Talon Therapeutics 10Q 2007 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period to .

Commission file number 001-32626

Hana Biosciences, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or other jurisdiction of incorporation or organization)	32-0064979 (I.R.S. Employer Identification No.)

7000 Shoreline Ct., Suite 370, South San Francisco	94080
(Address of principal executive offices)	(Zip Code)

(650) 588-6404

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer o Accelerated filer x Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 14, 2007, there were 29,311,783 shares of the registrant's common stock, $.001 par value, outstanding.

INDEX

		Page
PART I	FINANCIAL INFORMATION	3

Item 1.	Unaudited Condensed Financial Statements	3

	Unaudited Condensed Balance Sheets	3

	Unaudited Condensed Statements of Operations and Other Comprehensive Loss	4

	Unaudited Condensed Statement of Changes in Stockholders' Equity	5

	Unaudited Condensed Statements of Cash Flows	6

	Notes to Unaudited Condensed Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	25

Item 4.	Controls and Procedures	25

PART II	OTHER INFORMATION	27

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Submission of Matters to a Vote of Security Holders	27

Item 5.	Other Information	27

Item 6.	Exhibits	27

	Signatures	28

	Index of Exhibits Filed with this Report	29

Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These forward-looking statements include, but are not limited to, statements about:

the development of our drug candidates, including when we expect to initiate and complete clinical trials of our product candidates;

the regulatory approval of our drug candidates;

our use of clinical research centers and other contractors;

our ability to find collaborative partners for research, development and commercialization of potential products;

acceptance of our products by doctors, patients or payors;

our ability to market any of our products;

our history of operating losses; our ability to compete against other companies and research institutions;

our ability to secure adequate protection for our intellectual property; our ability to attract and retain key personnel;

availability of reimbursement for our product candidates;

the effect of potential strategic transactions on our business; our ability to obtain adequate financing; and

the volatility of our stock price.

These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe” “intend” and similar words or phrases. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Discussions containing these forward-looking statements may be found throughout this Form 10-Q, including Part I, the section entitled “Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements involve risks and uncertainties, including the risks discussed below in Part II, Item 1A “Risk Factors,” that could cause our actual results to differ materially from those in the forward-looking statements. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document. The risks discussed below in Part II, Item 1A “Risk Factors” in our Annual report on Form 10-K for the year ended December 31, 2006, and elsewhere in this report should be considered in evaluating our prospects and future financial performance.

PART I - FINANCIAL INFORMATION

Item 1. Unaudited Condensed Financial Statements

HANA BIOSCIENCES, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED BALANCE SHEETS

	March 31,			December 31,
	2007			2006
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	21,459,215		$	29,127,850
Available-for-sale securities		6,170,000			6,131,000
Prepaid expenses and other current assets		149,293			496,519
Total current assets		27,778,508			35,755,369

Property and equipment, net		413,435			424,452
Restricted cash		125,000			125,000
Total assets	$	28,316,943		$	36,304,821

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,505,546		$	2,739,956
Accrued other expenses		1,484,351			1,547,459
Accrued personnel related expenses		525,571			1,050,657
Accrued research and development costs		556,795			596,927
Total current liabilities		4,072,263			5,934,999

Commitment and contingencies:

Stockholders' equity:
Common stock; $0.001 par value:
100,000,000 shares authorized, 29,295,117 and 29,210,627 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively		29,295			29,211
Additional paid-in capital		95,386,795			93,177,445
Accumulated other comprehensive income(loss)		(116,000	)		20,000
Deficit accumulated during the development stage		(71,055,410	)		(62,856,834	)
Total stockholders' equity		24,244,680			30,369,822
Total liabilities and stockholders' equity	$	28,316,943		$	36,304,821

See accompanying notes to unaudited condensed financial statements.

HANA BIOSCIENCES, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

(Unaudited)

		Three Months Ended March 31,						Cumulative Period from December 6, 2002 (date of inception) to March 31,
		2007			2006			2007
Operating expenses:

Selling, general and administrative	$	3,346,985		$	983,975		$	20,986,929
Research and development		5,237,904			2,578,132			51,899,947

Total operating expenses		8,584,889			3,562,107			72,886,876

Loss from operations		(8,584,889	)		(3,562,107	)		(72,886,876	)

Other income (expense):
Interest income, net		391,565			135,326			1,963,141
Other expense, net		(5,252	)		(7,892	)		(131,675	)

Total other income		386,313			127,434			1,831,466

Net loss	$	(8,198,576	)	$	(3,434,673	)	$	(71,055,410	)

Net loss per share, basic and diluted	$	(0.28	)	$	(0.15	)

Shares used in computing net loss per share, basic and diluted		29,286,139			22,456,849
Comprehensive loss:
Net loss	$	(8,198,576	)	$	(3,434,673	)
Unrealized gain (loss)		(136,000	)		224,000
Comprehensive loss	$	(8,334,576	)	$	(3,210,673	)

See accompanying notes to unaudited condensed financial statements.

HANA BIOSCIENCES, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

Period from January 1, 2007 to March 31, 2007

	Common stock
	Shares		Amount		Additional paid-in capital			Accumulated other comprehensive income (loss)			Deficit accumulated during development stage			Total stockholders' equity
Balance at January 1, 2007		29,210,627	$	29,211	$	93,177,445		$	20,000		$	(62,856,834	)	$	30,369,822
Issuance of shares upon exercise of warrants, options and restricted stock		73,068		73		(73	)		--			--			--
Stock-based compensation of employees amortized over vesting period of stock options		--		--		2,401,591			--			--			2,401,591
Issuance of shares under employee stock purchase plan		11,422		11		61,834			--			--			61,845
Share-based compensation to nonemployees for services		--		--		(137,002	)		--			--			(137,002	)
Repurchase of employee stock options		--		--		(117,000	)		--			--			(117,000	)
Net loss		--		--		--			--			(8,198,576	)		(8,198,576	)
Unrealized gain on available-for-sale securities		--		--		--			(136,000	)		--			(136,000	)

Balance at March 31, 2007		29,295,117	$	29,295	$	95,386,795		$	(116,000	)	$	(71,055,410	)	$	24,244,680

See accompanying notes to unaudited condensed financial statements.

HANA BIOSCIENCES, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

							Cumulative
							Period from
	Three Months Ended March 31,						December 6, 2002 (date of inception)
							to March 31,
	2007			2006			2007
Cash flows from operating activities:
Net loss	$	(8,198,576	)	$	(3,434,673	)	$	(71,055,410	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		39,785			12,462			219,505
Stock-based compensation of employees		2,401,591			186,397			12,479,221
Share-based compensation to nonemployees for services		(137,002	)		--			686,139
Shares issued to nonemployees - transaction fee		--			--			185,841
Services rendered for satisfaction of unearned consulting fee		--			--			212,445
Services rendered in lieu of payment of subscription receivable		--			--			36,000
Shares to be issued to employees for services rendered		--			--			249,750
Issuance of shares in partial consideration for license agreement		--			--			10,929,640
Issuance of shares in partial consideration of milestone payment		--			--			493,620
Loss on sale of capital assets		--			--			41,759
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses and other assets		347,226			(8,874	)		(149,293	)
Increase (decrease) in accounts payable		(1,234,410	)		118,532			1,505,546
Increase (decrease) in accrued and other liabilities		(628,326	)		(67,732	)		2,566,717
Net cash used in operating activities		(7,409,712	)		(3,193,888	)		(41,598,520	)

Cash flows from investing activities:
Purchase of property and equipment		(28,768	)		(75,936	)		(677,458	)
Proceeds from sale of equipment		--			--			2,760
Purchase of equity securities		--			--			(636,000	)
Purchase of marketable securities		(1,500,000	)		--			(7,575,000	)
Sale of marketable securities		1,325,000			--			1,925,000
Restricted cash deposited in escrow		--			(500,000	)		(125,000	)
Net cash used in investing activities		(203,768	)		(575,936	)		(7,085,698	)

Cash flows from financing activities:
Proceeds from registered direct financing		--			--			67,927,272
Proceeds from issuances of notes payable to stockholders		--			--			801,619
Collection of subscription receivable		--			--			4,000
Repayment of notes payable to stockholders		--			--			(651,619	)
Repurchase of employee stock options		(117,000	)		--			(117,000	)
Proceeds from exercise of warrants and options and employee stock purchase plan		61,845			561,636			2,179,161

Net cash used in financing activities		(55,155	)		561,636			70,143,433

Net (decrease) increase in cash and cash equivalents		(7,668,635	)		(3,208,188	)		21,459,215

Cash and cash equivalents, beginning of period		29,127,850			17,082,521			--
Cash and cash equivalents, end of period	$	21,459,215		$	13,874,333		$	21,459,215

Supplemental disclosures of cash flow data:
Cash paid for interest	$	1,376		$	--		$	42,406
Supplemental disclosures of noncash financing activities:
Common stock issued for repayment of debt	$	--		$	--		$	150,000
Unrealized gain on available-for-sale securities		(136,000	)		224,000			(116,000	)
Common stock issued to employees for services rendered in 2004	$	--		$	-		$	249,750
Common stock issued for services to be rendered		--			--			450,948
Common stock issued on conversion of preferred stock		--			--			2,395

See accompanying notes to unaudited condensed financial statements.

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Hana Biosciences, Inc. (“Hana” or the “Company”) is a biopharmaceutical company based in South San Francisco, California, which seeks to acquire, develop, and commercialize innovative products to enhance cancer care. The Company is committed to creating value by accelerating the development of our six lead product candidates and expanding its product candidate pipeline by being the alliance partner of choice to universities, research centers and other institutions.

Basis of Presentation

The Company is a development stage enterprise since it has not generated revenue from the sale of its products and its efforts through December 31, 2006 have been principally devoted to identification, licensing and the clinical development of its products, as well as raising capital. Accordingly, the financial statements have been prepared in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by Development Stage Enterprises.”

The accompanying unaudited condensed financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information of “publicly held companies” and, accordingly, they do not include all required disclosures for complete annual financial statements. These interim financial statements include all adjustments that the management of Hana Biosciences, Inc. (“Hana,” the “Company,” “we,” “us” or “our”) believes are necessary for a fair presentation of the periods presented. These interim financial results are not necessarily indicative of results to be expected for the full fiscal year.

The accompanying condensed financial information should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2006, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006 (the “Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on April 2, 2007. The accompanying condensed balance sheet as of December 31, 2006 has been derived from the audited balance sheet as of that date included in the Form 10-K.

Use of Management's Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates based upon current assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Examples include provisions for deferred taxes and assumptions related to share-based compensation expense. Actual results may differ materially from those estimates.

Segment Reporting

The Company has determined that it currently operates in only one segment, which is the research and development of oncology therapeutics and supportive care for use in humans. All assets are located in the United States.

Loss Per Share

Basic net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per common share is the same as basic net loss per common share, since potentially dilutive securities from stock options, stock warrants, restricted stock and convertible preferred stock would have an antidilutive effect because the Company incurred a net loss during each period presented. The number of shares potentially issuable at March 31, 2007 and 2006 upon exercise or conversion that were not included in the computation of net loss per share totaled 7,621,514 and 4,590,253, respectively.

Cash and Cash Equivalents and Available-for-sale Securities

The Company considers all highly-liquid investments with a maturity of three months or less when acquired to be cash equivalents. Short-term investments consist of investments acquired with maturities exceeding three months and are classified as available-for-sale. All short-term investments are reported at fair value, based on quoted market price, with unrealized gains or losses included in other comprehensive income (loss).

Concentration of Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, and short-term investments. The Company maintains its cash and cash equivalents with high credit quality financial institutions and short-term investments consist of U.S. government and government agency securities, corporate notes, bonds and commercial paper.

Income Taxes

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the recognition, measurement, accounting and disclosure for uncertainty in tax positions. The Company is subject to the provisions of FIN 48 as of January 1, 2007, and has analyzed filing positions in federal and state jurisdictions where it has filed income tax returns, as well as all open tax years in these jurisdictions. The Company is subject to US and California taxes for tax jurisdictions, as defined. The only periods subject to examination for the Company’s federal return are the 2003 through 2006 tax years. The periods subject to examination for the Company’s state returns in California are years 2002 through 2006. There are currently no ongoing examinations by the relevant tax authorities.

At the adoption date and as of March 31, 2007, we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. There was no interest or penalties recognized related to uncertain tax positions. The Company will account for any interest related to uncertain tax positions as interest expense, and for penalties as tax expense.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

On September 15, 2006 the Financial Accounting Standards Board (FASB) issued Statement No. 157, Fair Value Measurements. The Statement provides guidance for using fair value to measure assets and liabilities. This Statement references fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The Statement applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The Statement does not expand the use of fair value in any new circumstances. It is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of SFAS No. 157 is not expected to have a material impact on the Company’s financial statements.

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. This statement provides entities the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply the hedge accounting provisions as prescribed by SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Management is currently evaluating the impact of adopting this Statement.

NOTE 3. LIQUIDITY AND CAPITAL RESOURCES

The Company reported a net loss of $8.2 million for the three months ended March 31, 2007. The net loss from date of inception, December 6, 2002 to March 31, 2007 amounted to $71.1 million. The Company's operating activities have used $41.6 million in cash since its inception.

The Company has financed its operations since inception primarily through equity and debt financing. During the three months ended March 31, 2007, the Company had a net decrease of $7.7 million in cash and cash equivalents. This decrease primarily resulted from net cash used in operating activities of $7.4 million for the three months ended March 31, 2007. Total cash and cash equivalents and marketable securities as of March 31, 2007 were $27.6 million compared to $35.3 million at December 31, 2006.

The Company's continued operations will depend on whether it is able to continue the progression of clinical compounds, identify and acquire new and innovative oncology focused products, and whether the Company is able to successfully commercialize and sell products that have reached FDA approval. Through March 31, 2007, a significant portion of the Company's financing has been through private placements of common stock, preferred stock and debt financing. The Company will continue to fund operations from cash on hand and through the potential sale of similar sources of capital previously described. The Company can give no assurances that any additional capital that it is able to obtain will be sufficient to meet its needs. Given the current and desired pace of clinical development of the Company’s product candidates, the Company estimates that it will have sufficient cash on hand to fund clinical development through 2007 and into 2008. However, the Company may choose to raise additional capital before in order to fund its future development activities, likely by selling shares of its common stock or other securities. If the Company is unable to raise additional capital, it will likely be forced to curtail its desired development activities beyond 2007, which will delay the development of the Company's product candidates. There can be no assurance that such capital will be available to the Company on favorable terms or at all. The Company will need additional financing thereafter until it can achieve profitability, if ever.

NOTE 4. STOCKHOLDERS' EQUITY

Stock Incentive Plans. The Company has two stockholder approved stock incentive plans under which it grants or has granted options to purchase shares of its common stock and restricted stock awards to employees: the 2003 Stock Option Plan (the “2003 Plan”) and the 2004 Stock Incentive Plan (the “2004 Plan”). The Board of Directors or the chief executive officer, when designated by the Board, is responsible for administration of the Company’s employee stock incentive plans and determines the term, exercise price and vesting terms of each option. In general, stock options issued under the 2003 Plan and 2004 Plan have a vesting period of three years and expire ten years from the date of grant.

The 2003 Plan was adopted by the Company's Board of Directors in October 2003. The 2003 Plan authorizes a total of 1,410,068 shares of common stock for issuance. In May 2006, the Company's stockholders ratified and approved the 2003 Plan. The Company may make future stock option issuances from this plan.

In September 2004, the Company's Board of Directors approved and adopted the 2004 Plan, which initially authorized 2,500,000 shares of common stock for issuance. On March 31, 2006, the Board approved, subject to stockholder approval, an amendment to the 2004 Plan to increase the total number of shares authorized for issuance thereunder to 4,000,000. At May 2006 Annual Meeting, the Company's stockholders ratified and approved the 2004 Plan, as amended. The Company may make future stock option issuances from this plan.

At the May 9, 2006 Annual Meeting, the Company's Stockholders also ratified and approved the Company's 2006 Employee Stock Purchase Plan (the “2006 Plan”), which had been approved by the Company’s Board of Directors on March 31, 2006. The 2006 Plan provides the Company's eligible employees with the opportunity to purchase shares of Company common stock through lump sum payments or payroll deductions. The 2006 Plan is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. As adopted, the 2006 Plan authorized the issuance of up to a maximum of 750,000 shares of common stock. As of March 31, 2007, there have been 11,422 shares issued under the 2006 Plan.

Restricted Stock Awards The Company's Board of Directors has issued, under the 2004 Plan, 524,264 restricted stock awards as of March 31, 2007, at no cost to the Company's executive officers and directors pursuant to the 2004 Plan.

A summary of the status of the Company's restricted stock awards as of March 31, 2007 and changes during the three months ended March 31, 2007 is as follows:

Nonvested Restricted Stock Awards	Number of Shares			Weighted Average Grant-Date Fair Value
Nonvested at January 1, 2007		460,764		$	10.65
Granted		--			--
Vested		(73,068	)		9.50
Cancelled/Forfeited		--			--

Nonvested at March 31, 2007		387,696		$	10.87

Share-based Compensation. The Company currently awards stock option grants under its 2003 and 2004 Plan. Under the 2003 Plan, the Company may grant incentive and non-qualified stock options to employees, directors, consultants and service providers to purchase up to an aggregate of 1,410,068 shares of its common stock. Under the 2004 Plan, the Company may grant incentive and non-qualified stock options to employees, directors, consultants and service providers to purchase up to an aggregate of 4,000,000 shares. Historically, stock options issued under these plans primarily vest ratably on an annual basis over the vesting period, which has generally been three years.

The following table summarizes information about stock options outstanding at March 31, 2007 and changes in outstanding options in the three months then ended, all of which are at fixed prices:

	NUMBER OF SHARES SUBJECT TO OPTIONS OUTSTANDING			WEIGHTED AVERAGE EXERCISE PRICE PER SHARE		WEIGHTED AVERAGE REMAINING CONTRACTUAL TERM (in years)		AGGREGATE INTRINSIC VALUE
Outstanding January 1, 2007		5,123,917		$	4.27
Options granted		254,000			5.72
Options cancelled		(160,001	)		4.85
Options exercised		--			--
Outstanding March 31, 2007		5,217,916			4.32		8.5	$	2,013,074
Exercisable at March 31, 2007		1,984,573		$	1.83		7.5	$	1,752,771

Total stock-based compensation was approximately $2.4 million and $0.2 million related to employee stock options and restricted stock recognized in the operating results for the three months ended March 31, 2007 and 2006, respectively.

The following table summarizes information about stock options outstanding at March 31, 2007:

	Options Outstanding						Options Exercisable
	Number of Shares Subject to Options		Weighted Average		Weighted Average Remaining Contractual Life of Options		Number of Options		Weighted Average
Exercise Price	Outstanding		Exercise Price		Outstanding		Exercisable		Exercise Price
$ 0.07 - $ 1.69		1,677,669	$	0.71		7.2 yrs		1,304,746	$	0.57
$ 2.17 - $ 4.75		1,284,247		4.28		8.4 yrs		640,328		4.14
$ 4.97 - $ 7.42		2,006,500		6.69		9.6 yrs		39,499		6.00
$8.08 - $11.81		249,500		9.76		8.5 yrs		--		--
$0.07 - $11.81		5,217,916	$	4.32		8.5 yrs		1,984,573	$	1.83

Employee Stock Purchase Plan The 2006 Plan, allows employees to contribute a percentage of their gross salary toward the semi-annual purchase of shares of common stock of the Company. The price of each share will not be less than the lower of 85% of the fair market value of the Company’s common stock on the last trading day prior to the commencement of the offering period or 85% of the fair market value of the Company’s common stock on the last trading day of the purchase period. A total of 750,000 shares of common stock were initially reserved for issuance under the 2006 Plan.

Through March 31, 2007, the Company had issued 11,422 shares under the 2006 Plan. For the three months ended March 31, 2007, the total stock-based compensation expense recognized related to the 2006 Plan under SFAS 123(R) was approximately $68,000. There was no stock-based compensation realized for the same period in 2006 as the Company had not initiated the 2006 Plan until July 1, 2007.

The following table summarizes the assumptions used in applying the Black-Scholes-Merton option pricing model to determine the fair value of options granted during the three months ended March 31, 2007 and March 31, 2006, respectively:

	Three Months Ended March 31,
	2007			2006¹
*Employee stock options*
Risk-free interest rate		4.50	%		--	%
Expected life (in years)		5.5 - 6.0			--
Volatility		0.8			--
Dividend Yield		0	%		--	%
*Employee stock purchase plan*
Risk-free interest rate		4.82% -5.24	%		-
Expected life (in years)		0.5 - 2			-
Volatility		0.54 - 1.15			-
Dividend Yield		0	%		-

The Company's computation of expected volatility of employee stock options is based on historical volatilities of peer companies. Peer companies' historical volatilities are used in the determination of expected volatility due to the short trading history of the Company's common stock, which is approximately two and a half years as of March 31, 2007. In selecting the peer companies, the Company considered the following factors: industry, stage of life cycle, size, and financial leverage. For the 2006 Plan, the Company used actual volatilities as the Company had sufficient historical data for the expected term used in the Black-Scholes-Merton calculation. To determine the expected term of the Company's employee stock options granted upon adoption of SFAS 123(R) we utilized the simplified approach as defined by SEC Staff Accounting Bulletin No. 107, “Share-Based Payment” (SAB 107). This approach resulted in expected terms of 5.5 to 6 years for options granted during the three months ended March 31 2007. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

___________________

¹ For the three months ended March 31, 2006 options were granted to employees and nonemployees under the 2004 Plan that were not measured for accounting purposes until these awards were approved by shareholders on May 9, 2006, in accordance with SFAS 123(R). Thus, in the three months ended March 31, 2006, no options were valued under the Black-Scholes-Merton calculation.

Non-Employee Stock Options. The Company has also granted stock options to non-employee consultants. In accordance with Emerging Issues Task Force Issue 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services” (EITF 96-18), compensation cost for options issued to non-employee consultants is measured at each reporting period and adjusted until the commitment date is reached, being either the date that a performance commitment is reached or the performance of the consultant is complete. The Company utilized a Black-Scholes-Merton option pricing model to determine the fair value of such awards. For the three months ended March 31, 2007, the Company recognized a credit of $0.1 million of stock-based compensation expense related to stock options held by non-employee consultants, due to the decline in the Company’s stock price at March 31, 2007 compared to December 31, 2006. During the same period in 2006, the Company did not recognize any stock-based compensation related to stock options held by non-employee consultants.

Warrants. The following table summarizes the warrants outstanding as of March 31, 2007 and the changes in outstanding warrants in the three months then ended:

	NUMBER OF SHARES SUBJECT TO WARRANTS OUTSTANDING		WEIGHTED-AVERAGE EXERCISE PRICE
Warrants outstanding January 1, 2007	2,015,901	$	3.41
Warrants exercised	--		--
Warrants cancelled	--		--
Warrants outstanding March 31, 2007	2,015,901	$	3.41

NOTE 5. SHORT-TERM INVESTMENTS

On March 31, 2007, the Company had $6,170,000 in total marketable securities which consisted of shares of NovaDel Pharma, Inc (“NovaDel”) purchased in conjunction with the Zensana license agreement, and other short-term investments.

At March 31, 2007, the Company had $5,650,000 of marketable securities invested in auction rate securities and other short-term investments. These are highly liquid, investment-grade securities. Auction rate securities generally have stated maturities of 20 to 30 years. However, these securities have economic characteristics of short-term investments due to a rate-setting mechanism and the ability for holders to liquidate them through a Dutch auction process that occurs on pre-determined intervals of less than 90 days. As such and because of management's intent regarding these securities, the Company classifies these investments as short-term investments. There were no unrealized gains or losses associated with these investments as of March 31, 2007.

In October 2004, the Company acquired 400,000 shares of common stock from NovaDel for $2.50 a share. The Company paid a premium of $0.91 per share over the market value of the NovaDel shares, which was $1.59 on the purchase date. Of the $1.0 million paid for the 400,000 shares, the premium of $0.91 per share, or $364,000, was expensed upon acquisition. The remaining fair market value of $636,000 was recorded as an available-for-sale security. As a result of restrictions on its ability to sell the shares, the Company was required by SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” to account for those shares using the cost method through October 2005 and thereafter as marketable equity securities. Since October 2005, the Company has classified the shares as available-for-sale and recorded changes in their value as part of its comprehensive income. The market value of these shares on March 31, 2007, was $520,000 and for the three months ended March 31, 2007, the Company had an unrealized loss of $116,000 since the original purchase in October 2004. On March 31, 2006, the market value of these shares was $696,000 and the Company had an unrealized gain of $60,000 since the original purchase in October 2004. The following table summarizes the NovaDel shares classified as available-for-sale securities as of March 31, 2007 and March 31, 2006:

	March 31, 2007
	Original Cost		Gross Unrealized Loss			Gross Unrealized Gain			Market Value
Shares of NovaDel Pharma Inc.	$	636,000		$	116,000		$	--	$	520,000

	March 31, 2006
	Original Cost		Gross Unrealized Loss			Gross Unrealized Gain			Market Value
Shares of NovaDel Pharma Inc.	$	636,000		$	--		$	60,000	$	696,000

NOTE 6. RESTRICTED CASH

On May 31, 2006, the Company entered into a sublease agreement. The sublease required the Company to issue a security deposit in the amount of $125,000. To satisfy this obligation the Company opened a $125,000 line of credit, with the sublessor as the beneficiary in case of default or failure to comply with the sublease requirements. In order to fund the line of credit, the Company was required to deposit a compensating balance of $125,000 into a restricted money market account with our financial institution. This compensating balance for the line of credit will be restricted for the entire period of the sub-lease or three years.

NOTE 7. COMMITMENTS

Employment Agreements. The Company entered into a written three year employment agreement with its President and Chief Executive Officer dated November 1, 2003. This agreement was amended in December 2005 to provide for an employment term that expires in November 2008. The minimum aggregate amount of gross salary compensation to be provided over the remaining term of the agreement amounted to approximately $546,000 at March 31, 2007.

The Company entered into a written two year employment agreement with its Vice President, Chief Business Officer on January 25, 2004. This agreement was amended in December 2005 and now provides for an employment term that expires in November 2008. The minimum aggregate amount of gross salary compensation to be provided over the remaining term of the agreement amounted to approximately $396,000 at March 31, 2007.

The Company entered into a written three year employment agreement with its Senior Vice President and Chief Medical Officer, Dr. Greg Berk, on October 21, 2004. This agreement was amended in October 2006. However, in May 2007, the Company terminated the employment of Dr. Berk and pursuant to the terms of the employment agreement, Dr. Berk is entitled to receive his current base salary, currently $340,000, for a period of one year from the date of such termination. See Note 8 Subsequent Events, for further discussion of this matter.

The Company entered into a written an employment agreement with its Vice President and Chief Financial Officer on December 18, 2006. This agreement provides for an employment term that expires in November 2008. The minimum aggregate amount of gross salary compensation to be provided for over the remaining term of the agreement amounted to approximately $277,000 at March 31, 2007.

Lease. The Company entered into a three year sublease, which commenced on May 31, 2006, for property at 7000 Shoreline Court in South San Francisco, California, where the Company has relocated its executive offices. The total cash payments due for the duration of the sublease equaled approximately $1.3 million on March 31, 2007.

NOTE 8. SUBSEQUENT EVENTS

On May 6, the Company and Dr. Steven R. Deitcher entered into an employment agreement pursuant to which Dr. Deitcher was appointed the Company's Executive Vice President and Chief Medical Officer, effective May 21, 2007. The agreement provides for a term of three years, ending May 21, 2010, although the agreement may be terminated earlier. Dr. Deitcher will receive an annualized base salary of $380,000, which is subject to annual increases at the discretion of the Company’s Board of Directors, a signing bonus of $75,000 upon the commencement of his employment and will be eligible for an annual performance-based bonus at a target amount equal to 40% of his base salary, which bonus is guaranteed for 2007. The employment agreement also provides that Dr. Deitcher is entitled to receive total stock options relating to 400,000 shares of the Company’s common stock.

Effective May 14, 2007, the Company terminated the employment of Dr. Gregory I. Berk, the Company’s former Chief Medical Officer. Pursuant to the terms of the Company’s employment agreement with Dr. Berk dated October 21, 2004 (as amended), Dr. Berk is entitled to receive his base salary, currently $340,000, for a period of one year from the date of such termination. However, the Company’s obligation to pay such severance is subject to offset by any amounts otherwise received by Dr. Berk from any subsequent employment during the one year period following such termination. The Company is also required to maintain Dr. Berk’s health insurance for such 1-year period. Additionally, pursuant to the terms of the original employment agreement, Dr. Berk’s termination triggered an acceleration clause for all stock options granted to him prior to his termination. All stock options that were scheduled to vest by October 21, 2007 were deemed vested as of May 14, 2007.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

We are a development-stage 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.

We currently have six product candidates in various stages of development:

Marqibo (vincristine sulfate liposomes injection) - A Novel Targeted Anti-Cancer Compound for Non-Hodgkin's Lymphoma and Acute Lymphoblastic Leukemia. We acquired our rights to Marqibo from Inex Pharmaceuticals Corporation in May 2006. Marqibo has been evaluated in 13 clinical trials with over 600 patients, including Phase 2 clinical trials in patients with non-Hodgkin’s lymphoma, or NHL, and acute lymphoblastic leukemia, or ALL. We also plan to conduct a Phase 3 first line clinical trial in adults with ALL as a primary registrational trial. This Phase 3 randomized, multicenter trial will compare Marqibo to vincristine in the induction, consolidation, and maintenance phases of treatment in elderly patients with ALL. We plan to conduct this study in collaboration with three major oncology cooperative groups. Pending finalization of the protocol by the cooperative groups, we plan to initiate this study in 2007. In addition, we anticipate pursuing a randomized pivotal trial in front-line Non-Hodgkin’s Lymphoma, where Marqibo has previously demonstrated positive indications of clinical benefit.

Talvesta (talotrexin) for Injection - A Novel Antifolate for Solid and Hematological Malignancies. Talvesta is a novel antifolate product candidate under development for treatment of various types of tumors. In April 2004, we commenced an NCI-sponsored Phase 1 clinical trial to evaluate the safety of Talvesta when administering it intravenously on days 1, 8 and 15 of a 28-day cycle to patients with solid tumors. In March 2007, this clinical trial was discontinued due to toxicity. Fifty subjects received doses of Talvesta with one patient death being reported during this clinical trial. We commenced a Phase 1/2 clinical trial in non-small cell lung cancer in February 2005. In the Phase 1 portion of this clinical trial, which is now closed for enrollment, multiple infusions of Talvesta were administered to patients to ascertain the maximum tolerated doses of the drug. The aim of the Phase 2 portion of the clinical trial is primarily to demonstrate an improvement in overall survival of the patients. We have suspended enrollment in the Phase 2portion of this clinical trial for additional safety analysis. In May 2005, we commenced a Phase 1/2 clinical trial in ALL. Phase 1 of this clinical trial is closed for enrollment. Based on the observations from the Phase 1 solid tumor trial, we have decided to conduct additional toxicology studies. While we have not seen issues related to toxicity in the ALL trial, we proactively suspended enrollment in the Phase 2 ALL trial as a safety precaution. We postponed the initiation of new clinical trials with Talvesta until these additional toxicology studies have been reviewed. Subsequent to our postponement of initiating new clinical trials, we were informed by the FDA that it had placed the Talotrexin study on clinical hold. We anticipate meeting with the FDA upon the completion of our additional toxicology studies, which we anticipate to be completed in the fourth quarter of 2007. Based on the data from the toxicology studies, the final safety and efficacy analysis of the completed trials and our meeting with the FDA, we expect to launch additional trials in solid and hematological malignancies.

Alocrest (vinorelbine tartrate liposomes injection) - A Novel Targeted Anti-Cancer Compound for Breast and Lung Cancer. In August 2006, we initiated a Phase 1 clinical trial to assess the safety, tolerability and preliminary efficacy of Alocrest in patients with advanced solid tumors, including non-small cell lung and breast cancers. The trial is being conducted at the Cancer Therapy and Research Center in San Antonio, Texas and at McGill University in Montreal, with plans to include an additional site, South Texas Accelerated Research Therapeutics, in the first half of 2007.

·	*Sphingosome Encapsulated Topotecan* - A Novel Targeted Anti-Cancer Compound for Small-Cell Lung Cancer and Ovarian Cancer. Following completion of preclinical development, we expect to file an investigational new drug application, or IND, and to initiate clinical trials in 2007.

Zensana (ondansetron HCI) Oral Spray - Bioequivalent to 8mg Oral Zofran Tablet with Multidose Convenience and Desirable Route of Administration. In June 2006, we submitted our new drug application, or NDA, for Zensana for the prevention of chemotherapy-induced, radiation-induced and post-operative nausea and vomiting, referred to as CINV, RINV and PONV, respectively, 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. While our NDA was pending with the FDA, long-term stability studies revealed small amounts of precipitated material in scale-up batches of Zensana. Through further investigation of this issue, we determined that the precipitation is caused by an issue with the original formulation, and was not related to the manufacturing process. As a result, in March 2007, we withdrew our NDA without prejudice, and have stopped further investigation of the original formulation. Our partner and licensor, NovaDel, has developed an alternate formulation of the product. The alternate formulation is currently under active investigation and scale-up. If this alternative formulation is stable, we will then need to reestablish bioequivalency through new clinical trials. If these studies are successful, we anticipate being in a position to file an NDA sometime in 2008, at the earliest.

Menadione - A Topical Compound for Skin Rashes Associated with EGFR Inhibitors. We acquired the rights to Menadione in October 2006 pursuant to a license agreement with the Albert Einstein College of Medicine, or AECOM. We expect to complete formulation of Menadione by the end of 2007 and to file an IND in 2008.

To date, we have not received approval for the sale of any drug candidates in any market and, therefore, have not generated any revenues from our drug candidates. The successful development of our product candidates is highly uncertain. Product development costs and timelines can vary significantly for each product candidate and are difficult to accurately predict. Various laws and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of each product. The lengthy process of seeking these approvals and the subsequent compliance with applicable statutes and regulations require the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals could materially, adversely affect our business.

We are a development stage company and have no product sales to date and we will not receive any product sales until we receive approval from the FDA or equivalent foreign regulatory bodies to begin selling our pharmaceutical candidates. Developing pharmaceutical products, however, is a lengthy and very expensive process. In addition, as we continue the development of our remaining product pipeline, our research and development expenses will further increase. To the extent we are successful in acquiring additional product candidates for our development pipeline, our need to finance further research and development will continue increasing. Accordingly, our success depends not only on the safety and efficacy of our product candidates, but also on our ability to finance the development of these product candidates. Our major sources of working capital have been proceeds from various private financings, primarily private sales of our common stock and other equity securities. Since our inception in December 2002, we have completed five financings resulting in total gross proceeds of $72.4 million, before selling commissions and related offering expenses.

Research and development expenses consist primarily of salaries and related personnel costs, fees paid to consultants and outside service providers for laboratory development, legal expenses resulting from intellectual property protection, business development and organizational affairs and other expenses relating to the acquiring, design, development, testing, and enhancement of our product candidates, including milestone payments for licensed technology. We expense our research and development costs as they are incurred.

Selling, general and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, recruitment expenses, professional fees and other corporate expenses, including accounting and general legal activities.

Critical Accounting Policies

The accompanying discussion and analysis of our financial condition and results of operations are based on our condensed unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. We believe there are certain accounting policies that are critical to understanding our condensed unaudited financial statements, as these policies affect the reported amounts of expenses and involve management’s judgment regarding significant estimates. We have reviewed our critical accounting policies and their application in the preparation of our financial statements and related disclosures with our Audit Committee of the Board of Directors. Our critical accounting policies and estimates are described below.

Share Based Compensation

Effective January 1, 2006, we adopted the provisions of SFAS No.123R requiring that compensation cost relating to all share-based employee payment transactions be recognized in the financial statements. The cost is measured at the grant date, based on the fair value of the award using the Black-Scholes-Merton option pricing model, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity award). We adopted SFAS No.123R using the modified prospective method for share-based awards granted after we became a public entity and the prospective method for share-based awards granted prior to the time we became a public entity and, accordingly, financial statement amounts for prior periods presented in this Form 10-Q have not been restated to reflect the fair value method of recognizing compensation cost relating to stock options.

In applying the modified prospective transition method of SFAS No. 123R, we estimated the fair value of each option award on the date of grant using the Black-Scholes-Merton option-pricing model. As allowed by SFAS No. 123R for companies with a short period of publicly traded stock history, our estimate of expected volatility is based on the average expected volatilities of a sampling of five companies with similar attributes to us, including industry, stage of life cycle, size and financial leverage. As we have so far only awarded “plain vanilla options” as described by the SEC’s Staff Accounting Bulletin No. 107, we used the “simplified method” for determining the expected life of the options granted. This method is allowed until December 31, 2007, after which we will be required to adopt another method to determine expected life of the option awards in 2006. The risk-free rate for periods within the contractual life of the option is based on the U.S. treasury yield curve in effect at the time of grant valuation. SFAS No. 123R does not allow companies to account for option forfeitures as they occur. Instead, estimated option forfeitures must be calculated upfront to reduce the option expense to be recognized over the life of the award and updated upon the receipt of further information as to the amount of options expected to be forfeited. Based on our historical information, we currently estimate that 10% annually of our stock options awarded will be forfeited. For options granted while we were a nonpublic entity, we applied the prospective method in which the awards that were valued under the minimum value method for pro forma disclosure purposes will continue to be expensed using the intrinsic value method of APB 25.

Prior to January 1, 2006, we accounted for option grants to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” or APB No. 25, and related interpretations. The Company also followed the disclosure requirements of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”, as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.” Under the guidelines of APB No. 25, we were only required to record a charge for grants of options to employees if on the date of grant they had an “intrinsic value” which was calculated based on the excess, if any, of the market value of the common stock underlying the option over the exercise price.

If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods or if we decide to use a different valuation model, the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating income, net income and net income per share.

The Black-Scholes-Merton option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics not present in our option grants and employee stock purchase plan shares. Existing valuation models, including the Black-Scholes-Merton and lattice binomial models, may not provide reliable measures of the fair values of our stock-based compensation. Consequently, there is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those stock-based payments in the future. Certain stock-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements. There currently is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values.

The guidance in SFAS 123R and SAB 107 is relatively new. The application of these principles may be subject to further interpretation and refinement over time. There are significant differences among valuation models, and there is a possibility that we will adopt different valuation models in the future. This may result in a lack of consistency in future periods and materially affect the fair value estimate of stock-based payments. It may also result in a lack of comparability with other companies that use different models, methods and assumptions.

See Note 4 of our condensed unaudited financial statements included elsewhere in this Quarterly Report for further information regarding the SFAS 123R disclosures.

Licensed In-Process Research and Development

Licensed in-process research and development relates primarily to technology, intellectual property and know-how acquired from another entity. We evaluate the stage of development as well as additional time, resources and risks related to development and eventual commercialization of the acquired technology. As we historically have acquired non-FDA approved technologies, the nature of the remaining efforts for completion and commercialization generally include completion of clinical trials, completion of manufacturing validation, interpretation of clinical and preclinical data and obtaining marketing approval from the FDA and other regulatory bodies. The cost in resources, probability of success and length of time to commercialization are extremely difficult to determine. Numerous risks and uncertainties exist with respect to the timely completion of development projects, including clinical trial results, manufacturing process development results and ongoing feedback from regulatory authorities, including obtaining marketing approval. Additionally, there is no guarantee that the acquired technology will ever be successfully commercialized due to the uncertainties associated with the pricing of new pharmaceuticals, the cost of sales to produce these products in a commercial setting, changes in the reimbursement environment or the introduction of new competitive products. Due to the risks and uncertainties noted above, we will expense such licensed in-process research and development projects when incurred. However, the cost of acquisition of technology is capitalized if there are alternative future uses in other research and development projects or otherwise based on internal review. All milestone payments will be expensed in the period the milestone is reached.

Clinical Study Activities and Other Expenses from Third-Party Contract Research Organizations

All of our research and development activities related to clinical study activity are conducted by various third parties, including contract research organizations, which may also provide contractually defined administration and management services. Expense incurred for these contracted activities are based upon a variety of factors, including actual and estimated patient enrollment rates, clinical site initiation activities, labor hours and other activity-based factors. On a regular basis, our estimates of these costs are reconciled to actual invoices from the service providers, and adjustments are made accordingly.

Recent Accounting Pronouncements

On September 15, 2006, FASB issued Statement No. 157, Fair Value Measurements. This Statement provides guidance for using fair value to measure assets and liabilities. This Statement references fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The Statement applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The Statement does not expand the use of fair value in any new circumstances. It is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of SFAS No. 157 is not expected to have a material impact on the Company’s financial statements.

On February 15, 2007, FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS 159. The statement provides companies with an option to report selected financial assets and liabilities at fair value. SFAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies using different measurement attributes for similar types of assets and liabilities. The statement is effective as of the beginning of the first fiscal year that begins after November 15, 2007. Earlier adoption is permitted provided the company also elects to apply the provisions of SFAS 157, Fair Value Measurement. The Company is currently evaluating the impact that this standard may have on our financial statements.

Results of Operations

Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006

Selling, general and administrative expenses. For the three months ended March 31, 2007, selling, general and administrative, or SG&A, expense was $3.3 million, as compared to $1.0 million for the three months ended March 31, 2006. The increase of $2.3 million is due primarily to an increase in salaries, other employee benefits and personnel related costs of approximately $1.5 million, including an increase of $1.2 million in employee related share-based compensation expense due to increased employee stock options and restriced stock issued in subsequent quarters of 2006 and in 2007 as well as increased salary, bonus and benefits of $0.3 due to increased wages and headcount in 2007 compared to 2006 as two individuals were hired in anticipation of the expected launch of Zensana in 2007. For the three months ended March 31, 2007, we also incurred an increase of approximately $0.5 million in outside services and professional service fees mainly related to increased audit, consulting and outside services related to sales and marketing. The increase in accounting and consulting fees related mainly to increased cost of complying with Section 404 of the Sarbanes-Oxley Act, including increased external audit fees, consulting fees for management’s assessment of internal controls. Outside service expenses also increased in preparation for the planned launch of Zensana in the second half of 2007. Also for the three months ended March 31, 2007, there was an increase of approximately $0.3 million in allocable expenses, including an increase of $0.2 million in marketing costs related to the launch of Zensana and an increase of $0.1 million in rent, insurance and other allocable expenses.

Research and development expenses. For the three months ended March 31, 2007, research and development, or R&D, expense was $5.2 million, as compared to $2.6 million for the three months ended March 31, 2006. The increase of $2.6 million is due primarily to an increase of $1.7 million in employee related expenses including an increase in salaries, other employee benefits and personnel related costs of approximately $0.7 million and an increase of $1.0 million in employee related share-based compensation expense due to increased employee stock options issued in subsequent quarters 2006 and in 2007. The increase in salary, bonus and benefits was due to increased wages and headcount in 2007 compared to 2006 as the research and development teams expanded with the acquisition of 4 additional drugs in 2006. Research and development costs for the clinical development of our product pipeline increased $0.6 million in 2007 compared to 2006. Clinical development costs for IPdR, Talvesta and Zensana decreased by $0.6 million. The IPdR program was terminated in February 2007. The decreases in IPdR, Talvesta and Zensana were offset by an increase in clinical development costs related to Marqibo, Alocrest, Topotecan and Menadione of $1.2 million. Marqibo, Alocrest and Topotecan were acquired in the Inex license agreement in May 2006 and Menadione was licensed from AECOM in October 2006. These clinical costs included the physical manufacturing of drug compounds, payments to our contract research organizations. Other outside services, consultants and professional fees related to research and development projects increased $0.1 million in the three months ended March 31, 2007 compared to the three months ended March 31, 2006. Other allocable operating expenses increased by approximately $0.2 million for the three months ended March 31, 2007 compared to the three months ended March 31, 2006. This includes a $0.1 million increase in travel and conference expenses, and a $0.1 million increase in rent, insurance and other allocable costs as head count increased in 2007 over 2006.

Interest income (expense), net. For the three months ended March 31, 2007, net interest income was $0.4 million as compared to net interest income of $0.1 million for the three months ended March 31, 2006. The increase of $0.3 million resulted from increased cash balance in our interest bearing accounts due to our May 2006 financing which resulted in net proceeds of $37.1 million, plus rising interest rates.

Liquidity and Capital Resources

From inception to March 31, 2007, we have incurred an aggregate net loss of $71.1 million, primarily as a result of expenses incurred through a combination of research and development activities related to the various technologies under our control and expenses supporting those activities.

We have financed our operations since inception primarily through equity and debt financing. From inception through March 31, 2007, we had a net increase in cash and cash equivalents and marketable securities of $27.6 million. This increase primarily resulted from net cash provided by financing activities of $70.1 million, substantially all of which was derived from our five private placements which netted proceeds of $68.0 million. The increase in cash provided by financing activities was offset by net cash used in operating activities of $41.6 million and net cash used in investing activities of $7.1 million for the cumulative period from inception to March 31, 2007. Our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing. Through March 31, 2007, a significant portion of our financing has been through private placements of common stock, preferred stock and debt financing. We will continue to fund operations from cash on hand and through future placements of capital stock or debt financings. We can give no assurances that any additional capital that we are able to obtain will be sufficient to meet our needs. Given the current and desired pace of clinical development of our six product candidates, we estimate that we will have sufficient cash on hand to fund clinical development through 2007 and into 2008. We may, however, choose to raise additional capital before 2008 in order to fund our future development activities, likely by selling shares of our capital stock or other securities. If we are unable to raise additional capital, we will likely be forced to curtail our desired development activities, which will delay the development of our product candidates. There can be no assurance that such capital will be available to us on favorable terms or at all. We will need additional financing thereafter until we can achieve profitability, if ever.

Financings. In February 2004, we received gross proceeds of approximately $4.7 million through the sale of 2,802,989 shares of our common stock. In connection with this offering, we paid commissions and other offering-related expenses consisting of $341,979 in cash and issued a 5-year warrant to purchase 277,331 shares of our common stock to Paramount BioCapital, Inc., which served as placement agent, for its services rendered.

In July 2004, we received gross proceeds of $8.0 million through the sale of 2,395,210 shares of our Series A Convertible Preferred Stock, all of which converted into 3,377,409 shares of common shares in January 2005.

In April 2005, we completed a private placement of 3,916,082 shares of our common stock at a price of $1.28 per share, resulting in gross proceeds to us of approximately $5.0 million. In connection with the private placement, we issued to the investors and placement agents five-year warrants to purchase an aggregate of 1,525,629 shares of common stock at an exercise price of $1.57 per share, of which warrants to purchase an aggregate of 997,791 shares remain outstanding. The terms of the warrants provide that we may, at our option, redeem the warrants after such time that the average closing price of our common stock exceeds $3.14 per share for a 30-day period, which condition was satisfied in August 2005. Accordingly, we may, at our election, redeem the warrants, at a redemption price of $0.01 per warrant share, at any time upon 30 days' prior written notice to the warrant holders. The warrants remain exercisable by the holders until the expiration of such 30-day notice period. In connection with the private placement, we paid an aggregate of approximately $321,000 in commissions to placement agents. Included in the amounts paid to placement agents were $52,500 in commissions and warrants to purchase 58,593 shares of common stock to Paramount BioCapital, Inc., a related party. We also incurred approximately $14,000 of legal expenses for the private placement.

In October 2005, we completed a private placement of 3,686,716 shares of our common stock. Of the total number of shares sold, 3,556,000 shares were sold at a price of $4.00 per share and 130,716 shares were sold to executive officers and affiliates of a director of our company at a price of $4.59 per share, which resulted in total gross proceeds to us of approximately $14.8 million. In addition to the shares of common stock, the investors also received 5-year warrants to purchase an aggregate of 737,343 shares at an exercise price of $5.80 per share. In connection with the private placement, we paid an aggregate of approximately $1.0 million in commissions to placement agents and issued 5-year warrants to purchase an aggregate of 253,306 shares at an exercise price of $5.80 per share. We also incurred approximately $77,500 of legal and other expenses paid to placement agents.

In May 2006, we completed a registered direct placement of 4,701,100 shares of our common stock. Of the total number of shares sold, 4,629,500 shares were sold at a price of $8.50 per share and 71,600 shares were sold to executive officers and affiliates of one of our directors at a price of $9.07 per share, which resulted in total gross proceeds to us of approximately $40.0 million. In connection with this offering, we paid an aggregate of approximately $2.4 million in commissions to placement agents. We also incurred approximately $535,000 of legal and other expenses paid to placement agents

Current and Future Capital Requirements. Our plan of operation for the year ending December 31, 2007 is to continue implementing our business strategy, including the continued development of our six product candidates that are currently in clinical and preclinical phases. We also intend to expand our drug candidate portfolio by acquiring additional drug technologies for development. We expect our principal expenditures during the next 12 months to include:

operating expenses, including expanded research and development and selling, general and administrative expenses;

product development expenses, including the costs incurred with respect to applications to conduct clinical trials in the United States, as well as outside of the United States, for our six product candidates, including manufacturing, intellectual property prosecution and regulatory compliance.

As part of our planned expansion, we intend to use clinical research organizations and third parties to perform our clinical studies and manufacturing. As indicated above, at our current and desired pace of clinical development of our six product candidates, over the next 12 months we expect to spend approximately $21.0 million on clinical development (including milestone payments of $2.5 million that we expect to be triggered under the license agreements relating to our product candidates), $3.5 million on general corporate and administrative expenses, and $600,000 on facilities and rent. We plan to initiate a Phase 2, open-label trial in relapsed adult ALL. We also plan to conduct a Phase 3 registrational clinical trial for Marqibo in front-line ALL. We also expect to complete our Phase 1 clinical trial and initiate a Phase 2 clinical trial for Alocrest in solid tumors. We expect to initiate a Phase 1 study in Sphingosome Encapsulated Topotecan We also plan to complete formulation and preclinical work on menadione, and anticipate filing an IND in 2007.

We believe that our cash, cash equivalents and marketable securities, which totaled $27.6 million as of March 31, 2007, will be sufficient to meet our anticipated operating needs through 2007 and into 2008 based upon current operating and spending assumptions. However, we expect to incur substantial expenses as we continue our drug discovery and development efforts, particularly to the extent we advance our lead candidate Marqibo into and through a pivotal clinical study. We cannot guarantee that future financing will be available in amounts or on terms acceptable to us, if at all.

However, the actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:

costs associated with conducting preclinical and clinical testing;

costs associated with commercializing our lead programs, including establishing sales and marketing functions;

costs of establishing arrangements for manufacturing our product candidates;

costs of acquiring new drug candidates;

payments required under our current and any future license agreements and collaborations;

costs, timing and outcome of regulatory reviews;

costs of obtaining, maintaining and defending patents on our product candidates; and

costs of increased selling, general and administrative expenses.

We have based our estimate on assumptions that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential sources of financing include strategic relationships, public or private sales of our stock or debt and other sources. We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed.

Research and Development Projects

The discussion below describes for each of our development projects the research and development expenses we have incurred to date and, to the extent we are able to reasonably ascertain, the amounts we estimate we will have to expend in order to complete development of each project and the time we estimate it will take to complete development of each project. In addition to those risks identified under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006, our assumptions relating the expected costs of development and timeframe for completion are dependent on numerous risks and other factors, including the availability of capital, unforeseen safety issues, lack of effectiveness, and significant unforeseen delays in the clinical trial and regulatory approval process, any of which could be extremely costly. In addition, our estimates assume that we will be able to enroll a sufficient number of patients in clinical trials.

Since our business does not currently generate positive cash flow, however, we will likely need to raise additional capital to continue development of our product candidates beyond 2007. If we are to raise such capital, we expect to raise it primarily by selling shares of our capital stock. To the extent additional capital is not available when we need it, we may be forced to discontinue or scale-back our development efforts relating to one or more of our product candidates our out-license our rights to our product candidates to a third party, any of which would have a material adverse effect on the prospects of our business.

Marqibo. Since acquiring the exclusive world-wide rights to develop and commercialize Marqibo in May 2006, we have incurred $2.0 million in project costs related to our development of Marqibo through March 31, 2007, of which $0.7 million and $1.3 million was incurred in 2007 and 2006, respectively. We plan to initiate a Phase 2, open-label trial in relapsed adult ALL in 2007. We also plan to conduct a Phase 3 registrational trial in front-line ALL in 2007. We estimate that we will need to expend at least an aggregate of approximately $47 million in order for us to obtain FDA approval for Marqibo, if ever, which amount includes a milestone payment that would be owed to our licensor upon FDA approval. We believe we currently have sufficient capital to fund our planned development activities of Marqibo through 2007 and into 2008. We expect that it will take approximately three to four years until we will have completed development and obtained FDA approval of Marqibo, if ever.

Talvesta. From inception through March 31, 2007, we have incurred $4.2 million of costs related to our development of Talvesta, of which $0.2 million and $1.7 million was incurred in 2007 and 2006, respectively. We believe we currently have sufficient capital to fund our planned development activities of Talvesta through 2007 and into 2008. We estimate that we will need to expend an aggregate of approximately $65 million in order to complete development of Talvesta, should we opt to continue development. Costs incurred are a direct result of ensuring proper study conduct in accordance with local regulations. Should we choose to continue development, we expect that it will take an additional four to five years before we complete development and obtain FDA approval of Talvesta, if ever.

Alocrest. Since acquiring the exclusive world-wide rights to develop and commercialize Alocrest in May 2006 we have incurred $1.1 million in project costs related to our development of Alocrest through March 31, 2007, of which $0.3 million and $0.8 million was incurred in 2007 and 2006, respectively. We initiated a Phase 1 clinical trial in August 2006. This Phase 1 trial is designed to assess safety, tolerability and preliminary efficacy in patients with advanced solid tumors, including non-small cell lung and breast cancers. We estimate that we will need to expend at least an aggregate of approximately $47 million, in order for us to obtain FDA approval for Alocrest, if ever, which amount includes milestone payments that would be owed to our licensor upon FDA approval. We believe we currently have sufficient capital to fund our planned development activities of Alocrest through 2007. We expect that it will take approximately five to six years until we will have completed development and obtained FDA approval of Alocrest, if ever.

Sphingosome Encapsulated Topotecan. Along with our rights to Marqibo, we acquired our rights to develop and commercialize sphingosome encapsulated topotecan in May 2006 in connection with our license transaction with Inex Pharmaceuticals Corporation. Since acquiring the exclusive world-wide rights to develop and commercialize sphingosome encapsulated topotecan in May 2006, we have incurred $1.1 million in project costs related to our development of this drug through March 31, 2007, of which $0.1 million and $1.0 million was incurred in 2007 and 2006, respectively. Following completion of additional preclinical development, we expect to file an IND and initiate clinical trials in 2007. As this drug is early in its clinical development, both the registrational strategy and total expenditures to obtain FDA approval are still being evaluated.

Zensana (ondansetron HCl) Oral Spray. Since acquiring our rights to Zensana in October 2004, we have incurred $7.7 million of project costs related to our development through March 31, 2007, of which $0.7 million and $6.1 million was incurred in 2007 and 2006, respectively. In June 2006, we submitted our NDA for Zensana for the prevention of CINV, RINV and PONV under Section 505(b)(2) of the FDCA. While our NDA was pending with the FDA, long-term stability studies revealed small amounts of precipitated material in scale-up batches of Zensana. Through further investigation of this issue, we have determined that the precipitation issue in long-term stability was not related to the manufacturing process, but is in fact an issue with the original formulation. As a result, in March 2007, we withdrew our NDA previously submitted to the FDA. Our partner and licensor, NovaDel, has developed an alternate formulation of the product. The alternate formulation is currently under active investigation and scale-up. If this alternative formulation is stable, we will then need to reestablish bioequivalency through new clinical trials. If these studies are successful, we anticipate being in a position to file an NDA sometime in 2008, at the earliest. If we are able to use this alternative formulation for Zensana, we estimate that we will need to expend at least an additional $10.0 million before we receive FDA approval for Zensana, if ever, which amount includes a milestone payment that would be owed to our licensor upon FDA approval.

Menadione. We licensed our rights to menadione from the Albert Einstein College of Medicine in October 2006 and have incurred approximately $0.4 million in project costs related to our development of this drug through March 31, 2007, of which $0.1 million and $0.3 million was incurred in 2007 and 2006, respectively. We expect to complete formulation of menadione in 2007 and to file an IND by the end of 2008. We will incur approximately $1.3 million in costs to fund our research and development efforts for this drug during 2007. As this drug is early in its clinical development, both the registrational strategy and total expenditures to obtain FDA approval are still being evaluated.

Off-Balance Sheet Arrangements

We do not have any “off-balance sheet agreements,” as that term is defined by SEC regulation. We do, however, have various commitments under certain agreements, as follows:

License Agreements.

In the event we achieve certain milestones in connection with the development of our product candidates, we will be obligated to make milestone payments to our licensors in accordance with the terms of our license agreements, as discussed below. The development of pharmaceutical product candidates is subject to numerous risks and uncertainties, including, without limitation, the following: (1) risk of delays in or discontinuation of development from lack of financing, (2) our inability to obtain necessary regulatory approvals to market the products, (3) unforeseen safety issues relating to the products, (4) our ability to enroll a sufficient number of patients in our clinical trials, and (5) dependence on third party collaborators to conduct research and development of the products. Additionally, on a historical basis, only approximately 11 percent of all product candidates that enter human clinical trials are eventually approved for sale. Accordingly, we cannot state that it is reasonably likely that we will be obligated to make any milestone payments under our license agreements. Summarized below are our future commitments under our license agreements, as well as the amounts we have paid to date under such agreements.

Talvesta License. Our rights to Talvesta are governed by the terms of a December 2002 license agreement with Dana-Farber Cancer Institute and Ash Stevens, Inc. The agreement provides us with an exclusive worldwide royalty bearing license, including the right to grant sublicenses, to the intellectual property rights and know-how relating to Talvesta and all of its uses. Upon execution of the license agreement, we paid a $100,000 license fee and reimbursed our licensors for approximately $11,000 of patent-related expenses. The license agreement also requires us to make an annual license fee payment of $25,000 and provides for future payments totaling up to $6 million upon the achievement of certain milestones, including a $5 million payment upon approval by the FDA of a New Drug Application for Talvesta. To date, we have made two of these milestone payments totaling $200,000 following commencement of the Phase 1 clinical trial and upon reaching 50% enrollment of a Phase 1 clinical trial. Additionally, we are obligated to pay royalties in the amount of 3.5 percent of “net sales” (as defined in the license agreement) of Talvesta. We are also required to pay to the licensors 20 percent of fees or non-royalty consideration (e.g., milestone payments, license fees) received by us in connection with any sublicense of Talvesta granted prior to the start of a Phase 2 trial, and 15 percent of such fees after initiation of a Phase 2 clinical trial.

Zensana License. Our rights to Zensana are subject to the terms of an October 2004 license agreement with NovaDel Pharma, Inc. The license agreement grants us a royalty-bearing, exclusive right and license to develop and commercialize Zensana within the United States and Canada. The technology licensed to us under the license agreement currently covers one United States issued patent, which expires in March 2022. In consideration for the license, we issued 73,121 shares of our common stock to NovaDel and have agreed to make double-digit royalty payments to NovaDel based on a percentage of “net sales” (as defined in the agreement). In addition, we purchased from NovaDel 400,000 shares of its common stock at a price of $2.50 per share for an aggregate payment of $1 million.

Inex License Agreement. In May 2006, we entered into a series of related agreements with Inex Pharmaceuticals Corporation. Pursuant to a license agreement with Inex, we received an exclusive, worldwide license to patents, technology and other intellectual property relating to our Marqibo, Alocrest and sphingosome encapsulated topotecan product candidates. Under the license agreement, we also received an exclusive, worldwide sublicense to other patents and intellectual property relating to these product candidates held by the M.D. Anderson Cancer Center. In addition, we entered into a sublicense agreement with Inex and the University of British Columbia, or UBC, which licenses to Inex other patents and intellectual property relating to the technology used in Marqibo, sphingosome encapsulated vinorelbine and sphingosome encapsulated topotecan. Further, Inex assigned to us its rights under a license agreement with Elan Pharmaceuticals, Inc., from which Inex had licensed additional patents and intellectual property relating to the three sphingosomal product candidates.

In consideration for the rights and assets acquired from Inex, we paid to Inex aggregate consideration of $11.8 million, which payment consisted of $1.5 million in cash and 1,118,568 shares of our common stock. We also agreed to pay to Inex royalties on sales of the licensed products, as well as upon the achievement of specified development and regulatory milestones and up to a maximum aggregate amount of $30.5 million for all product candidates. The milestones and other payments may include annual license maintenance fees and milestones. To date, we have made one milestone payment of $1.0 million to Inex upon initiation of a Phase 1 clinical trial in Alocrest.

Menadione License Agreement. In October 2006, we entered into a license agreement with the Albert Einstein College of Medicine of Yeshiva University, a division of Yeshiva University, or the College. Pursuant to the Agreement, we acquired an exclusive, worldwide, royalty-bearing license to certain patent applications, and other intellectual property relating to topical menadione. In consideration for the license, we agreed to issue the College $150,000 of our common stock, valued at $7.36 per share (representing the closing sale price on October 11, 2006). We also agreed to make an additional cash payment within 30 days of signing the agreement, and pay annual maintenance fees. Further, we agreed to make milestone payments in the aggregate amount of $2,750,000 upon the achievement of various clinical and regulatory milestones, as described in the agreement. We may also make annual maintenance fees as part of the agreement. We also agreed to make royalty payments to the College on net sales of any products covered by a claim in any licensed patent. We may also grant sublicenses to the licensed patents and the proceeds resulting from such sublicenses will be shared with the College.

Lease Agreements. We entered into a three year sublease, which commenced on May 31, 2006, for property at 7000 Shoreline Court in South San Francisco, California, where the Company has relocated its executive offices. The total cash payments due for the duration of the sublease equaled approximately $1.3 million on March 31, 2007.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Our exposure to market risk is confined to our cash, cash equivalents, auction rate securities and our investment in NovaDel Pharma, Inc. We have attempted to minimize risk by investing in high-quality financial instruments, primarily money market funds with no security having an effective duration longer than 90 days. We are subject to risk due to general market conditions, which may adversely impact the carrying value of our auction rate securities and our investment in NovaDel. If the market interest rate decreases by 100 basis points or 1%, the fair value of our cash and cash equivalents portfolio would have minimal to no impact on the carrying value of our portfolio. We did not hold any derivative instruments as of March 31, 2007, and we have never held such instruments in the past.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Based on their evaluation as of March 31, 2007, our Chief Executive Officer and Chief Financial Officer, with the participation of management, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

During the quarter ended March 31, 2007, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are not involved in any legal proceeding.

Item 1A. Risk Factors

We have not had any material changes to our risk factors disclosed in response to Item 1A of Part II of our Quarterly Report on Form 10-K for the year ended December 31, 2006.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Submission of Matters to a Vote of Securities Holders

None

Item 5. Other Information

A summary of the Company’s compensation arrangement with its outside directors, including its non-executive board chair, is attached to this Form 10-Q as Exhibit 10.1 and is incorporated herein by reference.

Item 6. Exhibits

Exhibit No.		Description
10.1		Summary of Non-employee Director Compensation Arrangement.
31.1		Certification of Chief Executive Officer, as required by Rule 13a-14(a) or Rule 15d-14(a).
31.2		Certification of Chief Financial Officer, as required by Rule 13a-14(a) or Rule 15d-14(a).
32.1		Certification of Chief Executive Officer and Chief Financial Officer, as required by Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Hana Biosciences, Inc.



Dated: May 14, 2007	By:	/s/ Mark J. Ahn
		Mark J. Ahn
		President and Chief Executive Officer




Dated: May 14, 2007	By:	/s/ John P. Iparraguirre
		John P. Iparraguirre
		Vice President, Chief Financial Officer

Index to Exhibits Filed with this Report

Exhibit No.		Description
10.1		Summary of Non-employee Director Compensation Arrangement.
31.1		Certification of Chief Executive Officer, as required by Rule 13a-14(a) or Rule 15d-14(a).
31.2		Certification of Chief Financial Officer, as required by Rule 13a-14(a) or Rule 15d-14(a).
32.1		Certification of Chief Executive Officer and Chief Financial Officer, as required by Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	8th grade Avg

Talon Therapeutics (TLON) Inactive 10-Q2007 Q1 Quarterly report

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