Quote from programmer Dylan Cuthbert (taken from the defunct website emulatorium.com)

INTERVIEWER: What happened to Star Fox 2? Why was it cancelled and how far into development was it? How is it, if at all, related to Star Fox 64?

D. CUTHBERT: Star Fox 2 was fully completed. I was lead programmer and whilst Giles made Stunt Race FX, myself and the rest of the original Star Fox team (i.e.. Nintendo's artists and designers) expanded Star Fox into a full 3d shooting game. We used state-of-the-art
technology such as arbitrary plane clipping (which has only been seen recently in such games as Crash Bandicoot 2 & 3) to create some rather spectacular effects. (for the time)
The reason for non-release was the then impending Nintendo 64, which of course was intended to be released a lot sooner than it actually was. Miyamoto-san decided he wanted to have a clean break between 3D games on the SNES and 3D games on the
new superior 64 bit system. In retrospect, he could have released Star Fox 2 and there would have been over a year and a half before the N64 came out. But hindsight is always 20/20.
Star Fox 64 incorporated a lot of the newer ideas we created in Star Fox 2 but it didn't, in my view, take the genre a full step forward. Star Fox 2 really was a different direction of gameplay.

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