##### 



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 June 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 Road 
Suite 100
Bloomington, Minnesota 55437
(Address of principal executive offices and zip code)
    
    (952) 346-4700
(Registrants telephone number, including area code)
 
  þ o
  þ o o
  o þ
  Common Stock, $.01 par value
(Class)
    
    79,996,695 shares
(Outstanding at July 23, 2007)




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##### 



MGI PHARMA, INC.
 FORM 10-Q INDEX
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets  June 30, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations  Three and Six Months Ended June 30, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20Item 6. Exhibits
    
    
    20SIGNATURES
    
    
    21
 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,June 30,
    
    
    20062007
    
    
    (Revised)*ASSETSCurrent assets:Cash and cash equivalents
    
    $
    24,556
    
    
    $
    41,024Short-term marketable investments
    
    
    135,581
    
    
    
    121,719Restricted marketable investments
    
    
    
    
    
    
    2,957Receivables, less contractual allowances and allowance for bad debts of $51,902 and $28,149 as of June 30, 2007 and
December 31, 2006, respectively
    
    
    103,813
    
    
    
    84,464Inventories
    
    
    41,260
    
    
    
    40,293Other current assets
    
    
    10,679
    
    
    
    9,276Total current assets
    
    
    315,889
    
    
    
    299,733Restricted cash
    
    
    500
    
    
    
    500Long-term marketable investments
    
    
    30,271
    
    
    
    28,024Equipment, furniture and leasehold improvements, at cost less accumulated depreciation of $8,756 and $7,170 as of
June
30, 2007 and December 31, 2006, respectively
    
    
    11,126
    
    
    
    10,119Debt issuance costs, less accumulated amortization of $4,097 and $3,365 as of June 30, 2007 and December 31, 2006,
respectively
    
    
    4,925
    
    
    
    5,634Intangible assets, at cost less accumulated amortization of $20,408 and $16,412 as of June 30, 2007 and December
31, 2006,
respectively
    
    
    75,126
    
    
    
    79,122Goodwill
    
    
    53,593
    
    
    
    53,593Other assets
    
    
    6,585
    
    
    
    6,250Total assets
    
    $
    498,015
    
    
    $
    482,975LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    10,438
    
    
    $
    13,627Accrued expenses
    
    
    69,771
    
    
    
    77,156Current portion of long-term debt
    
    
    132
    
    
    
    179Deferred revenue
    
    
    3,174
    
    
    
    3,076Other current liabilities
    
    
    589
    
    
    
    1,522Total current liabilities
    
    
    84,104
    
    
    
    95,560Noncurrent liabilities:Senior subordinated convertible notes, face value of $349,500 net of unamortized discount of $87,828 as of June 30, 2007
and December 31, 2006
    
    
    261,672
    
    
    
    261,672Other long-term debt, net of current portion
    
    
    99
    
    
    
    166Deferred revenue, net of current portion
    
    
    16,343
    
    
    
    16,636Other noncurrent liabilities
    
    
    3,653
    
    
    
    3,006Total noncurrent liabilities
    
    
    281,767
    
    
    
    281,480Total liabilities
    
    
    365,871
    
    
    
    377,040Stockholders equity:Preferred stock, 10,000,000 authorized and unissued shares
    
    
    
    
    
    
    Common stock, $.01 par value, 140,000,000 authorized shares, 79,962,701 and 79,195,318 issued and outstanding shares, as
of June 30, 2007 and December 31, 2006, respectively
    
    
    800
    
    
    
    792Additional paid-in capital
    
    
    597,018
    
    
    
    575,867Accumulated other comprehensive income
    
    
    12,105
    
    
    
    9,857Accumulated deficit
    
    
    (477,779
    )
    
    
    (480,581
    )Total stockholders equity
    
    
    132,144
    
    
    
    105,935Total liabilities and stockholders equity
    
    $
    498,015
    
    
    $
    482,975
   3




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##### 



MGI PHARMA, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Product sales
    
    $
    90,949
    
    
    $
    86,190
    
    
    $
    172,527
    
    
    $
    163,715Licensing and other
    
    
    2,092
    
    
    
    963
    
    
    
    3,722
    
    
    
    1,64193,041
    
    
    
    87,153
    
    
    
    176,249
    
    
    
    165,356Costs and expenses:Cost of sales
    
    
    29,455
    
    
    
    33,813
    
    
    
    57,061
    
    
    
    62,155Selling, general and administrative
    
    
    44,306
    
    
    
    35,463
    
    
    
    81,627
    
    
    
    66,985Research and development
    
    
    17,132
    
    
    
    28,192
    
    
    
    34,134
    
    
    
    51,157Restructuring
    
    
    (208
    )
    
    
    
    
    
    
    173
    
    
    
    90,685
    
    
    
    97,468
    
    
    
    172,995
    
    
    
    180,297Income (loss) from operations
    
    
    2,356
    
    
    
    (10,315
    )
    
    
    3,254
    
    
    
    (14,941
    )Interest income
    
    
    1,909
    
    
    
    1,361
    
    
    
    3,974
    
    
    
    2,517Interest expense
    
    
    (1,874
    )
    
    
    (1,925
    )
    
    
    (3,750
    )
    
    
    (3,922
    )Other-than-temporary impairment of investment
    
    
    
    
    
    
    (9,880
    )
    
    
    
    
    
    
    (9,880
    )Other income (expense)
    
    
    60
    
    
    
    (126
    )
    
    
    33
    
    
    
    55Income (loss) before minority interest and income taxes
    
    
    2,451
    
    
    
    (20,885
    )
    
    
    3,511
    
    
    
    (26,171
    )Minority interest
    
    
    
    
    
    
    1,450
    
    
    
    
    
    
    
    3,881Income (loss) before income taxes
    
    
    2,451
    
    
    
    (19,435
    )
    
    
    3,511
    
    
    
    (22,290
    )Provision (benefit) for income taxes
    
    
    350
    
    
    
    
    
    
    
    709
    
    
    
    (47
    )Net income (loss)
    
    $
    2,101
    
    
    $
    (19,435
    )
    
    $
    2,802
    
    
    $
    (22,243
    )Net income (loss) per common share:Basic
    
    $
    0.03
    
    
    $
    (0.25
    )
    
    $
    0.04
    
    
    $
    (0.29
    )Diluted
    
    $
    0.03
    
    
    $
    (0.25
    )
    
    $
    0.03
    
    
    $
    (0.29
    )Weighted average number of common shares outstanding:Basic
    
    
    79,833
    
    
    
    78,210
    
    
    
    79,641
    
    
    
    78,000Diluted
    
    
    82,436
    
    
    
    78,210
    
    
    
    82,083
    
    
    
    78,000
  4




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##### 



MGI PHARMA, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Six Months Ended June 30,2007
    
    
    2006OPERATING ACTIVITIES:Net income (loss)
    
    $
    2,802
    
    
    $
    (22,243
    )Adjustments to reconcile net income (loss) to net cash used in operating activities:Depreciation and intangible amortization
    
    
    5,582
    
    
    
    5,385Benefit plan contribution
    
    
    
    
    
    
    915Employee stock compensation expense
    
    
    12,978
    
    
    
    3,918Excess tax benefits from stock-based compensation
    
    
    (174
    )
    
    
    (107
    )Other-than-temporary impairment of investment
    
    
    
    
    
    
    9,880Amortization of non-cash financing charges
    
    
    730
    
    
    
    581Minority interest related to SNDC
    
    
    
    
    
    
    (3,881
    )Other
    
    
    216
    
    
    
    259Change in assets and liabilities:Receivables
    
    
    (19,349
    )
    
    
    (2,943
    )Inventories
    
    
    (967
    )
    
    
    10,971Other assets
    
    
    (1,738
    )
    
    
    430Accounts payable and accrued expenses
    
    
    (8,682
    )
    
    
    (4,167
    )Deferred revenue
    
    
    (195
    )
    
    
    1,388Other liabilities
    
    
    (286
    )
    
    
    (636
    )SNDC working capital
    
    
    
    
    
    
    (1,017
    )Net cash used in operating activities
    
    
    (9,083
    )
    
    
    (1,267
    )INVESTING ACTIVITIES:Purchase of available for sale investments
    
    
    (802,747
    )
    
    
    (481,835
    )Maturity of available for sale investments
    
    
    788,885
    
    
    
    424,151Maturity of held-to-maturity investments
    
    
    
    
    
    
    37,000Maturity of investments held by SNDC
    
    
    
    
    
    
    14,533Distribution of SNDC funds to SNDC investors
    
    
    
    
    
    
    (9,635
    )Purchase of equipment, furniture and leasehold improvements
    
    
    (2,593
    )
    
    
    (4,083
    )Dacogen license agreement milestone payment
    
    
    
    
    
    
    (20,000
    )Other
    
    
    
    
    
    
    727Net cash used in investing activities
    
    
    (16,455
    )
    
    
    (39,142
    )FINANCING ACTIVITIES:Maturity of restricted marketable securities held by trustee for debt service
    
    
    2,957
    
    
    
    2,865Issuance cost of revolving credit facility
    
    
    (21
    )
    
    
    Cash consideration from issuance of shares under stock plans
    
    
    6,073
    
    
    
    4,953Excess tax benefits from stock-based compensation
    
    
    174
    
    
    
    107Payments on long-term debt
    
    
    (113
    )
    
    
    (1,300
    )Net cash provided by financing activities
    
    
    9,070
    
    
    
    6,625Decrease in cash and cash equivalents
    
    
    (16,468
    )
    
    
    (33,784
    )Cash and cash equivalents at beginning of period
    
    
    41,024
    
    
    
    51,136Cash and cash equivalents at end of period
    
    $
    24,556
    
    
    $
    17,352Supplemental disclosure of cash information:Cash paid for interest
    
    $
    3,008
    
    
    $
    3,072Cash paid for taxes
    
    $
    
    
    
    $
    
  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
 2. Stock Incentive Plans
  Shareholder
    
    
    
    
    
    
    TotalApproved
    
    
    Other
    
    
    For All(in thousands, except exercise price)
    
    Plans
    
    
    Plans
    
    
    PlansShares issuable under outstanding awards
    
    
    11,764
    
    
    
    39
    
    
    
    11,803Shares available for future issuance
    
    
    5,348
    
    
    
    
    
    
    
    5,348Total
    
    
    17,112
    
    
    
    39
    
    
    
    17,151Average exercise price for outstanding options
    
    $
    17.89
    
    
    $
    5.09
    
    
    $
    17.84
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(in thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Amounts charged against earnings (loss), before income tax benefits
    
    $
    7,104
    
    
    $
    1,955
    
    
    $
    12,978
    
    
    $
    3,918
  Three months ended June 30,
    
    
    Six months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Selling, general, and administrative
    
    $
    5,444
    
    
    $
    1,388
    
    
    $
    9,945
    
    
    $
    2,855Research and development
    
    
    1,660
    
    
    
    567
    
    
    
    3,033
    
    
    
    1,063Total
    
    $
    7,104
    
    
    $
    1,955
    
    
    $
    12,978
    
    
    $
    3,918
  Three months ended June 30,
    
    
    Six months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    4.64
    %
    
    
    5.08
    %
    
    
    4.64  4.72
    %
    
    
    4.69 - 5.08
    %Expected volatility
    
    
    0.42
    
    
    
    0.41
    
    
    
    0.42
    
    
    
    0.41 - 0.43Expected life, in years
    
    
    5.40  6.02
    
    
    
    5.38 - 6.65
    
    
    
    5.40  6.66
    
    
    
    5.38 - 6.65
  7




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##### 



3. Net Income (Loss) Per Common Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)Weighted-average shares  basic
    
    
    79,833
    
    
    
    78,210
    
    
    
    79,641
    
    
    
    78,000Effect of dilutive share-based awards
    
    
    2,603
    
    
    
    
    
    
    
    2,442
    
    
    
    Effect of convertible debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average shares  assuming dilution
    
    
    82,436
    
    
    
    78,210
    
    
    
    82,083
    
    
    
    78,000
  4. Marketable Investments
  June 30,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Short-term marketable investments:Auction rate securities (classified as available-for-sale)
    
    $
    135,581
    
    
    $
    121,719Long-term marketable investments:Equity securities (classified as available-for-sale)
    
    $
    30,271
    
    
    $
    28,024
  Accounting for Certain Investments in Debt
and Equity Securities
   8




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##### 



June 30, 2007Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Fair(in thousands)
    
    Cost Basis
    
    
    Gains
    
    
    Losses
    
    
    ValueEquity Securities (classified as available for sale)
    
    $
    18,166
    
    
    $
    12,105
    
    
    $
    
    
    
    $
    30,271
 December 31, 2006Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Fair(in thousands)
    
    Cost Basis
    
    
    Gains
    
    
    Losses
    
    
    ValueEquity Securities (classified as available for sale)
    
    $
    18,166
    
    
    $
    9,858
    
    
    $
    
    
    
    $
    28,024
 5. Inventories
  June 30,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Raw materials and supplies
    
    $
    551
    
    
    $
    705Work in process
    
    
    1,196
    
    
    
    885Finished products
    
    
    39,280
    
    
    
    38,484Inventory on consignment
    
    
    233
    
    
    
    219Total
    
    $
    41,260
    
    
    $
    40,293
  6. Accrued Expenses
  June 30,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006 (Revised)Product rebate, administrative, and other fees
    
    $
    17,485
    
    
    $
    16,590Employee compensation
    
    
    14,818
    
    
    
    17,346License fees
    
    
    11,571
    
    
    
    8,619Product development
    
    
    5,891
    
    
    
    11,412Other
    
    
    20,006
    
    
    
    23,189Total
    
    $
    69,771
    
    
    $
    77,156
 7. Stockholders Equity
  Common Stock
    
    
    
    
    
    AccumulatedAdditional
    
    
    otherpaid-in
    
    
    comprehensive(in thousands)
    
    Shares
    
    
    Par value
    
    
    capital
    
    
    income (loss)Balance at December 31, 2006
    
    
    79,195
    
    
    $
    792
    
    
    $
    575,867
    
    
    $
    9,857Stock compensation plans, including income tax benefit of $174
    
    
    664
    
    
    
    7
    
    
    
    19,337
    
    
    
    Employee benefit plan contribution
    
    
    104
    
    
    
    1
    
    
    
    1,814
    
    
    
    Unrealized gain on available for sale equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,247Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Balance at June 30, 2007
    
    
    79,963
    
    
    $
    800
    
    
    $
    597,018
    
    
    $
    12,105
 8. Research and Development Expense
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)License fees
    
    $
    68
    
    
    $
    50
    
    
    $
    188
    
    
    $
    50Other research and development
    
    
    17,064
    
    
    
    28,142
    
    
    
    33,946
    
    
    
    51,107Total
    
    $
    17,132
    
    
    $
    28,192
    
    
    $
    34,134
    
    
    $
    51,157
  9




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##### 



9. Comprehensive Income (Loss)
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)Net income (loss), as reported
    
    $
    2,101
    
    
    $
    (19,435
    )
    
    $
    2,802
    
    
    $
    (22,243
    )Unrealized gain (loss) from securities classified as available for sale
    
    
    1,212
    
    
    
    351
    
    
    
    2,247
    
    
    
    (3,621
    )Recognition of other-than-temporary impairment from securities
classified as available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,880Foreign currency translation adjustment
    
    
    1
    
    
    
    3
    
    
    
    1
    
    
    
    3Comprehensive income (loss)
    
    $
    3,314
    
    
    $
    (19,081
    )
    
    $
    5,050
    
    
    $
    (15,981
    )
 10. Restructuring
  Three months ended(in thousands)
    
    June 30, 2007Liability for restructuring costs at March 31, 2007, as reported
    
    $
    1,731Accruals
    
    
    387Accrual adjustments
    
    
    (595
    )Cash payments
    
    
    (227
    )Liability for restructuring costs at June 30, 2007
    
    $
    1,296
 Six months ended(in thousands)
    
    June 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
    
    
    1,028Accrual adjustments
    
    
    (855
    )Cash payments
    
    
    (1,092
    )Liability for restructuring costs at June 30, 2007
    
    $
    1,296
  11. Leases
   (in thousands)Remainder of 2007
    
    $
    2,8522008
    
    
    5,7272009
    
    
    5,3462010
    
    
    4,9582011
    
    
    4,670Thereafter
    
    
    33,959Subtotal
    
    
    57,512Less: expected receipts on sublease
    
    
    (50
    )Total operating lease obligations
    
    $
    57,462
 10




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##### 



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, 2006As Reported
    
    
    Revision
    
    

    Revised(in thousands, except per share data)Consolidated 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
    
    
    
    
    
    
    
    43,011Research 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
 11




---



##### 



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 
Dacogen for Injection
    
    chemotherapy-induced nausea and vomiting (CINV)
myelodysplastic syndrome (MDS)
    
    U.S. & Canada: MGI PHARMA
North America: MGI PHARMA
Rest of World: Cilag GmbH
(regulatory approvals pending)Gliadel Wafer
    
    Malignant glioma at time of initial surgery
Glioblastoma multiforme (GBM)
    
    U.S.: MGI PHARMA
Outside U.S.: Various collaborators
U.S.: MGI PHARMA
Outside U.S.: Various collaborators
 12




---



##### 



Products
    
    Principal Indications
    
    MGI Commercial RightsSalagen 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 PHARMA
Outside U.S.: Various collaborators
  PRODUCT CANDIDATES AND RESEARCH PIPELINE
 Products
    
    Principal Indications
    
    Regulatory Status
    
    SponsorAloxi Injection
    
    PONV
    
    sNDA filed with the
Food and Drug
Administration
(FDA)
    
    Helsinn HealthcareAloxi Capsules
    
    CINV
    
    Phase 3 completed
    
    Helsinn HealthcareAquavan Injection
    
    Minimal to moderate sedation of
patients undergoing brief diagnostic
or surgical procedures
    
    Phase 3 completed
    
    MGI PHARMADacogen for Injection
    
    AML
    
    Phase 2 & 3
    
    MGI PHARMASaforis Powder for 
Oral Suspension
    
    Oral mucositis
    
    FDA approvable letter received
 October 12, 2006
    
    MGI PHARMAamolimogene bepiplasmid 
irofulven
    
    Cervical dysplasia
Hormone refractory prostate cancer
(HRPC) with capecitabine
    
    Pivotal trial ongoing
Phase 2
    
    MGI PHARMA
MGI PHARMAHRPC combination with oxaliplatin
    
    Phase 2
    
    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
  Results of Operations
  Revenues
  13




---



##### 



Three Months Ended June 30,2007
    
    
    2006
    
    
    Change
    
    
    % Change(in thousands)
    
    
    
    
    
    % of sales
    
    
    
    
    
    
    % of salesProduct sales:Aloxi Injection
    
    $
    48,304
    
    
    
    53
    %
    
    $
    67,438
    
    
    
    78
    %
    
    $
    (19,134
    )
    
    
    (28
    )%Dacogen
    
    
    30,202
    
    
    
    33
    
    
    
    5,217
    
    
    
    6
    
    
    
    24,985
    
    
    
    479Gliadel Wafer
    
    
    10,533
    
    
    
    12
    
    
    
    8,427
    
    
    
    10
    
    
    
    2,106
    
    
    
    25Other
    
    
    1,910
    
    
    
    2
    
    
    
    5,108
    
    
    
    6
    
    
    
    (3,198
    )
    
    
    (63
    )Total product sales
    
    
    90,949
    
    
    
    100
    %
    
    
    86,190
    
    
    
    100
    %
    
    
    4,759
    
    
    
    6Licensing and other
    
    
    2,092
    
    
    
    
    
    
    
    963
    
    
    
    
    
    
    
    1,129
    
    
    
    117Total revenues
    
    $
    93,041
    
    
    
    
    
    
    $
    87,153
    
    
    
    
    
    
    $
    5,888
    
    
    
    7
    %
 Six Months Ended June 30,2007
    
    
    2006
    
    
    Change
    
    
    % Change(in thousands)
    
    
    
    
    
    % of sales
    
    
    
    
    
    
    % of salesProduct sales:Aloxi Injection
    
    $
    95,621
    
    
    
    55
    %
    
    $
    130,738
    
    
    
    80
    %
    
    $
    (35,117
    )
    
    
    (27
    )%Dacogen
    
    
    53,299
    
    
    
    31
    
    
    
    5,217
    
    
    
    3
    
    
    
    48,082
    
    
    
    922Gliadel Wafer
    
    
    20,266
    
    
    
    12
    
    
    
    18,091
    
    
    
    11
    
    
    
    2,175
    
    
    
    12Other
    
    
    3,341
    
    
    
    2
    
    
    
    9,669
    
    
    
    6
    
    
    
    (6,328
    )
    
    
    (65
    )Total product sales
    
    
    172,527
    
    
    
    100
    %
    
    
    163,715
    
    
    
    100
    %
    
    
    8,812
    
    
    
    5Licensing and other
    
    
    3,722
    
    
    
    
    
    
    
    1,641
    
    
    
    
    
    
    
    2,081
    
    
    
    127Total revenues
    
    $
    176,249
    
    
    
    
    
    
    $
    165,356
    
    
    
    
    
    
    $
    10,893
    
    
    
    7
    %
 Product Sales:
  Licensing and other:
 Costs and Expenses
 Three Months Ended June 30,2007
    
    
    2006
    
    
    Change
    
    
    % Change(in thousands)
    
    
    
    
    
    % of revenue
    
    
    
    
    
    
    % of revenueCosts and expenses:Cost of sales
    
    $
    29,455
    
    
    
    32
    %
    
    $
    33,813
    
    
    
    39
    %
    
    $
    (4,358
    )
    
    
    (13
    )%Selling, general and administrative
    
    
    44,306
    
    
    
    48
    
    
    
    35,463
    
    
    
    41
    
    
    
    8,843
    
    
    
    25Research and development
    
    
    17,132
    
    
    
    18
    
    
    
    28,192
    
    
    
    32
    
    
    
    (11,060
    )
    
    
    (39
    )Restructuring
    
    
    (208
    )
    
    NM
    *
    
    
    
    
    
    NM
    *
    
    
    (208
    )
    
    NM
    *Total
    
    $
    90,685
    
    
    
    97
    %
    
    $
    97,468
    
    
    
    112
    %
    
    $
    (6,783
    )
    
    
    (7
    )
 
  Six Months Ended June 30,2007
    
    
    2006
    
    
    Change
    
    
    % Change(in thousands)
    
    
    
    
    
    % of revenue
    
    
    
    
    
    
    % of revenueCosts and expenses:Cost of sales
    
    $
    57,061
    
    
    
    32
    %
    
    $
    62,155
    
    
    
    38
    %
    
    $
    (5,094
    )
    
    
    (8
    )%Selling, general and administrative
    
    
    81,627
    
    
    
    46
    
    
    
    66,985
    
    
    
    41
    
    
    
    14,642
    
    
    
    22Research and development
    
    
    34,134
    
    
    
    19
    
    
    
    51,157
    
    
    
    31
    
    
    
    (17,023
    )
    
    
    (33
    )Restructuring
    
    
    173
    
    
    NM
    *
    
    
    
    
    
    NM
    *
    
    
    173
    
    
    NM
    *Total
    
    $
    172,995
    
    
    
    98
    %
    
    $
    180,297
    
    
    
    109
    %
    
    $
    (7,302
    )
    
    
    (4
    )
 
 *
    
    Not Meaningful 14




---



##### 



Cost of sales:
 Selling, general and administrative:
 Research and development:
 Restructuring:
 Interest Income and Expense and Other Income
 Three Months Ended June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    % ChangeInterest income
    
    $
    1,909
    
    
    $
    1,361
    
    
    $
    548
    
    
    
    40
    %Interest expense
    
    
    (1,874
    )
    
    
    (1,925
    )
    
    
    51
    
    
    
    3Impairment of investment
    
    
    
    
    
    
    (9,880
    )
    
    
    9,880
    
    
    NM
    *Other income
    
    
    60
    
    
    
    (126
    )
    
    
    186
    
    
    NM
    *Total
    
    $
    95
    
    
    $
    (10,570
    )
    
    $
    10,665
    
    
    NM
    *
 
 *
    
    Not Meaningful Six Months Ended June 30,(in thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    % ChangeInterest income
    
    $
    3,974
    
    
    $
    2,517
    
    
    $
    1,457
    
    
    
    58
    %Interest expense
    
    
    (3,750
    )
    
    
    (3,922
    )
    
    
    172
    
    
    
    4Impairment of investment
    
    
    
    
    
    
    (9,880
    )
    
    
    9,880
    
    
    NM
    *Other income
    
    
    33
    
    
    
    55
    
    
    
    (22
    )
    
    NM
    *Total
    
    $
    257
    
    
    $
    (11,230
    )
    
    $
    11,487
    
    
    NM
    *
 
 *
    
    Not Meaningful Interest Income
 15




---



##### 



Interest Expense
 Other income:
 Provision for Income Taxes
  Net Income (Loss)
  Liquidity and Capital Resources
  December 31, 2006(in thousands)
    
    June 30, 2007
    
    
    (Revised)Cash and cash equivalents
    
    $
    24,556
    
    
    $
    41,024Short-term marketable
investments
    
    
    135,581
    
    
    
    121,719Total
    
    $
    160,137
    
    
    $
    162,743
   16




---



##### 



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 costs of additional product or product candidate acquisitions or business combinations; and
    
    any future change in our business strategy.
 17




---



##### 



Payment Obligations
  (in thousands)
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    TotalOperating lease payments
    
    $
    2,852
    
    
    $
    5,727
    
    
    $
    5,346
    
    
    $
    4,958
    
    
    $
    4,670
    
    
    $
    33,959
    
    
    $
    57,512Capital lease payments
    
    
    68
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75Baxter loss contract (a)
    
    
    
    
    
    
    400
    
    
    
    400
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    1,050Other long-term debt
    
    
    64
    
    
    
    32
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156Convertible debt
    
    
    2,964
    
    
    
    7,429
    
    
    
    5,854
    
    
    
    5,854
    
    
    
    350,927
    
    
    
    
    
    
    
    373,028Helsinn minimum sales obligation (b)
    
    
    6,123
    
    
    
    5,559
    
    
    
    4,801
    
    
    
    4,052
    
    
    
    3,494
    
    
    
    2,747
    
    
    
    26,776Total
    
    $
    12,071
    
    
    $
    19,154
    
    
    $
    16,461
    
    
    $
    15,114
    
    
    $
    359,091
    
    
    $
    36,706
    
    
    $
    458,597
 
 (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. Impact of Recently Issued Accounting Standards
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Application of Critical Accounting Policies and Estimates
 Income Taxes: Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109
   18




---



##### 



Item 3.
 Quantitative and Qualitative Disclosures About Market Risk
  Equity Price Risk
  Hypothetical PercentageEstimated Fair Value at
    
    Hypothetical Price
    
    Estimated Fair Value after
    
    Increase(Decrease) inJune 30, 2007
    
    Change
    
    Hypothetical Price Change
    
    Stockholders EquityEquity Securities
    
    $
    30,271
    
    
    
    10
    %
    
    $
    33,298
    
    
    
    2.8
    %(10
    )%
    
    
    27,244
    
    
    
    (2.8
    )%20
    %
    
    
    36,325
    
    
    
    5.7
    %(20
    )%
    
    
    24,217
    
    
    
    (5.7
    )%30
    %
    
    
    39,352
    
    
    
    8.5
    %(30
    )%
    
    
    21,190
    
    
    
    (8.5
    )%
 Item 4.
 Controls and Procedures
     19




---



##### 



PART II  OTHER INFORMATION
 Item 1A. Risk Factors
  Item 4. Submission of Matters to a Vote of Security Holders
   Nominee
    
    For
    
    WithheldJames O. Armitage, M.D.
    
    
    72,885,916
    
    
    
    646,942Andrew J. Ferrara
    
    
    72,795,455
    
    
    
    737,403Edward W. Mehrer
    
    
    72,901,658
    
    
    
    631,200Hugh E. Miller
    
    
    72,734,841
    
    
    
    798,017Dean J. Mitchell
    
    
    72,794,450
    
    
    
    738,408Leon O. Moulder, Jr.
    
    
    72,898,031
    
    
    
    634,827David B. Sharrock
    
    
    72,745,672
    
    
    
    787,186Waneta C. Tuttle, Ph. D.
    
    
    72,896,514
    
    
    
    636,344Arthur L. Weaver, M.D.
    
    
    72,896,080
    
    
    
    636,778
  For
    
    Against
    
    Abstain
    
    Broker Non-Vote72,622,590
    
    884,955
    
    25,313
    
    
 Item 6. Exhibits
 ExhibitNo.
    
    Description31.1
    
    
    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.
 20




---



##### 



SIGNATURES
  MGI PHARMA, INC.Date: July 27, 2007
    By:
    /s/ William F. SpenglerWilliam F. SpenglerExecutive Vice President and Chief Financial Officer
(principal financial officer, and duly authorized officer) 21