EXHIBIT 99.1





MGI PHARMA, INC.

Report on Form 10-Q

June 30, 2003



Cautionary Statements for Purposes of the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1995



The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements to encourage companies to provide prospective information without fear of litigation so long as those statements are identified as
forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. We desire to take advantage of these safe
harbor provisions and are filing this Exhibit 99.1 in order to do so. Accordingly, we hereby identify the following important factors which could cause our actual results to differ materially from any such results which may be projected,
forecast, estimated or budgeted by us in forward-looking statements made by us from time to time in reports, proxy statements, registration statements and other written communications, or in oral forward-looking statements made from time to time by
the companys officers and agents. We do not intend to update any of these forward-looking statements after the date of this Form 10-Q to conform them to actual results.





We have a history of net losses. If we do not have net
income in the future, we may be unable to continue our operations.



We are not currently profitable and have a very limited history of profitability. We expect to incur significant expenses over the next several years as we continue to devote substantial resources to the development and commercialization of
Aloxi (palonosetron hydrochloride), irofulven,
and other product candidates. Therefore, we will not generate net income unless we are able to increase significantly revenues from sales of Aloxi or other products. Furthermore, if we continue to sustain losses, we may be unable to fund our research and development efforts and the development of
our products or to continue our business operations as planned.





Our business is dependent on the commercial success of Aloxi. If we are unable to launch and successfully commercialize Aloxi or maintain commercialization of our other products, we may be unable to continue our operations as planned.



The success of our business is dependent on the
successful launch and commercialization of Aloxi.
Aloxi will be new to the market and may be
unfamiliar to members of the medical community. Market acceptance will depend largely on our ability to demonstrate, to the oncology community in particular, the efficacy and safety of Aloxi as an alternative to currently marketed therapies. We cannot be certain that
Aloxi will provide benefits considered adequate
by providers of oncology services or that enough providers will use the product to ensure its commercial success.



Even if the FDA approves the marketing application of a product, this approval may entail commercially unacceptable limitations on the uses, or
indications, for which the product may be marketed. In addition, the FDA subjects an approved product and its manufacturer to continual regulatory review. After approval and use in an increasing number of patients, the discovery of
previously unknown problems, such as unacceptable toxicities or side effects, with a product may result in restrictions or sanctions on the product or manufacturer that could affect the commercial viability of the product or could require withdrawal
of the product from the market. If Aloxi is not
commercially successful, we will have to find additional sources of funding or scale back or cease operations. In



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addition, we cannot be certain that sufficient capital will be available for the successful launch and commercialization
of Aloxi or our other product candidates.



Once the FDA approves a product for sale, we must also submit
any labeling, advertising and promotional material to the FDA for review. There is risk that the FDA will prohibit use of the marketing material in the form we desire, which could limit the sale of our products and could cause our product revenues
to decrease and our stock price to decline.





If we fail to obtain additional capital to grow our business, we will be unable to complete our product acquisition, licensing and development programs.



We may need to raise additional funds for various reasons
including the following:



| |  |  | to successfully launch and generate sufficient sales of Aloxi;
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| |  |  | to develop irofulven and other acylfulvene analogs;
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| |  |  | to develop products we have acquired or licensed;
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| |  |  | to acquire or license additional products or product candidates;
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| |  |  | to support the marketing and sales of existing and additional products;
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| |  |  | to obtain necessary working capital; and
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| |  |  | to fund operating losses.
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Adequate funds for these purposes may not be available when needed or on terms acceptable to us. Insufficient funds may cause us to delay, scale back, or
abandon some or all of our product acquisition and licensing programs and product development programs. We may seek additional funding through public and private financing, including equity and debt financing or enter into collaborative
arrangements. Any sale of additional convertible debt securities or equity securities may result in additional dilution to our shareholders and any debt financing may require us to pledge our assets and enter into restrictive covenants. Entry into
collaborative arrangements may require us to give up rights to some of our products or to some potential markets or to enter into licensing arrangements on unfavorable terms.





Clinical trials are complex and unpredictable and may
produce unexpected results that could affect our ability to commercialize our products.



Before obtaining regulatory approvals for the commercial sale of any product under development, including irofulven, we must demonstrate through preclinical studies and clinical trials that the product is safe and
effective for use in each target indication. We utilize medical institutions and laboratories to conduct our preclinical and clinical testing in compliance with good clinical and laboratory practices as required by the FDA. We depend on contract
research organizations to manage a substantial portion of the medical institutions utilized to conduct our clinical testing. The results from preclinical animal studies and early human clinical trials may not be predictive of the results that we
will obtain in larger scale testing. Some of the results we report from Phase 2 clinical trials are interim results and may not be predictive of future results, including final results from such Phase 2 trials, because, among other factors, patient
enrollment and the time period for evaluating patient results are not complete. If we fail to adequately demonstrate the safety and efficacy of a product candidate, the FDA would not provide regulatory approval of the product. The appearance of
unacceptable toxicities or side effects during clinical trials or commercial use could interrupt, limit, delay or abort the development of a product. A



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number of companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials, even
after experiencing promising results in previous animal and human studies.



The time required to complete clinical trials is dependent upon, among other factors, the rate of patient enrollment. Patient enrollment is a function of many factors, including:



| |  |  | the size of the patient population;
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| |  |  | the nature of the clinical protocol requirements;
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| |  |  | the diversion of patients to other trials or marketed therapies;
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| |  |  | our ability to recruit and manage clinical centers and associated trials;
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| |  |  | the proximity of patients to clinical sites; and
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| |  |  | the patient eligibility criteria for the study.
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Other factors, such as lack of efficacy and unacceptable toxicities, may result in increased costs and delays or termination of clinical trials prior to
completion. In addition, delays in manufacturing of product for our clinical trials could impact our ability to complete our clinical trials as planned.





Since our product candidates such as irofulven have many potential applications and we
have limited resources, our focus on a particular area may result in our failure to capitalize on more profitable areas and may not result in viable products.



We have limited financial and research and development resources. This requires us to focus on product candidates in
specific areas and forego opportunities with regard to other products and applications. For example, our most significant product candidate, irofulven, is in clinical and preclinical trials for a number of applications. We expect that a substantial
portion of our product development efforts over the next several years may be devoted to the further development of irofulven, including its application to the treatment of cancers or sub-populations of certain types of cancers with limited
therapeutic options such as refractory cancers, for which we believe irofulven could most quickly be developed and approved for marketing. We are also investigating the efficacy of irofulven in combination with other cancer therapies. While some of
these studies have indicated some effectiveness in relation to the target medical conditions, we have not yet identified for potential commercialization any particular use of irofulven.



If we fail to obtain, develop and successfully commercialize applications for irofulven, we may not achieve expectations of
our future performance and our stock price may decline. For example, in April 2002 we stopped enrollment in our Phase 3 trial of irofulven in advanced-stage, gemcitabine-refractory pancreatic cancer patients and our stock price declined
significantly. In addition, we may focus our development of irofulven on a particular application that may result in our failure to capitalize on another application or another product candidate. Our decisions impacting resource allocation may not
lead to the development of viable commercial products and may divert resources away from more profitable market opportunities.





Our operating results may fluctuate significantly, which may adversely affect our stock
price.



If our operating results do not meet the
expectations of investors or securities analysts, our stock price may decline. Our operating results may fluctuate significantly from period to period due to a variety of factors including:



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| |  |  | changing demand for our current products, particularly Salagen® Tablets;
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| |  |  | the acceptance of, and demand for, Aloxi;
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| |  |  | third parties introducing competing products;
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| |  |  | the pace and breadth of our development programs;
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| |  |  | expenditures we incur to acquire, license, develop and promote additional products;
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| |  |  | availability of product supply from third-party manufacturers;
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| |  |  | changes in sales and marketing expenditures; and
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| |  |  | the timing of licensing and royalty revenues.
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For the six-month period ended June 30, 2003, we had a net loss of $13.6 million, compared to a net loss of $36.1 million for the year ended December 31,
2002. The continuing pattern of losses is primarily a result of spending for research and development and launch preparation activities for Aloxi exceeding product revenue available from our currently marketed products.



Variations in the timing of our future revenue and expense could also cause significant fluctuations in our operating
results from period to period and may result in unanticipated earnings shortfalls or losses.





We depend upon the sale of Salagen® Tablets for substantially all of our current product revenues. If any factor adversely impacts sales of Salagen® Tablets, our product revenues will decrease and may decrease significantly.



We currently derive substantially all of our product
revenues from the sale of Salagen® Tablets. U.S.
sales of Salagen® Tablets represented 86% of our
total product sales and 76% of our total revenue for the six-month period ended June 30, 2003. Any factor adversely affecting sales of Salagen® Tablets could cause our product revenues to decrease and our stock price to decline significantly. In March 2001, our orphan drug status for
Salagen® Tablets as a treatment for the symptoms of
radiation-induced xerostomia, or severe dry mouth, in head and neck cancer patients expired. Our orphan status for Salagen® as a treatment of symptoms associated with Sjögrens syndrome expires in April 2005. Because Salagen® Tablets does not have patent protection, competing generic products may enter these
markets. In addition, we are aware of two currently marketed products that compete in the same or similar markets as Salagen® Tablets. If sales of Salagen® Tablets decline as a result of this competition, or for any other reason, our product revenues will decrease and our stock price could decline.





We depend on a single supplier to provide us with the active ingredient for the production of Salagen® Tablets and a single supplier to provide us with the finished drug product for Aloxi. If either supplier terminates its relationship with us, or is unable to fill our demand for the ingredients or products, we may be unable to sell
those products.



We rely on the Fine Chemicals Division of
Merck KgaA as our sole and exclusive supplier of oral-grade pilocarpine hydrochloride, the active ingredient in Salagen® Tablets. The refined raw material is a semi-synthetic salt of an extract from plants grown and processed exclusively on plantations in South America.
To our knowledge, there is currently no other producer of oral-grade pilocarpine hydrochloride that is capable of meeting our commercial needs. In addition, we rely on Helsinn Birex Pharmaceuticals Ltd. as our sole and exclusive supplier of the
Aloxi finished drug product. If our relationship
with Merck KgaA or Helsinn Birex Pharmaceuticals Ltd. terminates, or Merck KgaA or Helsinn Birex



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Pharmaceuticals Ltd. is unable to meet our needs for any reason, we will need to find an alternative source of the active
ingredients and products supplied by those companies. If we are unable to identify an alternative source, we may be unable to continue producing Salagen® Tablets or offering Aloxi for commercial sale. Even if we were able to procure adequate supplies of pilocarpine hydrochloride or the Aloxi finished drug product from an alternative source, any disruption in supply could have
a material adverse effect on our ability to meet customer demand for Salagen® Tablets or offering Aloxi for commercial sale, which could cause our product revenues to decrease and our stock price to decline.





If our third-party manufacturer of Salagen® Tablets or Aloxi or any of our other products ceases operations or fails to comply with applicable manufacturing regulations, we may not
be able to meet customer demand in a timely manner, if at all.



We do not have manufacturing facilities and we rely on one third-party manufacturer, Patheon Inc., for the production of Salagen® Tablets and on Helsinn Birex Pharmaceuticals Ltd. for the production of Aloxi and other third-party manufacturers for our other products. We intend to continue to rely on others to manufacture any
future products, including any products that we may acquire or license, and we have no plans to establish manufacturing facilities. Our dependence on third parties for the manufacture of our products may adversely affect our ability to develop and
deliver such products.



The manufacture of our products is, and
will be, subject to current good manufacturing practices regulations prescribed by the FDA or other standards prescribed by the appropriate regulatory agency in the country of use. There is a risk that our manufacturers, including the
current manufacturer of Salagen® Tablets and of
Aloxi, will not comply with all applicable
regulatory standards, and may not be able to manufacture Salagen® Tablets, Aloxi or
any other product for commercial sale. If this occurs, we might not be able to identify another third-party manufacturer on terms acceptable to us, or any other terms.



Material changes to an approved product, such as manufacturing changes or additional labeling claims, require further FDA
review and approval. Even after approval is obtained, the FDA may withdraw approval if previously unknown problems are discovered. Further, if we, our corporate partners or our contract manufacturers fail to comply with applicable FDA and other
regulatory requirements at any stage during the regulatory or manufacturing process, the FDA may impose sanctions, including:



| |  |  | marketing or manufacturing delays;
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| |  |  | warning letters;
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| |  |  | fines;
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| |  |  | product recalls or seizures;
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| |  |  | injunctions;
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| |  |  | refusal of the FDA to review pending market approval applications or supplements to approval applications;
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| |  |  | total or partial suspension of production;
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| |  |  | civil penalties;
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| |  |  | withdrawals of previously approved marketing applications; or
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| |  |  | criminal prosecutions.
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Our business strategy depends on our
ability to identify, acquire, license and develop product candidates and identify, acquire or license approved products.



As part of our business strategy we plan to identify, acquire, license and develop product candidates and identify, acquire and license approved products
for markets that we can reach through our marketing and distribution channels. If we fail to obtain, develop and successfully commercialize additional products, we may not achieve expectations of our future performance and our stock price could
decline. Because we do not directly engage in basic research or drug discovery, we must rely upon third parties to sell or license product opportunities to us. Other companies, including some with substantially greater financial, marketing and sales
resources, are competing with us to acquire or license such products or product candidates. We may not be able to acquire or license rights to additional products or product candidates on acceptable terms, if at all. Furthermore, we may not be able
to successfully develop any product candidates we acquire or license. In addition, we may acquire or license new products with different marketing strategies, distribution channels and bases of competition than those of our current products.
Therefore, we may not be able to compete favorably in those product categories.





If we are unable to maintain relationships with third-party collaborators or enter into new relationships, we may not be able to develop any of our product candidates
or commercialize our products in a timely manner, if at all.



Our continued success will depend in large part upon the efforts of third-parties. For the research, development, manufacture and commercialization of our products, we currently have, and will likely continue to enter into, various
arrangements with other corporations, licensors, licensees, outside researchers, consultants and others. However, we cannot be certain of the actions these parties will take, and there is a risk that:



| |  |  | we will be unable to negotiate acceptable collaborative arrangements to develop or commercialize our products;
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| |  |  | any arrangements with third-parties will not be successful;
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| |  |  | third-party collaborators will not fulfill their obligations to us under any arrangements entered into with them;
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| |  |  | strategic partners, including Helsinn Healthcare SA, will terminate their relationship with us; or
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| |  |  | current or potential collaborators will pursue treatments for other diseases or seek alternative means of developing treatments for the diseases targeted by our programs or
products.
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Our third-party collaborators include
public research institutions, research organizations, teaching and research hospitals, community-based clinics, testing laboratories, contract product formulation organizations, contract packaging and distribution companies, manufacturers, suppliers
and license partners. We consider our arrangements with Helsinn Healthcare SA, Patheon Inc., Merck KGaA and MethylGene Inc. to be significant. If any of our collaborators breaches or terminates its agreement with us, or otherwise fails to conduct
its collaborative activities in a timely manner, we may experience significant delays in the development or commercialization of the products or product candidates or the research program covered by the agreement and we may need to devote additional
funds or other resources to these activities. If we are unable to enter into new or alternative arrangements to continue research and development activities, or are unable to continue these activities on our own, we may have to terminate the
development program. As a consequence, we may experience a loss of future commercial product potential and a decline in our stock price.



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We have licensed the right to promote,
sell and distribute Aloxi in the United States
and Canada from a third party. We are particularly dependent on that third party for our ability to commercialize Aloxi.



We have entered a license agreement with Helsinn Healthcare SA under which we have acquired a license to sell and distribute Aloxi in the United States and Canada for an initial period
of ten years from our launch of Aloxi.
Furthermore, under the terms of our license, we are required to purchase all of our Aloxi products from Helsinn Healthcare SA. The license agreement may be terminated for specified reasons, including if the other party is in substantial or persistent breach of the agreement, if we have experienced
a change of control and the acquiring entity has competing products or our marketing and sales related commitments to the licensor are not maintained by the acquiring entity, or if either party has declared bankruptcy. Although we are not currently
in breach of the license, and we believe that Helsinn Healthcare SA is not currently in breach of the license, there is a risk that either party could breach the license in the future. In addition, if we were to breach the supply agreement with
Helsinn Birex Pharmaceutical Ltd. contemplated by the license, Helsinn Healthcare SA would be permitted to terminate the license.



If the license agreement were terminated, we would lose all of our rights to sell and distribute Aloxi, as well as all of the related intellectual property and all regulatory approvals. In
addition, Helsinn Healthcare SA holds the rights to the palonosetron (the active ingredient in Aloxi) through an agreement with Syntex (U.S.A.) Inc. and F. Hoffmann-La Roche AG. We cannot be certain of the actions that these parties will take, and there is a risk that these third
parties will end their relationship, which would leave us without rights to the pharmaceutical preparations, products and know-how required to produce Aloxi. As a consequence of such a termination, we would lose all of our rights to sell and distribute Aloxi, which would harm our business and could cause our stock price to decline
significantly.





We rely on multinational and foreign pharmaceutical companies to develop and commercialize our products and product candidates in markets outside the United States.



With respect to products in which we own rights outside the United States,
our strategy for commercialization of such products in markets outside the United States is to enter into development and marketing alliances with multinational and foreign pharmaceutical companies. We have entered into alliances with various
companies related to the development and commercialization of our products and product candidates in markets outside the United States. Our continued relationships with strategic partners are dependent in part on the successful achievement of
development milestones. If we or our partners do not achieve these milestones, or we are unable to enter into agreements with our partners to modify their terms, these agreements could terminate, which could cause a loss of licensing revenue, a loss
of future commercial product potential and a decline in our stock price.



We depend upon licensing revenue from our marketing partners for a material portion of our total revenue. Future licensing revenues from these partners will likely fluctuate from quarter to quarter and year to year
depending on:



| |  |  | the achievement of milestones by us or our partners;
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| |  |  | the amount of product sales and royalty-generating activities;
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| |  |  | the timing of initiating additional licensing relationships; and
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| |  |  | our continuing obligation related to license payments.
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If we fail to compete successfully with our competitors, our product revenues could decrease and our stock price could
decline.



Competition in the pharmaceutical industry is
intense. Most of our competitors are large, multinational pharmaceutical companies that have considerably greater financial, sales, marketing and technical resources than we do. Most of our present and potential competitors also have dedicated
research and development capabilities that may allow them to develop new or improved products that compete with our products. Currently, MedImmune, Inc. and Snow Brand Pharmaceuticals, Inc. have drugs that are approved for sale and compete in the
same markets as Salagen® Tablets. Aloxi, when it is launched, will compete with three other
products from the 5-HT3receptor antagonists class of compounds, as well as products from other chemical classes
that are also used for the prevention of chemotherapy-induced nausea and vomiting. Most of these products are marketed by large, multinational competitors, including GlaxoSmithKline, Roche and Aventis. If Aloxi does not compete successfully with existing products on the market, our stock price
could decline significantly.



Other pharmaceutical companies
are developing products, which, if approved by the FDA, will compete directly with Salagen® Tablets or Aloxi. Our competitors could also develop and introduce generic drugs comparable to Salagen® Tablets or Aloxi, or drugs or other therapies that address the underlying causes of the symptoms that Salagen® Tablets or Aloxi treat. If a product developed by a competitor is more effective than our product, or priced lower than our product,
then our product revenue could decrease and our stock price could decline.



We are dependent on our key personnel. If we are not able to attract and retain key employees and consultants, our product development, marketing and commercialization plans could be harmed.



We are highly dependent on the members of our scientific and management
staff. If we are not able to retain any of these persons, our product development, marketing and commercialization plans may suffer and our stock price could decline. None of our executive officers has an employment agreement with us. If we are
unable to retain our scientific and management staff, we will need to hire additional qualified personnel for us to pursue our product acquisition, development, marketing and commercialization plans. We may not be able to attract and retain
personnel on acceptable terms, given the competition for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions. If we are not able to attract and retain qualified personnel,
our product acquisition, development, marketing and commercialization plans will suffer and our stock price could decline.



If we are unable to keep up with rapid technological changes in the pharmaceutical or biotechnology industries, we may be unable to continue our operations.



The pharmaceutical and biotechnology industries have
experienced rapid and significant technological change. We expect that pharmaceutical technology and biotechnology will continue to develop rapidly. Our future success will depend, in large part, on our ability to develop and maintain technology
that is competitive. If other companies achieve technological advances with their products or obtain FDA approval before we are able to obtain such approval, our products may become obsolete before they are marketed or before we recover any of our
development and commercialization expenses incurred with respect to such products. In addition, alternative therapies or new medical treatments could alter existing treatment regimens, and thereby reduce the need for one or more of our products,
which could result in the termination of the development in one or more of our product candidates, or in the decline in sales of one of our approved products, which could cause our stock price to decline.



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If we do not receive regulatory approvals for our product candidates, or if regulatory approval is delayed for any
reason, we will be unable to commercialize and sell our products as we expect.



Prior to marketing, each of our product candidates must undergo an extensive regulatory approval process conducted by the FDA in the United States and by comparable agencies in other countries. The product development
and approval process can take many years and require the expenditure of substantial resources. There is risk that the FDA or a foreign regulatory authority will not approve in a timely manner, if at all, any product we develop. Generally, the FDA
approves for sale only a very small percentage of newly discovered pharmaceutical compounds that enter preclinical development. We may encounter delays or denials in regulatory approvals due to changes in FDA policy during the period of development,
or changes in the requirements for regulatory review of each submitted new drug application, or NDA.



There is also risk that regulatory authorities in the United States and elsewhere may not allow us to conduct planned additional clinical testing of any
of our product candidates, including irofulven, or that, if permitted, this additional clinical testing will not prove that these product candidates are safe and effective to the extent necessary to permit us to obtain marketing approvals from
regulatory authorities.



Except for those products already
approved, none of our product candidates are currently being tested in Phase 3 or registration clinical trials. We cannot apply for a regulatory approval to market a product candidate until we successfully complete Phase 3 or registration clinical
trials for that product.



If we are unable to obtain intellectual property
protection, or protect our proprietary technology, we may be unable to compete effectively.



The FDA awarded us orphan drug status for Salagen® Tablets in 1994 as a treatment for the symptoms of xerostomia, or severe dry mouth, induced by radiation therapy in head and neck cancer patients and
in 1998 for the symptoms of dry mouth associated with Sjögrens syndrome. An orphan drug designation entitles us to marketing exclusivity of the protected drug for the stated condition for a period of seven years. Our orphan drug
protection for Salagen® Tablets expired in March
2001 for the treatment of symptoms of radiation-induced xerostomia in head and neck cancer patients and will expire in 2005 for the Sjögrens syndrome indication. Upon expiration of any of our orphan drug protection for Salagen® Tablets, we may face competition from manufacturers of
generic versions of Salagen® Tablets.



We hold an exclusive United States and Canada license on patents covering
Aloxi proprietary rights. In addition, we hold an
exclusive, worldwide license on patents and patent applications covering acylfulvene proprietary rights, including irofulven. The license applicable to these technologies is subject to certain statutory rights held by the U.S. government. Even
though we have licensed these patents, we may not have exclusive rights to all possible acylfulvene analogs, all possible methods of using acylfulvene analogs to treat tumors or all possible synthetic methods for preparing acylfulvenes. In addition,
we licensed rights to patents and patent applications covering MG98 and inhibitors of DNA methyltransferase. Protection of these rights and creation of additional rights involve joint responsibilities between us and the respective license party.



Our pending patent applications, those we may file in the
future, or those we license from third parties, may not result in patents being issued. Patents, if issued, may be challenged, invalidated or circumvented. In addition, other entities may develop similar technologies that fall outside the scope of
our patents. Thus, any patent rights that we own or license from third parties may not provide sufficient protection against potential competitors.



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In the event that our technologies or methods used in the course of developing or selling our products
infringe the patents or violate other proprietary rights of third parties, we and our corporate partners may be prevented from pursuing product development or commercialization.



In addition to patents, we rely on trade secrets and proprietary know-how. We protect our proprietary technology and
processes in part by confidentiality agreements with our collaborative partners, employees and consultants. There is a risk that:



| |  |  | these confidentiality agreements will be breached;
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| |  |  | we will not have adequate remedies for any breach of these agreements;
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| |  |  | our trade secrets will otherwise become known; or
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| |  |  | our trade secrets will be independently discovered and used by competitors.
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The biotechnology and pharmaceutical industries have been characterized by litigation regarding patents and other intellectual property rights. If we
become involved in any litigation, interference or other administrative proceedings, we will incur substantial expense and the efforts of our technical and management personnel will be diverted. An adverse determination may subject us to significant
liabilities or require us to cease using the technology or to seek licenses that may not be available from third parties on commercially favorable terms, if at all, or to cease manufacturing and selling our products. This could cause us to terminate
the development of one or more of our product candidates, to discontinue marketing an existing product, or to pay royalties to a third party. Any of these events could result in a decline in our stock price.



If the use of one of our products harms people, we may be subject to costly and damaging
product liability claims.



We face exposure to product
liability claims in the event that the use of our product is alleged to have harmed someone. Although we have taken, and continue to take, what we believe are appropriate precautions, there is a risk that we will not be able to avoid significant
product liability exposure. We currently have product liability insurance in the amount of $15 million per occurrence and in the aggregate for the year. There is a risk that our insurance will not be sufficient to cover claims. There is also a risk
that adequate insurance coverage will not be available in the future on commercially reasonable terms, if at all. The successful assertion of an uninsured product liability or other claim against us could cause us to incur a significant expense to
pay such a claim, could adversely affect our product development and could cause a decline in our product revenue and stock price.



In addition to product liability risks associated with sales of our products, we may be liable to the claims of individuals who participate in clinical
trials of our products. A number of patients who participate in trials are already critically ill when they enter a trial. The waivers we obtain may not be enforceable and may not protect us from liability or the costs of product liability
litigation. Our product liability insurance may not provide adequate protection against potential liabilities. Moreover, we may not be able to maintain our insurance on acceptable terms. As a result of these factors, a product liability claim, even
if successfully defended, could cause us to incur a significant expense to defend such a claim, could adversely affect our product development and could cause a decline in our product revenue and stock price.



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If we issue a product recall, we may not sell as much of our products in the future and we may incur significant
expenses.



The FDA or other government agencies having
regulatory authority for product sales may request product recalls or we may issue product recalls. These product recalls may occur due to manufacturing issues, safety concerns or other reasons. We do not carry any insurance to cover the risk of a
product recall. Any product recall could have a material adverse effect on our product revenue and could cause our stock price to decline.



If we or patients using our products are unable to obtain adequate reimbursement from government health administration authorities, private health insurers and other
organizations, our product sales and stock price could decline.



There is much uncertainty about the reimbursement status of healthcare products. Our profitability will depend in part on: (1) the price we are able to charge for our products, and (2) the availability of adequate reimbursement for our
products from third-party payors, such as government entities, private health insurers and managed care organizations. Federal and state regulations govern or influence the reimbursement status of healthcare products in many situations and
third-party payors are increasingly challenging the pricing of medical products and services. Salagen® Tablets generally have been eligible for reimbursement from third-party payors and we will be applying for reimbursement eligibility for Aloxi. Although third-party reimbursement previously has not been an issue for us, it
becomes important to the commercialization of Aloxi. Reimbursement of newly approved health products is uncertain. There is a risk that reimbursement will not be available for Aloxi or for our future products, or that such third-party reimbursement will not be adequate. If government entities and
other third-party payors do not provide adequate reimbursement levels for our products, our product and license revenues would be materially and adversely affected and our stock price could decline.



In recent years, various parties have proposed a number of legislative and
regulatory proposals aimed at changing national healthcare systems. In the United States, we expect that there will continue to be a number of federal and state proposals to implement government control of pricing and profitability of prescription
pharmaceuticals. Cost controls, if mandated by a government agency, could decrease the price that we receive for our current or future products. These proposals, if enacted, could have a material adverse effect on our product and license revenues
and could cause our stock price to decline. In certain countries, regulatory authorities must also approve the sales price of a product after they grant marketing approval. There is a risk that we will not be able to obtain satisfactory prices in
foreign markets even if we obtain marketing approval from foreign regulatory authorities.



Our operations, and the operations of our third-party contractors, involve hazardous materials that could expose us to liability if environmental damage occurs.



Our operations, and the operations of our third-party contractors involve
the controlled use of hazardous materials. We cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or environmental discharge, third parties may hold us liable for any resulting damages,
which may exceed our financial resources and may have a material adverse effect on our ability to fund our operations.



Our stock price is volatile, which may result in significant losses to shareholders.



There has been significant volatility in the market prices of pharmaceutical and biotechnology companies securities.
Various factors and events may have a significant impact on the market price of our common stock, and some of these factors are beyond our control. These factors include:



| |  |  | fluctuations in our operating results;
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| |  |  | announcements of technological innovations or acquisitions or licensing of therapeutic products or product candidates by us or our competitors;
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| |  |  | published reports by securities analysts;
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| |  |  | positive or negative progress with our clinical trials;
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| |  |  | governmental regulation, including healthcare reimbursement policies;
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| |  |  | developments in patent or other proprietary rights;
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| |  |  | developments in our relationship with collaborative partners and suppliers, and announcements of new strategic partnerships;
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| |  |  | public concern as to the safety and efficacy of our products; and
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| |  |  | general market conditions.
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The trading price of our common stock has been, and could continue to be, subject to wide fluctuations in response to these factors, including the sale or
attempted sale of a large amount of our common stock into the market. Our stock price ranged from $4.68 to $29.50 per share during the two-year period ended June 30, 2003. Broad market fluctuations may also adversely affect the market price of our
common stock.



In the past, following large falls in the price
of a companys shares, securities class action litigation has often been initiated against that company. Litigation of this type could result in substantial costs and diversion of managements attention and resources, which could harm our
business. Any adverse determination in litigation could subject us to significant liabilities.



We have outstanding options and convertible debt that have the potential to dilute shareholder value and cause our stock value to decline.



We frequently grant stock options to our employees and other individuals. At June 30, 2003, we had 4,362,093 options
outstanding at option prices ranging from $3.38 to $51.50. We have also issued convertible debt with warrants. A registration statement is in effect in relation to the securities that may be issued in exchange for such debt or on the exercise of
such warrants or options. The convertible debt is convertible into 2,571,428 shares of common stock at prices ranging from $7.00 to $10.50. In conjunction with the convertible debt, we issued warrants that are exercisable for 400,000 shares of
common stock at prices of $8.75 and $10.50. The convertible debt, the warrants and the options may be exchanged for common stock or exercised at any time. Consequently, we are not able to estimate when, if ever, the convertible debt, the warrants or
the options will be converted into common stock, but any such conversion would almost certainly dilute shareholder value.



If some or all of such shares are registered and sold into the public market over a short time period, the value of our stock is likely to decline, as the
market may not be able to absorb those shares at the prevailing market prices. Such sales may also make it more difficult for us to sell equity securities in the future on terms that we deem acceptable.



Our charter documents, our shareholder rights plan and Minnesota law contain provisions
that could delay or prevent an acquisition of our company.



Our charter documents contain provisions that may discourage third parties from seeking to acquire our company. These provisions include:



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| |  |  | advance notice requirements for shareholder proposals and nominations; and
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| |  |  | the authority of the board of directors to issue, without shareholder approval, preferred stock with such terms as the board of directors may determine.
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In addition, our board of directors has adopted a shareholder rights plan, or
poison pill, which enables our board of directors to issue preferred stock purchase rights that would be triggered by an acquisition of 15 percent or more of the outstanding shares of our common stock. These provisions and specific provisions of
Minnesota law relating to business combinations with interested shareholders may have the effect of delaying, deterring or preventing a merger or change in control. Some of these provisions may discourage a future acquisition of our company even if
shareholders would receive an attractive value for their shares or if a significant number of our shareholders believed such a proposed transaction to be in their best interests. As a result, shareholders who desire to participate in such a
transaction may not have the opportunity to do so.



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