LIDAK PHARMACEUTICALS, S-3, 1997-04-04

LIDAK PHARMACEUTICALS
S-3, 1997-04-04
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

LIDAK PHARMACEUTICALS
(Exact name of registrant as specified in its charter)

California
(State or other jurisdiction of incorporation or organization)

33-0314804
(I.R.S. Employer Identification No.)

11077 North Torrey Pines Road
La Jolla, California 92037
(619) 558-0364
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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

David H. Katz, M.D.
11077 North Torrey Pines Road
La Jolla, California 92037
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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

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

If the only 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 to be 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 for an offering
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

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, no
par value....................... 10,986,200 $2.3594 $25,920,291 $7,854.63
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) This Registration Statement shall also cover any additional shares of
Class A Common Stock which become issuable by reason of any stock
dividend, stock split, recapitalization or other similar transaction
effected without the receipt of consideration which results in an increase
in the number of the Registrant's outstanding shares of Class A Common
Stock.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933 (the "Securities
Act"). Pursuant to Rule 457(c), the maximum offering price per share is
$2.3594, the average of the bid and asked prices of a share of the
Registrant's Class A Common Stock as reported on the National Market
System of the National Association of Securities Dealers Automated
Quotation System on March 31, 1997, and the maximum aggregate offering
price of $25,920,291 is the product of $2.3594 and the number of shares of
the Registrant's Class A Common Stock being registered hereby.

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

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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.

<PAGE> 2

PROSPECTUS

LIDAK PHARMACEUTICALS

10,986,200 shares of Class A Common Stock

This Prospectus covers up to 10,986,200 shares (the "Shares") of Class
A Common Stock, no par value (the "Class A Common Stock"), of LIDAK
Pharmaceuticals (the "Company"), which shares are being offered by Holder (as
defined below) and Michael Arnouse ("Mr. Arnouse") (Holder and Mr. Arnouse are
herein collectively referred to as the "Selling Shareholders").

The Company will issue the Shares to the Selling Shareholders as
follows: (i) up to 7,257,467 shares of Class A Common Stock upon the conversion
by Holder (as defined below) of the Convertible Note, dated February 26, 1997
(the "Note"), in the principal amount of $6 million, issued by the Company to
RGC International Investors, LDC (together with its registered assigns,
"Holder"), and accrued and unpaid interest under the Note; (ii) up to 3,628,733
shares of Class A Common Stock upon the exercise of certain Class G Stock
Purchase Warrants (each exercisable into one share of Class A Common Stock) to
be issued to Holder in connection with Holder's conversion of the Note and/or
the Company's prepayment of the Note ("Class G Warrants"); and (iii) upon the
exercise by Mr. Arnouse of certain Class H Stock Purchase Warrants into an
aggregate of 100,000 shares of Class A Common Stock ("Class H Warrants"). For
purposes of this Prospectus, the Note, Class G Warrants and Class H Warrants are
herein collectively referred to as the "Convertible Securities."

The price per share of the Class A Common Stock to be issued upon
conversion of the Note will generally be equal to 85% of the average daily
closing bid price of the Class A Common Stock during either the seven or ten-day
period immediately prior to the respective conversion dates of the Note.
Pursuant to the terms of the Note, Holder is entitled to receive: (i) one Class
G Warrant for each two shares of Class A Common Stock issued to Holder upon its
conversion of the Note; and (ii) a certain number of Class G Warrants in
connection with the Company's prepayment(s) of the Note. Each Class G Warrant is
exercisable beginning on August 26, 1997 for a period of five years from the
date of issuance into one share of Class A Common Stock at an exercise price of
$2.97 per share (subject to adjustment). See "Description of
Securities--Warrants."

The Company issued the Class H Warrants to Mr. Arnouse on February 26,
1997 as part of a consulting fee related to the private placement financing
represented by the Note. The Class H Warrants are exercisable by Mr. Arnouse at
an exercise price of $2.40 per share (subject to adjustment) on or after the
earlier of (i) the first date after the date of issuance thereof on which the
trading price of the Class A Common Stock is $6.00 or more or (ii) the date that
is 200 days after such date of issuance, and in either case before the fifth
anniversary of such date of issuance. See "Description of Securities--Warrants."

The Company anticipates that sales of the Shares may be effected from
time to time, by or for the account of the Selling Shareholders, or their
respective pledgees, donees, transferees or other successors in interest, on the
National Market System of the Automated Quotation System of the National
Association of Securities Dealers, Inc. ("Nasdaq"), or such other market on
which the Company's securities may from time to time be trading, in negotiated
transactions, or otherwise. Sales will be made through broker-dealers acting as
agent for the Selling Shareholders or to broker-dealers who may purchase the
Shares as principals and thereafter sell the Shares from time to time on Nasdaq
market, in negotiated transactions, or otherwise. Sales will be made either at
market prices prevailing at the times of the sales or at negotiated prices. See
"Plan of Distribution." Usual and customary or specifically negotiated brokerage
fees or commissions may be paid by the Selling Shareholders in the names of the
Selling Shareholders. The Selling Shareholders may also sell the Shares pursuant
to Rule 144 under the Securities Act of 1933, as amended (the "1933 Act").

The aggregate proceeds to the Selling Shareholders from the sale of the
Shares will be the sale price of the Shares sold, less the aggregate
underwriters' commissions and discounts, if any, and the expenses of
distribution not borne by the Company. The Company has agreed to pay certain
expenses of the sale of the Shares by the Selling Shareholders. The Company will
not receive any proceeds directly from the sale of the Shares by the Selling
Shareholders, but the Company will receive cash equal to the exercise price of
the Class G Warrants and Class H Warrants to be exercised before the Shares can
be sold hereunder. See "Use of Proceeds." The Company has agreed to indemnify
Holder against certain liabilities, including certain liabilities under the 1933
Act. See "Description of Securities" and "Plan of Distribution."

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<PAGE> 3

The Selling Shareholders and any broker-dealer, agent or underwriter
that participates with the Selling Shareholders in the distribution of the
Shares may be deemed "underwriters" within the meaning of the 1933 Act and any
commission received by them and any profit on the resale of the Shares purchased
by them may be deemed to be underwriting commissions or discounts under the 1933
Act. See "Description of Securities" and "Selling Shareholders."

The Class A Common Stock of the Company is included on Nasdaq under the
symbol LDAKA. On March 31, 1997, the closing bid and asked prices of the Class A
Common Stock were $2.3125 and $2.4062, respectively.

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

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.

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 April , 1997.

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<PAGE> 4

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and, in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed with the
Commission by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices located at 7
World Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can be obtained from the Public Reference Section of the
Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, at prescribed rates. Because the Company's Class A
Common Stock is traded on Nasdaq, annual reports and other reports and
information concerning the Company can also be inspected at the office of the
National Association of Securities Dealers, Inc. at 1735 K Street N.W.,
Washington, D.C. 20006. The Commission also maintains a Web site that contains
reports, proxy and information statements and other materials that are filed
through the Commission's Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR"). This Web site can be accessed at http://www.sec.gov.

The Company has filed with the Commission a registration statement on
Form S-3 (herein, together with all amendments, incorporated documents and
exhibits, referred to as the "Registration Statement"), of which this Prospectus
is a part. 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
pertaining to the Company, reference is made to the Registration Statement.
Statements contained herein or in any Prospectus Supplement or in any document
incorporated herein by reference concerning the provisions of documents are
necessarily summaries of such documents and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
Commission. Copies of the Registration Statement are on file at the offices of
the Commission and may be obtained upon payment of the fees prescribed by the
Commission, or examined without charge at the public reference facilities of the
Commission described above.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents of the Company shall be deemed to be
incorporated in this Prospectus and to be a part hereof from the date of the
filing of such documents:

1. Annual Report on Form 10-K for the fiscal year ended September 30,
1996;

2. Form 8-K filed October 15, 1996;

3. Form 8-K filed November 21, 1996;

4. Form 8-K filed December 2, 1996;

5. Form 8-K filed December 3, 1996;

6. Form 8-K filed December 5, 1996;

7. Form 8-K filed December 24, 1996;

8. Form 8-K filed December 30, 1996;

9. Form 8-K filed January 15, 1997;

10. Proxy Statement filed January 24, 1997, pursuant to Section 14 of
the Securities and Exchange Act of 1934, as amended;

11. Form 8-K filed February 11, 1997;

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<PAGE> 5

12. Quarterly Report on Form 10-Q for the quarter ended December 31,
1996;

13. Form 8-K filed March 10, 1997;

14. Form 8-K (dated March 15, 1997) filed March 24, 1997;

15. Form 8-K (dated March 17, 1997) filed March 24, 1997; and

16. All documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended, prior to the termination of the offering
described herein.

Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for all purposes to the extent that
a statement contained in this Prospectus or in any other subsequently filed
document which is also incorporated herein by reference modifies or replaces
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 this
Prospectus is delivered, on written or oral request of such person, a copy
(without exhibits) of any or all documents incorporated by reference in this
Prospectus. Requests for such copies should be directed to the Chief Financial
Officer, LIDAK Pharmaceuticals, (i) if by telephone to (619) 558-0364 or (ii) if
by mail to 11077 North Torrey Pines Road, La Jolla, California 92037.

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<PAGE> 6

THE COMPANY

LIDAK Pharmaceuticals ("LIDAK" or the "Company") is a development stage
company organized to engage in research, development and commercialization of
innovative pharmaceutical products. The Company was incorporated in California
in 1988 and since inception has operated in one business segment -- research and
development of pharmaceutical products. The Company is currently focusing on the
development and commercialization of two proprietary products/technologies 1)
n-docosanol 10% cream (LIDAKOL(R)) as a topical treatment for oral herpes (cold
sores or fever blisters); and 2) Large Multivalent Immunogen ("LMI") technology
as a potential immunotherapeutic vaccine treatment for malignant melanoma and
other human cancers.

In Spring 1996, the Company reported preliminary results from three
Phase 3 clinical trials comparing LIDAKOL cream to a placebo cream as a
treatment of recurrent oral herpes episodes. In these trials, LIDAKOL
demonstrated clinical effectiveness compared to historical episode features
experienced by the patients in the study, including reduced healing times,
episode abortion and shortening of pain symptoms. However, similar results were
obtained with the cream used as the intended placebo in the trials. If these
trials had shown a statistically and clinically significant advantage of LIDAKOL
versus placebo, the Company could have filed a New Drug Application ("NDA") with
the U.S. Food and Drug Administration ("FDA") for marketing approval of LIDAKOL
as a treatment of recurrent oral herpes. As a result of the inconclusive
outcome, the Company obtained FDA approval to use an alternative placebo and to
conduct additional Phase 3 clinical trials to prove the efficacy of LIDAKOL
versus the alternative placebo. In July and September 1996, the Company
initiated two additional Phase 3 clinical trials of LIDAKOL in the United
States. The Company anticipates completion of these studies, including data
availability, around the summer of 1997. If successful, these trials will
complete the final requirements to file an NDA for marketing approval. If FDA
approval is obtained in a timely manner thereafter, the Company believes that it
is possible that commercial sales could commence sometime in 1998.

To date, the Company has entered into five licensing agreements
relating to marketing certain topical indications of LIDAKOL. These agreements
are with: 1) Yamanouchi Europe, b.v., of the Netherlands ("Yamanouchi"), for
rights in certain European and other countries (November, 1991); 2) CTS Chemical
Industries, Ltd. ("CTS"), for rights in Israel (July, 1993); 3) Boryung
Pharmaceuticals Company, Ltd. ("Boryung"), of Seoul, Korea, for rights in the
Republic of Korea (July, 1994); 4) Grelan Pharmaceutical Co., Ltd. ("Grelan"),
of Tokyo, Japan, for rights in Japan (October, 1994); and 5) Bristol-Myers
Squibb Company ("BMS"), headquartered in the U.S., for rights in the United
States, Canada and all remaining major territories throughout the world which
were not licensed to other parties (February, 1996). In November 1996, LIDAK
reacquired from BMS the rights to market LIDAKOL in all territories covered in
the LIDAK/BMS agreement except the U.S., Canada and Mexico and is now free to
engage new licensing partners in these reacquired territories which include
China, South America, Central America, Australia, India and portions of the Far
East. In each of the territories covered by the above agreements, and other
territories not covered by these agreements, marketing of LIDAKOL is subject to
obtaining appropriate government approvals.

The Company's second current area of clinical development uses the LMI
technology as a new therapeutic approach to cancer. This technology involves the
use of antigen-containing artificial cell membranes to stimulate the immune
system's defense against cancer cells. Under an Investigational New Drug
Application ("IND"), approved by the FDA, the Company is currently conducting a
Phase 1/Phase 2 clinical trial of LMI in patients with malignant melanoma. The
Company anticipates completion of this trial in early 1997. The Company's rights
to the LMI technology, and certain other technologies, derive from a licensing
agreement with Medical Biology Institute ("MBI"), a non-profit research
organization founded in 1981 by Dr. David H. Katz, the founder, President and
Chief Executive Officer of the Company.

The Company has experienced significant losses since inception and its
business is subject to significant risks. See "Risk Factors." Except as noted
above with respect to LIDAKOL, the Company does not expect any other of its
proposed products, including LMI, to be available for commercial sale for
several years, if at all. There is no assurance that the ongoing U.S. Phase 3
clinical trials of LIDAKOL or the current and/or future clinical trials of LMI
will demonstrate satisfactory efficacy to support the filing of NDA's with the
FDA in the U.S. or with regulatory agencies outside the U.S. Moreover, filing of
any such NDA's does not assure that marketing approvals will be granted for
these products in the U.S. or elsewhere. There is no assurance that pre-clinical
and clinical testing of the Company's earlier- stage technologies will
demonstrate appropriate safety and efficacy requirements to warrant further
development and/or to achieve the requirements of regulatory marketing approvals
in the U.S. or elsewhere.

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Even if the Company obtains applicable regulatory marketing approvals
for LIDAKOL, LMI or any of its other products, it will still be necessary for
the Company to make appropriate arrangements, for which no assurance can be
made, to finance the ultimate commercialization of such products. These
arrangements could include obtaining additional licensing agreements or other
collaborative interactions with outside parties which have sufficient financial
resources and expertise and/or raising additional financing to support
completion of any remaining non-clinical and clinical development, regulatory
approval filings and, if approved, eventual marketing of such products.

The Company was incorporated in California on August 31, 1988. The
Company's executive offices are located at 11077 North Torrey Pines Road, La
Jolla, California 92037, and its telephone number is (619) 558-0364. See "Risk
Factors--Relationship with and Dependence on Medical Biology Institute."

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<PAGE> 8

RISK FACTORS

The purchase of the securities offered hereby involves a high degree of
risk, including, but not limited to, the risk factors described below.
Prospective investors should carefully review and consider the following risks
as well as the other information provided in this Prospectus.

1. Development Stage Company; Explanatory Paragraph in Independent
Auditors' Report for the Fiscal Year Ended September 30, 1996; History of
Continuing Losses. The Company's independent auditors have included an
explanatory paragraph in their report issued in connection with their audit of
the Company's financial statements as of and for the fiscal year ended September
30, 1996 that refers to the Company's activities as those of a development stage
enterprise. Through September 30, 1996 the Company has generated only limited
revenues. Primarily as a result of expenses incurred in organizational and
research and development activities, the Company has incurred net losses
aggregating approximately $34.3 million from its inception through September 30,
1996. Since September 30, 1996, the Company has incurred operating losses, and
anticipates that it will continue to incur substantial operating losses until
such time, if ever, that the Company achieves significant revenue from its
products. There can be no assurance that the Company will be able to
successfully implement its marketing strategy or achieve significant revenues or
profitable operations. Potential investors should be aware of the problems,
delays, expense, and difficulties encountered by any company in the development
stage, many of which may be beyond the Company's control. These include, but are
not limited to, unanticipated problems relating to product development and
formulation, clinical testing, regulatory compliance, production and marketing
additional costs and competition. There can be no assurance that the Company's
proposed products, if fully developed and if required regulatory approvals are
obtained, can be successfully marketed or that the Company will ever achieve
significant revenues or profitable operations.

2. Significant Capital Requirements; Need for Working Capital and
Additional Financing. The commercialization of LIDAKOL or any of the Company's
other products will require capital reserves substantially greater than those
currently available to the Company. Accordingly, the Company will be required to
raise additional capital and, with the exception of LIDAKOL for oral herpes,
will be required to collaborate with one or more large pharmaceutical companies
which will provide the necessary financing and expertise to obtain regulatory
approvals, complete clinical development, manufacture and market other
indications of LIDAKOL and other proposed products. To date, the Company has
entered into five such agreements relating to LIDAKOL for herpes. There can be
no assurance that the Company will be able to raise additional capital or to
enter into other collaborative arrangements necessary to further develop or
commercialize LIDAKOL or any of its other proposed products on acceptable terms.
Failure to obtain required additional financing, or to enter into additional
collaborative and licensing arrangements for the continued development,
manufacturing and distribution of the Company's products, would materially limit
the Company's ability to finance or undertake its proposed operations. In such
event, if the Company were unable to obtain from alternative sources the
substantial financing necessary on acceptable terms, it would be unable to
commercialize any products.

3. Early Stage of Research Development; Unproven Products; Possible
Loss of Product Development Costs. There can be no assurance that LIDAKOL or any
of the Company's other proposed products will be successfully developed, prove
to be safe and efficacious in clinical trials, prove to be more effective than
formulated products based on existing or newly developed technologies, meet
applicable regulatory standards, demonstrate substantial therapeutic benefits in
the treatment of any disease, be capable of being produced in commercial
quantities at reasonable costs or be successfully marketed. There can be no
assurance that effectiveness of these technologies in preclinical studies
performed in vitro or in animal models will be pertinent to the development of,
or indicative of the efficacy of, a product for human use. The continued
development of the Company's products, including LIDAKOL, remain subject to all
the risks inherent in the development of products based on innovative
technologies, including unanticipated development problems and the possible
insufficiency of funds which could result in the abandonment or substantial
change in the development of a specific product. The development of medical
products is a lengthy and capital intensive process. The risk of failure to
complete development of the Company's proposed products is substantial.
Unsuccessful Phase 3 clinical trial results for proposed products or the
inability to successfully complete development, or a determination by the
Company, for economic or other reasons, not to undertake to complete development
of a particular product, could have a material adverse effect on the Company.
Such material adverse effect with respect to unsuccessful clinical trial results
for LIDAKOL for oral herpes would be virtually assured.

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4. Uncertainty of Market Acceptance; Limited Marketing Arrangements for
Proposed Products. Except for its arrangement with Molecular Probes, Inc., as
discussed in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996 as incorporated by reference herein, the Company has not
commenced marketing of any products to date, and at the present time, has
limited marketing capabilities. Achieving market acceptance will require
substantial marketing efforts and the expenditure of significant funds to inform
potential customers of the perceived benefits of the Company's proposed
products. The Company has no experience in the marketing or distribution of its
proposed products. Moreover, the Company does not have the financial and other
resources to undertake extensive marketing and advertising activities.
Accordingly, the Company intends generally to rely on marketing arrangements,
including possible joint ventures, license or distribution arrangements with
third parties. To date, the Company has entered into marketing agreements with
Yamanouchi, CTS, Boryung, Grelan, BMS and Molecular Probes, Inc. There can be no
assurance that it will be successful in entering into similar agreements with
other parties in the future or that its products can be successfully marketed.

5. Government Regulation. The development, production, testing,
manufacturing and marketing of pharmaceutical products is subject to significant
regulation by governmental authorities in the United States, including the FDA,
and other countries. The clinical testing and regulatory approval process can
take a number of years and require the expenditure of substantial resources.
There can be no assurance that regulatory approval will be obtained for any of
the Company's proposed products. A significant portion of the proceeds of the
Company's financings are being used for research and development and clinical
trials necessary for seeking such approvals for the Company's products. There is
no assurance that the Company will be able to enter into additional
collaborative arrangements with large pharmaceutical companies to provide the
financing necessary to complete the required testing and regulatory review
process for the Company's products. Further, the expenditures by the Company
will be made without any assurance that approvals will be obtained and before it
can be ascertained whether the Company's products can be commercialized. The
inability to obtain, or delays in obtaining, such approval would adversely
affect the Company's ability to commence marketing such products and could have
a material adverse effect on the Company. The Company is unable to predict the
extent of adverse governmental regulation which might arise from future United
States or foreign legislative or administrative action. Moreover, the Company
cannot predict with accuracy the effect of unspecified, but possible, future
changes in the regulatory approval process and in the domestic health care
system. Possible future changes could affect the time frame required for
regulatory review and the sale prices of the Company's products, if approved for
sale.

6. Technological Change and Competition. The pharmaceutical industry is
subject to rapid, unpredictable and significant technological change.
Competition from universities, research institutions and pharmaceutical,
chemical and bio-engineering companies may be intense. There can be no assurance
that developments by the Company's competitors or potential competitors will not
render the Company's proposed products obsolete. Most of such competitors have
greater financial resources, research and development facilities and
manufacturing and marketing experience than the Company. If the Company's first
proposed product, LIDAKOL, is successfully developed, it will compete with
prescription products for oral herpes known to the Company currently on the
market in the United States and other over-the-counter preparations, as well as
other products or potential products which are or may be under development or
undergoing the FDA regulatory approval process.

7. Relationship With and Dependence on Medical Biology Institute. With
the exception of LIDAKOL, the Company's technologies have been obtained by
license from MBI, a non-profit research organization founded by Dr. Katz and
principally funded by research grants awarded by the National Institutes of
Health. Dr. Katz serves as President and Chief Executive Officer of MBI. Under
the original MBI Agreement (see amendment below), the Company was granted a
twenty-year exclusive worldwide license to all technology and know-how which MBI
developed or had under development as of October 10, 1988, the date of the MBI
Agreement, and a right of first preference to license future technology subject
to restrictions, if any, in the funding agreements by which MBI develops the
technology. In consideration of these rights, MBI received 2,000,000 shares of
the Company's nonvoting Series A Preferred Stock, licensing fees in the amount
of $900,000, 10 percent of all net license fees obtained by the Company based on
licensed technology, 20 percent of all royalties paid to the Company by any
sublicensee and 6% percent royalties (for patented inventions) or 3 percent
royalties (for non-patented inventions) on net sales of products based on
licensed technology manufactured and marketed directly by the Company or any of
its subsidiaries. In addition, if the Company failed to market on a product
scale at least one product derived from a licensed technology or pay a royalty
of at least $100,000 per year for the calendar year ending December 31, 1995, or
any calendar year thereafter, MBI had the right to convert the license to a
nonexclusive license upon six months' notice. MBI may terminate the MBI
Agreement upon 180 days' notice in the event of default thereunder by the
Company which remains uncured in 90 days.

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In July 1993, the MBI Agreement was amended, and pursuant to the terms
of the amendment, the Company issued 1,500,000 shares of Class A Common Stock to
MBI in consideration for a 5-year extension of its exclusive technology rights
(until October 10, 2013) and a 5-year postponement (until December 31, 2000) of
the Company's obligation to pay minimum royalties to MBI. The shares granted to
MBI pursuant to the amendment are restricted stock under federal securities laws
and do not enjoy any registration rights. Additionally, in connection with the
issuance of the new shares, MBI waived all rights to 1,500,000 of its Series A
Preferred Shares which were then held in escrow.

In July 1994, the MBI Agreement was further amended to provide for
future research funding and support for projects outside the realm of the
initial license agreement. This amendment provides for the transfer of ownership
rights for each specific project during the time it is being funded by the
Company.

There can be no assurance that the Company will have the ability to
satisfy all of its obligations under the MBI Agreement, that the MBI Agreement
will result in the development of any additional products or technologies, that
the Company will be able to maintain its exclusivity to the MBI technology, that
MBI will be able to continue to receive additional research funding, or that MBI
will be able to attract and/or maintain qualified scientific or administrative
personnel. Modification or termination of the MBI Agreement could have a
material adverse effect on the Company.

8. Dependence Upon Key Personnel. The Company is dependent on its
executive management and scientific staff, particularly Dr. David H. Katz, its
President and Chief Executive Officer. Dr. Katz also serves as President, Chief
Executive Officer and a Director of MBI and devotes a portion of his time to
MBI. A reduction in the amount of time Dr. Katz or other key personnel devote to
the Company or the loss of any key person could have a material adverse effect
upon the Company's business. The Company has entered into an employment
agreement with Dr. Katz and has obtained "key-man" life insurance on the life of
Dr. Katz in the amount of $1,000,000. In addition, in order to carry out its
business plan, the Company will be required to retain additional qualified
scientific, technical and administrative personnel. There can be no assurance
the Company will be able to attract or maintain such additional personnel.

9. Patents and Proprietary Rights. The Company owns six United States
and three European patents and has additional foreign patent applications
pending relating to the topical and systemic uses of LIDAKOL and has been
granted rights under certain United States and foreign patents and patent
applications relating to LIDAKOL held by a third party. In addition, the Company
has been granted rights to certain United States and foreign patents and patent
applications related to LMI, and other technologies pursuant to the MBI
Agreement. There can be no assurance that the claims in the pending patent
applications will issue as patents, that any issued patents will provide the
Company with significant competitive advantages, or that challenges will not be
instituted against the validity or enforceability of any patent owned by the
Company or, if instituted, that such challenges will not be successful. The cost
of litigation to uphold the validity and prevent infringement of the Company's
patents could be substantial. Furthermore, there can be no assurance that others
will not independently develop similar technologies or duplicate the Company's
technologies or design around the patented aspects of the Company's
technologies. There is no assurance that the Company's proposed technologies
will not infringe patents or other rights owned by others, licenses to which may
not be available to the Company. In this regard, the Company was at one time
negotiating to acquire another company working on an anti-viral topical
therapeutic product, but such negotiations were terminated. Although there can
be no assurance that this other company will not assert rights with respect to
LIDAKOL in the future, the Company believes it will have meritorious defenses to
such assertions. Finally, federal NIH regulations provide that if
federally-funded institutions do not timely pursue patent applications for
patentable inventions, the government can exercise its right to own such
inventions. Accordingly, the Company must monitor MBI's filing of patent
applications in order to protect the value of its license agreement with MBI.
The MBI Agreement requires the Company to pay the costs of pursuing and
obtaining patents on the licensed technologies and improvements thereto.

In some cases, the Company may rely on trade secrets and
confidentiality agreements to protect its innovations. There can be no assurance
that trade secrets will be established, that secrecy obligations will be honored
or that others will not independently develop similar or superior technology. To
the extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to
Company projects, disputes may arise as to the proprietary rights to such
information which may not be resolved in favor of the Company.

10. Dependence Upon a Limited Number of Proposed Products. The
Company's principal efforts to date have been devoted to the development of
LIDAKOL, LMI, ADIFAB and hu-PBL-SCID mouse technologies. Of these products and
technologies, the Company believes LIDAKOL, for the treatment of oral herpes, is
the product most likely to be first available for commercial distribution.
However, the Company does not expect LIDAKOL to be available for

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<PAGE> 11

commercial sale or use in the United States and certain foreign markets until
sometime in 1998, if at all. The ADIFAB assay is currently available for sale to
the research community and the Company has entered into a distribution agreement
with an independent, third-party distributor. The Company does not believe that
revenues from the distribution of the ADIFAB assay will materially add to the
revenues of the Company for several years, if ever. Accordingly, it is not
anticipated that the Company will generate any significant revenues from sales
for several years.

The failure of these products to achieve commercial viability would
have a material adverse effect upon the business and financial condition of the
Company.

11. Potential Conflicts of Interest. The Company's President and Chief
Executive Officer is also employed by MBI and serves on the board of directors
of MBI. Other than LIDAKOL, it is hoped that a large part of the Company's
business activities will relate to development of technologies licensed from
MBI. However, conflicts could arise with respect to, among other things, the
funding for development of licensed projects between the Company and MBI, as
well as the terms of licenses to future developments at MBI pursuant to the
Company's right of first preference to such developments. Although the decisions
with respect to such matters must be approved by a majority of the members of
the Board of Directors not employed by MBI, there can be no assurance that
effective transactions between the Company and MBI will be advantageous to the
Company, that conflicts of interest will not arise with respect to such
transactions or that, if conflicts of interest do arise, they will be resolved
in a manner favorable to the Company.

12. Control by Insiders. As of March 31, 1997, the officers and
directors of the Company own approximately 4% of the outstanding capital stock
of the Company and possess approximately 6% of the voting power. At that date,
the officers and directors of the Company also held options and warrants to
purchase an additional 3,707,597 shares of Class A Common Stock and 407,000
shares of Class B Common Stock. Assuming exercise of these options and warrants,
the officers and directors of the Company would be able, as a practical matter,
to influence considerably the election of directors and thereby select
management and direct the policies of the Company.

13. Dependence Upon Third-Party Arrangements. The Company does not have
and does not expect to have in the foreseeable future the resources to
manufacture or directly market on a large commercial scale LIDAKOL or any other
products which it may develop. To successfully commercialize LIDAKOL or any
other products it will be necessary for the Company to enter into collaborative
arrangements with pharmaceutical or biotechnology companies to assist in funding
development costs, including the costs of clinical testing necessary to obtain
regulatory approvals, and costs of manufacturing and marketing. The Company
believes that these arrangements will be more effective in promoting and
distributing its products in view of the Company's limited resources and the
extensive marketing networks and large promotional and advertising budgets of
established pharmaceutical companies. The Company has entered into several
licensing agreements to cover the clinical development, manufacturing and
marketing of LIDAKOL. There can be no assurance, however, that the Company will
be able to finalize any licensing or distributorship arrangements for
territories not covered by existing agreements on favorable terms or at all. The
Company may ultimately determine to establish its own manufacturing and/or
marketing capability, at least for certain products, in which case it will
require substantial additional funds and personnel.

14. Risks Related to Foreign Sales. The Company is subject to various
risks inherent in foreign trade in connection with the continued development of
LIDAKOL by foreign licensees, and the manufacture, marketing and distribution of
LIDAKOL, if ever, overseas by foreign licensees. Such risks could include
economic or political instability, shipping delays, fluctuations in foreign
currency exchange rates, customs duties and export quotas and other trade
restrictions, all of which could have a significant impact on the Company's
ability to deliver its products.

15. Possible Volatility of Stock Price. Recent history relating to the
market prices of the shares of biotechnology companies in general, and the
historical fluctuations in the market price of the Company's Class A Common
Stock, indicates that, following this Offering, the market price of the
Company's Class A Common Stock may be highly volatile. Factors such as
fluctuations in the Company's operating results, developments relating to the
progress of clinical trials for the Company's products and the Company's
relationships with present and potential licensees and distributors,
announcements of technological innovations or new products by the Company or its
competitors, and changes in market conditions and in the economy generally, may
have a significant impact in the market price of the Company's Class A Common
Stock. Further, the market price for securities of many biotechnology companies
have experienced wide fluctuations which were not necessarily related to the
operating performance of such companies.

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<PAGE> 12

16. Dilution. Purchasers of the shares of the Class A Common Stock
offered hereby will experience immediate and substantial dilution in the net
tangible book value of their shares of approximately $1.65 per share or 72%,
assuming a price to the public of $2.31 per share (based upon the last reported
sales price of the Class A Common Stock on Nasdaq at March 31, 1997). See
"Dilution."

17. Product Liability; Absence of Insurance Coverage. The testing,
marketing and sale of pharmaceutical products entails a risk of product
liability claims by consumers and others. Claims may be asserted against the
Company by end users of any of the Company's proposed products which may be
developed. The Company has obtained product liability insurance coverage for its
clinical trials in the amount of $2,000,000 per incident, and aggregate. There
is no assurance that such insurance will be sufficient to cover all possible
liabilities. In the event of a successful suit against the Company, lack or
insufficiency of insurance coverage could have a material adverse effect on the
Company. Further, certain distributors of pharmaceutical products require
minimum product liability insurance coverage as a condition precedent to
purchasing or accepting products for distribution. Failure to satisfy such
insurance requirements could impede the ability of the Company to achieve broad
distribution of its proposed products, which would have a material adverse
effect upon the business and financial condition of the Company.

18. Future Sales of Common Stock. All of the Company's shares of Class
B Common Stock currently outstanding are "restricted securities" as the term is
defined in Rule 144 promulgated under the Securities Act and under certain
circumstances may be sold without registration pursuant to such Rule. The
outstanding shares of Class B Common Stock, which will convert into Class A
Common Stock upon certain sales or transfers, are eligible for sale under Rule
144. The Company is unable to predict the effect that sales made under Rule 144,
or otherwise, may have on the then prevailing market price of the Class A Common
Stock although any substantial sale of restricted securities pursuant to Rule
144 may have an adverse effect.

19. Effect of Outstanding Convertible Stock, Options and Warrants. At
March 31, 1997, there were outstanding stock options to purchase an aggregate of
5,318,161 shares of Class A Common Stock, which have exercise prices ranging
between $0.9375 to $6.4375 per share, and 429,000 shares of Class B Common Stock
which have exercise prices ranging between $0.0125 to $0.50 per share. In
addition, the Company had outstanding 283,000 shares of Class B Common Stock at
that date, each share of which is convertible into one share of Class A Common
Stock. The Company also had outstanding at March 31, 1997 (i) Class D Warrants
with an exercise price of $1.50 per share, which, if exercised, would result in
the issuance of 1,407,269 shares of Class A Common Stock and (ii) the
Convertible Securities which, if converted and/or exercised, would result in the
issuance of the Shares as contemplated in this Prospectus. See "Selling
Shareholders" and "Description of Securities."

To the extent that these outstanding securities are exercised or
converted, dilution of the percentage of ownership of the Company's shareholders
will occur. Sales in the public market of the Class A Common Stock underlying
options and warrants may adversely affect prevailing market prices for the Class
A Common Stock. This, in turn, might adversely affect the terms upon which the
Company will be able to obtain additional equity capital.

20. Dividends Unlikely. The Company does not intend to declare or pay
cash dividends in the foreseeable future. Earnings are expected to be retained
to finance its business.

21. Lack of Trading Market in Certain Jurisdictions. Although
securities of the Company have been qualified for sale only in certain
jurisdictions, the Company's Listed Securities are exempted from the
qualification requirements for offers in the secondary market of most states
because of their listing on Nasdaq. However, the Company has not qualified the
secondary offering of its securities in the states of Hawaii and Nebraska and
Nasdaq exemption is not available in Hawaii. Consequently, the secondary trading
of securities of the Company in the states of Hawaii and Nebraska can only be
conducted through unsolicited buy and sell orders, privately negotiated
transactions, or through other exempt transactions. Similar restrictions may
apply in other jurisdictions.

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<PAGE> 13

USE OF PROCEEDS

The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Shareholders. The Company will receive, however, certain
proceeds in the event of the exercise of the Class G Warrants and the Class H
Warrants held by the Selling Shareholders. There can be no assurance that all or
any portion of such securities will be exercised at any particular time, if
ever. It is likely that the Selling Shareholders will not exercise their
securities unless and until the market price of the Class A Common Stock is
significantly greater than the exercise prices of their securities for an
extended period of time. See "Selling Shareholders" and "Description of
Securities."

The use to which the Company would put proceeds received upon the
exercise of the Class G Warrants and the Class H Warrants, after the payment of
expenses, will depend upon the amount of proceeds received at any given time,
the then current cash balance of the Company and the then current funding
priorities of the Company. As of the date of this Prospectus, if all of such
securities were exercised concurrently, then the Company expects that, after the
payment of expenses, it would apply all of the net proceeds to working capital.

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<PAGE> 14

DILUTION

As of December 31, 1996, the pro forma net tangible book value of the
Company's Class A Common Stock was $31,380,960 or $0.66 per share of Class A
Common Stock. Pro forma net tangible book value per share represents the amount
of total tangible assets of the Company adjusted to give effect to (a) the
proceeds received by the Company from the sale of the Note in the principal
amount of $6,000,000 (less estimated expenses), and (b) the proceeds that the
Company would receive in the event of the exercise of the maximum number of the
Class G Warrants and Class H Warrants registered herein, reduced by the total
liabilities of the Company as adjusted to give effect to the issuance of the
Note, and then divided by the number of shares of Class A Common Stock
outstanding after giving effect to the issuance of shares of Class A Common
Stock upon (x) the complete conversion of the Note and (y) the exercise of the
Class G Warrants issued upon such conversion of the Note and the exercise of all
of the Class H Warrants registered herein. No additional shares of Class A
Common Stock will be issued, nor will any proceeds be received by the Company,
as a result of the sale by the Selling Shareholders of the Shares offered by
this Prospectus. See "Use of Proceeds" and "Selling Shareholders." Therefore,
the pro forma net tangible book value at December 31, 1996 will remain at $0.66
per share of Class A Common Stock. Assuming a price to the public of $2.31 per
share (based upon the last reported sales price of the Class A Common Stock on
Nasdaq at March 31, 1997), there will be an immediate dilution per share of
$1.65 to new investors purchasing the shares of Class A Common Stock offered
hereby. The dilution to be experienced by new investors will be the same
regardless of the number of securities sold because the Company will receive no
consideration for the sale.

The following table illustrates the dilution per share as described
above:

<TABLE>
<S> <C> <C>
Assumed price to public per share................................... $2.31
Pro forma net tangible book value per share at December 31,
1996, before giving effect to this offering...................... $0.66
Increase attributable to purchase of Class A Common Stock by
new investors.................................................... $0.00
-----
Pro forma net tangible book value per share of common stock at
December 31, 1996, after giving effect to this offering.......... 0.66
-----
Dilution to new investors........................................... $1.65
=====
</TABLE>

At March 31, 1997, the Company also had outstanding options to purchase
5,318,161 shares of Class A Common Stock, at exercise prices ranging between
$0.9375 and $6.4375 per share, and 429,000 shares of Class B Common Stock, at
exercise prices ranging between $0.0125 and $0.50 per share. In addition, the
Company had outstanding at March 31, 1997, Class D Warrants which have an
exercise price of $1.50 and, if exercised, would result in the issuance of
1,407,269 shares of Class A Common Stock. To the extent such shares are
converted and options and warrants are exercised below the net tangible book
value, there will be further dilution to the purchasers of the Class A Common
Stock offered hereby.

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<PAGE> 15

SELLING SHAREHOLDERS

The following table sets forth the names of the Selling Shareholders,
the number of shares of Class A Common Stock owned respectively by the Selling
Shareholders as of the date of this Prospectus, regardless of whether such
Selling Shareholders have a present intent to sell, and the number of shares
which may be offered for resale pursuant to this Prospectus. The number of
shares included in the Registration Statement of which this Prospectus is a part
and available for resale (i) is based, in part, upon an estimate of the number
of shares underlying the Note utilizing a hypothetical conversion price of
$1.2096, (ii) is subject to adjustment and (iii) could be materially less or
more than such estimated amount depending on factors which cannot be predicted
by the Company at this time, including, among others, the future market price of
the Class A Common Stock. The use of such hypothetical price is not intended,
and should in no way be construed, to constitute a prediction as to the future
market price of the Class A Common Stock.

The information included below is based upon information provided by
the Selling Shareholders. Because the Selling Shareholders may offer all, some
or none of its Class A Common Stock, no definitive estimate as to the number of
shares thereof that will be held by the Selling Shareholders after such offering
can be provided and the following table has been prepared on the assumption that
all of the shares of Class A Common Stock offered under this Prospectus will be
sold to unaffiliated parties.

<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES
RELATIONSHIP SHARES OWNED NUMBER OF OWNED % OWNED
WITH PRIOR TO THE SHARES TO BE AFTER THE AFTER
NAME COMPANY OFFERING(1) RESOLD OFFERING(4) OFFERING
- ----------------------------- ----------------- -------------------- --------------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
RGC International Investor 10,886,200(2)(3) 10,886,200(2)(3) 0 *
Investors, LDC

Michael Arnouse Consultant 100,000(3) 100,000(3) 0 *
</TABLE>

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

* Percentage of shares owned does not exceed 1%.

(1) The Selling Shareholders have sole voting and sole investment power
with respect to all shares owned.

(2) Consists of (i) 7,257,467 shares of Class A Common Stock issuable upon
the complete conversion of the Note, and (ii) 3,628,733 shares of Class
A Common Stock issuable upon the exercise of the Class G Warrants
issued upon such conversion of the Note. The calculation of the
7,257,467 shares of Class A Common Stock issuable upon the complete
conversion of the Note, assuming that accrued interest is paid in cash,
assumes a conversion price of $1.2096, which price is below 85% of the
average daily closing bid price of the Class A Common Stock during the
seven-day period ended March 31, 1997 (which was $1.9315). Therefore,
the assumed conversion price results in share ownership substantially
greater than what actual share ownership would be if the conversion
took place on March 31, 1997. In addition, pursuant to the terms of the
Note and the Class G Warrants, the Note is convertible and the Class G
Warrants are exercisable by the holders thereof only to the extent that
the number of shares of Class A Common Stock to be issued upon a
particular conversion or exercise, together with the number of shares
of Class A Common Stock then held by such holder and its affiliates
(excluding shares underlying the unconverted portion of the Note and
the unexercised portion of the Class G Warrants), would not exceed 4.9%
of the then outstanding shares of Class A Common Stock as determined in
accordance with Section 13(d) of the Exchange Act. Accordingly, the
number of shares of Class A Common Stock set forth above exceeds the
actual number of shares of Class A Common Stock that this Selling
Shareholder could own beneficially at any given time upon the complete
conversion of the Note and the related exercise of Class G Warrants. In
that regard, beneficial ownership as set forth in the table is not
determined in accordance with Rule 13d-3 under the Exchange Act.

(3) Except as set forth in footnote 2 above, ownership is determined in
accordance with Rule 13d-3 under the Exchange Act. Subject to the
provisions of footnote 2 above, the actual number of shares of Class A
Common Stock beneficially owned and offered for sale hereunder is
subject to adjustment and could be materially less or more than the
estimated amount indicated depending upon factors which cannot be
predicted by the Company at this time, including, among others, the
average daily closing bid price of the Class A Common Stock during the
seven or ten-day period ending on the actual date of the conversion of
the Note.

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<PAGE> 16

(4) Assumes the sale of all of the shares offered hereby to persons who are
not affiliates of the Selling Shareholders.

PLAN OF DISTRIBUTION

The sale or distribution of the Shares by the Selling Shareholders, or
their respective pledgees, donees, transferees or other successors in interest,
may be effected in one or more transactions that may take place on Nasdaq or
such other market on which the Company's securities may from time to time be
trading, including ordinary broker's transactions or through sales to one or
more dealers for resale of the Shares as principals, in privately negotiated
transactions, through the writing of options on the Shares (whether such options
are listed on an options exchange or otherwise), short sales or by a combination
of such methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. If such transactions are effected by selling the
Shares through underwriters, dealers or agents, such underwriters, dealers or
agents may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
of the Shares for whom they may act as agent. The Selling Shareholders and any
such underwriters, dealers or agents that participate in the sale or
distribution of the Shares may be deemed to be underwriters, and any profit on
the sale of the Shares by them and any discounts and commissions under the 1933
Act. The Shares may also be sold pursuant to Rule 144 under the 1933 Act.
Brokers or dealers acting in connection with the sale of the Shares may receive
fees or commissions in connection therewith. The Company will not receive any of
the proceeds from the sale of the Shares by the Selling Shareholders.

At the time a particular offer of the Shares is made pursuant to this
Offering, to the extent required, a supplement to this Prospectus will be
distributed which will identify and set forth the number of the Shares being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions and other items
constituting compensation from the Selling Shareholders and/or the Company and
any discounts, commissions or concessions allowed or reallowed or paid to
dealers, including the proposed selling price to the public. Such supplement to
this Prospectus and, if necessary, a post-effective amendment to the
Registration Statement of which this Prospectus is a part, will be filed with
the Commission to reflect the disclosure of additional information with respect
to the distribution of Shares.

The Selling Shareholders and any other person participating in the sale
or distribution of the Shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Shares by the Selling
Shareholders or any other such person. The foregoing may affect the
marketability of the Shares.

The Company has agreed with the Selling Shareholders to file the
Registration Statement of which this Prospectus is a part with the Commission,
and has agreed with certain of the Selling Shareholders to keep the Registration
Statement effective until various dates in the future or such earlier time as
all of the Shares have been sold. The Company will pay all of the expenses
incident to the registration of the Shares and certain other expenses related to
this offering. The Company has agreed to indemnify Holder against certain
liabilities that it may incur in connection with the issuance and sale of the
Shares, including liabilities under the 1933 Act.

In order to comply with the securities laws of certain states, if
applicable, the Shares may be sold in such jurisdictions only through registered
or licensed brokers or dealers. In certain states, the Shares may not be sold
unless the Shares have been registered or qualified for sale in such states or
an exemption from registration or qualification is available and is complied
with.

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<PAGE> 17

DESCRIPTION OF SECURITIES

COMMON STOCK

General. The Company is authorized to issue 99,490,000 shares of Class
A Common Stock, no par value, 36,560,759 of which were issued and outstanding at
March 31, 1997, and 510,000 shares of Class B Common Stock, no par value,
283,000 of which were issued and outstanding at March 31, 1997.

Holders of Class A Common Stock and Class B Common Stock have equal
rights to receive dividends when, as and if declared by the Board of Directors
out of funds legally available therefor.

Holders of Class A Common Stock have one vote for each share held of
record and holders of Class B Common Stock have five votes for each share held
of record on all matters to be voted on by the shareholders. The Class A Common
Stock and Class B Common Stock vote as one class on all matters requiring
shareholder approval except that under California law the affirmative vote of a
majority of the outstanding shares of Class A Common Stock and a majority of the
outstanding shares of Class B Common Stock, each voting separately as a class,
is required for any amendment to the Company's Articles of Incorporation which
would alter or change the powers, preferences or special rights of, or increase
or decrease the number of shares of, or create a new class or series of shares
having rights, preferences or privileges prior to, each respective class of the
Company's common stock.

Holders of both classes of Common Stock are entitled upon liquidation
of the Company to share ratably in the net assets available for distribution
subject to the rights, if any, of holders of any preferred stock then
outstanding. Shares of both classes of Common Stock are not redeemable and have
no preemptive or similar rights. The Class B Common Stock may be converted into
Class A Common Stock on a share for share basis at any time at the election of
the holder and will automatically convert into Class A Common Stock upon sale or
transfer other than to another holder of Class B Common Stock.

Dividend Policy. The Company does not anticipate paying cash dividends
on its common stock in the foreseeable future.

PREFERRED STOCK

The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock containing such rights, preferences, privileges and restrictions as the
Company's Board of Directors may determine.

CONVERTIBLE NOTE DUE 2000

In February 1997, the Company sold to Holder the Note in the principal
amount of $6,000,000. The Note bears interest at 7%, payable quarterly, with the
principal due and payable three years from the date of issuance if and to the
extent that the Note is not previously converted. The Note is convertible at the
option of Holder into a maximum of 7,257,467 shares of Class A Common Stock at
the price equal to 85% of the average closing bid price of the Class A Common
Stock on Nasdaq during the seven or ten-day period immediately prior to the
respective dates of conversion. Holder is also entitled to receive one Class G
Warrant (exercisable into one share of Class A Common Stock) for each two shares
of Class A Common Stock issued upon conversion of the Note.

WARRANTS

Class D Warrants. The Class D Warrants entitle the respective holders
thereof to purchase one share of Class A Common Stock at an exercise price of
$1.50 from the date of issuance through December 31, 1997. The Class D Warrants
are redeemable by the Company on 30 days' written notice at a redemption price
of $0.05 per Class D Warrant, if the closing price of the Class A Common Stock
for any 30 consecutive trading days ending within 15 days of the notice of
redemption averages in excess of $3.45 per share. All Class D Warrants must be
redeemed if any are redeemed.
As of March 31, 1997, 1,407,269 Class D Warrants were outstanding.

Class G Warrants. The Company has reserved for issuance 3,628,733
shares of Class A Common Stock in connection with the issuance of Class G
Warrants upon conversion of the Note. Each Class G Warrant will entitle the
holder thereof to purchase one share of Class A Common Stock at an exercise
price of $2.97 per share. The Class G

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<PAGE> 18

Warrants are exercisable on the earlier of (i) the first date after February 26,
1997 on which the trading price of the Class A Common Stock is $6.00 or more or
(ii) August 26, 1997, and in either case before the fifth anniversary of the
date of issuance. On March 31, 1997, there were no Class G Warrants outstanding.

Class H Warrants. Each Class H Warrant entitles the holder thereof to
purchase one share of Class A Common Stock at an exercise price of $2.40 per
share on or after the earlier of (i) the first date after the date of issuance
thereof on which the trading price of the Class A Common Stock is $6.00 or more
or (ii) September 14, 1997, and in either case before the fifth anniversary of
the date of issuance. On March 31, 1997, there were 100,000 Class H Warrants
outstanding.

TRANSFER AGENT AND WARRANT AGENT

American Stock Transfer & Trust Company, New York, New York currently
serves as transfer agent for the Class A Common Stock and warrant agent for the
Class D Warrants.

REGISTRATION RIGHTS

The Company has registered under the 1933 Act the shares of Class A
Common Stock underlying the Class D Warrants pursuant to registration rights
previously granted. The Company has agreed to use its best efforts to keep such
registration effective until all of such shares of Class A Common Stock are sold
pursuant to such registration, or an opinion of counsel satisfactory to the
Company is received that the shares may be sold under the provisions of Rule
144(k) under the Securities Act.

In March 1994, the Company also registered under the Securities Act the
Class A Common Stock underlying certain options granted in July 1993 (the "July
1993 Options") on a Form S-3 Registration Statement. The Company has agreed to
keep such registration statement effective during the ten year term of the
exercise of the July 1993 Options.

In January 1996, the Company also registered 5,513,018 shares of Class
A Common Stock that were issued in connection with the conversion of the Notes
in the amount of $13,500,000 due in 1997 and 1998, plus 481,651 shares of Class
A Common Stock sold to an investor as part of the placement of the Notes.

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<PAGE> 19

LEGAL MATTERS

The validity of the securities offered hereby have been passed upon for
the Company by Baker & McKenzie, San Diego, California.

EXPERTS

The financial statements incorporated in this Prospectus by reference
from the Company's Annual Report or Form 10-K for the fiscal year ended
September 30, 1996 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference
(which report expresses an unqualified opinion and includes an explanatory
paragraph referring to the status of the Company as a development stage
enterprise), and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE CLASS A COMMON
STOCK OFFERED BY THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY CLASS A COMMON STOCK IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

-18-

<PAGE> 20

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The estimated cumulative expenses of this offering, all of which are to
be paid by the Registrant in connection with the issuance and distribution of
the securities being registered, are estimated as follows:

<TABLE>
<CAPTION>
AMOUNT
--------------
<S> <C>

SEC Registration Fee......................................................... $ 7,854.63 (1)
Accounting Fees and Expenses................................................. 10,000.00
Legal Fees and Expenses...................................................... 15,000.00
Miscellaneous Expenses....................................................... 1,000.00
-------------
Total............................................................... $33,854.63
=============
</TABLE>

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

(1) Registration fee paid upon the initial filing of this Registration
Statement.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Sections 204(a)(10) and (11), 204.5 and 317 of the California General
Corporation Law which cover the indemnification of directors, officers,
employees and agents of a corporation are hereby incorporated herein by
reference. Reference is made to Article 6 of Registrant's Restated Articles of
Incorporation and Section 3.15 of Registrant's ByLaws which provide for
indemnification by the Registrant in the manner and to the full extent permitted
by California law.

Beginning August 10, 1992, the Company has maintained directors' and
officers' liability insurance with policy limits of $5,000,000. The policy
covers 100 percent of losses arising from, among other things, claims of breach
of duty, neglect, error, alleged misstatement, misleading statement or omission
by the directors and officers in their capacity as such. Payment for loss would
be made to or on behalf of the Company where the Company is required or
permitted to indemnify directors or officers for covered losses pursuant to
statutory or common law, the Articles of Incorporation or Bylaws of the Company
or by agreement. The policy provides for retention of $5,000 per director or
officer, subject to a maximum of $10,000 for each loss, except in the case of
payment for loss to or on behalf of the Company, in which case the retention is
$100,000.

ITEM 16. EXHIBITS.

4.1* -- Restated Articles of Incorporation of the Registrant.

4.2+ -- Convertible Note, dated February 26, 1997, issued by the Registrant
to RGC International Investors, LDC ("RGC").

4.3+ -- Form of Class G Stock Purchase Warrant.

4.4+ -- Note Purchase Agreement, dated February 26, 1997, between the
Registrant and RGC.

4.5+ -- Registration Rights Agreement, dated February 26, 1997, between the
Registrant and RGC.

4.6 -- Class H Stock Purchase Warrant, dated February 26, 1997, issued by
the Registrant to Michael Arnouse.

5.1 -- Opinion of Baker & McKenzie.

23.1 -- Independent Auditors' Consent.

II-1

<PAGE> 21

23.2 -- Consent of Counsel (Contained in Exhibit 5.1).
24.1 -- Power of Attorney (included on signature page).

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

* Incorporated by reference from the Registrant's Registration Statement
on Form S-1, Registration No. 33- 49082.

+ Incorporated by reference from the Form 8-K filed by the Registrant
with the Commission on March 10, 1997.

ITEM 17. UNDERTAKINGS.

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 (the "1933 Act");

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,
represent a fundamental change in the information set forth in the registration
statement; and

iii. To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

Provided, however, that paragraphs (1)(i) and (1)(ii) above do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.

2. That, for the purpose of determining any liability under the 1933
Act, 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.

4. That, for purposes of determining any liability under the 1933 Act,
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 the registration statement 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.

Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of the Restated Articles of Incorporation
and By-Laws of the Registrant, the California General Corporation Law 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 the Act and is, therefore, unenforceable. In the event that a 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 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 Act and will
be governed by the final adjudication of such issue.

II-2

<PAGE> 22

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 La Jolla, State of California, on April 4, 1997.

LIDAK PHARMACEUTICALS

By: /s/ David H. Katz, M.D.
-------------------------------------
David H. Katz, M.D.
President and Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below on this Registration
Statement hereby constitutes and appoints David A. Katz and Daniel J. Paracka,
and each of them, with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (until
revoked in writing) to sign any and all amendments (including post-effective
amendments and amendments thereto) to this Registration Statement, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary fully to all
intents and purposes as he might or could do in person thereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ David H. Katz, M.D. President, Chief Executive Officer, Acting Chief April 4, 1997
- ---------------------------------- Financial Officer (Principal Financial and
David H. Katz, M.D. Accounting Officer), Secretary and Director

/s/ Helmer P.K. Agersborg, Jr. Director April 4, 1997
- -------------------------------------
Helmer P.K. Agersborg, Jr.

/s/ Williams N. Jenkins Director April 4, 1997
- -----------------------------------
William N. Jenkins

/s/ Kenneth E. Olson Director April 4, 1997
- ---------------------------------
Kenneth E. Olson
</TABLE>

II-3

<PAGE> 23

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ Daniel J. Paracka Director April 4, 1997
- --------------------------
Daniel J. Paracka

/s/ Stuart A. Samuels Director April 4, 1997
- --------------------------
Stuart A. Samuels

/s/ Sidney N. Towle, Jr. Director April 4, 1997
- ---------------------------
Sidney N. Towle, Jr.
</TABLE>

II-4

<PAGE> 24

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGES
- --------------- ------------------------------------------------------------------ -------------------------
<S> <C> <C> <C>
4.1* -- Restated Articles of Incorporation of the Registrant.
4.2+ -- Convertible Note, dated February 26, 1997, issued by the
Registrant to RGC International Investors, LDC ("RGC").
4.3+ -- Form of Class G Stock Purchase Warrant.
4.4+ -- Note Purchase Agreement, dated February 26, 1997, between the
Registrant and RGC.
4.5+ -- Registration Rights Agreement, dated February 26, 1997, between
the Registrant and RGC.
4.6 -- Class H Stock Purchase Warrant, dated February 26, 1997, issued
by the Registrant to Michael Arnouse.
5.1 -- Opinion of Baker & McKenzie.
23.1 -- Independent Auditors' Consent.
23.2 -- Consent of Counsel (Contained in Exhibit 5.1).
24.1 -- Power of Attorney (included on signature page).
</TABLE>

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

* Incorporated by reference from the Registrant's Registration Statement
on Form S-1, Registration No. 33- 49082.

+ Incorporated by reference from the Form 8-K filed by the Registrant
with the Commission on March 10, 1997.

<PAGE> 1
EXHIBIT 4.6

THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES
ISSUABLE UPON THE EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SUCH ACT OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT. ANY SUCH SALE,
OFFER, ASSIGNMENT, TRANSFER OR DISPOSAL MUST ALSO COMPLY WITH APPLICABLE STATE
SECURITIES LAWS.

Right to Purchase 100,000 Shares of
Class A Common Stock, no par value

CLASS H
STOCK PURCHASE WARRANT

THIS CLASS H STOCK PURCHASE WARRANT (THIS "WARRANT") CERTIFIES
THAT, for value received, MICHAEL ARNOUSE (the "Holder"), is entitled to
purchase from LIDAK PHARMACEUTICALS, a California corporation (the "Company"),
at any time or from time to time during the period specified in Paragraph 2
hereof, 100,000 (one hundred thousand) fully paid and nonassessable shares of
the Company's Class A Common Stock, no par value (the "Common Stock"), at an
exercise price of $2.40 per share (the "Exercise Price"). The term "Warrant
Shares," as used herein, refers to the shares of Common Stock purchasable
hereunder.

This Warrant is subject to the following terms, provisions,
and conditions:

1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR
SHARES. Subject to the provisions hereof, this Warrant may be exercised by the
Holder, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Holder), and upon payment to the
Company, in cash, by certified or official bank check or by wire transfer for
the account of the Company, of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the Holder or the Holder's designee, as the record owner
of such shares, as of the close of business on the date on which this Warrant
shall have been surrendered, the completed Exercise Agreement shall have been
delivered, and payment shall have been made for such shares as set forth above.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in the Exercise Agreement, shall be delivered to the
Holder within a reasonable time, not exceeding three (3) business days, after
this Warrant shall have been so exercised. The certificates so delivered shall
be in such denominations as may be requested by

<PAGE> 2
the Holder and shall be registered in the name of the Holder or such other name
as shall be designated by the Holder. If this Warrant shall have been exercised
only in part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the Holder a
new Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.

2. PERIOD OF EXERCISE. This Warrant is exercisable at any time
or from time to time on or after the earlier of (1) the first date after the
date hereof on which the trading price of the Common Stock is $6.00 or more or
(2) the date that is 200 days after the date of issuance of this Warrant, and in
either case before 5:00 p.m., New York City time, on the fifth (5th) anniversary
of the date of issuance (the "Exercise Period").

3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby
covenants and agrees as follows:

(a) SHARES TO BE FULLY PAID. All Warrant Shares will,
upon issuance in accordance with the terms of this Warrant, be validly issued,
fully paid, and nonassessable and free from all taxes, liens, and charges with
respect to the issue thereof.

(b) RESERVATION OF SHARES. During the Exercise
Period, the Company shall at all times have authorized, and reserved for the
purpose of issuance upon exercise of this Warrant, a sufficient number of shares
of Common Stock to provide for the exercise of this Warrant.

(c) CERTAIN ACTIONS PROHIBITED. The Company will not,
by amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the Holder in
order to protect the exercise privilege of the Holder against dilution or other
impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.

(d) SUCCESSORS AND ASSIGNS. This Warrant will be
binding upon any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.

4. ANTIDILUTION PROVISIONS. During the Exercise Period, the
Exercise Price and the number of Warrant Shares shall be subject to adjustment
from time to time as provided in this Paragraph 4. In the event that any
adjustment of the Exercise Price as required herein results in a fraction of a
cent, such Exercise Price shall be rounded up to the nearest cent.

2
<PAGE> 3
(a) SUBDIVISION OR COMBINATION OF COMMON STOCK. If
the Company at any time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the shares of
Common Stock acquirable hereunder into a greater number of shares, then, after
the date of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company at any time combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect immediately
prior to such combination will be proportionately increased.

(b) ADJUSTMENT IN NUMBER OF SHARES. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Paragraph 4,
the number of shares of Common Stock issuable upon exercise of this Warrant
shall be adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.

(c) CONSOLIDATION, MERGER OR SALE. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger or
sale or conveyance, adequate provision will be made whereby the Holder will have
the right to acquire and receive upon exercise of this Warrant in lieu of the
shares of Common Stock immediately theretofore acquirable upon the exercise of
this Warrant, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger or sale or conveyance not taken place.

(d) DISTRIBUTION OF ASSETS. In case the Company shall
declare or make any distribution of its assets (including cash) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise, then, after the date of record for determining stockholders entitled
to such distribution, but prior to the date of distribution, the Holder shall be
entitled upon exercise of this Warrant for the purchase of any or all of the
shares of Common Stock subject hereto, to receive the amount of such assets
which would have been payable to the Holder had the Holder been the holder of
such shares of Common Stock on the record date for the determination of
stockholders entitled to such distribution.

(e) NOTICE OF ADJUSTMENT. Upon the occurrence of any
event which requires any adjustment of the Exercise Price in accordance with the
terms of this Paragraph 4, then, and in each such case, the Company shall give
notice thereof to the Holder, which notice shall state the Exercise Price
resulting from such adjustment and the increase or decrease in the number of
Warrant Shares purchasable at such price upon exercise, setting forth in
reasonable detail the method

3
<PAGE> 4
of calculation and the facts upon which such calculation is based. Such
calculation shall be certified by the chief financial officer of the Company.

(f) NO FRACTIONAL SHARES. No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant, but the Company
shall pay a cash adjustment in respect of any fractional share which would
otherwise be issuable in an amount equal to the same fraction of the Market
Price (as defined below) of a share of Common Stock on the date of such
exercise.

(g) CERTAIN DEFINITIONS.

(i) "MARKET PRICE," as of any date, (i) means the
average of the last reported sale prices for the shares of Common Stock as
reported by the National Association of Securities Dealers Automated Quotation
National Market ("NASDAQ-NMS") for the ten (10) trading days immediately
preceding such date, or (ii) if the NASDAQ-NMS is not the principal trading
market for the shares of Common Stock, the average of the last reported sale
prices on the principal trading market for the Common Stock during the same
period, or (iii) if market value cannot be calculated as of such date on any of
the foregoing bases, the Market Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of Directors of the
Corporation or, at the option of a majority-in-interest of the holders of the
outstanding Warrants by (b) an independent investment bank of nationally
recognized standing in the valuation of businesses similar to the business of
the corporation. The manner of determining the Market Price of the Common Stock
set forth in the foregoing definition shall apply with respect to any other
security in respect of which a determination as to market value must be made
hereunder.

(ii) "COMMON STOCK," for purposes of this
Paragraph 4, includes the Class A Common Stock, no par value per share, and any
additional class of stock of the Company having no preference as to dividends or
distributions on liquidation, provided that the shares purchasable pursuant to
this Warrant shall include only shares of the Class A Common Stock, no par value
per share, in respect of which this Warrant is exercisable, or shares resulting
from any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Paragraph 4(c) hereof, the stock or other securities or
property provided for in such Paragraph.

5. ISSUE TAX. The issuance of certificates for Warrant Shares
upon the exercise of this Warrant shall be made without charge to the Holder or
such shares for any issuance tax or other costs in respect thereof, provided
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than the Holder.

6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant
shall not entitle the Holder to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the Holder, shall give rise to
any liability of the

4
<PAGE> 5
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.

7. TRANSFER AND REPLACEMENT OF WARRANT.

(a) RESTRICTION ON TRANSFER. This Warrant and the
related rights granted to the Holder shall not be transferable, in whole or in
part, except to legatees and heirs.

(b) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.

(c) CANCELLATION; PAYMENT OF EXPENSES. Upon the
surrender of this Warrant in connection with any replacement as provided in this
Paragraph 7, this Warrant shall be promptly canceled by the Company. The Company
shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder) and charges
payable in connection with the preparation, execution, and delivery of Warrants
pursuant to this Paragraph 7.

(d) REGISTER. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the Holder.

(e) EXERCISE WITHOUT REGISTRATION. If, at the time of
the surrender of this Warrant in connection with any exercise of this Warrant,
this Warrant or the Warrant Shares issuable hereunder shall not be registered
under the 1933 Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such exercise (i) that the
Holder of this Warrant furnish to the Company a written opinion of counsel,
which opinion and counsel are reasonably acceptable to the Company, to the
effect that such exercise may be made without registration under the 1933 Act
and under applicable state securities or blue sky laws and (ii) that the Holder
execute and deliver to the Company an investment letter in form and substance
reasonably acceptable to the Company. The Holder of this Warrant, by taking and
holding the same, represents to the Company that the Holder is acquiring this
Warrant for investment and not with a view to the distribution thereof.

8. NOTICES. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the Holder shall be
in writing, and shall be personally delivered, or shall be sent by certified or
registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to the Holder at the address shown for the Holder on the books of the
Company, or at such other address as shall have been furnished to the Company by
notice from the Holder. All notices, requests, and other communications required
or permitted to

5
<PAGE> 6
be given or delivered hereunder to the Company shall be in writing, and shall be
personally delivered, or shall be sent by certified or registered mail or by
recognized overnight mail courier, postage prepaid and addressed, to the office
of the Company at 11077 N. Torrey Pines Road, La Jolla, California 92037,
Attention: Chief Financial Officer or at such other address as shall have been
furnished to the Holder by notice from the Company. Any such notice, request, or
other communication may be sent by facsimile, but shall in such case be
subsequently confirmed by a writing personally delivered or sent by certified or
registered mail or by recognized overnight mail courier as provided above. All
notices, requests, and other communications shall be deemed to have been given
either at the time of the receipt thereof by the person entitled to receive such
notice at the address of such person for purposes of this Paragraph 8, or, if
mailed by registered or certified mail or with a recognized overnight mail
courier upon deposit with the United States Post Office or such overnight mail
courier, if postage is prepaid and the mailing is properly addressed, as the
case may be.

9. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA WITHOUT REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW.

10. MISCELLANEOUS.

(a) AMENDMENTS. This Warrant and any provision hereof may
only be amended by an instrument in writing signed by the Company and the
Holder.

(b) DESCRIPTIVE HEADINGS. The descriptive headings of the
several paragraphs of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

6
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this
Warrant to be signed by its duly authorized officer.

LIDAK PHARMACEUTICALS

Dated: February 26, 1997 By: /s/ David H. Katz
___________________________________
Name: David H. Katz, M.D.
Title: President and Chief Executive
Officer

7
<PAGE> 8
FORM OF EXERCISE AGREEMENT

Dated:_________, ____.

TO: LIDAK PHARMACEUTICALS

The undersigned, pursuant to the provisions set forth in the
within Warrant, hereby agrees to purchase shares of Common Stock covered
by such Warrant, and makes payment herewith in full therefor at the price per
share provided by such Warrant in cash or by certified or official bank check in
the amount of $2.40. Please issue a certificate or certificates for such shares
of Common Stock in the name of and pay any cash for any fractional share to:

Name:____________________

Signature:_______________

Address:_________________
_________________________
_________________________

Note: The above signature should correspond exactly
with the name on the face of the within Warrant.

If said number of shares of Common Stock shall not be all the shares purchasable
under the within Warrant, then a new Warrant is to be issued in the name of said
undersigned covering the balance of the shares purchasable thereunder less any
fraction of a share paid in cash.

<PAGE> 1

EXHIBIT 5.1

Opinion of Baker & McKenzie

[Please see attached]

<PAGE> 2
April 4, 1997

LIDAK Pharmaceuticals
11077 North Torrey Pines Road
La Jolla, California 92037

Ladies and Gentlemen:

As counsel to LIDAK Pharmaceuticals, a California corporation (the "Company"),
we have assisted in the preparation of the Company's Registration Statement on
Form S-3 (the "Registration Statement"), to be filed with the Securities and
Exchange Commission on or about April 4, 1997, in connection with the
registration under the Securities Act of 1933, as amended, of the following
shares of the Company's Class A Common Stock (the "Shares"): (i) up to 7,257,467
shares of Class A Common Stock to be issued by the Company upon the conversion
of the Convertible Note, dated February 26, 1997 (the "Note"), in the principal
amount of $6 million, issued by the Company to RGC International Investors, LDC;
(ii) up to 3,628,733 shares of Class A Common Stock to be issued by the Company
upon the exercise of certain Class G Stock Purchase Warrants ("Class G
Warrants"), to be issued in connection with the conversion of the Note and/or
the Company's prepayment of the Note; and (iii) 100,000 shares of Class A Common
Stock to be issued by the Company upon the exercise of certain Class H Stock
Purchase Warrants ("Class H Warrants").

In this connection, we have examined and considered the originals or copies,
certified or otherwise identified to our satisfaction, of the Company's Articles
of Incorporation and Bylaws, as amended to date, resolutions of its Board of
Directors, officers' certificates and such other documents and corporate records
relating to the Company and the sale and issuance of the Shares, as we have
deemed appropriate for purposes of rendering this opinion.

In all examinations of documents, instruments and other papers, we have assumed
the genuineness of all signatures on original and certified documents and the
conformity to original and certified documents of all copies submitted to us as
conformed, photostat or other copies. As to matters of fact which have not been
independently established, we have relied upon representations of officers of
the Company.

Based upon the foregoing examination, and the information thus supplied, it is
our opinion that: (i) the shares of Class A Common Stock issuable upon the
conversion of the Note have been validly authorized and will, when sold as
contemplated by the Registration Statement, be legally issued, fully paid and
non-assessable; and (ii) the shares of Class A Common Stock issuable upon the
exercise of the Class G Warrants and Class H Warrants, respectively, will, upon
issuance and payment in accordance with the respective terms of such warrants,
be legally issued, fully paid and non-assessable.

We hereby expressly consent to the reference to our Firm in the Registration
Statement under the Prospectus caption "Legal Matters," to the inclusion of this
opinion as an exhibit to the Registration Statement, and to the filing of this
opinion with any other appropriate governmental agency.

Very truly yours,

BAKER & MCKENZIE

<PAGE> 1
EXHIBIT 23.1

Consent of Deloitte & Touche LLP

[Please see attached]

<PAGE> 2
INDEPENDENT AUDITORS' CONSENT

LIDAK Pharmaceuticals:

We consent to the incorporation by reference in this Registration Statement of
LIDAK Pharmaceuticals on Form S-3 of our report dated November 6, 1996
(December 20, 1996 as to Note 6), which report includes an explanatory paragraph
referring to the status of the Company as a development stage enterprise
appearing in the Annual Report on Form 10-K of LIDAK Pharmaceuticals for the
year ended September 30, 1996 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
April 4, 1997