##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 0-10736
 MGI PHARMA, INC.
 (Exact name of registrant as specified in its charter)
 Minnesota
(State or other jurisdiction of 
incorporation or organization)
    
    41-1364647
(I.R.S. employer
identification number)5775 West Old Shakopee RoadSuite 100Bloomington, Minnesota 55437
    
    (952) 346-4700(Address of principal executive offices and zip code)
    
    (Registrants telephone number, including area code)
 
  þ o
  þ o o
  o þ
  Common Stock, $.01 par value
(Class)
    
    80,612,879 shares
(Outstanding at October 22, 2007)




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##### 



MGI PHARMA, INC.
 FORM 10-Q INDEX
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed
Consolidated Balance Sheets  September 30, 2007 and
December 31, 2006
    
    
    3Condensed
Consolidated Statements of Operations  Three and Nine months
Ended September 30, 2007 and 2006
    
    
    4Condensed
Consolidated Statements of Cash Flows  Nine months Ended
September 30, 2007 and 2006
    
    
    5Notes to
Condensed Consolidated Financial Statements
    
    
    6Item 2.
Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    13Item 3.
Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4.
Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 1A.
Risk Factors
    
    
    23Item 6.
Exhibits
    
    
    23SIGNATURES
    
    
    24
 2




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##### 



PART IFINANCIAL INFORMATION
 Item 1. Financial Statements
 MGI PHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
  December 31,September 30,
    
    
    20062007
    
    
    (Revised)*ASSETSCurrent assets:Cash and cash equivalents
    
    $
    78,955
    
    
    $
    41,024Short-term marketable investments
    
    
    85,335
    
    
    
    121,719Restricted marketable investments
    
    
    
    
    
    
    2,957Receivables, less contractual allowances and allowance
for bad debts of $56,773 and $28,149 as of September 30,
2007 and December 31, 2006, respectively
    
    
    135,066
    
    
    
    84,464Inventories
    
    
    36,367
    
    
    
    40,293Other current assets
    
    
    4,868
    
    
    
    9,276Total current assets
    
    
    340,591
    
    
    
    299,733Restricted cash
    
    
    500
    
    
    
    500Long-term marketable investments
    
    
    26,124
    
    
    
    28,024Equipment, furniture and leasehold improvements, at cost
less accumulated depreciation of $9,438 and $7,170 as of
September 30, 2007 and December 31, 2006, respectively
    
    
    11,359
    
    
    
    10,119Debt issuance costs, less accumulated amortization of $4,459
and $3,365 as of September 30, 2007 and December 31, 2006,
respectively
    
    
    4,561
    
    
    
    5,634Intangible assets, at cost less accumulated amortization of
$22,406 and $16,412 as of September 30, 2007 and December
31, 2006, respectively
    
    
    73,128
    
    
    
    79,122Goodwill
    
    
    53,593
    
    
    
    53,593Other assets
    
    
    6,573
    
    
    
    6,250Total assets
    
    $
    516,429
    
    
    $
    482,975LIABILITIES
AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    13,211
    
    
    $
    13,627Accrued expenses
    
    
    72,765
    
    
    
    77,156Senior subordinated convertible notes, current maturities
    
    
    1,500
    
    
    
    Other long-term debt, current maturities
    
    
    117
    
    
    
    179Deferred revenue
    
    
    1,365
    
    
    
    3,076Other current liabilities
    
    
    680
    
    
    
    1,522Total current liabilities
    
    
    89,638
    
    
    
    95,560Senior subordinated convertible notes, net of unamortized
discount of $87,828, face value of $348,000 and $349,500 at
September 30, 2007 and December 31, 2006, respectively
    
    
    260,172
    
    
    
    261,672Other long-term debt, net of current maturities
    
    
    79
    
    
    
    166Deferred revenue, net of current portion
    
    
    16,170
    
    
    
    16,636Other noncurrent liabilities
    
    
    4,643
    
    
    
    3,006Total liabilities
    
    
    370,702
    
    
    
    377,040Stockholders equity:Preferred stock, 10,000,000 authorized and unissued shares
    
    
    
    
    
    
    Common stock, $.01 par value, 140,000,000 authorized
shares, 80,536,492 and 79,195,318 issued and outstanding
shares, as of September 30, 2007 and December 31, 2006,
respectively
    
    
    805
    
    
    
    792Additional paid-in capital
    
    
    609,890
    
    
    
    575,867Accumulated other comprehensive income
    
    
    1,961
    
    
    
    9,857Accumulated deficit
    
    
    (466,929
    )
    
    
    (480,581
    )Total stockholders equity
    
    
    145,727
    
    
    
    105,935Total liabilities and stockholders equity
    
    $
    516,429
    
    
    $
    482,975
  
 *
    
    Refer to Footnote 12 for complete discussion on the revision to the December 31, 2006
consolidated balance sheet. 3




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##### 



MGI PHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Product sales
    
    $
    110,814
    
    
    $
    95,540
    
    
    $
    283,341
    
    
    $
    259,256Licensing and other
    
    
    1,700
    
    
    
    1,459
    
    
    
    5,422
    
    
    
    3,100Total revenue
    
    
    112,514
    
    
    
    96,999
    
    
    
    288,763
    
    
    
    262,356Costs and expenses:Cost of sales
    
    
    38,173
    
    
    
    34,882
    
    
    
    95,234
    
    
    
    97,037Selling, general and administrative
    
    
    38,723
    
    
    
    38,390
    
    
    
    120,350
    
    
    
    105,375Research and development
    
    
    22,780
    
    
    
    21,173
    
    
    
    56,914
    
    
    
    72,331Acquired in-process research and development
    
    
    689
    
    
    
    
    
    
    
    689
    
    
    
    Restructuring
    
    
    919
    
    
    
    
    
    
    
    1,092
    
    
    
    Total costs and expenses
    
    
    101,284
    
    
    
    94,445
    
    
    
    274,279
    
    
    
    274,743Income (loss) from operations
    
    
    11,230
    
    
    
    2,554
    
    
    
    14,484
    
    
    
    (12,387
    )Interest income
    
    
    2,100
    
    
    
    1,364
    
    
    
    6,074
    
    
    
    3,881Interest expense
    
    
    (1,873
    )
    
    
    (1,891
    )
    
    
    (5,623
    )
    
    
    (5,813
    )Other-than-temporary impairment of investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,880
    )Other (expense) income
    
    
    (122
    )
    
    
    202
    
    
    
    (89
    )
    
    
    257Income (loss) before minority interest and income taxes
    
    
    11,335
    
    
    
    2,229
    
    
    
    14,846
    
    
    
    (23,942
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,881Provision for income taxes
    
    
    485
    
    
    
    505
    
    
    
    1,194
    
    
    
    458Net income (loss)
    
    $
    10,850
    
    
    $
    1,724
    
    
    $
    13,652
    
    
    $
    (20,519
    )Net income (loss) per common share:Basic
    
    $
    0.14
    
    
    $
    0.02
    
    
    $
    0.17
    
    
    $
    (0.26
    )Diluted
    
    $
    0.13
    
    
    $
    0.02
    
    
    $
    0.17
    
    
    $
    (0.26
    )Weighted average number of common shares outstanding:Basic
    
    
    80,239
    
    
    
    78,583
    
    
    
    79,841
    
    
    
    78,196Diluted
    
    
    83,260
    
    
    
    80,689
    
    
    
    82,522
    
    
    
    78,196
  4




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##### 



MGI PHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006OPERATING
ACTIVITIES:Net income (loss)
    
    $
    13,652
    
    
    $
    (20,519
    )Adjustments to reconcile net income (loss) to net cash used in operating activities:Acquired
in-process research and development
    
    
    689
    
    
    
    Depreciation and intangible amortization
    
    
    8,262
    
    
    
    8,567Benefit plan contribution
    
    
    
    
    
    
    1,144Employee stock compensation expense
    
    
    18,360
    
    
    
    6,337Excess tax benefits from stock-based compensation
    
    
    (417
    )
    
    
    (191
    )Other-than-temporary impairment of investment
    
    
    
    
    
    
    9,880Amortization of non-cash financing charges
    
    
    1,094
    
    
    
    872Loss on sale of Aggrastat
    
    
    
    
    
    
    546Minority interest related to SNDC
    
    
    
    
    
    
    (3,881
    )Other
    
    
    310
    
    
    
    429Change in assets and liabilities:Receivables
    
    
    (50,602
    )
    
    
    (28,609
    )Inventories
    
    
    3,926
    
    
    
    18,133Other assets
    
    
    4,085
    
    
    
    (5,480
    )Accounts payable and accrued expenses
    
    
    (3,361
    )
    
    
    9,586Deferred revenue
    
    
    (2,177
    )
    
    
    17,387Other liabilities
    
    
    795
    
    
    
    17SNDC working capital
    
    
    
    
    
    
    (1,017
    )Net cash (used in) provided by operating activities
    
    
    (5,384
    )
    
    
    13,201INVESTING
ACTIVITIES:Purchase of available for sale investments
    
    
    (1,116,134
    )
    
    
    (697,290
    )Maturity of available for sale investments
    
    
    1,146,521
    
    
    
    636,059Maturity of held-to-maturity investments
    
    
    
    
    
    
    37,347Maturity of investments held by SNDC
    
    
    
    
    
    
    14,533Distribution of SNDC funds to SNDC investors
    
    
    
    
    
    
    (9,635
    )Purchase of equipment, furniture and leasehold improvements
    
    
    (3,508
    )
    
    
    (5,207
    )Dacogen license agreement milestone payment
    
    
    
    
    
    
    (20,000
    )Net proceeds from the sale of Aggrastat
    
    
    
    
    
    
    17,213License acquisition costs
    
    
    (689
    )
    
    
    Other
    
    
    
    
    
    
    842Net cash provided by (used in) investing activities
    
    
    26,190
    
    
    
    (26,138
    )FINANCING
ACTIVITIES:Maturity of restricted marketable securities held by trustee for debt service
    
    
    2,957
    
    
    
    5,746Issuance cost of revolving credit facility
    
    
    (21
    )
    
    
    Cash consideration from issuance of shares under stock plans
    
    
    13,921
    
    
    
    7,424Excess tax benefits from stock-based compensation
    
    
    417
    
    
    
    191Payments on long-term debt
    
    
    (149
    )
    
    
    (1,456
    )Other
    
    
    
    
    
    
    (54
    )Net cash provided by financing activities
    
    
    17,125
    
    
    
    11,851Increase (decrease) in cash and cash equivalents
    
    
    37,931
    
    
    
    (1,086
    )Cash and cash equivalents at beginning of period
    
    
    41,024
    
    
    
    51,136Cash and cash equivalents at end of period
    
    $
    78,955
    
    
    $
    50,050Supplemental disclosure of cash information:Cash paid for interest
    
    $
    5,937
    
    
    $
    6,044Cash paid for income taxes
    
    $
    585
    
    
    $
    116
  5




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##### 



MGI PHARMA, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
 1. Basis of Presentation
  Accounting Policies:
   Concentration of Revenue Risk:
 Concentration of Supply Risk:
 Income Taxes: Accounting for Uncertainty in Income Taxes An Interpretation of
FASB Statement No. 109
  6




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##### 



Recent Accounting Pronouncements:
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Accounting for
Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development
Activities
 , Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 2. Stock Incentive Plans
  Shareholder
    
    
    
    
    
    
    TotalApproved
    
    
    Other
    
    
    For All(dollars in thousands, except exercise price)
    
    Plans
    
    
    Plans
    
    
    PlansShares issuable under outstanding awards
    
    
    11,073
    
    
    
    34
    
    
    
    11,107Shares available for future issuance
    
    
    5,455
    
    
    
    
    
    
    
    5,455Total
    
    
    16,528
    
    
    
    34
    
    
    
    16,562Average exercise price for outstanding options
    
    $
    17.97
    
    
    $
    4.92
    
    
    $
    17.92
 Share Based-Payment
 7




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##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(dollars in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Selling, general, and administrative
    
    $
    4,326
    
    
    $
    1,751
    
    
    $
    14,271
    
    
    $
    4,574Research and development
    
    
    1,056
    
    
    
    700
    
    
    
    4,089
    
    
    
    1,763Total
    
    $
    5,382
    
    
    $
    2,451
    
    
    $
    18,360
    
    
    $
    6,337
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    4.52
    %
    
    
    4.82
    %
    
    
    4.52-4.72
    %
    
    
    4.69 5.08
    %Expected volatility
    
    
    0.40
    
    
    
    0.44
    
    
    
    0.40-0.42
    
    
    
    0.41  0.44Expected life, in years
    
    
    5.41-6.03
    
    
    
    5.40  6.65
    
    
    
    5.40-6.66
    
    
    
    5.38  6.65
  3. Net Income (Loss) Per Common Share
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Weighted-average shares  basic
    
    
    80,239
    
    
    
    78,583
    
    
    
    79,841
    
    
    
    78,196Effect of dilutive share-based awards
    
    
    3,021
    
    
    
    2,106
    
    
    
    2,681
    
    
    
    Effect of convertible debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average shares  assuming dilution
    
    
    83,260
    
    
    
    80,689
    
    
    
    82,522
    
    
    
    78,196
  4. Marketable Investments
  September 30,
    
    
    December 31,(dollars in thousands)
    
    2007
    
    
    2006Short-term marketable investments:Auction rate securities (classified as available-for-sale)
    
    $
    85,335
    
    
    $
    121,719Long-term marketable investments:Auction rate securities (classified as available-for-sale)
    
    
    2,239
    
    
    
    Equity securities (classified as available-for-sale)
    
    
    23,885
    
    
    
    28,024Total long-term marketable investments
    
    
    26,124
    
    
    
    28,024Total marketable investments
    
    $
    111,459
    
    
    $
    149,743
  8




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##### 



Accounting for Certain Investments in Debt
and Equity Securities
   Gross
    
    GrossUnrealized
    
    Unrealized
    
    Fair(dollars in thousands)
    
    Cost Basis
    
    Gains
    
    Losses
    
    ValueAs of September 30, 2007
    
    $
    109,499
    
    
    $
    5,719
    
    
    $
    (3,759
    )
    
    $
    111,459As of December 31, 2006
    
    $
    139,885
    
    
    $
    9,858
    
    
    $
    
    
    
    $
    149,743
 5. Inventories
  September 30,
    
    
    December 31,(dollars in thousands)
    
    2007
    
    
    2006Raw materials and supplies
    
    $
    826
    
    
    $
    705Work in process
    
    
    961
    
    
    
    885Finished products
    
    
    34,390
    
    
    
    38,484Inventory on consignment
    
    
    190
    
    
    
    219Total
    
    $
    36,367
    
    
    $
    40,293
  6. Accrued Expenses
  September 30,
    
    
    December 31,(dollars in thousands)
    
    2007
    
    
    2006 (Revised)Product rebate, administrative, and other fees
    
    $
    20,033
    
    
    $
    16,590Employee compensation
    
    
    17,396
    
    
    
    17,346License fees
    
    
    15,152
    
    
    
    8,619Product development
    
    
    6,531
    
    
    
    11,412Other
    
    
    13,653
    
    
    
    23,189Total
    
    $
    72,765
    
    
    $
    77,156
 9




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##### 



7. Stockholders Equity
  AccumulatedAdditional
    
    
    otherCommon Stock
    
    
    paid-in
    
    
    comprehensive(thousands)
    
    Shares
    
    
    Par Value
    
    
    capital
    
    
    incomeBalance at December 31, 2006
    
    
    79,195
    
    
    $
    792
    
    
    $
    575,867
    
    
    $
    9,857Stock compensation plans, including income tax benefit of $417
    
    
    1,237
    
    
    
    12
    
    
    
    32,209
    
    
    
    Employee benefit plan contribution
    
    
    104
    
    
    
    1
    
    
    
    1,814
    
    
    
    Unrealized loss on marketable investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,897
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Balance at September 30, 2007
    
    
    80,536
    
    
    $
    805
    
    
    $
    609,890
    
    
    $
    1,961
 8. Research and Development Expense
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(dollars in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006License fees
    
    $
    5,000
    
    
    $
    
    
    
    $
    5,188
    
    
    $
    50Other research and development
    
    
    17,780
    
    
    
    21,173
    
    
    
    51,726
    
    
    
    72,281Total
    
    $
    22,780
    
    
    $
    21,173
    
    
    $
    56,914
    
    
    $
    72,331
  9. Comprehensive Income (Loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(dollars in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss), as reported
    
    $
    10,850
    
    
    $
    1,724
    
    
    $
    13,652
    
    
    $
    (20,519
    )Unrealized (loss) gain from marketable investments
    
    
    (10,144
    )
    
    
    5,821
    
    
    
    (7,897
    )
    
    
    12,080Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    3Comprehensive income (loss)
    
    $
    706
    
    
    $
    7,545
    
    
    $
    5,756
    
    
    $
    (8,436
    )
 10. Restructuring
  Three months ended(dollars
in thousands)
    
    September 30, 2007Liability for restructuring costs at June 30, 2007
    
    $
    1,296Accruals
    
    
    1,135Accrual adjustments
    
    
    (216
    )Cash payments
    
    
    (826
    )Other
    
    
    121Liability for restructuring costs at September 30, 2007
    
    $
    1,510
 Nine months ended(dollars
in thousands)
    
    September 30, 2007Liability for restructuring costs at December 31, 2006, as reported
    
    $
    1,276Revision made in the first quarter of 2007
    
    
    939Liability for restructuring costs at December 31, 2006, as revised
    
    
    2,215Accruals
    
    
    2,163Accrual adjustments
    
    
    (1,071
    )Cash payments
    
    
    (1,918
    )Other
    
    
    121Liability for restructuring costs at September 30, 2007
    
    $
    1,510
 10




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##### 



11. Leases
  (dollars in thousands)Remainder of 2007
    
    $
    1,4012008
    
    
    5,7272009
    
    
    5,3462010
    
    
    4,9582011
    
    
    4,670Thereafter
    
    
    33,959Subtotal
    
    
    56,061Less: expected receipts on subleases
    
    
    (3,048
    )Total operating lease obligations
    
    $
    53,013
 12. Prior Period Misstatements
 Accounting for
Costs Associated with Exit or Disposal Activities, Employers
Accounting for Postemployment Benefits. Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
 December 31, 2006
    
    
    
    
    
    
    December 31, 2006(thousands, except per share amounts)
    
    As Reported
    
    
    Revision
    
    
    RevisedConsolidated Statement of Operations  Year ended December 31, 2006Cost and Expenses:Cost of sales
    
    $
    123,415
    
    
    $
    
    
    
    $
    123,415Selling, general, and administrative
    
    
    148,383
    
    
    
    
    
    
    
    148,383Research and development
    
    
    100,117
    
    
    
    
    
    
    
    100,117Restructuring
    
    
    2,107
    
    
    
    939
    
    
    
    3,046Total operating expenses
    
    $
    374,022
    
    
    $
    939
    
    
    $
    374,961Net loss
    
    $
    (40,161
    )
    
    $
    (939
    )
    
    $
    (41,100
    )Net loss per common share:Basic
    
    $
    (0.51
    )
    
    $
    (0.01
    )
    
    $
    (0.52
    )Diluted
    
    $
    (0.51
    )
    
    $
    (0.01
    )
    
    $
    (0.52
    )Consolidated Statement of Operations  Three months ended December 31, 2006Cost and Expenses:Cost of sales
    
    $
    26,378
    
    
    $
    
    
    
    $
    26,378Selling, general, and administrative
    
    
    43,011
    
    
    
    
    
    
    
    43,011
 11




---



##### 



December 31, 2006
    
    
    
    
    
    
    December 31, 2006(thousands, except per share amounts)
    
    As Reported
    
    
    Revision
    
    
    RevisedResearch and development
    
    
    27,785
    
    
    
    
    
    
    
    27,785Restructuring
    
    
    2,107
    
    
    
    939
    
    
    
    3,046Total operating expenses
    
    $
    99,281
    
    
    $
    939
    
    
    $
    100,220Net loss
    
    $
    (19,643
    )
    
    $
    (939
    )
    
    $
    (20,582
    )Net loss per common share:Basic
    
    $
    (0.25
    )
    
    $
    (0.01
    )
    
    $
    (0.26
    )Diluted
    
    $
    (0.25
    )
    
    $
    (0.01
    )
    
    $
    (0.26
    )Consolidated Balance SheetAccrued expenses
    
    $
    76,217
    
    
    $
    939
    
    
    $
    77,156Total current liabilities
    
    
    94,621
    
    
    
    939
    
    
    
    95,560Total liabilities
    
    
    376,101
    
    
    
    939
    
    
    
    377,040Accumulated deficit
    
    
    (479,642
    )
    
    
    (939
    )
    
    
    (480,581
    )Total stockholders equity
    
    $
    106,874
    
    
    $
    (939
    )
    
    $
    105,935
 13. Subsequent Event
        Consolidation of Variable Interest Entities
 12




---



##### 



Item 2.
 From time to time in this quarterly report we make statements that reflect our current expectations
regarding our future results of operations, economic performance, and financial condition, as well
as other matters that may affect our business. In general, we try to identify these forward-looking
statements by using words such as anticipate, believe, expect, estimate and similar
expressions.
 The forward-looking statements may cover, but are not necessarily limited to, the following topics:
(1) efforts to market, sell and distribute Aloxi® Injection in the United States and Canada;
(2) efforts to market, sell and distribute Gliadel® Wafer; (3) efforts to develop, market, sell,
and distribute Dacogen® for Injection (4) the clinical development of Dacogen® for Injection,
Saforis Powder for Oral Suspension, amolimogene bepiplasmid, Aloxi® Injection for PONV, Aquavan®
Injection, and other clinical compounds; (5) efforts to secure adequate supply of the active
pharmaceutical ingredients for clinical development and commercialization; (6) efforts to
manufacture drug candidates for clinical development and eventual commercial supply; (7) strategic
plans; (8) anticipated expenditures and the potential need for additional funds; and (9) specific
guidance we give regarding our current expectations of our future operating results.
 All of these items involve significant risks and uncertainties. These and any of the other
statements we make in this quarterly report that are forward-looking are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. We caution you that our
actual results may differ significantly from the results we discuss in these forward-looking
statements.
 We discuss some factors that could cause or contribute to such differences in the Risk Factors
section of our Annual Report on Form 10-K for the year ended December 31, 2006, that we have
previously filed with the Securities and Exchange Commission. In addition, any forward-looking
statements we make in this document speak only as of the date of this document, and we do not
intend to update any such forward-looking statements to reflect events or circumstances that occur
after that date.
 We have registered Hexalen®, Salagen®, Aquavan®, Gliadel®, and Saforis as trademarks with
the U.S. Patent and Trademark Office. All other trademarks used in this report are the property of
their respective owners. Aloxi® is a registered trademark of Helsinn Healthcare SA. Dacogen® is
a trademark of SuperGen, Inc. Aggrastat® is a registered trademark of Medicure Inc. in the United
States.
 Managements Discussion and Analysis of Financial Condition and Results of Operations   Business Overview 
    MARKETABLE PRODUCTS
 Products
    
    Principal Indications
    
    MGI Commercial RightsAloxi Injection
    
    chemotherapy-induced nausea and vomiting (CINV)
    
    U.S. & Canada: MGI PHARMADacogen for Injection
    
    myelodysplastic syndrome (MDS)
    
    North America: MGI PHARMARest of World: Cilag GmbH(regulatory approvals pending)Gliadel Wafer
    
    Malignant glioma at time of initial surgery
    
    U.S.: MGI PHARMAOutside U.S.: Various collaboratorsGlioblastoma multiforme (GBM)
    
    U.S.: MGI PHARMAOutside U.S.: Various collaboratorsSalagen Tablets
    
    Symptoms of radiation-induced dry mouth in head
and neck cancer patients
Dry mouth, plus dry eyes outside the U.S., in
Sjögrens syndrome patients
    
    U.S.: MGI PHARMA
Europe: Novartis
Canada: Pfizer
Rest of World: Various other
collaboratorsHexalen capsules
    
    Ovarian Cancer
    
    U.S.: MGI PHARMAOutside U.S.: Various collaborators
 13




---



##### 



PRODUCT CANDIDATES AND RESEARCH PIPELINE
 Products
    
    Principal Indications
    
    Regulatory Status
    
    SponsorAloxi Injection
    
    PONV
    
    sNDA filed with the
Food and Drug
Administration
(FDA)
    
    Helsinn HealthcareAquavan Injection
    
    Minimal to moderate sedation of
patients undergoing brief
diagnostic or surgical
procedures
    
    NDA submitted
    
    MGI PHARMAAloxi Capsules
    
    CINV
    
    Phase 3 completed
    
    Helsinn HealthcareDacogen for Injection
    
    AML
    
    Phase 2 & 3
    
    MGI PHARMASaforis Powder for 
Oral Suspension
    
    Oral mucositis
    
    FDA approvable
letter received
October 12, 2006
    
    MGI PHARMAamolimogene bepiplasmid
    
    Cervical dysplasia
    
    Pivotal trial ongoing
    
    MGI PHARMAAKR-501
    
    Thrombocytopenia
    
    Phase 2
    
    AkaRx, Inc.irofulven
    
    Hormone refractory prostate
cancer (HRPC) with
capecitabine
HRPC combination with oxaliplatin
    
    Phase 2
Phase 2
    
    MGI PHARMA
MGI PHARMAZYC300
    
    Solid tumors
    
    Phase 1/2
    
    MGI PHARMAPARP Inhibitors
    
    Cancer chemosensitization and
radiosensitization
    
    Preclinical
    
    MGI PHARMAGCP II Inhibitors
    
    Chemotherapy induced neuropathy
    
    Preclinical
    
    MGI PHARMA
    14




---



##### 



Results of Operations
  Revenues
  Three Months Ended September 30,(dollars in thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    % Change% of sales
    
    
    
    
    
    % of salesProduct sales:Aloxi Injection
    
    $
    66,328
    
    
    
    60
    %
    
    $
    70,357
    
    
    
    74
    %
    
    $
    (4,029
    )
    
    
    (6
    )%Dacogen
    
    
    34,598
    
    
    
    31
    
    
    
    11,917
    
    
    
    12
    
    
    
    22,681
    
    
    
    190Gliadel Wafer
    
    
    8,441
    
    
    
    8
    
    
    
    9,538
    
    
    
    10
    
    
    
    (1,097
    )
    
    
    (12
    )Other
    
    
    1,447
    
    
    
    1
    
    
    
    3,728
    
    
    
    4
    
    
    
    (2,281
    )
    
    
    (61
    )Total product sales
    
    
    110,814
    
    
    
    100
    %
    
    
    95,540
    
    
    
    100
    %
    
    
    15,274
    
    
    
    16
    %Licensing and other
    
    
    1,700
    
    
    
    
    
    
    
    1,459
    
    
    
    
    
    
    
    241
    
    
    
    17Total revenues
    
    $
    112,514
    
    
    
    
    
    
    $
    96,999
    
    
    
    
    
    
    $
    15,515
    
    
    
    16
    %
 Nine Months Ended September 30,(dollars in thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    % Change% of sales
    
    
    
    
    
    % of salesProduct sales:Aloxi Injection
    
    $
    161,949
    
    
    
    57
    %
    
    $
    201,095
    
    
    
    77
    %
    
    $
    (39,146
    )
    
    
    (19
    )%Dacogen
    
    
    87,897
    
    
    
    31
    
    
    
    17,134
    
    
    
    7
    
    
    
    70,763
    
    
    
    413Gliadel Wafer
    
    
    28,707
    
    
    
    10
    
    
    
    27,630
    
    
    
    11
    
    
    
    1,077
    
    
    
    4Other
    
    
    4,788
    
    
    
    2
    
    
    
    13,397
    
    
    
    5
    
    
    
    (8,609
    )
    
    
    (64
    )Total product sales
    
    
    283,341
    
    
    
    100
    %
    
    
    259,256
    
    
    
    100
    %
    
    
    24,085
    
    
    
    9
    %Licensing and other
    
    
    5,422
    
    
    
    
    
    
    
    3,100
    
    
    
    
    
    
    
    2,322
    
    
    
    75Total revenues
    
    $
    288,763
    
    
    
    
    
    
    $
    262,356
    
    
    
    
    
    
    $
    26,407
    
    
    
    10
    %
 Product Sales:
 15




---



##### 



Licensing and other:
 Costs and Expenses
 Three Months Ended September 30,(dollars in thousands)
    
    2007


    2006
  
    Change
   
    % Change% of revenues
    
    
    
    
    
    % of revenuesCost of sales
    
    $
    38,173
    
    
    
    34
    %
    
    $
    34,882
    
    
    
    36
    %
    
    $
    3,291
    
    
    
    9
    %Selling, general and administrative
    
    
    38,723
    
    
    
    34
    
    
    
    38,390
    
    
    
    40
    
    
    
    333
    
    
    
    1Research and development
    
    
    22,780
    
    
    
    20
    
    
    
    21,173
    
    
    
    22
    
    
    
    1,607
    
    
    
    8Acquired in-process research and development
    
    
    689
    
    
    
    1
    
    
    
    
    
    
    NM*
    
    
    689
    
    
    NM*Restructuring
    
    
    919
    
    
    
    1
    
    
    
    
    
    
    NM*
    
    
    919
    
    
    NM*Total
    
    $
    101,284
    
    
    
    90
    %
    
    $
    94,445
    
    
    
    97
    %
    
    $
    6,839
 
 *
    
    Not Meaningful Nine Months Ended September 30,(dollars in thousands)
    
    2007
   
    2006
  
    Change

    % Change% of revenues
    
    
    
    
    
    % of revenuesCost of sales
    
    $
    95,234
    
    
    
    33
    %
    
    $
    97,037
    
    
    
    37
    %
    
    $
    (1,803
    )
    
    
    (2
    )%Selling, general and administrative
    
    
    120,350
    
    
    
    42
    
    
    
    105,375
    
    
    
    40
    
    
    
    14,975
    
    
    
    14Research and development
    
    
    56,914
    
    
    
    20
    
    
    
    72,331
    
    
    
    28
    
    
    
    (15,417
    )
    
    
    (21
    )Acquired in-process research and development
    
    
    689
    
    
    NM*
    
    
    
    
    
    NM*
    
    
    689
    
    
    NM*Restructuring
    
    
    1,092
    
    
    NM*
    
    
    
    
    
    NM*
    
    
    1,092
    
    
    NM*Total
    
    $
    274,279
    
    
    
    95
    %
    
    $
    274,743
    
    
    
    105
    %
    
    $
    (464
    )
 
 *
    
    Not Meaningful Cost of sales:
 Selling, general and administrative:
 Research and development:
 Acquired in-process research and development Consolidation of Variable Interest Entities
 16




---



##### 



Restructuring:
  Interest Income and Expense and Other (Expense) Income
 Three Months Ended September 30,(dollars in thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    % ChangeInterest income
    
    $
    2,100
    
    
    $
    1,364
    
    
    $
    736
    
    
    
    54
    %Interest expense
    
    
    (1,873
    )
    
    
    (1,891
    )
    
    
    18
    
    
    NM*Other (expense) income
    
    
    (122
    )
    
    
    202
    
    
    
    (324
    )
    
    NM*Total
    
    $
    105
    
    
    $
    (325
    )
    
    $
    430
    
    
    NM*
 
 *
    
    Not Meaningful Nine Months Ended September 30,(thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    % ChangeInterest income
    
    $
    6,074
    
    
    $
    3,881
    
    
    $
    2,193
    
    
    
    57
    %Interest expense
    
    
    (5,623
    )
    
    
    (5,813
    )
    
    
    190
    
    
    
    3Impairment of investment
    
    
    
    
    
    
    (9,880
    )
    
    
    9,880
    
    
    NM*Other (expense) income
    
    
    (89
    )
    
    
    257
    
    
    
    (346
    )
    
    NM*Total
    
    $
    362
    
    
    $
    (11,555
    )
    
    $
    11,917
    
    
    NM*
 
 *
    
    Not Meaningful Interest Income
 Interest Expense
 Other income:
 17




---



##### 



Provision for Income Taxes
  Net Income (Loss)
  Liquidity and Capital Resources
  September 30,
    
    
    December 31, 2006(dollars in thousands)
    
    2007
    
    
    (Revised)Cash and cash equivalents
    
    $
    78,955
    
    
    $
    41,024Short-term marketable investments
    
    
    85,335
    
    
    
    121,719Total
    
    $
    164,290
    
    
    $
    162,743
     18




---



##### 



Activities of SNDC
 Consolidation of Variable Interest
Entities
  Cash Uses and Capital Raising Activities
  
    
    fund our research and development and drug discovery efforts;
    
    expand our portfolio of marketed products and product candidates, including through
additional product or product candidate acquisitions or business combinations;
    
    develop products we have discovered, acquired, or licensed;
    
    fund our sales and marketing efforts;
    
    fund operating losses; and
    
    support our contractual obligations and debt service requirements.
   
    
    the revenue from Aloxi, Dacogen, Gliadel, and our other products;
    
    the future expenditures we may make to increase revenue from our products;
    
    the progress of our research and development programs;
    
    the progress of pre-clinical and clinical testing;
    
    the time and cost involved in obtaining regulatory approval;
    
    the cost of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights;
    
    the changes in our existing research relationships, competing technological and
marketing developments;
    
    our ability to establish collaborative arrangements and to enter into licensing
agreements and contractual arrangements with others;
    
    the conversion of our senior subordinated convertible notes;
    
    the liquidity of our marketable investments;
    
    the timing and terms of subleases related to the restructuring of one of our Baltimore
facilities;
    
    the costs of additional product or product candidate acquisitions or business
combinations, including AkaRx, Inc.; and
    
    any future change in our business strategy.
 19




---



##### 



Payment Obligations
  (dollars in thousands)
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    TotalOperating lease payments
    
    $
    1,401
    
    
    $
    5,727
    
    
    $
    5,346
    
    
    $
    4,958
    
    
    $
    4,670
    
    
    $
    33,959
    
    
    $
    56,061Capital lease payments
    
    
    33
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Baxter loss contract (a)
    
    
    
    
    
    
    400
    
    
    
    400
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    1,050Other long-term debt
    
    
    64
    
    
    
    32
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156Convertible debt
    
    
    
    
    
    
    7,429
    
    
    
    5,854
    
    
    
    5,854
    
    
    
    350,927
    
    
    
    
    
    
    
    370,064Helsinn minimum sales obligation (b)
    
    
    
    
    
    
    5,559
    
    
    
    4,801
    
    
    
    4,052
    
    
    
    3,494
    
    
    
    2,747
    
    
    
    20,653Total (c)
    
    $
    1,498
    
    
    $
    19,154
    
    
    $
    16,461
    
    
    $
    15,114
    
    
    $
    359,091
    
    
    $
    36,706
    
    
    $
    448,024
 
 (a)
    
    In the acquisition of Guilford, MGI assumed obligations under a supply
agreement with Baxter Healthcare Corporation for Aggrastat 250 ml and
100 ml bags through July 2009. As of August 9, 2006, we sold our
rights to Aggrastat to Medicure. Under the terms of that sale,
Medicure assumed the obligations of the Baxter Agreement and we agreed
to reimburse Medicure for a portion of those obligations. MGIs
remaining obligation in 2007, 2008, and 2009 is 50 percent of the
purchasing shortfall up to a maximum of $0.4 million, $0.4 million,
and $0.3 million, respectively. These obligations will be paid in the
first quarter of the following fiscal year.(b)
    
    In connection with the April 2001 in-licensing agreement with Helsinn
Healthcare SA where we obtained the exclusive U.S. and Canadian
oncology license and distribution rights for Aloxi, we agreed to pay
minimum payments over the first ten years following commercialization.
The minimum is only payable to the extent that it exceeds the actual
payments that would otherwise be payable under the agreement. Minimum
sales targets of Aloxi for prevention of CINV peak at approximately
$90 million in the fourth year of commercialization.(c)
    
    This table excludes payments made in connection with the Development
and License Agreement with AkaRx, Inc., and the Supporting Stockholder
Option Agreements with the stockholders of AkaRx, Inc. On October 9,
2007, we paid a license fee of $1 million to AkaRx, Inc. and option
consideration of $44 million in connection with obtaining the options
from the stockholders of AkaRx, Inc. In addition, through January 8,
2010, we have the option to acquire AkaRx, Inc. for approximately $255
million. Impact of Recently Issued Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Accounting for
Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development
Activities
 20




---



##### 



, Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 Application of Critical Accounting Policies and Estimates
 Income Taxes: Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109
   Item 3.
 Quantitative and Qualitative Disclosures About Market Risk
   21




---



##### 



Equity Price Risk
  Hypothetical PercentageEstimated Fair Value at
    
    Hypothetical Price
    
    Estimated Fair Value after
    
    Increase(Decrease) inSeptember 30, 2007
    
    Change
    
    Hypothetical Price Change
    
    Stockholders EquityEquity Securities
    
    $
    23,885
    
    
    
    10
    %
    
    $
    26,374
    
    
    
    1.6
    %(10
    )%
    
    
    21,497
    
    
    
    (1.6
    )%20
    %
    
    
    28,662
    
    
    
    3.3
    %(20
    )%
    
    
    19,108
    
    
    
    (3.3
    )%30
    %
    
    
    31,051
    
    
    
    4.9
    %(30
    )%
    
    
    16,720
    
    
    
    (4.9
    )%
 Item 4.
 Controls and Procedures
     22




---



##### 



PART II  OTHER INFORMATION
 Item 1A. Risk Factors
 A portion of our investment portfolio is invested in auction rate securities and if an auction
fails for amounts we have invested, our investment will not be liquid.
  Item 6. Exhibits
 ExhibitNo.
    
    Description2.01
    
    Agreement and Plan of Merger dated August 28, 2007, including the form of Stockholder Support and Option
Agreement as Schedule A thereto (the Company has omitted certain schedules in accordance with Regulation S-K
6501(b)(2). The Company will submit the omitted schedules to the Commission upon request). Incorporated by
reference to Exhibit 2.01 to the Companys Current Report on Form 8-K filed on August 30, 2007 (File No.
000-10736).31.1
    
    Certification of Leon O. Moulder, Jr. Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002).31.2
    
    Certification of William F. Spengler Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002).32.1
    
    Certification of Leon O. Moulder, Jr. Pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of William F. Spengler Pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 23




---



##### 



SIGNATURES
  MGI PHARMA, INC.Date: October 26, 2007
    
    By:
    
    /s/ William F. SpenglerWilliam F. SpenglerExecutive Vice President and Chief Financial Officer(principal financial officer, and duly authorized officer)
 24