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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



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FORM 10-Q



(Mark One)

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



| |  | For the quarterly period ended June 30, 2003
| |  | --------------------------------------------



OR



| ̈ |  | 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



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MGI PHARMA, INC.

(Exact name of registrant as specified in its charter)



|Minnesota                                                      |  | 41-1364647                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer identification number)



|5775 West Old Shakopee Road Suite 100 Bloomington, Minnesota 55437 |  | (952) 346-4700                                      
|------------------------------------------------------------------ |  | ----------------------------------------------------
|(Address of principal executive offices and zip code)              |  | (Registrants telephone number, including area code)



---



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes  x No ̈



Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable
date.



|Common Stock, $.01 par value |  | 25,700,405 shares             
|---------------------------- |  | ------------------------------
|(Class)                      |  | (Outstanding at July 25, 2003)



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MGI PHARMA, INC.



FORM 10-Q INDEX



|                                                                                              |  | Page Number
|--------------------------------------------------------------------------------------------- |  | -----------
|PART I. FINANCIAL INFORMATION                                                                 |  |            
|                                                                                              | 
|Item 1. Financial Statements (Unaudited)                                                      |  |            
|                                                                                              | 
|Balance Sheets  December 31, 2002 and June 30, 2003                                          |  | 3          
|                                                                                              | 
|Statements of Operations  Three and Six Months Ended June 30, 2002 and 2003                  |  | 5          
|                                                                                              | 
|Statements of Cash Flows  Six Months Ended June 30, 2002 and 2003                            |  | 6          
|                                                                                              | 
|Notes to Financial Statements                                                                 |  | 7          
|                                                                                              | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13         
|                                                                                              | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 18         
|                                                                                              | 
|Item 4. Controls and Procedures                                                               |  | 18         
|                                                                                              | 
|PART II. OTHER INFORMATION                                                                    |  |            
|                                                                                              | 
|Item 4. Submission of Matters to a Vote of Security Holders                                   |  | 19         
|                                                                                              | 
|Item 5. Other Information                                                                     |  | 19         
|                                                                                              | 
|Item 6. Exhibits and Reports on Form 8-K                                                      |  | 20         
|                                                                                              | 
|SIGNATURES                                                                                    |  | 21         



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PART IFINANCIAL INFORMATION



|Item 1. |  | Financial Statements
|------- |  | --------------------



MGI PHARMA, INC.



BALANCE SHEETS



(unaudited)



|                                                                                                                    |  | December 31,2002 |            | June 30, 2003
|------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ---------- | -------------
|ASSETS                                                                                                              |  |                  |            |              
|Current assets:                                                                                                     |  |                  |            |              
|Cash and cash equivalents                                                                                           |  | $                | 52,933,393 |              
|Short-term marketable investments                                                                                   |  |                  | 7,539,508  |              
|Receivables, less allowances of                                                                                     |  |                  |            |              
|$109,276 and $111,645                                                                                               |  |                  | 3,042,698  |              
|Inventories                                                                                                         |  |                  | 1,779,413  |              
|Prepaid expenses                                                                                                    |  |                  | 448,559    |              
|                                                                                                                    |  |                  |            |              
|Total current assets                                                                                                |  |                  | 65,743,571 |              
|Equipment, furniture and leasehold improvements, at cost less accumulated depreciation of $2,121,915 and
$2,553,714 |  |                  | 3,110,938  |              
|Long-term equity investment                                                                                         |  |                  | 6,800,000  |              
|Intangible assets, at cost less accumulated amortization of $2,462,455 and $3,053,444                               |  |                  | 4,629,415  |              
|Other assets                                                                                                        |  |                  | 490,329    |              
|                                                                                                                    |  |                  |            |              
|Total assets                                                                                                        |  | $                | 80,774,253 |              
|                                                                                                                    |  |                  |            |              



(Continued)



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##### Table of Contents

BALANCE SHEETS

(Unaudited)

Page 2



|                                                                                                                       |  | December 31,2002 |              |   | June 30, 2003 |  
|---------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------------ | - | ------------- | -
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                   |  |                  |              |   |               |  
|Current liabilities:                                                                                                   |  |                  |              |   |               |  
|Accounts payable                                                                                                       |  | $                | 1,904,297    |   |               | $
|Accrued expenses                                                                                                       |  |                  | 8,725,323    |   |               |  
|Deposit payable                                                                                                        |  |                  | 4,300,000    |   |               |  
|Deferred revenue                                                                                                       |  |                  | 794,383      |   |               |  
|Other current liabilities                                                                                              |  |                  | 20,138       |   |               |  
|                                                                                                                       |  |                  |              |   |               |  
|Total current liabilities                                                                                              |  |                  | 15,744,141   |   |               |  
|                                                                                                                       |  |                  |              |   |               |  
|Noncurrent liabilities:                                                                                                |  |                  |              |   |               |  
|Convertible debt, face value of $21,000,000 net of unamortized warrant and issuance costs of $1,708,851 and
$1,535,069 |  |                  | 19,291,149   |   |               |  
|Deferred revenue                                                                                                       |  |                  | 9,033,839    |   |               |  
|Other noncurrent liabilities                                                                                           |  |                  | 101,589      |   |               |  
|                                                                                                                       |  |                  |              |   |               |  
|Total noncurrent liabilities                                                                                           |  |                  | 28,426,577   |   |               |  
|                                                                                                                       |  |                  |              |   |               |  
|Total liabilities                                                                                                      |  |                  | 44,170,718   |   |               |  
|                                                                                                                       |  |                  |              |   |               |  
|Stockholders' equity:                                                                                                  |  |                  |              |   |               |  
|Preferred stock, 10,000,000 authorized and unissued shares                                                             |  |                  |             |   |               |  
|Common stock, $.01 par value, 70,000,000 authorized shares, 25,236,906 and 25,644,203 issued and outstanding
shares    |  |                  | 252,369      |   |               |  
|Additional paid-in capital                                                                                             |  |                  | 195,919,707  |   |               |  
|Unearned compensationrestricted stock                                                                                 |  |                  | (128,756     | ) |               |  
|Accumulated deficit                                                                                                    |  |                  | (159,439,785 | ) |               |  
|                                                                                                                       |  |                  |              |   |               |  
|Total stockholders' equity                                                                                             |  |                  | 36,603,535   |   |               |  
|                                                                                                                       |  |                  |              |   |               |  
|Total liabilities and stockholders' equity                                                                             |  | $                | 80,774,253   |   |               | $
|                                                                                                                       |  |                  |              |   |               |  

---



See accompanying notes to financial statements.



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MGI PHARMA, INC.



STATEMENTS OF OPERATIONS



(Unaudited)



|                                                      |  | Three Months Ended June 30, |             |   | Six Months Ended June 30, |  
|----------------------------------------------------- |  | --------------------------- | ----------- | - | ------------------------- | -
|                                                      |  | 2002                        |             |   | 2003                      |  
|Revenues:                                             |  |                             |             |   |                           |  
|Sales                                                 |  | $                           | 4,648,717   |   |                           | $
|Licensing                                             |  |                             | 1,038,511   |   |                           |  
|                                                      |  |                             |             |   |                           |  
|                                                      |  |                             | 5,687,228   |   |                           |  
|                                                      |  |                             |             |   |                           |  
|Costs and Expenses:                                   |  |                             |             |   |                           |  
|Cost of sales                                         |  |                             | 756,500     |   |                           |  
|Selling, general and administrative                   |  |                             | 7,340,354   |   |                           |  
|Research and development                              |  |                             | 9,791,732   |   |                           |  
|Amortization                                          |  |                             | 295,494     |   |                           |  
|                                                      |  |                             |             |   |                           |  
|                                                      |  |                             | 18,184,080  |   |                           |  
|                                                      |  |                             |             |   |                           |  
|Loss from operations                                  |  |                             | (12,496,852 | ) |                           |  
|Interest income                                       |  |                             | 242,804     |   |                           |  
|Interest expense                                      |  |                             |            |   |                           |  
|                                                      |  |                             |             |   |                           |  
|Net loss                                              |  | $                           | (12,254,048 | ) |                           | $
|                                                      |  |                             |             |   |                           |  
|Net loss per common share:                            |  |                             |             |   |                           |  
|Basic                                                 |  | $                           | (0.49       | ) |                           | $
|Assuming dilution                                     |  | $                           | (0.49       | ) |                           | $
|Weighted average number of common shares outstanding: |  |                             |             |   |                           |  
|Basic                                                 |  |                             | 25,063,258  |   |                           |  
|Assuming dilution                                     |  |                             | 25,063,258  |   |                           |  

---

See accompanying notes to financial
statements.



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MGI PHARMA, INC.



STATEMENTS OF CASH FLOWS



(Unaudited)



|                                                            |  | Six Months Ended June 30, |            
|----------------------------------------------------------- |  | ------------------------- | -----------
|                                                            |  | 2002                      |            
|OPERATING ACTIVITIES:                                       |  |                           |            
|Net loss                                                    |  | $                         | (18,546,618
|Adjustments for non-cash items:                             |  |                           |            
|Depreciation and intangible amortization                    |  |                           | 1,021,572  
|Benefit plan contribution                                   |  |                           | 230,783    
|Amortization of non-cash financing charges                  |  |                           |           
|Amortization of restricted stock expense                    |  |                           | 3,826      
|Deferred rent                                               |  |                           | 27,558     
|Noncash consulting payments                                 |  |                           | 5,000      
|Stock option term modification                              |  |                           | 214,744    
|Other                                                       |  |                           | 791        
|Change in operating assets and liabilities:                 |  |                           |            
|Receivables                                                 |  |                           | (2,046,015 
|Inventories                                                 |  |                           | (214,396   
|Prepaid expenses                                            |  |                           | (342,637   
|Accounts payable and accrued expenses                       |  |                           | (2,757,031 
|Deferred revenue                                            |  |                           | (397,192   
|Other current liabilities                                   |  |                           | (15,117    
|                                                            |  |                           |            
|Net cash used in operating activities                       |  |                           | (22,814,732
|                                                            |  |                           |            
|INVESTING ACTIVITIES:                                       |  |                           |            
|Purchase of investments                                     |  |                           | (4,923,608 
|Maturity of investments                                     |  |                           | 11,993,807 
|Acquisition of Hexalen® capsules                            |  |                           | (1,200,000 
|Purchase of equipment, furniture and leasehold improvements |  |                           | (296,669   
|Other                                                       |  |                           | (19,071    
|                                                            |  |                           |            
|Net cash provided by investing activities                   |  |                           | 5,554,459  
|                                                            |  |                           |            
|FINANCING ACTIVITIES:                                       |  |                           |            
|Restricted cash                                             |  |                           | 4,000,000  
|Receipt of deposit payable                                  |  |                           | 550,000    
|Issuance of shares under stock plans                        |  |                           | 375,040    
|                                                            |  |                           |            
|Net cash provided by financing activities                   |  |                           | 4,925,040  
|                                                            |  |                           |            
|Decrease in cash and cash equivalents                       |  |                           | (12,335,233
|Cash and cash equivalents at beginning of period            |  |                           | 40,699,408 
|                                                            |  |                           |            
|Cash and cash equivalents at end of period                  |  | $                         | 28,364,175 
|                                                            |  |                           |            
|Supplemental disclosure of cash information:                |  |                           |            
|Cash paid for income taxes                                  |  | $                         | 4,995      
|Cash paid for interest                                      |  | $                         | 0          



See accompanying notes
to financial statements.



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MGI PHARMA, INC.



NOTES TO FINANCIAL STATEMENTS



(Unaudited)



(1) Basis of
Presentation



MGI PHARMA is an oncology-focused biopharmaceutical company
that acquires, develops and commercializes proprietary products that meet cancer patient needs. We focus our direct sales efforts solely within the United States and create alliances with other pharmaceutical or biotechnology companies for the
commercialization of our products in other countries.



We promote products
directly to physician specialists in the United States using our own sales force. These products include Salagen® Tablets (pilocarpine hydrochloride), Hexalen® (altretamine) capsules and Didronel® (etidronate disodium) I.V. Infusion. Salagen Tablets are approved in the United States for two indications: the symptoms of dry mouth associated with radiation treatment in head and neck
cancer patients and the symptoms of dry mouth associated with Sjögrens syndrome, an autoimmune disease that damages the salivary glands. Sales of Salagen Tablets in the United States accounted for 86 percent of our product sales during
the first half of 2003. Hexalen capsules is an orally administered chemotherapeutic agent approved in the United States for treatment of refractory ovarian cancer patients. Didronel I.V. Infusion is approved for the treatment of hypercalcemia
(elevated blood calcium) in late-stage cancer patients. We rely on third parties to manufacture our commercialized and development stage products.



On July 25, 2003, we received approval from the U.S. Food and Drug Administration to market Aloxi (palonosetron hydrochloride) injection for the treatment of acute and delayed chemotherapy-induced nausea and vomiting.
We obtained the exclusive U.S and Canadian license and distribution rights to Aloxi from Helsinn Healthcare SA in April 2001.



Our current product development efforts include preclinical and clinical trials for irofulven, our novel anti-cancer agent with demonstrated activity in a variety of
cancers and a unique mechanism of action. We are also developing MG98 and inhibitors of DNA methyltransferase for North American markets. DNA methyltransferase is an enzyme that has been associated with uncontrolled tumor growth. We also provide
ongoing clinical support of Aloxi and Salagen Tablets.



The accompanying
unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the footnotes required by
generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for fair presentation have been included. Interim results
may not be indicative of annual results. For further information, refer to the financial statements and footnotes included in the Companys report on Form 10-K for the year ended December 31, 2002.





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(2) Stock Incentive Plans



Under stock incentive plans, designated persons (including officers, directors, employees and
consultants) have been or may be granted rights to acquire our common stock. These rights include stock options and other equity rights. At June 30, 2003, shares issued and shares available under stock incentive plans are as follows:



|                                               |  | Shareholder ApprovedPlans |           | OtherPlans |   | Total For All Plans
|---------------------------------------------- |  | ------------------------- | --------- | ---------- | - | -------------------
|Shares issuable under outstanding options      |  |                           | 4,329,983 |            |   | 32,110             
|Shares available for future issuance           |  |                           | 1,351,905 |            |   |                   
|                                               |  |                           |           |            |   |                    
|Total                                          |  |                           | 5,681,888 |            |   | 32,110             
|                                               |  |                           |           |            |   |                    
|                                               |  |                           |          
|Average exercise price for outstanding options |  | $                         | 11.88     |            | $ | 9.33               



We apply the intrinsic value method
described in Accounting Principles Board (APB) Opinion No. 25 in accounting for the issuance of stock options to employees and directors. Accordingly, as all grants are made at or above market price, no compensation expense has been recognized in
the financial statements. Had we determined compensation cost based on fair value at the grant date for our stock options and the fair value of the discount related to the employee stock purchase plan under SFAS 123, our net loss would have been
reported as follows:



|                                                                                                                |  | Three Months Ended June 30, |             |   | Six Months Ended June 30, |  
|--------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----------- | - | ------------------------- | -
|                                                                                                                |  | 2002                        |             |   | 2003                      |  
|Net loss, as reported                                                                                           |  | $                           | (12,254,048 | ) |                           | $
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards |  |                             | (2,013,349  | ) |                           |  
|                                                                                                                |  |                             |             |   |                           |  
|Pro forma net loss                                                                                              |  | $                           | (14,267,397 | ) |                           | $
|                                                                                                                |  |                             |             |   |                           |  
|                                                                                                                |  |                             |             |  
|Net loss per common share:                                                                                      |  |                             |             |   |                           |  
|As reported basic and diluted                                                                                   |  | $                           | (0.49       | ) |                           | $
|Pro forma basic and diluted                                                                                     |  | $                           | (0.57       | ) |                           | $
|                                                                                                                |  |                             |             |  
|                                                                                                                |  | 2002                        |             |   | 2003                      |  
|Expected dividend yield                                                                                         |  |                             | 0           | % |                           |  
|Risk-free interest rate                                                                                         |  |                             | 2.70        | % |                           |  
|Annualized volatility                                                                                           |  |                             | 0.80        |   |                           |  
|Expected life, in years                                                                                         |  |                             | 5           |   |                           |  





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(3) Loss Per Common Share



Loss per share for the three-month and six-month periods ended June 30, 2002 and 2003 is
based on weighted average shares outstanding as summarized in the following table:



|Three months ended June 30                |  | 2002       |  | 2003      
|----------------------------------------- |  | ---------- |  | ----------
|Weighted-average sharesbasic             |  | 25,063,258 |  | 25,420,416
|Effect of dilutive stock options          |  |           |  |          
|Effect of convertible debt                |  |           |  |          
|                                          |  |            |  |           
|Weighted-average sharesassuming dilution |  | 25,063,258 |  | 25,420,416
|                                          |  |            |  |           



|Six months ended June 30                  |  | 2002       |  | 2003      
|----------------------------------------- |  | ---------- |  | ----------
|Weighted-average sharesbasic             |  | 25,048,686 |  | 25,370,554
|Effect of dilutive stock options          |  |           |  |          
|Effect of convertible debt                |  |           |  |          
|                                          |  |            |  |           
|Weighted-average sharesassuming dilution |  | 25,048,686 |  | 25,370,554
|                                          |  |            |  |           



Potentially dilutive securities, which
are excluded from the calculation because their inclusion in a calculation of net loss per share would have been antidilutive, include options for 4,121,122 and 4,362,093 shares of common stock for 2002 and 2003, respectively, and convertible debt
and warrants for 2,971,428 shares of common stock in 2003.



(4) Short-term Marketable Investments



Marketable investments consist of held-to-maturity investments and are stated at amortized cost, which approximates fair value. Short-term marketable investments at December 31, 2002 and June 30, 2003 are summarized in the following table:



|                        |  | 2002 |           | 2003
|----------------------- |  | ---- | --------- | ----
|Corporate notes         |  | $    | 4,458,921 |     
|Certificates of deposit |  |      | 3,080,587 |     
|                        |  |      |           |     
|                        |  | $    | 7,539,508 |     
|                        |  |      |           |     





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(5) Inventories



Inventories at December 31, 2002 and June 30, 2003 are summarized as follows:



|                           |  | 2002 |           | 2003
|-------------------------- |  | ---- | --------- | ----
|Raw materials and supplies |  | $    | 89,757    |     
|Work in process            |  |      | 520,092   |     
|Finished products          |  |      | 1,169,564 |     
|                           |  |      |           |     
|                           |  | $    | 1,779,413 |     
|                           |  |      |           |     



Inventories are stated at the lower of
cost or market. Cost is determined on a first-in, first-out basis.



(6) Accrued Expenses



Accrued expenses
at December 31, 2002 and June 30, 2003 are summarized as follows:



|                                |  | 2002 |           | 2003
|------------------------------- |  | ---- | --------- | ----
|Product development commitments |  | $    | 1,717,380 |     
|Bonuses                         |  |      | 1,540,439 |     
|Product return accrual          |  |      | 1,109,913 |     
|Lease accrual                   |  |      | 415,309   |     
|Other accrued expenses          |  |      | 3,942,282 |     
|                                |  |      |           |     
|                                |  | $    | 8,725,323 |     
|                                |  |      |           |     



(7)
Convertible Debt



Convertible debt, which is stated at face value less
unamortized warrant and issuance costs, at December 31, 2002 and June 30, 2003 is summarized as follows:



|                  |  | 2002 |            |   | 2003 |  
|----------------- |  | ---- | ---------- | - | ---- | -
|Convertible notes |  | $    | 21,000,000 |   |      | $
|Warrants          |  |      | (1,659,838 | ) |      |  
|Issuance costs    |  |      | (49,013    | ) |      |  
|                  |  |      |            |   |      |  
|                  |  | $    | 19,293,151 |   |      | $
|                  |  |      |            |   |      |  





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(8) Stockholders Equity



Changes in selected stockholders equity accounts for the six months ended June 30, 2003
were as follows:



|                                      |  | Common Stock |   |  | Additional paid-in capital |         |   | Unearned compensation - restricted stock |  
|------------------------------------- |  | ------------ | - |  | -------------------------- | ------- | - | ---------------------------------------- | -
|                                      |  | Shares       |   |  | Par value                  |         |   |                                         
|Balance at December 31, 2002          |  | 25,236,906   |   |  | $                          | 252,369 |   |                                          | $
|Exercise of stock options             |  | 260,127      |   |  |                            | 2,601   |   |                                          |  
|Employee retirement plan contribution |  | 97,460       |   |  |                            | 974     |   |                                          |  
|Employee stock purchase plan          |  | 53,762       |   |  |                            | 538     |   |                                          |  
|Cancel restricted stock               |  | (3,634       | ) |  |                            | (36     | ) |                                          |  
|Restricted stock expense              |  | (1,010       | ) |  |                            | (10     | ) |                                          |  
|Other issuances                       |  | 592          |   |  |                            | 6       |   |                                          |  
|                                      |  |              |   |  |                            |         |   |                                          |  
|Balance at June 30, 2003              |  | 25,644,203   |   |  | $                          | 256,442 |   |                                          | $
|                                      |  |              |   |  |                            |         |   |                                          |  



On June 24, 2002, we issued 35,487
shares of restricted common stock to certain non-executive officer employees. One-half of these shares vested on June 24, 2003, and the remainder of these shares vest on June 24, 2004, provided employment continues through the vesting dates. We
recognize compensation expense for the market value of the shares at the date of grant ($6.90 per share) over the vesting periods.



(9) Leases



We lease office space under noncancellable lease agreements that contain renewal options and require us to pay operating costs, including property taxes, insurance and maintenance. In January 2001, we executed a lease
agreement for new office space. At June 30, 2003, we have an accrual of $333,160 for lease obligations for the former office space in excess of estimated sublease rental income. Gross future minimum lease payments under noncancellable leases,
including both the current and former office spaces, are as follows:



|Remainder of 2003                   |  | $ | 934,000   |  
|----------------------------------- |  | - | --------- | -
|2004                                |  |   | 1,879,000 |  
|2005                                |  |   | 1,754,000 |  
|2006                                |  |   | 1,482,000 |  
|2007                                |  |   | 1,504,000 |  
|Thereafter                          |  |   | 630,000   |  
|Less: Expected receipts on sublease |  |   | (620,000  | )
|                                    |  |   |           |  
|                                    |  | $ | 7,563,000 |  
|                                    |  |   |           |  





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(10) Licensing



In April 2001, MGI obtained the exclusive U.S. and Canadian oncology license and distribution rights for Aloxi (palonosetron hydrochloride), from Helsinn Healthcare SA.
Aloxi is a 5-HT3receptor antagonist with an extended duration of activity for the prevention of
chemotherapy-induced nausea and vomiting. The $11 million in upfront payments made by MGI consisted of a $5 million deposit made upon the execution of the letter of intent in October 2000, $3 million in cash paid in April 2001, and $3 million of
MGIs common shares delivered in April 2001. A $2 million milestone was paid in October 2001, a $4 million milestone was paid in April 2002, and a $10 million milestone was paid in December 2002. A final milestone payment of $11 million is now
due, and will be paid in August 2003, as a result of approval of Aloxi for marketing on July 25, 2003 by the U.S. Food and Drug Administration. (See Note 12). All upfront and milestone payments are recognized as research and development expense when
due.



In the first quarter of 2003, Dainippon Pharmaceutical Co. Ltd. and MGI
agreed to terminate their license to develop and commercialize the acylfulvenes in Japan effective August 2003. MGI will repay $4.3 million of deposit payments in cash in August 2003. As a result of the early termination of the agreement, MGI will
amortize $7,141,972 of deferred revenue into licensing revenue during 2003 related to the Dainippon agreement, of which $6,867,280 is expected to be recognized in the third quarter of 2003.



(11) Research and Development Expense



Research and development expense for the three-month and six-month periods ended June 30,
2002 and 2003 consists of the following:



|Three months ended June 30     |  | 2002 |            | 2003
|------------------------------ |  | ---- | ---------- | ----
|License fees                   |  | $    | 4,000,000  |     
|Other research and development |  |      | 5,791,732  |     
|                               |  |      |            |     
|                               |  | $    | 9,791,732  |     
|                               |  |      |            |     
|                               |  |     
|Six months ended June 30       |  | 2002 |            | 2003
|License fees                   |  | $    | 4,000,000  |     
|Other research and development |  |      | 10,054,394 |     
|                               |  |      |            |     
|                               |  | $    | 14,054,394 |     
|                               |  |      |            |     



(12) Subsequent Event



On July 25, 2003, Aloxi (palonosetron hydrochloride) injection was approval by the U.S. Food and Drug
Administration for the treatment of acute and delayed chemotherapy-induced nausea and vomiting. We obtained the exclusive U.S and Canadian license and distribution rights to Aloxi from Helsinn Healthcare SA in April 2001. As a result, a final
milestone payment of $11 million became due to Helsinn. We plan to launch Aloxi in September 2003.



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|Item 2. |  | 
|------- |  | 



Managements Discussion and Analysis of Financial Condition and Results of Operations



Overview



MGI PHARMA is an oncology-focused biopharmaceutical company that acquires, develops and commercializes proprietary products that meet cancer patient needs. We focus our direct sales efforts solely within the United
States and create alliances with other pharmaceutical or biotechnology companies for the commercialization of our products in other countries.



We promote products directly to physician specialists in the United States using our own sales force. These products include Salagen® Tablets (pilocarpine hydrochloride), Hexalen® (altretamine) capsules and Didronel® (etidronate disodium) I.V. Infusion. Salagen Tablets are approved in the United States
for two indications: the symptoms of dry mouth associated with radiation treatment in head and neck cancer patients and the symptoms of dry mouth associated with Sjögrens syndrome, an autoimmune disease that damages the salivary glands.
Sales of Salagen Tablets in the United States accounted for 86 percent of our product sales during the first half months of 2003. Hexalen capsules is an orally administered chemotherapeutic agent approved for treatment of refractory ovarian cancer
patients. Didronel I.V. Infusion is approved for the treatment of hypercalcemia (elevated blood calcium) in late-stage cancer patients. We rely on third parties to manufacture our commercialized and development stage products.



On July 25, 2003, we received approval from the U.S. Food and Drug Administration to market
Aloxi (palonosetron hydrochloride) injection for
the treatment of acute and delayed chemotherapy-induced nausea and vomiting. We obtained the exclusive U.S and Canadian license and distribution rights to Aloxi from Helsinn Healthcare SA in April 2001.



Our current product development efforts include preclinical and clinical trials for
irofulven, our novel anti-cancer agent with demonstrated activity in a variety of cancers and a unique mechanism of action. We are also developing MG98 and inhibitors of DNA methyltransferase for North American markets. DNA methyltransferase is an
enzyme that has been associated with uncontrolled tumor growth. We also provide ongoing clinical support of Aloxi and Salagen Tablets.



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Results of Operations



Revenues



Sales:Sales revenue increased 83 percent from $4,648,717 in the second quarter of 2002 to $8,529,200 in the second quarter of 2003, and increased 47 percent from $9,951,490 in the first half of 2002 to
$14,671,987 in the first half of 2003. The increase in sales revenue is primarily due to increased revenue from Salagen Tablets. As is common in the pharmaceutical industry, our domestic sales are made to pharmaceutical wholesalers for further
distribution through pharmacies to the ultimate consumers of our products. As previously reported, sales in the first-half of 2002 were negatively impacted due to substantial distribution channel inventory increases that occurred during 2001. Given
this, as well as modest distribution channel inventory increases that occurred in the second quarter of 2003, the 2003 sales revenue increases are greater than the underlying growth of product sales. Patient demand for Salagen Tablets, as measured
by total prescriptions, has grown approximately 3 percent during the annual period ended June 30, 2003 as compared to the comparable prior annual period. Sales of Salagen Tablets in the United States provided 85 percent and 86 percent of our sales
revenue in the first half of 2002 and 2003, respectively. We expect sales revenue for our currently marketed products in 2003 to range from $28 million to $30 million. Sales revenue for Aloxi, which we plan to launch in September 2003, is expected
to range from $40 million to $55 million for the first 12-month period following launch.



Licensing:Licensing revenue increased 29 percent from $1,038,511 in the second quarter of 2002 to $1,340,634 in the second quarter of 2003, and increased 27 percent from $1,537,610 in the first
half of 2002 to $1,956,595 in the first half of 2003. Licensing revenue is a combination of deferred revenue amortization that is recognized over the term of the underlying arrangement and royalties that are recognized when the related sales occur.
The increases from 2002 to 2003 reflect increased royalties related to technology from our former agricultural business, partially reduced by decreased royalties from our license arrangements for the commercialization of Salagen Tablets outside the
United States.



In the first quarter of 2003, Dainippon Pharmaceutical Co. Ltd.
and MGI agreed to terminate their collaborative acylfulvene license agreement in August 2003. Under Staff Accounting Bulletin No. 101 (SAB 101), all remaining unamortized licensing revenue for Dainippon will be amortized into license revenue in
2003. For 2003, we expect to amortize $7,141,972 of deferred revenue into licensing revenue related to the Dainippon agreement, of which $6,867,280 is expected to the recognized in the third quarter of 2003.



Future licensing revenue will fluctuate from quarter to quarter depending on the level of
recurring royalty generating activities and changes in amortization of deferred revenue, including the initiation or termination of licensing arrangements. We expect licensing revenue for 2003, including recognition of approximately $7 million
related to the Dainippon agreement, to be approximately $9.5 million.



Costs and Expenses



Cost of sales:Cost of sales
as a percent of sales was 16 percent for the second quarter of 2002 and 11 percent for the second quarter of 2003. Cost of sales as a percent of sales was 14 percent for the first half of 2002 and 12 percent for the first half of 2003. Cost of sales
may vary from quarter to quarter, depending on the product mix and production costs. We believe that cost of sales, as a percent of product sales for our currently marketed products for 2003, will range from 10 to 15 percent.



Selling, general and administrative:Selling, general and administrative expenses
increased 55 percent from $7,340,354 in the second quarter of 2002 to $11,383,651 in the second quarter of 2003, and



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increased 39 percent from $14,510,680 in the first half of 2002 to $20,201,631 in the first half of 2003. The increase is
a result of increased expenditures in preparation for the planned launch of Aloxi in September 2003. We expect selling, general and administrative expense for 2003 to be approximately $49 million.



Research and development:Research and development expense decreased 57 percent from
$9,791,732 in the second quarter of 2002 to $4,172,686 in the second quarter of 2003, and decreased 46 percent from $14,054,394 in the first half of 2002 to $7,632,255 in the first half of 2003. In conjunction with the license for Aloxi, we expensed
a $4 million milestone payment upon achievement of the pre-NDA meeting in the second quarter of 2002. Exclusive of the $4 million licensing payment, research and development expense decreased 28 percent from $5,791,732 in the second quarter of 2002
to $4,172,686 in the second quarter of 2003, and decreased 24 percent from $10,054,394 in the first half of 2002 to $7,632,255 in the first half of 2003. The decreases primarily represent decreased spending on the development of irofulven. In April
2002, we stopped enrollment in our Phase 3 trial of irofulven in advanced-stage, gemcitabine-refractory pancreatic cancer patients. Development of irofulven continues in a series of clinical trials designed to evaluate the efficacy and safety of
irofulven administered as a single chemotherapy agent and in combination with marketed chemotherapy agents for the treatment of patients with solid tumor cancers who are generally refractory to current therapies. We expect research and development
expense for 2003 to range from $28 million to $30 million, including an $11 million non-recurring license payment that is due to Helsinn for the approval of the NDA for Aloxi.



Interest Income



Interest income decreased 12 percent from $242,804 in the second quarter of 2002 to $212,596 in the second quarter of 2003, and decreased 25 percent from $562,674 in the
first half of 2002 to $419,224 in the first half of 2003. The decreases result from decreases in the average amount of funds available for investment and decreases in the investment yield. Interest income for 2003 will fluctuate depending on the
timing of cash flows and changes in interest rates for marketable securities.



Interest Expense



We recognized interest expense of
$249,390 in the second quarter of 2003 and $498,781 in the first half of 2003 related to our issuance of convertible debt in the fourth quarter of 2002. We did not have any debt or interest expense in the second quarter or first half of 2002. We
expect interest expense for 2003 to be approximately $1 million, of which $630,000 will be paid using cash. The non-cash portion of interest expense is primarily related to the issuance of warrants in conjunction with the issuance of our convertible
debt.



Tax Expense



There is no provision for tax expense in the first half of 2002 or the first half of 2003
due to the net loss of $36 million in 2002, and a projected net loss in 2003. Our ability to achieve profitable operations is dependent upon our successful launch of Aloxi, and therefore, we continue to maintain a valuation allowance against our
deferred tax asset.



Net Loss



We had a net loss of $12,254,048 for the second quarter of 2002, and a net loss of
$6,972,200 for the second quarter of 2003. We had a net loss of $18,546,618 for the first half of 2002, and a net loss of $13,600,139 for the first half of 2003. The decreased net loss from the second quarter of 2002 to the second quarter of 2003
reflects a 74 percent increase in revenues from 2002 to 2003, and an eight percent



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decrease in costs and expenses from 2002 to 2003. The decreased net loss from the first half of 2002 to the first half of
2003 reflects a 45 percent increase in revenues from 2002 to 2003, and a one percent decrease in costs and expenses from 2002 to 2003. During the next several years, we expect to direct our efforts towards activities intended to grow long-term
revenues, including the launch and continued development of Aloxi and continued development of irofulven and other product candidates. Increased spending on these initiatives will likely result in substantial net losses until after our launch of
Aloxi. We expect our net loss for 2003 to be approximately $44 million, including the $11 million due to Helsinn for the approval of Aloxi, but excluding any product contribution from the launch of Aloxi.



Liquidity and Capital Resources



At June 30, 2003, we had cash and short-term marketable investments of $48,762,958 and
working capital of $40,206,746, compared with $60,472,901 and $49,999,430, respectively, at December 31, 2002. For the six-month period ended June 30, 2003, we received $2,667,114 in cash from issuance of shares under stock award plans. We used
$13,929,043 of cash to fund our operating activities and purchased $450,357 in equipment and furniture.



Significant cash use in 2003 will be required to fund operating activities, including payment of $11 million to Helsinn Healthcare for approval by the FDA of the NDA for Aloxi, and payment of $4.3 million to Dainippon
following the termination of our licensing agreement. Substantial amounts of capital are required for our pharmaceutical development and commercialization efforts. For continued development and commercialization of our product candidates and
marketed products, and the acquisition and development of additional product candidates, we plan to utilize cash provided from product sales, collaborative arrangements and existing liquid assets, plus we will seek other sources of funding,
including additional equity or debt issuances as appropriate. We filed a universal shelf registration statement with the Securities and Exchange Commission in the second quarter of 2003. This registration allows us, from time-to-time, to offer and
sell various securities with a total value of up to $150 million. Excluding the potential favorable effect on cash from Aloxi sales, we expect annual cash use for 2003 to be approximately $50 million, which includes cash required to launch and
promote Aloxi. We have no arrangements or operating covenants that would trigger acceleration of our lease obligations or long-term liabilities.



Our liquidity is affected by a variety of factors, including sales of our products, the pace of our research and development programs, the in-licensing of new products
and our ability to raise additional debt or equity capital. As identified in our risk factors, adverse changes that affect our continued access to the capital markets, continued development and expansion of our product candidates, and future demand
for our marketed products would affect our longer-term liquidity. We believe we have sufficient liquidity and capital resources to fund all known cash requirements through June 30, 2004. Our future, noncancellable, contractual commitments, including
the payment to Helsinn upon approval of Aloxi by the FDA, are summarized in the following table:



|                          |  | Remainder of2003 |            | 2004 |   | 2005      |  | 2006 |           | 2007 |   | Thereafter
|------------------------- |  | ---------------- | ---------- | ---- | - | --------- |  | ---- | --------- | ---- | - | ----------
|Lease payments            |  | $                | 934,000    |      | $ | 1,879,000 |  | $    | 1,754,000 |      | $ | 1,482,000 
|Approval of Aloxi payment |  |                  | 11,000,000 |      |   |          |  |      |          |      |   |          
|Dainippon payment         |  |                  | 4,300,000  |      |   |          |  |      |          |      |   |          
|Convertible Debt          |  |                  |           |      |   |          |  |      |          |      |   |          
|                          |  |                  |            |      |   |           |  |      |           |      |   |           
|Total                     |  | $                | 16,234,000 |      | $ | 1,879,000 |  | $    | 1,754,000 |      | $ | 1,482,000 
|                          |  |                  |            |      |   |           |  |      |           |      |   |           



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Cautionary Statement



This document contains forward-looking statements within the meaning of federal securities laws that may include statements regarding intent, belief or current
expectations of our Company and our management. These forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause our actual results to differ materially from the results
discussed in these statements. Factors that might affect our results include, but are not limited to, the successful launch of Aloxi, the ability of our product candidates to be proven safe and effective in humans, to receive marketing
authorizations from regulatory authorities and to ultimately compete successfully with other therapies, continued sales of Salagen Tablets, development or acquisition of additional products, reliance on contract manufacturing, changes in strategic
alliances, continued access to capital, and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, including Exhibit 99.1 to this Form 10-Q. We do not intend to update any of the
forward-looking statements after the date of this Form 10-Q to conform them to actual results.



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Item 3.



Quantitative and Qualitative Disclosure About
Market Risk



Our operations are not subject to risks of material foreign
currency fluctuations, nor do we use derivative financial instruments in our treasury practices. We place our marketable investments in instruments that meet high credit quality standards, as specified in our investment policy guidelines. We do not
expect material losses with respect to our investment portfolio or exposure to market risks associated with interest rates. The impact on our net loss as a result of a one-percentage point change in short-term interest rates would be approximately
$488,000 annually based on our cash, cash equivalents and marketable investment balances at June 30, 2003.



Item 4.



Controls and Procedures



(a) Evaluation of Disclosure Controls and Procedures



Under the supervision and with the participation of our management, including
our President and Chief Executive Officer, Leon O. Moulder, Jr., and our Executive Vice President and Chief Financial Officer, William C. Brown, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Exchange Act) as of a date (the Evaluation Date) as of the end of the period covered by this quarterly report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective in timely alerting them to the material information relating to us required to be included in our periodic SEC filings.



(b) Changes in Internal Controls Over Financial Reporting



During the period covered by this report, there were no significant changes
made in our internal controls over financial reporting (as defined in Rule 13a  15(f) under the Exchange Act) that materially affected or are reasonable likely to materially affect our internal controls over financial reporting, or, to our
knowledge, in other factors that could significantly affect these controls subsequent to the date of their evaluation.



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MGI PHARMA, INC.



PART II  OTHER INFORMATION



|Item 4. |  | Submission of Matters to a Vote of Security Holders
|------- |  | ---------------------------------------------------



The Company held its Annual
Meeting of Shareholders on May 13, 2003, and sufficient favorable votes were cast to approve all management proposals as follows:



Election of managements entire slate of eight directors by the following vote tallies:



|                     |  | For        |  | Withhold 
|-------------------- |  | ---------- |  | ---------
|Charles N. Blitzer   |  | 19,246,842 |  | 2,906,649
|Andrew J. Ferrara    |  | 21,872,667 |  | 280,824  
|Edward W. Mehrer     |  | 21,901,667 |  | 251,824  
|Hugh E. Miller       |  | 21,471,335 |  | 682,156  
|Leon O. Moulder, Jr. |  | 21,903,967 |  | 249,524  
|Lee J. Schroeder     |  | 21,472,824 |  | 680,667  
|David B. Sharrock    |  | 21,894,067 |  | 259,424  
|Arthur Weaver        |  | 21,451,568 |  | 701,923  



Amendment of the
Companys 1999 Nonemployee Director Stock Option Plan to increase the number of shares available for options granted under the plan by 350,000 shares and to increase the number of shares issuable pursuant to option grants under the Plan by
5,000 for new directors and by 7,500 for re-elected directors by a vote of 19,240,683 for, 2,777,275 against, 135,533 abstaining, and 0 broker nonvotes.



Ratification of the independent auditors by a vote of 22,011,521 for, 115,154 against, 26,811 abstaining, and 0 broker nonvotes.



|Item 5. |  | Other Information
|------- |  | -----------------



In connection with the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995, the Company is hereby filing cautionary statements identifying important factors that could cause actual results to differ materially from those projected in forward
looking statements of the Company made by, or on behalf of the Company. See Exhibit 99.1 to this report.



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|Item 6. |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------



|(a) |  | LISTING OF EXHIBITS:
|--- |  | --------------------



|ExhibitNumber |  | Description                                                                                                                               
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|31.1          |  | Certification of Leon O. Moulder, Jr. Pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|              | 
|31.2          |  | Certification of William C. Brown Pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to 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 C. Brown Pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    
|              | 
|99.1          |  | Cautionary Statements                                                                                                                     



|(b) |  | REPORTS ON FORM 8-K
|--- |  | -------------------



The Company filed a report on Form 8-K on April 23, 2003 to report under Items 7 and 9 its results of operations and financial condition for the fiscal
quarter ended March 31, 2003.



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SIGNATURES



Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                    |  |  |  | MGI PHARMA, INC.
|------------------- |  |  |  | ----------------
|                    |  |  | 
|Date: July 28, 2003 |  |  |  | By:             
|                    |  |  |  |                 



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MGI PHARMA, INC.



Quarterly Report on Form 10-Q



for the



Quarter Ended June 30, 2003



EXHIBIT INDEX



|Exhibit Number |  | Description                                                                                                                              
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|               | 
|31.1           |  | Certification of Leon O. Moulder, Jr., Pursuant to 18 U.S.C.(S)1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|               | 
|31.2           |  | Certification of William C. Brown, Pursuant to 18 U.S.C.(S)1350, as adopted pursuant to 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 C. Brown, Pursuant to 18 U.S.C.(S)1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    
|               | 
|99.1           |  | Cautionary Statements