UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

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

Commission File Number: 000-26658



PHARMACYCLICS, INC.

|Delaware                                                       | 94-3148201                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number)

|995 E. Arques Avenue






Sunnyvale, California  94085-4521(408) 774-0330                                        
|------------------------------------------------------------------------------------------------------------------
|(Address of principal executive offices including zip code)and 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 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer      ̈ Accelerated filer    x Non-accelerated filer     ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (Check one):
YES     ̈ NO    x As of April 30, 2007, there were 25,968,189 shares of the registrant's Common Stock, par value $0.0001 per share,
outstanding.

This quarterly report on Form 10-Q consists of 23 pages of which this is page 1. The Exhibits Index page immediately follows
page 23.



Note:PDF provided as a courtesyPHARMACYCLICS, INC.
                                         Form 10-Q   
                               Table of Contents

PART I.      Financial Information
Page No.Item 1.   Financial Statements (unaudited):Condensed Balance Sheets
3Condensed Statements of Operations

4Condensed Statements of Cash Flows
5Notes to Condensed Financial Statements
6Item 2.    Management's Discussion and Analysis of Financial
Condition and Results of Operations
10Item 3.   Quantitative and Qualitative Disclosures About Market
Risk
18Item 4.   Controls and Procedures
18PART II.     Other InformationItem 1.   Legal Proceedings
19Item 1A.    Risk Factors
19Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
22Item 3.   Defaults Upon Senior Securities
22Item 4.   Submission of Matters to a Vote of Security Holders
22Item 5.   Other Information
22Item 6.   Exhibits
22Signatures
23Exhibits Index
#

PHARMACYCLICS®,  (the pentadentate logo) Xcytrin®are
registered U.S. trademarks of Pharmacyclics, Inc. Other trademarks, trade names or service marks used herein are the property of their
respective owners.
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements


PHARMACYCLICS, INC.

                          (a development stage enterprise)

                            CONDENSED BALANCE SHEETS

                            (unaudited; in thousands)March 31,      June 30,
                                                           2007          2006
                                                       ------------  ------------
                       ASSETS
   Current assets:
     Cash and cash equivalents ...................... $     17,748  $     22,283
     Marketable securities ..........................       26,793        18,194
     Prepaid expenses and other current assets ......        1,105           961
                                                       ------------  ------------
          Total current assets ......................       45,646        41,438
   Property and equipment, net ......................          868           764
   Other assets .....................................          523           527
                                                       ------------  ------------
                                                      $     47,037  $     42,729
                                                       ============  ============

        LIABILITIES AND STOCKHOLDERS' EQUITY
   Current liabilities:
     Accounts payable ............................... $      1,000  $      1,908
     Accrued liabilities ............................        1,387         1,431
                                                       ------------  ------------
          Total current liabilities .................        2,387         3,339
   Deferred rent ....................................           75            70
                                                       ------------  ------------
          Total liabilities .........................        2,462         3,409
                                                       ------------  ------------
   Stockholders' equity:
     Common stock ...................................            3             2
     Additional paid-in capital .....................      352,713       328,386
     Accumulated other comprehensive income (loss) ..           22          (132)
     Deficit accumulated during development stage....     (308,163)     (288,936)
                                                       ------------  ------------
         Total stockholders' equity .................       44,575        39,320
                                                       ------------  ------------
                                                      $     47,037  $     42,729
                                                       ============  ============


The accompanying notes are an integral part of these condensed financial statements.





PHARMACYCLICS, INC.

                          (a development stage enterprise)

                       CONDENSED STATEMENTS OF OPERATIONS

                (unaudited; in thousands, except per share data)Period From
                                                                                                 Inception
                                                       Three Months Ended  Nine Months Ended   (April 19, 1991)
                                                             March 31,           March 31,        through
                                                       ------------------  ------------------    March 31,
                                                         2007      2006      2007      2006  *      2007
                                                       --------  --------  --------  --------  --------------
Revenues:
     License and milestone revenues ................. $     --  $     --  $     --  $     --  $        7,855

     Contract and grant revenues ....................       --       156        19       156           6,047
                                                       --------  --------  --------  --------  --------------
            Total revenues ..........................       --       156        19       156          13,902
                                                       --------  --------  --------  --------  --------------
Operating expenses:
     Research and development* ......................    5,669     5,313    15,557    19,315         288,184

     General and administrative* ....................    1,705     2,685     5,315     9,756          66,721

     Purchased in-process research
        and development .............................       --        --        --        --           6,647
                                                       --------  --------  --------  --------  --------------
            Total operating expenses ................    7,374     7,998    20,872    29,071         361,552
                                                       --------  --------  --------  --------  --------------
Loss from operations ................................   (7,374)   (7,842)  (20,853)  (28,915)       (347,650)

Interest and other income, net ......................      615       467     1,626     1,449          39,487
                                                       --------  --------  --------  --------  --------------
Net loss ............................................ $ (6,759) $ (7,375) $(19,227) $(27,466) $     (308,163)
                                                       ========  ========  ========  ========  ==============


Basic and diluted net loss per share ................ $  (0.26) $  (0.37) $  (0.82) $  (1.38)
                                                       ========  ========  ========  ========
Shares used to compute basic and
   diluted net loss per share .......................   25,938    19,904    23,581    19,871
                                                       ========  ========  ========  ========

* Includes non-cash share-based compensation of
   the following:
     Research and development ....................... $    561  $    559  $  1,379  $  2,306  $        4,612
     General and administrative .....................      360       814       940     2,575  $        4,888

The accompanying notes are an integral part of these condensed financial statements.






PHARMACYCLICS, INC.

                          (a development stage enterprise)

                       CONDENSED STATEMENTS OF CASH FLOWS

                            (unaudited; in thousands)Period From
                                                                                                  Inception
                                                                             Nine Months Ended  (April 19, 1991)
                                                                                March 31,          through
                                                                            ------------------    March 31,
                                                                              2007      2006         2007
                                                                            --------  --------  --------------
Cash flows from operating activities:
   Net loss .............................................................. $(19,227) $(27,466) $     (308,163)
Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization .........................................      343       461          14,541
   Purchased in-process research and development .........................       --        --           4,500
   Share-based compensation expense ......................................    2,319     4,881           9,500
   Gain on sale of marketable securities .................................       --        --              58
   Write-down of fixed assets ............................................       --        --             381
   Changes in assets and liabilities:
      Prepaid expenses and other assets ..................................     (140)     (118)         (1,628)
      Accounts payable ...................................................     (908)     (909)          1,000
      Accrued liabilities ................................................      (44)      289           1,387
      Deferred rent ......................................................        5       (15)             75
                                                                            --------  --------  --------------
         Net cash used in operating activities ...........................  (17,652)  (22,877)       (278,349)
                                                                            --------  --------  --------------
Cash flows from investing activities:
   Purchase of property and equipment ....................................     (447)     (377)        (12,021)
   Proceeds from sale of property and equipment ..........................       --        --             112
   Purchases of marketable securities ....................................  (14,945)   (3,435)       (524,178)
   Proceeds from maturities and sales of marketable securities ...........    6,500    19,448         497,349
                                                                            --------  --------  --------------
        Net cash provided by (used in) investing activities ..............   (8,892)   15,636         (38,738)
                                                                            --------  --------  --------------
Cash flows from financing activities:
   Issuance of common stock, net of issuance costs .......................   21,426       380         308,771
   Exercise of stock options .............................................      583        --           6,431
   Proceeds from notes payable ...........................................       --        --           3,000
   Issuance of convertible preferred stock, net of issuance costs ........       --        --          20,514
   Payments under capital lease obligations ..............................       --        --          (3,881)
                                                                            --------  --------  --------------
        Net cash provided by financing activities ........................   22,009       380         334,835
                                                                            --------  --------  --------------
Increase (decrease) in cash and cash equivalents .........................   (4,535)   (6,861)         17,748
Cash and cash equivalents at beginning of period .........................   22,283    27,666              --
                                                                            --------  --------  --------------
Cash and cash equivalents at end of period ............................... $ 17,748  $ 20,805  $       17,748
                                                                            ========  ========  ==============

The accompanying notes are an integral part of these condensed financial statements.

PHARMACYCLICS, INC.
(a development stage enterprise) 
NOTES TO CONDENSED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed financial statements have been prepared by
Pharmacyclics, Inc. (the company or Pharmacyclics), without audit, in accordance
with the instructions to Form 10-Q and, therefore, do not necessarily include
all information and footnotes necessary for a fair statement of its financial
position, results of operations and cash flows in accordance with accounting
principles generally accepted in the United States. The balance sheet at June
30, 2006 is derived from the audited balance sheet at that date which is not
presented herein.

In the opinion of management, the unaudited
financial information for the interim periods presented reflects all
adjustments, which are only normal and recurring, necessary for a fair statement
of results of operations, financial position and cash flows. These condensed
financial statements should be read in conjunction with the financial statements
included in the company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2006. Operating results for interim periods are not necessarily
indicative of operating results for an entire fiscal year.

The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts and the disclosure of contingent amounts in the company's financial
statements and the accompanying notes. Actual results could differ from those
estimates.

Share-Based Compensation

The company adopted SFAS 123R, Share-Based Payments, effective
beginning July 1, 2005 using the modified prospective application transition
method. The modified prospective application transition method requires that
companies recognize compensation expense on new share-based payment awards and
existing share-based payment awards that are modified, repurchased, or cancelled
after the effective date. Additionally, compensation cost of the portion of
awards of which the requisite service has not been rendered that are outstanding
as of July 1, 2005 shall be recognized as the requisite service is rendered.

The fair value of each stock option is estimated on the date of grant using
the Black-Scholes valuation model using the assumptions noted in the following
table. Expected volatility is based on historical volatility data of the
company's stock. The expected term of stock options granted is based on
historical data and represents the period of time that stock options are
expected to be outstanding. The expected term is calculated for and applied to
one group of stock options as the company does not expect substantially
different exercise or post-vesting termination behavior amongst its employee
population. The risk-free rate of the stock options is based on a zero-coupon
United States Treasury bond whose maturity period equals the expected term of
the company's options.

Three Months Ended        Nine Months Ended
                                            March 31,               March 31,
                                      -------------------     --------------------
                                         2007        2006      2007       2006
                                      ----------  ---------- ---------  ---------
Stock Option Plans:
  Expected dividend yield ..........          0 %         0 %       0 %        0 %
  Expected stock price volatility ..         72 %        83 %      73 %       71 %
  Risk free interest rate ..........       4.42 %      4.30 %    4.46 %     4.17 %
  Expected life (years) ............       4.51        4.98      4.52       4.98

Employee Stock Purchase Plan:
  Expected dividend yield ..........          0 %         0 %       0 %        0 %
  Expected stock price volatility ..         54 %        54 %      54 %       54 %
  Risk free interest rate ..........       4.42 %      4.42 %    4.42 %     4.42 %
  Expected life (years) ............       2.00        2.00      2.00       2.00

The weighted average estimated grant date fair value, as defined by SFAS 123,
for options granted under the company's stock option plans during the nine
months ended March 31, 2007 and 2006 were $1.82 and $5.07 per share,
respectively.  The weighted average estimated grant date fair value of purchase
awards under the company's employee stock purchase plan during the nine months
ended March 31, 2007 and 2006 were $3.30 and $3.30 per share, respectively.
As of March 31, 2007, $7,228,000 of total unrecognized compensation costs
related to non-vested options are scheduled to be recognized over a weighted
average period of 2.73 years. There were no capitalized share-based compensation
costs at March 31, 2007.
The company accounts for equity instruments issued to non-employees for goods
or services in accordance with the provisions of SFAS No. 123 and Emerging Task
Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services ("EITF 96-18"). Accordingly, as these instruments vest,
the company is required to remeasure the fair value of the equity instruments at
each reporting period prior to vesting and then finally at the vesting date of
the equity instruments.

Note 2 - Basic and Diluted Net Loss Per Share

Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Diluted net loss per share is
computed using the weighted average number of common and potential common shares
outstanding during the period. Potential common shares consist of shares
issuable upon the exercise of stock options (using the treasury stock method).
Options to purchase 5,613,864 and 4,582,118 shares of common stock were
outstanding at March 31, 2007 and 2006, respectively, but have been excluded
from the computation of diluted net loss per share because their effect was
anti-dilutive.

Note 3 - Share-Based Compensation Plan:

2004 Equity Incentive Award Plan. In December 2004, stockholders
approved the 2004 Equity Incentive Award Plan (the "2004 Plan") as a
replacement for both the company's 1995 Stock Option Plan (the "1995
Plan") and the 1995 Non-Employee Directors Stock Option Plan (the
"Directors Plan"). The adoption of the 2004 Plan included an increase
of 600,000 in the number of shares available for issuance over the remaining
shares available for issuance under the 1995 Plan and Directors Plan. In
December 2005, the stockholders approved an increase in the total number of
shares of common stock authorized for issuance under the 2004 Plan by an
additional 1,000,000 shares. The 2004 Plan provides for the issuance of various
types of equity awards, such as incentive stock options, nonstatutory stock
options stock, restricted stock, stock appreciation rights and performance
shares. The exercise price of all stock options granted under the 2004 Plan may
not be less that the fair market value of the company's common stock on the date
of grant and no stock option will be exercisable more than ten years after the
date it is granted. Stock options for employees and consultants typically vest
over four years. Non-employee Directors receive annual, automatic, non-
discretionary grants of nonqualified stock options. Each new non-employee
Director receives an option to purchase 10,000 shares as of the date he or she
first becomes a Director. This option grant vests in equal annual installments
over five years. In addition, on the date of each annual meeting, each
individual re-elected as a non-employee Director will receive an automatic
option grant to purchase an additional 7,500 shares of common stock, provided
such individual has served as a Director for at least six months prior to the
date of grant. This option grant vests in equal monthly installments over twelve
months following the date of grant.

1995 Stock Option Plan. The company's 1995 Plan was adopted by the
Board of Directors in August 1995. Options issued under the 1995 Plan can, at
the discretion of the plan administrator, be either incentive stock options or
nonqualified stock options. In December 2003, the stockholders approved
amendments to the 1995 Plan (i) such that the exercise price of all stock
options must be at least equal to the fair value of Pharmacyclics' common stock
on the date of grant and (ii) that increased the total number of authorized
shares under the plan to 5,345,724 shares of common stock. Generally, shares
subject to options under the 1995 Plan vest over a four or five year period and
are exercisable for a period of ten years. In December 2004, the remaining
shares available for future grant under the 1995 Plan were transferred to the
2004 Plan. Additionally, if options granted under the 1995 Plan expire or
otherwise terminate without being exercised, the shares of common stock reserved
for such options again become available for future grant under the 2004 Plan.

1995 Non-Employee Directors Stock Option Plan. The company's Directors
Plan was adopted by the Board of Directors on August 2, 1995 and provides for
issuance of common stock to non-employee Directors pursuant to a predetermined
formula. The exercise price of options granted under the Directors Plan must be
at least equal to the fair value of Pharmacyclics' common stock on the date of
grant. Each individual first elected or appointed as a non-employee Board member
will automatically be granted, on the date of such election or appointment, a
non-statutory option to purchase 10,000 shares of common stock vesting over five
years. In addition, on the date of each annual stockholders' meeting each
individual who is to continue to serve as a non-employee Board member after that
annual meeting and has been a member of the Board for at least six months will
automatically be granted a non-statutory option to purchase 5,000 shares of
common stock. A total of 271,667 shares of common stock have been reserved for
issuance under the Directors Plan. In December 2004, the remaining shares
available for future grant under the Directors Plan were transferred to the 2004
Plan. Additionally, if options granted under the Directors Plan expire or
otherwise terminate without being exercised, the shares of common stock reserved
for such options again become available for future grant under the 2004
Plan.

The company settles stock option exercises with newly issued common
shares.

The following table summarizes the company's stock option activity for the
nine months ended March 31, 2007:

`Options Outstanding
                                                   -----------------------------
                                                                      Weighted
                                        Shares                        Average
                                      Available                       Exercise
                                      for Grant       Number           Price
                                     ------------  ------------     ------------
Balance at June 30, 2006               1,088,095     5,266,802     $      13.26
Options granted                       (1,060,909)    1,060,909             3.01
Options exercised                                     (133,164)            4.38
Options forfeited                         84,746       (84,746)            5.29
Options expired                          495,937      (495,937)           17.93
                                     ------------  ------------
Balance at March 31, 2007                607,869     5,613,864            11.24
                                     ============  ============`

The total intrinsic value of stock options exercised during the nine month
periods ended March 31, 2007 and 2006 was approximately $64,099 and $372,000,
respectively. No income tax benefits were realized by the company in the nine
month periods ended March 31, 2007 and 2006.

A summary of outstanding and vested stock options as of March 31, 2007 is as
follows:

`Options Outstanding                     Options Exercisable
                      --------------------------------------  -------------------------------------
                                     Weighted                               Weighted
                        Number        Average     Aggregate     Number       Average     Aggregate
Range of                  of         Exercise     Intrinsic       of        Exercise     Intrinsic
Exercise Prices         Options        Price        Value       Options       Price        Value
--------------------- -----------   -----------  -----------  -----------  -----------  -----------
   $2.76 - $2.76         908,700   $      2.76  $        --           --  $        --  $        --
   $3.22 - $4.13         149,059          3.75           --       95,788         3.54           --
   $4.16 - $4.16       1,154,850          4.16           --      211,180         4.16           --
   $4.25 - $4.47         641,987          4.38           --      617,915         4.38           --
   $4.50 - $7.39         634,892          6.73           --      585,159         6.82           --
   $7.43 - $9.99         581,187          8.08           --      313,229         8.30           --
  $10.00 - $19.75        593,874         14.79           --      516,212        15.30           --
  $20.25 - $27.51        562,070         26.24           --      562,070        26.24           --
  $28.13 - $66.13        360,945         49.45           --      360,945        49.45           --
  $78.13 - $78.13         26,300         78.13           --       26,300        78.13           --

                      -----------                -----------  -----------               -----------
                       5,613,864   $     11.24  $        --    3,288,798  $     16.13           --
                      ===========                ===========  ===========               ===========`

As of March 31, 2007, the weighted average remaining contractual term of
options outstanding and options vested was 6.85 and 5.16 years,
respectively.

Employee Stock Purchase Plan. The company adopted an Employee Stock
Purchase Plan (the "Purchase Plan") in August 1995. Qualified
employees may elect to have a certain percentage of their salary withheld to
purchase shares of the company's common stock under the Purchase Plan. The
purchase price per share is equal to 85% of the fair market value of the stock
on specified dates. Sales under the Purchase Plan in the nine month periods
ended March 31, 2007 and 2006 were 28,233 and 43,656 shares of common stock at
an average price of $4.58 and $5.26, respectively. Shares available for future
purchase under the Purchase Plan are 290,905 at March 31, 2007.

Note 4 - Comprehensive Loss

Comprehensive loss includes net loss and unrealized gains (losses) on
marketable securities that are excluded from the results of operations.

The company's comprehensive losses were as follows:

`Three Months Ended        Nine Months Ended
                                                      March 31,                 March 31,
                                            --------------------------  --------------------------
                                                2007          2006          2007          2006
                                            ------------  ------------  ------------  ------------
Net loss ................................. $ (6,759,000) $ (7,375,000) $(19,227,000) $(27,466,000)
Change in net unrealized losses
  on available-for-sale securities .......       30,000        95,000       154,000       179,000
                                            ------------  ------------  ------------  ------------
Comprehensive loss ....................... $ (6,729,000) $ (7,280,000) $(19,073,000) $(27,287,000)
                                            ============  ============  ============  ============`

Note 5 - Recent Accounting Pronouncements

In September 2006, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 108 (SAB 108). Due to diversity in practice among
registrants, SAB 108 expresses SEC staff views regarding the process by which
misstatements in financial statements are evaluated for purposes of determining
whether financial statement restatement is necessary. SAB 108 is effective for
fiscal years ending after November 15, 2006, and early application is
encouraged. The adoption of SAB 108 did not have a material impact on our
results from operations or financial position.

In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157 (SFAS No. 157), "Fair Value Measurements" which
clarifies the principle that fair value should be based on the assumptions
market participants would use when pricing an asset or liability and establishes
a fair value hierarchy that prioritizes the information used to develop those
assumptions.  Under the standard, fair value measurements would be separately
disclosed by level within the fair value hierarchy. SFAS No. 157 is effective
the first quarter of our 2008 fiscal year with early adoption permitted. We have
not yet determined the impact, if any, that the implementation of SFAS No. 157
will have on our financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48), which, among other things, requires
applying a "more likely than not" threshold to the recognition and
derecognition of tax positions. The provisions of FIN 48 will be effective for
us on July 1, 2007.  We are currently evaluating the impact of adopting FIN
48 on the financial statements, but we do not expect its adoption to have a
significant transition effect.

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

You should read the following discussion and analysis of our financial
condition and results of operations together with our interim financial
statements and the related notes appearing at the beginning of this report. The
interim financial statements and this Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the financial statements and notes thereto for the year ended June 30, 2006
and the related Management's Discussion and Analysis of Financial Condition and
Results of Operations, both of which are contained in our Annual Report on Form
10-K filed with the Securities and Exchange Commission on September 12, 2006.

The following discussion contains forward-looking statements that
involve risks and uncertainties. These statements relate to future events, such
as our future clinical and product development, financial performance and
regulatory review of our product candidates. Our actual results could differ
materially from any future performance suggested in this report as a result of
various factors, including those discussed in Part II, Item IA, "Risk
Factors", and elsewhere in this report, in the company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2006 and in our other
Securities and Exchange Commission reports and filings. All forward-looking
statements are based on information currently available to Pharmacyclics; and we
assume no obligation to update such forward-looking statements. Stockholders are
cautioned not to place undue reliance on such statements.

Overview

Pharmacyclics is a pharmaceutical company focused on the development of
products that improve therapeutic approaches to cancer and other diseases. To
date, substantially all of our resources have been dedicated to the research and
development of our products, and we have not generated any commercial revenues
from the sale of our products. We do not expect to generate any product revenues
until we receive the necessary regulatory and marketing approvals and launch one
of our products, if at all.

We have incurred significant operating losses since our inception in 1991,
and as of March 31, 2007, had an accumulated deficit of approximately $308.2
million. The process of developing and commercializing our products requires
significant research and development, preclinical testing and clinical trials,
manufacturing arrangements as well as regulatory and marketing approvals. These
activities, together with our general and administrative expenses, are expected
to result in significant operating losses until the commercialization of our
products generates sufficient revenues to cover our expenses. We expect that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial. Our achieving profitability depends upon our ability, alone or with
others, to successfully complete the development of our products under
development, obtain required regulatory approvals and successfully manufacture
and market our products.

Xcytrin, our lead product candidate, is an anti-cancer drug being evaluated
in various clinical trials. Based on the clinical activity seen in our initial
Phase 3 trial in patients with brain metastases from non-small cell lung cancer
(NSCLC), we conducted a pivotal Phase 3 clinical trial designed to confirm the
potential clinical benefits observed in patients with brain metastases from
NSCLC. This trial, known as the SMART (Study of Neurologic
Progression with Motexafin Gadolinium And Radiation
Therapy) trial, enrolled 554 patients with brain metastases from NSCLC.
The SMART trail was designed to compare the safety and efficacy of whole brain
radiation therapy (WBRT) alone to WBRT plus Xcytrin. The primary endpoint for
the study was time to neurologic progression (TNP) as determined by a blinded
events review committee. In December 2005, we announced the top line results of
this trial. Although patients receiving Xcytrin had a longer time to neurologic
progression, the study's primary endpoint, the difference compared to patients
in the control arm did not reach statistical significance.

The results of the study were presented at the 2006 Annual Meeting of the
American Society of Clinical Oncology (ASCO). In the intent-to-treat analysis,
the median TNP was 15.4 months for patients receiving WBRT plus Xcytrin compared
to 10.0 months for patients treated with WBRT alone (P=0.122, hazard
ratio=0.78). Substantial differences in patient characteristics and outcomes
were observed for the 348 patients enrolled in North America (63 percent of all
patients enrolled in the study) compared to the other regions. In North America,
the median TNP for WBRT plus Xcytrin treatment was 24.2 months compared to 8.8
months for WBRT alone (P=0.004, hazard ratio=0.53). By contrast, for regions
outside of North America, there was no significant difference in TNP between
treatment arms. Xcytrin was well tolerated in the study. The most common drug
related grade 3 and 4 adverse events were hypertension (4%), elevated liver
enzymes (3%) and fatigue (3%), all of which were reversible. We believe the
reasons for the regional differences in treatment benefit may be related to the
time interval between diagnosis of brain metastases and initiation of WBRT.

In North America, most patients (79%) received WBRT within three weeks of
their diagnosis of brain metastases. In certain European centers, there was
substantial delay in the initiation of WBRT either due to use of chemotherapy as
the initial therapy for brain metastases, or clinical practice patterns
resulting in delays in access to radiation therapy. Moreover, there was an
imbalance in treatment delay favoring the control arm of the study. As presented
at ASCO in June of 2006, adjusting for this imbalance resulted in a treatment
benefit for the Xcytrin arm of the study (P=0.05). We believe that the clinical
data indicate Xcytrin benefited patients that had prompt treatment with WBRT,
regardless of region, and that this benefit was progressively diminished by
delay in initiation of radiation.

As presented at the Society of Neuro-Oncology Annual Meeting in November
2006, pooled data from two randomized trials involving 805 patients with brain
metastases from NSCLC comparing Xcytrin plus WBRT to WBRT alone have shown a
benefit for Xcytrin. In the pooled results analysis, the median TNP determined
by a blinded events review committee was 15.4 months for patients receiving WBRT
plus Xcytrin compared to 9.0 months for patients treated with WBRT alone (P =
0.016, hazard ratio = 0.73). Certain secondary endpoints also showed significant
benefit for Xcytrin plus WBRT compared to WBRT alone: TNP as determined by
investigators, P = 0.015, hazard ratio = 0.76; time to neurocognitive
progression, P = 0.02, hazard ratio = 0.78.

Based on our review of the data from the SMART trial, pooled data from
both of our randomized trials, and discussions with the U.S. Food and Drug
Administration (FDA), we submitted a New Drug Application (NDA) to the FDA in
December 2006, for the use of Xcytrin in combination with radiation therapy for
the treatment of patients with brain metastases from NSCLC.  In February 2007,
we received a refuse to file letter from the FDA citing failure to demonstrate
statistically significant differences between treatment arms in the company's
trials.  In April 2007, we requested that the FDA file our NDA over protest.
File over protest is a procedure permitted by FDA regulations, which allows
sponsors to have their NDA filed and reviewed when there is disagreement over
the acceptability of the NDA.  On April 23, 2007, we announced that the FDA had
filed our NDA. The Prescription Drug User Fee Act (PDUFA) date for completion of
review by FDA is December 31, 2007.The FDA has also designated Xcytrin as an
orphan drug for the treatment of brain metastases arising from solid tumors.

The FDA's Division of Drug Oncology Products often requests that an
outside advisory panel review aspects of a sponsor's NDA.  While we believe that
our NDA qualifies for such a review, we cannot assure you that there will be an
advisory panel meeting to review our NDA.

The FDA could also require that we conduct additional studies and submit
that data before it will  approve our application, which would require us to
expend more resources than we planned or than are available to us, and could
substantially delay any approval of our application.  The FDA has indicated that
it is not satisfied with data included in our NDA, and we may need to expend
additional resources or conduct additional studies, including clinical trials,
to obtain data that the FDA believes is sufficient to support approval.  It is
also possible that additional studies may not result in approval of our
application.  Even though the FDA has accepted our  NDA for filing over protest,
there can be no assurance that it will be approved in a timely manner or at all.

We continue to evaluate Xcytrin for the treatment of a diverse range of
cancer types and in various clinical situations including Xcytrin as a single
agent and in combination with chemotherapy and/or radiation therapy. We are
enrolling patients in Phase 2 clinical trials with Xcytrin used alone to
treat lung cancer and to treat hematologic cancers such as lymphomas and chronic
lymphocytic leukemia.  Phase 2 trials for recurrent lung cancer are underway
evaluating Xcytrin given in combination with
Taxotere

In April 2006, we acquired the following drug candidates from Celera
Genomics:

- A novel compound, known as PCI-24781, that inhibits histone deacetylase
enzymes (HDAC) and is in a Phase 1 study for the treatment of advanced solid
tumors.
- A first-in-class HDAC-8 selective inhibitor in preclinical development for
the potential treatment of cancer and inflammatory diseases.
- A first-in-class Factor VIIa inhibitor targeting a tumor signaling pathway
involved in angiogenesis, tumor growth and metastases.
- B cell associated tyrosine kinase (Btk) inhibitors potentially useful for
treatment of lymphomas and autoimmune diseases.

We are subject to risks common to pharmaceutical companies developing
products, including risks inherent in our research, development and
commercialization efforts, preclinical testing, clinical trials, uncertainty of
regulatory and marketing approvals, uncertainty of market acceptance of our
products, history of and expectation of future operating losses, reliance on
collaborative partners, enforcement of patent and proprietary rights, and the
need for future capital. In order for a product to be commercialized, we must
conduct preclinical tests and clinical trials, demonstrate efficacy and safety
of our product candidates to the satisfaction of regulatory authorities, obtain
marketing approval, enter into manufacturing, distribution and marketing
arrangements, build a U.S. commercial oncology franchise, obtain market
acceptance and, in many cases, obtain adequate coverage of and reimbursement for
our products from government and private insurers. We cannot provide assurance
that we will successfully develop our drug candidates and obtain the necessary
regulatory and marketing approvals to generate revenues or achieve and sustain
profitability in the future.

Results of Operations

Revenues

`Three Months ended                   Nine Months ended
                                              March 31,                            March 31,
                                      -----------------------   Percent    -------------------------  Percent
                                          2007        2006       change        2007         2006      change
------------------------------------  ----------- ----------- ------------ ------------ ------------ ---------
Contract and grant revenues           $       --  $  156,000       --      $    19,000  $   156,000    -88%`

The decrease in contract and grant revenues for the three and nine months
ended March 31, 2007 is the result of reduced activity associated with a federal
grant awarded by the National Institutes of Health (NIH).

Research and Development

`Three Months ended                   Nine Months ended
                                              March 31,                            March 31,
                                      -----------------------   Percent    -------------------------  Percent
                                          2007        2006       change        2007         2006      change
------------------------------------  ----------- ----------- ------------ ------------ ------------ ---------
Research and development expenses     $5,669,000  $5,313,000       7%      $15,557,000  $19,315,000    -19%`

The increase of 7% or $356,000 in research and development expenses for the
three months ended March 31, 2007 as compared to the three months ended March
31, 2006 was primarily due to an increase of $346,000 in preclinical study
costs, $318,000 in costs associated with a 22% reduction in headcount offset by
a decrease of $242,000 in patient costs associated with the timing of clinical
trial enrollment.

The decrease of 19% or $3,758,000 in research and development expenses for
the nine months ended March 31, 2007 as compared to the nine months ended March
31, 2006 was primarily due to a decrease of $2,059,000 in outside clinical trial
costs due to completion of the SMART trial, a decrease of $927,000 in share-
based compensation expense, a decrease of $376,000 in personnel and consulting
expenses, and a decrease of $202,000 in drug manufacturing costs.

We expect research and development expenses in our fiscal fourth quarter to
be approximately the same as in our fiscal third quarter.

Research and development costs are identified as either directly attributed
to one of our research and development programs or as an indirect cost, with
only direct costs being tracked by specific program. Direct costs consist of
personnel costs directly associated with a program, preclinical study costs,
clinical trial costs, and related clinical drug and device development and
manufacturing costs, drug formulation costs, contract services and other
research expenditures. Indirect costs consist of personnel costs not directly
associated with a program, overhead and facility costs and other support service
expenses. The following table summarizes our principal product development
initiatives, including the related stages of development for each product, the
direct costs attributable to each product and total indirect costs for each
respective period. The information in the column labeled "Estimated
Completion of Phase" is only our estimate of the timing of completion of
the current in-process development phase. The actual timing of completion of
those phases could differ materially from the estimates provided in the table.
For a discussion of the risks and uncertainties associated with the timing and
cost of completing a product development phase, see Part II, Item IA, "Risk
Factors."

Prior to fiscal 1999, we did not track our research and development expenses
by specific program and for this reason we cannot accurately estimate our total
historical costs on a specific program basis. Direct costs by program and
indirect costs are as follows:

`Related R&D Expenses    Related R&D Expenses
                                                                                      Three Months ended      Nine Months ended
                                                                                            March 31,               March 31,
                                                                                    ----------------------- -------------------------
                                                                        Estimated
                                                     Phase of          Completion
Program #                Description                Development         of Phase        2007        2006        2007         2006
--------------- ----------------------------- ----------------------- ------------- ----------- ----------- ------------ ------------
XCYTRIN         Cancer                        Several Phase 1 trials  Unknown       $1,878,000  $3,195,000  $ 6,070,000  $12,429,000
                                              Several Phase 2 trials  Unknown
                                              Phase 3                 Fiscal 2006

HDAC Inhibitors Cancer                        Phase 1                 Unknown          893,000          --    1,738,000           --

Btk Inhibitors  Lymphomas and                 Preclinical             Unknown          396,000          --      740,000           --
                autoimmune diseases

Factor VIIa     Cancer                        Preclinical             Unknown          122,000          --      134,000           --
Inhibitor                                                                           ----------- ----------- ------------ ------------

                Total direct costs.................................................  3,289,000   3,195,000    8,682,000   12,429,000
                Indirect costs.....................................................  2,380,000   2,118,000    6,875,000    6,886,000
                                                                                    ----------- ----------- ------------ ------------
                Total research and
                   development expenses............................................ $5,669,000  $5,313,000  $15,557,000  $19,315,000
                                                                                    =========== =========== ============ ============`

General and Administrative

`Three Months ended                   Nine Months ended
                                              March 31,                            March 31,
                                      -----------------------   Percent    -------------------------  Percent
                                          2007        2006       change        2007         2006      change
------------------------------------  ----------- ----------- ------------ ------------ ------------ ---------

General and administrative expenses   $1,705,000  $2,685,000      -36%     $ 5,315,000  $ 9,756,000    -46%`

The decrease of 36% or $980,000 in general and administrative expenses for
the three months ended March 31, 2007 as compared to the three months ended
March 31, 2006 was primarily due to a $488,000 decrease in personnel expenses
due to a reduction in employee headcount and a $454,000 decrease in share-based
compensation expense.

The decrease of 46% or $4,441,000 in general and administrative expenses for
the nine months ended March 31, 2007 compared to the nine months ended March 31,
2006 was primarily due to a $1,207,000 decrease in commercialization expenses, a
$1,635,000 decrease in share-based compensation expense and a $1,295,000
decrease in personnel expenses due to a reduction in employee headcount.

We expect general and administrative expenses in our fiscal fourth quarter to
be approximately the same as in our fiscal third quarter.

Interest and Other, Net

`Three Months ended                   Nine Months ended
                                      March 31,                            March 31,
                                      -----------------------   Percent    -------------------------  Percent
                                          2007        2006       change        2006         2005      change
------------------------------------  ----------- ----------- ------------ ------------ ------------ ---------

Interest and other, net               $  615,000  $  467,000      32%      $ 1,626,000  $ 1,449,000     12%`

Interest and other, net is higher in both periods due to higher average
investment balances and higher average interest rates. Our cash and marketable
securities consist primarily of fixed rate instruments.

Liquidity and Capital Resources

Our principal sources of working capital have been private and public equity
financings and proceeds from collaborative research and development agreements,
as well as interest income.

As of March 31, 2007, we had approximately $44,541,000 in cash, cash
equivalents and marketable securities. Net cash used in operating activities of
$17,652,000 during the nine months ended March 31, 2007, resulted primarily from
our net loss, net of depreciation and amortization, share-based compensation
expense and a decrease in accounts payable. Net cash used in operating
activities of $22,877,000 during the nine months ended March 31, 2006, resulted
primarily from our net loss, net of depreciation and amortization, share-based
compensation expense and a decrease in accounts payable.

Net cash used in investing activities of $8,892,000 in the nine months ended
March 31, 2007 consisted primarily of purchases of marketable securities, net of
maturities and sales of marketable securities.  Net cash provided by investing
activities of $15,636,000 in the nine months ended March 31, 2007, consisted
primarily of maturities and sales of marketable securities, net of purchases of
marketable securities.

Net cash provided by financing activities of $22,009,000 in the nine months
ended March 31, 2007, consisted primarily of proceeds from a public offering of
common stock.  Net cash provided by financing activities of $380,000 in the nine
months ended March 31, 2006 consisted primarily of proceeds from the issuance of
shares from the company's stock plans.

In August 2006, we entered into a common stock purchase agreement with
Azimuth Opportunity Ltd., which provides that, upon the terms and subject to the
conditions set forth in the purchase agreement, Azimuth is committed to
purchase, at our discretion, up to $20.0 million of our common stock, or
4,189,337 shares, whichever occurs first, at a discount of 5 to 7%, to be
determined based on our market capitalization at the start of each sale period.
The term of the purchase agreement is 18 months. Upon each sale of our common
stock to Azimuth under the purchase agreement, we have also agreed to pay
Reedland Capital Partners a placement fee equal to one percent of the aggregate
dollar amount of common stock purchased by Azimuth. Azimuth is not required to
purchase our common stock if the price of our common stock falls below $3.00 per
share.

In April 2004, we completed a public offering of common stock and sold
3,200,000 shares of common stock at a price of $13.00 per share for net proceeds
of approximately $39,350,000. In November 2006, we completed a public offering
of common stock and sold 4,830,000 shares of common stock at a price of $4.75
per share for net proceeds of approximately $21,300,000. In February 2007,
we filed a registration statement on Form S-3 to offer and sell, from time to
time, equity, debt securities and warrants in one or more offerings up to a
total dollar amount of $100 million. We may seek to raise funds through
additional public offerings in the future but cannot guarantee that such efforts
will be successful.

Our future contractual obligations at March 31, 2007 are as follows:

`Operating
                                            Lease
                                         Commitments
                                       ---------------
Remaining 3 months of fiscal 2007 ..   $      227,000
Fiscal 2008 and 2009 ...............        1,861,000
Fiscal 2010 ........................          487,000
After Fiscal 2010 ..................               --
                                       ---------------
     Total .........................   $    2,575,000
                                       ===============`

In April 2006, we acquired multiple small molecule drug candidates for
the treatment of cancer and other diseases from Celera Genomics, an Applera
Corporation business.  Future milestone payments under the agreement could total
as much as $144 million, although we currently cannot predict if or when any of
the milestones will be achieved.  In addition, Celera will also be entitled to
royalty payments in the mid- to high single digits based on annual sales of any
drugs commercialized from these programs.

Based upon the current status of our product development and
commercialization plans, we believe that our existing cash, cash equivalents and
marketable securities will be adequate to satisfy our capital needs through at
least the next twelve months. We expect research and development expenses, as a
result of on-going and future clinical trials, to consume a large portion of our
existing cash resources. Changes in our research and development plans or other
changes affecting our operating expenses may affect actual future consumption of
existing cash resources as well. In any event, we will need to raise substantial
additional capital to fund our operations in the future. We expect to finance
our future cash needs through public or private financings, collaborative
relationships (partnerships with other drug manufacturers) or other arrangements
to complete commercialization. Our actual capital requirements will depend on
many factors, including the following:

- the progress and success of clinical trials of our product candidates;

- the costs and timing of obtaining regulatory approvals;

- our ability to establish and the scope of any new collaborations; and

- the timing and scope of commercialization expenses for Xcytrin.

Our forecast of the period of time through which our financial resources will
be adequate to support our operations is a forward-looking statement that
involves risks and uncertainties, and actual results could vary materially. The
factors described above will impact our future capital requirements and the
adequacy of our available funds. If we are required to raise additional funds,
we cannot be certain that such additional funding will be available on terms
attractive to us, or at all. Furthermore, any additional equity financing may be
dilutive to existing stockholders and debt financing, if available, may involve
restrictive covenants. Collaborative arrangements, if necessary to raise
additional funds, may require us to relinquish rights to certain of our
technologies, products or marketing territories. Our failure to raise capital
when needed could have a material adverse effect on our business, financial
condition and results of operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future material effect on our financial
condition, changes in our financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies, Estimates and Judgments

This discussion and analysis of financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures. On an on-going basis, we
evaluate our estimates, including those related to revenue recognition and
clinical trial accruals. We base our estimates on historical experience and on
various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results, however, may differ significantly from these estimates
under different assumptions or conditions and may adversely affect the financial
statements.

We believe the following critical accounting policies reflect the more
significant judgments and estimates used in the preparation of our financial
statements and accompanying notes.

Revenue Recognition

Revenues are recognized when persuasive evidence of an arrangement exists,
title has transferred or services have been rendered, the price is fixed and
determinable and collectibility is reasonably assured. License revenue is
typically recognized over the term of the arrangement and milestone revenue is
recognized when earned as evidenced by achievement of the specified milestone
and the absence of any on-going obligation. License, milestone, contract and
grant revenues are not subject to repayment. Any amounts received in advance of
performance are recorded as deferred revenues.

Cash Equivalents and Marketable Securities

We maintain investment portfolio holdings of various issuers, types and
maturities. We consider all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. At March 31, 2007,
all other investment securities are classified as available-for-sale and
consequently are recorded on the balance sheet at fair value with unrealized
gains and losses reported as a component of accumulated other comprehensive
income (loss) within stockholders' equity. Management assesses whether declines
in the fair value of investment securities are other than temporary. If the
decline in fair value is judged to be other than temporary, the cost basis of
the individual security is written down to fair value and the amount of the
write down is included in earnings. In determining whether a decline is other
than temporary, management considers the following factors:

- Length of the time and the extent to which the market value has been less
than cost;

- The financial condition and near-term prospects of the issuer; and

- Our intent and ability to retain our investment in the issuer for a period
of time sufficient to allow for any anticipated recovery in market value.

To date we have had no declines in fair value that have been identified as
other than temporary.

Research and Development Expenses and Accruals

Research and development expenses include personnel and facility-related
expenses, outside contracted services including clinical trial costs,
manufacturing and process development costs, research costs and other consulting
services. Research and development costs are expensed as incurred. In instances
where we enter into agreements with third parties for clinical trials,
manufacturing and process development, research and other consulting activities,
costs are expensed upon the earlier of when non-refundable amounts are due or as
services are performed. Amounts due under such arrangements may be either fixed
fee or fee for service, and may include upfront payments, monthly payments, and
payments upon the completion of milestones or receipt of deliverables.

Our cost accruals for clinical trials are based on estimates of the services
received and efforts expended pursuant to contracts with numerous clinical trial
centers and clinical research organizations. In the normal course of business we
contract with third parties to perform various clinical trial activities in the
on-going development of potential products. The financial terms of these
agreements are subject to negotiation and vary from contract to contract and may
result in uneven payment flows. Payments under the contracts depend on factors
such as the achievement of certain events, the successful enrollment of
patients, the completion of portions of the clinical trial or similar
conditions. The objective of our accrual policy is to match the recording of
expenses in our financial statements to the actual services received and efforts
expended. As such, expense accruals related to clinical trials are recognized
based on our estimate of the degree of completion of the event or events
specified in the specific clinical study or trial contract.

Share-Based Compensation

We have previously accounted for options issued to employees and members of
the board of directors using the intrinsic method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"). Beginning on July 1, 2005, we began to
account for employee share-based payments in accordance with Statement of
Financial Accounting Standards 123R ("SFAS 123R"), Share-Based
Payment - An Amendment of FASB Statements no. 123 and 95. Under this
standard, companies are no longer able to account for share-based compensation
transactions in accordance with APB 25. Instead, companies are required to
account for such transactions using a fair-value method and recognize the
expense in the statement of operations.

We used the modified prospective application transition method to adopt SFAS
123R. The modified prospective application transition method requires that
companies recognize compensation expense on new share-based payment awards and
existing share-based payment awards that are modified, repurchased, or cancelled
after the effective date. Additionally, compensation cost of the portion of
awards of which the requisite service has not been rendered that are outstanding
as of the July 1, 2005 shall be recognized as the requisite service is rendered.
We use the Black-Scholes valuation model to determine the fair value of stock
options issued. Volatility is based on the historical volatility of our common
stock.

The fair value of each stock option is estimated on the date of grant using
the Black-Scholes valuation model. Expected volatility is based on historical
volatility data of the company's stock. The expected term of stock options
granted is based on historical data and represents the period of time that stock
options are expected to be outstanding. The expected term is calculated for and
applied to one group of stock options as the company does not expect
substantially different exercise or post-vesting termination behavior amongst
its employee population. The risk-free rate of the stock options is based on a
zero-coupon United States Treasury bond whose maturity period equals the
expected term of the company's stock options.

Item 3.	Quantitative and Qualitative Disclosures About
Market Risk

Our exposure to interest rate risk relates primarily to our investment
portfolio. Fixed rate securities may have their fair market value adversely
impacted due to fluctuations in interest rates, while floating rate securities
may produce less income than expected if interest rates fall. Due in part to
these factors, our future investment income may fall short of expectations due
to changes in interest rates or we may suffer losses in principal if forced to
sell securities that have declined in market value due to changes in interest
rates. The primary objective of our investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, we invest in debt instruments of the
U.S. Government and its agencies and high-quality corporate issuers, and, by
policy, restrict our exposure to any single corporate issuer by imposing
concentration limits. To minimize the exposure due to adverse shifts in interest
rates, we maintain investments at an average maturity of generally less than two
years. Assuming a hypothetical increase in interest rates of one percentage
point, the fair value of our total investment portfolio as of March 31, 2007
would have declined by approximately $284,000.

Item 4.	Controls and Procedures

(a) Evaluation of disclosure controls and procedures:As required
by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the
third fiscal quarter of 2007, we carried out an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
our management, including our Chief Executive Officer and our Chief Financial
Officer. Based upon that evaluation, our Chief Executive Officer and our Chief
Financial Officer have concluded that our disclosure controls and procedures are
adequate and effective to ensure that information required to be disclosed in
our reports filed or submitted under the Exchange Act is recorded, processed,
summarized, and reported, within the time periods specified in the Securities
and Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act
is accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.

(b) Changes in internal controls over financial reporting: There
has been no change in our internal control over financial reporting during our
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal controls over financial reporting.

PART	II.	OTHER INFORMATION

Item	1.	Legal Proceedings



Item	1A.	   Risk Factors

In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, "Item 1A.
Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended
June 30, 2006, which have not materially changed other than as set forth below.
Those risks, which could materially affect our business, financial condition or
future results, are not the only risks we face. Additional risks and
uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial
condition and/or operating results.

To generate revenue, we will depend on FDA approval of our lead product
candidate, Xcytrin for the potential treatment of non-small cell lung cancer
patients with brain metastases.  If we are unable to obtain FDA approval, our
ability to generate revenue will be significantly delayed.

Our ability to generate revenue will depend on the successful development,
regulatory approval and commercialization of Xcytrin.  In December 2005, we
announced the top line results of our pivotal Phase 3 clinical study of Xcytrin
for the potential treatment of non-small cell lung cancer (NSCLC) patients with
brain metastases.  Although patients receiving Xcytrin had a longer time to
neurologic progression (TNP), the study's primary endpoint, the difference
compared to patients in the control arm did not reach statistical significance.

Although we have received a Special Protocol Assessment (SPA) from the FDA
for our Phase 3 SMART trial, the study did not meet its primary endpoint with
statistical significance. Based on our review of the data from the SMART trial,
in December 2006 we submitted a New Drug Application (NDA) to the FDA for the
potential treatment of NSCLC patients with brain metastases. In meetings with
FDA in early 2006, FDA noted that the applicable review Division has not
approved drugs based on the results of non-pre-specified subgroup analyses when
the trial has failed to meet its primary endpoint.  FDA discouraged the
submission of an NDA based on subset analyses from the SMART trial.  However, in
subsequent meetings with FDA and further review of the data, the Agency
indicated a willingness to review an NDA based on analyses which include all of
the data.

In February 2007, we received a refuse to file letter from the FDA citing
failure to demonstrate statistically significant differences between treatment
arms in the company's  trials.  In April 2007, we requested that the FDA file
our NDA over protest.  File over protest is a procedure permitted by FDA
regulations, which allows sponsors to have their NDA filed and reviewed when
there is disagreement over the acceptability of the NDA.  On April 23, 2007, we
announced that the FDA had filed our NDA. The Prescription Drug User Fee Act
(PDUFA) date for completion of review by FDA is December 31, 2007.

The FDA's Division of Drug Oncology Products often requests that an
outside advisory panel review aspects of a sponsor's NDA.  While we believe that
our NDA qualifies for such a review, we cannot assure you that there will be an
advisory panel meeting to review our NDA.

The FDA could also require that we conduct additional studies and submit
that data before it will  approve our application, which would require us to
expend more resources than we planned or than are available to us, and could
substantially delay any approval of our application.  The FDA has indicated that
it is not satisfied with data included in our NDA, and we may need to expend
additional resources or conduct additional studies, including clinical trials,
to obtain data that the FDA believes is sufficient to support approval.  It is
also possible that additional studies may not result in approval our
application.  Even though the FDA has accepted our  NDA for filing over
protest,there can be no assurance that it will be approved in a timely manner or
at all.

We have a history of operating losses and we expect to
continue to have losses in the future.

We have incurred significant operating losses since our inception in 1991
and, as of  March 31, 2007, had an accumulated deficit of approximately $308.2
million. We expect to continue to incur substantial additional operating losses
until such time, if ever, as the commercialization of our products generates
sufficient revenues to cover our expenses. Our achieving profitability depends
upon our ability, alone or with others, to successfully complete the development
of our products, and to obtain required regulatory approvals and to successfully
manufacture and market our proposed products. If our lead product, Xcytrin,
fails to receive regulatory approval on a timely basis, or at all, our ability
to become profitable would be materially impacted. To date, we have not
generated revenue from the commercial sale of our products.

Failure to obtain product approvals or comply with
ongoing governmental regulations could adversely affect our business.

The manufacture and marketing of our products and our
research and development activities are subject to extensive regulation for
safety, efficacy and quality by numerous government authorities in the United
States and abroad. Before receiving FDA approval to market a product, we will
have to demonstrate to the satisfaction of the FDA that the product is safe and
effective for the patient population and for the diseases that will be treated.
Clinical trials, and the manufacturing and marketing of products, are subject to
the rigorous testing and approval process of the FDA and equivalent foreign
regulatory authorities. The Federal Food, Drug and Cosmetic Act and other
federal, state and foreign statutes and regulations govern and influence the
testing, manufacture, labeling, advertising, distribution and promotion of drugs
and medical devices. As a result, clinical trials and regulatory approval can
take a number of years to accomplish and require the expenditure of substantial
resources.

Data obtained from clinical trials are susceptible to varying
interpretations that could delay, limit or prevent regulatory approvals. In the
refusal to file letter we received from the FDA, the FDA indicated that data
from our completed Phase 3 SMART trial was not sufficient to support regulatory
approval of our NDA for the potential treatment of NSCLC patients with brain
metastases. If the FDA requires us to conduct additional trials before approving
our NDA, this would cause significant delays in approval and consume additional
resources, and the data obtained from additional trials may not be sufficient to
obtain regulatory approval.

In addition, we may encounter delays or rejections based upon
additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. We may encounter similar delays in
foreign countries. We may be unable to obtain requisite approvals from the FDA
and foreign regulatory authorities and even if obtained, such approvals may not
be received on a timely basis, or they may not cover the clinical uses that we
specify.

Furthermore, regulatory approval may entail ongoing
requirements for post-marketing studies. The manufacture and marketing of drugs
are subject to continuing FDA and foreign regulatory review and later discovery
of previously unknown problems with a product, manufacturer or facility may
result in restrictions, including withdrawal of the product from the market. Any
of the following events, if they were to occur, could delay or preclude us from
further developing, marketing or realizing full commercial use of our products,
which in turn would have a material adverse effect on our business, financial
condition and results of operations:



- failure to obtain and thereafter maintain requisite
governmental approvals;



- failure to obtain approvals for specific indications of
our products under development; or



- identification of serious and unanticipated adverse side
effects in our products under development.

Any regulatory approval that we receive for a product
candidate may be subject to limitations on the indicated uses for which the
product may be marketed. In addition, if the FDA and/or foreign regulatory
agencies approve any of our product candidates, the labeling, packaging, adverse
event reporting, storage, advertising and promotion of the product will be
subject to extensive regulatory requirements. We and the manufacturers of our
product candidates must also comply with the applicable FDA Good Manufacturing
Practice ("GMP") regulations, which include quality control and
quality assurance requirements as well as the corresponding maintenance of
records and documentation. Manufacturing facilities are subject to ongoing
periodic inspection by the FDA and corresponding state agencies, including
unannounced inspections, and must be licensed before they can be used in
commercial manufacturing of our products. We or our present or future suppliers
may be unable to comply with the applicable GMP regulations and other FDA
regulatory requirements. Failure of our suppliers to follow current GMP Practice
or other regulatory requirements may lead to significant delays in the
availability of products for commercial or clinical use and could subject us to
fines, injunctions and civil penalties.

We will need substantial additional financing and we
may have difficulty raising needed capital in the future.

We have expended and will continue to expend substantial
funds to complete the research, development and clinical testing of our
products. We will expend additional funds for these purposes, to establish
additional clinical and commercial-scale manufacturing arrangements and to
provide for the approval, marketing and distribution of our products.
Specifically, we will require additional funds to commercialize our product.
Even if we are able to develop Xcytrin successfully and obtain the necessary
regulatory approvals, in light of the results from our Phase 3 clinical study,
we expect additional development and approval efforts and clinical trials will
extend the timeline for development and will result in substantial additional
expenses. We may be unable to fund these efforts with our current financial
resources.

Additional funds may not be available on acceptable terms, if
at all. If adequate funds are unavailable on a timely basis from operations or
additional sources of financing, we may have to delay, reduce the scope of or
eliminate one or more of our research or development programs which would
materially and adversely affect our business, financial condition and
operations.

We believe that our cash, cash equivalents and marketable
securities will be adequate to satisfy our capital needs through at least the
next twelve months. We may, however, choose to raise additional funds before
then. Our actual capital requirements will depend on many factors,
including:

- continued progress of our research and development
programs;
- our ability to obtain approval of our NDA for the use of Xcytrin in
combination with radiation therapy for the treatment of patients with brain
metastases from NSCLC on a timely basis;
- our ability to establish collaborative arrangements and
maintain existing ones;
- progress with preclinical studies and clinical
trials;
- the time and costs involved in obtaining regulatory
approval;
- the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims;
- the amount and timing of capital equipment
purchases;
- competing technological and market developments;
and
- our ability to market and distribute our products and
establish new licensing arrangements.

In August 2006, we entered into a common stock purchase
agreement with Azimuth Opportunity Ltd., which provides that, upon the terms and
subject to the conditions set forth in the purchase agreement, Azimuth is
committed to purchase up to $20 million of our common stock, or 4,189,337
shares, whichever occurs first, at a discount of 5% to 7%, to be determined
based on our market capitalization at the start of each sale period.  The term
of the purchase agreement is 18 months. Upon each sale of our common stock to
Azimuth under the purchase agreement, we have also agreed to pay Reedland
Capital Partners a placement fee equal to one percent of the aggregate dollar
amount of common stock purchased by Azimuth.  Even though we have entered into
this purchase agreement with Azimuth, Azimuth would not be required to purchase
our common stock if the price of our common stock falls below $3.00 per share.
In addition, the number of shares we are permitted to sell to Azimuth is limited
by applicable NASDAQ rules. Furthermore, we may decide not to sell any shares of
our common stock pursuant to this agreement.

We may seek to raise any necessary additional funds through
equity or debt financings, collaborative arrangements with corporate partners or
other sources that may be dilutive to existing stockholders or subject us to
restrictive covenants. In addition, in the event that additional funds are
obtained through arrangements with collaborative partners or other sources, such
arrangements may require us to relinquish rights to some of our technologies,
product candidates or products under development that we would otherwise seek to
develop or commercialize ourselves.

If we lose or are unable to hire and retain qualified
personnel, then we may not be able to develop our products or processes and
obtain the required regulatory approvals.

We are highly dependent on qualified scientific and
management personnel. We will need to expand and effectively manage our
managerial, operational, financial, development and other resources in order to
successfully pursue our research, development and commercialization efforts for
our existing and future product candidates. The support of our NDA requires
highly specialized skills. Our success depends on our continued ability to
attract, retain and motivate highly qualified management and pre-clinical and
clinical personnel. We will need to hire additional personnel as we continue to
expand our research and development activities, pursue our NDA filing, and build
a sales and marketing team in the United States.

We face intense competition from other companies and research
and academic institutions for qualified personnel. We may not be able to attract
or retain qualified management and scientific personnel in the future due to the
intense competition for qualified personnel among biotechnology, pharmaceutical
and other businesses, particularly in the San Francisco, California area. If we
lose an executive officer, a manager of one of our programs, or a significant
number of any of our staff or are unable to hire and retain qualified personnel,
then our ability to develop and commercialize our products and processes, raise
additional capital or implement our business strategy may be adversely affected
or prevented. In particular, if we lose any members of our senior management
team, we may not be able to find suitable replacements in a timely fashion or at
all and our business may be harmed as a result.

The price of our common stock may be volatile.

The market prices for securities of biotechnology companies,
including ours,historically have been highly volatile. Our stock, like that of
many other companies, has from time to time experienced significant price and
volume fluctuations unrelated to operating performance. The market price of our
common stock may fluctuate significantly due to a variety of factors,
including:

- the progress and results of our preclinical testing and
clinical trials;

- developments in the status of our NDA for the use of
Xcytrin in combination with radiation therapy for the treatment of patients with
brain metastases from NSCLC;

- quarterly fluctuations in our financial
results;

- the development of technological innovations or new
therapeutic products by us, our competitors or others;

- changes in governmental regulation;

- developments in patent or other proprietary rights by us,
our competitors or others;

- developments and/or announcements by us, our competitors
or others;

- litigation;

- public concern as to the safety of products developed by
us, our competitors or others;

- departure of key personnel;

- ability to manufacture our products to commercial
standards;

- changes in the structure of healthcare payment systems
and the coverage and reimbursement policies of governmental and other third-
party payors;

- our ability to successfully commercialize our products if
they are approved;

- comments by securities analysts; and

- general market conditions in our industry.

In addition, if any of the risks described in this section
entitled "Risk Factors" actually occur, there could be a dramatic and
material adverse impact on the market price of our common stock.

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

Not Applicable.

Item	3.	Defaults Upon Senior Securities

Not Applicable.

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



Not Applicable.

Item	5.	Other Information

Not Applicable.

Item	6.	Exhibits

| |  | 31.1 | Rule 13a-14(a)/15d-14(a) Certification of CEO.
| |  | ---- | ----------------------------------------------
| |  | 31.2 | Rule 13a-14(a)/15d-14(a) Certification of CFO.
| |  | 32.1 | Section 1350 Certifications of CEO and CFO.   

Signatures

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

| |                    
| | -------------------
| | Pharmacyclics, Inc.

| |             
| | ------------
| | (Registrant)

|                    |                                       |                            
|------------------- | ------------------------------------- | ---------------------------
|Dated:  May 2, 2007 | By:                                   | /s/ RICHARD A. MILLER, M.D.
|                    |                                      
|                    | Richard A. Miller, M.D.              
|                    | President and Chief Executive Officer

|                    |                                                                                      |             
|------------------- | ------------------------------------------------------------------------------------ | ------------
|Dated:  May 2, 2007 | By:                                                                                  | /s/ LEIV LEA
|                    |                                                                                     
|                    | Leiv Lea                                                                            
|                    | Vice President, Finance and Administration and
Chief Financial Officer and Secretary

EXHIBITS INDEX

|ExhibitNumber | Description                                                          
|------------- | ---------------------------------------------------------------------
|31.1          | Rule 13a-14(a)/15d-14(a) Certification of CEO.
     PDF as a courtesy
|31.2          | Rule 13a-14(a)/15d-14(a) Certification of CFO.
     PDF as a courtesy
|32.1          | Section 1350 Certifications of CEO and CFO.
     PDF as a courtesy