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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">UNITED
      STATES</font></div>
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      AND EXCHANGE COMMISSION</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">WASHINGTON,
      D.C. 20549</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 12pt; FONT-FAMILY: Times New Roman"><strong>FORM
      8-K</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">CURRENT
      REPORT</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PURSUANT
      TO SECTION 13 OR 15(</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">d</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">)
      OF</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">THE
      SECURITIES EXCHANGE ACT OF 1934</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Date
      of
      Report (Date of earliest event reported): June 16, 2006</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 14pt; FONT-FAMILY: Times New Roman"><strong>Hana
      Biosciences, Inc.</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Exact
      name of registrant as specified in its charter)</font></div>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Delaware</strong></font></div>
            </td>
            <td width="33%">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>000-50782</strong></font></div>
            </td>
            <td width="33%">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>32-0064979</strong></font></div>
            </td>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(State
                or other jurisdiction of incorporation)</font></div>
            </td>
            <td width="33%">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Commission
                File Number)</font></div>
            </td>
            <td width="33%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(IRS
                Employer </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Identification
                No.)</font></div>
            </td>
          </tr>
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            <td width="33%">&#160;</td>
            <td width="33%">&#160;</td>
            <td width="33%">&#160;</td>
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    </div>
    <div>&#160;</div>
    <div>
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          <tr bgcolor="white">
            <td width="33%">&#160;</td>
            <td width="33%">&#160;</td>
            <td width="33%">&#160;</td>
          </tr>
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            <td colspan="2" width="66%">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>400
                Oyster Point Blvd., Suite 215, South San Francisco,
                CA</strong></font></div>
            </td>
            <td width="33%">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>94080</strong></font></div>
            </td>
          </tr>
          <tr bgcolor="white">
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Address
                of principal executive offices) </font></div>
            </td>
            <td width="33%">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Zip
                Code) </font></div>
            </td>
          </tr>

      </table>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div align="center">
      <table bgcolor="white" cellpadding="0" cellspacing="0" width="100%">

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            <td width="33%">&#160;</td>
            <td width="33%">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>(650)
                588-6404</strong></font></div>
            </td>
            <td width="33%">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td width="33%">&#160;</td>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Registrant's
                telephone number, including area code) </font></div>
            </td>
            <td width="33%">&#160;</td>
          </tr>
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            <td width="33%">&#160;</td>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Former
      name or former address, if changed since last report)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Check
      the
      appropriate box below if the Form 8-K filing is intended to simultaneously
      satisfy the filing obligation of the registrant under any of the following
      provisions:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">[
&#160;]
      Written communications pursuant to Rule 425 under the Securities Act (17 CFR
      230.425)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">[
&#160;]
      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
      240.14a-12)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">[&#160;
]
      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
      Act
      (17 CFR 240.14d-2(b))</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">[&#160;
]
      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
      Act
      (17 CFR 240.13e-4(c))</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Item
      8.01. Other Information</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      following description of the business of Hana Biosciences, inc. (the &#8220;Company&#8221;)
      has been updated from the description set forth in the Company's Annual Report
      on Form 10-K for the year ended December 31, 2006 in order to reflect the
      completion of the Company&#8217;s licensing transaction with Inex Pharmaceuticals
      Corporation in May 2006, which was previously disclosed in the Company&#8217;s Current
      Report on Form 8-K filed with the Securities and Exchange Commission on May
      11,
      2006. The description set forth below is subject to and should be read in
      conjunction with all of the risks and uncertainties identified under Item 1A
      of
      Part II of the Company&#8217;s Quarterly Report on Form 10-Q for the quarter ended
      March 31, 2006. References to &#8220;we,&#8221; &#8220;us,&#8221; and &#8220;our&#8221; refer to the
      Company.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Business
      Overview</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">
      <div style="MARGIN: 0in 0in 11pt; TEXT-INDENT: 0.5in"><font size="2">We are
        a
        South San Francisco, California-based biopharmaceutical company focused on
        acquiring, developing, and commercializing innovative products to advance
        cancer
        care.&#160; We seek to license novel, late preclinical and early clinical
        oncology product candidates, primarily from academia and research institutes,
        in
        order to accelerate clinical development and time to
        commercialization.&#160;&#160; &lt;?xml:namespace prefix = o ns =
        "urn:schemas-microsoft-com:office:office" /&gt;</font></div>
      <div style="MARGIN: 0in 0in 6pt; TEXT-INDENT: 0.5in"><font size="2">We currently
        have four product candidates in clinical development:</font></div>
      <ul>
        <li>
          <div style="MARGIN: 0in 0pt 6pt 18pt; TEXT-INDENT: 0pt"><font size="2">Zensana
            (ondansetron HCI) Oral Spray, or Zensana, being developed to alleviate
            chemotherapy- and radiation-induced and post-operative nausea and vomiting;
            </font></div>
        </li>
        <li>
          <div style="MARGIN: 0in 0pt 6pt 18pt; TEXT-INDENT: 0pt"><font size="2">Marqibo
            (vincristine sulfate) Liposomes Injection, or Marqibo, a liposomal formulation
            of the FDA-approved cancer drug vincristine, being developed for the
            treatment
            of non-Hodgkin&#8217;s lymphoma and acute lymphocytic leukemia, or ALL;
</font></div>
        </li>
        <li>
          <div style="MARGIN: 0in 0pt 6pt 18pt; TEXT-INDENT: 0pt"><font size="2">Talotrexin
            (PT-523), which is being evaluated as a chemotherapy agent
            in the treatment of a variety of solid tumors and hematological malignancies,
            including non-small cell lung cancer, or NSCLC, ALL, and cervical and
            ovarian
            cancers; and</font></div>
        </li>
        <li>
          <div style="MARGIN: 0in 0pt 6pt 18pt; TEXT-INDENT: 0pt"><font size="2">Ropidoxuridine
            (IPdR), a radiation sensitizer being evaluated primarily
            for the treatment of colorectal, gastric, pancreatic, liver and brain
            cancr.
            </font></div>
        </li>
      </ul>
      <div style="MARGIN: 0in 0in 10pt 54pt; TEXT-INDENT: -0.25in; TEXT-AUTOSPACE: ideograph-numeric; mso-pagination: widow-orphan; tab-stops: .5in; mso-layout-grid-align: auto"><font size="2">The
        following table describes the status of the product candidates in our
        development pipeline:</font></div>
    </div>
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          <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">1</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><img src="graphic.jpg" alt="Horiz Bar chart"></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">1-
      Zensana
      is being developed under a 505(b)(2) registrational pathway based on a
      demonstration of bioequivalence to 8mg oral Zofran tablets. As a result,
      efficacy and safety trials in patients (Phase II and III) are not required.
      However bioequivalence and bioavailability trials have been completed and Hana
      Biosciences plans to submit an NDA in the second quarter of 2006.</font></div>
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      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

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            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Zensana
                (</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>ondansetron
                HCI) Oral Spray </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">-
                </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Bioequivalent
                to 8mg Oral Zofran Tablet with Multidose Convenience and Desirable
                Route
                of Administration. </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
                believe that Zensana, which we licensed from NovaDel Pharma, Inc.
                in
                October 2004, is the only multidose oral spray product candidate
                currently
                in development which utilizes a micro mist spray technology to deliver
                full doses of ondansetron to patients experiencing chemo- and
                radiotherapy-induced nausea and vomiting. Ondansetron, a selective
                blocking agent of the hormone serotonin, is an FDA-approved drug
                that is
                commonly used in tablet form to prevent chemotherapy- and
                radiation-induced and post-operative nausea and vomiting. Many patients
                receiving chemo and radiation therapy have difficulty swallowing
                and are
                potentially unable to tolerate other forms of ondansetron and other
                therapies intended to prevent nausea and vomiting, known as antiemetics.
                We believe that the convenience of drug delivery via a spray may
                offer a
                desirable alternative to tablets and other forms of ondansetron.
                In
                addition, we believe that drug delivery via a spray to the oral mucosa
                may
                avoid degradation of the drug in the gastrointestinal tract and metabolism
                by liver enzymes.&#160;All spray pump components used in our clinical
                trials for Zensana are standard components, and with the exception
                of the
                oral applicator, are currently being used for DDAVP&#174; Nasal Spray
                manufactured for Aventis Pharmaceuticals Inc. by Ferring AB. The
                oral
                applicator is currently being used for Lamisil&#174; Spray marketed by Novartis
                AG. We completed certain limited clinical trials of Zensana related
                to
                bioequivalence and bioavailability in early 2006, and hope to file
                an NDA
                under Section 505(b)(2) of the Food, Drug and Cosmetic Act, or FDCA,
                in
                the second quarter of 2006. If approved by the FDA, we intend to
                commercially launch Zensana in the United States in the first half
                of
                2007. </font></div>
            </td>
          </tr>

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          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Marqibo
                (vincristine sulfate) Liposomes Injection - A Novel Targeted Anti-Cancer
                Compound for Non-Hodgkin&#8217;s Lymphoma and Acute Lymphocytic
                Leukemia</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.
                Marqibo, which we licensed from Inex Pharmaceuticals Corporation,
                or Inex,
                in May 2006, is a novel, targeted sphingosome encapsulated formulation
                of
                the FDA-approved cancer drug vincristine. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Sphingosomal
                drug delivery consists of using an FDA-approved cancer agent (such
                as
                vincristine) encapsulated in a lipid envelope. The encapsulated agent
                is
                carried through the bloodstream and delivered to disease sites where
                it is
                released to carry out its therapeutic action. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
                believe sphingosomal encapsulation of vincristine significantly increases
                drug delivery to tumors and provides prolonged drug exposure for
                cell-cycle specific agents. Targeted sphingosomal drugs are designed
                to
                spare healthy tissues, selectively accumulate inside the tumor, and
                sustain cytotoxic drug levels for a longer period of time at the
                tumor
                site. Therefore, we believe that Marqibo possesses a potential
                pharmacologic advantage over vincristine in terms of dose intensity
                and
                toxicity. Based on clinical trials in over 500 patients to date,
                we intend
                to request regulatory authorization to commence a Phase III clinical
                trial
                of Marqibo in hematological malignancies in the second half of
                2006.</font></div>
            </td>
          </tr>

      </table>
    </div>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Talotrexin
                (PT-523)</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>&#160;</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>-
                </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>A
                Novel Antifolate for Solid and Hematological
                Malignancies.</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                Talotrexin, which we licensed from Dana-Farber Cancer Institute,
                Inc., or
                DFCI, and Ash Stevens, Inc. in December 2002, is a novel antifolate
                drug
                candidate under development for treatment of various types of tumors.
                Antifolates, also known as folic acid analogs, are a class of cytotoxic
                or
                antineoplastic agents which inhibit or prevent the maturation and
                proliferation of malignant cells. Antifolates have been used for
                more than
                30 years to treat both solid and hematological cancers such as breast
                cancer and ALL, as well as inflammatory diseases such as rheumatoid
                arthritis. Talotrexin has demonstrated enhanced antitumor activity
                in a
                broad spectrum of cancer models by targeting the enzyme DHFR to prevent
                DNA synthesis in tumor cells and inhibit tumor growth. Preclinical
                studies
                performed by the DFCI and the National Cancer Institute, or NCI,
                suggest
                that Talotrexin, as compared to methotrexate, the most widely used
                antifolate, enters into cells up to 10 times more efficiently and
                demonstrates 10- to 100-fold more potency in overcoming polyglutamation,
                a
                well-established mechanism of antifolate resistance. Talotrexin also
                binds
                more tightly to its anti-tumor target DHFR, which we believe may
                further
                inhibit tumor growth. We commenced a Phase I clinical trial in solid
                tumors in February 2005, a Phase I/II clinical trial in NSCLC in
                March
                2004, and a Phase I/II clinical trial in ALL in May
                2005.</font></div>
            </td>
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      </table>
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          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Ropidoxuridine</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>&#160;</em></strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>(IPdR)
                - </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Oral
                Prodrug to Enhance Radiation Therapy for Brain and Other
                Cancers.</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>&#160;</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Ropidoxuridine</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">,
                which we licensed from Yale University and the Research Foundation
                of
                State University of New York in February 2004, is a novel oral prodrug
                of
                the radiation sensitizer IUdR. Data from Phase II clinical trials
                performed by the NCI on IUdR suggested a potential survival advantage
                in
                patients with anaplastic astrocytoma, a type of brain tumor. Due
                to its
                toxicity profile, however, IUdR was never developed beyond Phase
                II. In
                preclinical studies conducted at Yale University and the NCI, </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ropidoxuridine</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>&#160;</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">suggested
                improved activity with a significantly lower toxicity profile, including
                lower gastrointestinal and hematological side effects. Preclinical
                studies
                have also demonstrated that </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ropidoxuridine</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>&#160;</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">has
                a dose responsive and synergistic effect when combined with radiation
                in
                human glioblastoma models. We have commenced a Phase I clinical trial
                assessing the safety, toxicity and pharmacokinetics of </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ropidoxuridine</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>&#160;</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">in
                patients with solid tumors undergoing radiation
                therapy.</font></div>
            </td>
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      </table>
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          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Sphingosome
                Encapsulated Vinorelbine - A Novel Targeted Anti-Cancer Compound
                for
                Breast and Lung Cancer. </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sphingosome
                encapsulated vinorelbine is our proprietary formulation of vinorelbine,
                a
                microtubule inhibitor that is FDA-approved for use as a single agent
                or in
                combination with cisplatin for the first-line treatment of unresectable,
                advanced NSCLC. We obtained the rights to develop and commercialize
                sphingosome encapsulated vinorelbine from Inex in May 2006. Sphingosome
                encapsulated vinorelbine is in preclinical development and we plan
                to
                request regulatory authorization to commence Phase I clinical trials
                in
                the second half of 2006.</font></div>
            </td>
          </tr>

      </table>
    </div>
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          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Sphingosome
                Encapsulated Topotecan - A Novel Targeted Anti-Cancer Compound for
                Small-Cell Lung Cancer and Ovarian Cancer. </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sphingosome
                encapsulated topotecan is our proprietary formulation of topotecan,
                a
                topoisomerase I inhibitor that is FDA-approved for use in relapsed
                small-cell lung cancer and in relapsed ovarian cancer. We obtained
                the
                rights to develop and commercialize sphingosome encapsulated topotecan
                from Inex in May 2006. Sphingosome encapsulated topotecan is in
                preclinical development and we plan to we expect to file an IND in
                the
                second half of 2006 and to initiate clinical trials in
                2007.</font></div>
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      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Industry
      Background and Market Opportunity</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Cancer
      is a group of diseases characterized by either the uncontrolled growth of cells
      or the failure of cells to die normally. Cancer is caused by a series of
      mutations, or alterations, in genes that control cells&#8217; ability to grow and
      divide. These mutations cause cells to rapidly and continuously divide or lose
      their normal ability to die. There are more than 100 different varieties of
      cancer, which can be divided into six major categories. Carcinomas, the most
      common category, include breast, lung, colorectal and prostate cancer. Sarcomas
      begin in tissue that connects, supports or surrounds other tissues and organs.
      Lymphomas are cancers of the lymphatic system, a part of the body&#8217;s immune
      system. Leukemias are cancers of blood cells, which originate in the bone
      marrow. Brain tumors are cancers that begin in the brain, and skin cancers,
      including melanomas, originate in the skin. Cancers are considered metastatic
      if
      they spread via the blood or lymphatic system to other parts of the body to
      form
      secondary tumors. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">According
      to the American Cancer Society, nearly 1.4 million new cases of cancer are
      expected to be diagnosed in 2006 in the United States alone. Cancer is the
      second leading cause of death, after heart disease, in the United States, and
      is
      expected to account for more than 550,000 deaths in 2006. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>&#160;</em></strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Major
      cancer treatments include surgery, radiotherapy and chemotherapy. Supportive
      care, such as anti-nausea drugs, represents another major segment of the cancer
      treatment market. There are many different drugs that are used to treat cancer,
      including cytotoxics or antineoplastics, hormones and biologics. Major
      categories include:</font></div>
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            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Chemotherapy.</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                Cytotoxic chemotherapy refers to anticancer drugs that destroy cancer
                cells by stopping them from multiplying. Healthy cells can also be
                harmed
                with the use of cytotoxic chemotherapy, especially those that divide
                quickly. Cytotoxic agents act primarily on macromolecular synthesis,
                repair or activity, which affects the production or function of DNA,
                RNA
                or proteins. Our product candidates Marqibo and Talotrexin are both
                cytotoxic agents we plan to evaluate for the treatment of solid and
                hematological tumors. According to Business Insights, cytotoxics
                or
                antineoplastic agents accounted for 44% or $16.2 billion of the total
                global cancer drug market in 2004</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>.</em></strong></font></div>
            </td>
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      </table>
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          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Radiotherapy.</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                Radiation therapy, or radiotherapy, is the treatment of cancer and
                other
                diseases with ionizing radiation. Ionizing radiation deposits energy
                that
                injures or destroys cells in the area being treated by damaging their
                genetic material, making it impossible for those cells to continue
                growing. Although radiation damages both cancer cells and normal
                cells,
                the latter are able to repair themselves and regain proper function.
                Radiotherapy is used to treat localized solid tumors, such as cancers
                of
                the skin, tongue, larynx, brain, breast or uterine cervix and it
                can also
                be used to treat leukemia and lymphoma. In looking for ways to increase
                the effectiveness of radiation therapy, scientists are studying
                investigational drugs for their effect on cells exposed to radiation.
                Radiosensitizer drugs are designed to increase the damage done to
                tumor
                cells by radiation. Our product candidate </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ropidoxuridine</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                is
                a radiosensitizer. According to the NCI, over 50% of all cancer patients
                undergo radiation therapy, either alone or in combination with other
                treatments.</font></div>
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      </table>
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          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><a name="3"/><a name="4"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></a></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Supportive
                care.</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                Cancer treatment can include the use of chemotherapy, radiation therapy,
                biologic response modifiers, surgery or some combination of these
                or other
                therapeutic options. All of these treatment options are directed
                at
                killing or eradicating the cancer that exists in the patient&#8217;s body.
                Unfortunately, the delivery of many cancer therapies adversely affects
                the
                body&#8217;s normal organs. These complications of treatment or side effects
                not
                only cause discomfort, but may also prevent the optimal delivery
                of
                therapy to a patient at its optimal dose and time. The most common
                side
                effects of chemotherapy are nausea and vomiting. Nausea and vomiting
                induced by chemotherapy and radiation therapy are generally treated
                by
                antiemetic drugs such as ondansetron. According to the NCI, over
                500,000
                Americans received chemotherapy in 2004, and the majority of these
                patients received an antiemetic such as ondansetron. Our leading
                product
                candidate</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">,
                Zensana, is ondansetron delivered via an oral spray. According to
                Business
                Insights, supportive care accounted for approximately 37% or $15.0
                billion
                of the total U.S. cancer drug market in
                2004.</font></div>
            </td>
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      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Our
      Strengths</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Significant
                clinical development and commercialization expertise. </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
                senior management team has over 39 years of combined experience in
                the
                development and commercialization of innovative cancer therapies.
                Prior to
                joining Hana, our Chief Executive Officer, Dr. Ahn, served as Vice
                President, Hematology at Genentech, Inc. At Genentech, Dr. Ahn played
                a
                key role in the successful commercialization of Rituxan&#174;. Our Chief
                Business Officer, Mr. Vitale, also served at Genentech as head of
                commercial development for Rituxan and head of pre-launch medical
                education for Avastin&#174;. Prior to Genentech, both Dr. Ahn and Mr. Vitale
                worked together for over a decade in roles of increasing responsibility
                at
                Amgen, Inc. and Bristol-Myers Squibb Company. Our Chief Medical Officer,
                Dr. Berk, has served as an investigator in numerous clinical oncology
                trials, including the Gleevec&#174; pivotal trials and the Avastin colorectal
                and breast trials. We believe the combined experience of our executive
                team has been and will continue to be a critical component of Hana&#8217;s
                success in developing and commercializing our product
                candidates.</font></div>
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      </table>
    </div>
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          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Multiple
                product candidates with a number of potential pathways for market
                expansion</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.
                We currently have four product candidates in various stages of clinical
                development. We believe that our product candidates have potential
                therapeutic utility in multiple indications. We are currently conducting
                clinical trials for Talotrexin in NSCLC and ALL and intend to conduct
                clinical trials for Talotrexin in cervical cancer and other solid
                tumors.
                We also plan to pursue multiple indications for Marqibo and our other
                product candidates to expand their potential
                markets.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">4</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
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    </div><br>
    <div>
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          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Cost
                effective clinical development process. </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
                have been successful in acquiring promising product candidates for
                what we
                believe are reasonable upfront costs by partnering with leading academic
                and research organizations. We believe that academic and research
                organizations are particularly well suited to engage in early stage
                drug
                discovery and preclinical development. By partnering with these
                organizations, we seek to bring our senior management&#8217;s clinical
                development and commercialization expertise to bear on early stage
                research and preclinical development conducted by others. We believe
                that
                by focusing our activities on clinical development, we can accelerate
                the
                potential commercialization of our product candidates.
                </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Our
      Strategy</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">We
      are committed to creating value by building a strong, experienced team,
      accelerating the development of our lead product candidates, expanding our
      pipeline by being the alliance partner of choice for academic and research
      organizations, and nurturing a unique company culture. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Key
      aspects of our strategy include:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Pursue
                commercialization of Zensana.</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                We
                expect to file an NDA for Zensana in the second quarter of 2006.
                If we
                receive FDA approval, we expect to commercially launch Zensana in
                the
                United States in the first half of 2007. We anticipate that revenues
                from
                Zensana will help offset a portion of the development costs for our
                other
                product candidates and reduce our dependence on external financing.
                Additionally, we intend to develop a specialized oncology salesforce
                of
                approximately 30 people that can educate oncologists and oncology
                nurses
                regarding Zensana. We believe that that nurses are the key providers
                of
                supportive care and are often the main decision makers regarding
                treatment. We intend to leverage this salesforce in commercializing
                future
                products, if developed successfully and approved by the
                FDA.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Focus
                on developing innovative cancer therapies</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.
                We focus on oncology product candidates in order to capture efficiencies
                and economies of scale. We believe that drug development for cancer
                markets is particularly attractive because relatively small clinical
                trials can provide meaningful information regarding patient response
                and
                safety. The oncology market is concentrated, meaning that a small
                number
                of doctors write a large percentage of prescriptions, and we believe
                that
                the market can be addressed by a relatively small, focused salesforce.
                Furthermore, we believe that our capabilities are well suited to
                the
                oncology market and represent distinct competitive advantages.
                </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Build
                a sustainable pipeline by employing multiple therapeutic approaches
                and
                disciplined decision criteria</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>
                based on clearly defined proof of principle goals</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.
                We seek to build a sustainable product pipeline by employing multiple
                therapeutic approaches and by acquiring product candidates belonging
                to
                known drug classes. In addition, we employ disciplined decision criteria
                to assess product candidates. By pursuing this strategy, we seek
                to
                minimize our clinical development risk and accelerate the potential
                commercialization of current and future product candidates.</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                We
                intend to pursue regulatory approval for a majority of our product
                candidates in multiple indications.
</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Our
      Product Pipeline</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 27pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Zensana
      (ondansetron HCI) Oral Spray </em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Background</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">According
      to an independent study, nausea and vomiting are the leading concerns of
      patients undergoing chemotherapy. The management of nausea and vomiting induced
      by chemo and radiation therapy and/or following surgery is a critical aspect
      of
      cancer patient care. The NCI estimates that a majority of the approximately
      500,000 patients receiving chemotherapy treatment per year experience nausea
      and
      vomiting, and could benefit from nausea-reducing, or antiemetic, therapies.
      Ondansetron is a selective blocking agent of the serotonin 5-HT3 receptor type
      and is widely accepted as the standard of care for antiemesis. Ondansetron
      is
      currently FDA-approved for the prevention of nausea and vomiting associated
      with: </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Moderate
                to highly emetogenic cancer chemotherapy-induced nausea and vomiting,
                or
                CINV;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Radiotherapy-induced
                nausea and vomiting in patients receiving total body irradiation,
                single
                high-dose fraction to the abdomen, or daily fractions to the abdomen;
                and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
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        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">5</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div><br>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Post-operative
                induced nausea and vomiting.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Ondansetron
      is currently commonly used in tablet form to prevent chemotherapy- and
      radiation-induced, and post-operative nausea and vomiting. However, many
      patients receiving chemo and radiation therapy have difficulty swallowing and
      holding down pills, and are potentially unable to tolerate other forms of
      ondansetron and other antiemetic therapies.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      believe Zensana</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      would
      represent the first commercialized multidose oral spray 5-HT3 antagonist.
      Zensana utilizes a novel micro mist spray technology to deliver full doses
      of
      ondansetron to patients receiving emetogenic, or vomit- and/or nausea-inducing,
      chemotherapy. We believe the convenience of spray delivery will offer patients
      a
      desirable alternative to tablets and other currently available forms of
      ondansetron. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Marketing
      Survey</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      commissioned the Winokur Consulting Group to conduct market research to
      determine physician and payor utilization and perceptions of current and
      emerging antiemetics for CINV. This survey, completed in August 2005, was
      intended to determine current trends and market potential for the introduction
      of Zensana for the prevention of CINV. The study consisted of a statistically
      significant and representative survey of 162 hematologists-oncologists in
      academia and community practices, out of 800 surveyed (20.3% response rate,
      95%
      confidence interval, plus-or-minus 5% margin of error). Major conclusions of
      this study include:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">90%
                of surveyed oncologists believed that Zensana would be more convenient
                for
                their patients than a tablet for the prevention of CINV. 48% of these
                oncologists indicated that </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>the</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                most important product attribute for oral 5-HT3 antagonists is: &#8220;can be
                used easily by patients who are experiencing nausea and vomiting,
                in
                contrast to swallowing a tablet.&#8221;</font></div>
            </td>
          </tr>

      </table>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Surveyed
                oncologists indicated that they would use Zensana </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>prior</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                to
                chemotherapy in at least 25% of their patients. In addition, 66%
                of the
                oncologists surveyed indicated that they would prescribe Zensana
                </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>after</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                chemotherapy to more than 50% of their patients treated with
                moderate-to-highly emetogenic chemotherapy. Thus, while we believe
                the
                primary use of Zensana will be in the post-chemotherapy setting,
                we
                believe there is also a significant opportunity to use Zensana for
                the
                entire treatment cycle.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Winokur
      also conducted in-depth interviews with oncologists and pharmacy directors
      from
      major public and private insurers who indicated that they believed Zensana
      could
      support a price level of approximately 15% below or above the current price
      of
      branded ondansetron products, even after the launch of generics. We believe
      this
      supports proprietary pricing of Zensana, based on projected patient benefits
      of
      convenience and faster time to drug delivery.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Clinical
      Development Program</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      the
      first quarter of 2006, we completed </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">our
      bioequivalence and bioavailability trials for Zensana for the prevention of
      CINV</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.
      Our
      clinical development program consisted of four clinical trials including single
      and multiple dose pharmacokinetic studies, and an evaluation of the effects
      of
      food and water on Zensana. While not yet reviewed or approved by the FDA, we
      believe data from the four studies demonstrated that the standard 8 milligram
      dose of Zensana is statistically bioequivalent to the current commercially
      available 8 milligram ondansetron (Zofran) tablet. Zensana showed statistically
      faster absorption, as defined by median time to detectible drug levels of
      ondansetron, of 15 minutes for Zensana compared to 30 minutes for the tablet.
      In
      the four studies, Zensana was well tolerated by both men and women and had
      a
      side effect profile similar to ondansetron tablets, which included mild headache
      and constipation. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      met
      with the FDA in May 2006, and plan to submit our </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">NDA
      for </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Zensana
      for the prevention of CINV </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">in
      the second quarter of 2006. We intend to file the application under </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Section
      505(b)(2) of the FDCA,&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">a
      form of registration that relies, at least in part, on data in previously
      approved NDAs or published literature for which we do not have a right of
      reference or both. If our NDA is approved, we anticipate commercially
      launching</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      Zensana
      in the United States in the first half of 2007. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
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        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">6</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
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        </div>
      </div>
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        </div>
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      (vincristine sulfate) Sphingosomal Injection </em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Background
      of Sphingosomal Targeted Drug Delivery</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Sphingosomal
      encapsulation is a novel method of liposomal drug delivery, which is designed
      to
      significantly increase tumor targeting and duration of exposure for cell-cycle
      specific anticancer agents. Sphingosomal drug delivery consists of using a
      generic FDA-approved cancer agent, vincristine, encapsulated in a lipid
      envelope. The encapsulated agent is carried through the bloodstream and
      delivered to disease sites where it is released to carry out its therapeutic
      action. When used in unencapsulated form, chemotherapeutic drugs diffuse
      indiscriminately throughout the body, diluting drug effectiveness and causing
      toxic side effects in the patient&#8217;s healthy tissues. Our proprietary
      sphingosomal formulation technology is designed to permit loading high
      concentrations of therapeutic agent inside the lipid envelope, which promotes
      accumulation of the drug in tumors and prolongs the drug&#8217;s release at disease
      sites. Clinical trials have demonstrated the sphingosomal formulation
      technology&#8217;s ability to deliver dose intensification to the tumor, which we
      believe has the potential to increase the therapeutic benefit of the
      drug.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Longer
                circulation time in the bloodstream is designed to deliver more of
                the
                therapeutic agent to targeted tumor sites over a longer period of
                time.</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                To
                stabilize the lipid bilayer walls and retain active drug within its
                interior, liposomal technology uses sphingomyelin, a biologically
                inert
                macromolecule that renders liposomes resistant to hydrolysis and
                enzymatic
                degradation. The increased rigidity of the liposomal walls prolongs
                the
                circulating life of liposomes and is designed to extend the duration
                of
                drug release.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Sphingosomal
                drugs like Marqibo accumulate in the pores of leaky tumor vessels
                created
                during angiogenesis.</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                In
                normal tissues, a continuous endothelial lining constrains liposomes
                within capillaries, preventing accumulation of the drug in the healthy
                tissues. In contrast, the immature blood vessel system within tumors
                is
                created during tumor growth and has numerous holes up to 800 nanometers
                in
                size. With an average diameter of approximately 100 nanometers, liposomes
                accumulate in these pores. Once lodged within the interstitial space,
                these resilient liposomes slowly release the encapsulated drug. We
                believe
                that slow release of the drug from liposomes increases drug levels
                within
                the tumor, extends drug exposure through multiple cell cycles, and
                significantly increases tumor cell killing. Fewer than 5% of a patient&#8217;s
                tumor cells are in a drug-sensitive phase at any point in time, which
                we
                believe indicates that duration of drug exposure is critical to increased
                drug efficacy.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Increased
                drug concentration at the tumor site is associated with increased
                efficacy.</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                The link between drug exposure and anti-tumor efficacy is especially
                pronounced for cell cycle-specific agents such as vincristine, vinorelbine
                and topotecan, which kill tumor cells by interfering in the G2/M
                phase
                in</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>&#160;</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">mitosis,
                or cell division.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 27pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Unmet
      Medical Needs in Acute Lymphocytic Leukemia and Non-Hodgkin&#8217;s
      Lymphoma</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Acute
      lymphocytic leukemia, or ALL, is a type of cancer of the blood and bone marrow,
      the spongy tissue inside bones where blood cells are made. Acute leukemias
      progress rapidly and affect immature blood cells. ALL affects a group of white
      blood cells, called lymphocytes, which fight infection. Normally, bone marrow
      produces immature cells or stem cells, in a controlled way, and they mature
      and
      specialize into the various types of blood cells, as needed. In people with
      ALL,
      this production process breaks down. Large numbers of immature, abnormal
      lymphocytes called lymphoblasts are produced and released into the bloodstream.
      These abnormal cells are not able to mature and perform their usual functions.
      Furthermore, they multiply rapidly and can crowd out healthy blood cells,
      leaving an adult or child with ALL vulnerable to infection or bleeding. Leukemic
      cells can also collect in certain areas of the body, including the central
      nervous system and spinal cord, which can cause serious problems. According
      to
      the American Cancer Society, almost 4,000 people in the United States are
      expected to be diagnosed with ALL in 2006. Multiple clinical trials have
      suggested the overall survival rate for adults diagnosed with ALL is
      approximately 20% to 50%, underscoring the need for new therapeutic
      options.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Non-Hodgkin&#8217;s
      lymphoma, or NHL, is a heterogeneous disease which is estimated to result in
      more than 58,000 new cases and nearly 19,000 deaths in 2006 in the United
      States, according to the American Cancer Society. NHL can be divided into two
      prognostic groups: indolent lymphomas and aggressive lymphomas. Patients with
      indolent NHL types have a relatively good prognosis, with median survival as
      long as 10 years after diagnosis, but they usually are not curable in advanced
      clinical stages. The aggressive type of NHL is more rapidly progressive, but
      a
      significant number of these patients can be cured with intensive combination
      chemotherapy regimens which include agents such as vincristine. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Multiple
      clinical trials have suggested that,</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">
      with current treatment, overall five-year survival of NHL patients is
      approximately 50% to 60%. Of patients with aggressive NHL, 30% to 60% can
      achieve durable remission. The vast majority of relapses occur in the first
      two
      years after therapy and new therapeutic options within this time frame are
      needed.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
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        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">7</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Product
      Description </em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Marqibo
      is our proprietary product candidate comprised of the widely used off-patent
      anticancer drug vincristine encapsulated in sphingosomes. This encapsulation
      is
      designed to provide prolonged circulation of the drug in the blood and
      accumulation at the tumor site. These characteristics are intended to increase
      the effectiveness and reduce the side effects of the encapsulated drug.
      Vincristine, a microtubule inhibitor, is FDA-approved for ALL and is widely
      used
      as a single agent and in combination regimens for treatment for hematologic
      malignancies such as lymphomas and leukemias. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Clinical
      Development Program</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      acquired our rights to Marqibo from Inex Pharmaceuticals Corporation in May
      2006. Inex submitted an NDA for accelerated marketing approval of Marqibo based
      upon a single arm, Phase II clinical trial in relapsed refractory NHL, which
      was
      reviewed by the FDA in 2004. This clinical trial was conducted with 119 patients
      and demonstrated an overall response rate of 25%. The FDA determined that the
      Phase II clinical trial was insufficient to support an accelerated marketing
      approval, issued a &#8220;not approvable&#8221; letter in January 2005 and advised Inex to
      conduct a Phase III randomized clinical trial. The FDA&#8217;s not approvable letter
      states that the FDA determined the response rate to be 21%. The not approvable
      letter was issued after the FDA&#8217;s oncological drugs advisory committee
      unanimously voted that the results of the trial were not predictive of clinical
      benefit and that there was no improvement over available therapy.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Marqibo
      has been evaluated in 13 clinical trials with over 540 patients, including
      Phase
      II clinical trials in patients with NHL and ALL. Based on the results from
      these
      studies, we intend to request regulatory approvals to initiate a randomized
      Phase III clinical trial in 2006 in relapsed ALL. We intend to pursue a special
      protocol assessment from the FDA prior to the initiation of this clinical trial.
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Inex
      previously sponsored multiple Marqibo clinical trials, two of which provide
      the
      basis for our clinical development plan. The first is an ongoing Phase I/II
      clinical trial using 2.0 milligrams per meter squared combined with a fixed
      dose
      of oral dexamethasone in ALL. As of March 31, 2006, 22 patients have been
      treated on the Phase I portion of this clinical trial with dosing ranging from
      1.5 to 2.4 milligrams per meter squared weekly. Complete response, or CR,
      defined as complete reduction in detectable disease and/or blast counts of
      5%,
      was 27%, and the toxicity profile was consistent with vincristine at the normal
      dose.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">An
      additional Phase II clinical trial was completed by the University of Texas
      M.D.
      Anderson Cancer Center, or MDACC, in January 2005. This trial employed the
      use
      of R-CHOP, a common treatment regimen for NHL consisting of rituximab,
      cyclophosphamide, doxorubicim, vincristine and prednisone. This clinical trial
      involved patients with previously untreated aggressive</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman"><sup>&#160;</sup></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">NHL
      in
      which Marqibo was substituted for free vincristine. Of the 73 patients treated,
      80% of patients achieved a CR. These results compare favorably with the 65%
      to
      75% CR rates historically achieved in patients receiving R-CHOP.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Based
      on
      these results, we plan to request regulatory authorization to further study
      Marqibo in the treatment of hematologic malignancies, including ALL and NHL.
      Specifically, we plan to conduct Phase III clinical trials in ALL, one of which
      we expect to be in the front-line, elderly ALL setting, and another in the
      relapsed/refractory ALL setting. The primary endpoints in both of these clinical
      trials will be CR rates. We plan to seek regulatory approval to initiate at
      least one of these clinical trials by the end of 2006. We also intend to seek
      regulatory approval to commence a Phase III clinical trial of Marqibo in
      front-line aggressive lymphoma, with Marqibo substituted for vincristine in
      the
      R-CHOP regimen. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">8</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
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        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Talotrexin
      (PT-523) </em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Product
      Candidate Background and Preclinical Data</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Antifolates,
      also known as folic acid analogs, are a class of cytotoxic or antineoplastic
      agents, which are structural analogs of naturally occurring compounds that
      that
      interfere with the production of nucleic acids known as antimetabolites.
      Antifolates have been used clinically for more than 30 years to treat both
      solid
      and hematological cancers such as breast cancer and ALL, as well as inflammatory
      diseases such as rheumatoid arthritis. Antimetabolites are the most widely
      used
      antifolates. One such antimetabolite, methotrexate, is structurally related
      to
      folic acid and acts as an antagonist to this vitamin by inhibiting DHFR, the
      enzyme that converts folic acid to its active form. Rapidly dividing cells,
      such
      as cancer cells, need folic acid to multiply. The decreased level of folic
      acid
      leads to depressed DNA, RNA, and protein synthesis which in turn lead to cell
      death.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Talotrexin
      is a novel antifolate that is a water-soluble, non-polyglutamatable analogue
      of
      aminopterin. Talotrexin was developed at the Dana-Farber Cancer Institute,
      Inc.
      and the NCI as part of a program to develop oncology product candidates with
      improved efficacy, tolerability and resistance. We believe that potential
      advantages of Talotrexin over existing therapies include: </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Increased
                Targeting of Tumor Cells:</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                Talotrexin produces cytotoxicity by inhibiting DHFR. It binds to
                DHFR more
                tightly than other antifolates, allowing Talotrexin to inhibit DNA
                synthesis more potently than other antifolates, including methotrexate.
                In
                preclinical in vitro and in vivo studies at the Dana-Farber Cancer
                Institute, Inc. and the NCI, Talotrexin demonstrated that it is 10-fold
                more tightly bound to DHFR, than methotrexate, has 10-fold higher
                affinity
                to the membrane-bound transporter utilized by methotrexate, and
                demonstrated 10- to 100-fold more potency than methotrexate. We believe
                that these characteristics may allow for potent, targeted delivery
                of
                Talotrexin. </font></div>
            </td>
          </tr>

      </table>
    </div>
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    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Better
                Tolerability:</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                We
                believe that Talotrexin may be more tolerable than other existing
                cancer
                drugs. Classical compounds such as methotrexate are polyglutamated
                once
                they enter the cells. Polyglutamation is an enzymatic process which
                allows
                the drug to stay in the cell and act on its target more effectively.
                However, while healthy cells maintain their ability to make
                polyglutamates, cancer cells lose their ability to form polyglutamates.
                Consequently, the drug stays in the healthy cells, causing toxicity
                and
                preventing the drug from exerting its effect on the cancer cell to
                kill
                it. Talotrexin blocks and alters the side chain of the compound,
                which
                allows the drug to stay in the cancer cell and act on its target.
                </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Superior
                Resistance Profile:</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                In
                preclinical studies, Talotrexin has demonstrated activity against
                tumor
                cells that were resistant to other antifolates. Human head-and-neck
                squamous carcinoma cells that were resistant to methotrexate were
                shown to
                be highly sensitive to the effects of Talotrexin.
                </font></div>
            </td>
          </tr>

      </table>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
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          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Distinct
                Dose-Dependent Activity:</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
                In
                preclinical studies, Talotrexin showed significant dose responsiveness
                which may suggest a wide therapeutic index (the difference between
                the
                minimum effective dose and maximum tolerated dose of a drug), as
                well as
                enhanced clinical utility. </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Clinical
      Development </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Program</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">In
      April&#160;2004, we commenced an NCI-sponsored Phase&#160;I clinical trial to
      evaluate the safety of Talotrexin when administering it intravenously on
      days&#160;1, 8 and 15 of a 28-day cycle to patients with solid tumors. The
      patients selected for the clinical trial had failed curative or
      survival-prolonging therapy, or no such therapies existed for them. This
      clinical trial, which is being conducted at the Dana-Farber Cancer Institute,
      Inc., Massachusetts General Hospital and Beth-Israel Deaconess Hospital, is
      expected to involve 25 to 40&#160;patients, with 26 subjects having received
      doses of Talotrexin through April 2006. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">In
      February 2005, we commenced an open-label multicenter, multinational Phase
      I/II
      clinical trial of Talotrexin in the treatment of relapsed or refractory
      non-small cell lung cancer, or NSCLC. Increasing doses of Talotrexin were
      administered as a five-minute intravenous infusion on days 1 and 8 on a 21-day
      cycle to eligible patients in the Phase&#160;I portion of this clinical trial.
      Talotrexin was well tolerated over multiple cycles of therapy with
      myelosuppression and mucositis as the dose limiting toxicities. The Phase I
      portion of this clinical trial is now closed for enrollment with 25 patients
      receiving doses. The primary objectives of the Phase II portion of this ongoing
      clinical trial is to demonstrate an improvement in overall survival. Secondary
      objectives include evaluation of safety, overall response rate, time to
      progression and progression free survival. Relapsed or refractory NSCLC patients
      who have failed at least two lines of treatment including standard chemotherapy
      and/or epidermal growth factor receptor tyrosine kinase inhibitor are eligible
      to enroll in the study. One patient death has been reported in this study.
      The
      study investigator deemed the death unrelated to Talotrexin
      administration.</font></div>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">9</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">In
      May 2005, we commenced an open-label, multicenter Phase&#160;I/II clinical trial
      of Talotrexin in the treatment of refractory ALL. The primary objectives of
      the
      Phase&#160;I portion of this clinical trial are to&#160;evaluate the safety of
      Talotrexin when administered on days 1 through 5 on a 21-day cycle to ALL
      subjects who have failed curative or survival prolonging therapy or for whom
      no
      such therapies exist and to establish the maximum tolerated dose and identify
      the dose limiting toxicities of Talotrexin. The primary objective of the
      Phase&#160;II portion of this clinical trial is to evaluate the anti-tumor
      activity of Talotrexin as therapy in leukemia patients with relapsed or
      refractory to frontline and/or salvage therapy as measured by overall response.
      The secondary objective is to assess the impact of Talotrexin as measured by
      duration of remission and survival. A total of 75&#160;patients are expected to
      enroll in the Phase&#160;I/II clinical trial. While some treatment options for
      ALL patients are currently available, we believe that a significant opportunity
      exists for Talotrexin to improve the therapeutic options for patients with
      the
      progressive form of leukemia</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.
      One
      patient death has been reported in this study. The patient expired due to
      thromboembolism of the pulmonary trunk after starting Talotrexin and after
      having been diagnosed with grade 3 mucositis (esophagitis and stomatitis).
      The
      study co-investigator deemed the mucositis possibly/probably related to
      Talotrexin, and the death unrelated to Talotrexin.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Subject
      to regulatory approval, we currently plan additional clinical trials for
      Talotrexin in other potential indications to maximize its therapeutic potential
      as follows:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">A
                Phase II, open-label, multicenter clinical trial of single agent
                Talotrexin in the treatment of relapsed or refractory gastric cancer
                in
                2006</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A
                Phase II </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">clinical
                trial </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">of
                Talotrexin in the treatment of persistent or recurrent carcinoma
                of the
                cervix in 2006; and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A
                Phase I pediatric solid tumor </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">clinical
                trial </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">being
                developed in conjunction with the NCI&#8217;s Children&#8217;s Oncology Group in 2006.
                </font></div>
            </td>
          </tr>

      </table>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      May
      2006, the FDA granted our application for orphan drug designation for Talotrexin
      (PT-523) in patients with ALL. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Ropidoxuridine
      (IPdR)</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Product
      Description and Preclinical Data</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Ropidoxuridine
      (IPdR) is an oral prodrug of IUdR, a radiation sensitizer. Ropidoxuridine is
      referred to as a prodrug because after it is absorbed through the digestive
      tract, it is converted in the liver by an enzyme to the active agent IUdR.
      Because it is a nucleoside analog which mimics a normal building block of DNA,
      IUdR integrates into the cancer cell DNA, rendering it more sensitive to the
      killing effect of radiation. Because it increases the effects of radiation,
      ropidoxuridine is referred to as a radiation sensitizer.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Phase
      I
      and II clinical trials conducted by the NCI with IUdR established it as a
      radiation sensitizer. However, due to significant hematological and
      gastrointestinal toxicity resulting in mucositis and diarrhea, IUdR was not
      developed beyond Phase II. We believe ropidoxuridine may have the potential
      to
      deliver the activity of IUdR, but with significantly less toxicity. Preclinical
      studies conducted by the NCI and Case Western Reserve University with
      ropidoxuridine demonstrated conversion to IUdR, incorporation into tumor-cell
      DNA, and acceptable toxicity. IUdR has not been approved by the FDA for any
      indication. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><a name="RFN1"/><a name="ABS"/><a name="SEC1"/><a name="SEC2"/><a name="SEC3"/><a name="T1"/><a name="F2"/><a name="F3"/><a name="F4"/><a name="T2"/><a name="FN"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Clinical
      Development Plan</em></font></a></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      September 2005, we initiated a Phase I clinical trial of ropidoxuridine in
      patients with solid tumors undergoing radiation therapy. The objectives of
      this
      clinical trial are to establish the safety, dose, pharmacokinetics, and
      preliminary efficacy of ropidoxuridine in combination with radiation therapy.
      In
      June 2006, the FDA granted our application for orphan drug designation of
      ropidoxuridine for the treatment of </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">gioblastoma</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">,
      the
      most common type of brain cancer.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">10</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Sphingosome
      Encapsulated Vinorelbine</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sphingosome
      Encapsulated Vinorelbine is our proprietary product candidate, based on the
      widely used off-patent anticancer drug vinorelbine encapsulated in sphingosomes.
      Vinorelbine, a microtubule inhibitor, is FDA-approved for use as a single agent
      or in combination with cisplatin for the first-line treatment of unresectable,
      advanced NSCLC. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>&#160;</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      plan
      to commence Phase I clinical trials for sphingosome encapsulated vinorelbine
      in
      the second half of 2006. The regulatory strategy for sphingosomal vinorelbine
      may include NSCLC and breast cancer registration paths. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Sphingosome
      Encapsulated Topotecan </em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><a name="sphingo"/><a name="m1"/><a name="m2"/><a name="m3"/><a name="m4"/><a name="m5"/><a name="sv1"/><a name="sv2"/><a name="sv3"/><a name="sv4"/><a name="sv5"/><a name="st1"/><a name="st2"/><a name="st3"/><a name="st4"/><a name="st5"/><a name="Financials"/><a name="long"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sphingosome
      Encapsulated Topotecan is our proprietary product candidate comprised of the
      anticancer drug topotecan encapsulated in sphingosomes. Topotecan is
      FDA-approved for the treatment of metastatic carcinoma of the ovary after
      failure of initial or subsequent chemotherapy, and small cell lung cancer
      sensitive disease after failure of first-line chemotherapy. Following completion
      of additional preclinical development, we expect to file an IND in the second
      half of 2006 and to initiate clinical trials in 2007.</font></a></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>License
      Agreements </strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Zensana</em></strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
      to the terms of an October 2004 license agreement with NovaDel Pharma, Inc.,
      as
      amended in August 2005 and May 2006, we hold a royalty-bearing, exclusive right
      and license (with the right to sublicense with NovaDel&#8217;s prior written consent)
      to develop and commercialize NovaDel&#8217;s oral spray version of ondansetron in the
      United States and Canada, while NovaDel retained the rights to the development
      and commercialization of Zensana in other countries and all non-human uses
      of
      Zensana. In addition, NovaDel also retained the rights to conduct internal,
      non-commercial research and development activities with respect to Zensana
      in
      all countries, and the rights to use the oral spray technology with other drug
      products, either by itself or with a third party. Under the agreement, we and
      NovaDel collaborated on the initial development governed by a development plan
      and overseen by a joint development committee on the formulation, analytical
      method and manufacturing process development for Zensana. The joint development
      committee continues to discuss potential strategies for Zensana going forward,
      including regulatory strategies for Zensana.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Under
      the
      license agreement, we are responsible for the regulatory filings for Zensana
      and
      associated costs and all such filings will be made in our name and have us
      as
      the primary contact. We consult with NovaDel on such filings and keep NovaDel
      informed as to our communications with the regulatory authorities, although
      we
      have the right to determine the regulatory pathways we feel best meet our
      objectives. NovaDel does have the non-exclusive right to use and reference
      all
      our regulatory filings and data contained therein for all purposes.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      will
      be responsible for the clinical and commercial supply of Zensana. We may engage
      a third party for the manufacture of Zensana, provided that NovaDel will have
      the right to review all agreements with such third party manufacturer and to
      purchase Zensana from such third party at essentially the same costs as we
      do,
      and provided that such third party agreements contains sufficient
      confidentiality and non-use obligations. Subsequently, we have agreed that
      Ferring AB, a Swedish company, will take over NovaDel&#8217;s supply obligations to
      us. Currently, Ferring AB is the supplier for our clinical supply under a
      purchase order which has been reviewed by NovaDel. The confidentiality and
      non-use obligations of Ferring AB are governed under a separate confidentiality
      agreement between us and Ferring AB entered into in June 2005. We plan to enter
      into a manufacturing agreement with them for the commercial supply of Zensana.
      To date, Ferring AB has also supplied us with the spray pump components and
      oral
      applicator for Zensana, and we anticipate that the manufacturing agreement
      that
      we enter into for Zensana will also include all components of the delivery
      device. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      consideration for the license, the agreement provides that we will make
      double-digit royalty payments to NovaDel based on a percentage of net sales
      (as
      defined in the agreement). In addition, we issued NovaDel 73,121 shares of
      our
      common stock (determined by dividing $500,000 by the average selling price
      of
      our common stock during the 10 business days preceding the date of the license
      agreement) and we purchased 400,000 shares of NovaDel&#8217;s common stock at a price
      of $2.50 per share. Neither party may sell such shares for a two-year period
      following the effective date of the license agreement. Pursuant to the license
      agreement, we are also obligated to pay NovaDel up to an additional $10.0
      million upon achievement of certain milestones. </font></div>
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        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
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        <div id="PN" style="PAGE-BREAK-AFTER: always">
          <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">11</font></div>
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          <div id="GLHDR" style="WIDTH: 100%" align="right">
          </div>
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      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">NovaDel
      will own all information and inventions that are made by or on behalf of us,
      our
      affiliates and sublicensees relating to the oral spray process or the Zensana
      product, and all licensed trademarks. NovaDel has the right to file, prosecute
      and maintain all licensed patent applications, patents and trademarks, and
      we
      have the right to comment on the filings, but NovaDel will not be obligated
      to
      incorporate our comments. If NovaDel decides to discontinue the filing,
      prosecution or maintenance of any such patent or patent application in a
      particular country, then we have the right to do so. NovaDel also has the first
      right to enforce the licensed patents and we need to reimburse NovaDel for
      100%
      of its out-of-pocket costs with respect to the removal of any such infringement
      to the extent such infringement adversely affects the exploitation of Zensana
      in
      the United States and Canada, and we have the right to enforce such patents
      only
      if NovaDel fails to do so. NovaDel is also in control of any defense of third
      party infringement, invalidity or unenforceability suit, and we are required
      to
      reimburse NovaDel for 100% of the costs and expenses associated with such suit
      to the extent it relates to the exploitation of Zensana. We do not have a clear
      contractual right to defend against such third-party lawsuits even if NovaDel
      fails to do so. We have also covenanted not to institute or prosecute any action
      seeking to have any claim in the licensed patents declared invalid or
      unenforceable.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">NovaDel
      may terminate our license, after giving us notice and an opportunity to cure,
      for our material breach (30 day cure period) or payment default (10 day cure
      period). The license also terminates automatically if we are involved in a
      bankruptcy. In the event this license agreement is terminated, we will lose
      all
      of our rights to develop and commercialize Zensana. The license agreement
      expires on the later of the expiration date of the last to expire patent covered
      by the license, currently March 2022, or October 2024, 20 years from the
      effective date of the license agreement. We have the right to terminate this
      agreement by giving NovaDel a 90-day notice or by not making a milestone payment
      when due.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      are
      required to indemnify NovaDel for losses arising from the breach of this
      agreement by us, our affiliates or sublicensees or permitted assigns or
      transferees, the actual or asserted violations of law by us, our affiliates
      or
      sublicensees or permitted assigns or transferees, the use by us, our affiliates
      or sublicensees or permitted assigns or transferees of the oral spray technology
      with ondansetron, or the exploitation of Zensana by us, our affiliates,
      sublicensees or permitted assigns or transferees, to the extent NovaDel is
      not
      required to indemnify us for such losses. NovaDel agreed to indemnify us for
      losses arising from the breach of this agreement by NovaDel or its affiliates
      or
      the actual or asserted violation of law by NovaDel or its affiliates, to the
      extent we are not required to indemnify NovaDel for such losses. In either
      case,
      the indemnifying party will have control over the defense and settlement of
      any
      claim or action relating to such losses and the indemnified party will have
      the
      right to participate. The indemnifying party has the right to consent to
      monetary damages but will need the indemnified party&#8217;s consent before consenting
      to any damages that will result in the indemnified party&#8217;s becoming subject to
      injunctive or other relief or otherwise adversely affect the business of the
      indemnified party in any manner. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Marqibo,
      </em></strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Sphingosomal
      Vinorelbine</em></strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>&#160;</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>and
      Sphingosomal Topotecan</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      May 6,
      2006, we completed a transaction with Inex Pharmaceuticals Corporation pursuant
      to which we acquired exclusive, worldwide rights to develop and commercialize
      three product candidates known as Marqibo (vincristine sulfate) Liposomes
      Injection, sphingosome encapsulated vinorelbine and sphingosome encapsulated
      topotecan, collectively called the Licensed Products. In consideration for
      all
      of the intellectual property rights and assets acquired by us in the
      transaction, we paid to Inex aggregate consideration of $11.5 million, of which
      $1.5 million was paid in cash and the remaining $10 million was satisfied by
      issuing to Inex 1,118,568 shares of our common stock. The shares were valued
      at
      a price of $8.94 per share, which represented the average weighted volume price
      of our common stock over the 20 trading days preceding March 16, 2006, the
      date
      of the parties&#8217; letter of intent regarding the transaction. The following is a
      summary of the various agreements entered into to consummate the
      transaction.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>License
      Agreement</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
      to the terms of a license agreement dated May 6, 2006, between us and Inex,
      Inex
      granted us:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div>
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            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
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                exclusive license under certain patents held by Inex to commercialize
                the
                Licensed Products for all uses throughout the
                world;</font></div>
            </td>
          </tr>

      </table>
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    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
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        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">12</font></div>
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    </div><br>
    <div>
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          <tr valign="top" style="line-height: 1.25;">
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            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">an
                exclusive license under certain patents held by Inex to commercialize
                the
                Licensed Products for all uses throughout the world under the terms
                of
                certain&#160; research agreements between Inex and the British Columbia
                Cancer Agency, or BCCA;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">an
                exclusive sublicense under certain patents relating to the Licensed
                Products that Inex licensed from MDACC, to commercialize the Licensed
                Products throughout the world under the terms of a license agreement
                between Inex and MDACC; and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
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            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">an
                exclusive license to all technical information and know-how relating
                to
                the technology claimed in the patents held exclusively by Inex and
                to all
                confidential information possessed by Inex relating to the Licensed
                Products, including all data, know-how, manufacturing information,
                specifications and trade secrets, collectively called the Inex Technology,
                to commercialize the Licensed Products for all uses throughout the
                world.</font></div>
            </td>
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      </table>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      have
      the right to grant sublicenses to third parties and in such event we and Inex
      will share sublicensing revenue received by us at varying rates for each
      Licensed Product depending on such Licensed Product&#8217;s stage of clinical
      development.&#160; Under the license agreement, we also granted back to Inex a
      limited, royalty-free, non-exclusive license in&#160;certain patents and
      technology owned or&#160;licensed to us solely for use in developing and
      commercializing liposomes having an active agent encapsulated, intercalated
      or
      entrapped therein.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      agreed
      to pay to Inex up to an aggregate of $30.5 million upon the achievement of
      various clinical and regulatory milestones relating to all Licensed Products.
      At
      our option, the milestones may be paid in cash or additional shares of our
      common stock. However, the total number of shares of our common stock that
      may
      be issued to Inex in connection with the transaction may not exceed 19.99%
      of
      our outstanding shares of common stock as of May 6, 2006. In addition to the
      milestone payments, we agreed to pay royalties to Inex in the range of 5% to
      10%
      based on net sales of the Licensed Products, against which we may offset a
      portion of the research and development expenses we incur. In addition to our
      obligations to make milestone payments and pay royalties to Inex, we also
      assumed all of Inex&#8217;s obligations to its licensors and collaborators relating to
      the Licensed Products, which include aggregate milestone payments of up to
      $2.5
      million, annual license fees and additional royalties. </font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      license agreement provides that we will use our commercially reasonable efforts
      to develop each Licensed Product, including causing the necessary and
      appropriate clinical trials to be conducted in order to obtain and maintain
      regulatory approval for each Licensed Product and preparing and filing the
      necessary regulatory submissions for each Licensed Product. We also agreed
      to
      provide Inex with periodic reports concerning the status of each Licensed
      Product. </font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      are
      required to use commercially reasonable efforts to commercialize each Licensed
      Product in each jurisdiction where a Licensed Product has received regulatory
      approval. We will be deemed to have breached our commercialization obligations
      in the United States, or in Germany, the United Kingdom, France, Italy or Spain,
      if for a continuous period of 180 days at any time following commercial sales
      of
      a Licensed Product in any such country, no sales of a Licensed Product are
      made
      in the ordinary course of business in such country by us (or a sublicensee),
      unless the parties agree to such delay or unless we are prohibited from making
      sales by a reason beyond our control. If we breach this obligation, then Inex
      is
      entitled to terminate the license with respect to such Licensed Product and
      for
      such country.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Under
      the
      license agreement, Inex, either alone or jointly with MDACC, will be the owner
      of patents and patent applications claiming priority to certain patents licensed
      to us, and we have an obligation to assign to Inex our rights to inventions
      covered by such patents or patent applications, and, when negotiating any joint
      venture, collaborative research, development, commercialization or other
      agreement with a third party, to require such third party to do the
      same.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      prosecution and maintenance of the licensed patents will be overseen by an
      IP
      committee having equal representation from us and Inex. We will have the right
      and obligation to file, prosecute and maintain most of the licensed patents,
      although Inex maintained primary responsibility to prosecute certain of the
      licensed patents.&#160; The parties agreed to share the expenses of prosecution
      at varying rates.&#160;&#160;We also have the first right, but not the
      obligation, to enforce such licensed patents against third party infringers,
      or
      to defend against any infringement action brought by any third
      party.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
          </div>
        </div>
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          <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">13</font></div>
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        </div>
        <div id="HDR">
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      agreed
      to indemnify Inex for all losses resulting from our breach of our
      representations and warranties, or other default under the license agreement,
      our breach of any regulatory requirements, regulations and guidelines in
      connection with the Licensed Products, complaints alleging infringement against
      Inex with respect to the our manufacture, use or sale of a Licensed Product,
      and
      any injury or death to any person or damage to property caused by any Licensed
      Product provided by us or our sublicensee, except to the extent such losses
      are
      due to Inex&#8217;s breach of a representation or warranty, Inex&#8217;s default under the
      agreement, and the breach by Inex of any regulatory requirements, regulations
      and guidelines in connection with licensed patent and related know-how,
      including certain of Inex&#8217;s indemnification obligations to MDACC that will be
      passed through to us as a result. Inex has agreed to indemnify us for losses
      arising from Inex&#8217;s breach of representation or warranty, Inex&#8217;s default under
      the agreement, and the breach by Inex of any regulatory requirements,
      regulations and guidelines in connection with licensed patent and related
      know-how, except to the extent such losses are due to our breach of our
      representations and warranties, our default under the agreement, our breach
      of
      any regulatory requirements, regulations and guidelines in connection with
      the
      Licensed Products, complaints alleging infringement against Inex with respect
      to
      our manufacture, use or sale of a Licensed Product, and any injury or death
      to
      any person or damage to property caused by any Licensed Product provided by
      us
      or our sublicensee. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Unless
      terminated earlier, the license grants made under the license agreement expire
      on a country-by-country basis upon the later of (i) the expiration of the last
      to expire patents covering each Licensed Product in a particular country, (ii)
      the expiration of the last to expire period of product exclusivity covered
      by a
      Licensed Product under the laws of such country, or (iii) with respect to the
      Inex Technology, on the date that all of the Inex Technology ceases to be
      confidential information. The covered issued patents are scheduled to expire
      between 2014 and 2020. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Either
      we
      or Inex may terminate the license agreement in the event that the other has
      materially breached its obligations thereunder and fails to remedy such breach
      within 90 days following notice by the non-breaching party. If such breach
      is
      not cured, then the non-breaching party may, upon 6 months&#8217; notice to the
      breaching party, terminate the license in respect of the Licensed Products
      or
      countries to which the breach relates. Inex may also terminate the license
      if we
      assert or intend to assert any invalidity challenge on any of the patents
      licensed to us. The license agreement also provides that either party may,
      upon
      written notice, terminate the agreement in the event of the other&#8217;s bankruptcy,
      insolvency, dissolution or similar proceeding. In the event Inex validly
      terminates the license agreement, all data, materials, regulatory filings and
      all other documentation reverts to Inex.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>UBC
      Sublicense Agreement</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Under
      the
      UBC sublicense agreement, Inex granted to us an exclusive, worldwide sublicense
      under several patents relating to the sphingosomal encapsulated vinorelbine
      and
      sphingosomal encapsulated topotecan Licensed Products, together with all
      knowledge, know-how, and techniques relating to such patents, called the UBC
      Technology. The UBC Technology is owned by the University of British Columbia,
      or UBC, and licensed to Inex pursuant to a license agreement dated July 1,
      1998.
      The UBC sublicense agreement provides that we will undertake all of Inex&#8217;s
      obligations contained in Inex&#8217;s license agreement with UBC, which includes the
      payment of royalties (in addition to the royalties owing to Inex under the
      license agreement between Inex and us) and an annual license fee. The provisions
      of the UBC sublicense agreement relating to our obligation to develop and
      commercialize the UBC Technology, termination and other material obligations
      are
      substantially similar to the terms of license agreement between Inex and us,
      as
      discussed above.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Assignment
      of Agreement with Elan Pharmaceuticals, Inc.</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
      to an Amended and Restated License Agreement dated April 3, 2003, between Inex
      (including two of its wholly-owned subsidiaries) and Elan Pharmaceuticals,
      Inc.,
      Inex held a paid up, exclusive, worldwide license to certain patents, know-how
      and other intellectual property relating to vincristine sulfate liposomes.
      In
      connection with our transaction with Inex, Inex assigned to us all of its rights
      under the Elan license agreement pursuant to an Assignment and Novation
      Agreement dated May 6, 2006 among us, Inex and Elan.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As
      assigned to us, the Elan license agreement provides that Elan will own all
      improvements to the licensed patents or licensed know-how made by us or our
      sublicensees, which will in turn be licensed to us as part of the technology
      we
      license from Elan. Elan has the first right to file, prosecute and maintain
      all
      licensed patents and we have the right to do so if Elan decides that it does
      not
      wish to do so only pertaining to certain portions of the technology. Elan also
      has the first right to enforce such licensed patents and we may do so only
      if
      Elan elects not to enforce such patents. In addition, Elan also has the right
      but not the obligation to control any infringement claim brought against
      Elan.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">14</font></div>
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        </div>
      </div>
      <div id="HDR">
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        </div>
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    </div><br>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      have
      indemnification obligations to Elan for all losses arising from the research,
      testing, manufacture, transport, packaging, storage, handling, distribution,
      marketing, advertising, promotion or sale of the products by us, our affiliates
      or sublicensees, any personal injury suits brought against Elan, any
      infringement claim, certain third party agreements entered into by Elan, and
      any
      acts or omissions of any of our sublicensees.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Elan
      license agreement, unless earlier terminated, will expire on a country by
      country basis, upon the expiration of the life of the last to expire licensed
      patent in that country. Elan may terminate the Elan license agreement earlier
      for our material breach upon 60 days&#8217; written notice if we do not cure such
      breach within such 60 day period (we may extend such cure period for up to
      90
      days if&#160;we propose a course of action to cure the breach within the initial
      60 day period and act in good faith to cure such breach), for our bankruptcy
      or
      going into liquidation upon 10 days&#8217; written notice, or immediately if we, or
      our sublicense, directly or indirectly disputes the ownership, scope or validity
      of any of the licensed technology or support any such attack by a third
      party.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Service
      Agreement</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      and
      Inex also entered into a Service Agreement dated May 6, 2006. Under the service
      agreement, we engaged Inex on a non-exclusive basis to perform various
      transition services relating to the transfer of technology, agreements and
      other
      matters useful to us in the period following the completion of the our
      transaction with Inex. The service agreement provides that we and Inex will
      jointly review a schedule each quarter that will describe the services requested
      of Inex for such period, together with a forecast of the estimated number of
      full-time employees of Inex required to perform such services and a schedule
      identifying the time by which the services are expected to be completed. Such
      services may include Inex&#8217;s assistance in transferring data and other materials
      relating to or useful in the development of the Licensed Products or its
      assistance assigning various testing and material supply agreements and
      relationships that Inex has established in connection with the Licensed
      Products. As consideration for Inex&#8217;s services, and in addition to the $11.5
      million upfront payment paid in connection with the transaction, we will pay
      to
      Inex fees calculated on the number of actual time employees, contractors or
      consultants of Inex who perform such services based on a rate of $250,000 per
      full time employee equivalent.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      service agreement expires on June 30, 2007, unless terminated earlier. We may
      terminate the service agreement upon 60 days&#8217; written notice for any reason.
      Upon 30-days&#8217; notice and an opportunity to cure, either party may terminate the
      service agreement in the event the other party fails to comply with a material
      term of the agreement or the service schedule (including any change orders
      to
      the service schedule). Either party may also terminate the agreement in the
      event the other makes an assignment for the benefit of creditors, becomes
      insolvent, files a bankruptcy petition or similar proceeding, which proceeding
      remains undismissed or unstayed for at least 60 days. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Transaction
      Agreement</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      entered into a Transaction Agreement on May 6, 2006 with Inex which generally
      provided for the mechanics of closing our transaction with them. The agreement
      contains several provisions relating to the assignment to us of various clinical
      trial and other agreements relating to the Licensed Products, as well as
      provisions obligating Inex to use its commercially reasonable efforts to cause
      the outright assignment to us of Inex&#8217;s license with MDACC and its rights to
      certain of the patents covered by our license agreement with Inex.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      transaction agreement also contains provisions relating to competition by the
      parties. More specifically, we agreed that, to the extent we develop,
      manufacture or commercialize a product candidate that incorporates the Licensed
      Products encapsulated in a liposome not proprietary to Inex in a particular
      country during the term of the license agreement, all licenses and sublicenses
      granted to us under the license agreement with respect to such country and
      such
      Licensed Product will revert to Inex. The transaction agreement further provides
      that Inex will not, directly or indirectly, engage in the business of
      developing, manufacturing or commercializing any of the Licensed Products,
      including any future generation products for formulations containing
      vincristine, vinorelbine or topotecan.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Asset
      Purchase Agreement</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      also
      entered an Asset Purchase Agreement with Inex on May 6, 2006. Under this
      agreement, Inex assigned to us various equipment, inventory and other assets
      useful in the development of the Licensed Products. We did not pay any
      additional consideration for such assets beyond the $11.5 million payment,
      discussed above.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Registration
      Rights Agreement</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
          </div>
        </div>
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          <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">15</font></div>
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            <hr style="COLOR: black" noshade size="2">
          </div>
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        <div id="HDR">
          <div id="GLHDR" style="WIDTH: 100%" align="right">
          </div>
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      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
      to a Registration Rights Agreement dated May 6, 2006, we agreed to file a
      registration statement covering the resale of the 1,118,568 shares of our common
      stock issued to Inex in connection with the transaction on or before July 5,
      2006, and to use commercially reasonable efforts to have such registration
      statement declared effective by the Securities and Exchange Commission on or
      before November 2, 2006. In the event we do not file such registration statement
      by July 6, 2006, or in the event such registration statement is not declared
      effective by November 6, 2006, then we must issue to Inex an additional
      approximately 22,400 shares of our common stock. Inex agreed that it will not
      sell more than 25% of the shares issued in each three month period commencing
      on
      the effective date of the registration statement.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Talotrexin</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      rights to Talotrexin are governed by the terms of a December 2002 license
      agreement with Dana-Farber Cancer Institute, Inc., or DFCI, and Ash Stevens,
      Inc., or ASI. The agreement provides us with an exclusive worldwide royalty
      bearing license, including the right to grant sublicenses. We also acquired
      an
      option for any new inventions made by DFCI or ASI directly relating to the
      same
      subject matter for a reasonable license fee to be negotiated by the parties.
      DFCI reserved the rights under the licensed technology for its own
      non-commercial research, the rights to conduct pre-clinical and clinical trials
      of Talotrexin with our prior written consent, and the rights to supply know-how
      and grant non-exclusive, non-transferable licenses under the licensed technology
      to other academic, governmental or not-for-profit organizations for
      non-commercial research purposes but not in human subjects. In addition, DFCI
      or
      ASI may require us to grant a third party a sublicense under the licensed
      technology for the development and commercialization of products outside the
      oncology field, unless such products will be directly competitive with any
      licensed product then sold or under development by us or our sublicensee,
      included in our annual strategic development plan then in force, or if we
      provide DFCI and ASI with a plan for developing such non-competing new product.
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      license agreement requires us to make upfront and future payments totaling
      up to
      $6.1 million upon the achievement of certain milestones should Talotrexin be
      granted approval by the FDA of an NDA. Additionally, we are obligated to pay
      royalties of 3.5% based on net sales (as defined in the license agreement)
      of
      Talotrexin. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      are
      required to use commercially reasonable efforts no less than efforts we expend
      on our other high priority projects to bring one or more licensed products
      to
      market and then continue active and diligent efforts to keep such products
      available to the public. We were required to fulfill specific diligence
      milestones, all of which we have met. We are also required to manufacture the
      licensed products substantially in the United States.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      have
      the rights and obligation to prepare, file, prosecute and maintain patent
      applications and patents licensed to us at our expense, and we are required
      to
      surrender our license under any patent application or patent that we elect
      not
      to prepare, file, prosecute or maintain. We have the right, but not the
      obligation, to enforce the licensed patents and to defend against alleged
      infringements, and we need DFCI&#8217;s consent prior to entering into any settlement
      agreement. </font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      agreed
      to indemnify DFCI and ASI against all losses arising from the design,
      production, manufacture, sale, use in commerce, lease or promotion of any
      product, process or service relating to or developed pursuant to the license
      agreement by us or our sublicensee, affiliate or agent, or arising from any
      other activities to be carried out under the agreement, to the extent not
      attributable to the negligent activities or intentional misconduct of the
      indemnitees.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">DFCI
      and
      ASI may terminate the agreement, after giving us notice and an opportunity
      to
      cure, if we commit a material breach, including failing to make a scheduled
      milestone or other payment when due, failing to meet our diligence obligations,
      ceasing to carry on our business with respect to the licensed products, or
      being
      convicted of a felony relating to the manufacture, use, sale or importation
      of
      the licensed products. The agreement also provides that it may be terminated
      if
      we become involved in a bankruptcy, insolvency or similar proceeding. We can
      terminate this agreement by giving DFCI or ASI 90-day prior written notice.
      In
      the event this license agreement is terminated, we will lose all of our rights
      to develop and commercialize </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Talotrexin.
      </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      license agreement automatically expires on the date on which the last of the
      patent covered by the agreement expires.</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Ropidoxuridine
      (IPdR)</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      February 2004, we entered into an exclusive worldwide, royalty-bearing license
      agreement with Yale University and The Research Foundation of State University
      of New York, or SUNY for </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ropidoxuridine
      (IPdR)</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">,
      including the right to grant sublicenses. Yale and SUNY reserved the rights
      to
      make, use and practice the licensed patents for academic research purposes.
      We
      are under an obligation to manufacture any licensed products substantially
      in
      the United States. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Under
      the
      agreement, we are required to use all reasonable commercial efforts to conduct
      research and development, testing, government approval, manufacturing, marketing
      and selling of licensed products and/or licensed methods pursuant to a plan
      that
      we committed to upon signing of the agreement. We have also agreed on certain
      specific diligence milestones, and to date we have not breached any of them.
      Yale University and SUNY may terminate this agreement and our license for our
      failure to meet our diligence obligations if we also have not incurred direct
      expenditures towards the development and commercialization of a licensed product
      and/or licensed method up to a certain amount each year starting in
      2005.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      license agreement requires us to make upfront and future payments of up to
      $600,000, in the aggregate, upon the achievement of certain milestones should
      </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ropidoxuridine
      </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">be
      granted approval by the FDA of an NDA. In addition, upon execution of the
      agreement, we issued to our Yale University and SUNY 10-year options to purchase
      an aggregate of approximately 141,000 shares of our common stock at a price
      of
      $1.02 per share. We are also required to make an annual license payment of
      $25,000 on the anniversary of the agreement. Additionally, we are obligated
      to
      pay royalties of 3% on sales, if any, of </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ropidoxuridine</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Under
      the
      agreement, we have the rights and obligations to file, prosecute and maintain
      the licensed patents at our expenses. We also have the rights and obligations
      to
      enforce the licensed patents against third party infringers. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      are
      required to indemnify Yale University and SUNY for all losses resulting from
      the
      production, manufacture, sale, use, lease or other disposition or consumption
      or
      advertisement of the licensed products or licensed methods by us, our
      affiliates, sublicensees or any other transferees, or in connection with any
      statement, representation or warranty of the licensed products or licensed
      methods made by us and such related parties, to the extent such losses do not
      arise from the Yale University&#8217;s or SUNY&#8217;s gross negligence or willful
      misconduct. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Yale
      University and SUNY may terminate the agreement, after giving us notice and
      an
      opportunity to cure, if we commit a material breach, including failing to make
      scheduled payments, or terminate the agreement without giving us the opportunity
      to cure for our failure to obtain or maintain adequate insurance, or our
      involvement in a bankruptcy. We have the right to terminate this agreement
      with
      90-day written notice or within 60 days for our licensors&#8217; uncured material
      breach. In the event this license agreement is terminated, we will lose all
      of
      our rights to develop and commercialize </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ropidoxuridine.
      </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      license agreement automatically expires, on a country-by-country basis, on
      the
      date on which the last of the patent claims covered by the agreement expires,
      lapses or is declared invalid by a court of competent jurisdiction in such
      country. In the United States, a patent currently expired due to an
      unintentionally delayed payment of a maintenance fee with the U.S. Patent and
      Trademark Office would, if reinstated, be the latest U.S. patent to expire.
      A
      petition has been filed with the U.S. Patent and Trademark Office to accept
      an
      unintentionally delayed payment of maintenance fee. If reinstated, the U.S.
      patent will expire in May 2015. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Intellectual
      Property</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>General</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Patents
      and other proprietary rights are very important to the development of our
      business. We will be able to protect our proprietary technologies from
      unauthorized use by third parties only to the extent that our proprietary rights
      are covered by valid and enforceable patents or are effectively maintained
      as
      trade secrets. It is our intention to seek and maintain patent and trade secret
      protection for our drug candidates and our proprietary technologies. As part
      of
      our business strategy, our policy is to actively file patent applications in
      the
      United States and internationally to cover methods of use, new chemical
      compounds, pharmaceutical compositions and dosing of the compounds and
      compositions and improvements in each of these. We also rely on trade secret
      information, technical know-how, innovation and agreements with third parties
      to
      continuously expand and protect our competitive position. We own, or license
      the
      rights to, a number of patents and patent applications related to our product
      candidates, but we cannot be certain that issued patents will be enforceable
      or
      provide adequate protection or that the pending patent applications will issue
      as patents. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      patent positions of biotechnology and pharmaceutical companies are highly
      uncertain and involve complex legal and factual questions. Therefore, we cannot
      predict with certainty the breadth of claims allowed in biotechnology and
      pharmaceutical patents, or their enforceability. To date, there has been no
      consistent policy regarding the breadth of claims allowed in biotechnology
      patents. Third parties or competitors may challenge or circumvent our patents
      or
      patent applications, if issued. If our competitors prepare and file patent
      applications in the United States that claim technology also claimed by us,
      we
      may have to participate in interference proceedings declared by the United
      States Patent and Trademark Office to determine priority of invention, which
      could result in substantial cost, even if the eventual outcome is favorable
      to
      us. Because of the extensive time required for development, testing and
      regulatory review of a potential product, it is possible that before we
      commercialize any of our product candidates, any related patent may expire
      or
      remain in existence for only a short period following commercialization, thus
      reducing any advantage of the patent. </font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">If
      patents are issued to others containing preclusive or conflicting claims and
      these claims are ultimately determined to be valid, we may be required to obtain
      licenses to these patents or to develop or obtain alternative technology. Our
      breach of an existing license or failure to obtain a license to technology
      required to commercialize our products may seriously harm our business. We
      also
      may need to commence litigation to enforce any patents issued to us or to
      determine the scope and validity of third-party proprietary rights. Litigation
      would create substantial costs. An adverse outcome in litigation could subject
      us to significant liabilities to third parties and require us to seek licenses
      of the disputed rights from third parties or to cease using the technology
      if
      such licenses are unavailable.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Zensana</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      license with NovaDel Pharma, Inc. relating to Zensana covers two issued U.S.
      patents covering compositions of matter and methods of use, both of which expire
      in 2017, and six related pending U.S. patent applications. If issued, all of
      the
      pending patent applications would expire in 2017 and cover methods of use,
      and
      three applications would additionally cover compositions of matter. The current
      clinical candidate formulation is covered by one issued U.S. patent covering
      compositions of matter, and if issued, four pending applications covering
      methods of use, two of which also cover compositions of matter.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">We
      are aware of certain United States patents that relate to ondansetron
      compositions and uses therefor to treat nausea and vomiting.&#160; These patents
      pertain to Zofran, an FDA-approved first generation 5-HT3 antagonist product
      upon which we intend to file our NDA application for Zensana under Section
      505(b)(2) of the FDCA. Certain of these patents are due to expire in advance
      of
      our planned commercial launch of Zensana in the United States in the first
      half
      of 2007. Upon commercialization, if Zensana or its commercial use or production
      meets all of the requirements of any of the claims of the aforementioned patents
      or any other patents, or patents that may issue from related patent applications
      or any other patent applications, then we may need a license to one or more
      of
      these patents. If any licenses are required, there can be no assurance that
      we
      will be able to obtain any such license on commercially favorable terms, if
      at
      all, and if these licenses are not obtained, we might be prevented from
      commercializing Zensana.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Sphingosomal
      product candidates</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font id="TAB1" style="MARGIN-LEFT: 18pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
      to our license agreement with Inex Pharmaceuticals Corporation and related
      sublicense with UBC, we have exclusive rights to 5 issued U.S. patents and
      1
      allowed U.S. patent application, 53 issued foreign patents, 9 pending U.S.
      patent applications and 24 pending foreign applications, covering composition
      of
      matter, method of use and treatment, formulation and process. These patents
      and
      patent applications cover sphingosome based pharmaceutical compositions
      including sphingosomal vincristine (Marquibo), sphingosomal vinorelbine and
      sphingosomal topotecan, formulation, dosage, process of making the liposome
      compositions, and methods of use of the compositions in the treatment cancer,
      relapsed cancer, and solid tumors. The earliest of these issued patents expires
      in 2014 and the last of the issued patents expires in 2020. If the allowed
      U.S.
      patent application issues, it will expire in 2021.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Talotrexin</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 8.3pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Under
      our
      license agreement with the Dana-Farber Cancer Institute, Inc. and Ash Stevens,
      Inc., we have exclusive, worldwide rights to two issued U.S. patents and two
      pending U.S. patent applications that relate to Talotrexin and particular uses
      of Talotrexin according to the Company&#8217;s business plan. Both issued patents
      include composition of matter claims and one of them also includes claims to
      methods of using Talotrexin to treat leukemia or cancers involving lymphoblasts.
      The earlier of the issued patents is currently scheduled to expire in January
      2007. The later of the two issued patents is currently scheduled to expire
      in
      2023. If either or both of the pending patent applications issues, the issued
      patent or patents would be scheduled to expire in 2023. In addition, in 2005,
      we
      filed two U.S. provisional patent applications directed primarily to particular
      methods of using Talotrexin. If any U.S. patent claiming priority to one or
      both
      of these provisional patent applications issues, such a patent would be
      scheduled to expire in 2026. A PCT application claiming priority to these two
      provisional patent applications is currently pending. Moreover, a U.S. patent
      application directed to methods of treating inflammatory diseases is currently
      pending. Should this application issue to a U.S. patent, the patent would be
      scheduled to expire in 2023.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Ropidoxuridine</em></font></div>
    <div>&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font id="TAB1" style="MARGIN-LEFT: 18pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      have
      exclusive, worldwide rights to two issued U.S. patents to ropidoxuridine
      pursuant to our license agreement with Yale University and the State University
      of New York. One of the issued patents covers a composition of matter and
      expires in January 2007. The other issued patent, directed to methods of use,
      is
      currently expired due to an unintentionally delayed payment of a maintenance
      fee
      with the U.S. Patent and Trademark Office. A petition has been filed with the
      U.S. Patent &amp; Trademark Office, which, if granted, will reinstate the
      patent. Upon reinstatement, the patent would be scheduled to expire in 2015.
      In
      addition, in 2006, we have filed two U.S. provisional patent applications
      directed primarily to particular methods of use of ropodoxuridine. If any U.S.
      patent claiming priority to one or both of these provisional patent applications
      issues, such a patent would be scheduled to expire in 2026 or 2027.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Other
      Intellectual Property Rights</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 18pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      also
      depend upon trademarks, trade secrets, know-how and continuing technological
      advances to develop and maintain our competitive position. To maintain the
      confidentiality of trade secrets and proprietary information, we require our
      employees, scientific advisors, consultants and collaborators, upon commencement
      of a relationship with us, to execute confidentiality agreements and, in the
      case of parties other than our research and development collaborators, to agree
      to assign their inventions to us. These agreements are designed to protect
      our
      proprietary information and to grant us ownership of technologies that are
      developed in connection with their relationship with us. These agreements may
      not, however, provide protection for our trade secrets in the event of
      unauthorized disclosure of such information.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      addition to patent protection, we may utilize orphan drug regulations to provide
      market exclusivity for certain of our product candidates. The orphan drug
      regulations of the FDA provide incentives to pharmaceutical and biotechnology
      companies to develop and manufacture drugs for the treatment of rare diseases,
      currently defined as diseases that exist in fewer than 200,000 individuals
      in
      the United States, or, diseases that affect more than 200,000 individuals in
      the
      United States but that the sponsor does not realistically anticipate will
      generate a net profit. Under these provisions, a manufacturer of a designated
      orphan drug can seek tax benefits, and the holder of the first FDA approval
      of a
      designated orphan product will be granted a seven-year period of marketing
      exclusivity for such FDA-approved orphan product. We believe that certain of
      the
      indications for our product candidates will be eligible for orphan drug
      designation; however, we cannot assure you that our drugs will obtain such
      orphan drug designation or will be the first to reach the market and provide
      us
      with such market exclusivity protection.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Government
      Regulation and Product Approval</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      FDA
      and comparable regulatory agencies in state and local jurisdictions and in
      foreign countries impose substantial requirements upon the </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">testing
      (preclinical and clinical), manufacturing, labeling, storage, recordkeeping,
      advertising, promotion, import, export, marketing and distribution, among other
      things,</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      of drugs
      and drug product candidates. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">If
      we do not comply with applicable requirements, we may be fined, the government
      may refuse to approve our marketing applications or allow us to manufacture
      or
      market our products, and we may be criminally prosecuted. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">We
      and our manufacturers may also be subject to regulations under other United
      States federal, state, and local laws. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 27pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>United
      States Government Regulation </em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      the
      United States, the FDA regulates drugs under the FDCA and implementing
      regulations. The process required by the FDA before our drug candidates may
      be
      marketed in the United States generally involves the following (although the
      FDA
      is given wide discretion to impose different or more stringent requirements
      on a
      case-by-case basis): </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
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            </td>
            <td align="left" style="width: 18pt;"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></td>
            <td align="left">
              <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">completion
                of extensive preclinical laboratory tests, preclinical animal studies
                and
                formulation studies, all performed in accordance with the FDA&#8217;s good
                laboratory practice regulations and other
                regulations;</font></div>
            </td>
          </tr>

      </table>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">

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            <td style="width: 27pt;">
            </td>
            <td align="left" style="width: 18pt;"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></td>
            <td align="left">
              <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">submission
                to the FDA of an IND application which must become effective before
                clinical trials may begin;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">

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            <td style="width: 27pt;">
            </td>
            <td align="left" style="width: 18pt;"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></td>
            <td align="left">
              <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">performance
                of multiple adequate and well-controlled clinical trials meeting
                FDA
                requirements to establish the safety and efficacy of the product
                candidate
                for each proposed indication;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
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        <div id="GLFTR" style="WIDTH: 100%" align="left">
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      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">19</font></div>
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          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
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          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 27pt;">
            </td>
            <td align="left" style="width: 18pt;"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></td>
            <td align="left">
              <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">submission
                of an NDA to the FDA;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 27pt;">
            </td>
            <td align="left" style="width: 18pt;"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></td>
            <td align="left">
              <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">satisfactory
                completion of an FDA pre-approval inspection of the manufacturing
                facilities at which the product candidate is produced, and potentially
                other involved facilities as well, to assess compliance with current
                good
                manufacturing practice, or cGMP, regulations and other applicable
                regulations; and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 27pt;">
            </td>
            <td align="left" style="width: 18pt;"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></td>
            <td align="left">
              <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
                FDA review and approval of the NDA prior to any commercial marketing,
                sale
                or shipment of the drug.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      testing and approval process requires substantial time, effort and financial
      resources, and we cannot be certain that any approvals for our drug candidates
      will be granted on a timely basis, if at all. Risks to us related to these
      regulations are described on pages S-11 through S-17 of this prospectus
      supplement.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      Preclinical tests may include laboratory evaluation of product chemistry,
      formulation and stability, as well as studies to evaluate toxicity and other
      effects in animals. The results of preclinical tests, together with
      manufacturing information and analytical data, among other information, are
      submitted to the FDA as part of an IND application. Subject to certain
      exceptions, an IND becomes effective 30&#160;days after receipt by the FDA,
      unless the FDA, within the 30-day time period, issues a clinical hold to delay
      a
      proposed clinical investigation due to concerns or questions about the conduct
      of the clinical trial, including concerns that human research subjects will
      be
      exposed to unreasonable health risks. In such a case, the IND sponsor and the
      FDA must resolve any outstanding concerns before the clinical trial can begin.
      Our submission of an IND, or those of our collaboration partners, may not result
      in the FDA authorization to commence a clinical trial. A separate submission
      to
      an existing IND must also be made for each successive clinical trial conducted
      during product development. The FDA must also approve changes to an existing
      IND. Further, an independent institutional review board, or IRB, for each
      medical center proposing to conduct the clinical trial must review and approve
      the plan for any clinical trial before it commences at that center and it must
      monitor the study until completed. The FDA, the IRB or the sponsor may suspend
      a
      clinical trial at any time on various grounds, including a finding that the
      subjects or patients are being exposed to an unacceptable health risk. Clinical
      testing also must satisfy extensive Good Clinical Practice requirements and
      regulations for informed consent.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 27pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Clinical
      Trials </em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">For
      purposes of NDA submission and approval, clinical trials are typically conducted
      in the following three sequential phases, which may overlap (although additional
      or different trials may be required by the FDA as well): </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 27pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Phase&#160;I
                clinical trials </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">are
                initially conducted in a limited population to test the drug candidate
                for
                safety, dose tolerance, absorption, metabolism, distribution and
                excretion
                in healthy humans or, on occasion, in patients, such as cancer patients.
                In some cases, particularly in cancer trials, a sponsor may decide
                to
                conduct what is referred to as a &#8220;Phase&#160;Ib&#8221; evaluation, which is a
                second safety-focused Phase&#160;I clinical trial typically designed to
                evaluate the impact of the drug candidate in combination with currently
                FDA-approved drugs. </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 27pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Phase&#160;II
                clinical trials </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">are
                generally conducted in a limited patient population to identify possible
                adverse effects and safety risks, to determine the efficacy of the
                drug
                candidate for specific targeted indications and to determine dose
                tolerance and optimal dosage. Multiple Phase&#160;II clinical trials may
                be conducted by the sponsor to obtain information prior to beginning
                larger and more expensive Phase&#160;III clinical trials. In some cases, a
                sponsor may decide to conduct what is referred to as a &#8220;Phase&#160;IIb&#8221;
                evaluation, which is a second, confirmatory Phase&#160;II clinical trial
                that could, if positive and accepted by the FDA, serve as a pivotal
                clinical trial in the approval of a drug candidate.
                </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 27pt;">&#160;</td>
            <td style="width: 18pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Phase&#160;III
                clinical trials </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">are
                commonly referred to as pivotal trials. When Phase&#160;II clinical trials
                demonstrate that a dose range of the drug candidate is effective
                and has
                an acceptable safety profile, Phase&#160;III clinical trials are
                undertaken in large patient populations to further evaluate dosage,
                to
                provide substantial evidence of clinical efficacy and to further
                test for
                safety in an expanded and diverse patient population at multiple,
                geographically dispersed clinical trial sites.
</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      some
      cases, the FDA may condition continued approval of an NDA on the sponsor&#8217;s
      agreement to conduct additional clinical trials with due diligence. In other
      cases, the sponsor and the FDA may agree that additional safety and/or efficacy
      data should be provided; however, continued approval of the NDA may not always
      depend on timely submission of such information. Such post-approval studies
      are
      typically referred to as Phase&#160;IV studies. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
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        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">20</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 27pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>New
      Drug Application </em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      results of drug candidate development, preclinical testing and clinical
      trials</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">,
      together with, among other things, detailed information on the manufacture
      and
      composition of the product and proposed labeling, </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">and
      the
</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">payment
      of a user fee,</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      are
      submitted to the FDA as part of an NDA. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">The
      FDA reviews all NDAs submitted before it accepts them for filing and may request
      additional information rather than accepting an NDA for filing. Once an NDA
      is
      accepted for filing, the FDA begins an in-depth review of the
      application.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">During
      its review of an NDA, the FDA may refer the application to an advisory committee
      for review, evaluation and recommendation as to whether the application should
      be approved. The FDA may </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">refuse
      to approve an NDA and issue a not approvable letter </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">if
      the
      applicable regulatory criteria are not satisfied, or it may require additional
      clinical or other data, including one or more additional pivotal Phase&#160;III
      clinical trials. Even if such data are submitted, the FDA may ultimately decide
      that the NDA does not satisfy the criteria for approval. Data from clinical
      trials are not always conclusive and the FDA may interpret data differently
      than
      we or our collaboration partners interpret data. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">If
      the FDA&#8217;s evaluations of the NDA and the clinical and manufacturing procedures
      and facilities are favorable, the FDA may issue either an approval letter or
      an
      approvable letter, which contains the conditions that must be met in order
      to
      secure final approval of the NDA. If and when those conditions have been met
      to
      the FDA&#8217;s satisfaction, the FDA will issue an approval letter, authorizing
      commercial marketing of the drug for certain indications. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      FDA
      may withdraw drug approval if ongoing regulatory requirements are not met or
      if
      safety problems occur after the drug reaches the market. In addition, the FDA
      may require testing, including Phase&#160;IV clinical trials, and surveillance
      programs to monitor the effect of approved products that have been
      commercialized, and the FDA has the power to prevent or limit further marketing
      of a drug based on the results of these post-marketing programs. Drugs may
      be
      marketed only for the FDA-approved indications and in accordance with the
      FDA-approved label. Further, if there are any modifications to the drug,
      including changes in indications, other labeling changes, or manufacturing
      processes or facilities, we may be required to submit and obtain FDA approval
      of
      a new NDA or NDA supplement, which may require us to develop additional data
      or
      conduct additional preclinical studies and clinical trials. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Section&#160;505(b)(2)
      New Drug Applications</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">As
      an alternate path to FDA approval of, for example, new indications or improved
      formulations of previously-approved products, under certain circumstances a
      company may submit a Section&#160;505(b)(2) NDA, instead of a &#8220;stand-alone&#8221; or
&#8220;full&#8221; 505(b)(1) NDA. Section&#160;505(b)(2) of the FDCA was enacted as part of
      the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise
      known as the Hatch-Waxman Act. Section&#160;505(b)(2) permits the submission of
      an NDA where at least some of the information required for approval comes from
      studies not conducted by or for the applicant and for which the applicant has
      not obtained a right of reference. For example, the Hatch-Waxman Act permits
      an
      applicant to rely upon the FDA&#8217;s findings of safety and effectiveness for an
      approved product. The FDA may also require companies to perform one or more
      additional studies or measurements to support the change from the approved
      product. The FDA may then approve the new formulation for all or some of the
      label indications for which the referenced product has been approved, or a
      new
      indication sought by the Section&#160;505(b)(2) applicant. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">&#160;&#160;&#160;&#160;&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">To
      the extent that the Section&#160;505(b)(2) applicant is relying on the FDA&#8217;s
      findings for an already-approved product, the applicant is required to certify
      to the FDA concerning any patents listed for the approved product in the FDA&#8217;s
      Orange Book publication. Specifically, the applicant must certify that:
      (1)&#160;the required patent information has not been filed (paragraph I
      certification); (2)&#160;the listed patent has expired (paragraph II
      certification); (3)&#160;the listed patent has not expired, but will expire on a
      particular date and approval is sought after patent expiration (paragraph III
      certification); or (4)&#160;the listed patent is invalid or will not be
      infringed by the manufacture, use or sale of the new product (paragraph IV
      certification). If the applicant does not challenge the listed patents, the
      Section&#160;505(b)(2) application will not be approved until all the listed
      patents claiming the referenced product have expired, and once any pediatric
      exclusivity expires. The Section&#160;505(b)(2) application may also not be
      approved until any non-patent </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">exclusivity,
      such as exclusivity for obtaining approval of a new chemical entity, listed
      in
      the Orange Book for the referenced product has expired. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">If
      the applicant has provided a paragraph&#160;IV certification to the FDA, the
      applicant must also send notice of the paragraph&#160;IV certification to the
      NDA holder and patent owner once the NDA has been accepted for filing by the
      FDA. The NDA holder and patent owner may then initiate a legal challenge to
      the
      paragraph&#160;IV certification. The filing of a patent infringement lawsuit
      within 45&#160;days of their receipt of a paragraph&#160;IV certification
      automatically prevents the FDA from approving the Section&#160;505(b)(2) NDA
      until the earliest of 30&#160;months, expiration of the patent, settlement of
      the lawsuit or a decision in an infringement case that is favorable to the
      Section&#160;505(b)(2) applicant. Thus, a Section&#160;505(b)(2) applicant may
      invest a significant amount of time and expense in the development of its
      products only to be subject to significant delay and patent litigation before
      its products may be commercialized. Alternatively, if the NDA holder or patent
      owner does not file a patent infringement lawsuit within the required 45-day
      period, the applicant&#8217;s NDA will not be subject to the 30-month stay.
</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br>
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            <hr style="COLOR: black" noshade size="2">
          </div>
        </div>
        <div id="HDR">
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      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Notwithstanding
      the approval of many products by the FDA pursuant to Section&#160;505(b)(2),
      over the last few years, certain brand-name pharmaceutical companies and others
      have objected to the FDA&#8217;s interpretation of Section&#160;505(b)(2). If the FDA
      changes its interpretation of Section&#160;505(b)(2), this could delay or even
      prevent the FDA from approving any Section&#160;505(b)(2) NDA that we submit.
</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      intend
      to submit a Section 505(b)(2) NDA for Zensana in the second quarter of 2006.
      The
      safety and efficacy of the drug will be based on a demonstration of the
      bioequivalence of Zensana to oral ondansetron, marketed under the tradename
      Zofran. This Zofran formulation is protected by two unexpired patents, one
      of
      which will expire in June 2006, and that is subject to a period of pediatric
      exclusivity expiring in December 2006. The second patent is scheduled to expire
      in September 2011, and is subject to a period of pediatric exclusivity expiring
      in March 2012. We anticipate that our Section 505(b)(2) NDA will contain a
      paragraph III certification acknowledging that the first patent will expire
      in
      December 2006, and a paragraph IV certification to the second patent. Based
      on
      the paragraph IV certification, it is possible that the NDA holder or the patent
      owner will sue us for patent infringement, and that </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">the
      FDA will be prevented from approving our application until the earliest of
      30&#160;months, settlement of the lawsuit, or a decision in an infringement case
      that is favorable to us.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>The
      Hatch-Waxman Act</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Under
      the Hatch-Waxman Act, newly-approved drugs and new conditions of use may benefit
      from a statutory period of non-patent marketing exclusivity. The Hatch-Waxman
      Act provides five-year marketing exclusivity to the first applicant to gain
      approval of an NDA for a new chemical entity, meaning that the FDA has not
      previously approved any other new drug containing the same active entity. The
      Hatch-Waxman Act prohibits the submission of an abbreviated NDA, or ANDA, or
      a
      Section&#160;505(b)(2) NDA for another version of such drug during the five-year
      exclusive period; however, submission of a Section&#160;505(b)(2) NDA or an ANDA
      for a generic version of a previously-approved drug containing a
      paragraph&#160;IV certification is permitted after four years, which may trigger
      a 30-month stay of approval of the ANDA or Section&#160;505(b)(2) NDA.
      Protection under the Hatch-Waxman Act does not prevent the submission or
      approval of another &#8220;full&#8221; 505(b)(1) NDA; however, the applicant would be
      required to conduct its own preclinical and adequate and well-controlled
      clinical trials to demonstrate safety and effectiveness. The Hatch-Waxman Act
      also provides three years of marketing exclusivity for the approval of new
      and
      supplemental NDAs, including Section&#160;505(b)(2) NDAs, for, among other
      things, new indications, dosages, or strengths of an existing drug, if new
      clinical investigations that were conducted or sponsored by the applicant are
      essential to the approval of the application. Some of our product candidates
      may
      qualify for Hatch-Waxman non-patent marketing exclusivity.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">In
      addition to non-patent marketing exclusivity, the Hatch-Waxman Act amended
      the
      FDCA to </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">require
      each NDA sponsor to submit with its application information on any patent that
      claims the drug for which the applicant submitted the NDA or that claims a
      method of using such drug and with respect to which a claim of patent
      infringement could reasonably be asserted if a person not licensed by the owner
      engaged in the manufacture, use, or sale of the drug. Generic applicants that
      wish to rely on the approval of a drug listed in the Orange Book must certify
      to
      each listed patent, as discussed above. We intend to submit for Orange Book
      listing all relevant patents for our product candidates.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Finally,
      </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">the
      Hatch-Waxman Act amended the patent laws so that </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">certain
      patents related to products regulated by the FDA are eligible for a patent
      term
      extension if patent life was lost during a period when the product was
      undergoing regulatory review, and if certain criteria are met. We intend to
      seek
      patent term extensions, provided our patents and products, if they are approved,
      meet applicable eligibility requirements. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Pediatric
      Studies and Exclusivity </em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">The
      FDCA provides an additional six months of non-patent marketing exclusivity
      and
      patent protection for any such protections listed in the Orange Book for new
      or
      marketed drugs if a sponsor conducts specific pediatric studies at the written
      request of the FDA. The Pediatric Research Equity Act of 2003, or PREA,
      authorizes the FDA to require pediatric studies for drugs to ensure the drugs&#8217;
safety and efficacy in children. PREA requires that certain new NDAs or NDA
      supplements contain data assessing the safety and effectiveness for the claimed
      indication in all relevant pediatric subpopulations. Dosing and administration
      must be supported for each pediatric subpopulation for which the drug is safe
      and effective. The FDA may also require this data for approved drugs that are
      used in pediatric patients for the labeled indication, or where there may be
      therapeutic benefits over existing products. The FDA may grant deferrals for
      submission of data, or full or partial waivers from PREA. PREA pediatric
      assessments may qualify for pediatric exclusivity. Unless otherwise required
      by
      regulation, PREA does not apply to any drug for an indication with orphan
      designation. We intend to seek a PREA deferral for any pediatric age groups
      that
      might not be covered by the Zensana approval, but for which the FDA requires
      a
      pediatric assessment. We may also seek pediatric exclusivity for conducting
      any
      required pediatric assessments. </font></div>
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          <hr style="COLOR: black" noshade size="2">
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    </div><br>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Orphan
      Drug Designation and Exclusivity</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      FDA
      may grant orphan drug designation to drugs intended to treat a rare disease
      or
      condition, which generally is a disease or condition that affects fewer than
      200,000 individuals in the United States. Orphan drug designation must be
      requested before submitting an NDA. If the FDA grants orphan drug designation,
      which it may not, the identity of the therapeutic agent and its potential orphan
      use are publicly disclosed by the FDA. Orphan drug designation does not convey
      an advantage in, or shorten the duration of, the review and approval process.
      If
      a product which has an orphan drug designation subsequently receives the first
      FDA approval for the indication for which it has such designation, the product
      is entitled to seven years of orphan drug exclusivity, meaning that the FDA
      may
      not approve any other applications to market the same drug for the same
      indication for a period of seven years, </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">except
      in limited </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">circumstances,
      such as a showing of clinical superiority to the product with orphan exclusivity
      (superior efficacy, safety, or a major contribution to patient care). Orphan
      drug designation does not prevent competitors from developing or marketing
      different drugs for that indication. The FDA granted our applications for orphan
      </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">drug
      designation for Talotrexin for ALL</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman"><strong>&#160;</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">in
      May 2006, and for ropidoxuridine for gioblastoma in June 2006.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Under
      European Union medicines laws, the criteria for designating a product as an
      &#8220;orphan medicine&#8221; are similar but somewhat different from those in the United
      States. A drug is designated as an orphan drug if the sponsor can establish
      that
      the drug is intended for a life-threatening or chronically debilitating
      condition affecting no more than five in 10,000 persons in the European Union
      or
      that is unlikely to be profitable, and if there is no approved satisfactory
      treatment or if the drug would be a significant benefit to those persons with
      the condition. Orphan medicines are entitled to ten years of marketing
      exclusivity, except under certain limited circumstances comparable to United
      States&#160;law. During this period of marketing exclusivity, no &#8220;similar&#8221;
product, whether or not supported by full safety and efficacy data, will be
      approved unless a second applicant can establish that its product is safer,
      more
      effective or otherwise clinically superior. This period may be reduced to six
      years if the conditions that originally justified orphan designation change
      or
      the sponsor makes excessive profits.</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 27pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Fast
      Track Designation </em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      FDA&#8217;s
      fast track program is intended to facilitate the development and to expedite
      the
      review of drugs that are intended for the treatment of a serious or
      life-threatening condition and that demonstrate the potential to address unmet
      medical needs. Under the fast track program, </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">applicants
      may seek traditional approval for a product based on data demonstrating an
      effect on a clinically meaningful endpoint, or approval based on a
      well-established surrogate endpoint.&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      sponsor of a new drug candidate may request the FDA to designate the drug
      candidate for a specific indication as a fast track drug </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">at
      the time of original submission of its IND, or at any time thereafter prior
      to
      receiving marketing approval of a marketing application</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.
      The FDA
      will determine if the drug candidate qualifies for fast track designation within
      60&#160;days of receipt of the sponsor&#8217;s request. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">If
      the
      FDA grants fast track designation, it may initiate review of sections of an
      NDA
      before the application is complete. This so-called &#8220;rolling review&#8221; is available
      if the applicant provides and the FDA approves a schedule for the submission
      of
      the remaining information and the applicant has paid applicable user fees.
      The
      FDA&#8217;s PDUFA review clock for both a standard and priority NDA for a fast track
      product does not begin until the complete application is submitted.
      Additionally, fast track designation may be withdrawn by the FDA if it believes
      that the designation is no longer supported by emerging data, </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">or
      if the designated drug development program is no longer being
      pursued.</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;In
      some cases, a fast track designated drug candidate may also qualify for one
      or
      more of the following programs: </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">

          <tr valign="top" style="line-height: 1.25;">
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            </td>
            <td align="left" style="width: 18pt;"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></td>
            <td align="left">
              <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Priority
                Review.</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;As
                explained above, a drug candidate may be eligible for a six-month
                priority
                review. The FDA assigns priority review status to an application
                if the
                drug candidate provides a significant improvement compared to marketed
                drugs in the treatment, diagnosis or prevention of a disease. A fast
                track
                drug would ordinarily meet the FDA&#8217;s criteria for priority review, but may
                also be assigned a standard review. We do not know whether any of
                our drug
                candidates will be assigned priority review status or, if priority
                review
                status is assigned, whether that review or approval will be faster
                than
                conventional FDA procedures, or that the FDA will ultimately approve
                the
                drug. </font></div>
            </td>
          </tr>

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    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
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        </div>
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          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 18pt;">
            </td>
            <td align="left" style="width: 18pt;"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;</font></td>
            <td align="left">
              <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Accelerated
                Approval.</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;&#160;Under
                the FDA&#8217;s accelerated approval regulations, the FDA is authorized to
                approve drug candidates that have been studied for their safety and
                efficacy in treating serious or life-threatening illnesses and that
                provide meaningful therapeutic benefit to patients over existing
                treatments based upon either a surrogate endpoint that is reasonably
                likely to predict clinical benefit or on the basis of an effect on
                a
                clinical endpoint other than patient survival or irreversible morbidity.
                In clinical trials, surrogate endpoints are alternative measurements
                of
                the symptoms of a disease or condition that are substituted for
                measurements of observable clinical symptoms. A drug candidate approved
                on
                this basis is subject to rigorous post-marketing compliance requirements,
                including the completion of Phase&#160;IV or post-approval clinical trials
                to validate the surrogate endpoint or confirm the effect on the clinical
                endpoint. Failure to conduct required post-approval studies with
                due
                diligence, or to validate a surrogate endpoint or confirm a clinical
                benefit during post-marketing studies, may cause the FDA to seek
                to
                withdraw the drug from the market on an expedited basis. All promotional
                materials for drug candidates approved under accelerated regulations
                are
                subject to prior review by the FDA.
</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">When
      appropriate, we and our collaboration partners intend to seek fast track
      designation, accelerated approval or priority review for our drug candidates.
      We
      cannot predict whether any of our drug candidates will obtain fast track,
      accelerated approval, or priority review designation, or the ultimate impact,
      if
      any, of these expedited review mechanisms on the timing or likelihood of the
      FDA
      approval of any of our drug candidates. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Satisfaction
      of the FDA regulations and approval requirements or similar requirements of
      foreign regulatory agencies typically takes several years, and the actual time
      required may vary substantially based upon the type, complexity and novelty
      of
      the product or disease. Typically, if a drug candidate is intended to treat a
      chronic disease, as is the case with some of the drug candidates we are
      developing, safety and efficacy data must be gathered over an extended period
      of
      time. Government regulation may delay or prevent marketing of drug candidates
      for a considerable period of time and impose costly procedures upon our
      activities. The FDA or any other regulatory agency may not grant approvals
      for
      changes in dosage form or new indications for our drug candidates on a timely
      basis, or at all. Even if a drug candidate receives regulatory approval, the
      approval may be significantly limited to specific disease states, patient
      populations and dosages. Further, even after regulatory approval is obtained,
      later discovery of previously unknown problems with a drug may result in
      restrictions on the drug or even complete withdrawal of the drug from the
      market. Delays in obtaining, or failures to obtain, regulatory approvals for
      any
      of our drug candidates would harm our business. In addition, we cannot predict
      what adverse governmental regulations may arise from future United States or
      foreign governmental action. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Special
      Protocol Assessment</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">The
      FDCA directs the FDA to meet with sponsors, pursuant to a sponsor&#8217;s written
      request, for the purpose of reaching agreement on the design and size of
      clinical trials intended to form the primary basis of an efficacy claim in
      an
      NDA. If an agreement is reached, the FDA will reduce the agreement to writing
      and make it part of the administrative record. This agreement is called a
      special protocol assessment, or SPA. W</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">hile
      the
      FDA&#8217;s guidance on SPAs states that documented SPAs should be considered binding
      on the review division, the FDA has the latitude to change its assessment if
      certain exceptions apply. Exceptions include identification of a substantial
      scientific issue essential to safety or efficacy testing that later comes to
      light, a sponsor&#8217;s failure to follow the protocol agreed upon, or the FDA&#8217;s
      reliance on data, assumptions or information that are determined to be wrong.
      We
      intend to pursue an SPA prior to the initiation of our Phase III clinical trial
      for Marqibo. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">24</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
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        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div><br>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Other
      Regulatory Requirements </em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Any
      drugs
      manufactured or distributed by us or our collaboration partners pursuant to
      future FDA approvals are subject to continuing regulation by the FDA, including
      recordkeeping requirements and reporting of adverse experiences associated
      with
      the drug. Drug manufacturers and their subcontractors are required to register
      with the FDA and certain state agencies, and are subject to periodic unannounced
      inspections by the FDA and certain state agencies for compliance with ongoing
      regulatory requirements, including cGMP, which impose certain procedural and
      documentation requirements upon us and our third-party manufacturers. Failure
      to
      comply with the statutory and regulatory requirements can subject a manufacturer
      to possible legal or regulatory action, such as warning letters, suspension
      of
      manufacturing, sales or use, seizure of product, injunctive action or possible
      civil penalties. We cannot be certain that we or our present or future
      third-party manufacturers or suppliers will be able to comply with the cGMP
      regulations and other ongoing FDA regulatory requirements. If our present or
      future third-party manufacturers or suppliers are not able to comply with these
      requirements, the FDA may halt our clinical trials, require us to recall a
      drug
      from distribution, or withdraw approval of the NDA for that drug. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      FDA
      closely regulates the post-approval marketing and promotion of drugs, including
      standards and regulations for direct-to-consumer advertising, off-label
      promotion, industry-sponsored scientific and educational activities and
      promotional activities involving the Internet. A company can make only those
      claims relating to safety and efficacy that are approved by the FDA. Failure
      to
      comply with these requirements can result in adverse publicity, warning and/or
      untitled letters, corrective advertising and potential civil and criminal
      penalties. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Foreign
      Regulation </em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      addition to regulations in the United States, we will be subject to a variety
      of
      foreign regulations governing clinical trials and commercial sales and
      distribution of our future products. Whether or not we obtain FDA approval
      for a
      product, we must obtain approval of a product by the comparable regulatory
      authorities of foreign countries before we can commence clinical trials or
      marketing of the product in those countries. The approval process varies from
      country to country, and the time may be longer or shorter than that required
      for
      FDA approval. The requirements governing the conduct of clinical trials, product
      licensing, pricing and reimbursement vary greatly from country to country.
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Under
      European Union regulatory systems, marketing authorizations may be submitted
      either under a centralized or mutual recognition procedure. The centralized
      procedure provides for the grant of a single marking authorization that is
      valid
      for all European Union member states. The mutual recognition procedure provides
      for mutual recognition of national approval decisions. Under this procedure,
      the
      holder of a national marking authorization may submit an application to the
      remaining member states. Within 90&#160;days of receiving the applications and
      assessment report, each member state must decide whether to recognize approval.
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      addition to regulations in Europe and the United States, we will be subject
      to a
      variety of foreign regulations governing clinical trials and commercial
      distribution of our future products. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Reimbursement</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      many
      of the markets where we intend to commercialize a product following regulatory
      approval, the prices of pharmaceutical products are subject to direct price
      controls by law and to drug reimbursement programs with varying price control
      mechanisms. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      the
      United States, there has been an increased focus on drug pricing in recent
      years. Although there are currently no direct government price controls over
      private sector purchases in the United States, federal legislation requires
      pharmaceutical manufacturers to pay prescribed rebates on certain drugs to
      enable them to be eligible for reimbursement under certain public health care
      programs such as Medicaid. Various states have adopted further mechanisms under
      Medicaid and otherwise that seek to control drug prices, including by
      disfavoring certain higher priced drugs and by seeking supplemental rebates
      from
      manufacturers. Managed care has also become a potent force in the market place
      that increases downward pressure on the prices of pharmaceutical products.
      Federal legislation, enacted in December&#160;2003, has altered the way in which
      physician-administered drugs covered by Medicare are reimbursed. Under the
      new
      reimbursement methodology, physicians are reimbursed based on a product&#8217;s
&#8220;average sales price,&#8221; or ASP. This new reimbursement methodology has generally
      led to lower reimbursement levels. The new federal legislation also has added
      an
      outpatient prescription drug benefit to Medicare, effective January&#160;2006.
      In the interim, Congress has established a discount drug card program for
      Medicare beneficiaries. Both benefits will be provided primarily through private
      entities, which will attempt to negotiate price concessions from pharmaceutical
      manufacturers. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">25</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Public
      and private health care payors control costs and influence drug pricing through
      a variety of mechanisms, including through negotiating discounts with the
      manufacturers and through the use of tiered formularies and other mechanisms
      that provide preferential access to certain drugs over others within a
      therapeutic class. Payors also set other criteria to govern the uses of a drug
      that will be deemed medically appropriate and therefore reimbursed or otherwise
      covered. In particular, many public and private health care payors limit
      reimbursement and coverage to the uses of a drug that are either approved by
      the
      FDA or that are supported by other appropriate evidence (for example, published
      medical literature) and appear in a recognized drug compendium. Drug compendia
      are publications that summarize the available medical evidence for particular
      drug products and identify which uses of a drug are supported or not supported
      by the available evidence, whether or not such uses have been approved by the
      FDA. For example, in the case of Medicare coverage for physician-administered
      oncology drugs, the Omnibus Budget Reconciliation Act of 1993, with certain
      exceptions, prohibits Medicare carriers from refusing to cover unapproved uses
      of an FDA-approved drug if the unapproved use is supported by one or more
      citations in the American Hospital Formulary Service Drug Information, the
      American Medical Association Drug Evaluations, or the U.S. Pharmacopoeia Drug
      Information. Another commonly cited compendium, for example under Medicaid,
      is
      the DRUGDEX Information System. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Different
      pricing and reimbursement schemes exist in other countries. For example, in
      the
      European Union, governments influence the price of pharmaceutical products
      through their pricing and reimbursement rules and control of national health
      care systems that fund a large part of the cost of such products to consumers.
      The approach taken varies from member state to member state. Some jurisdictions
      operate positive and/or negative list systems under which products may only
      be
      marketed once a reimbursement price has been agreed. Other member states allow
      companies to fix their own prices for medicines, but monitor and control company
      profits. The downward pressure on health care costs in general, particularly
      prescription drugs, has become very intense. As a result, increasingly high
      barriers are being erected to the entry of new products, as exemplified by
      the
      National Institute for Clinical Excellence in the UK, which evaluates the data
      supporting new medicines and passes reimbursement recommendations to the
      government. In addition, in some countries cross-border imports from low-priced
      markets (parallel imports) exert a commercial pressure on pricing within a
      country. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Competition
      </strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      compete primarily in the segment of the biopharmaceutical market that addresses
      cancer and cancer supportive care, which is highly competitive. We face
      significant competition from many pharmaceutical, biopharmaceutical and
      biotechnology companies that are researching and selling products designed
      to
      address cancer this market. Many of our competitors have significantly greater
      financial, manufacturing, marketing and drug development resources than we
      do.
      Large pharmaceutical companies in particular have extensive experience in
      clinical testing and in obtaining regulatory approvals for drugs. These
      companies also have significantly greater research capabilities than we do.
      In
      addition, many universities and private and public research institutes are
      active in cancer research. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">We
      also compete with commercial biotechnology companies for the rights to product
      candidates developed by public and private research institutes. Smaller or
      early-stage companies are also significant competitors, particularly those
      with
      collaborative arrangements with large and established companies.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      believe that our ability to successfully compete will depend on, among other
      things: </font></div>
    <ul>
      <li>
        <div style="DISPLAY: block; MARGIN: 0in 0pt 10pt 18pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; tab-stops: .75in" align="justify"><font size="2">our
          ability to develop novel compounds with
          attractive pharmaceutical properties and to secure and protect intellectual
          property rights based on our innovations; </font></div>
      </li>
      <li>
        <div style="DISPLAY: block; MARGIN: 0in 0pt 10pt 18pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; tab-stops: .75in" align="justify"><font size="2">the
          efficacy, safety and reliability of our drug
          candidates; </font></div>
      </li>
      <li>
        <div style="DISPLAY: block; MARGIN: 0in 0pt 10pt 18pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; tab-stops: .75in" align="justify"><font size="2">the
          speed at which we develop our drug candidates;
          </font></div>
      </li>
      <li>
        <div style="DISPLAY: block; MARGIN: 0in 0pt 10pt 18pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; tab-stops: .75in" align="justify"><font size="2">our
          ability to design and successfully complete
          appropriate clinical trials; </font></div>
      </li>
      <li>
        <div style="DISPLAY: block; MARGIN: 0in 0pt 10pt 18pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; tab-stops: .75in" align="justify"><font size="2">our
          ability to maintain a good relationship with
          regulatory authorities; </font></div>
      </li>
      <li>
        <div style="DISPLAY: block; MARGIN: 0in 0pt 10pt 18pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; tab-stops: .75in" align="justify"><font size="2">the
          timing and scope of regulatory approvals;&#160;
          </font></div>
      </li>
      <li>
        <div style="DISPLAY: block; MARGIN: 0in 0pt 10pt 18pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; tab-stops: .75in" align="justify"><font size="2">our
          ability to manufacture and sell commercial
          quantities of future products to the market; and </font></div>
      </li>
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        <div style="DISPLAY: block; MARGIN: 0in 0pt 10pt 18pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; tab-stops: .75in" align="justify"><font size="2">acceptance
          of future products by physicians and
          other healthcare providers.</font></div>
      </li>
    </ul>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Zensana
      </em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Currently
      there are four marketed antiemetic compounds which account for approximately
      $2.0 billion in sales in the United States in 2005. Zofran, marketed by
      GlaxoSmithKline, is the market leader with approximately $1.5 billion in sales
      in the United States in 2005, according to IMS. Zofran&#8217;s patent and pediatric
      exclusivity period expires in December 2006 in the United States for the oral
      tablet and intravenous formulations. Kytril&#174; (granisetron), Anzemet&#174;
(dolasetron), and Aloxi&#174; (palonosetron), are the other major antiemetic
      compounds that Zensana will compete with. There are several generic ondansetron
      formulations currently in development in the United States. The FDA has
      tentatively approved several generic applications, with final approval dependent
      on ongoing patent infringement litigation or the expiration of remaining
      marketing exclusivities. Most of these formulations use the generic form of
      ondansetron, granisetron (the active ingredient in Kytril). We are not aware
      of
      any version of ondansetron that is being developed as an oral
      spray.</font></div>
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      </em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">If
      approved, Marqibo is expected to compete with unencapsulated vincristine, which
      is generic. Marqibo will also compete with other cytotoxic agents such as
      antimetabolites, alkylating agents, cytotoxic antibiotics, vinca alkyloids,
      platinum compounds and taxanes. In addition, Marqibo will compete with other
      cytotoxic agents that use different encapsulation technologies. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Talotrexin
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">If
      approved, Talotrexin is an antifolate, a class of cytotoxic or antineoplastic
      agents. Antifolates have been used clinically for more than 30 years to treat
      both solid and hematological cancers. Talotrexin is expected to compete against
      established generic antifolates, such as methotrexate, as well as new classes
      that are in development. Most notably, Alimta (pemetrexed), an antifolate
      developed by Eli Lilly, was granted accelerated approval as a single agent
      to
      treat locally advanced or metastatic non-small cell lung cancer that is
      refractory to chemotherapy in August 2004. Eli Lilly &amp; Co. reported sales of
      Alimta in 2005 were $463.2 million.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">If
      approved, Talotrexin is also expected to compete with other cytotoxic, or
      anticancer, therapies such as antimetabolites, alkylating agents, cytotoxic
      antibiotics, vinca alkaloids, platinum compounds, and taxanes. Since there
      is a
      considerable amount of overlap in their mechanisms of action, the choice of
      a
      particular agent or group of agents is generally not a consequence of a prior
      prediction of antitumor activity by the drug, but instead the result of
      empirical clinical trials.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 27pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Ropidoxuridine
      (IPdR)</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Chemoradiotherapy
      using fluorouracil, or FU, has been used since the 1960s in radical and adjuvant
      treatment programs. In 2002, two million patients worldwide were treated with
      FU. If approved, Ropidoxuridine is expected to compete with generic
      radiosensitizers such as FU, as well as with novel radiosensitizers in clinical
      development, most notably Efaproxyn&#8482;, being developed by Allos Therapeutics,
      Inc., and Xcytrin&#174;, being developed by Pharmacyclics, Inc., both of which are in
      late stage clinical trials.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Facilities</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 45pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      executive offices are located at 400 Oyster Point Blvd., Suite 215, South San
      Francisco, California 94080. We currently occupy this space, which consists
      of
      approximately 6,000 square feet of office space. Our lease expires on December
      31, 2006. We are currently seeking a larger facility for our executive offices,
      which we expect to occupy following the expiration of our current office lease.
      We believe that our existing facilities are adequate to meet our requirements
      through the end of 2006.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Employees</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As
      of
      April 30, 2006, we had 19 full-time employees. Of such employees, 14
      people</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>&#160;</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">were
      engaged in clinical and product development and 5 were engaged in sales, general
      administration and management. We believe our relations with our employees
      are
      good.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
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        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">27</font></div>
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        </div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Legal
      Proceedings</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">From
      time
      to time, we may become involved in litigation relating to claims arising out
      of
      our operations. We are not currently involved in any material legal
      proceedings.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned hereunto
      duly authorized.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
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          <tr valign="top" bgcolor="#ffffff">
            <td width="50%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
            <td width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
            <td width="49%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Hana
                Biosciences, Inc.</font></div>
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          </tr>
          <tr valign="top" bgcolor="#ffffff">
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;<br>&#160;</font></td>
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;<br>&#160;</font></td>
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;<br>&#160;</font></td>
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          <tr valign="top" bgcolor="#ffffff">
            <td>
              <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Date:
                June&#160;16, 2006</font></div>
            </td>
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">By:&#160;&#160;</font></td>
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">/s/&#160;<font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">John
              P. Iparraguirre</font></font></td>
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            <td align="left">
              <hr style="COLOR: black" align="left" noshade size="2" width="80%">
              <div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">John
                P. Iparraguirre </font></div>
              <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Vice
                President, Chief Financial Officer</font></div>
            </td>
          </tr>
          <tr valign="top" bgcolor="#ffffff">
            <td colspan="2"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
            <td>&#160;</td>
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{"company-data": {"conformed-name": "Hana Biosciences Inc", "cik": "0001140028", "assigned-sic": "2834", "irs-number": "841588441", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-32626", "film-number": "06912968"}, "business-address": {"street1": "400 OYSTER POINT BOULEVARD", "street2": "SUITE 215", "city": "SOUTH SAN FRANCISCO", "state": "CA", "zip": "94080", "phone": "6505886404"}, "mail-address": {"street1": "400 OYSTER POINT BOULEVARD", "street2": "SUITE 215", "city": "SOUTH SAN FRANCISCO", "state": "CA", "zip": "94080"}, "former-company": {"former-conformed-name": "EMAIL REAL ESTATE COM INC", "date-changed": "20010504"}}
Unassociated Document
UNITED
      STATES
SECURITIES
      AND EXCHANGE COMMISSION
WASHINGTON,
      D.C. 20549
FORM
      8-K
CURRENT
      REPORT
PURSUANT
      TO SECTION 13 OR 15(
d
)
      OF
THE
      SECURITIES EXCHANGE ACT OF 1934
Date
      of
      Report (Date of earliest event reported): June 16, 2006
Hana
      Biosciences, Inc.
(Exact
      name of registrant as specified in its charter)
Delaware
000-50782
32-0064979
(State
                or other jurisdiction of incorporation)
(Commission
                File Number)
(IRS
                Employer
Identification
                No.)
400
                Oyster Point Blvd., Suite 215, South San Francisco,
                CA
94080
(Address
                of principal executive offices)
(Zip
                Code)
(650)
                588-6404
(Registrant's
                telephone number, including area code)
(Former
      name or former address, if changed since last report)
Check
      the
      appropriate box below if the Form 8-K filing is intended to simultaneously
      satisfy the filing obligation of the registrant under any of the following
      provisions:
[
 ]
      Written communications pursuant to Rule 425 under the Securities Act (17 CFR
      230.425)
[
 ]
      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
      240.14a-12)
[ 
]
      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
      Act
      (17 CFR 240.14d-2(b))
[ 
]
      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
      Act
      (17 CFR 240.13e-4(c))
Item
      8.01. Other Information
The
      following description of the business of Hana Biosciences, inc. (the "Company")
      has been updated from the description set forth in the Company's Annual Report
      on Form 10-K for the year ended December 31, 2006 in order to reflect the
      completion of the Company's licensing transaction with Inex Pharmaceuticals
      Corporation in May 2006, which was previously disclosed in the Company's Current
      Report on Form 8-K filed with the Securities and Exchange Commission on May
      11,
      2006. The description set forth below is subject to and should be read in
      conjunction with all of the risks and uncertainties identified under Item 1A
      of
      Part II of the Company's Quarterly Report on Form 10-Q for the quarter ended
      March 31, 2006. References to "we," "us," and "our" refer to the
      Company.
Business
      Overview
We are
        a
        South San Francisco, California-based biopharmaceutical company focused on
        acquiring, developing, and commercializing innovative products to advance
        cancer
        care.  We seek to license novel, late preclinical and early clinical
        oncology product candidates, primarily from academia and research institutes,
        in
        order to accelerate clinical development and time to
        commercialization.   <?xml:namespace prefix = o ns =
        "urn:schemas-microsoft-com:office:office" />
We currently
        have four product candidates in clinical development:
Zensana
            (ondansetron HCI) Oral Spray, or Zensana, being developed to alleviate
            chemotherapy- and radiation-induced and post-operative nausea and vomiting;
Marqibo
            (vincristine sulfate) Liposomes Injection, or Marqibo, a liposomal formulation
            of the FDA-approved cancer drug vincristine, being developed for the
            treatment
            of non-Hodgkin's lymphoma and acute lymphocytic leukemia, or ALL;
Talotrexin
            (PT-523), which is being evaluated as a chemotherapy agent
            in the treatment of a variety of solid tumors and hematological malignancies,
            including non-small cell lung cancer, or NSCLC, ALL, and cervical and
            ovarian
            cancers; and
Ropidoxuridine
            (IPdR), a radiation sensitizer being evaluated primarily
            for the treatment of colorectal, gastric, pancreatic, liver and brain
            cancr.
The
        following table describes the status of the product candidates in our
        development pipeline:
1
1-
      Zensana
      is being developed under a 505(b)(2) registrational pathway based on a
      demonstration of bioequivalence to 8mg oral Zofran tablets. As a result,
      efficacy and safety trials in patients (Phase II and III) are not required.
      However bioequivalence and bioavailability trials have been completed and Hana
      Biosciences plans to submit an NDA in the second quarter of 2006.
·
Zensana
                (
ondansetron
                HCI) Oral Spray
-
Bioequivalent
                to 8mg Oral Zofran Tablet with Multidose Convenience and Desirable
                Route
                of Administration.
We
                believe that Zensana, which we licensed from NovaDel Pharma, Inc.
                in
                October 2004, is the only multidose oral spray product candidate
                currently
                in development which utilizes a micro mist spray technology to deliver
                full doses of ondansetron to patients experiencing chemo- and
                radiotherapy-induced nausea and vomiting. Ondansetron, a selective
                blocking agent of the hormone serotonin, is an FDA-approved drug
                that is
                commonly used in tablet form to prevent chemotherapy- and
                radiation-induced and post-operative nausea and vomiting. Many patients
                receiving chemo and radiation therapy have difficulty swallowing
                and are
                potentially unable to tolerate other forms of ondansetron and other
                therapies intended to prevent nausea and vomiting, known as antiemetics.
                We believe that the convenience of drug delivery via a spray may
                offer a
                desirable alternative to tablets and other forms of ondansetron.
                In
                addition, we believe that drug delivery via a spray to the oral mucosa
                may
                avoid degradation of the drug in the gastrointestinal tract and metabolism
                by liver enzymes. All spray pump components used in our clinical
                trials for Zensana are standard components, and with the exception
                of the
                oral applicator, are currently being used for DDAVP® Nasal Spray
                manufactured for Aventis Pharmaceuticals Inc. by Ferring AB. The
                oral
                applicator is currently being used for Lamisil® Spray marketed by Novartis
                AG. We completed certain limited clinical trials of Zensana related
                to
                bioequivalence and bioavailability in early 2006, and hope to file
                an NDA
                under Section 505(b)(2) of the Food, Drug and Cosmetic Act, or FDCA,
                in
                the second quarter of 2006. If approved by the FDA, we intend to
                commercially launch Zensana in the United States in the first half
                of
                2007.
·
Marqibo
                (vincristine sulfate) Liposomes Injection - A Novel Targeted Anti-Cancer
                Compound for Non-Hodgkin's Lymphoma and Acute Lymphocytic
                Leukemia
.
                Marqibo, which we licensed from Inex Pharmaceuticals Corporation,
                or Inex,
                in May 2006, is a novel, targeted sphingosome encapsulated formulation
                of
                the FDA-approved cancer drug vincristine.
Sphingosomal
                drug delivery consists of using an FDA-approved cancer agent (such
                as
                vincristine) encapsulated in a lipid envelope. The encapsulated agent
                is
                carried through the bloodstream and delivered to disease sites where
                it is
                released to carry out its therapeutic action.
We
                believe sphingosomal encapsulation of vincristine significantly increases
                drug delivery to tumors and provides prolonged drug exposure for
                cell-cycle specific agents. Targeted sphingosomal drugs are designed
                to
                spare healthy tissues, selectively accumulate inside the tumor, and
                sustain cytotoxic drug levels for a longer period of time at the
                tumor
                site. Therefore, we believe that Marqibo possesses a potential
                pharmacologic advantage over vincristine in terms of dose intensity
                and
                toxicity. Based on clinical trials in over 500 patients to date,
                we intend
                to request regulatory authorization to commence a Phase III clinical
                trial
                of Marqibo in hematological malignancies in the second half of
                2006.
2
·
Talotrexin
                (PT-523)
-
A
                Novel Antifolate for Solid and Hematological
                Malignancies.
Talotrexin, which we licensed from Dana-Farber Cancer Institute,
                Inc., or
                DFCI, and Ash Stevens, Inc. in December 2002, is a novel antifolate
                drug
                candidate under development for treatment of various types of tumors.
                Antifolates, also known as folic acid analogs, are a class of cytotoxic
                or
                antineoplastic agents which inhibit or prevent the maturation and
                proliferation of malignant cells. Antifolates have been used for
                more than
                30 years to treat both solid and hematological cancers such as breast
                cancer and ALL, as well as inflammatory diseases such as rheumatoid
                arthritis. Talotrexin has demonstrated enhanced antitumor activity
                in a
                broad spectrum of cancer models by targeting the enzyme DHFR to prevent
                DNA synthesis in tumor cells and inhibit tumor growth. Preclinical
                studies
                performed by the DFCI and the National Cancer Institute, or NCI,
                suggest
                that Talotrexin, as compared to methotrexate, the most widely used
                antifolate, enters into cells up to 10 times more efficiently and
                demonstrates 10- to 100-fold more potency in overcoming polyglutamation,
                a
                well-established mechanism of antifolate resistance. Talotrexin also
                binds
                more tightly to its anti-tumor target DHFR, which we believe may
                further
                inhibit tumor growth. We commenced a Phase I clinical trial in solid
                tumors in February 2005, a Phase I/II clinical trial in NSCLC in
                March
                2004, and a Phase I/II clinical trial in ALL in May
                2005.
·
Ropidoxuridine
(IPdR)
                -
Oral
                Prodrug to Enhance Radiation Therapy for Brain and Other
                Cancers.
Ropidoxuridine
,
                which we licensed from Yale University and the Research Foundation
                of
                State University of New York in February 2004, is a novel oral prodrug
                of
                the radiation sensitizer IUdR. Data from Phase II clinical trials
                performed by the NCI on IUdR suggested a potential survival advantage
                in
                patients with anaplastic astrocytoma, a type of brain tumor. Due
                to its
                toxicity profile, however, IUdR was never developed beyond Phase
                II. In
                preclinical studies conducted at Yale University and the NCI,
ropidoxuridine
suggested
                improved activity with a significantly lower toxicity profile, including
                lower gastrointestinal and hematological side effects. Preclinical
                studies
                have also demonstrated that
ropidoxuridine
has
                a dose responsive and synergistic effect when combined with radiation
                in
                human glioblastoma models. We have commenced a Phase I clinical trial
                assessing the safety, toxicity and pharmacokinetics of
ropidoxuridine
in
                patients with solid tumors undergoing radiation
                therapy.
·
Sphingosome
                Encapsulated Vinorelbine - A Novel Targeted Anti-Cancer Compound
                for
                Breast and Lung Cancer.
Sphingosome
                encapsulated vinorelbine is our proprietary formulation of vinorelbine,
                a
                microtubule inhibitor that is FDA-approved for use as a single agent
                or in
                combination with cisplatin for the first-line treatment of unresectable,
                advanced NSCLC. We obtained the rights to develop and commercialize
                sphingosome encapsulated vinorelbine from Inex in May 2006. Sphingosome
                encapsulated vinorelbine is in preclinical development and we plan
                to
                request regulatory authorization to commence Phase I clinical trials
                in
                the second half of 2006.
·
Sphingosome
                Encapsulated Topotecan - A Novel Targeted Anti-Cancer Compound for
                Small-Cell Lung Cancer and Ovarian Cancer.
Sphingosome
                encapsulated topotecan is our proprietary formulation of topotecan,
                a
                topoisomerase I inhibitor that is FDA-approved for use in relapsed
                small-cell lung cancer and in relapsed ovarian cancer. We obtained
                the
                rights to develop and commercialize sphingosome encapsulated topotecan
                from Inex in May 2006. Sphingosome encapsulated topotecan is in
                preclinical development and we plan to we expect to file an IND in
                the
                second half of 2006 and to initiate clinical trials in
                2007.
Industry
      Background and Market Opportunity
Cancer
      is a group of diseases characterized by either the uncontrolled growth of cells
      or the failure of cells to die normally. Cancer is caused by a series of
      mutations, or alterations, in genes that control cells' ability to grow and
      divide. These mutations cause cells to rapidly and continuously divide or lose
      their normal ability to die. There are more than 100 different varieties of
      cancer, which can be divided into six major categories. Carcinomas, the most
      common category, include breast, lung, colorectal and prostate cancer. Sarcomas
      begin in tissue that connects, supports or surrounds other tissues and organs.
      Lymphomas are cancers of the lymphatic system, a part of the body's immune
      system. Leukemias are cancers of blood cells, which originate in the bone
      marrow. Brain tumors are cancers that begin in the brain, and skin cancers,
      including melanomas, originate in the skin. Cancers are considered metastatic
      if
      they spread via the blood or lymphatic system to other parts of the body to
      form
      secondary tumors.
According
      to the American Cancer Society, nearly 1.4 million new cases of cancer are
      expected to be diagnosed in 2006 in the United States alone. Cancer is the
      second leading cause of death, after heart disease, in the United States, and
      is
      expected to account for more than 550,000 deaths in 2006.
Major
      cancer treatments include surgery, radiotherapy and chemotherapy. Supportive
      care, such as anti-nausea drugs, represents another major segment of the cancer
      treatment market. There are many different drugs that are used to treat cancer,
      including cytotoxics or antineoplastics, hormones and biologics. Major
      categories include:
3
·
Chemotherapy.
Cytotoxic chemotherapy refers to anticancer drugs that destroy cancer
                cells by stopping them from multiplying. Healthy cells can also be
                harmed
                with the use of cytotoxic chemotherapy, especially those that divide
                quickly. Cytotoxic agents act primarily on macromolecular synthesis,
                repair or activity, which affects the production or function of DNA,
                RNA
                or proteins. Our product candidates Marqibo and Talotrexin are both
                cytotoxic agents we plan to evaluate for the treatment of solid and
                hematological tumors. According to Business Insights, cytotoxics
                or
                antineoplastic agents accounted for 44% or $16.2 billion of the total
                global cancer drug market in 2004
.
·
Radiotherapy.
Radiation therapy, or radiotherapy, is the treatment of cancer and
                other
                diseases with ionizing radiation. Ionizing radiation deposits energy
                that
                injures or destroys cells in the area being treated by damaging their
                genetic material, making it impossible for those cells to continue
                growing. Although radiation damages both cancer cells and normal
                cells,
                the latter are able to repair themselves and regain proper function.
                Radiotherapy is used to treat localized solid tumors, such as cancers
                of
                the skin, tongue, larynx, brain, breast or uterine cervix and it
                can also
                be used to treat leukemia and lymphoma. In looking for ways to increase
                the effectiveness of radiation therapy, scientists are studying
                investigational drugs for their effect on cells exposed to radiation.
                Radiosensitizer drugs are designed to increase the damage done to
                tumor
                cells by radiation. Our product candidate
ropidoxuridine
is
                a radiosensitizer. According to the NCI, over 50% of all cancer patients
                undergo radiation therapy, either alone or in combination with other
                treatments.
·
Supportive
                care.
Cancer treatment can include the use of chemotherapy, radiation therapy,
                biologic response modifiers, surgery or some combination of these
                or other
                therapeutic options. All of these treatment options are directed
                at
                killing or eradicating the cancer that exists in the patient's body.
                Unfortunately, the delivery of many cancer therapies adversely affects
                the
                body's normal organs. These complications of treatment or side effects
                not
                only cause discomfort, but may also prevent the optimal delivery
                of
                therapy to a patient at its optimal dose and time. The most common
                side
                effects of chemotherapy are nausea and vomiting. Nausea and vomiting
                induced by chemotherapy and radiation therapy are generally treated
                by
                antiemetic drugs such as ondansetron. According to the NCI, over
                500,000
                Americans received chemotherapy in 2004, and the majority of these
                patients received an antiemetic such as ondansetron. Our leading
                product
                candidate
,
                Zensana, is ondansetron delivered via an oral spray. According to
                Business
                Insights, supportive care accounted for approximately 37% or $15.0
                billion
                of the total U.S. cancer drug market in
                2004.
Our
      Strengths
·
Significant
                clinical development and commercialization expertise.
Our
                senior management team has over 39 years of combined experience in
                the
                development and commercialization of innovative cancer therapies.
                Prior to
                joining Hana, our Chief Executive Officer, Dr. Ahn, served as Vice
                President, Hematology at Genentech, Inc. At Genentech, Dr. Ahn played
                a
                key role in the successful commercialization of Rituxan®. Our Chief
                Business Officer, Mr. Vitale, also served at Genentech as head of
                commercial development for Rituxan and head of pre-launch medical
                education for Avastin®. Prior to Genentech, both Dr. Ahn and Mr. Vitale
                worked together for over a decade in roles of increasing responsibility
                at
                Amgen, Inc. and Bristol-Myers Squibb Company. Our Chief Medical Officer,
                Dr. Berk, has served as an investigator in numerous clinical oncology
                trials, including the Gleevec® pivotal trials and the Avastin colorectal
                and breast trials. We believe the combined experience of our executive
                team has been and will continue to be a critical component of Hana's
                success in developing and commercializing our product
                candidates.
·
Multiple
                product candidates with a number of potential pathways for market
                expansion
.
                We currently have four product candidates in various stages of clinical
                development. We believe that our product candidates have potential
                therapeutic utility in multiple indications. We are currently conducting
                clinical trials for Talotrexin in NSCLC and ALL and intend to conduct
                clinical trials for Talotrexin in cervical cancer and other solid
                tumors.
                We also plan to pursue multiple indications for Marqibo and our other
                product candidates to expand their potential
                markets.
4
·
Cost
                effective clinical development process.
We
                have been successful in acquiring promising product candidates for
                what we
                believe are reasonable upfront costs by partnering with leading academic
                and research organizations. We believe that academic and research
                organizations are particularly well suited to engage in early stage
                drug
                discovery and preclinical development. By partnering with these
                organizations, we seek to bring our senior management's clinical
                development and commercialization expertise to bear on early stage
                research and preclinical development conducted by others. We believe
                that
                by focusing our activities on clinical development, we can accelerate
                the
                potential commercialization of our product candidates.
Our
      Strategy
We
      are committed to creating value by building a strong, experienced team,
      accelerating the development of our lead product candidates, expanding our
      pipeline by being the alliance partner of choice for academic and research
      organizations, and nurturing a unique company culture.
Key
      aspects of our strategy include:
·
Pursue
                commercialization of Zensana.
We
                expect to file an NDA for Zensana in the second quarter of 2006.
                If we
                receive FDA approval, we expect to commercially launch Zensana in
                the
                United States in the first half of 2007. We anticipate that revenues
                from
                Zensana will help offset a portion of the development costs for our
                other
                product candidates and reduce our dependence on external financing.
                Additionally, we intend to develop a specialized oncology salesforce
                of
                approximately 30 people that can educate oncologists and oncology
                nurses
                regarding Zensana. We believe that that nurses are the key providers
                of
                supportive care and are often the main decision makers regarding
                treatment. We intend to leverage this salesforce in commercializing
                future
                products, if developed successfully and approved by the
                FDA.
·
Focus
                on developing innovative cancer therapies
.
                We focus on oncology product candidates in order to capture efficiencies
                and economies of scale. We believe that drug development for cancer
                markets is particularly attractive because relatively small clinical
                trials can provide meaningful information regarding patient response
                and
                safety. The oncology market is concentrated, meaning that a small
                number
                of doctors write a large percentage of prescriptions, and we believe
                that
                the market can be addressed by a relatively small, focused salesforce.
                Furthermore, we believe that our capabilities are well suited to
                the
                oncology market and represent distinct competitive advantages.
·
Build
                a sustainable pipeline by employing multiple therapeutic approaches
                and
                disciplined decision criteria
based on clearly defined proof of principle goals
.
                We seek to build a sustainable product pipeline by employing multiple
                therapeutic approaches and by acquiring product candidates belonging
                to
                known drug classes. In addition, we employ disciplined decision criteria
                to assess product candidates. By pursuing this strategy, we seek
                to
                minimize our clinical development risk and accelerate the potential
                commercialization of current and future product candidates.
We
                intend to pursue regulatory approval for a majority of our product
                candidates in multiple indications.
Our
      Product Pipeline
Zensana
      (ondansetron HCI) Oral Spray
Background
According
      to an independent study, nausea and vomiting are the leading concerns of
      patients undergoing chemotherapy. The management of nausea and vomiting induced
      by chemo and radiation therapy and/or following surgery is a critical aspect
      of
      cancer patient care. The NCI estimates that a majority of the approximately
      500,000 patients receiving chemotherapy treatment per year experience nausea
      and
      vomiting, and could benefit from nausea-reducing, or antiemetic, therapies.
      Ondansetron is a selective blocking agent of the serotonin 5-HT3 receptor type
      and is widely accepted as the standard of care for antiemesis. Ondansetron
      is
      currently FDA-approved for the prevention of nausea and vomiting associated
      with:
·
Moderate
                to highly emetogenic cancer chemotherapy-induced nausea and vomiting,
                or
                CINV;
·
Radiotherapy-induced
                nausea and vomiting in patients receiving total body irradiation,
                single
                high-dose fraction to the abdomen, or daily fractions to the abdomen;
                and
5
·
Post-operative
                induced nausea and vomiting.
Ondansetron
      is currently commonly used in tablet form to prevent chemotherapy- and
      radiation-induced, and post-operative nausea and vomiting. However, many
      patients receiving chemo and radiation therapy have difficulty swallowing and
      holding down pills, and are potentially unable to tolerate other forms of
      ondansetron and other antiemetic therapies.
We
      believe Zensana
would
      represent the first commercialized multidose oral spray 5-HT3 antagonist.
      Zensana utilizes a novel micro mist spray technology to deliver full doses
      of
      ondansetron to patients receiving emetogenic, or vomit- and/or nausea-inducing,
      chemotherapy. We believe the convenience of spray delivery will offer patients
      a
      desirable alternative to tablets and other currently available forms of
      ondansetron.
Marketing
      Survey
We
      commissioned the Winokur Consulting Group to conduct market research to
      determine physician and payor utilization and perceptions of current and
      emerging antiemetics for CINV. This survey, completed in August 2005, was
      intended to determine current trends and market potential for the introduction
      of Zensana for the prevention of CINV. The study consisted of a statistically
      significant and representative survey of 162 hematologists-oncologists in
      academia and community practices, out of 800 surveyed (20.3% response rate,
      95%
      confidence interval, plus-or-minus 5% margin of error). Major conclusions of
      this study include:
·
90%
                of surveyed oncologists believed that Zensana would be more convenient
                for
                their patients than a tablet for the prevention of CINV. 48% of these
                oncologists indicated that
the
most important product attribute for oral 5-HT3 antagonists is: "can be
                used easily by patients who are experiencing nausea and vomiting,
                in
                contrast to swallowing a tablet."
·
Surveyed
                oncologists indicated that they would use Zensana
prior
to
                chemotherapy in at least 25% of their patients. In addition, 66%
                of the
                oncologists surveyed indicated that they would prescribe Zensana
after
chemotherapy to more than 50% of their patients treated with
                moderate-to-highly emetogenic chemotherapy. Thus, while we believe
                the
                primary use of Zensana will be in the post-chemotherapy setting,
                we
                believe there is also a significant opportunity to use Zensana for
                the
                entire treatment cycle.
Winokur
      also conducted in-depth interviews with oncologists and pharmacy directors
      from
      major public and private insurers who indicated that they believed Zensana
      could
      support a price level of approximately 15% below or above the current price
      of
      branded ondansetron products, even after the launch of generics. We believe
      this
      supports proprietary pricing of Zensana, based on projected patient benefits
      of
      convenience and faster time to drug delivery.
Clinical
      Development Program
In
      the
      first quarter of 2006, we completed
our
      bioequivalence and bioavailability trials for Zensana for the prevention of
      CINV
.
      Our
      clinical development program consisted of four clinical trials including single
      and multiple dose pharmacokinetic studies, and an evaluation of the effects
      of
      food and water on Zensana. While not yet reviewed or approved by the FDA, we
      believe data from the four studies demonstrated that the standard 8 milligram
      dose of Zensana is statistically bioequivalent to the current commercially
      available 8 milligram ondansetron (Zofran) tablet. Zensana showed statistically
      faster absorption, as defined by median time to detectible drug levels of
      ondansetron, of 15 minutes for Zensana compared to 30 minutes for the tablet.
      In
      the four studies, Zensana was well tolerated by both men and women and had
      a
      side effect profile similar to ondansetron tablets, which included mild headache
      and constipation.
We
      met
      with the FDA in May 2006, and plan to submit our
NDA
      for
Zensana
      for the prevention of CINV
in
      the second quarter of 2006. We intend to file the application under
Section
      505(b)(2) of the FDCA,
a
      form of registration that relies, at least in part, on data in previously
      approved NDAs or published literature for which we do not have a right of
      reference or both. If our NDA is approved, we anticipate commercially
      launching
Zensana
      in the United States in the first half of 2007.
6
Marqibo
      (vincristine sulfate) Sphingosomal Injection
Background
      of Sphingosomal Targeted Drug Delivery
Sphingosomal
      encapsulation is a novel method of liposomal drug delivery, which is designed
      to
      significantly increase tumor targeting and duration of exposure for cell-cycle
      specific anticancer agents. Sphingosomal drug delivery consists of using a
      generic FDA-approved cancer agent, vincristine, encapsulated in a lipid
      envelope. The encapsulated agent is carried through the bloodstream and
      delivered to disease sites where it is released to carry out its therapeutic
      action. When used in unencapsulated form, chemotherapeutic drugs diffuse
      indiscriminately throughout the body, diluting drug effectiveness and causing
      toxic side effects in the patient's healthy tissues. Our proprietary
      sphingosomal formulation technology is designed to permit loading high
      concentrations of therapeutic agent inside the lipid envelope, which promotes
      accumulation of the drug in tumors and prolongs the drug's release at disease
      sites. Clinical trials have demonstrated the sphingosomal formulation
      technology's ability to deliver dose intensification to the tumor, which we
      believe has the potential to increase the therapeutic benefit of the
      drug.
·
Longer
                circulation time in the bloodstream is designed to deliver more of
                the
                therapeutic agent to targeted tumor sites over a longer period of
                time.
To
                stabilize the lipid bilayer walls and retain active drug within its
                interior, liposomal technology uses sphingomyelin, a biologically
                inert
                macromolecule that renders liposomes resistant to hydrolysis and
                enzymatic
                degradation. The increased rigidity of the liposomal walls prolongs
                the
                circulating life of liposomes and is designed to extend the duration
                of
                drug release.
·
Sphingosomal
                drugs like Marqibo accumulate in the pores of leaky tumor vessels
                created
                during angiogenesis.
In
                normal tissues, a continuous endothelial lining constrains liposomes
                within capillaries, preventing accumulation of the drug in the healthy
                tissues. In contrast, the immature blood vessel system within tumors
                is
                created during tumor growth and has numerous holes up to 800 nanometers
                in
                size. With an average diameter of approximately 100 nanometers, liposomes
                accumulate in these pores. Once lodged within the interstitial space,
                these resilient liposomes slowly release the encapsulated drug. We
                believe
                that slow release of the drug from liposomes increases drug levels
                within
                the tumor, extends drug exposure through multiple cell cycles, and
                significantly increases tumor cell killing. Fewer than 5% of a patient's
                tumor cells are in a drug-sensitive phase at any point in time, which
                we
                believe indicates that duration of drug exposure is critical to increased
                drug efficacy.
·
Increased
                drug concentration at the tumor site is associated with increased
                efficacy.
The link between drug exposure and anti-tumor efficacy is especially
                pronounced for cell cycle-specific agents such as vincristine, vinorelbine
                and topotecan, which kill tumor cells by interfering in the G2/M
                phase
                in
mitosis,
                or cell division.
Unmet
      Medical Needs in Acute Lymphocytic Leukemia and Non-Hodgkin's
      Lymphoma
Acute
      lymphocytic leukemia, or ALL, is a type of cancer of the blood and bone marrow,
      the spongy tissue inside bones where blood cells are made. Acute leukemias
      progress rapidly and affect immature blood cells. ALL affects a group of white
      blood cells, called lymphocytes, which fight infection. Normally, bone marrow
      produces immature cells or stem cells, in a controlled way, and they mature
      and
      specialize into the various types of blood cells, as needed. In people with
      ALL,
      this production process breaks down. Large numbers of immature, abnormal
      lymphocytes called lymphoblasts are produced and released into the bloodstream.
      These abnormal cells are not able to mature and perform their usual functions.
      Furthermore, they multiply rapidly and can crowd out healthy blood cells,
      leaving an adult or child with ALL vulnerable to infection or bleeding. Leukemic
      cells can also collect in certain areas of the body, including the central
      nervous system and spinal cord, which can cause serious problems. According
      to
      the American Cancer Society, almost 4,000 people in the United States are
      expected to be diagnosed with ALL in 2006. Multiple clinical trials have
      suggested the overall survival rate for adults diagnosed with ALL is
      approximately 20% to 50%, underscoring the need for new therapeutic
      options.
Non-Hodgkin's
      lymphoma, or NHL, is a heterogeneous disease which is estimated to result in
      more than 58,000 new cases and nearly 19,000 deaths in 2006 in the United
      States, according to the American Cancer Society. NHL can be divided into two
      prognostic groups: indolent lymphomas and aggressive lymphomas. Patients with
      indolent NHL types have a relatively good prognosis, with median survival as
      long as 10 years after diagnosis, but they usually are not curable in advanced
      clinical stages. The aggressive type of NHL is more rapidly progressive, but
      a
      significant number of these patients can be cured with intensive combination
      chemotherapy regimens which include agents such as vincristine.
Multiple
      clinical trials have suggested that,
with current treatment, overall five-year survival of NHL patients is
      approximately 50% to 60%. Of patients with aggressive NHL, 30% to 60% can
      achieve durable remission. The vast majority of relapses occur in the first
      two
      years after therapy and new therapeutic options within this time frame are
      needed.
7
Product
      Description
Marqibo
      is our proprietary product candidate comprised of the widely used off-patent
      anticancer drug vincristine encapsulated in sphingosomes. This encapsulation
      is
      designed to provide prolonged circulation of the drug in the blood and
      accumulation at the tumor site. These characteristics are intended to increase
      the effectiveness and reduce the side effects of the encapsulated drug.
      Vincristine, a microtubule inhibitor, is FDA-approved for ALL and is widely
      used
      as a single agent and in combination regimens for treatment for hematologic
      malignancies such as lymphomas and leukemias.
Clinical
      Development Program
We
      acquired our rights to Marqibo from Inex Pharmaceuticals Corporation in May
      2006. Inex submitted an NDA for accelerated marketing approval of Marqibo based
      upon a single arm, Phase II clinical trial in relapsed refractory NHL, which
      was
      reviewed by the FDA in 2004. This clinical trial was conducted with 119 patients
      and demonstrated an overall response rate of 25%. The FDA determined that the
      Phase II clinical trial was insufficient to support an accelerated marketing
      approval, issued a "not approvable" letter in January 2005 and advised Inex to
      conduct a Phase III randomized clinical trial. The FDA's not approvable letter
      states that the FDA determined the response rate to be 21%. The not approvable
      letter was issued after the FDA's oncological drugs advisory committee
      unanimously voted that the results of the trial were not predictive of clinical
      benefit and that there was no improvement over available therapy.
Marqibo
      has been evaluated in 13 clinical trials with over 540 patients, including
      Phase
      II clinical trials in patients with NHL and ALL. Based on the results from
      these
      studies, we intend to request regulatory approvals to initiate a randomized
      Phase III clinical trial in 2006 in relapsed ALL. We intend to pursue a special
      protocol assessment from the FDA prior to the initiation of this clinical trial.
Inex
      previously sponsored multiple Marqibo clinical trials, two of which provide
      the
      basis for our clinical development plan. The first is an ongoing Phase I/II
      clinical trial using 2.0 milligrams per meter squared combined with a fixed
      dose
      of oral dexamethasone in ALL. As of March 31, 2006, 22 patients have been
      treated on the Phase I portion of this clinical trial with dosing ranging from
      1.5 to 2.4 milligrams per meter squared weekly. Complete response, or CR,
      defined as complete reduction in detectable disease and/or blast counts of
      5%,
      was 27%, and the toxicity profile was consistent with vincristine at the normal
      dose.
An
      additional Phase II clinical trial was completed by the University of Texas
      M.D.
      Anderson Cancer Center, or MDACC, in January 2005. This trial employed the
      use
      of R-CHOP, a common treatment regimen for NHL consisting of rituximab,
      cyclophosphamide, doxorubicim, vincristine and prednisone. This clinical trial
      involved patients with previously untreated aggressive
NHL
      in
      which Marqibo was substituted for free vincristine. Of the 73 patients treated,
      80% of patients achieved a CR. These results compare favorably with the 65%
      to
      75% CR rates historically achieved in patients receiving R-CHOP.
Based
      on
      these results, we plan to request regulatory authorization to further study
      Marqibo in the treatment of hematologic malignancies, including ALL and NHL.
      Specifically, we plan to conduct Phase III clinical trials in ALL, one of which
      we expect to be in the front-line, elderly ALL setting, and another in the
      relapsed/refractory ALL setting. The primary endpoints in both of these clinical
      trials will be CR rates. We plan to seek regulatory approval to initiate at
      least one of these clinical trials by the end of 2006. We also intend to seek
      regulatory approval to commence a Phase III clinical trial of Marqibo in
      front-line aggressive lymphoma, with Marqibo substituted for vincristine in
      the
      R-CHOP regimen.
8
Talotrexin
      (PT-523)
Product
      Candidate Background and Preclinical Data
Antifolates,
      also known as folic acid analogs, are a class of cytotoxic or antineoplastic
      agents, which are structural analogs of naturally occurring compounds that
      that
      interfere with the production of nucleic acids known as antimetabolites.
      Antifolates have been used clinically for more than 30 years to treat both
      solid
      and hematological cancers such as breast cancer and ALL, as well as inflammatory
      diseases such as rheumatoid arthritis. Antimetabolites are the most widely
      used
      antifolates. One such antimetabolite, methotrexate, is structurally related
      to
      folic acid and acts as an antagonist to this vitamin by inhibiting DHFR, the
      enzyme that converts folic acid to its active form. Rapidly dividing cells,
      such
      as cancer cells, need folic acid to multiply. The decreased level of folic
      acid
      leads to depressed DNA, RNA, and protein synthesis which in turn lead to cell
      death.
Talotrexin
      is a novel antifolate that is a water-soluble, non-polyglutamatable analogue
      of
      aminopterin. Talotrexin was developed at the Dana-Farber Cancer Institute,
      Inc.
      and the NCI as part of a program to develop oncology product candidates with
      improved efficacy, tolerability and resistance. We believe that potential
      advantages of Talotrexin over existing therapies include:
·
Increased
                Targeting of Tumor Cells:
Talotrexin produces cytotoxicity by inhibiting DHFR. It binds to
                DHFR more
                tightly than other antifolates, allowing Talotrexin to inhibit DNA
                synthesis more potently than other antifolates, including methotrexate.
                In
                preclinical in vitro and in vivo studies at the Dana-Farber Cancer
                Institute, Inc. and the NCI, Talotrexin demonstrated that it is 10-fold
                more tightly bound to DHFR, than methotrexate, has 10-fold higher
                affinity
                to the membrane-bound transporter utilized by methotrexate, and
                demonstrated 10- to 100-fold more potency than methotrexate. We believe
                that these characteristics may allow for potent, targeted delivery
                of
                Talotrexin.
·
Better
                Tolerability:
We
                believe that Talotrexin may be more tolerable than other existing
                cancer
                drugs. Classical compounds such as methotrexate are polyglutamated
                once
                they enter the cells. Polyglutamation is an enzymatic process which
                allows
                the drug to stay in the cell and act on its target more effectively.
                However, while healthy cells maintain their ability to make
                polyglutamates, cancer cells lose their ability to form polyglutamates.
                Consequently, the drug stays in the healthy cells, causing toxicity
                and
                preventing the drug from exerting its effect on the cancer cell to
                kill
                it. Talotrexin blocks and alters the side chain of the compound,
                which
                allows the drug to stay in the cancer cell and act on its target.
·
Superior
                Resistance Profile:
In
                preclinical studies, Talotrexin has demonstrated activity against
                tumor
                cells that were resistant to other antifolates. Human head-and-neck
                squamous carcinoma cells that were resistant to methotrexate were
                shown to
                be highly sensitive to the effects of Talotrexin.
·
Distinct
                Dose-Dependent Activity:
In
                preclinical studies, Talotrexin showed significant dose responsiveness
                which may suggest a wide therapeutic index (the difference between
                the
                minimum effective dose and maximum tolerated dose of a drug), as
                well as
                enhanced clinical utility.
Clinical
      Development
Program
In
      April 2004, we commenced an NCI-sponsored Phase I clinical trial to
      evaluate the safety of Talotrexin when administering it intravenously on
      days 1, 8 and 15 of a 28-day cycle to patients with solid tumors. The
      patients selected for the clinical trial had failed curative or
      survival-prolonging therapy, or no such therapies existed for them. This
      clinical trial, which is being conducted at the Dana-Farber Cancer Institute,
      Inc., Massachusetts General Hospital and Beth-Israel Deaconess Hospital, is
      expected to involve 25 to 40 patients, with 26 subjects having received
      doses of Talotrexin through April 2006.
In
      February 2005, we commenced an open-label multicenter, multinational Phase
      I/II
      clinical trial of Talotrexin in the treatment of relapsed or refractory
      non-small cell lung cancer, or NSCLC. Increasing doses of Talotrexin were
      administered as a five-minute intravenous infusion on days 1 and 8 on a 21-day
      cycle to eligible patients in the Phase I portion of this clinical trial.
      Talotrexin was well tolerated over multiple cycles of therapy with
      myelosuppression and mucositis as the dose limiting toxicities. The Phase I
      portion of this clinical trial is now closed for enrollment with 25 patients
      receiving doses. The primary objectives of the Phase II portion of this ongoing
      clinical trial is to demonstrate an improvement in overall survival. Secondary
      objectives include evaluation of safety, overall response rate, time to
      progression and progression free survival. Relapsed or refractory NSCLC patients
      who have failed at least two lines of treatment including standard chemotherapy
      and/or epidermal growth factor receptor tyrosine kinase inhibitor are eligible
      to enroll in the study. One patient death has been reported in this study.
      The
      study investigator deemed the death unrelated to Talotrexin
      administration.
9
In
      May 2005, we commenced an open-label, multicenter Phase I/II clinical trial
      of Talotrexin in the treatment of refractory ALL. The primary objectives of
      the
      Phase I portion of this clinical trial are to evaluate the safety of
      Talotrexin when administered on days 1 through 5 on a 21-day cycle to ALL
      subjects who have failed curative or survival prolonging therapy or for whom
      no
      such therapies exist and to establish the maximum tolerated dose and identify
      the dose limiting toxicities of Talotrexin. The primary objective of the
      Phase II portion of this clinical trial is to evaluate the anti-tumor
      activity of Talotrexin as therapy in leukemia patients with relapsed or
      refractory to frontline and/or salvage therapy as measured by overall response.
      The secondary objective is to assess the impact of Talotrexin as measured by
      duration of remission and survival. A total of 75 patients are expected to
      enroll in the Phase I/II clinical trial. While some treatment options for
      ALL patients are currently available, we believe that a significant opportunity
      exists for Talotrexin to improve the therapeutic options for patients with
      the
      progressive form of leukemia
.
      One
      patient death has been reported in this study. The patient expired due to
      thromboembolism of the pulmonary trunk after starting Talotrexin and after
      having been diagnosed with grade 3 mucositis (esophagitis and stomatitis).
      The
      study co-investigator deemed the mucositis possibly/probably related to
      Talotrexin, and the death unrelated to Talotrexin.
Subject
      to regulatory approval, we currently plan additional clinical trials for
      Talotrexin in other potential indications to maximize its therapeutic potential
      as follows:
·
A
                Phase II, open-label, multicenter clinical trial of single agent
                Talotrexin in the treatment of relapsed or refractory gastric cancer
                in
                2006
;
·
A
                Phase II
clinical
                trial
of
                Talotrexin in the treatment of persistent or recurrent carcinoma
                of the
                cervix in 2006; and
·
A
                Phase I pediatric solid tumor
clinical
                trial
being
                developed in conjunction with the NCI's Children's Oncology Group in 2006.
In
      May
      2006, the FDA granted our application for orphan drug designation for Talotrexin
      (PT-523) in patients with ALL.
Ropidoxuridine
      (IPdR)
Product
      Description and Preclinical Data
Ropidoxuridine
      (IPdR) is an oral prodrug of IUdR, a radiation sensitizer. Ropidoxuridine is
      referred to as a prodrug because after it is absorbed through the digestive
      tract, it is converted in the liver by an enzyme to the active agent IUdR.
      Because it is a nucleoside analog which mimics a normal building block of DNA,
      IUdR integrates into the cancer cell DNA, rendering it more sensitive to the
      killing effect of radiation. Because it increases the effects of radiation,
      ropidoxuridine is referred to as a radiation sensitizer.
Phase
      I
      and II clinical trials conducted by the NCI with IUdR established it as a
      radiation sensitizer. However, due to significant hematological and
      gastrointestinal toxicity resulting in mucositis and diarrhea, IUdR was not
      developed beyond Phase II. We believe ropidoxuridine may have the potential
      to
      deliver the activity of IUdR, but with significantly less toxicity. Preclinical
      studies conducted by the NCI and Case Western Reserve University with
      ropidoxuridine demonstrated conversion to IUdR, incorporation into tumor-cell
      DNA, and acceptable toxicity. IUdR has not been approved by the FDA for any
      indication.
Clinical
      Development Plan
In
      September 2005, we initiated a Phase I clinical trial of ropidoxuridine in
      patients with solid tumors undergoing radiation therapy. The objectives of
      this
      clinical trial are to establish the safety, dose, pharmacokinetics, and
      preliminary efficacy of ropidoxuridine in combination with radiation therapy.
      In
      June 2006, the FDA granted our application for orphan drug designation of
      ropidoxuridine for the treatment of
gioblastoma
,
      the
      most common type of brain cancer.
10
Sphingosome
      Encapsulated Vinorelbine
Sphingosome
      Encapsulated Vinorelbine is our proprietary product candidate, based on the
      widely used off-patent anticancer drug vinorelbine encapsulated in sphingosomes.
      Vinorelbine, a microtubule inhibitor, is FDA-approved for use as a single agent
      or in combination with cisplatin for the first-line treatment of unresectable,
      advanced NSCLC.
We
      plan
      to commence Phase I clinical trials for sphingosome encapsulated vinorelbine
      in
      the second half of 2006. The regulatory strategy for sphingosomal vinorelbine
      may include NSCLC and breast cancer registration paths.
Sphingosome
      Encapsulated Topotecan
Sphingosome
      Encapsulated Topotecan is our proprietary product candidate comprised of the
      anticancer drug topotecan encapsulated in sphingosomes. Topotecan is
      FDA-approved for the treatment of metastatic carcinoma of the ovary after
      failure of initial or subsequent chemotherapy, and small cell lung cancer
      sensitive disease after failure of first-line chemotherapy. Following completion
      of additional preclinical development, we expect to file an IND in the second
      half of 2006 and to initiate clinical trials in 2007.
License
      Agreements
Zensana
Pursuant
      to the terms of an October 2004 license agreement with NovaDel Pharma, Inc.,
      as
      amended in August 2005 and May 2006, we hold a royalty-bearing, exclusive right
      and license (with the right to sublicense with NovaDel's prior written consent)
      to develop and commercialize NovaDel's oral spray version of ondansetron in the
      United States and Canada, while NovaDel retained the rights to the development
      and commercialization of Zensana in other countries and all non-human uses
      of
      Zensana. In addition, NovaDel also retained the rights to conduct internal,
      non-commercial research and development activities with respect to Zensana
      in
      all countries, and the rights to use the oral spray technology with other drug
      products, either by itself or with a third party. Under the agreement, we and
      NovaDel collaborated on the initial development governed by a development plan
      and overseen by a joint development committee on the formulation, analytical
      method and manufacturing process development for Zensana. The joint development
      committee continues to discuss potential strategies for Zensana going forward,
      including regulatory strategies for Zensana.
Under
      the
      license agreement, we are responsible for the regulatory filings for Zensana
      and
      associated costs and all such filings will be made in our name and have us
      as
      the primary contact. We consult with NovaDel on such filings and keep NovaDel
      informed as to our communications with the regulatory authorities, although
      we
      have the right to determine the regulatory pathways we feel best meet our
      objectives. NovaDel does have the non-exclusive right to use and reference
      all
      our regulatory filings and data contained therein for all purposes.
We
      will
      be responsible for the clinical and commercial supply of Zensana. We may engage
      a third party for the manufacture of Zensana, provided that NovaDel will have
      the right to review all agreements with such third party manufacturer and to
      purchase Zensana from such third party at essentially the same costs as we
      do,
      and provided that such third party agreements contains sufficient
      confidentiality and non-use obligations. Subsequently, we have agreed that
      Ferring AB, a Swedish company, will take over NovaDel's supply obligations to
      us. Currently, Ferring AB is the supplier for our clinical supply under a
      purchase order which has been reviewed by NovaDel. The confidentiality and
      non-use obligations of Ferring AB are governed under a separate confidentiality
      agreement between us and Ferring AB entered into in June 2005. We plan to enter
      into a manufacturing agreement with them for the commercial supply of Zensana.
      To date, Ferring AB has also supplied us with the spray pump components and
      oral
      applicator for Zensana, and we anticipate that the manufacturing agreement
      that
      we enter into for Zensana will also include all components of the delivery
      device.
In
      consideration for the license, the agreement provides that we will make
      double-digit royalty payments to NovaDel based on a percentage of net sales
      (as
      defined in the agreement). In addition, we issued NovaDel 73,121 shares of
      our
      common stock (determined by dividing $500,000 by the average selling price
      of
      our common stock during the 10 business days preceding the date of the license
      agreement) and we purchased 400,000 shares of NovaDel's common stock at a price
      of $2.50 per share. Neither party may sell such shares for a two-year period
      following the effective date of the license agreement. Pursuant to the license
      agreement, we are also obligated to pay NovaDel up to an additional $10.0
      million upon achievement of certain milestones.
11
NovaDel
      will own all information and inventions that are made by or on behalf of us,
      our
      affiliates and sublicensees relating to the oral spray process or the Zensana
      product, and all licensed trademarks. NovaDel has the right to file, prosecute
      and maintain all licensed patent applications, patents and trademarks, and
      we
      have the right to comment on the filings, but NovaDel will not be obligated
      to
      incorporate our comments. If NovaDel decides to discontinue the filing,
      prosecution or maintenance of any such patent or patent application in a
      particular country, then we have the right to do so. NovaDel also has the first
      right to enforce the licensed patents and we need to reimburse NovaDel for
      100%
      of its out-of-pocket costs with respect to the removal of any such infringement
      to the extent such infringement adversely affects the exploitation of Zensana
      in
      the United States and Canada, and we have the right to enforce such patents
      only
      if NovaDel fails to do so. NovaDel is also in control of any defense of third
      party infringement, invalidity or unenforceability suit, and we are required
      to
      reimburse NovaDel for 100% of the costs and expenses associated with such suit
      to the extent it relates to the exploitation of Zensana. We do not have a clear
      contractual right to defend against such third-party lawsuits even if NovaDel
      fails to do so. We have also covenanted not to institute or prosecute any action
      seeking to have any claim in the licensed patents declared invalid or
      unenforceable.
NovaDel
      may terminate our license, after giving us notice and an opportunity to cure,
      for our material breach (30 day cure period) or payment default (10 day cure
      period). The license also terminates automatically if we are involved in a
      bankruptcy. In the event this license agreement is terminated, we will lose
      all
      of our rights to develop and commercialize Zensana. The license agreement
      expires on the later of the expiration date of the last to expire patent covered
      by the license, currently March 2022, or October 2024, 20 years from the
      effective date of the license agreement. We have the right to terminate this
      agreement by giving NovaDel a 90-day notice or by not making a milestone payment
      when due.
We
      are
      required to indemnify NovaDel for losses arising from the breach of this
      agreement by us, our affiliates or sublicensees or permitted assigns or
      transferees, the actual or asserted violations of law by us, our affiliates
      or
      sublicensees or permitted assigns or transferees, the use by us, our affiliates
      or sublicensees or permitted assigns or transferees of the oral spray technology
      with ondansetron, or the exploitation of Zensana by us, our affiliates,
      sublicensees or permitted assigns or transferees, to the extent NovaDel is
      not
      required to indemnify us for such losses. NovaDel agreed to indemnify us for
      losses arising from the breach of this agreement by NovaDel or its affiliates
      or
      the actual or asserted violation of law by NovaDel or its affiliates, to the
      extent we are not required to indemnify NovaDel for such losses. In either
      case,
      the indemnifying party will have control over the defense and settlement of
      any
      claim or action relating to such losses and the indemnified party will have
      the
      right to participate. The indemnifying party has the right to consent to
      monetary damages but will need the indemnified party's consent before consenting
      to any damages that will result in the indemnified party's becoming subject to
      injunctive or other relief or otherwise adversely affect the business of the
      indemnified party in any manner.
Marqibo,
Sphingosomal
      Vinorelbine
and
      Sphingosomal Topotecan
On
      May 6,
      2006, we completed a transaction with Inex Pharmaceuticals Corporation pursuant
      to which we acquired exclusive, worldwide rights to develop and commercialize
      three product candidates known as Marqibo (vincristine sulfate) Liposomes
      Injection, sphingosome encapsulated vinorelbine and sphingosome encapsulated
      topotecan, collectively called the Licensed Products. In consideration for
      all
      of the intellectual property rights and assets acquired by us in the
      transaction, we paid to Inex aggregate consideration of $11.5 million, of which
      $1.5 million was paid in cash and the remaining $10 million was satisfied by
      issuing to Inex 1,118,568 shares of our common stock. The shares were valued
      at
      a price of $8.94 per share, which represented the average weighted volume price
      of our common stock over the 20 trading days preceding March 16, 2006, the
      date
      of the parties' letter of intent regarding the transaction. The following is a
      summary of the various agreements entered into to consummate the
      transaction.
License
      Agreement
Pursuant
      to the terms of a license agreement dated May 6, 2006, between us and Inex,
      Inex
      granted us:
·
an
                exclusive license under certain patents held by Inex to commercialize
                the
                Licensed Products for all uses throughout the
                world;
12
·
an
                exclusive license under certain patents held by Inex to commercialize
                the
                Licensed Products for all uses throughout the world under the terms
                of
                certain  research agreements between Inex and the British Columbia
                Cancer Agency, or BCCA;
·
an
                exclusive sublicense under certain patents relating to the Licensed
                Products that Inex licensed from MDACC, to commercialize the Licensed
                Products throughout the world under the terms of a license agreement
                between Inex and MDACC; and
·
an
                exclusive license to all technical information and know-how relating
                to
                the technology claimed in the patents held exclusively by Inex and
                to all
                confidential information possessed by Inex relating to the Licensed
                Products, including all data, know-how, manufacturing information,
                specifications and trade secrets, collectively called the Inex Technology,
                to commercialize the Licensed Products for all uses throughout the
                world.
We
      have
      the right to grant sublicenses to third parties and in such event we and Inex
      will share sublicensing revenue received by us at varying rates for each
      Licensed Product depending on such Licensed Product's stage of clinical
      development.  Under the license agreement, we also granted back to Inex a
      limited, royalty-free, non-exclusive license in certain patents and
      technology owned or licensed to us solely for use in developing and
      commercializing liposomes having an active agent encapsulated, intercalated
      or
      entrapped therein.
We
      agreed
      to pay to Inex up to an aggregate of $30.5 million upon the achievement of
      various clinical and regulatory milestones relating to all Licensed Products.
      At
      our option, the milestones may be paid in cash or additional shares of our
      common stock. However, the total number of shares of our common stock that
      may
      be issued to Inex in connection with the transaction may not exceed 19.99%
      of
      our outstanding shares of common stock as of May 6, 2006. In addition to the
      milestone payments, we agreed to pay royalties to Inex in the range of 5% to
      10%
      based on net sales of the Licensed Products, against which we may offset a
      portion of the research and development expenses we incur. In addition to our
      obligations to make milestone payments and pay royalties to Inex, we also
      assumed all of Inex's obligations to its licensors and collaborators relating to
      the Licensed Products, which include aggregate milestone payments of up to
      $2.5
      million, annual license fees and additional royalties.
The
      license agreement provides that we will use our commercially reasonable efforts
      to develop each Licensed Product, including causing the necessary and
      appropriate clinical trials to be conducted in order to obtain and maintain
      regulatory approval for each Licensed Product and preparing and filing the
      necessary regulatory submissions for each Licensed Product. We also agreed
      to
      provide Inex with periodic reports concerning the status of each Licensed
      Product.
We
      are
      required to use commercially reasonable efforts to commercialize each Licensed
      Product in each jurisdiction where a Licensed Product has received regulatory
      approval. We will be deemed to have breached our commercialization obligations
      in the United States, or in Germany, the United Kingdom, France, Italy or Spain,
      if for a continuous period of 180 days at any time following commercial sales
      of
      a Licensed Product in any such country, no sales of a Licensed Product are
      made
      in the ordinary course of business in such country by us (or a sublicensee),
      unless the parties agree to such delay or unless we are prohibited from making
      sales by a reason beyond our control. If we breach this obligation, then Inex
      is
      entitled to terminate the license with respect to such Licensed Product and
      for
      such country.
Under
      the
      license agreement, Inex, either alone or jointly with MDACC, will be the owner
      of patents and patent applications claiming priority to certain patents licensed
      to us, and we have an obligation to assign to Inex our rights to inventions
      covered by such patents or patent applications, and, when negotiating any joint
      venture, collaborative research, development, commercialization or other
      agreement with a third party, to require such third party to do the
      same.
The
      prosecution and maintenance of the licensed patents will be overseen by an
      IP
      committee having equal representation from us and Inex. We will have the right
      and obligation to file, prosecute and maintain most of the licensed patents,
      although Inex maintained primary responsibility to prosecute certain of the
      licensed patents.  The parties agreed to share the expenses of prosecution
      at varying rates.  We also have the first right, but not the
      obligation, to enforce such licensed patents against third party infringers,
      or
      to defend against any infringement action brought by any third
      party.
13
We
      agreed
      to indemnify Inex for all losses resulting from our breach of our
      representations and warranties, or other default under the license agreement,
      our breach of any regulatory requirements, regulations and guidelines in
      connection with the Licensed Products, complaints alleging infringement against
      Inex with respect to the our manufacture, use or sale of a Licensed Product,
      and
      any injury or death to any person or damage to property caused by any Licensed
      Product provided by us or our sublicensee, except to the extent such losses
      are
      due to Inex's breach of a representation or warranty, Inex's default under the
      agreement, and the breach by Inex of any regulatory requirements, regulations
      and guidelines in connection with licensed patent and related know-how,
      including certain of Inex's indemnification obligations to MDACC that will be
      passed through to us as a result. Inex has agreed to indemnify us for losses
      arising from Inex's breach of representation or warranty, Inex's default under
      the agreement, and the breach by Inex of any regulatory requirements,
      regulations and guidelines in connection with licensed patent and related
      know-how, except to the extent such losses are due to our breach of our
      representations and warranties, our default under the agreement, our breach
      of
      any regulatory requirements, regulations and guidelines in connection with
      the
      Licensed Products, complaints alleging infringement against Inex with respect
      to
      our manufacture, use or sale of a Licensed Product, and any injury or death
      to
      any person or damage to property caused by any Licensed Product provided by
      us
      or our sublicensee.
Unless
      terminated earlier, the license grants made under the license agreement expire
      on a country-by-country basis upon the later of (i) the expiration of the last
      to expire patents covering each Licensed Product in a particular country, (ii)
      the expiration of the last to expire period of product exclusivity covered
      by a
      Licensed Product under the laws of such country, or (iii) with respect to the
      Inex Technology, on the date that all of the Inex Technology ceases to be
      confidential information. The covered issued patents are scheduled to expire
      between 2014 and 2020.
Either
      we
      or Inex may terminate the license agreement in the event that the other has
      materially breached its obligations thereunder and fails to remedy such breach
      within 90 days following notice by the non-breaching party. If such breach
      is
      not cured, then the non-breaching party may, upon 6 months' notice to the
      breaching party, terminate the license in respect of the Licensed Products
      or
      countries to which the breach relates. Inex may also terminate the license
      if we
      assert or intend to assert any invalidity challenge on any of the patents
      licensed to us. The license agreement also provides that either party may,
      upon
      written notice, terminate the agreement in the event of the other's bankruptcy,
      insolvency, dissolution or similar proceeding. In the event Inex validly
      terminates the license agreement, all data, materials, regulatory filings and
      all other documentation reverts to Inex.
UBC
      Sublicense Agreement
Under
      the
      UBC sublicense agreement, Inex granted to us an exclusive, worldwide sublicense
      under several patents relating to the sphingosomal encapsulated vinorelbine
      and
      sphingosomal encapsulated topotecan Licensed Products, together with all
      knowledge, know-how, and techniques relating to such patents, called the UBC
      Technology. The UBC Technology is owned by the University of British Columbia,
      or UBC, and licensed to Inex pursuant to a license agreement dated July 1,
      1998.
      The UBC sublicense agreement provides that we will undertake all of Inex's
      obligations contained in Inex's license agreement with UBC, which includes the
      payment of royalties (in addition to the royalties owing to Inex under the
      license agreement between Inex and us) and an annual license fee. The provisions
      of the UBC sublicense agreement relating to our obligation to develop and
      commercialize the UBC Technology, termination and other material obligations
      are
      substantially similar to the terms of license agreement between Inex and us,
      as
      discussed above.
Assignment
      of Agreement with Elan Pharmaceuticals, Inc.
Pursuant
      to an Amended and Restated License Agreement dated April 3, 2003, between Inex
      (including two of its wholly-owned subsidiaries) and Elan Pharmaceuticals,
      Inc.,
      Inex held a paid up, exclusive, worldwide license to certain patents, know-how
      and other intellectual property relating to vincristine sulfate liposomes.
      In
      connection with our transaction with Inex, Inex assigned to us all of its rights
      under the Elan license agreement pursuant to an Assignment and Novation
      Agreement dated May 6, 2006 among us, Inex and Elan.
As
      assigned to us, the Elan license agreement provides that Elan will own all
      improvements to the licensed patents or licensed know-how made by us or our
      sublicensees, which will in turn be licensed to us as part of the technology
      we
      license from Elan. Elan has the first right to file, prosecute and maintain
      all
      licensed patents and we have the right to do so if Elan decides that it does
      not
      wish to do so only pertaining to certain portions of the technology. Elan also
      has the first right to enforce such licensed patents and we may do so only
      if
      Elan elects not to enforce such patents. In addition, Elan also has the right
      but not the obligation to control any infringement claim brought against
      Elan.
14
We
      have
      indemnification obligations to Elan for all losses arising from the research,
      testing, manufacture, transport, packaging, storage, handling, distribution,
      marketing, advertising, promotion or sale of the products by us, our affiliates
      or sublicensees, any personal injury suits brought against Elan, any
      infringement claim, certain third party agreements entered into by Elan, and
      any
      acts or omissions of any of our sublicensees.
The
      Elan
      license agreement, unless earlier terminated, will expire on a country by
      country basis, upon the expiration of the life of the last to expire licensed
      patent in that country. Elan may terminate the Elan license agreement earlier
      for our material breach upon 60 days' written notice if we do not cure such
      breach within such 60 day period (we may extend such cure period for up to
      90
      days if we propose a course of action to cure the breach within the initial
      60 day period and act in good faith to cure such breach), for our bankruptcy
      or
      going into liquidation upon 10 days' written notice, or immediately if we, or
      our sublicense, directly or indirectly disputes the ownership, scope or validity
      of any of the licensed technology or support any such attack by a third
      party.
Service
      Agreement
We
      and
      Inex also entered into a Service Agreement dated May 6, 2006. Under the service
      agreement, we engaged Inex on a non-exclusive basis to perform various
      transition services relating to the transfer of technology, agreements and
      other
      matters useful to us in the period following the completion of the our
      transaction with Inex. The service agreement provides that we and Inex will
      jointly review a schedule each quarter that will describe the services requested
      of Inex for such period, together with a forecast of the estimated number of
      full-time employees of Inex required to perform such services and a schedule
      identifying the time by which the services are expected to be completed. Such
      services may include Inex's assistance in transferring data and other materials
      relating to or useful in the development of the Licensed Products or its
      assistance assigning various testing and material supply agreements and
      relationships that Inex has established in connection with the Licensed
      Products. As consideration for Inex's services, and in addition to the $11.5
      million upfront payment paid in connection with the transaction, we will pay
      to
      Inex fees calculated on the number of actual time employees, contractors or
      consultants of Inex who perform such services based on a rate of $250,000 per
      full time employee equivalent.
The
      service agreement expires on June 30, 2007, unless terminated earlier. We may
      terminate the service agreement upon 60 days' written notice for any reason.
      Upon 30-days' notice and an opportunity to cure, either party may terminate the
      service agreement in the event the other party fails to comply with a material
      term of the agreement or the service schedule (including any change orders
      to
      the service schedule). Either party may also terminate the agreement in the
      event the other makes an assignment for the benefit of creditors, becomes
      insolvent, files a bankruptcy petition or similar proceeding, which proceeding
      remains undismissed or unstayed for at least 60 days.
Transaction
      Agreement
We
      entered into a Transaction Agreement on May 6, 2006 with Inex which generally
      provided for the mechanics of closing our transaction with them. The agreement
      contains several provisions relating to the assignment to us of various clinical
      trial and other agreements relating to the Licensed Products, as well as
      provisions obligating Inex to use its commercially reasonable efforts to cause
      the outright assignment to us of Inex's license with MDACC and its rights to
      certain of the patents covered by our license agreement with Inex.
The
      transaction agreement also contains provisions relating to competition by the
      parties. More specifically, we agreed that, to the extent we develop,
      manufacture or commercialize a product candidate that incorporates the Licensed
      Products encapsulated in a liposome not proprietary to Inex in a particular
      country during the term of the license agreement, all licenses and sublicenses
      granted to us under the license agreement with respect to such country and
      such
      Licensed Product will revert to Inex. The transaction agreement further provides
      that Inex will not, directly or indirectly, engage in the business of
      developing, manufacturing or commercializing any of the Licensed Products,
      including any future generation products for formulations containing
      vincristine, vinorelbine or topotecan.
Asset
      Purchase Agreement
We
      also
      entered an Asset Purchase Agreement with Inex on May 6, 2006. Under this
      agreement, Inex assigned to us various equipment, inventory and other assets
      useful in the development of the Licensed Products. We did not pay any
      additional consideration for such assets beyond the $11.5 million payment,
      discussed above.
Registration
      Rights Agreement
15
Pursuant
      to a Registration Rights Agreement dated May 6, 2006, we agreed to file a
      registration statement covering the resale of the 1,118,568 shares of our common
      stock issued to Inex in connection with the transaction on or before July 5,
      2006, and to use commercially reasonable efforts to have such registration
      statement declared effective by the Securities and Exchange Commission on or
      before November 2, 2006. In the event we do not file such registration statement
      by July 6, 2006, or in the event such registration statement is not declared
      effective by November 6, 2006, then we must issue to Inex an additional
      approximately 22,400 shares of our common stock. Inex agreed that it will not
      sell more than 25% of the shares issued in each three month period commencing
      on
      the effective date of the registration statement.
Talotrexin
Our
      rights to Talotrexin are governed by the terms of a December 2002 license
      agreement with Dana-Farber Cancer Institute, Inc., or DFCI, and Ash Stevens,
      Inc., or ASI. The agreement provides us with an exclusive worldwide royalty
      bearing license, including the right to grant sublicenses. We also acquired
      an
      option for any new inventions made by DFCI or ASI directly relating to the
      same
      subject matter for a reasonable license fee to be negotiated by the parties.
      DFCI reserved the rights under the licensed technology for its own
      non-commercial research, the rights to conduct pre-clinical and clinical trials
      of Talotrexin with our prior written consent, and the rights to supply know-how
      and grant non-exclusive, non-transferable licenses under the licensed technology
      to other academic, governmental or not-for-profit organizations for
      non-commercial research purposes but not in human subjects. In addition, DFCI
      or
      ASI may require us to grant a third party a sublicense under the licensed
      technology for the development and commercialization of products outside the
      oncology field, unless such products will be directly competitive with any
      licensed product then sold or under development by us or our sublicensee,
      included in our annual strategic development plan then in force, or if we
      provide DFCI and ASI with a plan for developing such non-competing new product.
The
      license agreement requires us to make upfront and future payments totaling
      up to
      $6.1 million upon the achievement of certain milestones should Talotrexin be
      granted approval by the FDA of an NDA. Additionally, we are obligated to pay
      royalties of 3.5% based on net sales (as defined in the license agreement)
      of
      Talotrexin.
We
      are
      required to use commercially reasonable efforts no less than efforts we expend
      on our other high priority projects to bring one or more licensed products
      to
      market and then continue active and diligent efforts to keep such products
      available to the public. We were required to fulfill specific diligence
      milestones, all of which we have met. We are also required to manufacture the
      licensed products substantially in the United States.
We
      have
      the rights and obligation to prepare, file, prosecute and maintain patent
      applications and patents licensed to us at our expense, and we are required
      to
      surrender our license under any patent application or patent that we elect
      not
      to prepare, file, prosecute or maintain. We have the right, but not the
      obligation, to enforce the licensed patents and to defend against alleged
      infringements, and we need DFCI's consent prior to entering into any settlement
      agreement.
We
      agreed
      to indemnify DFCI and ASI against all losses arising from the design,
      production, manufacture, sale, use in commerce, lease or promotion of any
      product, process or service relating to or developed pursuant to the license
      agreement by us or our sublicensee, affiliate or agent, or arising from any
      other activities to be carried out under the agreement, to the extent not
      attributable to the negligent activities or intentional misconduct of the
      indemnitees.
DFCI
      and
      ASI may terminate the agreement, after giving us notice and an opportunity
      to
      cure, if we commit a material breach, including failing to make a scheduled
      milestone or other payment when due, failing to meet our diligence obligations,
      ceasing to carry on our business with respect to the licensed products, or
      being
      convicted of a felony relating to the manufacture, use, sale or importation
      of
      the licensed products. The agreement also provides that it may be terminated
      if
      we become involved in a bankruptcy, insolvency or similar proceeding. We can
      terminate this agreement by giving DFCI or ASI 90-day prior written notice.
      In
      the event this license agreement is terminated, we will lose all of our rights
      to develop and commercialize
Talotrexin.
The
      license agreement automatically expires on the date on which the last of the
      patent covered by the agreement expires.
Ropidoxuridine
      (IPdR)
In
      February 2004, we entered into an exclusive worldwide, royalty-bearing license
      agreement with Yale University and The Research Foundation of State University
      of New York, or SUNY for
ropidoxuridine
      (IPdR)
,
      including the right to grant sublicenses. Yale and SUNY reserved the rights
      to
      make, use and practice the licensed patents for academic research purposes.
      We
      are under an obligation to manufacture any licensed products substantially
      in
      the United States.
16
Under
      the
      agreement, we are required to use all reasonable commercial efforts to conduct
      research and development, testing, government approval, manufacturing, marketing
      and selling of licensed products and/or licensed methods pursuant to a plan
      that
      we committed to upon signing of the agreement. We have also agreed on certain
      specific diligence milestones, and to date we have not breached any of them.
      Yale University and SUNY may terminate this agreement and our license for our
      failure to meet our diligence obligations if we also have not incurred direct
      expenditures towards the development and commercialization of a licensed product
      and/or licensed method up to a certain amount each year starting in
      2005.
The
      license agreement requires us to make upfront and future payments of up to
      $600,000, in the aggregate, upon the achievement of certain milestones should
ropidoxuridine
be
      granted approval by the FDA of an NDA. In addition, upon execution of the
      agreement, we issued to our Yale University and SUNY 10-year options to purchase
      an aggregate of approximately 141,000 shares of our common stock at a price
      of
      $1.02 per share. We are also required to make an annual license payment of
      $25,000 on the anniversary of the agreement. Additionally, we are obligated
      to
      pay royalties of 3% on sales, if any, of
ropidoxuridine
.
Under
      the
      agreement, we have the rights and obligations to file, prosecute and maintain
      the licensed patents at our expenses. We also have the rights and obligations
      to
      enforce the licensed patents against third party infringers.
We
      are
      required to indemnify Yale University and SUNY for all losses resulting from
      the
      production, manufacture, sale, use, lease or other disposition or consumption
      or
      advertisement of the licensed products or licensed methods by us, our
      affiliates, sublicensees or any other transferees, or in connection with any
      statement, representation or warranty of the licensed products or licensed
      methods made by us and such related parties, to the extent such losses do not
      arise from the Yale University's or SUNY's gross negligence or willful
      misconduct.
Yale
      University and SUNY may terminate the agreement, after giving us notice and
      an
      opportunity to cure, if we commit a material breach, including failing to make
      scheduled payments, or terminate the agreement without giving us the opportunity
      to cure for our failure to obtain or maintain adequate insurance, or our
      involvement in a bankruptcy. We have the right to terminate this agreement
      with
      90-day written notice or within 60 days for our licensors' uncured material
      breach. In the event this license agreement is terminated, we will lose all
      of
      our rights to develop and commercialize
ropidoxuridine.
The
      license agreement automatically expires, on a country-by-country basis, on
      the
      date on which the last of the patent claims covered by the agreement expires,
      lapses or is declared invalid by a court of competent jurisdiction in such
      country. In the United States, a patent currently expired due to an
      unintentionally delayed payment of a maintenance fee with the U.S. Patent and
      Trademark Office would, if reinstated, be the latest U.S. patent to expire.
      A
      petition has been filed with the U.S. Patent and Trademark Office to accept
      an
      unintentionally delayed payment of maintenance fee. If reinstated, the U.S.
      patent will expire in May 2015.
Intellectual
      Property
General
Patents
      and other proprietary rights are very important to the development of our
      business. We will be able to protect our proprietary technologies from
      unauthorized use by third parties only to the extent that our proprietary rights
      are covered by valid and enforceable patents or are effectively maintained
      as
      trade secrets. It is our intention to seek and maintain patent and trade secret
      protection for our drug candidates and our proprietary technologies. As part
      of
      our business strategy, our policy is to actively file patent applications in
      the
      United States and internationally to cover methods of use, new chemical
      compounds, pharmaceutical compositions and dosing of the compounds and
      compositions and improvements in each of these. We also rely on trade secret
      information, technical know-how, innovation and agreements with third parties
      to
      continuously expand and protect our competitive position. We own, or license
      the
      rights to, a number of patents and patent applications related to our product
      candidates, but we cannot be certain that issued patents will be enforceable
      or
      provide adequate protection or that the pending patent applications will issue
      as patents.
The
      patent positions of biotechnology and pharmaceutical companies are highly
      uncertain and involve complex legal and factual questions. Therefore, we cannot
      predict with certainty the breadth of claims allowed in biotechnology and
      pharmaceutical patents, or their enforceability. To date, there has been no
      consistent policy regarding the breadth of claims allowed in biotechnology
      patents. Third parties or competitors may challenge or circumvent our patents
      or
      patent applications, if issued. If our competitors prepare and file patent
      applications in the United States that claim technology also claimed by us,
      we
      may have to participate in interference proceedings declared by the United
      States Patent and Trademark Office to determine priority of invention, which
      could result in substantial cost, even if the eventual outcome is favorable
      to
      us. Because of the extensive time required for development, testing and
      regulatory review of a potential product, it is possible that before we
      commercialize any of our product candidates, any related patent may expire
      or
      remain in existence for only a short period following commercialization, thus
      reducing any advantage of the patent.
17
If
      patents are issued to others containing preclusive or conflicting claims and
      these claims are ultimately determined to be valid, we may be required to obtain
      licenses to these patents or to develop or obtain alternative technology. Our
      breach of an existing license or failure to obtain a license to technology
      required to commercialize our products may seriously harm our business. We
      also
      may need to commence litigation to enforce any patents issued to us or to
      determine the scope and validity of third-party proprietary rights. Litigation
      would create substantial costs. An adverse outcome in litigation could subject
      us to significant liabilities to third parties and require us to seek licenses
      of the disputed rights from third parties or to cease using the technology
      if
      such licenses are unavailable.
Zensana
Our
      license with NovaDel Pharma, Inc. relating to Zensana covers two issued U.S.
      patents covering compositions of matter and methods of use, both of which expire
      in 2017, and six related pending U.S. patent applications. If issued, all of
      the
      pending patent applications would expire in 2017 and cover methods of use,
      and
      three applications would additionally cover compositions of matter. The current
      clinical candidate formulation is covered by one issued U.S. patent covering
      compositions of matter, and if issued, four pending applications covering
      methods of use, two of which also cover compositions of matter.
We
      are aware of certain United States patents that relate to ondansetron
      compositions and uses therefor to treat nausea and vomiting.  These patents
      pertain to Zofran, an FDA-approved first generation 5-HT3 antagonist product
      upon which we intend to file our NDA application for Zensana under Section
      505(b)(2) of the FDCA. Certain of these patents are due to expire in advance
      of
      our planned commercial launch of Zensana in the United States in the first
      half
      of 2007. Upon commercialization, if Zensana or its commercial use or production
      meets all of the requirements of any of the claims of the aforementioned patents
      or any other patents, or patents that may issue from related patent applications
      or any other patent applications, then we may need a license to one or more
      of
      these patents. If any licenses are required, there can be no assurance that
      we
      will be able to obtain any such license on commercially favorable terms, if
      at
      all, and if these licenses are not obtained, we might be prevented from
      commercializing Zensana.
Sphingosomal
      product candidates
Pursuant
      to our license agreement with Inex Pharmaceuticals Corporation and related
      sublicense with UBC, we have exclusive rights to 5 issued U.S. patents and
      1
      allowed U.S. patent application, 53 issued foreign patents, 9 pending U.S.
      patent applications and 24 pending foreign applications, covering composition
      of
      matter, method of use and treatment, formulation and process. These patents
      and
      patent applications cover sphingosome based pharmaceutical compositions
      including sphingosomal vincristine (Marquibo), sphingosomal vinorelbine and
      sphingosomal topotecan, formulation, dosage, process of making the liposome
      compositions, and methods of use of the compositions in the treatment cancer,
      relapsed cancer, and solid tumors. The earliest of these issued patents expires
      in 2014 and the last of the issued patents expires in 2020. If the allowed
      U.S.
      patent application issues, it will expire in 2021.
Talotrexin
Under
      our
      license agreement with the Dana-Farber Cancer Institute, Inc. and Ash Stevens,
      Inc., we have exclusive, worldwide rights to two issued U.S. patents and two
      pending U.S. patent applications that relate to Talotrexin and particular uses
      of Talotrexin according to the Company's business plan. Both issued patents
      include composition of matter claims and one of them also includes claims to
      methods of using Talotrexin to treat leukemia or cancers involving lymphoblasts.
      The earlier of the issued patents is currently scheduled to expire in January
      2007. The later of the two issued patents is currently scheduled to expire
      in
      2023. If either or both of the pending patent applications issues, the issued
      patent or patents would be scheduled to expire in 2023. In addition, in 2005,
      we
      filed two U.S. provisional patent applications directed primarily to particular
      methods of using Talotrexin. If any U.S. patent claiming priority to one or
      both
      of these provisional patent applications issues, such a patent would be
      scheduled to expire in 2026. A PCT application claiming priority to these two
      provisional patent applications is currently pending. Moreover, a U.S. patent
      application directed to methods of treating inflammatory diseases is currently
      pending. Should this application issue to a U.S. patent, the patent would be
      scheduled to expire in 2023.
18
Ropidoxuridine
We
      have
      exclusive, worldwide rights to two issued U.S. patents to ropidoxuridine
      pursuant to our license agreement with Yale University and the State University
      of New York. One of the issued patents covers a composition of matter and
      expires in January 2007. The other issued patent, directed to methods of use,
      is
      currently expired due to an unintentionally delayed payment of a maintenance
      fee
      with the U.S. Patent and Trademark Office. A petition has been filed with the
      U.S. Patent & Trademark Office, which, if granted, will reinstate the
      patent. Upon reinstatement, the patent would be scheduled to expire in 2015.
      In
      addition, in 2006, we have filed two U.S. provisional patent applications
      directed primarily to particular methods of use of ropodoxuridine. If any U.S.
      patent claiming priority to one or both of these provisional patent applications
      issues, such a patent would be scheduled to expire in 2026 or 2027.
Other
      Intellectual Property Rights
We
      also
      depend upon trademarks, trade secrets, know-how and continuing technological
      advances to develop and maintain our competitive position. To maintain the
      confidentiality of trade secrets and proprietary information, we require our
      employees, scientific advisors, consultants and collaborators, upon commencement
      of a relationship with us, to execute confidentiality agreements and, in the
      case of parties other than our research and development collaborators, to agree
      to assign their inventions to us. These agreements are designed to protect
      our
      proprietary information and to grant us ownership of technologies that are
      developed in connection with their relationship with us. These agreements may
      not, however, provide protection for our trade secrets in the event of
      unauthorized disclosure of such information.
In
      addition to patent protection, we may utilize orphan drug regulations to provide
      market exclusivity for certain of our product candidates. The orphan drug
      regulations of the FDA provide incentives to pharmaceutical and biotechnology
      companies to develop and manufacture drugs for the treatment of rare diseases,
      currently defined as diseases that exist in fewer than 200,000 individuals
      in
      the United States, or, diseases that affect more than 200,000 individuals in
      the
      United States but that the sponsor does not realistically anticipate will
      generate a net profit. Under these provisions, a manufacturer of a designated
      orphan drug can seek tax benefits, and the holder of the first FDA approval
      of a
      designated orphan product will be granted a seven-year period of marketing
      exclusivity for such FDA-approved orphan product. We believe that certain of
      the
      indications for our product candidates will be eligible for orphan drug
      designation; however, we cannot assure you that our drugs will obtain such
      orphan drug designation or will be the first to reach the market and provide
      us
      with such market exclusivity protection.
Government
      Regulation and Product Approval
The
      FDA
      and comparable regulatory agencies in state and local jurisdictions and in
      foreign countries impose substantial requirements upon the
testing
      (preclinical and clinical), manufacturing, labeling, storage, recordkeeping,
      advertising, promotion, import, export, marketing and distribution, among other
      things,
of drugs
      and drug product candidates.
If
      we do not comply with applicable requirements, we may be fined, the government
      may refuse to approve our marketing applications or allow us to manufacture
      or
      market our products, and we may be criminally prosecuted.
We
      and our manufacturers may also be subject to regulations under other United
      States federal, state, and local laws.
United
      States Government Regulation
In
      the
      United States, the FDA regulates drugs under the FDCA and implementing
      regulations. The process required by the FDA before our drug candidates may
      be
      marketed in the United States generally involves the following (although the
      FDA
      is given wide discretion to impose different or more stringent requirements
      on a
      case-by-case basis):
·
completion
                of extensive preclinical laboratory tests, preclinical animal studies
                and
                formulation studies, all performed in accordance with the FDA's good
                laboratory practice regulations and other
                regulations;
·
submission
                to the FDA of an IND application which must become effective before
                clinical trials may begin;
·
performance
                of multiple adequate and well-controlled clinical trials meeting
                FDA
                requirements to establish the safety and efficacy of the product
                candidate
                for each proposed indication;
19
·
submission
                of an NDA to the FDA;
·
satisfactory
                completion of an FDA pre-approval inspection of the manufacturing
                facilities at which the product candidate is produced, and potentially
                other involved facilities as well, to assess compliance with current
                good
                manufacturing practice, or cGMP, regulations and other applicable
                regulations; and
·
the
                FDA review and approval of the NDA prior to any commercial marketing,
                sale
                or shipment of the drug.
The
      testing and approval process requires substantial time, effort and financial
      resources, and we cannot be certain that any approvals for our drug candidates
      will be granted on a timely basis, if at all. Risks to us related to these
      regulations are described on pages S-11 through S-17 of this prospectus
      supplement.
Preclinical tests may include laboratory evaluation of product chemistry,
      formulation and stability, as well as studies to evaluate toxicity and other
      effects in animals. The results of preclinical tests, together with
      manufacturing information and analytical data, among other information, are
      submitted to the FDA as part of an IND application. Subject to certain
      exceptions, an IND becomes effective 30 days after receipt by the FDA,
      unless the FDA, within the 30-day time period, issues a clinical hold to delay
      a
      proposed clinical investigation due to concerns or questions about the conduct
      of the clinical trial, including concerns that human research subjects will
      be
      exposed to unreasonable health risks. In such a case, the IND sponsor and the
      FDA must resolve any outstanding concerns before the clinical trial can begin.
      Our submission of an IND, or those of our collaboration partners, may not result
      in the FDA authorization to commence a clinical trial. A separate submission
      to
      an existing IND must also be made for each successive clinical trial conducted
      during product development. The FDA must also approve changes to an existing
      IND. Further, an independent institutional review board, or IRB, for each
      medical center proposing to conduct the clinical trial must review and approve
      the plan for any clinical trial before it commences at that center and it must
      monitor the study until completed. The FDA, the IRB or the sponsor may suspend
      a
      clinical trial at any time on various grounds, including a finding that the
      subjects or patients are being exposed to an unacceptable health risk. Clinical
      testing also must satisfy extensive Good Clinical Practice requirements and
      regulations for informed consent.
Clinical
      Trials
For
      purposes of NDA submission and approval, clinical trials are typically conducted
      in the following three sequential phases, which may overlap (although additional
      or different trials may be required by the FDA as well):
·
Phase I
                clinical trials
are
                initially conducted in a limited population to test the drug candidate
                for
                safety, dose tolerance, absorption, metabolism, distribution and
                excretion
                in healthy humans or, on occasion, in patients, such as cancer patients.
                In some cases, particularly in cancer trials, a sponsor may decide
                to
                conduct what is referred to as a "Phase Ib" evaluation, which is a
                second safety-focused Phase I clinical trial typically designed to
                evaluate the impact of the drug candidate in combination with currently
                FDA-approved drugs.
·
Phase II
                clinical trials
are
                generally conducted in a limited patient population to identify possible
                adverse effects and safety risks, to determine the efficacy of the
                drug
                candidate for specific targeted indications and to determine dose
                tolerance and optimal dosage. Multiple Phase II clinical trials may
                be conducted by the sponsor to obtain information prior to beginning
                larger and more expensive Phase III clinical trials. In some cases, a
                sponsor may decide to conduct what is referred to as a "Phase IIb"
                evaluation, which is a second, confirmatory Phase II clinical trial
                that could, if positive and accepted by the FDA, serve as a pivotal
                clinical trial in the approval of a drug candidate.
·
Phase III
                clinical trials
are
                commonly referred to as pivotal trials. When Phase II clinical trials
                demonstrate that a dose range of the drug candidate is effective
                and has
                an acceptable safety profile, Phase III clinical trials are
                undertaken in large patient populations to further evaluate dosage,
                to
                provide substantial evidence of clinical efficacy and to further
                test for
                safety in an expanded and diverse patient population at multiple,
                geographically dispersed clinical trial sites.
In
      some
      cases, the FDA may condition continued approval of an NDA on the sponsor's
      agreement to conduct additional clinical trials with due diligence. In other
      cases, the sponsor and the FDA may agree that additional safety and/or efficacy
      data should be provided; however, continued approval of the NDA may not always
      depend on timely submission of such information. Such post-approval studies
      are
      typically referred to as Phase IV studies.
20
New
      Drug Application
The
      results of drug candidate development, preclinical testing and clinical
      trials
,
      together with, among other things, detailed information on the manufacture
      and
      composition of the product and proposed labeling,
and
      the
payment
      of a user fee,
are
      submitted to the FDA as part of an NDA.
The
      FDA reviews all NDAs submitted before it accepts them for filing and may request
      additional information rather than accepting an NDA for filing. Once an NDA
      is
      accepted for filing, the FDA begins an in-depth review of the
      application.
During
      its review of an NDA, the FDA may refer the application to an advisory committee
      for review, evaluation and recommendation as to whether the application should
      be approved. The FDA may
refuse
      to approve an NDA and issue a not approvable letter
if
      the
      applicable regulatory criteria are not satisfied, or it may require additional
      clinical or other data, including one or more additional pivotal Phase III
      clinical trials. Even if such data are submitted, the FDA may ultimately decide
      that the NDA does not satisfy the criteria for approval. Data from clinical
      trials are not always conclusive and the FDA may interpret data differently
      than
      we or our collaboration partners interpret data.
If
      the FDA's evaluations of the NDA and the clinical and manufacturing procedures
      and facilities are favorable, the FDA may issue either an approval letter or
      an
      approvable letter, which contains the conditions that must be met in order
      to
      secure final approval of the NDA. If and when those conditions have been met
      to
      the FDA's satisfaction, the FDA will issue an approval letter, authorizing
      commercial marketing of the drug for certain indications.
The
      FDA
      may withdraw drug approval if ongoing regulatory requirements are not met or
      if
      safety problems occur after the drug reaches the market. In addition, the FDA
      may require testing, including Phase IV clinical trials, and surveillance
      programs to monitor the effect of approved products that have been
      commercialized, and the FDA has the power to prevent or limit further marketing
      of a drug based on the results of these post-marketing programs. Drugs may
      be
      marketed only for the FDA-approved indications and in accordance with the
      FDA-approved label. Further, if there are any modifications to the drug,
      including changes in indications, other labeling changes, or manufacturing
      processes or facilities, we may be required to submit and obtain FDA approval
      of
      a new NDA or NDA supplement, which may require us to develop additional data
      or
      conduct additional preclinical studies and clinical trials.
Section 505(b)(2)
      New Drug Applications
As
      an alternate path to FDA approval of, for example, new indications or improved
      formulations of previously-approved products, under certain circumstances a
      company may submit a Section 505(b)(2) NDA, instead of a "stand-alone" or
"full" 505(b)(1) NDA. Section 505(b)(2) of the FDCA was enacted as part of
      the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise
      known as the Hatch-Waxman Act. Section 505(b)(2) permits the submission of
      an NDA where at least some of the information required for approval comes from
      studies not conducted by or for the applicant and for which the applicant has
      not obtained a right of reference. For example, the Hatch-Waxman Act permits
      an
      applicant to rely upon the FDA's findings of safety and effectiveness for an
      approved product. The FDA may also require companies to perform one or more
      additional studies or measurements to support the change from the approved
      product. The FDA may then approve the new formulation for all or some of the
      label indications for which the referenced product has been approved, or a
      new
      indication sought by the Section 505(b)(2) applicant.
To
      the extent that the Section 505(b)(2) applicant is relying on the FDA's
      findings for an already-approved product, the applicant is required to certify
      to the FDA concerning any patents listed for the approved product in the FDA's
      Orange Book publication. Specifically, the applicant must certify that:
      (1) the required patent information has not been filed (paragraph I
      certification); (2) the listed patent has expired (paragraph II
      certification); (3) the listed patent has not expired, but will expire on a
      particular date and approval is sought after patent expiration (paragraph III
      certification); or (4) the listed patent is invalid or will not be
      infringed by the manufacture, use or sale of the new product (paragraph IV
      certification). If the applicant does not challenge the listed patents, the
      Section 505(b)(2) application will not be approved until all the listed
      patents claiming the referenced product have expired, and once any pediatric
      exclusivity expires. The Section 505(b)(2) application may also not be
      approved until any non-patent
exclusivity,
      such as exclusivity for obtaining approval of a new chemical entity, listed
      in
      the Orange Book for the referenced product has expired.
If
      the applicant has provided a paragraph IV certification to the FDA, the
      applicant must also send notice of the paragraph IV certification to the
      NDA holder and patent owner once the NDA has been accepted for filing by the
      FDA. The NDA holder and patent owner may then initiate a legal challenge to
      the
      paragraph IV certification. The filing of a patent infringement lawsuit
      within 45 days of their receipt of a paragraph IV certification
      automatically prevents the FDA from approving the Section 505(b)(2) NDA
      until the earliest of 30 months, expiration of the patent, settlement of
      the lawsuit or a decision in an infringement case that is favorable to the
      Section 505(b)(2) applicant. Thus, a Section 505(b)(2) applicant may
      invest a significant amount of time and expense in the development of its
      products only to be subject to significant delay and patent litigation before
      its products may be commercialized. Alternatively, if the NDA holder or patent
      owner does not file a patent infringement lawsuit within the required 45-day
      period, the applicant's NDA will not be subject to the 30-month stay.
21
Notwithstanding
      the approval of many products by the FDA pursuant to Section 505(b)(2),
      over the last few years, certain brand-name pharmaceutical companies and others
      have objected to the FDA's interpretation of Section 505(b)(2). If the FDA
      changes its interpretation of Section 505(b)(2), this could delay or even
      prevent the FDA from approving any Section 505(b)(2) NDA that we submit.
We
      intend
      to submit a Section 505(b)(2) NDA for Zensana in the second quarter of 2006.
      The
      safety and efficacy of the drug will be based on a demonstration of the
      bioequivalence of Zensana to oral ondansetron, marketed under the tradename
      Zofran. This Zofran formulation is protected by two unexpired patents, one
      of
      which will expire in June 2006, and that is subject to a period of pediatric
      exclusivity expiring in December 2006. The second patent is scheduled to expire
      in September 2011, and is subject to a period of pediatric exclusivity expiring
      in March 2012. We anticipate that our Section 505(b)(2) NDA will contain a
      paragraph III certification acknowledging that the first patent will expire
      in
      December 2006, and a paragraph IV certification to the second patent. Based
      on
      the paragraph IV certification, it is possible that the NDA holder or the patent
      owner will sue us for patent infringement, and that
the
      FDA will be prevented from approving our application until the earliest of
      30 months, settlement of the lawsuit, or a decision in an infringement case
      that is favorable to us.
The
      Hatch-Waxman Act
Under
      the Hatch-Waxman Act, newly-approved drugs and new conditions of use may benefit
      from a statutory period of non-patent marketing exclusivity. The Hatch-Waxman
      Act provides five-year marketing exclusivity to the first applicant to gain
      approval of an NDA for a new chemical entity, meaning that the FDA has not
      previously approved any other new drug containing the same active entity. The
      Hatch-Waxman Act prohibits the submission of an abbreviated NDA, or ANDA, or
      a
      Section 505(b)(2) NDA for another version of such drug during the five-year
      exclusive period; however, submission of a Section 505(b)(2) NDA or an ANDA
      for a generic version of a previously-approved drug containing a
      paragraph IV certification is permitted after four years, which may trigger
      a 30-month stay of approval of the ANDA or Section 505(b)(2) NDA.
      Protection under the Hatch-Waxman Act does not prevent the submission or
      approval of another "full" 505(b)(1) NDA; however, the applicant would be
      required to conduct its own preclinical and adequate and well-controlled
      clinical trials to demonstrate safety and effectiveness. The Hatch-Waxman Act
      also provides three years of marketing exclusivity for the approval of new
      and
      supplemental NDAs, including Section 505(b)(2) NDAs, for, among other
      things, new indications, dosages, or strengths of an existing drug, if new
      clinical investigations that were conducted or sponsored by the applicant are
      essential to the approval of the application. Some of our product candidates
      may
      qualify for Hatch-Waxman non-patent marketing exclusivity.
In
      addition to non-patent marketing exclusivity, the Hatch-Waxman Act amended
      the
      FDCA to
require
      each NDA sponsor to submit with its application information on any patent that
      claims the drug for which the applicant submitted the NDA or that claims a
      method of using such drug and with respect to which a claim of patent
      infringement could reasonably be asserted if a person not licensed by the owner
      engaged in the manufacture, use, or sale of the drug. Generic applicants that
      wish to rely on the approval of a drug listed in the Orange Book must certify
      to
      each listed patent, as discussed above. We intend to submit for Orange Book
      listing all relevant patents for our product candidates.
Finally,
the
      Hatch-Waxman Act amended the patent laws so that
certain
      patents related to products regulated by the FDA are eligible for a patent
      term
      extension if patent life was lost during a period when the product was
      undergoing regulatory review, and if certain criteria are met. We intend to
      seek
      patent term extensions, provided our patents and products, if they are approved,
      meet applicable eligibility requirements.
Pediatric
      Studies and Exclusivity
The
      FDCA provides an additional six months of non-patent marketing exclusivity
      and
      patent protection for any such protections listed in the Orange Book for new
      or
      marketed drugs if a sponsor conducts specific pediatric studies at the written
      request of the FDA. The Pediatric Research Equity Act of 2003, or PREA,
      authorizes the FDA to require pediatric studies for drugs to ensure the drugs'
safety and efficacy in children. PREA requires that certain new NDAs or NDA
      supplements contain data assessing the safety and effectiveness for the claimed
      indication in all relevant pediatric subpopulations. Dosing and administration
      must be supported for each pediatric subpopulation for which the drug is safe
      and effective. The FDA may also require this data for approved drugs that are
      used in pediatric patients for the labeled indication, or where there may be
      therapeutic benefits over existing products. The FDA may grant deferrals for
      submission of data, or full or partial waivers from PREA. PREA pediatric
      assessments may qualify for pediatric exclusivity. Unless otherwise required
      by
      regulation, PREA does not apply to any drug for an indication with orphan
      designation. We intend to seek a PREA deferral for any pediatric age groups
      that
      might not be covered by the Zensana approval, but for which the FDA requires
      a
      pediatric assessment. We may also seek pediatric exclusivity for conducting
      any
      required pediatric assessments.
22
Orphan
      Drug Designation and Exclusivity
The
      FDA
      may grant orphan drug designation to drugs intended to treat a rare disease
      or
      condition, which generally is a disease or condition that affects fewer than
      200,000 individuals in the United States. Orphan drug designation must be
      requested before submitting an NDA. If the FDA grants orphan drug designation,
      which it may not, the identity of the therapeutic agent and its potential orphan
      use are publicly disclosed by the FDA. Orphan drug designation does not convey
      an advantage in, or shorten the duration of, the review and approval process.
      If
      a product which has an orphan drug designation subsequently receives the first
      FDA approval for the indication for which it has such designation, the product
      is entitled to seven years of orphan drug exclusivity, meaning that the FDA
      may
      not approve any other applications to market the same drug for the same
      indication for a period of seven years,
except
      in limited
circumstances,
      such as a showing of clinical superiority to the product with orphan exclusivity
      (superior efficacy, safety, or a major contribution to patient care). Orphan
      drug designation does not prevent competitors from developing or marketing
      different drugs for that indication. The FDA granted our applications for orphan
drug
      designation for Talotrexin for ALL
in
      May 2006, and for ropidoxuridine for gioblastoma in June 2006.
Under
      European Union medicines laws, the criteria for designating a product as an
      "orphan medicine" are similar but somewhat different from those in the United
      States. A drug is designated as an orphan drug if the sponsor can establish
      that
      the drug is intended for a life-threatening or chronically debilitating
      condition affecting no more than five in 10,000 persons in the European Union
      or
      that is unlikely to be profitable, and if there is no approved satisfactory
      treatment or if the drug would be a significant benefit to those persons with
      the condition. Orphan medicines are entitled to ten years of marketing
      exclusivity, except under certain limited circumstances comparable to United
      States law. During this period of marketing exclusivity, no "similar"
product, whether or not supported by full safety and efficacy data, will be
      approved unless a second applicant can establish that its product is safer,
      more
      effective or otherwise clinically superior. This period may be reduced to six
      years if the conditions that originally justified orphan designation change
      or
      the sponsor makes excessive profits.
Fast
      Track Designation
The
      FDA's
      fast track program is intended to facilitate the development and to expedite
      the
      review of drugs that are intended for the treatment of a serious or
      life-threatening condition and that demonstrate the potential to address unmet
      medical needs. Under the fast track program,
applicants
      may seek traditional approval for a product based on data demonstrating an
      effect on a clinically meaningful endpoint, or approval based on a
      well-established surrogate endpoint.
The
      sponsor of a new drug candidate may request the FDA to designate the drug
      candidate for a specific indication as a fast track drug
at
      the time of original submission of its IND, or at any time thereafter prior
      to
      receiving marketing approval of a marketing application
.
      The FDA
      will determine if the drug candidate qualifies for fast track designation within
      60 days of receipt of the sponsor's request.
If
      the
      FDA grants fast track designation, it may initiate review of sections of an
      NDA
      before the application is complete. This so-called "rolling review" is available
      if the applicant provides and the FDA approves a schedule for the submission
      of
      the remaining information and the applicant has paid applicable user fees.
      The
      FDA's PDUFA review clock for both a standard and priority NDA for a fast track
      product does not begin until the complete application is submitted.
      Additionally, fast track designation may be withdrawn by the FDA if it believes
      that the designation is no longer supported by emerging data,
or
      if the designated drug development program is no longer being
      pursued.
In
      some cases, a fast track designated drug candidate may also qualify for one
      or
      more of the following programs:
·
Priority
                Review.
As
                explained above, a drug candidate may be eligible for a six-month
                priority
                review. The FDA assigns priority review status to an application
                if the
                drug candidate provides a significant improvement compared to marketed
                drugs in the treatment, diagnosis or prevention of a disease. A fast
                track
                drug would ordinarily meet the FDA's criteria for priority review, but may
                also be assigned a standard review. We do not know whether any of
                our drug
                candidates will be assigned priority review status or, if priority
                review
                status is assigned, whether that review or approval will be faster
                than
                conventional FDA procedures, or that the FDA will ultimately approve
                the
                drug.
23
·
Accelerated
                Approval.
Under
                the FDA's accelerated approval regulations, the FDA is authorized to
                approve drug candidates that have been studied for their safety and
                efficacy in treating serious or life-threatening illnesses and that
                provide meaningful therapeutic benefit to patients over existing
                treatments based upon either a surrogate endpoint that is reasonably
                likely to predict clinical benefit or on the basis of an effect on
                a
                clinical endpoint other than patient survival or irreversible morbidity.
                In clinical trials, surrogate endpoints are alternative measurements
                of
                the symptoms of a disease or condition that are substituted for
                measurements of observable clinical symptoms. A drug candidate approved
                on
                this basis is subject to rigorous post-marketing compliance requirements,
                including the completion of Phase IV or post-approval clinical trials
                to validate the surrogate endpoint or confirm the effect on the clinical
                endpoint. Failure to conduct required post-approval studies with
                due
                diligence, or to validate a surrogate endpoint or confirm a clinical
                benefit during post-marketing studies, may cause the FDA to seek
                to
                withdraw the drug from the market on an expedited basis. All promotional
                materials for drug candidates approved under accelerated regulations
                are
                subject to prior review by the FDA.
When
      appropriate, we and our collaboration partners intend to seek fast track
      designation, accelerated approval or priority review for our drug candidates.
      We
      cannot predict whether any of our drug candidates will obtain fast track,
      accelerated approval, or priority review designation, or the ultimate impact,
      if
      any, of these expedited review mechanisms on the timing or likelihood of the
      FDA
      approval of any of our drug candidates.
Satisfaction
      of the FDA regulations and approval requirements or similar requirements of
      foreign regulatory agencies typically takes several years, and the actual time
      required may vary substantially based upon the type, complexity and novelty
      of
      the product or disease. Typically, if a drug candidate is intended to treat a
      chronic disease, as is the case with some of the drug candidates we are
      developing, safety and efficacy data must be gathered over an extended period
      of
      time. Government regulation may delay or prevent marketing of drug candidates
      for a considerable period of time and impose costly procedures upon our
      activities. The FDA or any other regulatory agency may not grant approvals
      for
      changes in dosage form or new indications for our drug candidates on a timely
      basis, or at all. Even if a drug candidate receives regulatory approval, the
      approval may be significantly limited to specific disease states, patient
      populations and dosages. Further, even after regulatory approval is obtained,
      later discovery of previously unknown problems with a drug may result in
      restrictions on the drug or even complete withdrawal of the drug from the
      market. Delays in obtaining, or failures to obtain, regulatory approvals for
      any
      of our drug candidates would harm our business. In addition, we cannot predict
      what adverse governmental regulations may arise from future United States or
      foreign governmental action.
Special
      Protocol Assessment
The
      FDCA directs the FDA to meet with sponsors, pursuant to a sponsor's written
      request, for the purpose of reaching agreement on the design and size of
      clinical trials intended to form the primary basis of an efficacy claim in
      an
      NDA. If an agreement is reached, the FDA will reduce the agreement to writing
      and make it part of the administrative record. This agreement is called a
      special protocol assessment, or SPA. W
hile
      the
      FDA's guidance on SPAs states that documented SPAs should be considered binding
      on the review division, the FDA has the latitude to change its assessment if
      certain exceptions apply. Exceptions include identification of a substantial
      scientific issue essential to safety or efficacy testing that later comes to
      light, a sponsor's failure to follow the protocol agreed upon, or the FDA's
      reliance on data, assumptions or information that are determined to be wrong.
      We
      intend to pursue an SPA prior to the initiation of our Phase III clinical trial
      for Marqibo.
24
Other
      Regulatory Requirements
Any
      drugs
      manufactured or distributed by us or our collaboration partners pursuant to
      future FDA approvals are subject to continuing regulation by the FDA, including
      recordkeeping requirements and reporting of adverse experiences associated
      with
      the drug. Drug manufacturers and their subcontractors are required to register
      with the FDA and certain state agencies, and are subject to periodic unannounced
      inspections by the FDA and certain state agencies for compliance with ongoing
      regulatory requirements, including cGMP, which impose certain procedural and
      documentation requirements upon us and our third-party manufacturers. Failure
      to
      comply with the statutory and regulatory requirements can subject a manufacturer
      to possible legal or regulatory action, such as warning letters, suspension
      of
      manufacturing, sales or use, seizure of product, injunctive action or possible
      civil penalties. We cannot be certain that we or our present or future
      third-party manufacturers or suppliers will be able to comply with the cGMP
      regulations and other ongoing FDA regulatory requirements. If our present or
      future third-party manufacturers or suppliers are not able to comply with these
      requirements, the FDA may halt our clinical trials, require us to recall a
      drug
      from distribution, or withdraw approval of the NDA for that drug.
The
      FDA
      closely regulates the post-approval marketing and promotion of drugs, including
      standards and regulations for direct-to-consumer advertising, off-label
      promotion, industry-sponsored scientific and educational activities and
      promotional activities involving the Internet. A company can make only those
      claims relating to safety and efficacy that are approved by the FDA. Failure
      to
      comply with these requirements can result in adverse publicity, warning and/or
      untitled letters, corrective advertising and potential civil and criminal
      penalties.
Foreign
      Regulation
In
      addition to regulations in the United States, we will be subject to a variety
      of
      foreign regulations governing clinical trials and commercial sales and
      distribution of our future products. Whether or not we obtain FDA approval
      for a
      product, we must obtain approval of a product by the comparable regulatory
      authorities of foreign countries before we can commence clinical trials or
      marketing of the product in those countries. The approval process varies from
      country to country, and the time may be longer or shorter than that required
      for
      FDA approval. The requirements governing the conduct of clinical trials, product
      licensing, pricing and reimbursement vary greatly from country to country.
Under
      European Union regulatory systems, marketing authorizations may be submitted
      either under a centralized or mutual recognition procedure. The centralized
      procedure provides for the grant of a single marking authorization that is
      valid
      for all European Union member states. The mutual recognition procedure provides
      for mutual recognition of national approval decisions. Under this procedure,
      the
      holder of a national marking authorization may submit an application to the
      remaining member states. Within 90 days of receiving the applications and
      assessment report, each member state must decide whether to recognize approval.
In
      addition to regulations in Europe and the United States, we will be subject
      to a
      variety of foreign regulations governing clinical trials and commercial
      distribution of our future products.
Reimbursement
In
      many
      of the markets where we intend to commercialize a product following regulatory
      approval, the prices of pharmaceutical products are subject to direct price
      controls by law and to drug reimbursement programs with varying price control
      mechanisms.
In
      the
      United States, there has been an increased focus on drug pricing in recent
      years. Although there are currently no direct government price controls over
      private sector purchases in the United States, federal legislation requires
      pharmaceutical manufacturers to pay prescribed rebates on certain drugs to
      enable them to be eligible for reimbursement under certain public health care
      programs such as Medicaid. Various states have adopted further mechanisms under
      Medicaid and otherwise that seek to control drug prices, including by
      disfavoring certain higher priced drugs and by seeking supplemental rebates
      from
      manufacturers. Managed care has also become a potent force in the market place
      that increases downward pressure on the prices of pharmaceutical products.
      Federal legislation, enacted in December 2003, has altered the way in which
      physician-administered drugs covered by Medicare are reimbursed. Under the
      new
      reimbursement methodology, physicians are reimbursed based on a product's
"average sales price," or ASP. This new reimbursement methodology has generally
      led to lower reimbursement levels. The new federal legislation also has added
      an
      outpatient prescription drug benefit to Medicare, effective January 2006.
      In the interim, Congress has established a discount drug card program for
      Medicare beneficiaries. Both benefits will be provided primarily through private
      entities, which will attempt to negotiate price concessions from pharmaceutical
      manufacturers.
25
Public
      and private health care payors control costs and influence drug pricing through
      a variety of mechanisms, including through negotiating discounts with the
      manufacturers and through the use of tiered formularies and other mechanisms
      that provide preferential access to certain drugs over others within a
      therapeutic class. Payors also set other criteria to govern the uses of a drug
      that will be deemed medically appropriate and therefore reimbursed or otherwise
      covered. In particular, many public and private health care payors limit
      reimbursement and coverage to the uses of a drug that are either approved by
      the
      FDA or that are supported by other appropriate evidence (for example, published
      medical literature) and appear in a recognized drug compendium. Drug compendia
      are publications that summarize the available medical evidence for particular
      drug products and identify which uses of a drug are supported or not supported
      by the available evidence, whether or not such uses have been approved by the
      FDA. For example, in the case of Medicare coverage for physician-administered
      oncology drugs, the Omnibus Budget Reconciliation Act of 1993, with certain
      exceptions, prohibits Medicare carriers from refusing to cover unapproved uses
      of an FDA-approved drug if the unapproved use is supported by one or more
      citations in the American Hospital Formulary Service Drug Information, the
      American Medical Association Drug Evaluations, or the U.S. Pharmacopoeia Drug
      Information. Another commonly cited compendium, for example under Medicaid,
      is
      the DRUGDEX Information System.
Different
      pricing and reimbursement schemes exist in other countries. For example, in
      the
      European Union, governments influence the price of pharmaceutical products
      through their pricing and reimbursement rules and control of national health
      care systems that fund a large part of the cost of such products to consumers.
      The approach taken varies from member state to member state. Some jurisdictions
      operate positive and/or negative list systems under which products may only
      be
      marketed once a reimbursement price has been agreed. Other member states allow
      companies to fix their own prices for medicines, but monitor and control company
      profits. The downward pressure on health care costs in general, particularly
      prescription drugs, has become very intense. As a result, increasingly high
      barriers are being erected to the entry of new products, as exemplified by
      the
      National Institute for Clinical Excellence in the UK, which evaluates the data
      supporting new medicines and passes reimbursement recommendations to the
      government. In addition, in some countries cross-border imports from low-priced
      markets (parallel imports) exert a commercial pressure on pricing within a
      country.
Competition
We
      compete primarily in the segment of the biopharmaceutical market that addresses
      cancer and cancer supportive care, which is highly competitive. We face
      significant competition from many pharmaceutical, biopharmaceutical and
      biotechnology companies that are researching and selling products designed
      to
      address cancer this market. Many of our competitors have significantly greater
      financial, manufacturing, marketing and drug development resources than we
      do.
      Large pharmaceutical companies in particular have extensive experience in
      clinical testing and in obtaining regulatory approvals for drugs. These
      companies also have significantly greater research capabilities than we do.
      In
      addition, many universities and private and public research institutes are
      active in cancer research.
We
      also compete with commercial biotechnology companies for the rights to product
      candidates developed by public and private research institutes. Smaller or
      early-stage companies are also significant competitors, particularly those
      with
      collaborative arrangements with large and established companies.
We
      believe that our ability to successfully compete will depend on, among other
      things:
our
          ability to develop novel compounds with
          attractive pharmaceutical properties and to secure and protect intellectual
          property rights based on our innovations;
the
          efficacy, safety and reliability of our drug
          candidates;
the
          speed at which we develop our drug candidates;
our
          ability to design and successfully complete
          appropriate clinical trials;
our
          ability to maintain a good relationship with
          regulatory authorities;
the
          timing and scope of regulatory approvals;
our
          ability to manufacture and sell commercial
          quantities of future products to the market; and
26
acceptance
          of future products by physicians and
          other healthcare providers.
Zensana
Currently
      there are four marketed antiemetic compounds which account for approximately
      $2.0 billion in sales in the United States in 2005. Zofran, marketed by
      GlaxoSmithKline, is the market leader with approximately $1.5 billion in sales
      in the United States in 2005, according to IMS. Zofran's patent and pediatric
      exclusivity period expires in December 2006 in the United States for the oral
      tablet and intravenous formulations. Kytril® (granisetron), Anzemet®
(dolasetron), and Aloxi® (palonosetron), are the other major antiemetic
      compounds that Zensana will compete with. There are several generic ondansetron
      formulations currently in development in the United States. The FDA has
      tentatively approved several generic applications, with final approval dependent
      on ongoing patent infringement litigation or the expiration of remaining
      marketing exclusivities. Most of these formulations use the generic form of
      ondansetron, granisetron (the active ingredient in Kytril). We are not aware
      of
      any version of ondansetron that is being developed as an oral
      spray.
Marqibo
If
      approved, Marqibo is expected to compete with unencapsulated vincristine, which
      is generic. Marqibo will also compete with other cytotoxic agents such as
      antimetabolites, alkylating agents, cytotoxic antibiotics, vinca alkyloids,
      platinum compounds and taxanes. In addition, Marqibo will compete with other
      cytotoxic agents that use different encapsulation technologies.
Talotrexin
If
      approved, Talotrexin is an antifolate, a class of cytotoxic or antineoplastic
      agents. Antifolates have been used clinically for more than 30 years to treat
      both solid and hematological cancers. Talotrexin is expected to compete against
      established generic antifolates, such as methotrexate, as well as new classes
      that are in development. Most notably, Alimta (pemetrexed), an antifolate
      developed by Eli Lilly, was granted accelerated approval as a single agent
      to
      treat locally advanced or metastatic non-small cell lung cancer that is
      refractory to chemotherapy in August 2004. Eli Lilly & Co. reported sales of
      Alimta in 2005 were $463.2 million.
If
      approved, Talotrexin is also expected to compete with other cytotoxic, or
      anticancer, therapies such as antimetabolites, alkylating agents, cytotoxic
      antibiotics, vinca alkaloids, platinum compounds, and taxanes. Since there
      is a
      considerable amount of overlap in their mechanisms of action, the choice of
      a
      particular agent or group of agents is generally not a consequence of a prior
      prediction of antitumor activity by the drug, but instead the result of
      empirical clinical trials.
Ropidoxuridine
      (IPdR)
Chemoradiotherapy
      using fluorouracil, or FU, has been used since the 1960s in radical and adjuvant
      treatment programs. In 2002, two million patients worldwide were treated with
      FU. If approved, Ropidoxuridine is expected to compete with generic
      radiosensitizers such as FU, as well as with novel radiosensitizers in clinical
      development, most notably Efaproxyn™, being developed by Allos Therapeutics,
      Inc., and Xcytrin®, being developed by Pharmacyclics, Inc., both of which are in
      late stage clinical trials.
Facilities
Our
      executive offices are located at 400 Oyster Point Blvd., Suite 215, South San
      Francisco, California 94080. We currently occupy this space, which consists
      of
      approximately 6,000 square feet of office space. Our lease expires on December
      31, 2006. We are currently seeking a larger facility for our executive offices,
      which we expect to occupy following the expiration of our current office lease.
      We believe that our existing facilities are adequate to meet our requirements
      through the end of 2006.
Employees
As
      of
      April 30, 2006, we had 19 full-time employees. Of such employees, 14
      people
were
      engaged in clinical and product development and 5 were engaged in sales, general
      administration and management. We believe our relations with our employees
      are
      good.
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Legal
      Proceedings
From
      time
      to time, we may become involved in litigation relating to claims arising out
      of
      our operations. We are not currently involved in any material legal
      proceedings.
SIGNATURE
Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned hereunto
      duly authorized.
Hana
                Biosciences, Inc.
Date:
                June 16, 2006
By:
/s/
John
              P. Iparraguirre
John
                P. Iparraguirre
Vice
                President, Chief Financial Officer
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