XYTRONYX INC, S-3/A, 1997-08-27

XYTRONYX INC
S-3/A, 1997-08-27
IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES

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As filed with the Securities and Exchange Commission on August 27, 1997
Registration Number 333-26109

SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

AMENDMENT NO. 2
TO
FORM S-3

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

PACIFIC PHARMACEUTICALS, INC. (FORMERLY XYTRONYX, INC.)
-------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 36-3258753
--------------------------------- ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)

6730 Mesa Ridge Road, Suite A, San Diego, CA 92121 - (619) 550-3900
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(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

Dr. H. Laurence Shaw
President and Chief Executive Officer
6730 Mesa Ridge Road, Suite A, San Diego, CA 92121 - (619) 550-3900
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(Address, including zip code, and telephone number, including area code, of
agent for service)

With a copy to:
Edward F. Cox, Esq.
Donovan Leisure Newton & Irvine
30 Rockefeller Plaza, New York, New York 10112 (212) 632-3050

Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/

If this Form is filed to register additional securities pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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CALCULATION OF REGISTRATION FEE

- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities to be Amount to be Offering Price Aggregate Offering Registration
Registered Registered Per Unit (1)(2) Price (1)(2) Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 10,416,978 $1.0625 $11,067,720 $3,353.85
($0.02 par value)(3) Shares

Common Stock 5,250,150 $1.0625 $ 5,578,284 $1,690.39
($0.02 par value)(4) Shares

Common Stock 309,734 $1.0625 $ 329,092 $ 99.72
($0.02 par value)(5) Shares

Common Stock 1,250,038 $1.0625 $ 1,328,165 $ 402.47
($0.02 par value)(6) Shares

Common Stock 2,604,245 $1.0625 $ 2,767,010 $ 838.49
($0.02 par value)(7) Shares

Class A Warrants(8) 6,500,188 $1.1875 $ 7,718,973 $2,339.08
Warrants

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 475(c) under the Securities Act of 1933 on the basis of
the average of the high and low prices per share of the Registrant's Common
Stock as reported by the American Stock Exchange on April 21, 1997.

(2) Estimated solely for the purpose of calculating the registration fee on the
basis of the difference between the highest exercise price of the Warrants
and the average of the high and low prices per share of the Common Stock as
in (1) above.

(3) Represents shares of Common Stock issuable upon the conversion of shares of
Series A Convertible Preferred Stock (the "Convertible Preferred Stock")
issued in the registrant's private placement of Premium Preferred Units
which closed on March 7, 1997 (the "1997 Private Placement").

(4) Represents shares of Common Stock underlying Class A Warrants (includes
5,000,150 shares underlying Class A Warrants issued in the 1997 Private
Placement, 100,000 shares underlying Class A Warrants issued to Wound
Healing of Oklahoma, Inc. in consideration of a license agreement, and
150,000 shares underlying Class A Warrants issued to Aries Trust and Aries
Domestic in consideration for a Line of Credit).

(5) Represents shares of Common Stock underlying Class B Warrants (the
"Settlement Warrants").

(6) Represents shares of Common Stock underlying Common Stock purchase
warrants, which warrants partly underlie a Unit Purchase Option and an
Advisory Option (the "Paramount Options") granted to Paramount Capital,
Inc. ("Paramount") that, in the aggregate, entitled Paramount to purchase
25 Premium Preferred Units at an exercise price equal to 110% of the per
unit price paid by the investors in the 1997 Private Placement.

(7) Represents shares of Common Stock underlying Convertible Preferred Stock,
which shares of Convertible Preferred Stock partly underlie the Paramount
Options.

(8) Class A Warrants to purchase Common Stock (includes 5,000,150 Class A
Warrants issued in the 1997 Private Placement, 100,000 Class A Warrants
issued to Wound Healing of Oklahoma in consideration of a License
Agreement, 150,000 Class A Warrants issued to Aries Trust and Aries
Domestic in consideration for a Line of Credit, and 1,250,038 Class A
Warrants issued to Paramount pursuant to the Paramount Options).

The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time this registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful, prior
to registration or qualification under the securities laws of any such State.

Subject to Completion, dated August ___, 1997

PROSPECTUS
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PACIFIC PHARMACEUTICALS, INC.

19,831,145 SHARES OF COMMON STOCK

6,500,188 CLASS A WARRANTS

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This Prospectus relates to an offering (the "offering") by the holders of the
Settlement Warrants and by the securityholders named herein under the caption
"Selling Securityholders" (collectively, the "Selling Securityholders") or by
pledgees, donees, transferees or other successors in interest of the Selling
Stockholders (the "Transferees") for sale to the public of the following
securities of Pacific Pharmaceuticals, Inc., a Delaware corporation ("Pacific
Pharmaceuticals" or the "Company"): (i) 10,416,978 shares of the Company's
common stock, par value $0.02 per share (the "Common Stock") issuable upon the
conversion of shares of Series A Convertible Preferred Stock ("Convertible
Preferred Stock"); (ii) 5,250,150 shares of Common Stock underlying Class A
Warrants (the "Class A Warrants"); (iii) 309,734 shares of Common Stock
underlying Class B Warrants (the "Settlement Warrants"); (iv) 1,250,038 shares
of Common Stock underlying Common Stock purchase warrants, which warrants partly
underlie a Unit Purchase Option and an Advisory Option (the "Paramount Options")
granted to Paramount Capital, Inc. ("Paramount") that, in the aggregate,
entitled Paramount to purchase 25 Premium Preferred Units at an exercise price
equal to 110% of the per unit price paid by the investors in the Company's
private placement of Premium Preferred Units which closed on March 7, 1997 (the
"1997 Private Placement"); (v) 2,604,245 shares of Common Stock underlying
Convertible Preferred Stock, which shares of Convertible Preferred Stock partly
underlie the Paramount Options; and (vi) 6,500,188 Class A Warrants to purchase
shares of Common Stock issued by the Company and held by the Selling
Securityholders. The number of shares of Common Stock issuable upon conversion
of the Convertible Preferred Stock and upon exercise of the Class A Warrants,
the Settlement Warrants, and the Paramount Options is subject to adjustment in
certain events.

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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" ON PAGE 9 FOR INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS

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<PAGE>

The Common Stock and Class A Warrants are separately tradable. Each Class A
Warrant entitles the holder thereof to purchase one share of Common Stock at a
price of $1.00 per share subject to adjustment, at any time from issuance until
November 26, 2005. The Class A Warrants are subject to redemption by the Company
at $.10 per warrant on 60 days' prior written notice provided that the closing
bid quotation of the Common Stock as reported on the American Stock Exchange
("AMEX"), or on such exchange on which the Common Stock is then traded, exceeds
400% of the exercise price per share for 20 consecutive trading days ending
three days prior to the date of redemption. See "Description of Securities".
If a market for the Class A Warrants develops, a holder may sell Class A
Warrants instead of exercising them.

The Company will not receive any of the proceeds from the sale of shares of
Common Stock or Class A Warrants. The Registration Statement of which this
Prospectus forms a part is being filed pursuant to the terms of certain
agreements between the Company and the Selling Securityholders.

The Selling Securityholders have advised the Company that they or the
Transferees may sell, directly or through brokers, all or a portion of the
securities offered hereby in negotiated transactions or in one or more
transactions in the market at the price prevailing at the time of sale. In
connection with such sales, the Selling Securityholders, the Transferees and any
participating broker may be deemed to be "underwriters" of the Common Stock
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"). It is anticipated that usual and customary brokerage fees will be paid
by the Selling Securityholders or Transferees in all open market transactions.
The Company will pay all other expenses of this Offering. See "Plan of
Distribution."

The Company has informed the Selling Securityholders that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") may apply to the sales of their shares offered hereby. The
Company also has advised the Selling Securityholders of the requirement for
delivery of this Prospectus in connection with any sale of the shares offered
hereby. Certain Selling Securityholders may from time to time purchase shares
of Common Stock in the open market. The Selling Securityholders have been
notified that they should not commence any distribution of shares of Common
Stock unless they have terminated their purchasing and bidding for Common Stock
in the open market as provided in applicable securities regulations.

The Common Stock is listed and traded on the American Stock Exchange under
symbol "PHA." The closing price of the Common Stock on August 25, 1997 was
$1.6875 per share. No trading market for the Class A Warrants or the Settlement
Warrants currently exists.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is August __, 1997.

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AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information concerning the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C., 20549, and at
the Commission's Regional Offices at the 13th Floor, World Trade Center, New
York, New York, 10048; and 500 West Madison Street, Suite 1400, Chicago,
Illinois, 60661. Copies of such material can be obtained upon written request
addressed to the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site at http://www.sec.gov that also contains such material regarding the
registrant. Such documents filed by the Company can also be inspected at the
offices of the American Stock Exchange, 86 Trinity Place, New York, New York,
10006.

The Company has filed with the Commission a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement, which may be inspected and copied in the manner and at
the sources described above.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission pursuant to the
Exchange Act are incorporated herein by reference:

(1) The Company's Annual Report on Form 10-K and 10-K/A for the fiscal
year ended March 31, 1997;

(2) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997.

(3) The Company's Current Report on Form 8-K filed with the Commission on
June 10, 1997;

(4) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 0-14838),
declared effective on September 23, 1986, by which the Company's
shares of Common Stock were registered under Section 12 of the
Exchange Act and any other amendments or reports filed for the purpose
of updating such description.

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All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the shares of Common Stock or Class A
Warrants shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of filing of such documents.

Any statement contained herein or in a document incorporated or deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained in any subsequently filed document which is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

The Company will provide, without charge, to each person to whom a copy of this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to Pacific
Pharmaceuticals, Inc., 6730 Mesa Ridge Road, Suite A, San Diego, CA 92121,
Attention: Investor Relations. Telephone: (619) 550-3900.

IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS

Certain of the statements set forth under the captions "Risk Factors" and "Use
of Proceeds" and set forth elsewhere in this Prospectus constitute "Forward
Looking Statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, which are intended to be covered by the safe harbors from
liability created thereby. All such forward looking statements involve risks
and uncertainties, including those statements regarding risks of new product
development; market uncertainty; government regulation; need for FDA and other
regulatory approval; lengthy and uncertain approval process; dependence on WHO
license agreement and BTI Agreement; risk of loss of technology; dependence on
others for marketing and manufacturing; uncertainty of protection offered by
patents and trade secrets; absence of market for Class A Warrants; the impact of
potential AMEX delisting on marketability of securities; and risk of penny stock
regulation. Many other important factors set forth under the caption "Risk
Factors" affect the Company's ability to achieve the stated outcomes and to
successfully develop and commercialize its products, including those statements
regarding development stage company; accumulated deficit; anticipated future
losses; limited cash resources; potential need for substantial additional funds;
substantial dilution; dependence upon key personnel; and competition. As a
result, there can be no assurance that the forward looking statements in this
Prospectus will prove to be accurate. In light of the significant uncertainties
inherent in the forward looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.

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PROSPECTUS SUMMARY

THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE INFORMATION INCLUDED ELSEWHERE
IN THIS PROSPECTUS AND THE DETAILED INFORMATION AND FINANCIAL STATEMENTS
APPEARING IN THE DOCUMENTS INCORPORATED IN THIS PROSPECTUS BY REFERENCE.

THE COMPANY

On August 7, 1997, the Company's stockholders approved an amendment to the
Certificate of Incorporation to change the name of the Company to Pacific
Pharmaceuticals, Inc. The Company was formerly known as Xytronyx, Inc.

Pacific Pharmaceuticals, Inc., is engaged primarily in the development and
commercialization of medical products based on biotechnological research
relating to the treatment and detection of cancer and other diseases. As
described more fully below, the Company completed two transactions in the fiscal
year ended March 31, 1997, under which it acquired or otherwise gained rights to
two proprietary technologies in the area of cancer therapy, both of which are
undergoing preparation for human clinical trials.

In June 1996, the Company entered into an agreement giving it the option to
acquire Binary Therapeutics, Inc. ("BTI"). BTI is the holder of certain
proprietary technologies in the Photodynamic Therapy ("PDT") area for the
treatment of cancer. PDT is an emerging mode of treatment for cancer which uses
the combination of light-activated drugs and nonthermal light to achieve
selective, photochemical destruction of cancer cells with minimal effect on
surrounding normal tissue. See PHOTODYNAMIC THERAPY (PDT) / BINARY THERAPEUTICS,
INC. below.

In May 1996, the Company acquired an exclusive license from Wound Healing of
Oklahoma to Photodynamic Immunotherapy-TM- ("PDIT-TM-") technology, also for the
treatment of cancer. PDIT cancer treatment consists of the injection of a
combination of an infrared absorbing dye (photosensitizing drug) and an
immunoadjuvant directly into a tumor, followed by illumination with an infrared
laser. See PHOTODYNAMIC IMMUNOTHERAPY (PDIT) TREATMENT FOR CANCER/WOUND HEALING
OF OKLAHOMA below.

The Company believes that these two separate technologies and product
development opportunities complement each other and offer potential efficiencies
and other strategic benefits in relation to development requirements and
expected uses.

Beyond the cancer therapy area, the Company also has two products which are
further along in development and are undergoing commercialization: The
Periodontal Tissue Monitor (the "PTM"), a disposable test used to assist with
the diagnosis and monitoring of periodontal disease, and the Company's
Kephra-TM- photochromic technology.

PHOTODYNAMIC THERAPY (PDT) / BINARY THERAPEUTICS, INC.

In June 1996, Pacific Pharmaceuticals entered into an agreement (the "BTI
Agreement") with BTI under which the Company was granted an option to acquire
BTI by a merger of BTI into a wholly owned subsidiary of the Company. If the
Company elects to exercise its option, the BTI Agreement calls for the Company
to issue Common Stock to the stockholders of BTI with an aggregate acquisition
value of $6,000,000. By a letter dated February 27, 1997, the Company and BTI
have agreed to extend the period during which the Company may exercise its
option to acquire BTI from April 30, 1997 until such time as BTI has completed
human clinical trials of the Boronated Porphyrin (BOPP) at an agreed upon dose
level (the "Option Period"). The Option

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Period was extended at the Company's request to enable BTI to complete
preclinical studies, to commence clinical trials in humans and to demonstrate
that a given dose level of BOPP in humans would not cause certain adverse
events. The acquisition price was not changed by the February 27 letter
amendment. The Company believes that the extension of the Option Period will
give it greater opportunity to access the preliminary data resulting from the
BOPP preclinical trials and the Phase I human clinical trials and to evaluate
the possibility of adverse events in human patients before determining whether
to acquire BTI. Accordingly, the Company has elected to defer exercise of the
option.

Preclinical testing of BOPP in the United States and Australia, including
testing with various animal models, has indicated that BOPP has the following
advantages over certain existing PDT agents (including hematoporphyrin or HpD,
Photofrin and Foscan) in the treatment of brain cancers:

- - Selective (as much as 400 in tumors to 1 in healthy tissue) retention of
BOPP in brain tumor models, compared to a 30 to 1 or less for existing
known compounds.
- - Intracellular localization in mitochondria (the energy center of the cell)
for more efficient tumor cell killing.
- - Highly water soluble and stable under physiological conditions.

BTI and the Company are completing the pre-clinical work necessary for the
submission of an Investigational New Drug Application ("IND") to the United
States Food and Drug Administration ("FDA") with respect to BOPP for treatment
of brain cancer. BTI and the Company's current objective is to commence a Phase
I clinical study of PDT using BOPP in the treatment of brain cancer patients in
1997 after seeking IND approval. There can be no assurance, however, that IND
approval will be obtained within that time frame or at all.

The Company believes, based upon the results of preclinical studies, that BOPP
may also be useful as a photosensitizing drug for PDT treatment of pancreatic
tumors. Patents encompassing the BOPP technology have been issued to the
Regents of the University of California in the United States and Australia,
Ireland and South Africa. Patent applications are pending in Canada, the
European Patent Organization, Japan, Norway and Israel. Rights related to the
above patents were licensed to BTI under an Exclusive License Agreement dated
July 1, 1992, as amended August 29, 1995, pursuant to which BTI is obligated to
make certain payments.

PHOTODYNAMIC IMMUNOTHERAPY (PDIT) TREATMENT FOR CANCER/ WOUND HEALING OF
OKLAHOMA

The Company obtained an exclusive worldwide license to the PDIT technology in
May 1996 under an agreement with Wound Healing of Oklahoma ("WHO"), a privately
held company. The agreement calls for the Company to pay WHO royalties based on
sales of products incorporating the PDIT technology, including a minimum royalty
of $50,000 per year. The Company has also entered into a research agreement
with WHO under which the principal developers of the PDIT technology are
assisting with the preparation of the IND application to the FDA and performing
additional studies to investigate the mechanism of PDIT.

Similar to traditional PDT, PDIT treatment is intended to produce tumor tissue
destruction in the primary area of therapy. However, an important difference
between PDIT and PDT is that PDIT treatment is also intended to trigger an
immune reaction in the patient to complete the destruction of the primary tumor
and to also destroy metastatic tumors. The Company believes that the

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potential of PDIT therapy to destroy metastatic tumors may offer an improved
methodology for treatment of cancers such as breast, lung and prostate cancer.
There is no assurance that the Company's belief will prove correct. The
Company's scientific collaborators have obtained high response rates with PDIT
in the DMBA-4 cell line, a very challenging animal breast tumor model, which is
characterized by rapid proliferation of the primary tumor and the formation of
metastatic tumors throughout the body. Accordingly, the Company has targeted
breast cancer for initial human clinical studies with PDIT treatment. The
Company's current objective is to facilitate the initiation of a
physician-sponsored human clinical study of the treatment of breast cancer
patients in 1997. A patent application encompassing PDIT treatment was
originally filed in the United States and the countries party to the Patent
Cooperative Treaty ("PCT") by three individual researchers. The individuals
subsequently assigned their interest in such applications to WHO in April 1995.

AST DIAGNOSTIC TECHNOLOGY: THE PERIODONTAL TISSUE MONITOR (PTM)

The Periodontal Tissue Monitor (the "PTM") is a disposable test developed by the
Company to assist dental practitioners with the diagnosis and monitoring of the
treatment of periodontitis, a serious form of periodontal disease and the most
common cause of tooth loss in adults. The PTM is a simple, chairside,
eye-readable test based on the identification of aspartate aminotransferase
("AST"), an enzyme which is released when cells die.

The PTM is approved for sale in the United States, Canada, China and much of
Western Europe. U.S. clinical trials were completed in March 1996, and the
Company submitted a Premarket Approval ("PMA") application in respect of the PTM
to the FDA in September 1996. On June 5, 1997, the Company received an
"approvable letter" from the FDA in respect of its PMA for the PTM contingent
upon certain manufacturing requirements and labeling issues being met. On June
23, 1997, the Company received final approval from the FDA for commercial
distribution of the PTM.

In May 1996 the Company entered into an agreement with Hawe-Neos Dental to
distribute the PTM in Europe. Hawe-Neos, which is headquartered in Bioggio,
Switzerland, has more than 60 years experience in manufacturing and marketing
dental products in Europe. Hawe-Neos launched PTM at the 27th International
Dental Show in Cologne, Germany in April 1997. In May 1996, the Company signed
a letter of intent with Steri-Oss, a leading dental implant company, for
distribution of the PTM in North America and other countries. A definitive
agreement with Steri-Oss was signed in August 1997. The Company's marketing
partner in Japan, Shofu, is waiting on regulatory approval for PTM in that
country.

Two U.S. patents relating to the licensed PTM technology have been issued to the
University of Illinois, though international patent protection was only
available on one of the technologies. The Company has also been issued a patent
relating to the use of AST in a "one-step" kit format in the U.S., Australia,
Canada, Hong Kong, Israel, Japan, New Zealand, Singapore, South Africa and the
European Patent Organization. A patent application has been filed pursuant to
the PCT.

KEPHRA-TM- PHOTOCHROMIC TECHNOLOGY

The name "Kephra" encompasses the Company's family of dyes which react with
sunlight or other sources of UV light. The Kephra dyes are colorless when
viewed under room fluorescent or incandescent light but become very colorful
when exposed to UV light. The Company has the ability to license this
technology for applications including consumer health, apparel, promotional and
advertising programs and other products. Patent applications for the Company's

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Kephra-TM- photochromic technology have been filed in Australia, Brazil, Canada,
the European Patent Organization, Japan and Taiwan.

* * * * *

The Company's offices are at 6730 Mesa Ridge Road, Suite A, San Diego, CA 92121,
and its telephone number is (619) 550-3900.

THE OFFERING

Securities Offered:

Common Stock . . . . . . . . 19,831,145 shares of Common Stock, par value
$0.02 per share, offered by the Selling
Securityholders.(1)(2)(3)(4)(5)

Class A Warrants . . . . . . 6,500,188 Class A Warrants to purchase Common
Stock, currently issued and outstanding,
offered by the Selling Securityholders.(6)

Common Stock Outstanding
prior to the Offering. . . . . . . . . . 8,467,279 shares as of August
25, 1997.(7)

Class A Warrants Outstanding
prior to the Offering. . . . . . . . . . 13,110,907 warrants as of August
25, 1997.

Plan of Distribution. . . The Common Stock and Class A Warrants offered
hereby may be sold from time to time in one or
more transactions at market prices prevailing at
the time of the sale, at prices related to such
prevailing market prices or at negotiated prices.

Use of Proceeds . . . . . The Company will not receive any of the proceeds
from the sale of the shares of Common Stock and
Class A Warrants offered hereby. The proceeds, if
any, from the exercise of Class A Warrants will be
used for product development and general corporate
purposes.

AMEX Symbol for Common Stock . . . . . . . . . PHA

* * * * *

(1) Includes 10,416,978 shares of Common Stock underlying the Convertible
Preferred Stock.

(2) Includes 5,250,150 shares of Common Stock underlying the Class A Warrants.

(3) Includes 309,734 shares of Common Stock underlying the Settlement Warrants.

(4) Includes 1,250,038 shares of Common Stock underlying Common Stock purchase
warrants, which warrants partly underlie the Paramount Options.

(5) Includes 2,604,245 shares of Common Stock underlying Convertible Preferred
Stock, which shares of Convertible Preferred Stock partly underlie the
Paramount Options.

(6) Includes 5,000,150 Class A Warrants issued in the 1997 Private Placement,
100,000 warrants issued to Wound Healing of Oklahoma in consideration of a
License Agreement, 150,000 warrants issued to Aries Trust in consideration
for a Line of Credit, and 1,250,038 warrants issued to Paramount pursuant
to the Paramount Options.

(7) Does not include (i) 5,317,400 shares of Common Stock available for
issuance, and options granted to date to purchase 1,710,000 shares of
Common Stock at a weighted average price of $3.08, issued to management,
key employees, directors, and consultants under various stock option plans
or by direct grant from the Board of Directors; (ii) 13,110,907 shares of
Common Stock reserved for issuance upon exercise of currently exercisable
Class A Warrants issued by the Company, (iii) 309,734 shares of Common
Stock issuable at a price of $22.00 per share to holders of warrants issued
by the Company under a June 1994 settlement agreement (see "Plan of
Distribution"), and (iv) 348,500 shares of Common Stock, and 435,625 shares
of Common Stock underlying Class A Warrants, reserved for issuance upon
exercise of certain options granted to Paramount in the Company's 1995
Private Placement. (see "Selling Securityholders").

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RECENT DEVELOPMENTS

On August 7, 1997 at the annual stockholders meeting, the Company's stockholders
approved an amendment to the Certificate of Incorporation to change the name of
the Company to Pacific Pharmaceuticals, Inc. The Company was formerly known as
Xytronyx, Inc. Also, the stockholders approved an increase in the authorized
number of common stock from 30,000,000 to 100,000,000 shares and preferred stock
from 300,000 to 2,000,000 shares.

The Company also announced that August 14, 1997, its shares will trade on the
American Stock Exchange under a new ticker symbol PHA.

In August 1997, the Company signed a definitive agreement with Steri-Oss,
Inc. for the exclusive distribution of the PTM in North America and other
countries.

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RISK FACTORS

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE AND INVOLVES A
HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION. INVESTORS SHOULD BE ABLE TO
WITHSTAND THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE PURCHASERS SHOULD
CAREFULLY REVIEW THE INFORMATION SET FORTH BELOW.

DEVELOPMENT STAGE COMPANY; ACCUMULATED DEFICIT; ANTICIPATED FUTURE LOSSES

The Company has generated only limited revenues from operations to date. As of
March 31, 1997, the Company had an accumulated deficit of $33,356,189, and
expects substantial losses to continue for the foreseeable future. The
Company's operations are subject to numerous risks associated with the
establishment and development of new products, particularly those based on
innovative or novel technologies. These risks include the possibility that any
or all of the Company's products will be found to be ineffective or unsafe, that
the products, once developed, although effective, are uneconomical to market,
that third parties hold proprietary rights that preclude the Company from
marketing such products or that third parties market a superior or equivalent
product. The Company's ability to generate significant revenues and
profitability will depend, among other factors, on the successful completion of
product development, obtaining regulatory approvals, establishing manufacturing
and marketing capabilities, gaining market acceptance for its products, and
obtaining adequate funds to finance operations. There can be no assurance that
the Company will generate any revenues or achieve profitability.

LIMITED CASH RESOURCES; POTENTIAL NEED FOR SUBSTANTIAL ADDITIONAL FUNDS

As of June 30, 1997 the Company had cash of approximately $5,462,000. The
Company estimates that its resources are sufficient until June 1998 or later,
unless the Company undertakes additional financings or generates revenues from
product sales or marketing and research alliances.

The Company has expended and intends to continue to expend substantial funds to
conduct research and development activities, including preclinical and clinical
testing of its cancer therapy technologies and its funding commitments under its
agreement with BTI. (See "Prospectus Summary" - "The Company -- Photodynamic
Therapy (PDT) / Binary Therapeutics, Inc.") The Company currently estimates
that its existing capital resources, will fund the Company's operations through
the end of calendar year 1998. Accordingly, the Company will require
significant additional funds, either from marketing partners, product sales, or
additional equity or debt financing, to complete development and commence
commercial-scale manufacturing of its products. The actual date through which
the proceeds of this Offering and the existing cash resources will be adequate
to fund the Company's operations, and the timing and magnitude of the need for
additional funds, may vary significantly based on numerous factors, including
(i) the timing and receipt of U.S. regulatory approval, if any, to commence
human clinical studies of the PDT and PDIT cancer technologies (all of which in
turn are dependent upon the successful completion of preclinical activities),
(ii) the timing of the establishment of any marketing partnership(s) for the PTM
and strategic partnership(s) for the PDT and PDIT technologies, (iii) the timing
and the amount, if any, of payments received from any such partner(s), (iv) the
timing and amount, if any, of revenues generated from sales of the PTM, (v) the
timing and amount, if any, of revenues from Kephra products and (vi) the timing
and the amount, if any, of proceeds available from the exercise of the Class A
Warrants included in this Offering as well as the currently outstanding Class A
Warrants and Settlement Warrants.

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The Company has no commitments for any additional funding and there can be no
assurance that such funding will be available on acceptable terms, if at all.
If adequate funds on acceptable terms are not available to the Company, the
Company may be required to delay, scale back or eliminate product development
efforts, or cease operations, in whole or in part.

SUBSTANTIAL DILUTION

The number of shares of Common Stock issuable upon conversion of the Preferred
Stock and upon exercise of the Class A Warrants, the Settlement Warrants, the
Paramount Options, though subject to adjustment in certain events, is 32,304,900
shares of Common Stock, or nearly three times the 8,467,279 shares of Common
Stock issued and outstanding on August 25, 1997. The shares of Convertible
Preferred Stock and Class A Warrants which underlie the Paramount Options are
not convertible until September 11, 1997, pursuant to the Placement Agreement
between Paramount and the Company. All of the named Selling Securityholders
except Paramount and its Transferees have agreed to a nine-month lock-up period
from the effective date (the "Effective Date") of the registration statement of
which this Prospectus forms part in respect of 75% of the offered holding of
Common Stock and Class A Warrants. Following each three-month period after the
Effective Date, a further 25% of such securities becomes exempt from such
lock-up period. The conversion of the Convertible Preferred Stock and the
exercise of the Class A Warrants and the Paramount Options, and the sale of the
underlying shares of Common Stock (or even the potential of such conversion,
exercise or sale) may have a depressive effect on the market price of the Common
Stock and the securities offered hereby. The conversion of the Convertible
Preferred Stock and the exercise of the Class A Warrants and Paramount Options
also may have a dilutive effect. Moreover, the ability of the Company to obtain
any needed capital on terms more favorable to the Company than those provided in
the 1997 Private Placement may be adversely affected. As a result of the
Convertible Preferred Stock, the Class A Warrants and the Paramount Options
being outstanding, the Company may be deprived of favorable opportunities to
obtain additional equity capital, if it should then be needed. It is also
possible, that as long as the Convertible Preferred Stock, the Class A Warrants
and Paramount Options remain outstanding, their existence might limit increases
in the price of the Common Stock.

In the event the Company issues shares of Common Stock or otherwise obtains any
additional funding to complete development and commence commercial-scale
manufacturing of its products, the terms thereof may have a dilutive effect on
holders of the Company's securities. (See "Risk Factors" -- "Potential Need for
Substantial Additional Funds").

The Company currently has 5,317,400 shares of Common Stock available for
issuance, and has granted to date options to purchase 1,710,000 shares of Common
Stock at a weighted average price of $3.08, to management, key employees,
directors, and consultants under various stock option plans or by direct grant
from the Board of Directors. Pursuant to such plans, directors, key employees
and consultants may be eligible to receive stock options exercisable for Common
Stock at exercise prices which may be lower than the initial conversion price of
the Convertible Preferred Stock or the exercise price of the Class A Warrants
registered herein. Future option grants, if any, may dilute the value of the
Common Stock.

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ABSENCE OF MARKET FOR CLASS A WARRANTS; RESTRICTIONS ON TRANSFERABILITY

There is no established trading market for the Class A Warrants and there can be
no assurance that the Class A Warrants will be listed for trading on any
national securities exchange or quoted on NASDAQ, or that any active trading
market will develop for the Class A Warrants.

No predictions can be made of the effect that future market sales of the shares
of Common Stock underlying the Class A Warrants, or future market sales of the
Class A Warrants, or the availability of such shares or Class A Warrants for
sale, will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock or Class A Warrants, or the
perception that such sales might occur, could adversely affect prevailing market
prices.

IMPACT OF POTENTIAL AMEX DELISTING ON MARKETABILITY OF SECURITIES

The Company currently falls below the AMEX stockholders' equity guidelines for
listed companies. The Company is actively taking steps to address the Exchange's
guidelines, and has met with representatives of the Exchange to discuss its
situation and the basis of which a determination of delisting might be deferred.
If delisting were to occur, it is possible that the trading in the Company's
Common Stock would thereafter be conducted in the over-the-counter market, in
the so-called "pink sheets" or the NASD's "Electronic Bulletin Board", and it
would be more difficult to dispose of the Common Stock or to obtain as favorable
a price for the Common Stock. Consequently, the liquidity of the Common Stock
could be impaired, not only in the number of shares of Common Stock that could
be bought and sold at a given price, but also through delays in the timing of
transactions and reduction in security analysts' and the media's coverage of the
Company, which could result in lower prices for the Common Stock than might
otherwise be attained and in a larger spread between the bid and asked prices
for the Common Stock. Accordingly, an investor would find it more difficult to
dispose of, or obtain accurate quotations as to the price of, the Company's
currently listed securities, resulting in a material adverse effect on the
Company and the prices of its securities.

RISK OF PENNY STOCK REGULATION

If the Company's Common Stock were delisted from the AMEX it is likely that the
Common Stock would be deemed "penny stock." The Commission has adopted
regulations which generally define " penny stock" to be any equity security that
has a market price ( as defined in the regulation) of less than $5.00 per share,
subject to certain exceptions. Such exceptions include any equity security
listed on AMEX. If the Common Stock is removed from listing on AMEX, the Common
Stock may become subject to Rules 15g-1 through 15g-6 promulgated under the
Exchange Act for non-exchange listed and non-NASDAQ securities. These rules
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally, those persons with assets in excess of $1,000,000 or annual incomes
exceeding $200,000 individually or $300,000 together with their spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of the Common Stock and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to (i) deliver a standardized risk disclosure
document prepared by the Commission that provides information about penny stocks
and the nature and level of risks in the penny stock market and (ii) provide

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<PAGE>

the customer with current bid and offer quotations of the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, a
monthly account statement showing the market value of each penny stock held in
the customer's account, and if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. These disclosures may restrict the ability of broker-dealers
to sell the Common Stock and may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. If the Common Stock becomes subject to the penny stock
rules, the holders thereof may find it difficult to sell their shares.

LIMITED TRADING VOLUME; POSSIBLE PRICE VOLATILITY

Historically, the Common Stock has generally experienced relatively low daily
trading volumes in relation to the aggregate number of shares issuable in this
Offering. The market price of the Common Stock also has been volatile and it
may continue to be volatile as has been the case with the securities of other
public medical-technology companies. Factors such as announcements by the
Company or its competitors concerning technological innovations, results of
clinical trials, new commercial products or procedures, proposed government
regulations and developments or disputes relating to patents or proprietary
rights may have a significant effect on the market price of the Company's
securities. Changes in the market price of the Common Stock may bear no
relation to the Company's actual operations or financial results. Each of the
foregoing factors may also be applicable to the Class A Warrants if a trading
market in the warrants develops in the future.

GOVERNMENT REGULATION; NEED FOR FDA AND OTHER REGULATORY APPROVAL; LENGTHY AND
UNCERTAIN APPROVAL PROCESS

Prior to marketing, each of the Company's proposed medical products, including
both the drug and light delivery components of the proposed PDT and PDIT
treatment systems, and the PTM, must undergo an extensive regulatory approval
process conducted by the FDA and applicable agencies in other countries. The
process, which focuses on safety and efficacy and includes a review by the FDA
of preclinical testing and clinical trials and investigation as to whether good
laboratory and clinical practices were maintained during testing, is likely to
take many years and require the expenditure of substantial resources. The
Company is and will be dependent on the external laboratories and medical
institutions conducting its preclinical testing and clinical trials to maintain
both good laboratory practices established by the FDA and good clinical
practices. Data obtained from preclinical and clinical testing are subject to
varying interpretations which could delay, limit or prevent regulatory approval.
In addition, delays, limitations or rejections may be encountered based upon
changes in FDA policy for drug or medical device approval during the period of
development and by the requirement for regulatory review of each IND and New
Drug Application ("NDA") relating to any pharmaceutical product proposed to be
introduced by the Company and an application for PMA relating to any medical
device proposed to be introduced by the Company. There can be no assurance
that, even after significant expenditures, regulatory approval will be obtained
for any of the Company's product candidates. Moreover, such approval may entail
significant limitations on the indicated uses for which a medical product may be
marketed. Any denials of or substantial delays in obtaining requisite approvals
or limitations on such approvals may have a material adverse effect on the
Company. Such denials, and delays in obtaining regulatory approvals and
limitations on such approvals could be experienced both domestically and abroad.

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<PAGE>

Even if such regulatory approval is obtained, a marketed medical product and its
manufacturer are subject to continual regulatory review, and later discovery of
previously unknown problems with a product or manufacturer may result in
restrictions on such product or the manufacturing thereof, including withdrawal
of such product from the market. Change in the manufacturing procedures used by
the Company for any of the Company's approved medical products are subject to
FDA review, which could have an adverse effect upon the Company's ability to
continue the commercialization or sale of a product. The process of obtaining
FDA approval is costly and time consuming, and there can be no assurance that
any of the Company's products will be deemed to be safe and effective by the
FDA. The Company will not be permitted to market any of its medical products in
any jurisdiction in which the product does not receive regulatory approval.
Neither the Company nor its licensor has had any contact with the FDA or any
foreign regulatory authority regarding the PDIT technology.

DEPENDENCE ON WHO LICENSE AGREEMENT AND BTI AGREEMENT; RISK OF LOSS OF
TECHNOLOGY

The right of the Company to acquire rights to the PDT technology is derived from
the option the Company has to acquire BTI pursuant to an agreement between the
Company and BTI (the "BTI Agreement"). Under the terms of the BTI Agreement,
the Company is required to satisfy certain conditions, including funding up to
$1,250,000 of product development expenses incurred by BTI during the Option
Period, in order to exercise its rights to acquire BTI by merger under the BTI
Agreement. The Company is also required to advance to BTI funds to repay
certain indebtedness in the event the Company exercises its option to acquire
BTI. By a letter dated February 27, 1997, the Company and BTI have agreed to
extend the period during which the Company may exercise its option to acquire
BTI from April 30, 1997 until such time as BTI has completed human clinical
trials of the Boronated Porphyrin (BOPP) at an agreed upon dose level (the
"Option Period"). The Option Period was extended at the Company's request to
enable BTI to complete preclinical studies, to commence clinical trials in
humans and to demonstrate that a given dose level of BOPP in humans would not
cause certain adverse events. The acquisition price was not changed by the
February 27 letter amendment. The Company believes that the extension of the
Option Period will give it greater opportunity to access the preliminary data
resulting from the BOPP preclinical trials and the Phase I human clinical trials
and to evaluate the possibility of adverse events in human patients before
determining whether to acquire BTI. Accordingly, the Company has elected to
defer exercise of the option.

The right of the Company to the PDIT technology is derived from the Company's
license agreement (the "WHO License Agreement") with WHO. The WHO License
Agreement requires the Company to pay royalties to WHO based on sales of
products incorporating the PDIT technology, including a minimum royalty of
$50,000 per year.

If the Company does not meet its obligations under the BTI Agreement, as
amended, or the WHO License Agreement in a timely manner, the Company could lose
its rights to either or both the proprietary PDT or PDIT technology. Any such
loss could have a material adverse effect on the Company.

UNCERTAINTY OF PROTECTION OFFERED BY PATENTS AND TRADE SECRETS

The medical industry, particularly the pharmaceutical segment, places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. The Company's success will depend, in
part, on its ability to enjoy or obtain protection for its

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<PAGE>

products and technologies under United States and foreign patent laws and other
intellectual property laws, to preserve its trade secrets and to operate without
infringing the proprietary rights of third parties. To date, the Company has
received a number of patents, and has filed a number of other patent
applications, relating to the Company's technologies in the United States and
internationally. BTI and the Company have each benefited as a licensee from
such issuances or filings of others.

The patent positions of pharmaceutical, medical and biotechnology firms,
including the Company, are uncertain and involve complex legal and factual
questions for which important legal principles are largely unresolved. To date,
no consistent policy has been developed by the U.S. Patent and Trademark Office
regarding the breadth of claims allowed in medical device or biotechnology
patents or the degree of protection afforded under such patents. The coverage
claimed in a patent application can be significantly reduced before a patent is
issued. Consequently, the Company does not know whether any patent applications
will result in the issuance of patents. Additionally, the Company does not know
whether its existing patents (and any patents related to its patent applications
which subsequently may be issued) will provide significant proprietary
protection or will be circumvented or invalidated. Since patent applications in
the United States are maintained in secrecy until foreign counterparts, if any,
publish or issue patents and since publication of discoveries in the scientific
or patent literature often lag behind actual discoveries, the Company cannot be
certain that it or any licensor was the first creator of inventions covered by
existing patents or pending patent applications or that it or such licensor was
the first to file patent applications for such inventions. Moreover, the
Company might have to participate in interference proceedings declared by the
U.S. Patent and Trademark Office to determine priority of inventions, which
could result in substantial cost to the Company even if the eventual outcome
were favorable to the Company. There can be no assurance that the Company's
current patents, or patents relating to its patent applications, if issued,
would be held valid by a court or that a competitor's technology or product
would be found to infringe such patents.

A number of biotechnology and high-tech companies and research and academic
institutions have developed technologies, filed patent applications or received
patents on various technologies that may compete with the Company's business.
Some of these technologies, applications or patents may conflict with the
Company's technologies, applications or patents. Such conflict could limit the
scope of the patents that the Company has or may be able to obtain or result in
the denial of the Company's patent applications. In addition, if patents that
cover the Company's activities are issued to other companies, there can be no
assurance that the Company would be able to obtain licenses to these patents at
a reasonable cost or be able to develop or obtain alternative technology.

The Company also relies upon trade secret protection for its unpatented
confidential and proprietary technology and information. There can be no
assurance that others will not independently develop substantially equivalent
proprietary technology and information, gain access to the Company's trade
secrets or disclose such technology and information, or, in general, that the
Company can meaningfully protect its unpatented technology and information.

RISKS OF NEW PRODUCT DEVELOPMENT; MARKET UNCERTAINTY

BTI's PDT technology is new and emerging and only limited preclinical and
clinical data on its safety and efficacy exits. Data relating to the Company's
PDIT technology is even more limited. The PDT and PDIT technologies have been
tested only in animal models to date; human clinical trials have not commenced
on either of these potential cancer products. There is no assurance

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<PAGE>

that commencement of human clinical trials will be approved by the FDA or any
other regulatory agencies, or that the technologies will prove effective in any
such clinical trials. None of the products underlying these technologies that
the Company proposes to develop or is developing have been approved for
marketing by regulatory authorities in the United States or elsewhere, and all
will require significant research and development, including lengthy clinical
testing, prior to their commercialization. The results of preclinical testing
discussed in this Prospectus for the Company's drug compounds and technologies
are subject to varying interpretations. Furthermore, studies conducted with
alternative designs or on alternative populations could produce results that
vary from those discussed in this Prospectus. Therefore, there can be no
assurance that the results discussed in this Prospectus or the Company's
interpretation of them will be accepted by governmental regulators or the
medical community. Even if the development of the Company's products in the
preclinical phase advances to the clinical stage, there can be no assurance that
the products will prove to be safe and effective. The products that are
successfully developed, if any, will be subject to requisite regulatory approval
prior to their commercial sale, and the approval, if obtainable, is likely to
take several years. Generally, only a very small percentage of the number of
new pharmaceutical products initially developed is approved for sale. Even if
the Company's products are approved for sale, there can be no assurance that
they will be commercially successful. The Company may encounter unanticipated
problems relating to development, manufacturing, distribution and marketing,
some of which may be beyond the Company's financial and technical capacity to
solve. The failure to address such problems adequately could have a material
adverse effect on the Company's business and prospects. No assurance can be
given that the Company will succeed in the development and marketing of any new
drug products, or that the products will not be rendered obsolete by products of
competitors.

There can be no assurance of the extent to which any of the Company's products,
if successfully developed, will actually be used by patients. Furthermore, there
can be no assurance that the Company's sales of its products for such uses will
be profitable even if patient use occurs.

COMPETITION

The biotechnology and medical device industries are characterized by rapidly
evolving technology and intense competition. The consumer markets into which the
Kephra reversible photochromic technology is targeted for marketing are also
extremely competitive. Many of the companies in these industries have
substantially greater financial resources and development capabilities than the
Company, and many in the biotechnology and medical device industries have
substantially greater experience in undertaking clinical testing of products,
obtaining regulatory approvals and manufacturing and marketing such products.
There can be no assurance that the Company's products will be more effective or
achieve greater market acceptance than any current or future competitive
products, or that competitors will not develop products that are more effective
than the Company's or that would render the Company's products and technologies
less competitive or obsolete.

DEPENDENCE ON OTHERS FOR DEVELOPMENT, MARKETING AND MANUFACTURING

The Company expects to rely upon marketing partnerships with unaffiliated
medical product companies and strategic partners to develop and market all of
its medical products. Such reliance may limit the Company's ability to control
the commercialization of such products. Although the Company believes that any
such collaborative partners will have an economic motivation to commercialize
the products which they have the right and responsibility to market,

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<PAGE>

the amount and timing of resources devoted to these activities generally will be
controlled by each individual partner. There can be no assurance that the
Company will be successful in establishing any such marketing partnerships, or
that, if established, such future partners will be successful in commercializing
the products.

The Company also relies upon collaborative agreements with unaffiliated
companies for the manufacturing and distribution of the PTM product and
anticipates relying on such companies and partners for the development of its
drug compounds. The Company expects to continue to rely upon such relationships
at least in respect to production associated with initial commercial sales, and
perhaps beyond the initial stages of commercialization. Such reliance may
adversely affect profit margins on its products, and there are no assurances
that the Company can develop or maintain contract manufacturing relationships in
the future on acceptable terms, if at all. In addition, manufacturers of the
Company's products will be subject to applicable current good manufacturing
practices ("GMP") prescribed by the FDA or other rules and regulations
prescribed by foreign regulatory authorities. The Company will be dependent on
such manufacturers for continued compliance with GMP and applicable foreign
standards. Failure by a manufacturer of the Company's products to comply with
GMP or applicable foreign standards could result in significant time delays or
the inability of the Company to commercialize a product and could have a
material adverse effect on the Company.

DEPENDENCE UPON KEY PERSONNEL

The Company is currently dependent on certain executive officers, management and
scientific personnel. The loss of these individuals might have a material
adverse effect on the research and development programs and other operations of
the Company. Competition for qualified employees among medical companies is
intense, and the loss of any of such persons, or an inability to attract, retain
and motivate additional highly skilled employees, could adversely affect the
Company's business and prospects. There can be no assurance that the Company
will be able to retain its existing personnel or to attract additional qualified
employees.

UNCERTAINTY OF PHARMACEUTICAL PRICING, REIMBURSEMENT AND RELATED MATTERS

The Company's business, financial condition and results of operations may be
materially adversely affected by the continuing efforts of government and third
party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets pricing and profitability of
prescription pharmaceuticals are subject to government control. In the United
States, the Company expects that there will continue to be a number of federal
and state proposals to implement similar government control. In addition,
increasing emphasis on managed care in the United States will continue to put
pressure on the pricing of pharmaceutical products and diagnostic tests. Cost
control initiatives could decrease the price that the Company or any of its
strategic partners receives for any products in the future and have a material
adverse effect on the Company's business, financial condition and results of
operations. Further, to the extent that cost control initiatives have a
material adverse effect on the Company's strategic partners, the Company's
ability to commercialize its products and to realize royalties may be adversely
affected.

The ability of the Company and any strategic partner to commercialize
pharmaceutical or diagnostic products may depend in part on the extent to which
reimbursement for the products will be available from government and health
administration authorities, private health insurers and other third party
payors. Significant uncertainty exists as to the reimbursement status of

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newly approved health care products. Third party payors, including Medicare,
increasingly are challenging the prices charged for medical products and
services. Government and other third party payors are increasingly attempting
to contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products and by refusing in some cases to
provide coverage for uses of approved products for disease indications for which
the FDA has not granted labeling approval. There can be no assurance that any
third party insurance coverage will be available to patients for any products
discovered and developed by the Company or its strategic partners. If adequate
coverage and reimbursement levels are not provided by government and other third
party payors for the Company's products, the market acceptance of these products
may be reduced, which may have a material adverse effect on the Company's
business, financial condition and results of operations.

PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE

The Company faces an inherent business risk of exposure to product liability
claims in the event that the use or misuse of its products and proposed products
result in adverse effects. The Company currently maintains $5 million of
product liability insurance coverage. There can be no assurance that such
coverage is or in the future will be adequate or that adequate insurance will be
available in the future at an acceptable cost, if at all. In addition, there
can be no assurance that a product liability claim, even if the Company has
insurance coverage, would not materially adversely affect the business or
financial condition of the Company.

RISK OF REDEMPTION OF CLASS A WARRANTS

The Class A Warrants are subject to redemption by the Company at $.10 per
warrant on 60 days' prior written notice provided that the closing bid quotation
for the Common Stock as reported on the AMEX, or on such exchange on which the
Common Stock is then traded, exceeds 400% of the exercise price per share for 20
consecutive trading days ending three days prior to the date of redemption.
Notice of redemption of the Class A Warrants could cause the holders thereof to
exercise the Class A Warrants and pay the exercise price at a time when it may
be disadvantageous for the holders to do so, to sell the Class A Warrants at the
current market price when they might otherwise wish to hold the Class A
Warrants, or to accept the redemption price, which is likely to be less than the
market value of the Class A Warrants at the time of redemption. See
"Description of Securities - Class A Warrants."

TERMS OF SETTLEMENT WARRANTS

The exercise price and other terms of the Settlement Warrants were determined as
a result of settlement negotiations between the Company and representatives of
the plaintiffs in the class-action lawsuit described under "Settlement
Warrants." The exercise price of $22.00 per share of Common Stock does not
necessarily bear any relationship to the financial condition, results of
operations or business or financial prospects of the Company, or any other
recognized investment criteria, and should not be considered an indication of
the actual value of the Company's Common Stock. See "Plan of Distribution."

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USE OF PROCEEDS

The Company will not receive any proceeds resulting from the sale of the shares
of Common Stock and Class A Warrants by the Selling Securityholders. See
"Selling Securityholders."

The Class A Warrants entitle the holder to purchase one share of Common Stock
from the Company at an exercise price of $1.00 per share. Exercise of the Class
A Warrants offered hereby would result in total gross proceeds to the Company of
$6,500,188. The Settlement Warrants entitle the holder to purchase one share of
Common Stock from the Company at an exercise price of $22.00 per share. The
exercise of all the Settlement Warrants would result in total gross proceeds to
the Company of $6,814,148. In the event that any of the Class A Warrants or
Settlement Warrants are exercised in the future, net cash proceeds to the
Company would be used for general working capital purposes. The Company is not
expected to receive any proceeds from the exercise of the Paramount Options
since they may be exercised pursuant to a cashless exercise provision. Whether,
how and to what extent any of the Class A Warrants, Settlement Warrants,
Paramount Options will be exercised, and whether the Paramount Options are
exercised for cash or not, cannot be predicted by the Company.

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SELLING SECURITYHOLDERS

The price for the Premium Preferred Units sold in the 1997 Private Placement was
fixed by the Board of Directors of the Company in September 1996 by negotiation
between the Company and the placement agent, Paramount. Each unit cost $100,000
and consisted of 500 shares of Convertible Preferred Stock and 50,000 Class A
Warrants. The Convertible Preferred Stock was priced at $200 per share and each
share is convertible at the option of the holder thereof into shares of Common
Stock at a conversion rate corresponding to a conversion price equal to the
lesser of (i) $2.00 and (ii) 80% of the average closing bid price of the Common
Stock, on the American Stock Exchange for the 30 consecutive trading days
immediately preceding (a) the initial closing date, (b) any interim closing date
or (c) the final closing date of the 1997 Private Placement, whichever was
lowest. Based upon this formula, the conversion price was fixed at $.96 after
the December 19, 1996, initial closing, and did not change based upon the March
7, 1997, final closing. Also, the conversion price is to be adjusted and reset
effective as of March 7, 1998 (the "Reset Date") if the average closing bid
price of the Common Stock for the 30 consecutive trading days immediately
preceding the Reset Date is less than 130% of the then applicable conversion
price. (See "Description of Securities" -- "Preferred Stock"). Each Class A
Warrant entitles the holder thereof to purchase one share of Common Stock at a
price of $1.00 per share subject to adjustment in accordance with the adjustment
provisions set forth in the Warrant Agreement (See "Description of Securities"
- -- "Class A Warrants.").

The following table sets forth certain information concerning the number of
shares of Common Stock and Class A Warrants offered hereby by each of the
Selling Securityholders and as adjusted to reflect the ownership of shares of
Common Stock and Class A Warrants after the offering. The footnotes to the
Selling Securityholder table below indicates those Selling Securityholders which
disclosed to the Company their ultimate control persons pursuant to filings
under the Exchange Act.

<TABLE>
<CAPTION>
Securities After Offering
Offered by this Prospectus --------------------------------------
--------------------------------- Common Stock Class A Warrants
Name of Selling ------------------ ------------------
Stockholder Common Stock Warrants Shares Percent (1) Number Percent (2)
----------- ------------ -------- ------ ----------- ------------------
<S> <C> <C> <C> <C>
Mark Abeshouse(8) 5,126 1,663 0 (*) 0 (*)

Ross D. Ain 30,833 10,000 0 (*) 0 (*)

Aries Domestic
Fund, LP(5) 1,546,068 517,890 200,000 (*) 250,000 3.8%

The Aries Trust(5) 3,017,050 1,022,400 200,000 (*) 250,000 3.8%

Armen Partners L.P. 308,333 100,000 0 (*) 0 (*)

Armen Offshore
Fund Ltd. 77,083 25,000 0 (*) 0 (*)

Ronald S. Baruch 38,542 12,500 0 (*) 0 (*)

Alan R. Batkin 77,083 25,000 0 (*) 0 (*)

Mark Berg 154,167 50,000 0 (*) 0 (*)
</TABLE>

20
<PAGE>

After Offering
Offered by this Prospectus --------------------------------------
--------------------------------- Common Stock Class A Warrants
Name of Selling ------------------ ------------------
Stockholder Common Stock Warrants Shares Percent (1) Number Percent (2)
----------- ------------ -------- ------ ----------- ------------------
<S> <C> <C> <C> <C>
David J. Bershad 154,167 50,000 0 (*) 0 (*)

D. H. Blair & Co., Inc.(8) 44,323 14,375 0 (*) 0 (*)

Paine Webber
c/f IRA Alan M. Blender 38,542 12,500 0 (*) 0 (*)

Elliott Broidy 154,167 50,000 0 (*) 0 (*)

Anthony Broy 30,833 10,000 0 (*) 0 (*)

Donald C. Carter 308,333 100,000 0 (*) 0 (*)

Cass & Co.
Magnum Capital
Growth Fund 77,083 25,000 0 (*) 0 (*)

Thomas L. Cassidy
IRA Rollover 77,083 25,000 0 (*) 0 (*)

IRA FBO
Richard B. Chanin 77,083 25,000 0 (*) 0 (*)

Andrew and Barbara
Cichelli 30,833 10,000 0 (*) 0 (*)

Robert J. Conrads 77,083 25,000 0 (*) 0 (*)

Lilia Cordero de Adame
Lilia Ma Olvera 38,542 12,500 0 (*) 0 (*)

Archibald Cox, Jr. 308,333 100,000 0 (*) 0 (*)

Daniel J. &
Patricia Ann Dorman 38,542 12,500 0 (*) 0 (*)

Dan Drykerman 77,083 25,000 0 (*) 0 (*)

Joseph Edelman(8) 14,401 4,671 0 (*) 0 (*)

Nathan Eisen 77,083 25,000 0 (*) 0 (*)

Joseph A. Fabiani 56,926 18,463 40,000 (*) 50,000 (*)

Marc Florin(8) 24,744 8,025 0 (*) 0 (*)

Albert Fried, Jr. 154,167 50,000 0 (*) 0 (*)

Morris Friedman 77,083 25,000 0 (*) 0 (*)

Gerald and Gloria
Frolich 38,542 12,500 0 (*) 0 (*)

Giant Trading Inc. 61,667 20,000 0 (*) 0 (*)
</TABLE>

21
<PAGE>

Securities After Offering
Offered by this Prospectus --------------------------------------
--------------------------------- Common Stock Class A Warrants
Name of Selling ------------------ ------------------
Stockholder Common Stock Warrants Shares Percent (1) Number Percent (2)
----------- ------------ -------- ------ ----------- ------------------
<S> <C> <C> <C> <C>
Gilbert Goldstein, Trustee
UIT Howard Gittis,
dated 12/23/88 154,167 50,000 0 (*) 0 (*)

Laura Gold Galleries Ltd.
Profit Sharing Trust 38,542 12,500 0 (*) 0 (*)

The Gordon Fund, L.P. 77,083 25,000 0 (*) 0 (*)

Michael J. Gordon 15,417 5,000 0 (*) 0 (*)

Robert P. Gordon 77,083 25,000 0 (*) 0 (*)

Michael G. Jesselson
12/18/80 Trust 770,833 250,000 0 (*) 0 (*)

12/18/80 Trust FBO
Jesselson Grandchildren 770,833 250,000 0 (*) 0 (*)

Patrick M. Kane 77,083 25,000 0 (*) 0 (*)

Peter M. Kash(8) 20,370 6,607 0 (*) 0 (*)

Melvin L. Katten 38,542 12,500 0 (*) 0 (*)

Scott A. Katzmann(8) 108,811 35,290 0 (*) 0 (*)

Donald R. Kendall, Jr.
& Diane S Kendall
JTWROS 38,542 12,500 40,000 (*) 50,000 (*)

John R. Kennedy
Pension Fund 77,083 25,000 0 (*) 0 (*)

Jay Kestenbaum 77,083 25,000 0 (*) 0 (*)

Keys Foundation 308,333 100,000 0 (*) 150,000 2.3%

Martin & Miriam
Knecht, JTWRS 38,542 12,500 0 (*) 0 (*)

Robert A. Knox 77,083 25,000 0 (*) 0 (*)

Martin S. Kratchman(8) 2,698 875 0 (*) 0 (*)

Harvey Krauss, Trustee
Brian Michael Krauss 38,542 12,500 0 (*) 0 (*)

Gregory & Domenica
Lechner 77,083 25,000 0 (*) 0 (*)

Benjamin Lehrer 38,542 12,500 0 (*) 0 (*)

</TABLE>

22
<PAGE>

Securities After Offering
Offered by this Prospectus --------------------------------------
--------------------------------- Common Stock Class A Warrants
Name of Selling ------------------ ------------------
Stockholder Common Stock Warrants Shares Percent (1) Number Percent (2)
----------- ------------ -------- ------ ----------- ------------------
<S> <C> <C> <C> <C>
The Lincoln Fund
Tax Advantaged, L.P. 77,083 25,000 100,000 (*) 75,000 1.16%

Lion Tower Corporation 77,083 25,000 0 (*) 0 (*)

Frank J. and Mary Anne
Loccisano 77,083 25,000 0 (*) 0 (*)

John L. Loeb, Jr. 38,542 12,500 0 (*) 0 (*)

Managed Risk
Trading, L.P. 77,083 25,000 0 (*) 0 (*)

Lawrence Manus 154,167 50,000 0 (*) 0 (*)

Dennis M. McCormack 38,542 12,500 0 (*) 0 (*)

Stephen McDermott(8) 1,349 438 0 (*) 0 (*)

Sean & Erin McGould 38,542 12,500 0 (*) 0 (*)

Tim McInerney(8) 36,288 11,769 0 (*) 0 (*)

MDBC Capital Corp. 77,083 25,000 0 (*) 0 (*)

Albert R. Miller, Trustee 38,542 12,500 0 (*) 0 (*)

Albert Milstein 77,083 25,000 0 (*) 0 (*)

Reed Moskowitz 38,542 12,500 0 (*) 0 (*)

M.S.I.
Investments, LTD 154,167 50,000 0 (*) 0 (*)

Charles J. Murphy, Jr. 38,542 12,500 0 (*) 0 (*)

Arthur J. Nagle 38,542 12,500 0 (*) 0 (*)

Dr. Edmund C. Neuhaus
Olga M. Neuhaus 15,417 5,000 0 (*) 0 (*)

John S. Osterweis, Trustee
The Osterweis
Revocable Trust 38,542 12,500 0 (*) 0 (*)

Paul & Rebecca
Ostrovsky 19,271 6,250 0 (*) 0 (*)

Steven N. Ostrovsky 77,083 25,000 0 (*) 0 (*)

Palmetto Partners, Ltd. 308,333 100,000 0 (*) 250,000 3.8%

Paramount Capital, Inc.(3)(5) 555,000 180,000 0 (*) 0 (*)
</TABLE>

23
<PAGE>

Ruth Peyser 77,083 25,000 0 (*) 0 (*)

Alexander Pomper 154,167 50,000 0 (*) 0 (*)

Bruce Pomper 154,167 50,000 0 (*) 0 (*)

Dr. Tis Prager 38,542 12,500 0 (*) 0 (*)

RHL Associates L.P. 77,083 25,000 0 (*) 0 (*)

Lindsay A. Rosenwald(5) 2,469,592 800,949 0 (*) 0 (*)

Maritine Rothblatt 38,542 12,500 0 (*) 0 (*)

Abel Quezada Rueda
Mercedes Pesqueira V.,
JTWROS 15,417 5,000 0 (*) 0 (*)

Wayne L. Rubin(8) 74,461 24,150 0 (*) 0 (*)

Karl Ruggeberg(8) 7,169 2,325 0 (*) 0 (*)

David W. Ruttenberg 38,542 12,500 0 (*) 0 (*)

Sanger Investments II 30,833 10,000 0 (*) 0 (*)

Bernard Selz 231,250 75,000 0 (*) 0 (*)

Harold and Bess
Schaeffer, JTWROS 38,542 12,500 0 (*) 0 (*)

Roy and Marlena
Schaeffer, JTWROS 77,083 25,000 0 (*) 0 (*)

J.F. Shea Co., Inc. 462,500 150,000 0 (*) 0 (*)

Andrew W. Schonzeit 154,167 50,000 20,000 (*) 18,750 (*)

Richard A. Smith 77,083 25,000 0 (*) 0 (*)

Philip Solomon 38,542 12,500 0 (*) 0 (*)

Aaron Speisman 38,542 12,500 0 (*) 0 (*)

William M. Spencer III 154,167 50,000 0 (*) 0 (*)

Suan Investments 154,167 50,000 0 (*) 100,000 1.5%

Michael Schwartz 154,167 50,000 0 (*) 0 (*)

Michael H. Schwartz
Profit Plan 77,083 25,000 0 (*) 0 (*)

Deborah Soloman(8) 2,698 875 0 (*) 0 (*)

</TABLE>

24
<PAGE>

Herman Tauber 77,083 25,000 37,000 (*) 50,000 (*)

Myron Teitelbaum 57,813 18,750 0 (*) 0 (*)

Joseph A. Umbach 38,542 12,500 0 (*) 0 (*)

Donald E. and Virginia
Vinson Trust 38,542 12,500 0 (*) 0 (*)

David Walner(7) 21,081 6,837 0 (*) 0 (*)

Peri Wayne 38,542 12,500 0 (*) 0 (*)

Michael S. Weiss(6) 73,507 23,840 0 (*) 0 (*)

Melvyn I. Weiss 154,167 50,000 0 (*) 0 (*)

Izaak Wilder 38,542 12,500 0 (*) 0 (*)

Wolcot Capital Inc. 38,542 12,500 0 (*) 0 (*)

Andrew B. Woldow 19,271 6,250 0 (*) 0 (*)

Robert B. Wolford 38,542 12,500 0 (*) 0 (*)

Wolfson Descendants'
1983 Trust 1,541,667 500,000 0 (*) 0 (*)

Wound Healing of
Oklahoma, Inc. 100,000 100,000 0 (*) 0 (*)

Zapco Holdings, Inc.
Deferred Compensation
Plan Trust 77,083 25,000 0 (*) 0 (*)

Holders of Settlement
Warrants as a Group 309,734 0 0 (*) 0 (*)
</TABLE>

- ------------
(*) Represents, after the sale of all shares of Common Stock and Class A
Warrants encompassed by this Prospectus, less than 1% of the outstanding
Common Stock or Class A Warrants.

(1) The percentage of the outstanding Common Stock to be held by the Selling
Securityholders after the offering is calculated based on a total of
32,304,900 shares comprised of 8,467,279 shares issued and outstanding on
August 25, 1997, plus 13,419,907 shares issuable upon exercise of Class A
Warrants and Settlement Warrants and 10,416,979 shares issuable upon
conversion of Convertible Preferred Stock.

(2) The percentage of the outstanding Class A Warrants to be held by the
Selling Securityholders after the offering is calculated based on the total
of 13,110,907 Class A Warrants issued and outstanding on August 25, 1997.

(3) 555,000 shares of Common Stock to be held by Paramount Capital and its
Transferees underlying Convertible Preferred Stock, which shares of
Convertible Preferred Stock partly underlie the Paramount Options are not
convertible until September 11, 1997, pursuant to the Placement Agreement
between Paramount and the Company.

25
<PAGE>

(4) A majority of the named Selling Securityholders, other than Paramount, have
agreed to a nine-month lock-up period in respect of 75% of the offered
holding of each security; provided that following each three-month period
after the effective date of the registration statement of which this
Prospectus forms part, a further amount of 25% of such securities becomes
exempt from such lock-up period.

(5) Paramount Capital Asset Management, Inc. ("Paramount Capital") is the
investment manager of Aries Trust, a Cayman Islands Trust ("Aries Trust")
and the General Partner of Aries Domestic Fund, L.P., a Delaware
Limited Partnership ("Aries Domestic"). Dr. Rosenwald is the President and
sole stockholder of Paramount Capital and may be deemed the beneficial
owner of the voting securities of the Company owned by Paramount Capital,
Aries Trust and Aries Domestic. Paramount Capital is affiliated with
Paramount, the financial advisor to the Company.

(6) Mr. Weiss is a Director of the Company, a Senior Managing Director of
Paramount and a Managing Director of Paramount Capital.

(7) Mr. Walner is Secretary of the Company and an Associate Director of
Paramount and Secretary of Paramount Capital.

(8) The Selling Shareholder is an employee or associate of Paramount.

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

The shares of Common Stock and the Class A Warrants are being registered under
the Securities Act pursuant to the terms of certain registration rights
agreements between the Selling Securityholders and the Company entered into at
the time the Selling Securityholders acquired the shares of Common Stock and
Class A Warrants. Each Selling Securityholder will be entitled to receive all of
the proceeds from the future sale of his, her or its respective shares of Common
Stock or Class A Warrants. Except for the costs of including such shares of
Common Stock and Class A Warrants within the registration statement of which
this Prospectus forms a part, which costs are borne by the Company, the Selling
Securityholders will bear all expenses of any offering by them of their shares
of Common Stock or Class A Warrants, including the costs of their counsel and
any sales commissions incurred.

Except as noted below or in the footnotes of the preceding table, none of the
Selling Securityholders named in the preceding table have had any position,
office or other material relationship with the Company or any of its
predecessors or affiliates.

On November 27, 1995, Paramount and the Company entered into a Financial
Advisory Agreement whereby Paramount agreed to act as non-exclusive financial
advisor to the Company and to identify and negotiate potential acquisition
candidates, investments or strategic alliances. Pursuant to a Placement Agency
Agreement entered into between Paramount and the Company dated September 27,
1996, the parties agreed to extend the Financial Advisory Agreement for an
additional eighteen (18) months from March 7, 1997.

Paramount acted as placement agent for the Company on its November, 1995 private
placement (the "1995 Private Placement") and on the 1997 Private Placement.

In the 1995 Private Placement, the Company completed an offering of $3,485,000
of units consisting of Common Stock and Class A Warrants. In connection
therewith, the Company paid commissions of $313,650 and non-accountable expense
allowances of $139,400 to Paramount. The Company will also pay a commission to
Paramount of 6% of the gross proceeds received upon any exercise of such Class A
Warrants. Pursuant to its engagement in connection with the 1995 Private
Placement, Paramount received the right to designate two nominees to the Board
of Directors of the Company; Michael S. Weiss, a Senior Managing Director of
Paramount, and

26
<PAGE>

Elliott H. Vernon were subsequently nominated and elected to the Board of
Directors. Mr. Weiss and Mr. Vernon receives customary Board member
compensation. In connection with the 1995 Private Placement, the Company issued
to Paramount unit purchase warrants, at an exercise price equal to 110% of the
price per unit paid by the investors in the 1995 Private Placement, to purchase
up to 348,500 shares of Common Stock and 435,675 Class A Warrants. Unit
purchase warrants to purchase up to 20,522 shares of Common Stock and 25,652
Class A Warrants were transferred by Paramount to Mr. Weiss. Certain affiliates
of the Placement Agent were investors in the 1995 Private Placement.

The 1997 Private Placement was completed in two stages and raised $10,000,000
(net proceeds to the Company of $8,690,000) through the sale of 100 Premium
Preferred Units at a price per Unit of $100,000, each Unit consisting of 500
shares of Convertible Preferred Stock, par value $25.00 per share, and 50,000
Common Stock purchase warrants, to accredited individuals and institutional
investors pursuant to Regulation D under the Securities Act. Paramount received
an aggregate dollar commission of $900,000 and a non-accountable expense
allowance of $410,753. The Company will also pay a commission to Paramount of 6%
of the gross proceeds received upon any exercise of the warrants. Additionally,
Paramount received a Unit Purchase Option and an Advisory Option that, in the
aggregate, entitled Paramount to purchase 25 Premium Preferred Units at an
exercise price equal to 110% of the per Unit price paid by the investors in the
1997 Private Placement. The 25 Premium Preferred Units include Class A Warrants
to purchase up to 1,250,038 shares of Common Stock and 12,500 shares of
Convertible Preferred Stock convertible into 2,604,245 shares of Common Stock.
Paramount assigned certain of the shares of Common Stock underlying the
Convertible Preferred Stock and Class A Warrants included in such units to
various employees and associates who are indicated as such in the footnotes to
the Selling Securityholder table above.

Paramount is affiliated with certain significant stockholders of the Company,
including the Aries Trust, a Cayman Islands Trust ("Aries Trust"), Aries
Domestic Fund, L.P., a Delaware Limited Partnership ("Aries Domestic") and Dr.
Lindsay A. Rosenwald. Paramount is also affiliated with Paramount Capital Asset
Management, Inc. ("Paramount Capital") which is the investment manager of Aries
Trust and the General Partner of Aries Domestic. Dr. Rosenwald is the sole
stockholder of Paramount and Paramount Capital.

In June 1996 the Company entered into the BTI Agreement with BTI under which the
Company was granted an option to acquire BTI. If the Company elects to exercise
its option, the agreement calls for the Company to issue common stock to the BTI
stockholders with an aggregate acquisition value of $6,000,000. Mr. Weiss, a
Director of the Company, is a Director and Secretary of BTI. Certain other
affiliates of Paramount, including Aries Trust, Aries Domestic and Dr. Rosenwald
are stockholders of BTI. Under the BTI Agreement, as amended, the Company is
required to advance to BTI funds to repay $615,000 in indebtedness in the event
that the Company exercises its option to acquire BTI. The holders of such
indebtedness are Aries Trust, Aries Domestic and Dr. Rosenwald.

The Company and BTI have agreed to extend the period during which the Company
may exercise its option to acquire BTI by a merger of BTI into a wholly owned
subsidiary of the Company from April 30, 1997 until such time as BTI has
completed human clinical trials of Boronated Porphyrin Compounds (BOPP) at an
agreed upon dose level. The option period was extended at the Company's request
to enable BTI to complete preclinical studies, to commence clinical trials in
humans and to demonstrate that a given dose level of BOPP in humans would

27
<PAGE>

not cause certain adverse events. The Company believes that the extension of
the option will give it greater opportunity to access the preliminary data
resulting from the BOPP preclinical trials and the Phase I human clinical trials
before determining whether to acquire BTI and to evaluate the possibility of
adverse events in human patients. Accordingly, the Company has elected to defer
exercise of the option.

In October, 1996, Aries Trust and Aries Domestic extended a line of credit (the
"Line of Credit") of up to $500,000 to the Company, which the Company
subsequently drew down but has since repaid. Aries Trust received Class A
Warrants to purchase 105,000 shares of Common Stock and Aries Domestic received
Class A Warrants to purchase 45,000 shares of Common Stock as consideration for
extending the line of credit to the Company.

In December, 1995, as a result of the Common Stock and warrants to purchase
Common Stock received in the 1995 Private Placement, Aries Trust, Aries
Domestic, and Dr. Rosenwald filed a Schedule 13D with the Commission indicating
they beneficially owned in the aggregate greater than 11% of the issued and
outstanding equity securities of the Company. In April, 1997, as a result of
the Common Stock, Preferred Stock, and options and warrants to purchase Common
Stock received in the 1997 Private Placement and for the Line of Credit, Aries
Trust, Aries Domestic, Paramount Capital and Dr. Rosenwald filed an amendment to
their earlier filed Schedule 13D indicating their increased beneficial ownership
as set forth above. David R. Walner, Associate Director of Paramount and
Secretary of Paramount Capital, has served as Secretary of the Company, without
compensation, since December 1996.

28
<PAGE>

PLAN OF DISTRIBUTION

The Settlement Warrants were offered and distributed in an offering exempt from
registration under the Securities Act pursuant to Section 3(a)(10) thereof,
pursuant to the settlement of a class-action lawsuit (the "Action") against the
Company. On February 4, 1992, the Company received service of a putative
stockholder class action complaint against it, Dr. Peter Baram, its then
Chairman and CEO, and Larry O. Bymaster, its then President and COO, filed in
the U.S. District Court, Southern District of California. The complaint alleged
various claims, including the claim that the Company failed to disclose
information regarding the prospects for U.S. Food and Drug Administration
approval of the Periodontal Tissue Monitor Kit. Additional similar complaints
were thereafter filed by other individuals. The Company's Board of Directors
believed the claims to be without merit but concluded that it was in its best
interest to settle the matter to avoid the expenses and risks of continued
litigation. On June 17, 1994, the U.S. District Court approved a Stipulation
of Settlement of the litigation. The settlement included all persons who
purchased the Company's stock from October 4, 1990 through and including
November 14, 1991. The settlement to the plaintiff class included a cash
payment of $2,800,000, all of which was paid by the insurers providing
liability coverage for the Company's directors and officers, and five-year
warrants (the "Settlement Warrants") to purchase 309,734 shares of Common Stock
at an exercise price of $22.00 per share. For a description of the Settlement
Warrants, see "Description of Securities -- Settlement Warrants."

All other shares of Common Stock and Class A Warrants offered hereby relate to
the 1997 Private Placement.

The shares of Common Stock and Class A Warrants may be sold by the Selling
Securityholders or Transferees from time to time in one or more transactions at
market prices prevailing at the time of the sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Securityholders
or Transferees may sell the shares of Common Stock and Class A Warrants offered
hereby (i) through brokers and dealers; (ii) on the American Stock Exchange in
the case of the shares; (iii) any other exchanges upon which the shares or Class
A Warrants are listed; (iv) "at the market" to or through a market maker or into
an existing trading market; or (v) in other ways not involving exchanges, market
makers or established trading markets, including direct sales to purchasers.
Additionally, the shares and Class A Warrants may also be publicly offered
through agents, underwriters or dealers. In such event the Selling
Securityholders or Transferees may enter into agreements with respect to any
such offering.

The Selling Securityholders or Transferees and any dealers or agents that
participate in the distribution of shares of the Common Stock and Class A
Warrants may be deemed to be underwriters, and any profit on the sale of shares
of Common Stock and Class A Warrants by the Selling Securityholders or
Transferees and any discounts, commissions or concessions received by any such
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act.

The sale of the shares of Common Stock and Class A Warrants by the Selling
Securityholders or Transferees may also be effected from time to time by selling
shares or Class A Warrants directly to purchasers or to or through certain
broker-dealers. In connection with any such sale, any such broker-dealer may
act as agent for the Selling Securityholders or may purchase from the Selling
Securityholders or Transferees all or a portion of the shares or Class A
Warrants as

29
<PAGE>

principal and thereafter may resell any shares or Class A Warrants so purchased.
Sales by any such broker-dealer, acting as agent or as principal, may be made
pursuant to any of the methods described below. Such sales may be made on the
American Stock Exchange or other exchanges on which the Company's Common Stock
is then traded, on any exchange, if any, on which the Class A Warrants are
traded, in the over-the-counter market, in negotiated transactions or otherwise
at prices and at terms then prevailing or at prices related to the then-current
market prices or at negotiated prices.

The shares of Common Stock and Class A Warrants offered under the Registration
Statement (of which this Prospectus is part) may also be sold in one or more of
the following transactions (i) block transactions (which may involve crosses) in
which a broker-dealer may sell all or a portion of such shares or Class A
Warrants as agent but may position and resell all or a portion of the block as
principal to facilitate the transaction; (ii) purchases by any such
broker-dealer for its own account pursuant to this Prospectus; (iii) a special
offering, and exchange distribution or a secondary distribution in accordance
with applicable stock exchange rules; or (iv) ordinary brokerage transactions
and transactions in which broker-dealers solicit purchasers. In effecting
sales, broker-dealers engaged by the Selling Securityholders or Transferees may
arrange for other broker-dealers to participate. Broker-dealers will receive
commissions or other compensation from the Selling Securityholders or
Transferees in amounts to be negotiated immediately prior to the sale that will
not exceed those customary in the types of transactions involved.
Broker-dealers may also receive compensation from purchasers of the shares or
Class A Warrants, which is not expected to exceed that which is customary in the
types of transactions involved.

The Selling Securityholders and Transferees will pay all of the expenses
incident to the offering and sale of the shares of the Common Stock and Class A
Warrants offered under this Prospectus, including commissions and fees of
dealers or agents. The Company has paid or will pay all expenses related to the
Registration Statement, including registration fees and the fees of counsel or
other experts retained by the Company in connection with the registration.

The Company has informed the Selling Securityholders that the anti-manipulation
provisions of Regulation M under the Exchange Act may apply to the sales of
their shares offered hereby. The Company also has advised the Selling
Securityholders of the requirement for delivery of this Prospectus in connection
with any sale of the shares offered hereby.

Certain Selling Securityholders may from time to time purchase shares of Common
Stock in the open market. These Selling Securityholders have been notified that
they should not commence any distribution of shares of Common Stock unless they
have terminated their purchasing and bidding for Common Stock in the open market
as provided in applicable securities regulations.

There is no assurance that the Selling Securityholders or the Transferees will
sell any or all of the shares of Common Stock or Class A Warrants offered by
them hereby.

30
<PAGE>

DESCRIPTION OF SECURITIES

AUTHORIZED STOCK

The authorized capital stock of the Company consists of 100,000,000 shares of
Common Stock and 2,000,000 shares of Preferred Stock. All of the issued and
outstanding capital stock of the Company is fully paid and nonassessable. The
following descriptions of securities is not complete and is qualified in all
respects by the Company's Certificate of Incorporation, as amended, Certificates
of Designations and Warrant Agreements, respectively, the forms of which are
filed as exhibits to the Company's filings with the Commission, including the
registration statement of which this Prospectus forms part.

COMMON STOCK

There are outstanding 8,467,279 shares of Common Stock owned of record by 390
holders at August 25, 1997. The holders of Common Stock (i) have equal and
ratable rights to dividends from funds legally available therefor, when, as and
if declared by the Board of Directors of the Company; (ii) are entitled to share
ratably in all assets of the Company available for distribution to holders of
Common Stock upon liquidation, dissolution or winding up of the affairs of the
Company; and (iii) do not have preemptive or subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. Each
holder of Common Stock is entitled to one vote per share for all purposes. The
Board of Directors is authorized to issue additional shares of Common Stock
within the limits authorized by the Company's Certificate of Incorporation, as
amended, without stockholder action.

PREFERRED STOCK

The Company's Certificate of Incorporation authorizes the Board of Directors,
without further vote or action by stockholders, to issue shares of Preferred
Stock in one or more series and to determine the rights, preferences, privileges
and restrictions thereof, including the dividend rights, dividend rate,
conversion rights, voting rights, terms of redemption (including sinking fund
provisions), redemption price or prices, liquidation preferences and the number
of shares constituting any series or the designations of such series. These
rights and privileges could limit the voting power of holders of Common Stock
and restrict their rights to receive dividends or liquidation proceeds in an
adverse manner.

The Company has granted the Board of Directors authority to issue Preferred
Stock and to determine its rights and preferences to eliminate delays associated
with a stockholder vote on specific issuances. The Company believes that this
power to issue Preferred Stock will provide flexibility in connection with
possible corporate transactions. It could also have the effect, however, of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. See
"Stockholders' Rights Plan." The Company has no outstanding shares of Preferred
Stock and no present plans to issue any shares of Preferred Stock other than the
Convertible Preferred Stock.

The Board of Directors has authorized the issuance of up to 56,250 shares of
Convertible Preferred Stock to be designated as the Company's Series A
Convertible Preferred Stock (the "Convertible Preferred Stock"). There are
outstanding 50,001.5 shares of Convertible Preferred Stock, owned of record by
100 holders at August 25, 1997. The rights, preferences and characteristics of
the Convertible Preferred Stock are as follows:

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<PAGE>

DIVIDENDS

The holders of Convertible Preferred Stock will be entitled to receive dividends
as, when and if declared by the Board of Directors out of funds legally
available therefor. No dividend or distribution, as the case may be, shall be
declared or paid on any junior stock unless first the holders of the Convertible
Preferred Stock are paid a special dividend in the amount of $260 per share, and
the same dividend as proposed to be paid to the junior stock is also paid to the
Convertible Preferred Stock. The Company does not intend to pay cash dividends
on the Convertible Preferred Stock or the underlying Common Stock for the
foreseeable future.

CONVERSION

Each share of Convertible Preferred Stock may be converted at the option of the
holder at any time after the initial issuance date into Common Stock at an
initial conversion price (the "Initial Conversion Price") equal to the lesser of
(i) $2.00 and (ii) 80% of the average bid price of the Common Stock on AMEX for
the thirty consecutive trading days immediately preceding the (a) the initial
closing date, (b) any interim closing date or (c) March 7, 1997, whichever is
lowest. The conversion price applicable at any time to the Convertible
Preferred Stock (the "Preferred Conversion Price") is subject to adjustment upon
the occurrence of a merger, reorganization, consolidation, reclassification,
stock dividend or stock split which will result in an increase or decrease in
the number of shares of Common Stock outstanding (other than the proposed merger
with BTI (see "Prospectus Summary" - "The Company --Photodynamic Therapy
(PDT)/Binary Therapeutics, Inc."). In addition, the Preferred Conversion Price
is subject to adjustment on March 7, 1998 (the "Reset Date") if the average
closing bid price of the Common Stock for the thirty consecutive trading days
immediately preceding the Reset Date (the "Reset Trading Price") is less than
130% of the Initial Conversion Price as adjusted (a "Reset Event"). Upon a
Reset Event, the Preferred Conversion Price will be reduced to equal the greater
of (i) the Reset Trading Price divided by 1.3 and (ii) 50% of the Initial
Conversion Price.

MANDATORY CONVERSION

The Company has the right at any time after the Reset Date to cause the
Convertible Preferred Stock to be converted in whole or in part, on a PRO RATA
basis, into shares of Common Stock if the closing price of the Common Stock
exceeds 200% of the then applicable Preferred Conversion Price for at least 20
trading days in any 30 consecutive trading day period.

LIQUIDATION

Upon (i) a liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, (ii) a sale or other disposition of all or
substantially all of the assets of the Company or (iii) any consolidation,
merger (other than the proposed merger with BTI (see "Prospectus Summary" -
"The Company -- Photodynamic Therapy (PDT)/Binary Therapeutics, Inc."),
combination, reorganization or other transaction in which the Corporation is not
the surviving entity or in which shares of Common Stock constituting in excess
of 50% of the voting power of the Corporation are exchanged for or changed into
other stock or securities, cash or any other property, after payment or
provision for payment of the debts and other liabilities of the Company, the
holders of the Convertible Preferred Stock then outstanding will first be
entitled to receive, PRO RATA (on the basis of the number of shares of the
Convertible Preferred Stock then outstanding), and in preference to the holders
of the Common Stock and any other series of preferred stock, an amount per share
equal to $260.00 plus accrued but unpaid dividends, if any.

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<PAGE>

VOTING RIGHTS

The holders of the Convertible Preferred Stock have the right at all meetings of
stockholders to the number of votes equal to the number of shares of Common
Stock issuable upon conversion of the Convertible Preferred Stock at the record
date for determination of the stockholders entitled to vote. So long as a
majority of the shares of Convertible Preferred Stock remain outstanding, the
holders of 66.67% of the Convertible Preferred Stock then outstanding are
entitled to approve (i) the issuance of any securities of the Company senior to
or on parity with the Convertible Preferred Stock; (ii) any alteration or change
in the rights, preferences or privileges of the Convertible Preferred Stock; and
(iii) the declaration or payment of any dividend on any junior stock or the
repurchase of any junior securities of the Company. Except as provided above or
as required by applicable law, the holders of the Convertible Preferred Stock
will be entitled to vote together with the holders of the Common Stock and not
as a separate class.

CLASS A WARRANTS

EXERCISE PRICE AND TERMS

Each Class A Warrant entitles the holder thereof to purchase one share of Common
Stock at a price of $1.00 per share subject to adjustment in accordance with the
adjustment provisions set forth in the Warrant Agreement summarized below. The
Class A Warrants may be exercised upon surrender of the Class A Warrant
certificate on or prior to November 26, 2005 (or, if redeemed prior thereto, the
date immediately preceding the redemption date) at the offices of the Warrant
Agent, with the subscription form on the reverse side of the Warrant certificate
completed as indicated, accompanied by payment of the full exercise price (by
cashier's or certified check payable to the order of the Warrant Agent, or by
wire transfer) for the number of Class A Warrants being exercised. No
fractional shares will be issued upon the exercise of the Class A Warrants, and
the Company will pay cash in lieu of fractional shares. After November 26,
2005, the Class A Warrants will become void and of no value. If a market for
the Class A Warrants develops, a holder may sell Class A Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Class A Warrants will develop or continue.

The exercise price of the Class A Warrants bears no relation to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of any of the securities offered hereby.

ADJUSTMENT

The exercise price and the number of shares of Common Stock purchasable upon the
exercise of the Class A Warrants are subject to adjustments upon the occurrence
of certain events, such as stock dividends or stock splits of the Common Stock.
Additionally, an adjustment would be made in the case of the reclassification
or exchange of the Common Stock, consolidation or merger of the Company with or
into another corporation or sale of all or substantially all of the assets of
the Company, in order to enable Class A Warrant holders to acquire the kind and
number of shares of stock or other securities or property receivable in such
event by holders of the number of shares of Common Stock that might otherwise
have been purchased upon the exercise of the Class A Warrant. No adjustment to
the exercise price of the shares subject to the Class A Warrants will be made
for dividends (other than dividends in the form of stock), if any, paid on the
Common Stock.

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<PAGE>

REDEMPTION

WARRANT HOLDER NOT A STOCKHOLDER

The Class A Warrants do not confer upon holders thereof any voting or any other
rights of a stockholder of the Company. The shares of Common Stock issuable
upon exercise of the Class A Warrants in accordance with the terms thereof will
be fully paid and nonassessable.

SETTLEMENT WARRANTS

The Board of Directors authorized the issuance of 309,734 Settlement Warrants,
to be designated as the Company's Series B Warrants, in settlement of the
Action. See "Plan of Distribution." Class B Warrants are owned of record by
522 holders at August 25, 1997. The following description of the Settlement
Warrants is not complete and is qualified in all respects by the Warrant
Agreement and the form of Settlement Warrant filed as exhibits to the
registration statement of which this Prospectus forms part.

EXERCISE PRICE AND TERMS

Each Class B Warrant entitles the holder thereof to purchase one share of Common
Stock at a price of $22.00 per share subject to adjustment in accordance with
the adjustment provisions set forth in the Warrant Agreement summarized below.
The Class B Warrants may be exercised at any time prior to August 11, 2001, at
the offices of the Warrant Agent, with the subscription form on the reverse side
of the Warrant certificate completed as indicated, accompanied by payment of the
full exercise price (by cashier's or certified check payable to the order of the
Warrant Agent, or by wire transfer) for the number of Class B Warrants being
exercised. No fractional shares will be issued upon the exercise of the Class B
Warrants, and the Company will pay cash in lieu of fractional shares. After
August 12, 2001, the Class B Warrants will become void and of no value. If a
market for the Class B Warrants develops, a holder may sell Class B Warrants
instead of exercising them. There can be no assurance, however, that a market
for the Class B Warrants will develop or continue.

The exercise price of the Class B Warrants bears no relation to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of any of the securities offered hereby.

ADJUSTMENT

The exercise price and the number of shares of Common Stock purchasable upon the
exercise of the Class B Warrants are subject to adjustments upon the occurrence
of certain events, such as stock dividends or stock splits of the Common Stock.
Additionally, an adjustment would be made in the case of the reclassification
or exchange of the Common Stock, consolidation or merger of the Company with or
into another corporation or sale of all or substantially all of the assets of
the Company, in order to enable Class B Warrant holders to acquire the kind and
number of shares of stock or other securities or property receivable in such
event by holders of the number of shares of Common Stock that might otherwise
have been purchased upon the exercise of the Class B Warrant. No adjustment to
the exercise price of the shares subject to the

34
<PAGE>

Class B Warrants will be made for dividends (other than dividends in the form of
stock), if any, paid on the Common Stock.

WARRANT HOLDER NOT A STOCKHOLDER

The Class B Warrants do not confer upon holders thereof any voting or any other
rights of a stockholder of the Company. The shares of Common Stock issuable
upon exercise of the Class B Warrants in accordance with the terms thereof will
be fully paid and nonassessable.

STOCKHOLDERS' RIGHTS PLAN

In April 1991, the Company's Board of Directors adopted a stockholders' rights
plan (the "Plan"). The Plan provides for the distribution of preferred stock
purchase rights to common stockholders which separate from the Common Stock ten
business days following: (a) an announcement of an acquisition by a person (or
group) ("Acquiring Party") of 15% or more of the outstanding shares of Common
Stock of the Company, (b) the commencement of a tender offer or exchange offer
for 15% or more of the Common Stock or (c) a merger or asset sale as defined in
the Plan. Under the Plan, certain related parties are not considered to be an
Acquiring Party. In addition, the Plan was amended in December 1996 to allow
the Placement Agent (and affiliates) to acquire an unlimited amount of the
outstanding Common Stock without being characterized as an Acquiring Party. One
right attached to each share of Common Stock outstanding as of April 15, 1991
and attaches to all shares issued thereafter. Each right entitles the holder to
purchase one one-hundredth of one share of Series R junior participating
cumulative preferred stock, par value $25.00 per share ("Unit of Preferred
Stock"), at an exercise price of $120 per Unit of Preferred Stock. The Units of
Preferred Stock are non redeemable, voting and are entitled to certain
preferential dividend and liquidation rights. The exercise price and the number
of Units of Preferred Stock issuable are subject to adjustment to prevent
dilution.

If, after the rights have been distributed, the Company is a party to a business
combination or other specifically defined transaction, each right (other than
those held by the Acquiring Party) will entitle the holder to receive, upon
exercise, Units of Preferred Stock or shares of common stock of the surviving
company with a value equal to two times the exercise price of the right.
Alternatively, a majority of the independent Directors of the Company may direct
the Company to exchange all of the then outstanding rights for Common Stock at
an exchange ratio of one share of Common Stock per right. The rights expire
April 15, 2001 and are redeemable (at the option of a majority of the
independent Directors of the Company) at $.01 per right at any time until the
tenth day following an announcement of the acquisition of 15% or more of the
Company's Common Stock.

TRANSFER AND WARRANT AGENT

The transfer agent for the Common Stock, Class A Warrants and Settlement
Warrants is the American Stock Transfer and Trust Company, 6201 15th Avenue, 3rd
Floor, Brooklyn, New York 11219.

LEGAL OPINIONS

The validity of the shares of Common Stock and Class A Warrants offered hereby
will be passed upon for the Company and Selling Securityholders by Donovan
Leisure Newton & Irvine, 30 Rockefeller Plaza, New York, New York, 10112.

35
<PAGE>

EXPERTS

The consolidated financial statements of Pacific Pharmaceuticals, Inc. (formerly
Xytronyx, Inc.) and subsidiaries (collectively the "Company," a development
stage enterprise) as of March 31, 1997 and 1996 and for each of the three years
in the period ended March 31, 1997, and for the period from September 23, 1983
(date of incorporation of Pacific Pharmaceuticals, Inc.) to March 31, 1997
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K/A for the fiscal year ended March 31, 1997 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report (which
report contains an explanatory paragraph referring to the Company's activities
as those of a development stage enterprise), which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.

36
<PAGE>

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING SECURITYHOLDERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO BUY ANY OF THESE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION.

19,831,145 SHARES OF
COMMON STOCK ($0.02 PAR VALUE)

6,500,188 CLASS A WARRANTS
TO PURCHASE
COMMON STOCK

CONTENTS
PAGE
----

Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . 3

Incorporation of Certain Documents by Reference. . . . . . . . . . . . . 3

Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Recent Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Selling Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . 20

Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . 31

Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

PACIFIC
PHARMACEUTICALS,
INC.

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

PROSPECTUS

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

AUGUST ___, 1997

37
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various estimated amount of fees and
expenses payable in connection with this offering other than sales commissions.
All such expenses will be borne by the Registrant.

Item Amount of Expenses
---- ------------------

Commission Registration Fees $8,724.01

Printing and Engraving Expenses 4,500.00

Accounting Fees and Expenses 20,000.00

Legal Fees and Expenses 35,000.00

Transfer Agent's Fee 1,000.00

Miscellaneous 2,000.00
----------

Total $71,224.01
----------
----------

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

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any persons, including directors and officers, who are
(or are threatened to be made) parties to any threatened, pending or completed
legal action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of their being directors or officers of such
corporation. The indemnity may include expenses, attorneys' fees, judgments,
fines and amounts paid in settlement, provided such sums were actually and
reasonably incurred in connection with such action, suit or proceeding and
provided the director or officer acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the corporation's best interests
and, in the case of criminal proceedings, he or she had no reasonable cause to
believe that his or her conduct was unlawful. The corporation may indemnify
directors and officers in a derivative action (in which suit is brought by a
stockholder on behalf of the corporation) under the same conditions, except that
no indemnification is permitted without judicial approval if the director or
officer is adjudged liable to the corporation. If the director or officer is
successful on the merits or otherwise in defense of any such actions referred to
above, the corporation must indemnify him or her against the expenses and
attorneys' fees he or she actually and reasonably incurred.

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<PAGE>

The Sixth Article of the Registrant's Certificate of Incorporation, as
amended, provides for indemnification by the Registrant of its officers and
directors to the full extent allowed under Section 145 of the Delaware General
Corporation Law, and reads as follows:

Sixth: A director of this Corporation shall not be personally liable to
the Corporation or any stockholder for monetary damages for breach of
fiduciary duty as a director, except that this Article Sixth shall not
eliminate or limit a director's liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for a transaction from which the director
derived an improper personal benefit.

Any repeal or modification of the foregoing provision of this Article Sixth
shall not increase the personal liability of any director of this
Corporation for any act or occurrence taking place prior to such repeal or
modification, or otherwise adversely affect any right or protection of a
director of the corporation existing at the time of such repeal or
modification.

The Corporation shall, to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, as amended from time to time,
indemnify all persons who are eligible for indemnification pursuant
thereto. The provisions of this Article Sixth shall not be deemed to limit
or preclude indemnification of a director by the Corporation for any
liability of a director which has not been eliminated by the provisions of
the Article Sixth.

Article VIII of the Registrant's Amended and Restated Bylaws provides for
indemnification by the Registrant of its officers and directors to the full
extent permitted under Section 145 of the Delaware General Corporation Law, and
reads as follows:

ARTICLE VIII: INDEMNIFICATION

Section 8.1. GENERAL. (a) The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he or she is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or
her in connection with such action, suit or proceeding if he or she acted
in good faith and in a manner he or she reasonable believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, has no reasonable cause to believe his or
her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction, or upon a plea of
NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that such person did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.

(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the

II-2

<PAGE>

Corporation to procure a judgment in its favor by reason of the fact that
he or she is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorney's fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if he or
she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation and except that
no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnification of such expenses which
such Court of Chancery or such other court shall deem proper.

(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in paragraphs (a) and (b) of
this Section 8.1, or in defense of any claim, issue or matter therein, he
or she shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection therewith.

(d) Any indemnification under paragraphs (a) and (b) of this Section 8.1
(unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
paragraphs (a) and (b) of this Section 8.1 (such person being referred to
herein as an "Indemnitee"). Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, (ii) if such a
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion or
(iii) by the stockholders.

(e) Any Indemnitee shall be entitled to control the defense of any action,
suit or proceeding against him or her which may give rise to a right of
indemnification pursuant to this Article VIII, PROVIDED, HOWEVER, that the
Corporation shall select counsel to conduct such defense, which counsel
shall be reasonably acceptable to the Indemnitee. In the event that an
Indemnitee and other parties indemnified by the Corporation (such
Indemnitee and other parties indemnified being herein referred to
collectively as the "Indemnified Parties") are made or threatened to be
made parties to the same or similar threatened, pending or completed
action, suit or proceeding, the Indemnified Parties shall not be entitled
to separate counsel unless the counsel selected by the Corporation advises
the Corporation that there exists such material conflicts of interests
among some or all of the Indemnified Parties so as to require separate
representation for some or all of the Indemnified Parties, and such counsel
advises the Corporation of the basis for such conflict and the group of
Indemnified Parties so affected. Upon receipt of such advice of counsel,
the Corporation shall select separate counsel for such group of Indemnified
Parties, which counsel shall be reasonably acceptable to such group.

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<PAGE>

(f) Expenses (including attorneys' fees) incurred by a director or officer
in defending any civil, criminal, administrative or investigative action,
suit or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled
to be indemnified by the Corporation pursuant to this Article VIII. Such
expenses (including attorney's fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.

(g) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of
expenses may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
an official capacity and as to action in another capacity while holding
such office.

(h) For purposes of the Article VIII, references to the "Corporation"
shall include, in addition to the resulting or surviving corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article VIII with respect to the resulting or
surviving corporation as he or she would have with respect to such
constituent corporation if its separate existence had continued.

(i) For purposes of this Article VIII, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the Corporation" shall
include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves service by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in
a manner he or she reasonably believed to be in the interest of the
participants and beneficiaries of an employees benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VIII.

(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.

Section 8.2. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
any liability asserted against him or her and incurred by him or her in any
such capacity, or arising out of his or her status as such, whether or not
the Corporation would have the power to indemnify

II-4

<PAGE>

him or her against such liability under the provisions of Section 145 of
the General Corporation Law of the State of Delaware.

Under a policy of insurance, the Company is entitled to be reimbursed for
indemnity payments it is required or permitted to make to its directors and
officers. In addition, the Registrant's officers and directors are covered by
certain directors' and officers' liability insurance policies maintained by the
Registrant.

The Registrant has entered into Indemnity Agreements with its directors and
its officers which provide that the Registrant will pay any reasonable amount
which an Indemnitee is legally obligated to pay because of claims which may be
made against such Indemnitee by reason of the fact that such Indemnitee is or
was a director or officer of the Registrant, or is or was serving at the request
of the Registrant as a director or officer of some other entity. However, no
indemnification is provided in cases involving dishonesty or improper personal
profit. The payments to be made under such Indemnity Agreements include the
amounts of all reasonable expenses, judgments, fines, and amounts paid in
settlement, except that the Registrant is not obligated to pay fines or other
fees imposed by law which the Registrant is prohibited by law from paying as an
indemnity of for any other reason.

ITEM 16. EXHIBITS.

3.13 Certificate of Amendment to Certificate of Incorporation filed
with the Delaware Secretary of State on August 7, 1997. (1)

4.7 Form of Warrant Agreement between the Company and American Stock
Transfer and Trust Company, including specimen Class B Warrant.*

5.1 Opinion of Donovan Leisure Newton & Irvine regarding the legality
of the Shares of Common Stock and Class A Warrants. *

10.48 Form of Placement Agency Agreement between Company and Paramount
Capital, Inc. *

10.49 Form of Amendment No. 1 to Placement Agency Agreement between
Company and Paramount Capital, Inc. *

10.50 Form of Subscription Agreement between Company and certain
Selling Stockholders. *

23.1 Consent of Deloitte & Touche LLP. (1)

23.2 Consent of Donovan Leisure Newton & Irvine*

25 Powers-of-Attorney for each person executing this Registration
Statement, see signature page hereof.
- ---------------

(1) Filed herewith.
*Previously filed

II-5
<PAGE>

ITEM 17. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes:

(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this registration Statement:

(i) to include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933;

(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represents a fundamental change in the
information set forth in the Registration Statement;

(iii) to include any material information with respect to the Plan of
Distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;

PROVIDED, HOWEVER, that paragraphs (i) and (ii) do not
apply to this Registration Statement if the information required to be included
in a post-effective amendment by those paragraphs is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15 (d) of the
Securities Exchange Act of 1934 and incorporated by reference in this
Registration Statement;

(2) that, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof;

(3) to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.

(b) The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13 (a) or section 15 (d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in the first
paragraph of Item 15 above, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange commission such indemnification is
against public policy as expressed in said Securities Act and is, therefore,
unenforceable. In the event that as claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its

II-6

<PAGE>

counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

II-7

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on August 27, 1997.

PACIFIC PHARMACEUTICALS, INC.

By: /s/ Dr. H. Laurence Shaw
------------------------
Dr. H. Laurence Shaw,
President and CEO

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.

Signature Title Date
- --------- ----- ----

OFFICERS

/s/ DR. H. LAURENCE SHAW President and August 27, 1997
- ------------------------ Chief Executive Officer
Dr. H. Laurence Shaw (Principal Executive Officer)

/s/ JAMES HERTZOG Controller August 27, 1997
- ------------------------ (Principal Financial and
James Hertzog Accounting Officer)

BOARD OF DIRECTORS

/s/ DR. H. LAURENCE SHAW Chairman of the Board and August 27, 1997
- ------------------------ Director
Dr. H. Laurence Shaw

* Director August 27, 1997
- ------------------------
Jack H. Halperin

* Director August 27, 1997
- ------------------------
Elliott H. Vernon

* Director August 27, 1997
- ------------------------
Jerry A. Weisbach

* Director August 27, 1997
- ------------------------
Michael S. Weiss

* By /s/ DR. H. LAURENCE SHAW
-------------------------
Dr. H. Laurence Shaw
--------------------
ATTORNEY-IN-FACT

II-8

<PAGE>

INDEX TO EXHIBITS

Exhibit
Number Description
- ------ -----------

3.13 Certificate of Amendment to Certificate of Incorporation filed with
the Delaware Secretary of State on August 7, 1997. (1)

4.7 Warrant Agreement for Class B Warrants between the Company and
American Stock Transfer and Trust Company, including specimen Class B
Warrant. *

5.1 Opinion of Donovan Leisure Newton & Irvine regarding the legality of
the Shares of Common Stock and Class A Warrants. *

10.48 Form of Placement Agency Agreement between Company and Paramount
Capital, Inc. *

10.49 Form of Amendment No. 1 to Placement Agency Agreement between Company
and Paramount Capital, Inc. *

10.50 Form of Subscription Agreement between Company and certain Selling
Stockholders. *

23.1 Consent of Deloitte & Touche LLP. (1)

23.2 Consent of Donovan Leisure Newton & Irvine*

25 Powers-of-Attorney*

- ----------
(1) Filed herewith.
* Previously filed

II-9

<PAGE>

EXHIBIT 3.13
CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

XYTRONYX, INC.

*****

XYTRONYX, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,

DOES HEREBY CERTIFY:

FIRST: That the Board of Directors of the Corporation, at a meeting
duly held, adopted resolutions proposing and declaring advisable the following
amendments to the Certificate of Incorporation of the Corporation and directing
that a meeting of the stockholders of the Corporation be called for
consideration of such amendments:

RESOLVED that the Company's Certificate of Incorporation be amended to
change the name of the Company to Pacific Pharmaceuticals, Inc. or such
other name as the Board of Directors shall deem appropriate and in the best
interests of the Company by deleting Article First and substituting the
following so that, as amended said Article shall be and read as follows:

FIRST: The name of the corporation is:

PACIFIC PHARMACEUTICALS, INC.

RESOLVED that at any time prior to the filing of an amendment with the
Delaware Secretary of State and not withstanding authorization of the
proposed amendment by the stockholders of the Company, the Board of
Directors may abandon such action without further action by the
stockholders if they deem such abandonment to be in the best interest of
the stockholders; and further

<PAGE>

RESOLVED that in the judgment of the Board of Directors of the
Corporation, it is deemed advisable that, subject to the approval of
the holders of the issued and outstanding shares of the Company
entitled to vote, the Certificate of Incorporation of the Corporation
be amended by deleting the first paragraph of Article FOURTH and
substituting the following so that, as amended said Article shall be
and read as follows:

FOURTH: The total number of shares of all classes of stock
which the corporation shall have authority to issue is One
Hundred and Two Million (102,000,000) shares consisting of (a)
One Hundred Million (100,000,000) shares of Common Stock of the
par value of Two Cents ($.02) per share and (b) Two Million
(2,000,000) shares of Preferred Stock of the par value of
Twenty-Five Dollars ($25.00) per share.

SECOND: That thereafter at the annual meeting and vote of
stockholders of the Corporation held upon notice in accordance with Section 222
of the General Corporation Law of the State of Delaware on the 7th day of
August, 1997, a majority of the issued and outstanding shares of the Corporation
entitled to vote was voted in favor of the foregoing amendments to the
Certificate of Incorporation of the Corporation.

THIRD: That the aforesaid amendments to the Certificate of
Incorporation of the Corporation were duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the State
of Delaware.

IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Dr. H. Laurence Shaw, its authorized officer, this 7th day of August,
1997.

XYTRONYX, INC.

By: /s/ H. Laurence Shaw
--------------------------
Name: Dr. H. Laurence Shaw
Its: President and
Chief Executive Officer

-2-

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 333-26109 of Pacific Pharmaceuticals, Inc.
(formerly Xytronyx, Inc.) on Form S-3 of our report dated May 2, 1997 (June
23, 1997 as to Note 8) and our report dated May 2, 1997 (June 23, 1997 as to
the first paragraph of Note 8 and August 7, 1997 as to the second paragraph
of Note 8), which reports include an explanatory paragraph referring to the
activities of the Company as those of a development stage enterprise,
appearing in the Annual Report on Form 10-K and on Form 10-K/A, respectively,
of Pacific Pharmaceuticals, Inc. for the year ended March 31, 1997 and to the
reference to us under the heading "Experts" in the Prospectus which is part
of this Registration Statement.

DELOITTE & TOUCHE LLP

San Diego, California
August 26, 1997