and 2/3) SVR percentages for the SOC and drug arm falls below 5.38 % (14.44% - 9.06%, yellow row ). If w e focus exclusively on SVR percentages amongst genotype 1 patients, the trial loses significance w hen the spread betw een the genotype 1 SVR percentages for the SOC and drug arm falls below 5.86 % (12.55% - 6.69%, yellow row ).

Conclusion: For the trial to succeed, the SVR rate in genotype 1 patients on SOC cannot exceed 6.7 %. As the historically accepted figure for SVR rates for SOC in genotype 1 non-responders is ~ 6%, th bottom line is that the trial skew ed slightly tow ards a positive outcome .

SVR RAW COUNTS SVR % AGGREGATE SVR % Fisher's Exact Genotype 1 (46 SVRs) Genotype 2/3 (19 SVRs) Reported Genotype 1 Genotype 2/3 Test SOC DRUG SOC DRUG SVRs SOC DRUG SOC DRUG SOC DRUG p-value 10 36 9 10 65 4.18% 15.06% 24.32% 26.32% 6.88% 16.61% 2.732E-04 11 35 9 10 65 4.60% 14.64% 24.32% 26.32% 7.25% 16.25% 7.272E-04 12 34 9 10 65 5.02% 14.23% 24.32% 26.32% 7.61% 15.88% 1.796E-03 13 33 9 10 65 5.44% 13.81% 24.32% 26.32% 7.97% 15.52% 4.126E-03 14 32 9 10 65 5.86% 13.39% 24.32% 26.32% 8.33% 15.16% 8.834E-03 15 31 9 10 65 6.28% 12.97% 24.32% 26.32% 8.70% 14.80% 1.767E-02 16 30 9 10 65 6.69% 12.55% 24.32% 26.32% 9.06% 14.44% 3.307E-02 17 29 9 10 65 7.11% 12.13% 24.32% 26.32% 9.42% 14.08% 5.806E-02 18 28 9 10 65 7.53% 11.72% 24.32% 26.32% 9.78% 13.72% 9.581E-02 19 27 9 10 65 7.95% 11.30% 24.32% 26.32% 10.14% 13.36% 1.490E-01 20 26 9 10 65 8.37% 10.88% 24.32% 26.32% 10.51% 13.00% 2.188E-01 21 25 9 10 65 8.79% 10.46% 24.32% 26.32% 10.87% 12.64% 3.043E-01 22 24 9 10 65 9.21% 10.04% 24.32% 26.32% 11.23% 12.27% 4.020E-01 23 23 9 10 65 9.62% 9.62% 24.32% 26.32% 11.59% 11.91% 5.062E-01 Scenario 1B: This scenario is identical to Scenario 1A in all respects, except that w e reduce slightly our estimate for the SVR rate for genotype 2/3 patients on SOC to ~ 22% (this translates to 8 out of 37 genotype 2/3 patients) in order to model a greater treatment effect amongst genotype 2/3 patients. As the total number of SVRs for genotype 2/3 patients is held constant at 19, w e obtain 11 SVRs amongst genotype 2/3 patients on drug or a ~ 29% SVR rate (11 out of 38). To complete the analysis, w e then systematically vary the proportion of patients in the SOC and DRUG arms for genotype 1 patients, from a strong treatment effect (10 SVRs on SOC, 36 SVRs on drug) dow n to no treatment effect (23 SVRs on SOC, 23 SVRs on drug), w hile leaving the total SVR count for genotype 1 patients unchanged at 46.

Analysis: The trial loses significance ( red p-values) w hen the spread betw een the aggregate (genotypes 1 and 2/3) SVR percentages for the SOC and drug arm falls below 5.38 % (14.44% - 9.06%, yellow row ). How ever, if w e focus exclusively on SVR percentages amongst genotype 1 patients, the trial now loses significance w hen the spread betw een the genotype 1 SVR percentages for the SOC and drug arm falls below 5.02 % (12.13% - 7.11%, yellow row ), indicating that the greater treatment effect amongst genotypes 2/3 requires a low er spread in genotypes 1 to reach overall significance.

Conclusion: For the trial to succeed, the SVR rate in genotype 1 patients on SOC cannot exceed 7.1 % (slightly less stringent than Scenario 1A) and here the trial is skew ed a bit more favorably to a positive outcome , given the historically accepted figure for SVR rates for SOC in genotype 1 non-responders of ~ 6%.

Susquehanna Financial Group, LLLP Biotechnology 16

Figure 20B. Statistical Analysis of Sigma Tau Trial Outcomes (Scenarios 2A, 2B) OVERALL Gen. 1 Gen. 2/3 TRIAL PROFILE 86.4% 13.6% DRUG 277 239 38 SOC 276 239 37 Scenario 2A: We model a scenario w here the SVR rate on SOC for genotypes 2/3 is more closely aligned w ith the EASL abstract results than either the EASL audit or the Jacobson study, and use a figure of ~ 38% (w hich translates into 14 out of 37 patients). We further assume that thymalfasin has minimal treatment effect and therefore an SVR of ~ 39% is assumed for the genotype 2/3 drug arm (this translates to 15 out of 38 genotype 2/3 patients). Together this yields 29 SVRs amongst genotype 2/3 patients and as 65 SVRs are predicted in total, 65 - 29 or 36 SVRs amongst genotype 1 patients. To complete the analysis, w e then systematically vary the proportion of patients in the SOC and DRUG arms for genotype 1 patients, from a strong treatment effect (10 SVRs on SOC, 26 SVRs on drug) dow n to no treatment effect (18 SVRs on SOC, 18 SVRs on drug), w hile leaving the total SVR count for genotype 1 patients unchanged at 36.

Analysis: The trial loses significance ( red p-values) w hen the spread betw een the aggregate (genotypes 1 and 2/3) SVR percentages for the SOC and drug arm falls below 5.38 % (14.44% - 9.06%, yellow row ). How ever, if w e focus exclusively on SVR percentages amongst genotype 1 patients, the trial loses significance w hen the spread betw een the genotype 1 SVR percentages for the SOC and drug arm falls below 5.86 % (10.46% - 4.60%, yellow row )

Conclusion: For the trial to succeed, the SOC SVR in genotypes 1 cannot exceed 4.60 % (versus 6.69% in Scenario 1A and 7.11 % in Scenario 1B). Unsurprisingly, the trial is skew ed tow ards a negative outcome w hen the SOC SVR rate for genotypes 2/3 is boosted to ~ 38%, given the historically accepted figure for SVR rates for SOC in genotype 1 non-responders of ~ 6%.

Scenario 2B: This scenario is identical to Scenario 2A in all respects, except that w e reduce slightly our estimate for the SVR rate for genotype 2/3 patients on SOC to ~ 35% (this translates to 13 out of 37 genotype 2/3 patients) in order to model a greater treatment effect amongst genotype 2/3 patients. As the total number of SVRs for genotype 2/3 patients is held constant at 29, w e obtain 16 SVRs amongst genotype 2/3 patients on drug or a ~ 42% SVR rate (16 out of 38). To complete the analysis, w e then systematically vary the proportion of patients in the SOC and DRUG arms for genotype 1 patients, from a strong treatment effect (10 SVRs on SOC, 26 SVRs on drug) dow n to no treatment effect (18 SVRs on SOC, 18 SVRs on drug), w hile leaving the total SVR count for genotype 1 patients unchanged at 36.

Analysis: The trial loses significance ( red p-values) w hen the spread betw een the aggregate (genotypes 1 and 2/3) SVR percentages for the SOC and drug arm falls below 5.38 % (14.44% - 9.06%, yellow row ). How ever, if w e focus exclusively on SVR percentages amongst genotype 1 patients, the trial now loses significance w hen the spread betw een the genotype 1 SVR percentages for the SOC and drug arm falls below 5.02 % (10.04% - 5.02%, yellow row ), indicating that the greater treatment effect amongst genotypes 2/3 requires a slightly low er spread in genotypes 1 patients to reach overall significance.

Conclusion: For the trial to succeed, the SOC SVR in genotypes 1 cannot exceed 5.02 % (versus 6.69% in Scenario 1A and 7.11 % in Scenario 1B). Despite the slightly greater treatment effect in genotypes 2/3, the trial is nonetheless skew ed tow ards a negative outcome w hen w hen the SOC SVR rate for genotypes 2/3 is ~ 35% , given the historically accepted figure for SVR rates for SOC in genotype 1 non-responders of ~ 6%.

SVR RAW COUNTS SVR % AGGREGATE SVR % Fisher's Exact Genotype 1 (36 SVRs) Genotype 2/3 (29 SVRs)Reported Genotype 1 Genotype 2/3 Test SOC DRUG SOC DRUG SVRs SOC DRUG SOC DRUG SOC DRUG p-value 10 26 13 16 65 4.18% 10.88% 35.14% 42.11% 8.33% 15.16% 8.834E-03 11 25 13 16 65 4.60% 10.46% 35.14% 42.11% 8.70% 14.80% 1.767E-02 12 24 13 16 65 5.02% 10.04% 35.14% 42.11% 9.06% 14.44% 3.307E-02 13 23 13 16 65 5.44% 9.62% 35.14% 42.11% 9.42% 14.08% 5.806E-02 14 22 13 16 65 5.86% 9.21% 35.14% 42.11% 9.78% 13.72% 9.581E-02 15 21 13 16 65 6.28% 8.79% 35.14% 42.11% 10.14% 13.36% 1.490E-01 16 20 13 16 65 6.69% 8.37% 35.14% 42.11% 10.51% 13.00% 2.188E-01 17 19 13 16 65 7.11% 7.95% 35.14% 42.11% 10.87% 12.64% 3.043E-01 18 18 13 16 65 7.53% 7.53% 35.14% 42.11% 11.23% 12.27% 4.020E-01 Source: SFG Research SciClone’s Trial Analysis We now comment on the analysis of the trial outcomes prepared by SciClone. SciClone, in its presentation slides (see Figure 21), reports historical values of SVR rates at 3-8%. This is correct with respect to genotype 1, but does not properly account for the inclusion of ~14% genotypes 2/3 in the trial. For example, examining our analysis (Figure 20A, Scenario 1A) reveals that the aggregate SVR rate for the SOC arm ranges from ~6.9-11.6% and that the corresponding SVR for the treatment group ranges from 16.6% down to 11.9%, whereas the SciClone analysis reports a higher range, 20% down to 15% (the blended rates of 11.75% obviously match our analysis, as we are working off 65 SVRs also). These comments suggest that one should interpret the SciClone slide (Figure 22) cautiously, as the historical and expected aggregate SVR rates in the trial could be much closer than the graphic indicates. For instance, we have graphed the aggregate SVR rates corresponding to Scenario 1A of Figure 20 to summarize our findings (Figure 23, right panel). As shown graphically, the trial loses significance when the aggregate SVR rate in the SOC arm exceeds ~9.1% (white box).

Susquehanna Financial Group, LLLP Biotechnology 17

We have also graphed the SVR rates for genotype 1 patients alone, also corresponding to Scenario 1A of Figure 20 (Figure 23, left panel). As shown graphically, the trial loses significance when the SVR rate in genotype 1 SOC patients exceeds 6.7% (white box). Figure 21. SciClone Modeling Assumptions on the Data Suggest a 15-20% SVR vs. Historical Controls at 3-8%

Source: SciClone

Figure 22. Given the Blinded Interim Data and the 3-8% SVRs from Historical Control Trials, the Possible Scenarios for Final Data from the Phase III Trial Suggests an SVR between 15% and 20%; We Expect To See the Unblinded Data/Final Data from this Trial in 3Q08

Source: SciClone

Figure 23. SFG Statistical Analysis of Sigma Tau Trial Outcomes, Scenario 1A

Source: SFG Research

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PRIOR CLINICAL TRIALS AND CLINICAL HISTORY Two Prior Pivotal (U.S.) Trials: #803 and #804 In December 2005 and May 2006, SciClone reported final results from its two U.S. Phase III trials in (n=500) HCV non-responder patients split across two arms, a SOC (at that time, Peg-IFN alpha vs. PEG-IFN alpha + Zadaxin). Results from the first trial did not show a statistically significant benefit from treatment with Zadaxin and pegylated interferon-alpha compared to treatment with pegylated interferon alone in sustained viral response (SVR) or histologic improvement, the trial’s co-primary endpoints. Similarly, results from the second trial (in HCV patients with Cirrhotic liver disease) did not show a statistically significant benefit from treatment with Zadaxin plus pegylated interferon-alpha compared with pegylated interferon-alpha alone in SVR rates. Zadaxin was well tolerated, with few reports of significant side-effects or toxicities. It is believed today that the studies were underpowered and that patient entry criteria were not well distinguished between HCV non-responders and relaspers. Trial Designs and Background Trial #803 : A trial based on a duration of 48 weeks of therapy of either Zadaxin (1.6 mg, twice a week) and pegylated interferon alfa (180 mcg, once a week), or placebo and pegylated interferon alfa followed by a 24-week observation period. The primary endpoint: SVR-24 and an improvement in the liver histological activity index assessed by liver biopsy at week 72. “Although not statistically significant, 4% (10/269) of patients treated with Zadaxin plus pegylated interferon alfa achieved an SVR compared with only 2% (5/265) of patients treated with pegylated interferon alfa-2a (Pegasys) alone. No significant difference in histological improvement was observed between the patients treated with Zadaxin plus pegylated interferon alfa and those patients treated with pegylated interferon alfa alone.” (Source: SciClone.) “All patients included in the trial had failed prior interferon-based treatment for Hepatitis C virus, and had no cirrhosis of the liver. More than 75% of the patients enrolled in the trial were non-responders to the combination of interferon alfa (either regular or pegylated) and ribavirin, and were infected with the genotype 1 strain of the virus. Additionally, most patients in the trial had a high viral load or greater than 850,000 copies per ml (or 5.93 log10) of the Hepatitis C virus.” (Source: SciClone.) Variables that contributed to the trial missing its endpoint relate to lack of trial power and great variability as to the true nature of non- responder patients. For example, it is likely that some of the prior non-responders were never treated for complete duration in their first therapy course. As a result, the historical percentage on non-responders (usually very low) was probably higher than expected in the control arm, which narrowed the gap between active and control. The same is true for trial #804 below. Remember that neither of these trials included a true standard of care (for failures, as we know it today, that is, peg-IFN and ribavirin). Zadaxin as an immunomodulator is expected to have a benefit to the most immune-compromised patients (HCV failures, non-responders). If the true patient population was mixed, then one would conclude that the trial design has a negative bias against the active arm. Trial #804 : HCV patients in this second U.S. Phase III clinical trial received a 48-week course of therapy of either Zadaxin (1.6 mg, twice a week) and pegylated interferon-alpha (180 mcg, once a week), or placebo and pegylated interferon-alpha followed by a 24-week observation period. The trial’s primary endpoint was the achievement of SVR at week 72. Results from its second U.S. Phase III Hepatitis C virus (HCV) trial evaluated the benefit of adding Zadaxin to pegylated interferon-alpha treatment for HCV patients with early cirrhosis of the liver who failed prior therapy. Final results indicate that treatment with Zadaxin plus pegylated interferon-alpha did not demonstrate a statistically significant improvement compared with treatment with pegylated interferon- alpha alone in sustained virologic response (SVR), the trial’s primary endpoint. Zadaxin was generally well tolerated, with no treatment- related toxicities or side-effects. So why continue forward? One reason: because a 2005 pilot study did show promise. In 2005, positive results of a pilot study of thymalfasin plus pegylated interferon- alpha plus ribavirin in n=40 non-responder patients with HCV were released. The non-responding patients had been treated previously with non-pegylated interferon-alpha and ribavirin. Results of the pilot study with thymalfasin showed a 22% SVR for genotype 1 non-responder patients. A separate, unrelated trial of genotype 1 non-responder patients re-treated with pegylated interferon-alpha plus ribavirin resulted in only a 5% SVR rate, indicating the 22% SVR observed in the thymalfasin trial was not a consequence of the pegylated interferon alone. As a result of this study, it was decided to move to a larger pivotal trial that could provide statistically validated data of thymalfasin’s activity. Secondly, the EU trial is structured differently from the earlier failed U.S. trials in two important ways: 1) patients in the EU trial are being treated with ribavirin (which was really an emerging therapy when the U.S. pivotal trials were designed) in addition to Zadaxin and pegylated interferon-alpha (the only two drugs used in SciClone’s U.S. Phase III trials); and 2) Patients in this trial are previous non- responders to the combination of pegylated interferon-alpha plus ribavirin, compared with the diverse group of non-responder patients who were enrolled in the U.S. Phase III trials (non-responders to any interferon-based therapy). Modeling Assumptions for Thymalfasin in HCV Thymalfasin is currently marketed as Zadaxin in various territories and for several indications, yet SCLN gains the predominant portion of its Zadaxin revenue (~95%) from China. We anticipate that sales in China will continue at approximately a five-year 15% CAGR. We project that Zadaxin could gain approval in the EU (2009) for treatment of the non-responder HCV patient population, followed by a U.S. approval in 2012 (pending another Phase III U.S. trial, which we absolutely assume will be required). We expect pricing to be at approximately the same level as ribavirin (~$200 per week) in combination therapy with pegylated interferon-alpha. We also point out that SciClone does benefit from Sigma Tau’s sales, as it will supply Zadaxin and pick up a manufacturing margin. For simplicity, we are modeling this as a 15% net to the company. Our model for Zadaxin sales starts out in a very conservative fashion. We begin with only HCV new cases and assume 50% will be failures based on the current standard of care. For the moment, we are ignoring the existing prevalence of non-responders to keep the math and assumptions simple. We do note that the current 50% failure rate is likely to drop lower as new DAAVs enter the HCV marketplace (we

Susquehanna Financial Group, LLLP Biotechnology 19 assume by 2011). Using this approach, we see Sigma Tau sales reach $140 mln by 2015, with SciClone netting approximately 15% back to the company (manufacturing royalty). As a modeling exercise, we will assume launch in 2012 with a modest initial penetration rate of approximately 10% ramping to 16% by 2015. If we included existing prevalence (Figure 24, Hepatitis C Market Potential), we would add 312,000 HCV relaspers/non-responders (and these figures may be higher in 2012), and as this is the U.S. marketplace only, the model is conservative. Figure 24. Hepatitis C Market Potential, U.S. and EU: Zadaxin (assumes EU launch in 2010, U.S. in 2012) Market Estimates Model for Thymalfasin

2006 2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E Hepatitis C HCV # new cases, US 28,000 38,640 42,504 44,629 46,861 49,204 51,664 54,247 56,959 59,807 % non-responders (new cases) 50% 50% 50% 50% 50% 45% 40% 35% 35% 35% Patient Population for Treatment 14,000 19,320 21,252 22,315 23,430 22,142 20,666 18,986 19,936 20,933

HCV # new cases, EU 56,000 77,280 85,008 89,258 93,721 98,407 103,328 108,494 113,919 119,615 % non-responders (new cases) 50% 50% 50% 50% 50% 45% 40% 35% 35% 35% Patient Population for Treatment 28,000 38,640 42,504 44,629 46,861 44,283 41,331 37,973 39,872 41,865

Non-responder Patients Available for Treatment (USA) 14,000 19,320 21,252 22,315 23,430 22,142 20,666 18,986 19,936 20,933 Estimated Penetration Rate (assumes 2nd pIII trial required) 0% 0% 0% 0% 0% 0% 5% 8% 10% 12% US Treated Patients (Thymalfasin) ------1,033 1,519 1,994 2,512

Cost per month ($) $1,400 $1,470 $1,544 $1,621 Price Increases 5% 5% 5% 5% Treatment Cost (Assume six months of therapy) $16,800 $17,640 $18,522 $19,448

Non-responder Patients Available for Treatment (EU) 28,000 38,640 42,504 44,629 46,861 44,283 41,331 37,973 39,872 41,865 Estimated Penetration Rate 0% 0% 0% 5% 7% 9% 11% 13% 15% 16% EU Total Treated Patients (Thymalfasin) - - - 2,231 3,280 3,985 4,546 4,936 5,981 6,698

Cost per month ($) $1,300 $1,365 $1,433 $1,505 $1,580 $1,659 $1,742 Price Increases 5% 5% 5% 5% 5% 5% 5% Treatment Cost (Assume six months of therapy) $15,600 $16,380 $17,199 $18,059 $18,962 $19,910 $20,905

Thymalfasin HCV Sales Forecast: EU Sigma Tau mln ($) - - - $35 $54 $69 $82 $94 $119 $140 EU Royalties - Manufacturing Revenues (assume 15%) "net" to SCLN $5 $8 $10 $12 $14 $18 $21 Thymalfasin HCV Sales Forecast: (USA): mln ($) - - - - $0 $0 $17 $27 $37 $49 Source: SFG Research Malignant Melanoma The American Cancer Society estimates that malignant melanoma will be responsible for approximately 8,420 deaths in the U.S. in 2008, as well as another 62,480 cases of melanoma diagnosed. Malignant melanoma is the most advanced form of skin cancer, classified as stage IV cancer, and has very limited treatment options and success. DTIC and interleukin-2 (IL-2) are the only approved therapies for the treatment of malignant melanoma in the U.S. and are ineffective in eradicating the cancer. Any additional therapies that could improve response and survival with limited side-effects would be extremely welcome. Therapies that have a small effect, but a benign side-effect profile have a higher possibility of approval than those where the risk/benefit ratio is in question (as is the case for Medarex’s MDX-010, a drug with activity, but serious side-effects). Thymalfasin – Phase II Trial in Malignant Melanoma In 2007, SCLN reported results from a Phase II trial of thymalfasin in n=488 patients with stage IV malignant melanoma across 64 European clinical sites. The design of the trial was intended to address dose levels of thymalfasin in combination with dacarbazine (DTIC) chemotherapy, with or without a low-dose interferon-alpha, as a first-line therapy for malignant melanoma. The primary endpoint of the trial, (which was achieved) was overall tumor response. Patients treated with thymalfasin showed an improved response of 12.1%, including complete response (CR) and partial response (PR) rates when compared with the non-thymalfasin control arm response rate of 4.1%. In addition, the thymalfasin dose group achieved a longer median survival than the control. These results indicate that thymalfasin has considerable potential as an add-on therapy for the treatment of malignant melanoma. About Zadaxin Phase II Malignant Melanoma Trial Sigma Tau is currently in a Phase II program evaluating different dose levels of Zadaxin (1.6 mg, 3.2 mg, and 6.4 mg on days 5-8 and days 11-15, four days in a row following a DTIC cycle, assumed at 1x per month) for six cycles also plus or minus low-dose interferon-alpha as a first-line treatment for malignant melanoma. All of the more than n=450 (488) patients enrolled in this trial have stage IV, the most advanced form of malignant melanoma, meaning the cancer has spread beyond the skin to a distant site in the body. Most of these patients have visceral metastases, and the remaining patients have lung metastases and skin or lymph node metastases. Patients received six cycles of therapy for six months, and have been observed for a 12-month period following the completion of therapy. As stated previously, the trial’s primary endpoint was overall tumor response. Secondary endpoints include overall survival, duration of response, time to disease progression, and immunological response.

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Figure 25. Treatment Schedule and Study Design

THYMOSIN ααα1 THYMOSIN ααα1 1.6, 3.2 or 6.4 mg/die s.c. 1.6, 3.2 or 6.4mg/die s.c. DTIC + αααIFN 1

Day 1 Day 8 Day 11 Day 15 Day 18 DTIC + T ααα1 (3.2 mg) 2

DTIC + αααIFN + T ααα1 (1.6 mg) 3

DTIC + αααIFN + T ααα1 (3.2 mg) 4

DTIC + αααIFN + T ααα1 (6.4 mg) 5

DTIC 800 mg/m 2 i.v. Day 11 Day 18 SCREENING RANDOMIZATION IFN ααα 3 MIU s.c. IFN ααα 3 MIU s.c.

Source: SciClone Melanoma Trail (Phase II) Results with Zadaxin Tumor Response Data When measured for overall tumor response, including complete response (CR) and partial response (PR), all patients in the treatment arms containing thymalfasin showed a greater overall tumor response than those in the control arm. Patients treated with the 3.2 mg dose of thymalfasin in combination with DTIC without interferon-alpha showed an overall tumor response of 12.1%, compared to 4.1% for patients in the control group treated with DTIC and interferon-alpha. Figure 26. Zadaxin Melanoma Phase II Trial Results, Overall Tumor Response Trial Arm n= PR OR (CR + PR))

DTIC + Interferon alpha (control) 97 4.10% 6.6 Thymalfasin (3.2 mg) + DTIC 99 12.10% 9.3

Thymalfasin (1.6 mg) + DTIC + Interferon alpha 97 7.20% 9.3 Thymalfasin (3.2 mg) + DTIC + Interferon alpha 97 10.30% 8.5 Thymalfasin (6.4 mg) + DTIC + Interferon alpha 98 6.10% 10.2

Source: SciClone Pharmaceuticals and Sigma Tau Phase II Clinical Trial Results, Presented at ASCO, June 2007 Overall Survival Data When measured for overall survival, all patients in the treatment arms containing thymalfasin reached a longer median survival than those in the control arm. Patients treated with the 3.2 mg dose of thymalfasin in combination with DTIC without interferon-alpha reached a median survival of 9.3 months, compared to 6.6 months for patients in the control group treated with DTIC and interferon-alpha. Median progression free survival was 1.87 months for the group of patients treated with the 3.2 mg dose of thymalfasin in combination with DTIC without interferon-alpha, compared to 1.81 months for the control group treated with DTIC and interferon-alpha. Even though the median progression free survival times were similar, the Hazard Ratio (HR) comparing 3.2 mg of thymalfasin together with DTIC versus patients treated with DTIC and interferon-alpha was 0.74, which translates into a 26% reduction of the risk of disease progression for patients treated with 3.2 mg of thymalfasin. Figure 27. Zadaxin Melanoma Phase II Trial Results, Overall Survival Median Median Median progression Free Follow Up Trial Arm n= Survival Survival Period

DTIC + Interferon alpha (control) 97 6.6 1.81 31.9 All Thymalfasin Arms 391 9.4 1.84 26.8 Thymalfasin (3.2 mg) + DTIC 99 9.3 1.87 32.1 Thymalfasin (1.6 mg) + DTIC + IFN alpha 97 9.3 1.84 28.5 Thymalfasin (3.2 mg) + DTIC + IFN alpha 97 8.5 1.84 28.5 Thymalfasin (6.4 mg) + DTIC + IFN alpha 98 10.2 1.84 17.7

Source: SciClone Pharmaceuticals and Sigma Tau Phase II Clinical Trial Results, Presented at ASCO, June 2007; Note: data is on an ITT basis Subset Analysis – Patients with Normal LDH levels In a subset analysis excluding patients with elevated levels of the enzyme lactate dehydrogenase (LDH), a factor associated with poor prognosis, the group of patients with normal LDH levels treated with the 3.2 mg dose of thymalfasin in combination with DTIC without interferon reached a median survival of 14.4 months, compared to 10.8 months for the control group treated with DTIC and interferon- alpha. Median progression-free survival was 3.65 months for the group of normal LDH patients treated with the 3.2 mg dose of thymalfasin in combination with DTIC without interferon-alpha, compared to 2.17 months for the control group treated with DTIC and interferon-alpha (HR= 0.62).

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Figure 28. Zadaxin Melanoma Phase II Trial Results, Normal LDH Subset Analysis Median Median Median progression Free Follow Up Trial Arm, All patients with normal LDH levels n= Survival Survival Period P Value DTIC + Interferon alpha (control) 63 10.8 2.17 31.9 All Thymalfasin Arms 246 12.9 3.45 26.8 0.045 Thymalfasin (3.2 mg) + DTIC 62 14.4 3.65 32.1 0.015 Thymalfasin (1.6 mg) + DTIC + IFN alpha 62 12.9 3.33 28.5 Thymalfasin (3.2 mg) + DTIC + IFN alpha 58 12.6 3.38 28.5 Thymalfasin (6.4 mg) + DTIC + IFN alpha 64 12.8 3.38 17.7

Source: SciClone Pharmaceuticals and Sigma Tau Phase II Clinical Trial Results, Presented at ASCO, June 2007; Note: data is on an ITT basis Conclusion from Phase II Study • Thymalfasin alpha 1 was well tolerated at all doses and regimens • Both arms with thymalfasin 3.2 mg reached the response rate required to reject the null hypothesis • Data on overall survival and progression-free survival, particularly in the population with normal LDH levels, support the conduction of a Phase III program • The best candidate regimen for a future Phase III trial seems to be DTIC + Thymosin 3.2 mg • The role of interferon-alpha in the therapeutic combination is debatable Plans for a Phase III Study with an SPA (special protocol assessment) SciClone may very well have already received an SPA for the U.S.-EU pivotal Phase III trial that is planned with Sigma Tau. We expect to see a n=1,000 patients study that will evaluate Zadaxin with survival and PFS endpoints and LDH levels limited to 1.2x or less, the upper limit of normal. The hope is to see a 50% reduction in mortality benefit. How Thymalfasin May Work in Melanoma Suppression of the growth of immune-sensitive tumors such as melanoma has been shown to be dependent on a strong immune response, including a large number of activated effectors, such as tumor-infiltrating lymphocyte cells (TILs), and specific anti-melanoma cytotoxic T lymphocytes (CTL). It is also important to increase the presentation of cancer-specific antigens to the immune system through sustained expression of these molecules along with MHC Class I, as cancers avoid the immune system by decreases in this presentation. Thymalfasin’s potential beneficial role in treatment of melanoma derives from its demonstrated activation of these various arms of the immune system, including increases in TILs, CTLs, and expression of MHC Class I and tumor-specific antigens. Thymalfasin’s multiple activities arise through activation of toll-like receptor 9, and signaling through increases in the nuclear factor NfKB through Myd88 and IKKb. Evaluation of thymalfasin’s utility in melanoma animal models has confirmed effective anti-tumor activity. Modeling Assumptions for Thymalfasin in Malignant Melanoma Based on American Cancer Society estimates of malignant melanoma diagnosis and a modest implied growth rate of ~1-2% per year, we project the malignant melanoma patient population could grow to approximately 65,000 by 2012. We project the launch of thymalfasin in malignant melanoma in the U.S. in mid-2013. We have estimated pricing for the therapeutic at between ~$25,000 and $30,000 per therapy course (typically 3-6 months). We know that the company has met with regulatory agencies following the results of the Phase II trial to discuss an outline for a Phase III trial plan for malignant melanoma. We note that the pricing in oncology therapeutics is typically significantly greater than pricing garnered for viral and infective treatments. Figure 29. Zadaxin Metastatic Melanoma Market Model

Malignant Melanoma 2009 2010 2011 2012 2013 2014 2015 Malignant Melanoma Patient Population - US 63,111 63,748 64,399 65,062 65,739 66,430 67,135 Projected Increased Incidence 1% 1% 1% 1% 1% 1% 1%

Thymalfasin Melanoma Patients Available for Treatment - US 63,111 63,748 64,399 65,062 65,739 66,430 67,135 Estimated Penetration Rate - Start of PIII 4th QTR-08 0% 0% 0% 0% 4% 8% 12% Total Treated Patients (Thymalfasin) ------2,630 5,314 8,056

Cost per month ($) $4,000 $4,200 $4,410 Price Increases 5% 5% 5% Treatment Cost per year $24,000 $25,200 $26,460

Thymalfasin MM Sales Forecast: mln ($) $63 $134 $213 Source: SFG Research estimates. Liver Cancer SciClone reported results from Zadaxin proof-of-concept liver cancer trial in late December 2005. The data from the small Phase II proof-of- concept (POC) hepatocellular carcinoma (liver cancer) trial indicated a trend toward positive survival benefit in patients treated with Zadaxin plus transarterial chemoembolization (TACE), compared with patients treated with TACE alone. Specifically, a median survival of 994 days was observed for the 12 patients who received Zadaxin plus TACE, compared with a median survival of only 399 days for the 13 patients who received TACE alone – the control arm. No difference was observed in tumor response between the treatment groups.

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OTHER PIPELINE DRUGS DC Bead – China SciClone plans to launch and commercialize DC Bead in China for the treatment of liver cancer in the second half of 2008. The product will be launched initially as “embolic” agent only, with the goal of running additional trials to expand the label in liver cancer to include doxorubicin and in colon cancer with Irinotecan. DC Bead is an embolic agent with the capability of also targeting a chemotherapeutic agent directly to the tumor site. Liver cancer is one of the most prevalent and deadly forms of cancer in China, accounting for more than 300,000 deaths each year. In fact, hepatocellular carcinoma (HCC), or primary liver cancer, is the fifth most common form of cancer worldwide, but represents the third most common cause of death from cancer. More than half of all worldwide cases of liver cancer occur in China, with nearly 350,000 new cases each year, and as stated above, more than 300,000 deaths each year, according to the GloboCan 2002 database (International Agency for Research on Cancer). The pervasiveness of liver cancer in China is principally due to the high prevalence of Hepatitis B in that part of the world. Left untreated, Hepatitis B often leads to cirrhosis of the liver and liver cancer. Liver cancer that cannot be removed through surgery is frequently treated by transarterial chemoembolization (TACE). While TACE has shown efficacy in treating unresectable HCC, one of its drawbacks is the risk of systemic leakage of the chemotherapeutic drug throughout the body. The systemic exposure to the chemotherapeutic agent doxorubicin in particular is known to cause toxicity to the heart, including the risk of fatal congestive heart failure. DC Bead is designed to reduce this risk by delivering drugs directly to the tumor site. In June 2006, the company acquired the exclusive Chinese marketing rights to DC Bead from Biocompatibles International plc. DC Bead is comprised of microscopic beads, which when administered by catheter into a blood vessel blocks the supply of nutrients and blood to a tumor. While the blockage of the blood vessel itself can have an anti-tumor effect, chemotherapeutic agents can be added to the beads for a more targeted anti-tumor effect. This controlled delivery of an anti-tumor drug concentrates the toxic effect of the drug directly on the tumor and minimizes side-effects throughout the rest of the body. DC Bead is designed to deliver doxorubicin and potentially can deliver other chemotherapy drugs as well. DC Bead received CE mark approval in 2003 and is indicated for the treatment of malignant hypervascularised tumors and loading with doxorubicin. It is sold through Biocompatible UK Ltd. Figure 30. DC Bead Is Tinted Blue for Easy Visualization and Is Supplied in Color-Coded Vials for Added Procedural Safety and Efficiency

Source: Sciclone Modeling Assumptions for DC BEAD in China We consulted with the company, and initial forecasts are quite modest for $1 million in 2008, climbing to $2.5 mln in 2009, $5.5 mln in 2010, and $9 mln-$10 mln in 2011. At this point, we do not believe a patient-based forecast model will provide much utility. RP101 – Chemosensitizer (BvdU) – Prevents Chemoresistance RP101 is a nucleoside analog with the potential to prevent induction of resistance to chemotherapy, as well as induce apoptosis of cancer cells. The drug has been granted Orphan Drug Designation by the FDA for the adjunct treatment of pancreatic cancer, which, if approved, will allow for market exclusivity in the U.S. RP101 is currently approved in several European countries for antiviral indications. SCLN acquired exclusive rights in April 2007 from Resistys, Inc. for the development and commercialization of RP101 in the U.S. and Canada. The company is required to pay Resistys a $1.32 million milestone payment upon dosage of the first patient in the Phase II trial. Additionally, SCLN is obligated to pay up to $22 million in milestones, as well as royalties on future sales. Phase I Trial of RP101 – Results Early, but Encouraging A Phase I study in n=22 patients (data presented below) with late-stage pancreatic cancer was conducted in which patients received a combination therapy of RP101 and gemcitabine. Patients achieved a median survival of 9.3 months, while historical survival rates for gemcitabine alone are approximately six months. Also, in a separate Phase I study, RP101 was combined with both gemcitabine and cisplatin and compared to the two chemotherapeutics alone. Patients in the RP101 arm achieved a median survival of 447 days versus 186 days for the control arm. Common side-effects in both trials were in line with patients treated with chemotherapy alone. While encouraging results in this very difficult to treat patient population, these results are early and stem from two completely unrelated trials.

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Figure 31. Results of Two Small Studies as Reported on RESprotect web site: “Pancreatic cancer is considered one of the most difficult cancers in the world to treat. Gemcitabine elongates survival for about one month, co-treatment with Tarceva for another two weeks. RP101 may double that survival time. Tarceva or other competitive drugs have several side-effects, RP101 appears to have no drug-related side-effects.”

Source: RESprotect GmbH

Figure 32. Demonstrates the Advantage Seen in the Early Study Phase 1 Pancreatic Cancer Results Survival (Months) n=22 9.3 10 8 6.0 6 4 2 0 Gemcitabine RP101 + Gemcitabine

Source: SciClone Pancreatic Cancer The American Cancer Society has estimated that in the U.S., ~37,680 patients will be diagnosed with pancreatic cancer, resulting in ~34,290 deaths. Pancreatic cancer is one of the most deadly forms of cancer, and the fourth leading cause of overall cancer death. Due to its difficult diagnosis, the majority of patients have incurable disease by the time they are diagnosed, resulting in a median survival at diagnosis of ~4-6 months. Common therapy includes gemcitabine, a chemotherapeutic agent, in combination with add-on therapeutics. RP101 Phase II Trial RP101 is currently in Phase II clinical trials as an add-on therapy to gemcitabine for patients with late stage pancreatic cancer. The n=153 patient trial (multi-center, double-blinded, randomized, placebo-controlled) was initiated in January 2008, and enrollment is expected to be completed in the first half of 2009, with top-line data released in the first half of 2010. Trial arms will be RP101 plus gemcitabine vs. placebo plus gemcitabine (control), primary endpoint: overall survival, with a secondary endpoint of PFS. Sales Expectations and Modeling Assumptions for RP101 At its very early stage in clinical development, RP101 has a considerably high risk associated with its ultimate approval and launch, yet early results have been encouraging for the drug’s use as an add-on therapy in difficult to treat pancreatic cancer. Also, the drug has been given Orphan Drug Designation by the FDA as an adjuvant therapy, which would offer SCLN market exclusivity and optimal pricing in the U.S. in this indication. We are not currently attributing value to RP101 in our model, yet upon positive Phase II trial data, we expect to update our model to include projections for this therapeutic. SCV-07 Cancer and Viral Infectious Disease SCV-07 (gamma-D-glutamyl-L-tryptophan) is a synthetic peptide proven to stimulate the immune system (probably through a TLR pathway). It is believed that stimulation is achieved specifically via CD4+ cells, which are central participants in eradicating viral invasions and supplement a standard immune response. The drug has shown efficacy in the treatment of bacterial infections, has proven to be safe at varying dose levels, and is orally bioavailable. SCV-07 Phase II POC study in HCV ongoing In the first half of 2008, SCLN is to report proof of concept data from a Phase II HCV clinical trial of SCV-07 in n=30 patients. The study was designed to evaluate the effect of SCV-07 as the sole agent for treatment of HCV-infected patients. The 30-patient trial is randomized and placebo-controlled, and designed to include patients with genotype 1 who were previous responders to the standard of care (pegylated interferon-alpha and ribavirin), yet have relapsed. Patients were randomized to three groups receiving escalating doses of SCV-07 or placebo for seven days. All patients will be monitored for an additional seven days, and the primary endpoint of the trial is a single-log reduction in the HCV viral load. Primary endpoint: 1 log reduction in HCV viral load.

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SCV-07 Preclinical Data Preclinical data was reported in June 2007 showing SCV-07 inhibition of melanoma tumor growth in an animal model. Melanoma is known to be receptive to immunomodulatory treatments. Positive results were also observed in preclinical studies of mucositis, lung cancer, and malignant melanoma. No preclinical or clinical data exists to date for SCV-07 in HCV treatment. SCV-07 Modeling Assumptions Due to SCV-07’s early stage in clinical development, at this time we are not attributing value to the drug in our model, yet upon positive Phase II trial data, we expect to update our model to include projections for this therapeutic. MANAGEMENT Friedhelm Blobel, Ph.D. – President, Chief Executive Officer and Director Dr. Blobel is President, Chief Executive Officer and a Director, and has served these roles at SciClone since June 2, 2006. Previously, Dr. Blobel served as president, chief executive officer and a director of Gryphon Therapeutics, Inc., a South San Francisco-based biopharmaceutical company. Prior to joining Gryphon in July 2000, Dr. Blobel spent more than 20 years as an executive with the Hoechst Group and the Boehringer Mannheim Group, including many responsibilities in the areas of diabetes and in vitro diagnostics. His roles at these companies included group president of several product divisions; chief technology officer; general manager of a marketing and sales joint venture between Boehringer and Yamanouchi Pharmaceuticals (now Astellas) in Tokyo, Japan; and senior vice president of Research & Development Diabetes and Patient Care in Mannheim, Germany as well as in Indianapolis, Indiana. Dr. Blobel earned his doctorate degree with a dissertation in Biochemistry and Microbiology from the University of Hohenheim, Germany, and holds an advanced degree in Chemistry from the University of Stuttgart, Germany. He serves as a director of Pelikan Technologies, Inc., a Palo Alto-based private Biotech company. Vacancy – Chief Financial Officer

Hans P. Schmid – President and Managing Director Mr. Schmid is the President and Managing Director of SciClone Pharmaceuticals International, Ltd. and has been with the company since 2001. Mr. Schmid has 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 U.S. Mr. Schmid received his BA from the Commercial Trade School, Lucerne, Switzerland, and has studied International Business Management and Finance at San Francisco State University. A Swiss, Hans speaks German, French, and conversational Japanese. Israel Rios, MD – Chief Medical Officer Dr. Rios has served as Chief Medical Officer since joining SciClone Pharmaceuticals, Inc. in October 2005. Dr. Rios has more than 25 years of experience in the biotechnology and pharmaceutical industries. Dr. Rios is responsible for the design and oversight of all clinical trials and the evaluation of new development candidates. From 2003 to 2005, he served as vice president of clinical affairs for Dendreon Corporation, and was responsible for all clinical and operational activities related to the development of late-stage immunotherapeutic candidates for androgen independent prostate cancer (AIPC) and advanced breast cancer. From 1993 to 2000, Dr. Rios was at Berlex Laboratories (the U.S. affiliate of Schering AG of Germany), most recently as vice president of Oncology Development. From 1984 to 1993, Dr. Rios was director of anti-infective clinical research at Marion Merell Dow, Inc., where he directed the clinical development and helped manage the New Drug Application (NDA) submissions of several anti-infective products. From 1978 to 1984, Dr. Rios held several escalating positions at Bristol-Myers, most recently as director of clinical research. Dr. Rios earned his MD degree at the Central University of Venezuela. He completed his internship and residency in internal medicine at Mount Sinai Hospital in Hartford, Connecticut, and his fellowship in infectious diseases at Hartford Hospital in Hartford, Connecticut. Cynthia W. Tuthill, PhD – Senior Vice President, Scientific Affairs and Chief Scientific Officer Dr. Tuthill has served as Senior Vice President, Scientific Affairs and Chief Scientific Officer of SciClone Pharmaceuticals, Inc. since February 2006. Dr. Tuthill was previously vice president, scientific affairs, since joining SciClone in October 1991. Dr. Tuthill has more than 20 years of experience in the biotechnology and pharmaceutical industries. At SciClone, Dr. Tuthill is responsible for the design and oversight of all non-clinical studies. Prior to joining SciClone, Dr. Tuthill was a senior product development scientist at Becton Dickinson Immunocytometry Systems, responsible for development of manufacturing methods, according to Good Manufacturing Processes, for new reagents for the assessment of viral diseases. From 1984 to 1990, she was a senior scientist at California Biotechnology, Inc. (now Scios, Inc.). At California Biotechnology she was project manager for several large heart disease therapeutic projects, as well as being responsible for analysis and purification of recombinant human proteins. Dr. Tuthill earned her undergraduate degree, summa cum laude, from the University of California, Berkeley, and her PhD in protein biochemistry with highest honors from Harvard University. Craig A. Halverson – Vice President, Regulatory Affairs and Quality Assurance Mr. Halverson has served as Vice President, Regulatory Affairs and Quality Assurance since January 2008. With more than 20 years of experience in the biotechnology industry, Mr. Halverson is responsible for planning and executing global regulatory strategies, managing SciClone’s regulatory affairs and clinical operations for its Chinese business, and supervising quality assurance. Prior to joining SciClone, Mr. Halverson served as vice president of regulatory affairs at ZymoGenetics from 2004-2007, vice president of regulatory affairs and quality assurance at Introgen Therapeutics in 2004, executive director of global regulatory affairs and clinical quality assurance for Cancervax Corporation from 2001-2004, and director of regulatory affairs at Gen-Probe Incorporated from 1998-2001. He also served as global regulatory affairs director for Baxter Healthcare Corporation’s Hyland Division from 1994-1998, worked in a number of research, regulatory affairs, technology acquisition and project management positions of increasing responsibility for Hybritech, Inc. from 1985-1994, and held a number of academic research positions from 1975-1985. Mr. Halverson received his M.S. in Experimental Pathology from the University Southern California, and his B.S. in Chemistry and Biology from California State University at Fullerton.

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Eric J. Hoechstetter – Vice President, Legal Affairs Mr. Hoechstetter has served as Vice President, Legal Affairs since October 2007. Mr. Hoechstetter has 16 years of legal experience, principally international. Prior to joining SciClone, from 2003 to 2006 he was senior corporate counsel at Chiron Corporation’s UK headquarters, and oversaw all legal affairs of the biopharmaceutical division’s European activities and the company’s corporate governance activities ex United States. From 1995 to 2003, he worked in Europe for three communications companies, Wanadoo S.A., Level (3) Communications Ltd., and Global One Communications S.A. He began his legal career at White and Case in New York, where he worked from 1990 to 1994. Mr. Hoechstetter received his JD degree from Columbia University School of Law and his BA degree in Business Administration from the University of Michigan. He is a member of the New York bar. A native English speaker, Mr. Hoechstetter also speaks German, French, and basic Spanish. Randy J. McBeath – Vice President, Marketing Mr. McBeath has served as Vice President, Marketing of SciClone Pharmaceuticals, Inc. since May 2000. Mr. McBeath has twenty years of experience in the biotech, pharmaceutical, and chemical industry in international sales and marketing, general management, business development, research and development, and manufacturing. At SciClone, Mr. McBeath is responsible for the worldwide development of promotional and educational materials, as well as training programs to support Zadaxin marketing worldwide. Prior to joining SciClone, Mr. McBeath served as the director of marketing for Coulter Pharmaceuticals from 1997 to 1999. From 1989 to 1997, Mr. McBeath was the global director of marketing for Mallinckrodt Medical’s Oncology Group, senior product director in their nuclear medicine division, and served as a western regional sales manager for Monsanto Company. Mr. McBeath received his MBA degree with honors from the Olin School of Business at Washington University in St. Louis, and his BS degree in Biochemistry from the University of Missouri, where he was a Curator’s Scholar. COMPANY DESCRIPTION SciClone Pharmaceuticals (SCLN) is a biopharmaceutical company engaged in the development of therapeutics to treat life-threatening diseases. SciClone’s lead product Zadaxin is currently being evaluated in late-stage clinical trials for the treatment of malignant melanoma and Hepatitis C. Zadaxin is approved for sale in select markets internationally, most notably in China, where SciClone has an established sales and marketing operation. A key part of SciClone’s strategy is to leverage its advantage in the rapidly growing Chinese market by in- licensing or acquiring the marketing rights to other products, such as DC Bead TM, for the treatment of liver cancer. For the U.S. market, SciClone’s clinical-stage drug development candidates are SCV-07 for the treatment of viral infectious diseases and RP101 for the treatment of pancreatic cancer.

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SciClone Pharmaceuticals, Inc. Income Statement ($ amounts in thousands) SCLN: YE Dec. 31 2006A 1Q07A 2Q07A 3Q07A 4Q07A 2007A 1Q08A 2Q08A 3Q08E 4Q08E 2008E 1Q09E 2Q09E 3Q09E 4Q09E 2009E Revenue (000's) ZADAXIN 32,433 8,644 8,955 9,421 10,018 37,038 10,634 13,834 11,759 13,523 49,750 14,179 14,179 14,179 14,179 56,715 % Chg 14% 2% 4% 5% 6% 14% 6% 30% -15% 15% 34% 5% 0% 0% 0% 14% Contract Revenues 85 - 20 20 - -

DC Bead China 400 600 1,000 500 625 625 750 2,500

ZADAXIN:EU Sigma:Net Payments 1,305 1,305 1,305 1,305 5,222

Total Product Sales 32,518 8,644 8,955 9,441 10,018 37,058 10,634 13,834 12,159 14,123 50,750 15,984 16,109 16,109 16,234 64,436 % Chg 15% - - 14% 18% 14% 23% 54% 29% 41% 37% 50% 16% 32% 15% 27% ------Total Royalty ------Collaborative revenue Total Revenues $32,518 $8,644 $8,955 $9,441 $10,018 $37,058 $10,634 $13,834 $12,159 $14,123 $50,750 $15,984 $16,109 $16,109 $16,234 $64,436 % Chg 15% - - 14% 18% 14% 23% 54% 29% 41% 37% 50% 16% 32% 15% 27% Expenses COGS 6,889 1,628 1,687 1,663 1,757 6,735 1,967 2,511 2,117 2,434 9,029 3,222 3,222 3,222 3,222 12,887 COGS % Sales 21% 19% 19% 18% 18% 18% 18% 18% 17% 17% 18% 20% 20% 20% 20% 20% R&D 12,338 2,423 4,712 4,793 5,518 17,446 7,549 4,535 5,669 7,653 25,406 6,047 6,047 6,047 6,047 24,186 R&D % Rev's 38% 28% 53% 51% 55% 47% 71% 33% 47% 54% 50% 0 0 0 37% 38% SG&A 20,609 5,634 5,583 6,399 6,557 24,173 6,969 7,052 7,264 7,481 28,766 8,630 8,630 8,630 8,630 34,519 SG&A % Rev's 63% 65% 62% 68% 65% 65% 66% 51% 60% 53% 57% 1 1 1 53% 54% ------Other ------Total expenses 39,836 9,685 11,982 12,855 13,832 48,354 16,485 14,098 15,049 17,568 63,200 17,898 17,898 17,898 17,898 71,593 Oper. Inc. (Loss) (7,318) (1,041) (3,027) (3,414) (3,814) (11,296) (5,851) (264) (2,890) (3,446) (12,451) (1,914) (1,789) (1,789) (1,664) (7,156) Oper Margin NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM Int. Inc. 1,764 453 419 408 349 1,629 261 124 122 119 626 241 241 241 241 962 Int Exp. (94) (10) (10) - - (20) - - (200) (190) (390) (143) (143) (143) (143) (570) Other 7,981 (5) (11) (8) 64 40 37 17 (50) (50) (46) - - - - - Total Net 9,651 438 398 400 413 1,649 298 141 (128) (121) 190 98 98 98 98 392 Cont. Ops Loss 2,333 (603) (2,629) (3,014) (3,401) (9,647) (5,553) (123) (3,018) (3,567) (12,261) (1,816) (1,691) (1,691) (1,566) (6,764) Pretax Margin 7% NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM Disct'd ops ------Gain Sale Disct'd Ops ------Taxes Provision (China) - 21 28 41 211 301 106 196 302 - Tax Rate ------Prefr'd dividend ------Prefr'd div Accrt'n ------GAAP NI 2,333 (624) (2,657) (3,055) (3,612) (9,948) (5,659) (319) (3,018) (3,567) (12,563) (1,816) (1,691) (1,691) (1,566) (6,764) Net Margin 7% NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM GAAP-EPS $0.05 ($0.01) ($0.06) ($0.07) ($0.08) ($0.22) ($0.12) ($0.01) ($0.07) ($0.08) ($0.27) ($0.04) ($0.04) ($0.04) ($0.03) ($0.14) Disct'd ops $0.00 $0.00 $0.00 $0.00 $0.0000 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Non GAAP EPS 0.05 (0.01) (0.06) (0.07) 0.66 (0.22) (0.12) (0.00) (0.07) (0.08) (0.27) (0.04) (0.04) (0.04) (0.03) (0.14) EPS FAS 123R 0.05 (0.01) (0.06) (0.07) (0.08) (0.22) (0.12) (0.01) (0.07) (0.08) (0.27) (0.04) (0.04) (0.04) (0.03) (0.14) EPS Adj 0.05 (0.01) (0.06) (0.07) (0.08) (0.22) (0.12) (0.01) (0.07) (0.08) (0.27) (0.04) (0.04) (0.04) (0.03) (0.14) Wgtd Avg Shrs (Bas) 45,901 45,074 46,094 46,114 46,116 46,100 46,190 46,220 46,312 46,405 46,282 46,500 47,000 47,500 48,500 48,182 Wgtd Avg Shrs (Dil) 46,072 45,074 46,094 46,114 46,116 46,100 46,190 46,282 46,375 46,468 46,329 46,500 47,000 47,500 48,500 48,182 EPS Growth 785.0% -88.0% -1.8% -2.0% 25.7% -68.1% 422.0% -45.3% -57.9% -48.2% Source: SFG Research and company reports

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SciClone Pharmaceuticals, Inc. Balance Sheet ($ values in thousands) Assets 3Q06A 4Q06A 2006A 1Q07A 2Q07A 3Q07A 4Q07A 2007A 1Q08A 2Q08A Cash and cash equiv. $25,357 $25,615 $25,615 $21,899 $27,385 $30,506 $31,817 $31,817 $25,157 $21,673 Marketable Secs. 16,020 16,279 16,279 16,388 9,396 6,306 3,392 3,392 532 212 Accounts Receivables 13,641 13,277 13,277 15,899 13,353 13,719 12,650 12,650 14,078 17,654 Other Receivables 864 452 452 682 930 332 381 381 Inventories 3,016 3,232 3,232 3,559 4,504 4,184 5,579 5,579 5,466 5,432 Prepaid 492 1,408 1,408 1,080 1,402 1,479 2,568 2,568 2,946 2,286 Deferred Taxes ------Other 696 698 698 699 700 704 72 72 78 - Total current assets 60,086 60,961 60,961 60,206 57,670 57,230 56,459 56,459 48,257 47,257 PP&E, net 333 1,405 1,405 266 239 770 1,911 1,911 730 685 Accumulated Dep - (1,108) (1,108) - - - (1,137) (1,137) Intangible assets, net 420 402 402 385 367 350 332 332 315 297 Long-Term Assets 1,713 1,679 Other Long-Term Assets 1,541 924 924 1,083 1,088 1,437 1,094 1,094 1,025 995 Total assets $62,380 $62,584 $62,584 $61,940 $59,364 $59,787 $58,659 $58,659 $52,040 $50,913 Liabilities: Accounts Payable 1,272 963 963 2,183 1,000 2,442 1,937 1,937 1,495 851 Accr'd Comp 1,420 1,813 1,813 1,024 1,206 1,486 1,758 1,758 1,202 1,705 Accr'd Prof'l Fees 1,058 754 754 654 995 971 699 699 782 839 Other Accr'd Expenses 1,636 2,487 2,487 1,739 1,780 2,011 3,394 3,394 3,077 2,638 Accrued Clinical Trial Exp 1,624 204 204 1,444 1,436 2,160 1,614 1,614 1,313 470 Accrued Clinical Trial Exp Due - 1,599 1,599 - 1,620 1,620 1,747 1,816 Deferred Revenue 34 62 62 5 36 - 37 37 26 64 Other Current Liab - - - - 32 - - Total current liabilities 7,044 7,882 7,882 7,049 6,453 9,102 11,059 11,059 9,642 8,383 Long-term Liabilities 39 68 68 97 126 340 341 341 203 211 Commitments & Contingencies ------Total liabilities 7,083 7,950 7,950 7,146 6,579 9,442 11,400 11,400 9,845 8,594 Stockholders' equity: Pf'd Stk $0.001 Par ------C/S $0.001 Par 46 46 46 46 46 46 46 46 46 46 Paid In Capital 212,234 213,064 213,064 213,846 214,497 215,070 215,633 215,633 216,288 216,799 Accum. & Other Income 68 78 78 80 77 119 82 82 22 (46) Accum. Deficit (157,051) (158,554) (158,554) (159,178) (161,835) (164,890) (168,502) (168,502) (174,161) (174,480) Total Equity 55,297 54,634 54,634 54,794 52,785 50,345 47,259 47,259 42,195 42,319 Total Liab & Equity $62,380 $62,584 $62,584 $61,940 $59,364 $59,787 $58,659 $58,659 $52,040 $50,913 Shares Iss'd 45,900 46,001 46,084 46,084 46,115 46,115 46,220 46,122 46,220 46,220 Shares Out 45,877 45,877 46,001 46,001 46,001 46,001 46,211 46,001 46,122 46,122 Treasury Stock 22 124 83 - 113 113 9 120 98 98 Common Authz'd 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 Source: SFG Research and company reports

Susquehanna Financial Group, LLLP Biotechnology 28

SCLN: YE Dec. 31 2006A 2007A 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E Revenues: (000's) ZADAXIN - China (90%) & Other 32,433 37,038 49,750 56,715 64,655 73,706 84,025 95,789 101,536 107,628 % Chg 14% 14% 34% 14% 14% 14% 14% 14% 6% 6% DC Bead - China 1,000 2,500 5,500 9,500 10,450 11,495 12,645 13,909 % Chg 0% - - 150% 120% 73% 10% 10% 10% 10% ZADAXIN:EU Sigma:Net Payments - - - 5,222 8,060 10,282 12,316 14,041 17,861 21,005 % Chg 0% - - - 54% 28% 20% 14% 27% 18% ZADAXIN - HCV, US - 17,359 26,794 36,925 48,852 % Chg 0%------ZADAXIN - MM, US ------63,110 133,923 213,168 % Chg 0% ------112% 59% Other - Contract Revenue 85 20 ------% Chg 0% Total Revenues 32,518 37,058 50,750 64,436 78,214 93,488 124,150 211,228 302,890 404,562 Total Revenues 32,518 37,058 50,750 64,436 78,214 93,488 124,150 211,228 302,890 404,562 % Chg 15% 14% 37% 27% 21% 20% 33% 70% 43% 34% Expenses: COGS 6,889 6,735 9,029 12,887 15,643 16,828 19,864 33,796 48,462 64,730 COGS %Sales 21% 18% 18% 20% 20% 18% 16% 16% 16% 16% R&D 12,338 17,446 25,406 24,186 22,977 23,436 23,905 24,383 24,871 25,368 R&D% Rev's 38% 47% 50% 38% 29% 25% 19% 12% 8% 6% SG&A 20,609 24,173 28,766 34,519 62,135 72,698 79,967 85,565 106,101 109,284 SG&A % Rev's 63% 65% 57% 54% 79% 78% 64% 41% 35% 27% Adj - - - Total Oper. Exp. 39,836 48,354 63,200 71,593 100,754 112,962 123,736 143,745 179,434 199,382 Oper. Inc. (loss) (7,318) (11,296) (12,451) (7,156) (22,540) (19,473) 413 67,483 123,456 205,181 OPM NM NM NM NM NM NM 0% 32% 41% 51% Int inc 1,764 1,629 1,013 962 914 869 825 784 745 707 Int exp (94) (20) (600) (570) (542) (514) (489) (464) (441) (419) Other 7,981 40 (113) ------Total Other 9,651 1,649 300 392 373 354 336 320 304 288 Pretax Income 2,333 (9,647) (12,151) (6,764) (22,167) (19,119) 750 67,803 123,760 205,469 Pretax Margin 7% NM NM NM NM NM 1% 32% 41% 51% Income Taxes ------135 16,951 39,603 71,914 Tax Rate - - - - - 15% 18% 25% 32% 35% Net Income (loss) 2,333 (9,647) (12,151) (6,764) (22,167) (19,119) 615 50,852 84,157 133,555 Net Margin 7% NM NM NM NM NM 0% 24% 28% 33% GAAP EPS $0.05 ($0.21) ($0.26) ($0.14) ($0.40) ($0.33) $0.01 $0.82 $1.31 $2.00 Non-GAAP EPS Wgtd Avg Shrs (Dil) 46,072 46,100 46,329 48,182 54,927 57,125 59,410 61,786 64,257 66,828 Source: SFG Research and company reports

Susquehanna Financial Group, LLLP Biotechnology 29

APPENDIX: IMPORTANT DISCLOSURES SFG is a market maker in the securities of the subject company. This information is meant for institutional accredited investors, anyone not meeting that definition should contact William Mann toll free at 888-744-6684 for additional information. SIG, its affiliates and/or its principals may have long or short positions in securities or related issues mentioned here. SIG, in its capacity as specialist and/or market maker, may execute orders on a principal basis in the subject securities. Information presented is from sources believed to be reliable, but is not guaranteed to be accurate or complete. The research analyst primarily responsible for this report attests that the views expressed accurately reflect his or her personal views and that no part of his or her compensation was, is, or will be related to any specific views in any research report. SFG does and seeks to do business with companies covered in its research reports. 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