UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC  20549

____________________________________

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended June 30, 2008

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: 000-26658

Pharmacyclics, Inc.

|Delaware (State or Other Jurisdiction of Incorporation or Organization) |  | 94-3148201(I.R.S. Employer Identification Number)
|----------------------------------------------------------------------- |  | -------------------------------------------------

|995 E. Arques Avenue, Sunnyvale, CA (Address of Principal Executive Offices) | 94085-4521  (Zip Code)
|---------------------------------------------------------------------------- | ----------------------

Registrant's telephone number, including
area code:  (408) 774-0330

Securities registered pursuant to Section 12(b) of the Act:

|Title of Each ClassCommon Stock, $.0001 Par Value | Name of Each Exchange On Which RegisteredNasdaq Global Market
|------------------------------------------------- | -------------------------------------------------------------

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.  Yes
     No

Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.  Yes
     No

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

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of Form 10-K or any amendments
to this Form 10-K.

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
	Non-accelerated filer 	Smaller reporting company

Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Act).  Yes
     No

The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant was $27,323,873 based on the closing
sale price of the Registrant's common stock on The NASDAQ Stock Market LLC on the last business day of the Registrant's most recently
completed second fiscal quarter.  Shares of the Registrant's common stock beneficially owned by each executive officer and director of the
Registrant and by each person known by the Registrant to beneficially own 10% or more of its outstanding common stock have been excluded,
in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other
purposes. The number of outstanding shares of the Registrant's common stock as of August 31, 2008 was 26,015,389.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following document are incorporated by reference into Part III of this Form 10-K:  the Definitive
Proxy Statement for the Registrant's 2008 Annual Meeting of Stockholders which will be filed with the Securities and Exchange
Commission within 120 days after the end of the Registrant's fiscal year.






ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 2008
     PDF

TABLE OF CONTENTS

|               |     |                                                                                                              | Page
|-------------- | --- | ------------------------------------------------------------------------------------------------------------ | ----
|PART I         |     |                                                                                                              |     
|Item           | 1.  | Business                                                                                                     | 1   
|Item           | 1A. | Risk Factors                                                                                                 | 15  
|Item           | 1B. | Unresolved Staff Comments                                                                                    | 28  
|Item           | 2.  | Properties                                                                                                   | 30  
|Item           | 3.  | Legal Proceedings                                                                                            | 30  
|Item           | 4.  | Submission of Matters to a Vote of Security Holders                                                          | 30  
|PART II        |     |                                                                                                              |     
|Item           | 5.  | Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities | 30  
|Item           | 6.  | Selected Financial Data                                                                                      | 33  
|Item           | 7.  | Management's Discussion and Analysis of Financial Condition and
Results of Operations                        | 34  
|Item           | 7A. | Quantitative and Qualitative Disclosures About Market Risks                                                  | 43  
|Item           | 8.  | Financial Statements and Supplementary Data                                                                  | 44  
|Item           | 9.  | Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure                         | 69  
|Item           | 9A. | Controls and Procedures                                                                                      | 69  
|Item           | 9B. | Other Information                                                                                            | 70  
|PART III       |     |                                                                                                              |     
|Item           | 10. | Directors, Executive Officers and Corporate Governance                                                       | 70  
|Item           | 11. | Executive Compensation                                                                                       | 70  
|Item           | 12. | Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters               | 70  
|Item           | 13. | Certain Relationships and Related Transactions and Director Independence                                     | 71  
|Item           | 14. | Principal Accountant Fees and Services                                                                       | 71  
|PART IV        |     |                                                                                                              |     
|Item           | 15. | Exhibits and Financial Statement Schedules                                                                   | 71  
|Signatures     |    
|Exhibits
Index |    



PHARMACYCLICS®, the Pentadentate Logo®
and 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.

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Part I

Important Factors Regarding Forward-Looking Statements

This report contains forward-looking statements. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as
"anticipate," "believe," "continue,"
"could," "estimate," "expect," "intend,"
"may," "might," "plan," "possible,"
"potential," "predict," "should" or
"will" or the negative of such terms or other comparable terminology.
In particular, forward-looking statements include:

- statements about our future capital requirements and the sufficiency of our
cash, cash equivalents, marketable securities and other financing proceeds to
meet these requirements;

- information concerning possible or assumed future results of
operations, trends in financial results and business plans;

- statements about our product development schedule;

- statements about our expectations for and timing of regulatory approvals
for any of our product candidates;

- statements about the level of our expected costs and operating expenses;

- statements about the potential results of ongoing or future clinical
trials;

- other statements about our plans, objectives, expectations and
intentions; and

- other statements that are not historical fact.

From time to time, we also may provide oral or written
forward-looking statements in other materials we release to the public.
Forward-looking statements are only predictions that provide our current expectations or
forecasts of future events. Any or all of our forward-looking statements in this
report and in any other public statements are subject to unknown risks,
uncertainties and other factors may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, performance or achievements. You
should not place undue reliance on these forward-looking statements.

We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K. Also note that we provide a cautionary discussion of risks,
uncertainties, assumptions and other factors relevant to our business under the
caption Risk Factors and elsewhere in this report. These are risks that we think
could cause our actual results to differ materially from expected or historical
results.

Item	1.	Business

Overview

We are a pharmaceutical company leveraging our expertise in small-molecule
chemistry and drug development to develop therapeutic products in oncology and
immune mediated diseases based on novel targets, pathways, and mechanisms. Our
pharmaceutical agents are synthetic small molecules designed to target key
biochemical pathways in diseased cells.   Our late stage product candidate,
motexafin gadolinium (MGd,

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formerly Xcytrin®) has completed Phase 3 trials
in patients with brain metastases from non-small-cell lung cancer (NSCLC) and is
now in two Phase 2 trials being conducted by the National Cancer Institute in
patients with primary brain tumors.  We have three other drug candidates with
product development programs in late stage pre-clinical development, Phase 1 and
Phase 2 clinical trials.

MGd, is an anti-cancer agent with a novel mechanism of action. MGd
is designed to accumulate selectively in cancer cells.  Once inside cancer
cells, MGd induces apoptosis (programmed cell death) by inhibiting thioredoxin
reductase and disrupting redox-dependent pathways.  We believe MGd has the
potential to be used for treating many types of cancer either as a stand-alone
agent or in combination with other treatments such as chemotherapy, targeted
therapy or radiation therapy.  MGd is also detectable by magnetic resonance
imaging (MRI) and may allow for more precise tumor detection.

In the previously conducted pivotal SMART trial,
(Study of Neurologic Progression with Motexafin Gadolinium and Radiation
Therapy), investigators found that patients given MGd in addition to whole brain
radiation therapy (WBRT) had a median time to neurologic progession of 15.4
months, compared to 10.0 months for patients who received only WBRT (p=0.12,
hazard ratio=0.78), a trend in favor of MGd.  In North American patients
(N=348), where WBRT was delivered more promptly, the median time to neurologic
progression was increased from 8.8 months for patients treated with WBRT alone
compared to 24.2 months for patients receiving WBRT plus MGd (P=0.004, hazard
ratio=0.53).  We subsequently concluded that prompt delivery of radiation
therapy, as typically given in the U.S., is an important factor in treatment
effect.   In December 2006, we submitted a New Drug Application (NDA) to the
Food and Drug Administration (FDA) for the use of MGd in combination with
radiation therapy for the treatment of patients with brain metastases from
NSCLC.  In December 2007, we announced that the FDA determined that our NDA was
non-approvable which will require us, among other things, to conduct additional
clinical studies and submit that data before the FDA will approve MGd for
marketing.  We have also completed a Phase 2 clinical trial of MGd plus
stereotactic radiosurgery for the treatment of brain metastases.  The results,
presented at the 2007 Annual Meeting of the American Society of Clinical
Oncology indicated that MGd may improve the efficacy of stereotactic
radiosurgery by providing more accurate magnetic resonance imagining (MRI)
treatment-planning and better defining the treatment field in patients with
brain metastases from solid tumors.  MGd allowed physicians to identify occult
brain metastases in 24% of patients that were not detected with standard MRI
contrast agents and were amenable to stereotactic radiosurgery.

Based on the results of these two trials, we are planning to conduct
another Phase 3 pivotal trial for the use of MGd in combination with WBRT and
stereotactic radiation therapy for the treatment of patients with brain
metastases from NSCLC.  Currently, MGd is under evaluation in multicenter
studies sponsored by the NCI, a Phase 2 trial in adults with newly diagnosed
glioblastoma and a Phase 2 trial in children with brain stem gliomas.  The FDA
has also designated MGd as an orphan drug for the treatment of brain metastases
arising from solid tumors.

PCI-24781 is a histone deacetylase (HDAC) inhibitor that is now in a
Phase 1 trial in patients with advanced relapsed solid tumors and a Phase 2
trial in patients with recurrent lymphomas.  PCI-24781 targets histone
deacetylase (HDAC) enzymes and inhibits their function.  HDAC enzymes are
required for control of gene expression and inhibition of these enzymes leads to
tumor cell cytotoxicity.  To date, clinical trials have demonstrated that
PCI-24781 is well-absorbed following oral administration and causes inhibition of
the target enzyme.  Published laboratory studies done in collaboration with
scientists at Stanford University have identified a novel biomarker that may
optimize clinical testing by improving patient selection.  We are also
developing a first-in-class HDAC-8 selective inhibitor which is in preclinical
development for the potential treatment of cancer and autoimmune diseases.

PCI-32765 is an oral small molecule tyrosine kinase inhibitor that
inhibits an enzyme, known as Btk, which is required for early B-cells to divide
and mature into fully functioning cells. When B-cells are overactive, the immune
system produces inflammatory cells and antibodies that begin to attack the
body's own tissue, leading to autoimmune diseases such as rheumatoid arthritis,
lupus and multiple sclerosis.  Also, B-cell lymphomas and leukemias result from
mutations acquired during normal B-cell development leading to uncontrolled
proliferation and B-cell malignancies. Studies have shown that PCI-32765 may
inhibit the proliferation of B-cell lymphoma and leukemia cells and in published
studies, it has demonstrated a dose

2

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dependent ability to inhibit disease
development in rheumatoid arthritis animal models. In animal models of
rheumatoid arthritis, oral administration of PCI-32765 leads to regression of
established disease. We plan to file an IND application with the FDA for
PCI-32765.  The initial Phase 1 trial will be conducted in patients with recurrent
B-cell lymphoma who will receive the drug orally in a dose escalation design.
We have developed a proprietary molecular probe that we will use as a biomarker
to optimize our treatment regimen in our Phase 1 trial.  The Phase 1 trial is
designed to assess safety, pharmacokinetics and efficacy.

PCI-27483 is a small molecule inhibitor of Factor VIIa.  This drug
selectively inhibits Factor VIIa when it is complexed with a protein called
tissue factor (TF).  In cancer, the Factor VIIa:TF complex is found in abundance
in pancreatic, gastric,  colon and other tumors, and triggers a host of
physiologic processes that facilitate tumor angiogenesis, growth and invasion.
The Factor VIIa:TF complex is thought to be the cause of the increased
propensity to develop thromboses seen in cancer patients.   Laboratory studies
and animal models indicate that inhibitors of Factor VIIa may block tumor growth
and metastases.  We filed an Investigational New Drug (IND) application for
PCI-27483 with the FDA in July 2008.  We plan to conduct a Phase 1 trial in normal
volunteers, designed to assess safety and activity against the target protein.
We believe that PCI-27483 may be useful for treating the thrombotic
complications of cancer and also as an anti-cancer agent.

Our Business Strategy

The key elements of our business strategy include:

- Creating diverse product opportunities in oncology.

- Focusing on proprietary drugs that address large markets for the
treatment of cancer.

- Leverage development with outsourcing.

- Establishing strategic alliances.

Market Overview

Cancer

Cancer results from the uncontrolled multiplication of cells, which invade
and interfere with the normal function of adjacent tissues and organs.
Frequently, cancer cells become dislodged from their primary site and spread, or
metastasize, to other places in the body. Approximately 1.3 million new cases of
cancer are diagnosed annually in the United States. The appropriate cancer
therapy for each patient depends on the cancer type and careful assessment of
the size, location and existence of spread of the tumor using diagnostic imaging
procedures. Therapy typically includes some combination of surgery, radiation
therapy, chemotherapy or biologic therapy.

Most existing therapies of cancer tend to indiscriminately destroy both
healthy and diseased cells and may cause serious side effects. As a result,
substantial cancer research has been directed toward developing novel treatments
that are more selective for the cancer and less toxic to normal tissues. These
approaches seek to identify drugs, radiation therapy procedures or biological
agents that are capable of targeted destruction of the tumor with fewer side
effects than existing treatments. Ideal agents would be those that are easy to
deliver to the patient and capable of being used in combination with other
cancer therapies to enhance efficacy without increasing toxicity to normal
tissues. In addition to therapies intended to potentially cure patients, much of

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cancer therapy is utilized for palliation; it is given for reducing the pain and
suffering from cancer.  The following is a description of the market for current
therapies used in the treatment of cancer:

- Surgery

- Radiation Therapy.

- Stereotactic Radiosurgery

- Chemotherapy

- Targeted Therapy

Most patients with cancer are treated with a combination of drugs or
approaches that are intended to eradicate as much of the cancer as possible.
The selection of agents is based on their mechanism of action and safety
profile.  The goal of combination therapy is to increase tumor destruction
without causing unacceptable toxicity.  Substantial research efforts are
directed to finding new agents with novel mechanisms of action that can be
safely added to existing combination therapy regimens and improve clinical
outcomes.

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Status of Products Under Development

The table below summarizes our product candidates and their stage of
development:

`--------------------------------------------------------------------------------------------------------------------------
Product Candidate            Disease Indication                                       Development Status(1)
--------------------------------------------------------------------------------------------------------------------------
MGd

   With Radiation            Brain metastases from lung cancer                        Phase 3 -- complete
                             Primary brain tumor                                      Phase 2 -- enrolling(2)
                             Childhood brain tumors                                   Phase 2 -- enrolling(2)
                             Brain metastases with stereotactic radiosurgery          Phase 2 -- complete

--------------------------------------------------------------------------------------------------------------------------
PCI-24781                    Advanced solid tumors                                    Phase 1 -- enrolling
(HDAC Inhibitor)             Recurrent B cell lymphomas                               Phase 2 -- enrolling

--------------------------------------------------------------------------------------------------------------------------
PCI-32765 B cell tyrosine    B cell malignancies and autoimmune disease               Preclinical
kinase inhibitor
--------------------------------------------------------------------------------------------------------------------------
PCI-27483                    Cancer therapy                                           IND filed
Factor VIIa Inhibitor
--------------------------------------------------------------------------------------------------------------------------`

1. "Phase 1" means initial human clinical trials designed to establish the
safety, dose tolerance and sometimes distribution of a compound. "Phase 2"
means human clinical trials designed to establish safety, optimal dosage and
preliminary activity of a compound. "Phase 3" means human clinical trials
designed to lead to accumulation of data sufficient to support a new drug
application, including substantial evidence of safety and efficacy.
2. Studies sponsored by the National Cancer Institute (NCI).

Cancer Therapy with MGd

Cancer cells have derangements of their metabolism, which distinguishes
tumors from normal tissues. Many existing chemotherapy drugs are intended to
exploit the metabolic abnormalities of cancer cells, which is the basis for the
mode of action of many of these drugs.  MGd selective uptake in tumor cells
occurs within minutes of administration and persists for hours, effectively
concentrating the drug's effect in the tumor. The targeting of tumors is based
on MGd's novel mechanism of action. We believe MGd disrupts redox dependent
biochemical pathways in cancer cells by inhibiting the function of certain key
proteins. These oxidative stress response proteins are required for cancer cells
to survive and grow. By inhibiting these proteins, MGd is designed to weaken,
and in some cases, kills the cancer cells. In laboratory studies, cancer cells
incubated with MGd undergo either growth arrest or apoptosis, a programmed
sequence of events leading to cell death.  The sensitivity of cancer cells to
MGd varies, depending on the type of cancer.  Also in laboratory studies, MGd
enhances the activity of several commonly used chemotherapy agents and
radiation.  In published preclinical studies, animals receiving MGd in
combination with radiation therapy or chemotherapy had greater tumor response
rates as compared to the control groups receiving equivalent doses of either
radiation therapy or chemotherapy alone. Preclinical studies further suggest
that MGd increases the effect of radiation therapy at the tumor site, with no
increased damage to surrounding healthy tissues. An additional feature of MGd is
that it is detectable by magnetic resonance imaging scanning (MRI), providing a
method for monitoring its distribution in patients and for determining the
precise size and location of tumors.

Cancer cells often become dislodged from their primary site and spread to
other parts of the body including the brain.  The most common cause of brain
metastases is NSCLC.  Patients with  brain metastases, develop devastating
neurologic complications, including severe headache, seizures, paralysis,
blindness and impaired ability to think. Radiation therapy for treatment of this
problem is performed on approximately 90,000 patients per year in the United
States and is intended to prevent, delay, or reduce these complications. We
believe that

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MGd could eventually be used for the treatment of many other types
of cancer either alone or in combination with chemotherapy, targeted therapy or
radiation.

Clinical Status. We have completed a Phase 1 clinical trial of
MGd in 38 adult patients with advanced cancer who received radiation therapy.
This trial was designed to determine the toxicity of a single dose of the drug.
Reversible kidney toxicity was found at the highest doses of drug tested.
Accumulation of MGd in lung cancer, breast cancer and other tumors was confirmed
using magnetic resonance imaging. The results of this study were published in
the journal Clinical Cancer Research in 1999.

We also have completed an international multicenter Phase 1b/2 clinical trial
in 61 patients to evaluate the safety and efficacy of MGd in cancer patients
receiving radiation therapy for treatment of tumors which had spread to the
brain. Ten once-daily treatments of MGd and whole brain radiation therapy were
well tolerated. The maximally tolerated dose of MGd was 6.3 mg/kg. Dose limiting
toxicity was found to be reversible elevation of liver function tests. The most
common side effects were transient skin discoloration. Other adverse events
occurring in at least ten percent of patients included nausea, vomiting, rash,
headache and weakness. MGd's tumor selectivity was established by MRI. The
radiologic tumor response rate was 72% in the Phase 2 portion of the study.
These results were published in 2001 in the Journal of Clinical Oncology.
Although there was no control group in the study, the results suggested that MGd
increased tumor control in the brain beyond that expected with radiation alone.

Based on the results of our Phase 1b/2 trial, we conducted an initial
randomized, controlled Phase 3 trial with MGd for the treatment of patients with
brain metastases from solid tumors who were undergoing whole brain radiation
therapy. The study was conducted at more than 50 leading cancer centers in the
United States, Canada and Europe and enrolled 401 patients: 251 with lung
cancer, 75 with breast cancer and 75 with other tumor types. The results of this
study were published in July 2003 in the Journal of Clinical Oncology and
in January 2004 in the Journal of Clinical Oncology.

This study was designed to compare the safety and efficacy of standard WBRT
to standard WBRT plus MGd. The study had co-primary efficacy endpoints of
survival and time to neurologic progression. Time to neurologic progression is a
clinical benefit endpoint of special importance in patients with brain
metastases since the majority of patients with brain metastases experience
neurologic deterioration despite the use of WBRT. Physicians administer WBRT to
patients with brain metastases primarily to prolong the time before the
neurologic progression occurs.  An independent Events Review Committee (ERC),
blinded to the treatment assignment, determined neurologic progression based on
pre-specified criteria. The trial design also included evaluation of neurologic
progression determined by standardized investigator assessments.

The trial did not meet its primary endpoints for the entire patient
population, which included patients with 14 different types of cancer. However,
there was a significant improvement in time to neurologic progression in the
pre-specified stratum of 251 lung cancer patients receiving MGd. Over 60% of the
patients in the study had lung cancer, representing the largest sub-group of
patients.  Results from both the ERC and the investigators' assessments were in
agreement that lung cancer patients receiving MGd had a benefit in time to
neurologic progression.

By investigator neurologic assessment, treatment with MGd was associated with
improved time to neurologic progression in the entire 401 patient population
(P=0.018, unadjusted) with the benefit primarily confined to the lung cancer
patients. These results were confirmed by the ERC, which also found a benefit in
the lung cancer population (P=0.048, unadjusted).

The majority of patients with brain metastases have extensive disease outside
the brain and frequently die from causes unrelated to tumor growth in the brain.
There was no significant difference in survival, neurologic progression or
progression free survival in patients who received MGd or who did not receive
MGd. We believe this lack of survival difference is due to death from tumor
progression outside the brain, which would not be expected to be controlled by
WBRT. However, lung cancer patients treated with MGd were found to have a
reduction in death due to brain tumor progression as assessed by investigators.

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In our trial, patients with lung cancer differed substantially from patients
with breast and other cancers. Lung cancer patients more often presented with
brain metastases concomitantly with their initial primary tumor diagnosis, had
brain as the only known site of metastases, had smaller tumor volume and less
prior therapy. There are several possible reasons for the observed benefit in
time to neurologic progression seen in the lung cancer sub-group. We believe
that less extensive extracranial disease, more rapid and reversible development
of central nervous system signs and symptoms and less exposure to prior
neurotoxic chemotherapies provided a greater opportunity to demonstrate a
clinical benefit in this group of patients. Other studies also have shown that
lung cancer patients with brain metastases behave differently than patients with
brain metastases from other solid tumors and appear to benefit from additional
brain directed therapies. Recently, overexpression of the enzyme thioredoxin
reductase has been found in lung cancers and is associated with poor prognosis.
As published in April 2006 in the Journal of Biological Chemistry, MGd
has been shown in the laboratory to inhibit thioredoxin reductase and this
function may be responsible for MGd's activity in lung cancer patients.

Neurocognitive function was one of the secondary endpoints of our study.
Performance on neurocognitive tests is related to the patient's ability to
recognize and remember objects or words, make decisions, be aware of their
environment, speak words and reason. Consistent with the findings of the ERC and
investigators regarding time to neurologic progression, neurocognitive testing
revealed a benefit in prolonging time to neurocognitive progression in six tests
of memory and executive function for lung cancer patients treated with MGd.
These results were published in January 2004 in the Journal of Clinical
Oncology.

The administration of MGd was well tolerated with 96% of the intended doses
delivered during the trial. Serious drug related adverse events that were noted
include hypertension (5.8%), asthenia (2.6%), hyponatremia (2.1%), leukopenia
(2.1%), hyperglycemia (1.6%) and vomiting (1.6%).

Based on the clinical activity seen in our initial Phase 3 trial in a subset
of patients with brain metastases from NSCLC, we conducted a pivotal Phase 3
clinical trial to confirm the potential clinical benefits observed in patients
with brain metastases from NSCLC. In March 2005, we completed the enrollment of
554 patients with brain metastases from NSCLC in this international, randomized
controlled trial known as the SMART (Study of Neurologic
Progression with Motexafin Gadolinium And Radiation
Therapy) trial. This study was designed to compare the safety and
efficacy of WBRT alone to WBRT plus MGd. 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 MGd 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) and are now in press in the
International Journal of Radiation Oncology, Biology and Physics.  In an
intent-to-treat analysis, the median TNP was 15.4 months for patients receiving WBRT
plus MGd compared to 10.0 months for patients treated with WBRT alone (P=0.12,
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 MGd 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. MGd 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.  We believe
that the clinical data indicate MGd benefited patients that had prompt treatment
with WBRT, regardless of region, and this benefit was progressively diminished
by delay in initiation of radiation. The results of pooled data from both
randomized trials were presented at ASCO in 2007.  For 805 patients with

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brain metastases from NSCLC, which includes all patients with NSCLC enrolled in our
randomized trials, MGd plus WBRT prolonged time to neurologic progression
compared to WBRT alone (P=0.016).

We submitted an NDA to the FDA in December 2006, for the use of MGd in
combination with radiation therapy for the treatment of patients with brain
metastases from NSCLC.  In December 2007, we announced that the FDA determined
that our NDA was non-approvable which will require us, among other things, to
conduct additional studies and submit that data before the FDA will approve MGd
for marketing.

A Phase 2 clinical trial of MGd plus stereotactic radiosurgery has been
completed and the results were presented at the 2007 ASCO Meeting.  In addition
to its potential anti-tumor activity, the results indicated that MGd also may
improve the efficacy of stereotactic radiosurgery by providing more accurate
magnetic resonance imaging (MRI) treatment-planning and better defining the
treatment field in patients with brain metastases from solid tumors. MGd allowed
physicians to identify occult brain metastases in 24% of patients that were not
detected with standard MRI contrast agents and were amenable to stereotactic
radiosurgery.

The Phase 2 single-arm trial evaluated the safety, radiologic response and
time to neurologic progression in 45 patients. Patients with brain metastases
from cancers of the lung (34), breast (5) and other cancers (6) were enrolled at
14 academic medical centers and treated with MGd plus WBRT followed by
stereotactic radiosurgery (SRS) boost therapy to tumor sites in the brain. The
study was designed to evaluate if the MRI scan obtained with MGd improved
detection of tumors compared to standard contrast enhanced MRI procedures.    In
11 of 45 patients (24.4%) with MRI data available, lesions were detected with
MGd that were not seen with standard MRI. The MGd-based treatment planning MRI
detected one occult lesion in seven patients, two occult lesions in one patient,
and three occult lesions in three patients.  These results indicate that the use
of MGd allowed more accurate detection and delivery of SRS.  The median survival
for patients in this study was nine months, and the median time to neurologic
progression or radiologic progression was not reached at 18 months. MGd was well
tolerated in this study. One patient in the study suffered radionecrosis of the
tumor. The most common treatment related serious adverse events were deep vein
thrombosis (13%) and pneumonia (9%).

Based on the results of these two trials, we are planning to conduct
another Phase 3 pivotal trial for the use of MGd in combination with WBRT and
SRS for the treatment of patients with brain metastases from NSCLC.  Currently,
MGd is under evaluation in two multicenter studies sponsored by the NCI, a Phase
2 trial in adults with newly diagnosed glioblastoma and a Phase 2 trial in
children with brain stem gliomas.  The FDA has also designated MGd as an orphan
drug for the treatment of brain metastases arising from solid tumors.

Other Drugs Under Development

Histone Deacetylase (HDAC) Inhibitors for Cancer

PCI-24781 is a novel, orally administered, compound that inhibits all
isoforms of HDAC enzymes.  In the cell nucleus, DNA is present with proteins as
part of a tightly compacted complex called chromatin.  HDAC enzymes play a role
in modifying the structure of chromatin, allowing DNA transcription - a process
by which DNA controls cellular activity - to occur.  HDAC inhibitors appear to
alter the transcription process.  HDAC inhibitors target tumors through multiple
mechanisms, and laboratory studies have shown that they can prompt cells to stop
growing or die.  This may happen through the expression of tumor suppressor
genes, the prevention of angiogenesis, and the targeting of various critical
proteins.  Preclinical studies have shown that the dose and schedule of
administration of PCI-24781 are important factors in safety and efficacy.
Laboratory studies indicate that maximum efficacy and safety occurs when
inhibition of the HDAC enzymes occurs for a specified period.

PCI-24781 is now in a Phase 1 trial in patients with advanced solid tumors
and a Phase 2 trial in patients with recurrent lymphoma.  The objectives of
these trials are to determine the drug's safety and efficacy when the drug is
administered according to precisely defined doses and schedules.  We believe
PCI-24781 has desirable potency and pharmacokinetic properties, which may
provide clinical advantages.

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Research results from a collaboration with researchers from Northwestern
University demonstrated that Pharmacyclics' HDAC inhibitor, PCI-24781,
suppressed RAD51 gene expression in NHL cell lines, leading to the inhibition of
homologous recombination, a cellular mechanism of DNA repair. The data also show
that RAD51, a gene that provides instructions for making a protein essential for
the repair of damaged DNA, is overexpressed in a majority of follicular
lymphomas and diffuse large B-cell lymphomas (DLCBL). As a result of these data
and other data published in 2007 in the Proceedings of the National Academy
of Sciences, Pharmacyclics plans to use RAD51 as a novel biomarker that may
predict clinical efficacy of PCI-24781 in cancer patients.

An HDAC-8 selective inhibitor is now in preclinical testing.  We believe that
this compound may exhibit more selectivity for certain types of cancer and may
be useful for treatment of inflammatory and autoimmune diseases.

Btk Inhibitor for Cancer and Immune Mediated Diseases

PCI-32765 is an oral small molecule tyrosine kinase inhibitor that
targets an enzyme, Bruton's Tyrosine Kinase (Btk), which is required for early
B-cells to mature into fully functioning cells and for mast cell function.  B-
cells are lymphocytes with multiple functions in the immune response including
antigen presentation, antibody production and cytokine release.  B-cells express
cell surface immunoglobulins that make up the B-cell receptor (BCR).  The BCR is
activated by binding to antigen.  The process of B-cell maturation is tightly
regulated and it is thought that B-cell lymphomas and leukemias result from
mutations acquired during normal B-cell development.  Several lines of evidence
suggest that signaling through the BCR is necessary to sustain the viablility of
B-cell malignancies.

The role of Btk in BCR signaling is well established by the existence of the
human genetic immunodeficiency disease, X-linked agammaglobulinemia, caused by a
mutation in the Btk gene.  This genetic disease is characterized by reduced BCR
signaling and a failure to generate mature B-cells.  Studies have shown that
PCI-32765 inhibits the growth of BCR expressing human lymphoma cell lines by
inhibiting BCR signaling.  In animal studies, a single oral dose of PCI-32765
inhibited Btk activity, required for BCR signaling, for up to 24 hours.

The inhibition of Btk may also be useful in the treatment of immune mediated
diseases.  B cells play a key role the inflammatory process and are implicated
in the pathology associated with the autoimmune disorders, such as rheumatoid
arthritis (RA), lupus, and multiple sclerosis.. B-cells are a type of white
blood cell that normally play an important role in the body's immune response.
However, when B-cells are overactive, the immune system produces inflammatory
cells and antibodies that begin to attack the body's own tissue, leading to
autoimmune disorders.  Btk is also required for activation of mast cells, an
inflammatory cell that when overactive leads to allergic reactions.

PCI-32765 has been studied in collagen induced arthritis, an established
mouse model for RA.  Studies examined the impact of treatment with PCI-32765
both at disease onset and with established active disease.  When animals were
treated at disease onset, PCI-32765 prevented further joint swelling.  Treatment
of animals with established active disease resulted in reduced inflammation and
induced regression of disease.  In animal models, treatment with PCI-32765 was
found to inhibit mast cell function and to prevent passive cutaneous
analphylaxis, a serious allergic reaction.

We plan to file an IND application with the FDA for PCI-32765.  The initial
Phase 1 trial will be conducted in patients with recurrent B cell lymphoma who
will receive the drug orally in a dose escalation design.  We have developed a
proprietary molecular probe that we will use as a biomarker to optimize our
treatment regimen in our Phase 1 trial.  The Phase 1 trial is designed to assess
safety, pharmacokinetics and efficacy.

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Factor VIIa Inhibitor for Cancer

PCI-24783 is a small molecule inhibitor of Factor VIIa.  This molecule
selectively inhibits Factor VIIa when it is complexed with a protein called
tissue factor (TF).  In cancer, the Factor VIIa:TF complex is found in abundance
in pancreatic, gastric, colon and other tumors, and triggers a host of
physiologic processes that facilitate tumor angiogenesis, growth and invasion.
The Factor VIIa:TF complex is thought to be the cause of the increased
propensity to develop thromboses seen in cancer patients.  Laboratory studies
and animal models indicate that inhibitors of Factor VIIa may block tumor growth
and metastasis.  We filed an IND application with the FDA in July 2008.  We plan
to conduct a Phase 1 trial in normal volunteers, designed to assess safety. We
believe that PCI-27483 may be useful for treating the thrombotic complications
of cancer and also as an anti-cancer agent.

Collaboration and License Agreement, Acquired Products

The University of Texas License.  In 1991, we entered into a license
agreement with the University of Texas under which we received the exclusive
worldwide rights to develop and commercialize porphyrins, expanded porphyrins
and other porphyrin-like substances covered by their patents.  In consideration
for the license, we have paid a total of $300,000. We are obligated to pay
royalties based on net sales of products that utilize the licensed technology.
The term of the license agreement ends upon the last to expire of the patents
covered by the license.  We have royalty obligations under the license as long
as valid and unexpired patents covering the licensed technology exist.
Currently, the dates the last United States and European patents covered by the
agreement expire are 2015 and 2014, respectively.  Under this agreement, we must
be attempting to commercialize one or more products covered by the licensed
technology.  In the event we fail to attempt to commercialize one or more
products covered by the licensed technology, the University of Texas may convert
the exclusive license into a non-exclusive license.

Celera Genomics. 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 (now Celera Corporation). Under the
terms of the agreement, we acquired Celera technology and intellectual property
relating to drugs that target histone deacetylase (HDAC) enzymes, selective HDAC
enzymes, a Factor VIIa inhibitor targeting a tumor signaling pathway involved in
angiogenesis, tumor growth and metastases, and B-cell associated tyrosine kinase
inhibitors potentially useful for the treatment of lymphomas and autoimmune
diseases. Total consideration paid was $6,647,000 which consisted of 1,000,000
shares of our common stock, $2,000,000 of cash and $147,000 of transaction
costs. In May 2008, the company amended its agreement with Celera pertaining to
potential sublicensing of our HDAC compounds.  Under the amendment, Celera may
receive a portion of any upfront licensing payments we receive from sublicensing
an HDAC product  under the agreement and the total future potential milestone
payments due to Celera were reduced from $144 million to $104 million dollars,
although we currently can not 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.

Patents and Proprietary Technology

We believe our success depends in part upon our ability to protect and defend
our proprietary technology and product candidates through patents and trade
secret protection.   We, therefore, aggressively pursue, prosecute, protect and
defend patent applications, issued patents, trade secrets, and licensed patent
and trade secret rights covering certain aspects of our technology.  The
evaluation of the patentability of United States and foreign patent applications
can take years to complete and can involve considerable expense.

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We have a number of patents and patent applications related to our compounds
but we cannot be certain that issued patents will be enforceable or provide
adequate protection or that pending patent applications will result in the issue
of patents.  Even if patents are issued and maintained, these patents may not be
of adequate scope to benefit us, or may be held invalid and unenforceable
against third parties.



Our patents, patent applications, and licensed patent rights cover various
compounds, pharmaceutical formulations and methods of use. Pharmacyclics owns or
licenses rights to:

- 70 issued U.S. patents; and

- 42 other pending U.S. patent applications.

These issued U.S. patents expire between the years 2009 and 2025. In
addition, Pharmacyclics owns or licenses approximately 81 foreign patents,
including 55 patents issued in various European countries, more than 50 pending
non-U.S. patent applications filed under the Patent Cooperation Treaty, with the
European Patent Office, and nationally in Canada, Japan, Australia and other
countries.

For MGd, we have an issued patent in the United States that covers the
formulation that will expire in 2020.  In addition, we have pending patent
applications that cover formulations and uses of motexafin gadolinium that if
granted, will expire between 2020 and 2025.  In Europe, we have recently
received a Notice of Intent to Grant for a patent application covering motexafin
gadolinium drug product.  If issued, this patent will expire in 2022.  In
Europe, Japan, Canada and China, we have pending patent applications covering
formulations and uses of motexafin gadolinium that if granted, will expire as
late as 2025.

We may be unsuccessful in prosecuting our patent applications or patents may
not issue from our patent applications. Even if patents are issued and
maintained, these patents may not be of adequate scope to benefit us, or may be
held invalid and unenforceable against third parties.

We also rely upon trade secrets, technical know-how and continuing
technological innovation to develop and maintain our competitive position. We
require all of our employees, consultants, advisors and the like to execute
appropriate confidentiality and assignment-of-inventions agreements. These
agreements typically provide that all materials and confidential information
developed or made known to the individual during the course of the individual's
relationship with us is to be kept confidential and not disclosed to third
parties, except in specific circumstances, and that all inventions arising out
of the relationship with Pharmacyclics shall be our exclusive property.

Research and Development

The majority of our operating expenses to date have been related to research
and development, or R&D. R&D expenses consist of independent R&D
costs and costs associated with collaborative R&D. R&D expenses were
$18,180,000 in fiscal 2008, $21,115,000 in fiscal 2007 and $25,737,000 in fiscal
2006.  In fiscal 2006, we recorded $6,647,000 of purchased in-process research
and expense associated with the acquisition of drug candidates from Celera.

Marketing and Sales

We currently have no marketing, sales, or distribution capabilities. We plan
to enter into licensing arrangements that will include provisions for the
marketing, sales and distribution of our products.

Manufacturing

We currently use third parties to manufacture various components of our
products under development. We have entered into commercial supply agreements
with three manufacturers who each manufacture a separate component related to
the complete manufacturing of our motexafin gadolinium drug substance. We have
also

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entered into a commercial supply agreement for the formulation, filling,
packaging and labeling of commercial quantities of motexafin gadolinium drug
product.

Competition

We face intense competition from pharmaceutical companies, universities,
governmental entities and others in the development of therapeutic and
diagnostic agents for the treatment of diseases which we target.

Although the FDA has not yet approved any agents for the treatment of brain
metastases, we expect significant competition in this field, as we believe that
one or more companies are developing and testing products which may compete
directly with our motexafin gadolinium product under development. These
companies may succeed in developing technologies and products that are more
effective than ours or would render our products or technologies obsolete.  See
"Risk Factors - Risks Related to Our Industry - We face rapid technological
change and intense competition."

We also face intense competition in developing and commercializing drugs for
the treatment of cancer with HDAC inhibitors, tyrosine kinase inhibitors and
other anti-cancer agents.

Government Regulation and Product Approval

The FDA and comparable regulatory agencies in state and local jurisdictions
and in foreign countries impose substantial requirements upon the clinical
development, manufacture and marketing of pharmaceutical products. These
agencies and other federal, state and local entities regulate research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our product candidates. Failure to comply with FDA requirements,
both before and after product approval, may subject us to administrative or
judicial sanctions, including but not limited to, FDA refusal to approve pending
applications, warning letters, product recalls, product seizures, or total or
partial suspension of production or distribution, fines, injunctions, or civil
or criminal penalties.

The process required by the FDA before our products may be marketed in the
U.S. generally involves the following:

- completion of preclinical laboratory and animal tests;

- submission of an Investigational New Drug (IND) application, which must
become effective before clinical trials may begin;

- performance of adequate and well-controlled human clinical trials to
establish the safety and efficacy for each intended use;

- submission to the FDA of a New Drug Application (NDA); and

- satisfactory completion of an FDA pre-approval inspection of the
manufacturing facility or facilities at which the product candidate is made to
assess compliance with the FDA's current good manufacturing practice (cGMP)
regulations.

The testing and approval process requires substantial time, effort, and
financial resources; and we cannot be certain that any approval will be granted
on a timely basis, if at all.

Preclinical tests include laboratory evaluation of the product, its
chemistry, formulation and stability, as well as animal studies to assess the
potential safety and efficacy of the product. We then submit the results of the
preclinical tests, together with manufacturing information and analytical data,
to the FDA as part of an IND, which must become effective before we may begin
human clinical trials. The IND automatically becomes effective 30 days after
receipt by the FDA, unless the FDA, within the 30-day time period, raises
concerns or questions about the conduct of the trials as outlined in the IND,
including concerns that human research

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subjects will be exposed to unreasonable
health risks. In such a case, the IND sponsor and the FDA must resolve any
outstanding concerns before clinical trials can begin. Our submission of an IND
may not result in FDA authorization to commence clinical trials. Further, an
independent Institutional Review Board at the medical center proposing to
conduct the clinical trials must review and approve any clinical study.

Human clinical trials are typically conducted in three sequential phases
which may overlap:

- Phase 1:

- Phase 2:

- Phase 3:

In the case of products for severe or life-threatening diseases such as
cancer, the initial human testing is often conducted in patients rather than in
healthy volunteers. Since these patients already have the target disease, these
studies may provide initial evidence of efficacy traditionally obtained in
Phase 2 trials and thus these trials are frequently referred to as
Phase 1/2 trials. We cannot be certain that we will successfully complete
Phase 1, Phase 2 or Phase 3 testing of our product candidates within
any specific time period, if at all. Furthermore, the FDA, the relevant
Institutional Review Board or the sponsor may suspend clinical trials at any
time on various grounds, including a finding that the subjects or patients are
being exposed to an unacceptable health risk.

The results of product development, preclinical studies and clinical studies
are submitted to the FDA as part of a New Drug Application, or NDA, for approval
of the marketing and commercial shipment of the product. The FDA may not accept
the NDA for review if the applicable regulatory criteria are not satisfied or
may require additional clinical data. Even if such data are accepted for filing,
the FDA may ultimately decide that the NDA does not satisfy the criteria for
approval. In addition, before approving an NDA, the FDA will inspect the
facilities at which the product is manufactured and will not approve the product
unless the facility is in substantial compliance with cGMP regulations. Once
issued, the FDA may withdraw product approval if compliance with regulatory
standards is not maintained or if problems occur after the product reaches the
market. In addition, the FDA may require testing and surveillance programs to
monitor the effect of approved products which have been commercialized, and the
agency has the power to prevent or limit further marketing of a product based on
the results of these post-marketing programs.

The FDA has designated motexafin gadolinium as an orphan drug for the
treatment of brain metastases arising from solid tumors.  Under the FDA's orphan
drug regulations, the FDA may designate a drug candidate as an orphan drug if it
is intended for the treatment of a rare disease or condition affecting fewer
than 200,000 people in the United States, or if the disease or condition occurs
so infrequently that there is no reasonable expectation that the costs of the
drug development and marketing will be recovered in future sales of the drug in
the United States. Orphan drug designation does not convey any advantage in, or
shorten the duration of, the regulatory approval process. If a product which has
orphan drug designation subsequently receives the first FDA approval for the
indication for which it has such designation, the sponsor is entitled to seven
(7) years of marketing exclusivity after FDA approval during which time another
sponsor may not obtain FDA approval to market the same drug for the same
indication, unless the other sponsor demonstrates to the FDA that its product is
clinically superior to the orphan drug.  Orphan drugs are also typically
eligible for tax credits for clinical research and are exempt from fees imposed
when an application to approve the product for marketing is submitted.

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Satisfaction of the above FDA requirements or similar requirements of state,
local and foreign regulatory agencies typically takes several years and the
actual time required may vary substantially, based upon the type, complexity and
novelty of the pharmaceutical product. Government regulation may delay or
prevent marketing of potential products for a considerable period of time and
impose costly procedures upon our activities. We cannot be certain that the FDA
or any other regulatory agency will grant approval for any of our products under
development on a timely basis, if at all. Success in preclinical or early stage
clinical trials does not assure success in later stage clinical trials. Data
obtained from preclinical and clinical activities is not always conclusive and
may be susceptible to varying interpretations which could delay, limit or
prevent regulatory approval. Even if a product receives regulatory approval, the
approval may be significantly limited to specific indications. Further, even
after regulatory approval is obtained, later discovery of previously unknown
problems with a product may result in restrictions on the product or even
complete withdrawal of the product from the market. Delays in obtaining, or
failures to obtain regulatory approvals would have a material adverse effect on
our business. Marketing our products abroad will require similar regulatory
approvals and is subject to similar risks. In addition, we cannot predict what
adverse governmental regulations may arise from future U.S. or foreign
governmental action.

Any products manufactured or distributed by us pursuant to FDA approvals are
subject to pervasive and continuing regulation by the FDA, including record-
keeping requirements and reporting of adverse experiences with the drug. Drug
manufacturers and their subcontractors are required to register their
establishments with the FDA and certain state agencies, and are subject to
periodic unannounced inspections by the FDA and certain state agencies for
compliance with Good Manufacturing Practice regulations, which impose certain
procedural and documentation requirements upon us and our third-party
manufacturers. We cannot be certain that we or our present or future suppliers
will be able to comply with the current Good Manufacturing Practice, or cGMP,
regulations and other FDA regulatory requirements.

The FDA regulates drug labeling and promotion activities. The FDA has
actively enforced regulations prohibiting the marketing of products for
unapproved uses. The FDA will permit the promotion of a drug for an unapproved
use in certain circumstances, but subject to very stringent requirements. We and
our products are also subject to a variety of state laws and regulations in
those states or localities where our products are or will be marketed. Any
applicable state or local regulations may hinder our ability to market our
products in those states or localities. We are also subject to numerous federal,
state and local laws relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control, and
disposal of hazardous or potentially hazardous substances. We may incur
significant costs to comply with such laws and regulations now or in the
future.

The FDA's policies may change and additional government regulations may be
enacted which could prevent or delay regulatory approval of our potential
products. Moreover, increased attention to the containment of health care costs
in the U.S. and in foreign markets could result in new government regulations
which could have a material adverse effect on our business. We cannot predict
the likelihood, nature or extent of adverse governmental regulation which might
arise from future legislative or administrative action, either in the U.S. or
abroad.

Employees

As of June 30, 2008, we had 47 employees, all of whom were full-time
employees.  Thirty-five of our employees are engaged in research, development,
preclinical and clinical testing, manufacturing, quality assurance and quality
control and regulatory affairs and 12 in finance and administration.  Fifteen of
our employees have an M.D. or Ph.D. degree. Our future performance depends in
significant part upon the continued service of our key scientific, technical and
senior management personnel, none of whom is bound by an employment agreement
requiring service for any defined period of time. The loss of the services of
one or more of our key employees could harm our business. None of our employees
are represented by a labor union. We consider our relations with our employees
to be good.

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Available Information

We were incorporated in Delaware in 1991 and commenced operations in 1992.

We file electronically with the Securities and Exchange Commission, or SEC,
our annual reports on Form 10-K, quarterly interim reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934. We maintain a site on the
worldwide web at www.pcyc.com; however, information found on our website is not
incorporated by reference into this report. We make our SEC filings available
free of charge on or through our website, including our annual report on Form
10-K, quarterly interim reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act of 1934 as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. Further, a
copy of this annual report on Form 10-K is located at the Securities and
Exchange Commission's Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549. Information on the operation of the Public Reference Room can be
obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330.
The Securities and Exchange Commission maintains a website that contains
reports, proxy and information statements and other information regarding our
filings at www.sec.gov.

In 2004, we adopted a code of ethics that applies to our officers, directors
and employees, including our principal executive officer, principal financial
officer and principal accounting officer. We have posted the text of our code of
ethics on our website at www.pcyc.com in connection with "Investor"
materials. In addition, we intend to promptly disclose (1) the nature of any
amendment to our code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer, or persons performing
similar functions and (2) the nature of any waiver, including an implicit
waiver, from a provision of our code of ethics that is granted to one of these
specified officers, the name of such person who is granted the waiver and the
date of the waiver on our website in the future.

Item	1A.	Risk Factors

RISK FACTORS

You should carefully consider these risk factors as each of these risks
could adversely affect our business, operating results and financial condition.

Risks Related to Pharmacyclics

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 are
unable to entirely fund these efforts with our current financial resources.
Currently, we are actively seeking partnership collaborations to help fund the
development of our product candidates.  We may also be required to raise
additional funds through the public or private sale of securities, bank debt or
otherwise.  If we are unable to secure additional funds, whether through
partnership collaborations or sale of our securities, we will have to delay,
reduce the scope of or discontinue one or more of our product development
programs.

Based upon the current status of our product development plans, 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:

- our ability to establish new partnership collaboration arrangements and the
timing of such arrangements;

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- continued progress of our research and development programs;

- our ability to establish and maintain collaborative arrangements with third
parties;

- 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; and

- competing technological and market developments.

In addition, our ability to raise additional capital may be dependent upon
our stock being quoted on the NASDAQ Global Market. On April 17, 2008, we
received a notice from the Listing Qualifications Department of The NASDAQ Stock
Market indicating that the Company does not comply with the $1.00 minimum bid
price requirement for continued listing set forth in NASDAQ Marketplace Rule
4450(a)(5). The notice further stated that pursuant to Marketplace Rule
4450(e)(2), we would be provided 180 calendar days, or until October 14,
2008 to regain compliance. On May 30, 2008 we announced receipt of notice from
the NASDAQ Stock Market that since the closing bid price of our common stock has
been at $1.00 per share or greater for at least 10 consecutive business days, we
had regained compliance with Marketplace Rule 4450(a)(5).  If we do not remain
in compliance with the $1.00 minimum bid price requirement or any other NASDAQ
listing requirement, our stock may be delisted by NASDAQ.

To maintain our listing on the NASDAQ Global Market, we are required, among
other things, to either maintain stockholders' equity of at least $10 million or
a market value of at least $50 million. While we currently satisfy the
stockholders' equity requirement, we may not continue to do so.

We will need to raise any necessary additional funds through the public or
private sale or securities, bank debt financings, collaborative arrangements
with corporate partners or other sources that may be highly dilutive or
otherwise disadvantageous, 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. Additional funds may not be available on acceptable
terms, if at all. Our failure to raise capital when needed and on acceptable
terms would require us to reduce our operating expenses, delay or reduce the
scope of or eliminate one or more of our research or development programs and
would limit our ability to respond to competitive pressures or unanticipated
requirements and to continue operations. Any one of the foregoing would have a
material adverse effect on our business, financial condition and results of
operations.

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.

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Data obtained from clinical trials are susceptible to varying
interpretations that could delay, limit or prevent regulatory approvals.

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.

All of our product candidates are in development, and we cannot be certain
that any of our products under development will be commercialized.

To be profitable, we must successfully research, develop, obtain regulatory
approval for, manufacture, introduce, market and distribute our products under
development. The time frame necessary to achieve these goals for any individual
product is long and uncertain. Before we can sell any of our products under
development, we must demonstrate to the satisfaction of the FDA and regulatory
authorities in foreign markets through the submission of preclinical (animal)
studies and clinical (human) trials that each product is safe and effective for
human use for each targeted disease. We have conducted and plan to continue to
conduct extensive and costly clinical trials to assess the safety and
effectiveness of our potential products. We cannot be certain that we will be
permitted to begin or continue our planned clinical trials for our potential
products, or if permitted, that our potential products will prove to be safe and
produce their intended effects.

The completion rate of our clinical trials depends upon, among other factors,
the rate of patient enrollment, the adequacy of patient follow-up and the
completion of required clinical evaluations. Many factors affect patient
enrollment, including the size of the patient population, the proximity of
patients to clinical sites, the eligibility criteria for the trial, competing
clinical trials and new drugs or procedures used for the conditions we are
investigating. Other companies are conducting clinical trials and have announced
plans for future trials that

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are seeking or are likely to seek patients with the
same diseases that we are studying. We may fail to obtain adequate levels of
patient enrollment in our clinical trials. Delays in planned patient enrollment
may result in increased costs, delays or termination of clinical trials, which
could have a material adverse effect on us. Many factors can affect the adequacy
of patient follow-up and completion of required clinical evaluations, including
failure of patients to return for scheduled visits or failure of clinical sites
to complete necessary documentation. Delays in or failure to obtain required
clinical follow-up and completion of clinical evaluations could also have a
material adverse effect on the timing and outcome of our clinical trials and
product approvals.

Additionally, clinical trials require substantial administration and
monitoring. We may fail to effectively oversee and monitor the various trials we
have underway at any particular time which would result in increased costs or
delays of our clinical trials.

Data already obtained from preclinical studies and clinical trials of our
products under development do not necessarily predict the results that will be
obtained from later preclinical studies and clinical trials. Moreover, data from
clinical trials we are conducting are susceptible to varying interpretations
that could delay, limit or prevent regulatory approval. A number of companies in
the pharmaceutical industry have suffered significant setbacks in advanced
clinical trials, even after promising results in earlier trials. The failure to
adequately demonstrate the safety and effectiveness of a product under
development could limit or prevent regulatory approval of the potential product
and would materially harm our business. Our clinical trials may not demonstrate
the sufficient levels of safety and efficacy necessary to obtain the requisite
regulatory approval or may not result in marketable products.

In December 2005, we announced the top line results of our pivotal Phase
3 clinical study of MGd for the potential treatment of non-small cell lung
cancer (NSCLC) patients with brain metastases.  Although patients receiving MGd
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.

In April 2007, we announced that the FDA had filed our
NDA over protest.  In December 2007, we announced that the FDA determined that
our NDA was non-approvable which will require us, among other things, to conduct
additional studies and submit that data before the FDA will approve MGd for
marketing.  Performance and completion of additional clinical studies will
require years of testing and, even if positive results are achieved, may not
result in MGd's approval.

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 June 30, 2008, had an accumulated deficit of approximately $339.5
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.  All of our product candidates are in
the early stages of development and the commercialization of those products will
not occur, if at all, for at least the next several years.  Our achieving
profitability depends upon our ability, alone or with others, to successfully
complete the development of our product candidates, and to obtain required
regulatory approvals and to successfully manufacture and market our proposed
product.  To date, we have not generated revenue from the commercial sale of our
products.

Acceptance of our products in the marketplace is uncertain, and failure
to achieve market acceptance will harm our business.

Even if approved for marketing, our products may not achieve market
acceptance. The degree of market acceptance will depend upon a number of
factors, including:

- the receipt of regulatory approvals for the indications that we are
studying, and the acceptance by physicians and patients of the clinical benefits
that our products may offer;

- the establishment and demonstration in the medical community of the
safety, clinical efficacy and cost-effectiveness of our products and their
potential advantages over existing therapeutic products;

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- marketing and distribution support;

- the introduction, market penetration and pricing strategies of competing
and future products; and

- coverage and reimbursement policies of governmental and other third-
party payors such as insurance companies, health maintenance organizations and
other plan administrators.

Physicians, patients, payors or the medical community in general may be
unwilling to accept, purchase, utilize or recommend any of our products.

We may fail to adequately protect or enforce our intellectual
property rights or secure rights to third-party patents.

Our success depends in part upon our ability to protect and defend our
proprietary technology and product candidates through patents and trade secret
protection.   We, therefore, aggressively pursue, prosecute, protect and defend
patent applications, issued patents, trade secrets, and licensed patent and
trade secret rights covering certain aspects of our technology.  The evaluation
of the patentability of United States and foreign patent applications can take
years to complete and can involve considerable expense.

We have a number of patents and patent applications related to our
compounds but we cannot be certain that issued patents will be enforceable or
provide adequate protection or that pending patent applications will issue as
patents.  Even if patents are issued and maintained, these patents may not be of
adequate scope to benefit us, or may be held invalid and unenforceable against
third parties.

We face risks and uncertainties related to our intellectual property rights.
For example:

- we may be unable to obtain or maintain patent or other intellectual
property protection for any products or processes that we may develop;

- third parties may obtain patents covering the manufacture, use or sale
of these products, which may prevent us from commercializing any of our products
under development globally or in certain regions; and

- any future patents that we may obtain may not prevent other companies
from competing with us by designing their products or conducting their
activities so as to avoid the coverage of our patents.

The actual protection afforded by a patent varies depending on the product
candidate and country and depends upon many factors, including the type of
patent, the scope of its coverage, the availability of regulatory related
extensions, the availability of legal remedies in a particular country and the
validity and enforceability of the patents under existing and future laws.  Our
ability to maintain or enhance our proprietary position for our product
candidates will depend on our success in obtaining effective claims and
enforcing those claims once granted.  Our issued patents and those that may
issue in the future, or those licensed to us, may be challenged, invalidated or
circumvented, and the rights granted under any issued patents may not provide us
with proprietary protection or competitive advantages against competitors with
similar products.  Due to the extensive amount of time required for the
development, testing and regulatory review of a potential product, it is
possible that, before any of our products can be commercialized, any related
patent may expire or remain in force for only a short period following
commercialization, thereby reducing any advantage of the patent.

We are aware of several U.S. patents owned or licensed by Schering AG
(now Bayer) that relate to pharmaceutical formulations and methods for enhancing
magnetic resonance imaging. Even though we have obtained the opinion of outside
patent counsel that our cancer treatment compounds do not infringe any valid,
unexpired claims of such patents, Schering AG may still choose to assert one or
more of those patents. If any of our products were legally determined to be
infringing a valid and enforceable claim of any of Schering AG's patents, our
business could be materially adversely affected. Further, any allegation by
Schering AG that we infringed their patents would likely result in significant
legal costs and require the diversion of substantial

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management resources. We are aware that Schering AG
has asserted patent rights against at least one other
company in the contrast agent imaging market and that a number of companies have
entered into licensing arrangements with Schering AG with respect to one or more
of such patents. We cannot be certain that we would be successful in defending a
lawsuit or able to obtain a license on commercially reasonable terms from
Schering AG, if required.

We also rely upon trade secrets, technical know-how and continuing
technological innovation to develop and maintain our competitive position.
Although we take steps to protect our proprietary rights and information,
including the use of confidentiality and other agreements with our employees and
consultants, and in our academic and commercial relationships, these steps may
be inadequate, these agreements may be violated, or there may be no adequate
remedy available for a violation. In addition, courts outside the United States
are sometimes less willing to protect trade secrets.  Furthermore, our
competitors may independently develop substantially equivalent proprietary
information and techniques, reverse engineer our information and techniques, or
otherwise gain access to our proprietary technology. We may be unable to
meaningfully protect our rights in unpatented proprietary technology.

We rely heavily on third parties for product and clinical development
of our products.

We currently depend heavily and will depend heavily in the future on third
parties for support in product development and clinical development of our
products.  The termination of a significant number of our existing collaborative
arrangements, or our inability to establish and maintain collaborative
arrangements could have a material adverse effect on our ability to complete
clinical development of our products.  Given our limited resources, it may be
necessary to establish partnerships with other pharmaceutical companies that
have greater financial and technical resources in order to successfully develop
and commercialize our products.  There is no assurance that such partnerships
can be obtained, and if obtained, may require us to relinquish product rights
that could affect the financial success of these products.

We rely on contract clinical research organizations, or CROs, for various
aspects of our clinical development activities including clinical trial
monitoring, data collection, safety monitoring and data management. As a result,
we have had and continue to have less control over the conduct of clinical
trials, the timing and completion of the trials, the required reporting of
adverse events and the management of data developed through the trial than would
be the case if we were relying entirely upon our own staff.  Although we rely on
CROs to conduct some of our clinical trials, we are responsible for confirming
that each of our clinical trials is conducted in accordance with the
investigational plan and protocol.  Moreover, the FDA and foreign regulatory
agencies require us to comply with regulations and standards, commonly referred
to as good clinical practices, for conducting, recording and reporting the
results of clinical trials to assure that the data and results are credible and
accurate and that the trial participants are adequately protected. Our reliance
on third parties does not relieve us of these responsibilities and
requirements.

Outside parties may have staffing difficulties, may undergo changes in
priorities or may become financially distressed, adversely affecting their
willingness or ability to conduct our trials. We may experience unexpected cost
increases that are beyond our control.  Any failure of such CROs to successfully
accomplish clinical trial monitoring, data collection, safety monitoring and
data management and the other services they provide for us in a timely manner
and in compliance with regulatory requirements could have a material adverse
effect on our ability to complete clinical development of our products and
obtain regulatory approval. Problems with the timeliness or quality of the work
of a CRO may lead us to seek to terminate the relationship and use an alternate
service provider.  However, making such changes may be costly and may delay our
trials, and contractual restrictions may make such a change difficult or
impossible.  Additionally, it may be difficult to find a replacement
organization that can conduct our trials in an acceptable manner and at an
acceptable cost.

We lack the resources, capability and experience necessary to
manufacture pharmaceuticals and thus rely heavily upon contract
manufacturers.

We have no manufacturing facilities and we currently rely on third
parties for manufacturing and storage activities related to all of our products
in development. Our manufacturing strategy presents the following
risks:

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- delays in scale-up to quantities needed for multiple clinical trials, or
failure to manufacture such quantities to our specifications, or deliver such
quantities on the dates we require, could cause delay or suspension of clinical
trials, regulatory submissions and commercialization of our products in
development;

- there is no guarantee that the supply of clinical materials can be
maintained during the clinical development of our product candidates;

- our current and future manufacturers are subject to ongoing periodic
unannounced inspections by the FDA and corresponding regulatory agencies for
compliance with strictly enforced current Good Manufacturing Practice and
similar foreign standards. Failure to pass these inspections could have a
material adverse effect on our ability to produce our products to support our
operations;

- if we need to change to other commercial manufacturing contractors,
there is no guarantee that we will be able to locate a suitable replacement
contractor. The FDA and comparable foreign regulators must approve material
manufactured by these contractors prior to our use. This would require new
testing and compliance inspections. The new manufacturers would have to practice
substantially equivalent processes for the production of our products;

- our current manufacturers might not be able to fulfill our commercial
needs, which would require us to seek new manufacturing arrangements and may
result in substantial delays in meeting market demand; and

- any disruption of the ability of our manufacturing contractors to supply
necessary quantities of our products could have a material adverse effect on our
ability to support our operations.

Any of these factors could delay clinical trials or commercialization of our
products under development and entail higher costs.

We lack marketing, distribution and sales experience.

We have no experience marketing, selling or distributing products and
currently lack the internal capability to do so.   If any of our product
candidates are approved by the FDA, we will need a sales force with technical
expertise prior to the commercialization of any of our product candidates. We
have no experience in developing, training or managing a sales force. We will
incur substantial additional expenses in developing, training and managing such
an organization. We may be unable to build such a sales force, the cost of
establishing such a sales force may exceed any product revenues, or our direct
marketing and sales efforts may be unsuccessful.  In addition, we compete with
many other companies that currently have extensive and well-funded marketing and
sales operations. Our marketing and sales efforts may be unable to compete
successfully against those of such other companies. We will need to enter into
co-promotion or other licensing arrangements with larger pharmaceutical or
biotechnology firms in order to increase the commercial success of our products.
To the extent we enter into co-promotion or other licensing agreements, our
product revenues are likely to be lower than if we directly marketed and sold
our products, and some or all of the revenues we receive will depend upon the
efforts of third parties, which may not be successful and may not be within our
control. If we are unable to enter into co-promotion or other licensing
agreements on acceptable terms or at all, we may not be able to successfully
commercialize our existing and future product candidates. If we are not
successful in commercializing our existing and future product candidates, either
on our own or through collaborations with one or more third parties, our future
product revenue will suffer and we may incur significant losses.

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

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product candidates.  Our success depends on our
continued ability to attract, retain and motivate highly qualified management
and personnel with pre-clinical and clinical experience.  We will need to hire
additional personnel as we continue to expand our research and development and
partnering activities.



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
additional 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.

Our business is subject to risks associated with international
operations and collaborations.

The laws of foreign countries do not protect our intellectual property rights
to the same extent as do the laws of the United States. In countries where we do
not have and/or have not applied for patents on our products, we will be unable
to prevent others from developing or selling similar products. In addition, in
jurisdictions outside the United States where we acquire patent rights, we may
be unable to prevent unlicensed parties from selling or importing products or
technologies derived elsewhere using our patented technology.

Until we or our licensees obtain the required regulatory approvals for
pharmaceuticals in any specific foreign country, we or our licensees will be
unable to sell these products in that country. International regulatory
authorities have imposed numerous and varying regulatory requirements and the
approval procedures can involve additional testing. Approval by one regulatory
authority does not ensure approval by any other regulatory authority.

We may be subject to damages resulting from claims that our employees
or we have wrongfully used or disclosed alleged trade secrets of their former
employers.

Many of our employees were previously employed at universities or other
biotechnology or pharmaceutical companies, including our competitors or
potential competitors. Although no claims against us are currently pending, we
may be subject to claims that these employees or we have inadvertently or
otherwise used or disclosed trade secrets or other proprietary information of
their former employers. Litigation may be necessary to defend against these
claims. If we fail in defending such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights or personnel. A loss
of key research personnel or their work product could hamper or prevent our
ability to commercialize certain potential drugs, which could severely harm our
business. Even if we are successful in defending against these claims,
litigation could result in substantial costs and be a distraction to
management.

We may need to implement additional finance and accounting systems,
procedures and controls to satisfy reporting requirements.

As a public reporting company, we are required to comply with the
Sarbanes-Oxley Act of 2002, including Section 404, and the related rules and
regulations of the Securities and Exchange Commission, including expanded
disclosures and accelerated reporting requirements and more complex accounting
rules. Compliance with Section 404 and other requirements will increase our
costs and require additional management resources. We may need to continue to
implement additional finance and accounting systems, procedures and controls to
satisfy reporting requirements. While we have been able to complete an
unqualified assessment as to the adequacy of our internal control over financial
reporting for our fiscal year ending June 30, 2008, there is no assurance that
future assessments of the adequacy of our internal control over financial
reporting will be unqualified. If we are unable to obtain future unqualified
reports as to the effectiveness of our internal control over financial
reporting, investors could lose confidence in the reliability of our internal
control over financial reporting, which could adversely affect our stock
price.

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Our corporate compliance program cannot guarantee that we are in
compliance with all potentially applicable regulations.

The development, manufacturing, pricing, sales, coverage and reimbursement of
our products, together with our general operations, are subject to extensive
regulation by federal, state and other authorities within the United States and
numerous entities outside of the United States. While we have developed and
instituted a corporate compliance program based on what we believe are the
current best practices, we cannot provide any assurance that governmental
authorities will find that our business practices comply with current or future
administrative or judicial interpretations of potentially applicable laws and
regulations. If we fail to comply with any of these laws and regulations, we
could be subject to a range of regulatory actions, including suspension or
termination of clinical trials, the failure to approve a product candidate,
restrictions on our products or manufacturing processes, withdrawal of products
from the market, significant fines, or other sanctions or litigation.

Our facility in California is located near an earthquake fault, and an
earthquake or other types of natural disasters or resource shortages could
disrupt our operations and adversely affect results.

Important documents and records, such as hard copies of our laboratory books
and records for our drug candidates and compounds, are located in our corporate
headquarters at a single location in Sunnyvale, California, which is near active
earthquake zones. We do not have a formal business continuity or disaster
recovery plan, and could therefore experience a significant business
interruption in the event of a natural disaster, such as an earthquake, drought
or flood, or localized extended outages of critical utilities or transportation
systems. In addition, California from time to time has experienced shortages of
water, electric power and natural gas. Future shortages and conservation
measures could disrupt our operations and cause expense, thus adversely
affecting our business and financial results.

Anti-takeover provisions in our charter documents and Delaware law
could prevent or delay a change in control.

Our certificate of incorporation and bylaws may discourage, delay or prevent
a merger or acquisition that a stockholder may consider favorable. In addition,
provisions of the Delaware General Corporation Law also restrict certain
business combinations with interested stockholders. These provisions are
intended to encourage potential acquirers to negotiate with us and allow our
board of directors the opportunity to consider alternative proposals in the
interest of maximizing stockholder value. However, these prohibitions may also
discourage acquisition proposals or delay or prevent a change in control, which
could harm our stock price.

Risks Related to Our Industry

We face rapid technological change and intense competition.

The pharmaceutical industry is subject to rapid and substantial technological
change. Therapies designed by other companies to treat the conditions that are
the focus of our products are currently in clinical trials. Developments by
others may render our products under development or technologies noncompetitive
or obsolete, or we may be unable to keep pace with technological developments or
other market factors. Technological competition in the industry from
pharmaceutical and biotechnology companies, universities, governmental entities
and others diversifying into the field is intense and is expected to increase.
Many of these entities have significantly greater research and development
capabilities than we do, as well as substantially more marketing, sales,
manufacturing, financial and managerial resources. These entities represent
significant competition for us. Acquisitions of, or investments in, competing
pharmaceutical or biotechnology companies by large corporations could increase
such competitors' financial, marketing, manufacturing and other resources. In
addition, we may experience competition from companies that have acquired or may
acquire technology from universities and other research institutions. As these
companies develop their technologies, they may develop proprietary positions
that compete with our products.

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We are engaged in the development of novel therapeutic technologies. As a
result, our resources are limited and we may experience technical challenges
inherent in such novel technologies.

Competitors have developed or are in the process of developing technologies
that are, or in the future may be, the basis for competitive products. Some of
these products may have an entirely different approach or means of accomplishing
similar therapeutic effects than our products. Our competitors may develop
products that are safer, more effective or less costly than our products and,
therefore, present a serious competitive threat to our product offerings. Our
competitors may price their products below ours, may receive better coverage
and/or reimbursement or may have products that are more cost effective than
ours.

The widespread acceptance of therapies that are alternatives to ours may
limit market acceptance of our products even if commercialized. The diseases for
which we are developing our therapeutic products can also be treated, in the
case of cancer, by surgery, radiation, biologics and chemotherapy. These
treatments are widely accepted in the medical community and have a long history
of use. The established use of these competitive products may limit the
potential for our products to receive widespread acceptance if
commercialized.

The price of our common stock may be volatile.

The market prices for securities of biotechnology companies, including ours,
have historically been highly volatile.  Our stock, like that of many other
companies, has from time to time experienced significant price and volume
fluctuations sometimes unrelated to operating performance.  For example, during
the period beginning July 1, 2005 and ending August 31, 2008, the sales price
for one share of our common stock reached a high of $9.64 per share and a low of
$0.55 per share.  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, clinical trials,
product development and partnering activities;

- 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

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- 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.

If our products are not accepted by the market or if users of our
products are unable to obtain adequate coverage of and reimbursement for our
products from government and other third-party payors, our revenues and
profitability will suffer.

Our ability to commercialize our products successfully will depend in
significant part on the extent to which appropriate coverage of and
reimbursement for our products and related treatments are obtained from
governmental authorities, private health insurers and other organizations, such
as HMOs. Third-party payors are increasingly challenging the prices charged for
medical products and services.  We cannot provide any assurances that third-
party payors will consider our products cost-effective or provide coverage of
and reimbursement for our products, in whole or in part.

Uncertainty exists as to the coverage and reimbursement status of newly
approved medical products and services and newly approved indications for
existing products. Third-party payors may conclude that our products are less
safe, less clinically effective, or less cost-effective than existing products,
and third-party payors may not approve our products for coverage and
reimbursement. If we are unable to obtain adequate coverage of and reimbursement
for our products from third-party payors, physicians may limit how much or under
what circumstances they will prescribe or administer them. Such reduction or
limitation in use of our products could cause our sales to suffer. Even if
third-party payors make reimbursement available, payment levels may not be
sufficient to make the sale of our products profitable.

Also, the trend towards managed health care in the United States and the
concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of medical services and products, may
result in inadequate coverage of and reimbursement for our products. Many third-
party payors, including in particular HMOs, are pursuing various ways to reduce
pharmaceutical costs, including, for instance, the use of formularies.  The
market for our products depends on access to such formularies, which are lists
of medications for which third-party payors provide reimbursement. These
formularies are increasingly restricted, and pharmaceutical companies face
significant competition in their efforts to place their products on formularies
of HMOs and other third-party payors. This increased competition has led to a
downward pricing pressure in the industry. The cost containment measures that
third-party payors are instituting could have a material adverse effect on our
ability to operate profitably.

Current health care laws and regulations and future legislative or
regulatory changes to the healthcare system may affect our ability to
sell our products profitably

In the United States, there have been a number of legislative and regulatory
proposals to change the healthcare system in ways that could affect our future
revenues and profitability, and the future revenues and profitability of our
potential customers, suppliers and collaborative partners, and the availability
of capital. Federal and state lawmakers regularly propose and, at times, enact
legislation that would result in significant changes to the healthcare system
and, in particular, that are intended to contain or reduce the costs of medical
products and services. For example, the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003, or MMA, could significantly influence the manner
in which pharmaceutical products are prescribed and purchased and will impact
reimbursement for our products, which could result in a reduction in demand for
our products. The MMA established a new reimbursement methodology for certain
drugs furnished in hospital outpatient departments and physicians' offices which
is based on the average sales price, or ASP, of the product. Application of the
ASP reimbursement methodology has resulted in a decrease in the reimbursement
levels for certain oncology drugs furnished in hospital outpatient departments
and physicians' offices. As implemented in a recent rule establishing an MMA-
mandated competitive bidding program, or CAP, physicians who administer drugs in
their offices are offered an option to acquire injectable and infused drugs
currently covered under the Medicare Part B benefit from vendors who are
selected in a competitive bidding process. Winning vendors are selected based on
criteria that include their bid price. These new reimbursement measures,

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effective beginning July 1, 2006, could negatively impact our ability to sell
our products. The MMA also established a new Part D prescription drug benefit,
which became effective January 1, 2006. Under the prescription drug benefit,
Medicare beneficiaries are able to obtain prescription drug coverage from
private sector providers. These private sector providers are permitted to limit
the number of prescription drugs that are covered in each therapeutic category
and class on their formularies. We cannot predict whether our products will be
placed on the formularies of the private sector providers participating in the
Part D program in the future, and if our products are not placed on such
formularies, this could negatively impact our ability to sell our products. It
remains difficult to predict the full impact that the prescription drug program,
and the MMA generally, will have on us and our industry. The expanded access to
prescription medications afforded by Medicare coverage of prescription drugs may
increase the volume of pharmaceutical sales. However, this potential sales
volume increase may be offset by increased downward pricing pressures resulting
from the enhanced purchasing power of private sector providers who will
negotiate drug pricing on behalf of Medicare beneficiaries under Part D.

There also have been and likely will continue to be legislative and
regulatory proposals at the state and federal levels that could bring about
significant changes to the Medicaid drug rebate program and other federal
pharmaceutical pricing programs in which we plan to participate for our
products. Given these and other recent federal and state government initiatives
directed at lowering the total cost of health care, federal and state lawmakers
will likely continue to focus on health care reform, the cost of prescription
pharmaceuticals and on the reform of the Medicare and Medicaid programs. We
cannot predict the impact on our business of any legislation or regulations that
may be adopted in the future. Any cost containment measures and other healthcare
system reforms that are adopted could have a material adverse effect on our
ability to operate profitably.

We may need to change our business practices to comply with health care
fraud and abuse regulations, and our failure to comply with such laws could
adversely affect our business, financial condition and results of
operations.

Our operations will be directly, or indirectly through our customers,
subject to various state and federal fraud and abuse laws, including, without
limitation, the federal Anti-Kickback Statute and False Claims Act.  These laws
may impact, among other things, our proposed sales, marketing and education
programs.

The federal Anti-Kickback Statute prohibits persons from knowingly and
willfully soliciting, offering, receiving or providing remuneration, directly or
indirectly, in exchange for or to induce either the referral of an individual,
or the furnishing or arranging for a good or service, for which payment may be
made under a federal healthcare program such as the Medicare and Medicaid
programs.  Several courts have interpreted the statute's intent requirement to
mean that if any one purpose of an arrangement involving remuneration is to
induce referrals of federal healthcare covered business, the statute has been
violated.  The Anti-Kickback Statute is broad and prohibits many arrangements
and practices that are lawful in businesses outside of the healthcare industry.
Recognizing that the Anti-Kickback Statute is broad and may technically prohibit
many innocuous or beneficial arrangements, Congress authorized the Department of
Health and Human Services, Office of Inspector General ("OIG") to
issue a series of regulations, known as the "safe harbors."  These
safe harbors set forth provisions that, if all their applicable requirements are
met, will assure healthcare providers and other parties that they will not be
prosecuted under the Anti-Kickback Statute.  The failure of a transaction or
arrangement to fit precisely within one or more safe harbors does not
necessarily mean that it is illegal or that prosecution will be pursued.
However, conduct and business arrangements that do not fully satisfy each
applicable safe harbor may result in increased scrutiny by government
enforcement authorities such as the OIG.  Penalties for violations of the
federal Anti-Kickback Statute include criminal penalties and civil sanctions
such as fines, imprisonment and possible exclusion from Medicare, Medicaid and
other federal healthcare programs.  Many states have also adopted laws similar
to the federal Anti-Kickback Statute, some of which apply to the referral of
patients for healthcare items or services reimbursed by any source, not only the
Medicare and Medicaid programs.

The federal False Claims Act prohibits persons from knowingly filing or
causing to be filed a false claim to, or the knowing use of false statements to
obtain payment from, the federal government.  Suits filed under the False Claims
Act, known as "qui tam" actions, can be brought by any individual on
behalf of the government and such

26

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individuals, sometimes known as
"relators" or, more commonly, as "whistleblowers", may share
in any amounts paid by the entity to the government in fines or settlement.  The
frequency of filing of qui tam actions has increased significantly in recent
years, causing greater numbers of healthcare companies to have to defend a False
Claim action.  When an entity is determined to have violated the federal False
Claims Act, it may be required to pay up to three times the actual damages
sustained by the government, plus civil penalties of between $5,500 to $11,000
for each separate false claim.  Various states have also enacted laws modeled
after the federal False Claims Act.

In addition to the laws described above, the Health Insurance Portability and
Accountability Act of 1996 created two new federal crimes: healthcare fraud and
false statements relating to healthcare matters.  The healthcare fraud statute
prohibits knowingly and willfully executing a scheme to defraud any healthcare
benefit program, including private payors.  A violation of this statute is a
felony and may result in fines, imprisonment or exclusion from government
sponsored programs.  The false statements statute prohibits knowingly and
willfully falsifying, concealing or covering up a material fact or making any
materially false, fictitious or fraudulent statement in connection with the
delivery of or payment for healthcare benefits, items or services.  A violation
of this statute is a felony and may result in fines or imprisonment.

If our operations are found to be in violation of any of the laws described
above and other applicable state and federal fraud and abuse laws, we may be
subject to penalties, including civil and criminal penalties, damages, fines,
exclusion from government healthcare programs, and the curtailment or
restructuring of our operations

Our business exposes us to product liability claims.

The testing, manufacture, marketing and sale of our products involve
an inherent risk that product liability claims will be asserted against us. We
face the risk that the use of our products in human clinical trials will result
in adverse effects. If we complete clinical testing for our products and receive
regulatory approval to market our products, we will mark our products with
warnings that identify the known potential adverse effects and the patients who
should not receive our product. We cannot ensure that physicians and patients
will comply with these warnings. In addition, unexpected adverse effects may
occur even with use of our products that receive approval for commercial sale.
Although we are insured against such risks in connection with clinical trials,
our present product liability insurance may be inadequate. A successful product
liability claim in excess of our insurance coverage could have a material
adverse effect on our business, financial condition and results of operations.
Any successful product liability claim may prevent us from obtaining adequate
product liability insurance in the future on commercially desirable or
reasonable terms. In addition, product liability coverage may cease to be
available in sufficient amounts or at an acceptable cost. An inability to obtain
sufficient insurance coverage at an acceptable cost or otherwise to protect
against potential product liability claims could prevent or inhibit the
commercialization of our pharmaceutical products. A product liability claim or
recall would have a material adverse effect on our reputation, business,
financial condition and results of operations.

Our business involves environmental risks.

In connection with our research and development activities and our
manufacture of materials and products, we are subject to federal, state and
local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials, biological specimens and wastes. Although we believe that we
have complied with the applicable laws, regulations and policies in all material
respects and have not been required to correct any material noncompliance, we
may be required to incur significant costs to comply with environmental and
health and safety regulations in the future. Our research and development
involves the controlled use of hazardous materials, including but not limited to
certain hazardous chemicals and radioactive materials. Although we believe that
our safety procedures for handling and disposing of such materials comply with
the standards prescribed by state and federal regulations, we cannot completely
eliminate the risk of contamination or injury from these materials. In the event
of such an occurrence, we could be held liable for any damages that result and
any such liability could exceed our resources.

27

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Item	1B.	Unresolved Staff Comments

None.

Executive Officers and Directors

Executive officers and directors of the company, and their ages as of August
31, 2008, are as follows:

|Name                              | Age | Position                                                                            
|--------------------------------- | --- | ------------------------------------------------------------------------------------
|Richard A. Miller, M.D.           | 57  | President, Chief Executive Officer and Director                                     
|Leiv Lea                          | 54  | Vice President, Finance and Administration and
Chief Financial Officer and Secretary
|Joseph J. Buggy                   | 42  | Vice President, Research                                                            
|David Loury, Ph.D.                | 52  | Vice President, Preclinical Studies                                                 
|James N. Lowder                   | 58  | Vice President, Clinical Development                                                
|Robert W. Duggan                  | 64  | Director                                                                            
|Miles R. Gilburne(2)(3)           | 57  | Director                                                                            
|James L. Knighton(2)(3)           | 54  | Director                                                                            
|Richard M. Levy, Ph.D.(1)(3)      | 70  | Director                                                                            
|Christine A. White, M.D.(1)(2)(3) | 56  | Director                                                                            

_____________

(1) Member of Compensation Committee. 
   (2) Member of Audit Committee. 
   (3) Member of Nominating and Corporate Governance Committee.

Dr. Miller has served as President, Chief Executive Officer and a
Director since he co-founded the company in April 1991. Dr. Miller was a
co-founder of IDEC Pharmaceuticals Corporation and from 1984 to February 1992
served as Vice President and a Director. Dr. Miller also is a Clinical Professor
of Medicine (Oncology) at Stanford University Medical Center. Dr. Miller
received his M.D. from the State University of New York Medical School and is
board certified in both Internal Medicine and Medical Oncology.

Mr. Lea has served as Vice President, Finance and Administration and
Chief Financial Officer since December 1998 and Secretary since June 2003. Prior
to that, Mr. Lea served as Vice President, Finance and Administration from
December 1997 to December 1998. From September 1996 through November 1997, he
served as a financial consultant for high technology companies and was Acting
Chief Financial Officer for Global Village Communications, Inc. From 1987
through June 1996 he served as Vice President and Chief Financial Officer of
Margaux, Inc., a public company that manufactured refrigeration equipment. Mr.
Lea received a B.S. degree in Agricultural Economics from the University of
California, Davis and an M.B.A. from the University of California, Los
Angeles.

Dr. Buggy has served as Vice President, Research since September 2007.
From May 2006 to August 2007, Dr. Buggy served as Senior Director, Cancer
Biology. From November 2001 to April 2006, he served as Director, Department of
Biology at Celera Genomics, a biotechnology company. From June 1996 to October
2001, he was a staff scientist at AXYS Pharmaceuticals, Inc., a biotechnology
company. Prior to that Dr. Buggy worked as a scientist at Bayer Corporation in
West Haven, CT. Dr. Buggy received a Ph.D. in Molecular, Cellular, and
Developmental Biology from Indiana University and a B.S. degree in Microbiology
from the University of Pittsburgh.

Dr. Loury  has served as Vice President, Preclinical Studies since May
2006.  From April 2003 to May 2006, Dr. Loury served as Senior Director,
Toxicology with Celera Genomics, a biotechnology company.  From June 2001 to
April 2003, he was employed by Essential Therapeutics, Inc., a pharmaceutical
company, as Director, Pharmacology and Toxicology.  From 1996 to 2001, Dr. Loury
was employed by IntraBiotics Pharmaceuticals, Inc., most recently as Senior
Director, Preclinical Development.  From 1986 to 1996 he worked in a variety of
toxicology positions with Syntex/Roche Bioscience.  Dr. Loury received a Ph.D. in

28

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Pharmacology and Toxicology and a B.S. in Bio-Environmental Toxicology from
the University of California, Davis.

Dr. Lowder has served as Vice President, Clinical Development since
July 2008.  From November, 2006 to June, 2008, Dr. Lowder served as Senior
Director, Clinical Development with Dynavax Technologies Corporation, a
biotechnology company.  From January 2003 to October, 2006, he was employed by
PDL BioPharma, Inc., a biotechnology company as Senior Medical Director,
Clinical Development. From 1998 to 2002, he worked for Chimeric Therapies, Inc.
a privately held biotechnology company as Vice President, Medical Affairs.  From
1988 to 1998, Dr. Lowder was employed by Becton, Dickinson and Company, a
medical technology company, most recently as Worldwide Medical Director,
Immunocytometry Systems.  From 1986 to 1988, Dr. Lowder was on the staff of the
Cleveland Clinic with joint appointments in the departments of
Hematology/Oncology and Immunology and Cancer Research.  Dr. Lowder received an
M.D. and a B.S. in Dentistry from Case Western Reserve University.  He did
Internal Medicine residency and Hematology fellowship training at Case Western
Reserve Univerity Hospitals and a Medical Oncology Fellowship at Stanford.   He
is board certified in Internal Medicine and Medical Oncology.

Mr. Duggan has been a member of our Board of Directors since September
2007.  Mr. Duggan served as Chairman of the Board of Directors of Computer
Motion, Inc., a computerized surgical systems company, from 1990 to 2003 and
Chief Executive Officer from 1997.  Computer Motion was acquired by Intuitive
Surgical, Inc. in 2003.  Mr. Duggan is the Founder of the investment firm
Robert W. Duggan & Associates.  Mr. Duggan has been a private
venture investor for more than 30 years and has participated as a director of,
investor in and advisor to numerous small and large businesses in the medical
equipment, computer local and wide area network, PC hardware and software
distribution, digital encryption, consumer retail goods and outdoor media
communication industries.  Mr. Duggan has also assisted in corporate
planning, capital formation and management for his various investments.  He
received the Congressman's Medal of Merit and in 2000 he was named a Knight of
the Legion of Honor by President Jacques Chirac.  Mr. Duggan is currently also a
director of Intuitive Surgical, Inc.  He is a member of the University of
California at Santa Barbara Foundation Board of Trustees.

Mr. Gilburne was elected as a Director of the company in March 2000.
Mr. Gilburne has been a managing member of ZG Ventures, a venture capital and
investment company, since 2000. From February 1995 through December 1999, he was
Senior Vice President, Corporate Development for America Online, Inc., an
internet services company. He joined the board of directors of America Online in
the fall of 1999 and subsequently served as a member of the board of directors
of Time Warner Inc. until stepping down in May 2006. Prior to joining America On
line, Mr. Gilburne was a founding partner of The Cole Gilburne Fund, an early
stage venture capital fund focused on information and communications technology
and a founding partner of technology and media law firms in both San Francisco
and Los Angeles. Mr. Gilburne is currently a member of the board of directors of
SRA International, Inc., a government services company and Maui Land &
Pineapple, a real estate and agriculture company. Mr. Gilburne is also a
founding investor and member of the board of several privately held companies,
including Revolution Health Group, a company focused on various aspects of
consumer driven healthcare and ePals, a global community of online learners. He
is also a member of the board of the Foundation of NIH.  Mr. Gilburne
received an A.B. degree from Princeton University and a J.D. from Harvard Law
School.

Mr. Knighton was elected as a Director of the company in August 2006.
Mr. Knighton has served as President and co-founder of AvidBiotics Corporation,
a private biotechnology company since April 2005.  Mr. Knighton served as
President/Chief Operating Officer and Chief Financial Officer of Caliper Life
Sciences, Inc. from July 2003 to March 2004. Mr. Knighton originally joined
Caliper in September 1999 as Vice President and Chief Financial Officer, was
promoted to Executive Vice President in April 2001 and to President and Chief
Financial Officer in July 2002.  From October 1998 to September 1999,
Mr. Knighton served as Senior Vice President and Chief Financial Officer of
SUGEN, Inc., a biotechnology company acquired by Pharmacia. From July 1997
to October 1998, Mr. Knighton served as Vice President of Investor
Relations and Corporate Communications at Chiron Corporation, a biotechnology
company. Mr. Knighton holds a B.S. in Biology from the University of Notre
Dame, an M.S. in Genetics from the University of Pennsylvania and a M.B.A. from
the Wharton School at the University of Pennsylvania.

29

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Dr. Levy was elected as a Director of the company in June 2000. Dr.
Levy retired in February 2006 from his position as President and Chief Executive
Officer of Varian Medical Systems, Inc., a medical equipment company. Dr. Levy
remains Chairman of the Board of Directors of Varian Medical Systems, a position
he has held since February 2003. He served as President and Chief Executive
Officer and a director of Varian Medical Systems, Inc., since April 1999,
and as Executive Vice President of Varian Associates, Inc., the predecessor
company from which Varian Medical Systems, Inc. was spun out, since 1992. Dr.
Levy also serves on the Board of Directors of Sutter Health, a not-for-profit
multi-provider integrated health care delivery system. Dr. Levy holds a
B.A. degree from Dartmouth College and a Ph.D. in nuclear chemistry from the
University of California at Berkeley.

Dr. White was elected as a Director of the company in August 2006.
Dr. White retired in June 2005 from her position as Senior Vice President,
Global Medical Affairs of Biogen Idec Inc., a biopharmaceutical company, a
position held since the merger of Biogen, Inc. and IDEC Pharmaceuticals
Corporation in November 2003.  She joined IDEC Pharmaceuticals in June 1996 and
served as Senior Director, Oncology and Hematology Clinical Development until
June 2000 when she was appointed Vice President, Oncology and Hematology
Clinical Development.  In May 2001, she was appointed Vice President, Medical
Affairs.  From 1994 to June 1996, Dr. White was Director, Clinical Oncology
Research at the Sidney Kimmel Cancer Center in San Diego.  From 1984 to 1994,
Dr. White held various positions with Scripps Memorial Hospitals, San Diego
County, most recently as Chair, Department of Medicine.  Dr. White is also a
director of Arena Pharmaceuticals, Inc., a biopharmaceutical company, Monogram
Biosciences, Inc., a life sciences company, and Apoptos Inc., a private
biopharmaceutical company and is a consultant to the Biotechnology Industry.
Dr. White holds a B.A. degree in Biology and M.D. degree, both from the
University of Chicago and is board certified in internal medicine and medical
oncology

Item	2.	Properties

Our corporate offices are located in Sunnyvale, California, where, as of July
1, 2008, we lease approximately 32,000 square feet under a lease that expires in
December 2011 and 15,000 square feet under a lease that expires in December
2009. Our facility includes administrative and research and development space.
The lease is a non-cancelable operating lease. We believe that our existing
facility is adequate to meet our current and foreseeable needs or that suitable
additional space will be available as needed.

Item	3. 	Legal Proceedings

None.

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

None.

PART II

Item	5.	Market for Registrant's Common
Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

Our common stock trades on the NASDAQ Stock Market under the symbol
"PCYC." The following table sets forth, for the periods indicated, the high and
low sales prices of our common stock.

30

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`HIGH        LOW
                                    ------      -----
FISCAL YEAR ENDED JUNE 30, 2008
First Quarter                   $    2.79  $    1.64
Second Quarter                       2.47       1.29
Third Quarter                        1.65       0.55
Fourth Quarter                       1.97       0.65

FISCAL YEAR ENDED JUNE 30, 2007
First Quarter                   $    5.36  $    3.48
Second Quarter                       6.29       4.65
Third Quarter                        5.59       2.50
Fourth Quarter                       3.99       2.60`

As of August 31, 2008, there were 122 holders of record of our common stock.
We have not paid cash dividends on our common stock since our inception and we
do not anticipate paying any in the foreseeable future.

Sales and Repurchases of Securities

We did not sell unregistered securities during our fiscal year end June
30, 2008.  We did not repurchase any of our equity securities during the fourth
quarter of the year ended June 30, 2008.

Securities Authorized for Issuance Under Equity Compensation Plans

See Item 12, "Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters" for information with respect to
our compensation plans under which equity securities are authorized for
issuance.

Stock Performance Graph(1)

The graph depicted below shows the company's Common Stock price as an index
assuming $100 invested on June 30, 2003 at the then current market price of
$4.74 per share, along with the composite prices of companies listed in the
Nasdaq Total U.S. Stock Market Index and Nasdaq Pharmaceutical Index (in each
case, assuming reinvestment of dividends).

31

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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN(2)

AMONG PHARMACYCLICS, INC., THE NASDAQ
STOCK MARKET (U.S.) INDEX

AND THE NASDAQ PHARMACEUTICAL INDEX



(1)   This section is not "soliciting material," is not deemed "filed" with the SEC and is not to be
incorporated by reference in any of our filings under the Securities Act or the Exchange Act whether made before or after the
date hereof and irrespective of any general incorporation language in any such filing.

(2)   Shows the cumulative return on investment assuming an investment of $100 in our common stock, the Nasdaq-US and
Nasdaq-Pharmaceuticals indices on June 30, 2003.

|                         | Cumulative Total Return
|------------------------ | -----------------------
|                         | 6/03                   
|PHARMACYCLICS            | 100                    
|NASDAQ STOCK MARKET (US) | 100                    
|NASDAQ PHARMACEUTICAL    | 100                    

32

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Item	6.	Selected Financial
Data

The data set forth below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements and related notes included elsewhere herein.

`Period
                                                                                                 from
                                                                                               Inception
                                                                                           (April 19, 1991)
                                                             Year Ended June 30,                through
                                           -------------------------------------------------   June 30,
                                             2008     2007     2006       2005       2004        2008
                                           -------- -------- ---------  ---------  ---------   ---------
                                                    (in thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Revenues:
  License and milestone revenues ........ $     -- $     -- $      --  $      --     $   --   $   7,855
  Grant and contract revenues ...........       --      126       181         --         --       6,154
                                           -------- -------- ---------  ---------  ---------   ---------
      Total revenues ....................       --      126       181         --         --      14,009
                                           -------- -------- ---------  ---------  ---------   ---------
Operating expenses:
  Research and development ..............   18,180   21,115    25,737     24,964     24,447     311,922
  General and administrative ............    7,332    7,403    11,919      7,905      5,843      76,141
  Purchased in-process research
   and development ......................       --       --     6,647         --         --       6,647
                                           -------- -------- ---------  ---------  ---------   ---------
      Total operating expenses ..........   25,512   28,518    44,303     32,869     30,290     394,710
                                           -------- -------- ---------  ---------  ---------   ---------
Loss from operations ....................  (25,512) (28,392)  (44,122)   (32,869)   (30,290)   (380,701)
Interest income .........................    1,206    2,175     1,964      1,821      1,132      42,806
Interest expense and other
   income (expense), net ................        8       --        --         --         (7)     (1,556)
                                           -------- -------- ---------  ---------  ---------   ---------
Net loss................................. $(24,298)$(26,217)$ (42,158) $ (31,048) $ (29,165)  $(339,451)
                                           ======== ======== =========  =========  =========   =========
Basic and diluted net
   loss per share(1)..................... $  (0.93)$  (1.08)    (2.12) $   (1.57) $   (1.71)
                                           ======== ======== =========  =========  =========
Shares used to compute basic and
  diluted net loss per share ............   25,989   24,175    19,889     19,720     17,064
                                           ======== ======== =========  =========  =========



                                                             June 30,
                                           --------------------------------------------------
                                             2008     2007     2006       2005       2004
                                           -------- -------- ---------  ---------  ---------
                                                             (in thousands)
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
  securities ............................ $ 16,755   38,762    40,477  $  71,899  $ 101,418
Total assets ............................   18,367   41,095    42,729     74,564    104,667
Deficit accumulated during
  development stage ..................... (339,451) (315,153)(288,936)  (246,778)  (215,730)
Total stockholders' equity ..............   16,445   38,401    39,320     69,994    100,288`

(1)

33

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Item	7.	Management's Discussion and Analysis
of Financial Condition and Results of Operations

In addition to historical information, this report contains predictions,
estimates, assumptions and other forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from any future performance suggested in this report as a result of
the risks, uncertainties and other factors described herein and elsewhere in
this report, including those discussed in "Risk Factors."

Overview

Pharmacyclics is a pharmaceutical company leveraging our expertise in small-
molecule chemistry and drug development  to develop therapeutic products in
oncology and immune mediated diseases based on novel targets, pathways, and
mechanisms. Our pharmaceutical agents are synthetic small molecules designed to
target key biochemical pathways in diseased cells.   Our late stage product
candidate, motexafin gadolinium (MGd, formerly Xcytrin®) has completed Phase
3 trials in patients with brain metastases from non-small-cell lung cancer
(NSCLC) and is now in two Phase 2 trials being conducted by the National Cancer
Institute in patients with primary brain tumors.  We have three other drug
candidates with product development programs in late stage pre-clinical
development, Phase 1 and Phase 2 trials.

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 June 30, 2008, had an accumulated deficit of approximately $339.5
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.

MGd, is an anti-cancer agent with a novel
mechanism of action. MGd is designed to accumulate selectively in cancer cells.
Once inside cancer cells, MGd induces apoptosis (programmed cell death) by
inhibiting thioredoxin reductase and disrupting redox-dependent pathways.  We
believe MGd has the potential to be used for treating many types of cancer
either as a stand-alone agent or in combination with other treatments such as
chemotherapy, targeted therapy or radiation therapy.  MGd is also detectable by
magnetic resonance imaging (MRI) and may allow for more precise tumor detection.

In the previously conducted pivotal SMART trial,
(Study of Neurologic Progression with Motexafin Gadolinium and Radiation
Therapy), investigators found that patients given MGd in addition to whole brain
radiation therapy (WBRT) had a median time to neurologic progession of 15.4
months, compared to 10.0 months for patients who received only WBRT (p=0.12,
hazard ratio=0.78), a trend in favor of MGd.  In North American patients
(N=348), where WBRT was delivered more promptly, the median time to neurologic
progression was increased from 8.8 months for patients treated with WBRT alone
compared to 24.2 months for patients receiving WBRT plus MGd (P=0.004, hazard
ratio=0.53).  We subsequently concluded that prompt delivery of radiation
therapy, as typically given in the U.S., is an important factor in treatment
effect.   In December 2006, we submitted a New Drug Application (NDA) to the
Food and Drug Administration (FDA) for the use of MGd in combination with
radiation therapy for the treatment of patients with brain metastases from
NSCLC.  In December 2007, we announced that the FDA determined that our NDA was
non-approvable which will require us, among other things, to conduct additional
clinical studies and submit that data before the FDA will approve MGd for
marketing.  We have also completed a Phase 2 clinical trial of MGd plus
stereotactic radiosurgery for the treatment of brain metastases.  The results,
presented at the 2007 Annual

34Meeting of the American Society of Clinical
Oncology indicated that MGd may improve the efficacy of stereotactic
radiosurgery by providing more accurate magnetic resonance imagining (MRI)
treatment-planning and better defining the treatment field in patients with
brain metastases from solid tumors.  MGd allowed physicians to identify occult
brain metastases in 24% of patients that were missed with standard MRI contrast
agents and were amenable to stereotactic radiosurgery.

Based on the results of these two trials, we are planning to conduct
another Phase 3 pivotal trial for the use of MGd in combination with WBRT and
stereotactic radiation therapy for the treatment of patients with brain
metastases from NSCLC.  Currently, MGd is under evaluation in multicenter
studies sponsored by the NCI, a Phase 2 trial in adults with newly diagnosed
glioblastoma and a Phase 2 trial in children with brain stem gliomas.  The FDA
has also designated MGd as an orphan drug for the treatment of brain metastases
arising from solid tumors.

PCI-24781 is a histone deacetylase (HDAC) inhibitor that is now in a
Phase 1 trial in patients with advanced relapsed solid tumors and a Phase 2
trial in patients with recurrent lymphomas.  PCI-24781 targets histone
deacetylase (HDAC) enzymes and inhibits their function.  HDAC enzymes are
required for control of gene expression and inhibition of these enzymes leads to
tumor cell cytotoxicity.  To date, clinical trials have demonstrated that PCI-
24781 is well-absorbed following oral administration and causes inhibition of
the target enzyme.  Published laboratory studies done in collaboration with
scientists at Stanford University have identified a novel biomarker that may
optimize clinical testing by improving patient selection.  We are also
developing a first-in-class HDAC-8 selective inhibitor which is in preclinical
development for the potential treatment of cancer and autoimmune diseases.

PCI-32765 is an oral small molecule tyrosine kinase inhibitor that
inhibits an enzyme, known as Btk, which is required for early B-cells to divide
and mature into fully functioning cells. When B-cells are overactive, the immune
system produces inflammatory cells and antibodies that begin to attack the
body's own tissue, leading to autoimmune diseases such as rheumatoid arthritis,
lupus and multiple sclerosis.  Also, B-cell lymphomas and leukemias result from
mutations acquired during normal B-cell development leading to uncontrolled
proliferation and B cell malignancies. Studies have shown that PCI-32765 may
inhibit the proliferation of B-cell lymphoma and leukemia cells and in published
studies, it has demonstrated a dose dependent ability to inhibit disease
development in rheumatoid arthritis animal models. In animal models of
rheumatoid arthritis, oral administration of PCI-32765 leads to regression of
established disease. We plan to file an IND application with the FDA for PCI-
32765.  The initial Phase 1 trial will be conducted in patients with recurrent
B-cell lymphoma who will receive the drug orally in a dose escalation design.
We have developed a proprietary molecular probe that we will use as a biomarker
to optimize our treatment regimen in our Phase 1 trial.  The Phase 1 trial is
designed to assess safety, pharmacokinetics and efficacy.

PCI-27483 is a small molecule inhibitor of Factor VIIa.  This drug
selectively inhibits Factor VIIa when it is complexed with a protein called
tissue factor (TF).  In cancer, the Factor VIIa:TF complex is found in abundance
in pancreatic, gastric,  colon and other tumors, and triggers a host of
physiologic processes that facilitate tumor angiogenesis, growth and invasion.
The Factor VIIa:TF complex is thought to be the cause of the increased
propensity to develop thromboses seen in cancer patients.  Laboratory studies
and animal models indicate that inhibitors of Factor VIIa may block tumor growth
and metastases.  We filed an Investigational New Drug (IND) application for PCI-
27483 with the FDA in July 2008.  We plan to conduct a Phase 1 trial in normal
volunteers, designed to assess safety and activity against the target protein.
We believe that PCI-27483 may be useful for treating the thrombotic
complications of cancer and also as an anti-cancer agent.

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 many35cases, obtain adequate coverage of and reimbursement for
our products from government and private insurers. We cannot provide assurance
that we will generate revenues or achieve and sustain profitability in the
future.

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 reasonable 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 June 30, 2008, 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 (deficit). 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 the statement of operations. 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; andOur 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

36

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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 a number of 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 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 had not been rendered that were
outstanding as of July 1, 2005 has been expensed as the requisite service was
rendered.

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 interest rate is based on a zero-coupon
United States Treasury bond whose maturity period equals the expected term of
the company's options.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, "Fair Value
Measurements" ("SFAS 157"). This standard defines fair value,
establishes the framework for measuring fair value in accounting principles
generally accepted in the United States and expands disclosure about fair value
measurements. This pronouncement applies under other accounting standards that
require or permit fair value measurements. Accordingly, this statement does not
require any new fair value measurement. This statement is effective for fiscal
years beginning after November 15, 2007 and interim periods within those
fiscal years. However, on December 14, 2007, the FASB issued proposed FSP
FAS 157-b which would delay the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). This proposed FSP partially defers the effective date
of Statement 157 to fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years for items within the scope of this
FSP. Effective for the year beginning July 1, 2008, we will adopt
SFAS 157 except as it applies to those nonfinancial assets and nonfinancial
liabilities as noted in proposed FSP FAS 157-b. The adoption of
SFAS 157 is not expected to have a material impact on our financial
position, operating results or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities - Including an
Amendment of FASB Statement No. 115, which is effective for fiscal
years beginning after November 15, 2007.  This statement permits an entity
to choose to measure many financial instruments and certain other items at fair
value at specified election dates. Subsequent unrealized gains and

37

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losses on items for which the fair value option has been elected will be reported in
earnings. We are currently evaluating the impact of this standard on our results
of operations and our financial position.

In June 2007, the FASB ratified EITF Issue No. 07-3 ("EITF 07-
3"), Accounting for Nonrefundable Advance Payments for Goods or Services
to Be Used in Future Research and Development Activities.  The scope of EITF
07-3 is limited to nonrefundable advance payments for goods and services to be
used or rendered in future research and development activities pursuant to an
executory contractual arrangement.  This issue provides that nonrefundable
advance payments for goods or services that will be used or rendered for future
research and development activities should be deferred and capitalized. Such
amounts should be recognized as an expense as the related goods are delivered or
the related services are performed. EITF 07-3 is effective for fiscal years
beginning after December 15, 2007. Earlier application is not permitted.
Companies should report the effects of applying this issue prospectively for new
contracts entered into on or after the effective date of this issue.  We are
currently evaluating the impact of this standard on our results of operations
and our financial position.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles.  SFAS No. 162 identifies
the sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles (the GAAP hierarchy).  SFAS No. 162 will become effective
60 days following the SEC's approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.  We do not
expect the adoption of SFAS No. 162 to have a material effect on our
financial position, operating results or cash flows.

Results of Operations

Revenues

The following table summarizes the period over period changes in our revenue
over the last three fiscal years:



`2008    Change     2007    Change     2006
                               --------- -------  --------- -------  ---------
Grant and contract revenues   $    0     -100%   $ 126,000   -30%   $ 181,000`

Revenues in fiscal years 2007 and 2006 were the result of a federal grant
awarded by the National Institutes of Health (NIH). Work under this grant was
completed in fiscal year 2007.

Research and Development Expenses

The following table summarizes the period over period changes in our research
and development (R&D) expenses over the last three fiscal years:



`2008      Change       2007      Change       2006
                           ----------- ---------  ----------- ---------  -----------
R & D expenses             $18,180,000   -14%     $21,115,000    -18%    $25,737,000`

R&D expenses in fiscal 2008 decreased by $2,935,000 compared to fiscal
2007 primarily due to a decrease of $3,656,000 in personnel costs due to lower
headcount, a decrease in share-based compensation of $821,000 and a reduction in
consulting costs of $539,000 partially offset by increases of $2,146,000 in drug
manufacturing costs and $710,000 in outside preclinical costs associated with
our HDAC, Btk and Factor VIIa programs.

R&D expenses in fiscal 2007 decreased by $4,622,000 compared to fiscal
2006 primarily due to a decrease of $1,880,000 in outside clinical trial costs
due to the completion of the SMART trial, a decrease of $1,150,000

38

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in share-based compensation expense, a decrease of $1,035,000 in drug manufacturing costs
and a decrease of $944,000 in personnel and consulting expenses due to lower
average headcount and reduced use of consultants. These cost decreases were
partially offset by an increase of $1,004,000 in preclinical study costs.

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. Prior to 1999, we did not track our historical research and
development costs 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
                                                                                         Years ended June 30,
                                                                                -------------------------------------
                                                                     Estimated
                                                   Phase of         Completion
Product                Description               Development         of Phase      2008          2007          2006
-------------------- --------------------- ------------------------- ---------- -----------  -----------  -----------
MGd                    Cancer                      Phase 3            Unknown   $ 2,413,000  $ 7,680,000  $14,331,000

HDAC Inhibitors        Cancer                      Phase 2            Unknown     3,429,000    2,547,000      235,000

Btk Inhibitors         Cancer                   Pre-clinical         Fiscal 2009  3,402,000    1,150,000       19,000

Factor VIIa Inhibitor  Cancer                   Pre-clinical         Fiscal 2009  2,349,000      919,000        3,000

OTHER                                                                                  ---        50,000      650,000
                                                                                 -----------  -----------  -----------
                     Total direct costs......................................... 11,593,000   12,346,000   15,238,000
                        Indirect costs..........................................  6,587,000    8,769,000   10,499,000
                                                                                 -----------  -----------  -----------
                     Total research and
                        development costs...................................... $18,180,000  $21,115,000  $25,737,000
                                                                                 ===========  ===========  ===========`

Research and development expenses decreased $2,935,000 or 14% for the year
ended June 30, 2008 compared to the year ended June 30, 2007 and were primarily
comprised of the following:

- MGd program costs decreased $5,267,000 or 69%, primarily due to a $4,249,000
decrease in personnel costs and a $682,000 decrease in outside clinical trials
costs due to the completion of the SMART and other trials.

- HDAC program costs increased $882,000 or 35% primarily due to an increase in
drug costs of $1,030,000, partially offset by a decrease in non-clinical study
costs of $423,000.

- Btk program costs increased $2,252,000 or 196% primarily due to a $915,000
increase in pre-clinical study costs, a $569,000 increase in drug costs and a
$466,000 increase in personnel costs.

- Factor VIIa program costs increased $1,430,000 or 156% primarily due to a
$350,000 increase in personnel costs, a $540,000 increase in drug costs and a
$261,000 increase in preclinical study costs.

- Indirect costs decreased $2,182,000 or 25% primarily due to a $1,025,000
decrease in personnel costs and an $821,000 decrease in share-based compensation
costs.

Research and development expenses decreased $4,622,000, or 18%, for the
year ended June 30, 2007 compared to the year ended June 30, 2006, and were
primarily comprised of the following:

- MGd program costs decreased $6,651,000, or 46%, primarily due to:

39

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- a $2,315,000 decrease in personnel costs and a decrease of $1,901,000 in
third-party clinical trial costs due to the completion of the SMART
trial.

- a $1,564,000 decrease in drug costs as we did not manufacture any Xcytrin in
fiscal 2007.

- HDAC, Btk and Factor VIIa program costs increased a total of $4,359,000 as
we continued the development of compounds acquired from Celera Genonmics late in
fiscal 2006.

- Indirect costs decreased $1,730,000, or 16%, primarily due to a decrease in
share-based compensation expense.

We expect research and development expenses to decline in fiscal 2009 as
compared to fiscal 2008.

General and Administrative Expenses. The following table summarizes
the period over period changes in our general and administrative (G&A)
expenses over the last three fiscal years.

`2008     Change       2007      Change       2006
                            ---------- ---------  ----------- ---------  ----------
General and
  administrative expenses  $7,332,000    -1%      $ 7,403,000   -38%    $11,919,000`

G&A expenses in fiscal 2008 decreased by $71,000 compared to fiscal
2007.  The composition of G&A expenses were similar in both fiscal
years.

G&A expenses in fiscal 2007 decreased by $4,516,000 compared to fiscal
2006 primarily due to a decrease of $2,032,000 in share-based compensation
expense, a decrease of $1,325,000 in personnel expenses due to a reduction in
employee headcount and a decrease of $1,056,000 in commercialization expenses
related to reduced activities associated with the results of the SMART trial
released in December 2005.

We expect general and administrative expenses to decline in fiscal 2009 as
compared to fiscal 2008.

Purchased In-Process Research and Development. Purchased in-process
research and development expense for the years ended June 30, 2008, 2007 and
2006 was $0, $0 and $6,647,000, respectively. The amount in fiscal 2006 was due
to our acquisition, in April 2006, of multiple small molecule drug candidates
for the treatment of cancer and other diseases from Celera Genomics, an Applera
Corporation business (now Celera Corporation). One drug candidate was in a Phase
1 clinical trial while the other drug candidates were in pre-clinical
development. Total consideration paid was $6,647,000 which consisted of
1,000,000 shares of our common stock, $2,000,000 of cash and $147,000 of
transaction costs. We recorded an expense of $6,647,000 related to the
consideration for the acquired drug candidates which had not yet reached
technological feasibility and had no alternative future use due to the early
stage of development and the significant regulatory requirements remaining.

Interest and Other, Net. Interest and other, net, was $1,214,000,
$2,175,000 and $1,964,000 for the years ended June 30, 2008, 2007 and 2006,
respectively.  The decline in interest and other, net in fiscal 2008 was
primarily due to decreased investment balances.  The increase in interest and
other, net in fiscal 2007 was primarily due to higher average interest rates
earned on the company's investments.

Income Taxes. At June 30, 2008, we had net operating loss
carryforwards of approximately $322.4 million for federal income tax reporting
purposes and tax credit carryforwards of approximately $11.0 million for federal
reporting purposes.  These amounts expire at various times through 2028. Under
the Tax Reform Act of 1986, the amounts of and the benefit from net operating
losses and tax credit carryforwards that can be carried forward may be impaired
or limited in certain circumstances. These circumstances include, but are not
limited to, a cumulative stock ownership change of greater than 50%, as defined,
over a three year period. Such an annual limitation may result in the expiration
of net operating losses before utilization. A full valuation

40

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allowance has been established for the company's deferred tax assets since
realization of such assets through the generation of future taxable income is uncertain.
See Note 6 of "Notes to Financial Statements."

Liquidity and Capital Resources

Our principal sources of working capital since inception have been private
and public equity financings and proceeds from collaborative research and
development agreements, as well as interest income. Since inception, we have
used approximately $306,007,000 of cash for operating activities and
approximately $16,166,000 of cash for the purchase of laboratory and office
equipment, leasehold improvements, and payments under capital lease
agreements.

As of June 30, 2008, we had approximately $16,755,000 in cash, cash
equivalents and marketable securities. Net cash used in operating activities was
$22,105,000, $23,544,000 and $31,819,000 for the years ended June 30, 2008, 2007
and 2006, respectively, and resulted primarily from operating losses adjusted
for non-cash expenses and changes in accounts payable, accrued liabilities,
prepaid expenses and other assets.

Net cash provided by (used in) investing activities of $22,361,000,
$(8,891,000) and $25,877,000 in the years ended June 30, 2008, 2007 and 2006,
respectively, primarily consisted of the net effect of purchases, maturities and
sales of marketable securities.

Net cash provided by financing activities of $63,000, $22,093,000 and
$559,000 in the years ended June 30, 2008, 2007 and 2006, respectively,
primarily consisted of proceeds from the sale of common stock, the exercise of
stock options and the sale of stock under the company's employee stock purchase
plan.

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 June 30, 2008 are as follows:

`Operating
                                          Lease
                                       Commitments(1)
                                       -----------

Less than 1 year .................... $   918,000
1-3 years ...........................   1,407,000
3-5 years ...........................     330,000
More than 5 years....................          --
                                       -----------
  Total ............................. $ 2,655,000
                                       ===========`

In April 2006, we acquired multiple small molecule drug candidates for the
treatment of cancer and other diseases from Celera Genomics, an Applera
Corporation (now Celera Corporation) business. Future milestone payments under
the agreement, as amended, could total as much as $104 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 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

41

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as well. In any event, we will need to raise substantial additional
capital to fund our operations in the near future.  Currently, we are actively
seeking partnership collaborations to help fund the development of our product
candidates.  We may also be required to raise additional funds through the
public or private sale of securities, bank debt or otherwise.  If we are unable
to secure additional funds, whether through partnership collaborations or sale
of our securities, we will have to delay, reduce the scope of or discontinue one
or more of our product development programs.  Our actual capital requirements
will depend on many factors, including the following:

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

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

- the costs and timing of obtaining regulatory approvals.

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
highly dilutive, or otherwise disadvantageous, 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 and on acceptable terms,
would require us to reduce our operating expenses and would limit our ability to
respond to competitive pressures or unanticipated requirements to develop our
product candidates and to continue operations, any of which would 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.

42

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Item	7A.	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 which 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 maximize 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 June 30, 2008
would have potentially declined by $14,000.

The table below presents the principal amounts and weighted-average interest
rates by year of stated maturity for our investment portfolio (in thousands,
except interest rates):

`Fiscal Year         Fair Value
                                   2009           at June 30, 2008
                                 ----------       ----------------

Marketable securities ........  $   4,485              $   4,495

Weighted-average interest rate       4.53%                    --`

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Item	8.	Financial Statements and Supplementary
Data

INDEX TO FINANCIAL STATEMENTS



|                                                        | Page
|------------------------------------------------------- | ----
|Report of Independent Registered Public Accounting
Firm | 45  
|Balance Sheets                                          | 46  
|Statements of Operations                                | 47  
|Statements of Cash Flows                                | 48  
|Statements of Stockholders' Equity (Deficit)            | 49  
|Notes to Financial Statements                           | 56  

44

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REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of Pharmacyclics, Inc.:


In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' equity (deficit) and cash flows present fairly, in all
material respects, the financial position of Pharmacyclics, Inc. (a development
stage enterprise) at  June 30, 2008 and 2007, and the results of its operations
and its cash flows for each of the three years in the period ended June 30, 2008
and, cumulatively, for the period from April 19, 1991 (date of inception) to
June 30, 2008in
conformity with accounting principles generally accepted in the United States of
America.  Also in our opinion, the company maintained, in all material respects,
effective internal control over financial reporting as of June 30, 2008, based
on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The company's management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in Management's Annual Report on Internal Control Over Financial
Reporting, appearing under Item 9A(b).  Our responsibility is to express
opinions on these financial statements and on the company's internal control
over financial reporting based on our integrated audits.  We conducted our
audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States).  Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects.  Our
audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.  Our audit of internal
control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk.  Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinions.

A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A company's internal control
over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements.  Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

San Jose, California
   September 5, 2008

45

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PHARMACYCLICS, INC.

(a development stage enterprise)

BALANCE SHEETS

(in thousands, except share and per share amounts)



`June 30,
                                                              --------------------
                                                                2008       2007
                                                              ---------  ---------
                           ASSETS
Current assets:
  Cash and cash equivalents ................................ $  12,260  $  11,941
  Marketable securities ....................................     4,495     26,821
  Prepaid expenses and other current assets ................       401        961
                                                              ---------  ---------
          Total current assets .............................    17,156     39,723
Property and equipment, net ................................       688        849
Other assets ...............................................       523        523
                                                              ---------  ---------
                                                             $  18,367  $  41,095
                                                              =========  =========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable ......................................... $   1,055  $   1,426
  Accrued liabilities ......................................       796      1,189
                                                              ---------  ---------
          Total current liabilities ........................     1,851      2,615
Deferred rent ..............................................        71         79
                                                              ---------  ---------
          Total liabilities ................................     1,922      2,694
                                                              ---------  ---------
Commitments (Note 2 and 7)

Stockholders' equity:
  Preferred stock, $0.0001 par value; 1,000,000 shares
    authorized at June 30, 2008 and 2007; no shares
    issued and outstanding .................................        --         --
  Common stock, $0.0001 par value; 49,000,000 shares
    authorized at June 30, 2008 and 2007; shares issued
    and outstanding -- 26,015,389 at June 30, 2008
    and 25,968,189 at June 30, 2007 ........................         3          3
  Additional paid-in capital ...............................   355,883    353,560
  Accumulated other comprehensive income (loss) ............        10         (9)
  Deficit accumulated during development stage .............  (339,451)  (315,153)
                                                              ---------  ---------
          Total stockholders' equity .......................    16,445     38,401
                                                              ---------  ---------
                                                             $  18,367  $  41,095
                                                              =========  =========`

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

46

---



PHARMACYCLICS, INC.

(a development stage enterprise)

STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

`Period
                                                                             from
                                                                          Inception
                                                                       (April 19, 1991)
                                               Year Ended June 30,         through
                                         -------------------------------   June 30,
                                           2008       2007       2006        2008
                                         ---------  ---------  ---------  ----------
Revenues:
  License and milestone revenues....... $      --  $      --  $      --  $    7,855
  Grant and contract revenues .........        --        126        181       6,154
                                         ---------  ---------  ---------  ----------
          Total revenues ..............        --        126        181      14,009
                                         ---------  ---------  ---------  ----------
Operating expenses:
  Research and development* ...........    18,180     21,115     25,737     311,922
  General and administrative* .........     7,332      7,403     11,919      76,141
  Purchased in-process research
     and development ..................        --         --      6,647       6,647
                                         ---------  ---------  ---------  ----------
          Total operating expenses ....    25,512     28,518     44,303     394,710
                                         ---------  ---------  ---------  ----------
Loss from  operations .................   (25,512)   (28,392)   (44,122)   (380,701)
Interest income .......................     1,206      2,175      1,964      42,806
Interest expense and other
   income (expense), net ..............         8         --                 (1,556)
                                         ---------  ---------  ---------  ----------
Net loss .............................. $ (24,298) $ (26,217) $ (42,158) $ (339,451)
                                         =========  =========  =========  ==========

Basic and diluted net loss per share .. $   (0.93) $   (1.08) $   (2.12)
                                         =========  =========  =========
Shares used to compute basic
and diluted net loss per share ........    25,989     24,175     19,889
                                         =========  =========  =========

  *Includes non-cash share-based
   compensation of:
     Research and development ......... $     961  $   1,782  $   2,932  $    5,976
     General and administrative ....... $   1,299  $   1,300  $   3,332  $    6,547`

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

47

---





PHARMACYCLICS, INC.

(a development stage enterprise)

STATEMENTS OF CASH FLOWS

(in thousands)

`Period
                                                                                                            from
                                                                                                         Inception
                                                                                                      (April 19, 1991
                                                                              Year Ended June 30,         through
                                                                        -------------------------------   June 30,
                                                                          2008       2007       2006        2008
                                                                        ---------  ---------  ---------  ----------
Cash flows from operating activities:
  Net loss ........................................................... $ (24,298) $ (26,217) $ (42,158) $ (339,451)
  Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization ...................................       348        439        588      14,985
     Amortization of premium/discount on marketable securities, net.....    (196)      (137)      (145)          6
     Purchased in-process research and development ...................        --         --      4,500       4,500
     Share-based compensation ........................................     2,260      3,082      6,264      12,523
     Loss (gain) on sale of marketable securities ....................        (7)        --         --          51
     Write-down of fixed assets ......................................        --         --         --         381
     Changes in assets and liabilities:
       Prepaid expenses and other assets .............................       560          4        293        (924)
       Accounts payable ..............................................      (371)      (482)    (1,207)      1,055
       Accrued liabilities ...........................................      (393)      (242)        73         796
       Deferred rent .................................................        (8)         9        (27)         71
                                                                        ---------  ---------  ---------  ----------
            Net cash used in operating activities ....................   (22,105)   (23,544)   (31,819)   (306,007)
                                                                        ---------  ---------  ---------  ----------
Cash flows from investing activities:
  Purchase of property and equipment .................................      (187)      (524)      (468)    (12,285)
  Proceeds from sale of property and equipment .......................        --         --         --         112
  Purchases of marketable securities .................................    (5,446)   (14,867)   (12,232)   (529,546)
  Proceeds from sales of marketable securities .......................     6,994         --         --      84,936
  Proceeds from maturities of marketable securities ..................    21,000      6,500     38,577     440,068
                                                                        ---------  ---------  ---------  ----------
            Net cash provided by (used in) investing activities ......    22,361     (8,891)    25,877     (16,715)
                                                                        ---------  ---------  ---------  ----------
Cash flows from financing activities:
  Issuance of common stock, net of issuance costs ....................        63     21,510        392     308,918
  Exercise of stock options ..........................................        --        583        167       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 ................        63     22,093        559     334,982
                                                                        ---------  ---------  ---------  ----------
Increase (decrease) in cash and cash equivalents .....................       319    (10,342)    (5,383)     12,260
Cash and cash equivalents at beginning of period .....................    11,941     22,283     27,666          --
                                                                        ---------  ---------  ---------  ----------
Cash and cash equivalents at end of period ........................... $  12,260  $  11,941  $  22,283  $   12,260
                                                                        =========  =========  =========  ==========
Supplemental Disclosures of Cash Flow Information:
  Interest paid ...................................................... $      --  $      --  $      --  $    1,269

Supplemental Disclosure of Non-Cash Investing and Financing Activities
  Property and equipment acquired under capital lease obligations ....        --         --         --       3,881
  Warrants issued ....................................................        --         --         --          49
  Conversion of notes payable and accrued interest
    into convertible preferred stock .................................        --         --         --       3,051`

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

48

---





PHARMACYCLICS, INC.

-(a development stage enterprise)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

For the period from inception (April 19, 1991) through June
30, 2008

(in thousands, except share and per share amounts)

`Deficit
                                                  Convertible                                          Accumulated    Accumulated
                                               Preferred Stock         Common Stock      Additional       other         During
                                           --------------------- ----------------------   Paid-in     Comprehensive   Development
                                             Shares      Amount     Shares      Amount    Capital     Income (Loss)      Stage       Total
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Issuance of common stock for cash at
  $0.02 per share ........................         --  $     --      400,000  $     --  $        6  $            --  $        --  $        6
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 1991 .................         --        --      400,000        --           6               --           --           6
Issuance of common stock for cash at an
  average price of $0.02 per share .......         --        --       97,111        --           2               --           --           2
Issuance of convertible preferred stock
  for cash, net of issuance costs, at
  an average price of $1.32 per share ....  2,040,784        --           --        --       2,667               --           --       2,667
Net loss .................................         --        --           --        --          --               --         (523)       (523)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 1992 .................  2,040,784        --      497,111        --       2,675               --         (523)      2,152
Issuance of common stock for cash at an
  average price of $0.06 per share .......         --        --       49,000        --           3               --           --           3
Issuance of convertible preferred stock
  for cash, net of issuance costs, at
  $4.88 per share ........................  1,580,095        --           --        --       7,674               --           --       7,674
Net loss .................................         --        --           --        --          --               --       (3,580)     (3,580)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 1993 .................  3,620,879        --      546,111        --      10,352               --       (4,103)      6,249
Issuance of common stock upon exercise
  of stock options at an average price
  of $0.12 per share .....................         --        --      324,188        --          38               --           --          38
Issuance of convertible preferred stock
  for cash, net of issuance costs, at
  an average price of $8.63 per share ....    886,960        --           --        --       7,623               --           --       7,623
Net loss .................................         --        --           --        --          --               --       (5,141)     (5,141)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 1994 .................  4,507,839        --      870,299        --      18,013               --       (9,244)      8,769
Issuance of common stock upon exercise
  of stock options at an average price
  of $0.24 per share .....................         --        --       38,403        --           9               --           --           9
Issuance of warrants .....................         --        --           --        --          49               --           --          49
Net loss .................................         --        --           --        --          --               --      (10,479)    (10,479)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 1995 .................  4,507,839        --      908,702        --      18,071               --      (19,723)     (1,652)
Issuance of convertible preferred stock
  for notes payable and accrued interest
  at an average of $8.63 per share .......    353,483        --           --        --       3,051               --           --       3,051
Issuance of convertible preferred stock
  for cash, net of issuance costs, at an
  average price of $8.63 per share .......    295,649        --           --        --       2,550               --           --       2,550
Issuance of common stock upon initial
  public offering, net of issuance
  costs, for cash at $12 per share .......         --        --    2,383,450         1      26,042               --           --      26,043
Conversion of convertible preferred stock
  into common stock ...................... (5,156,971)       --    5,156,971        --          --               --           --          --
Issuance of common stock upon exercise of
  stock options at an average exercise
  price of $1.33 per share ...............         --        --       91,922        --         122               --           --         122
Issuance of common stock upon
  exercise of purchase rights at an
  exercise price of $10.20 per
  share ..................................         --        --        8,379        --          86               --           --          86
Share-based compensation expense .........         --        --           --        --          26               --           --          26
Net loss .................................         --        --           --        --          --               --       (8,235)     (8,235)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 1996 .................         --        --    8,549,424         1      49,948               --      (27,958)     21,991
Issuance of common stock, net of
  issuance costs, for cash at an
  average price of $16.93 per share ......         --        --    1,442,190        --      24,420               --           --      24,420
Issuance of common stock upon exercise
  of stock options at an average price
  of $2.74 per share .....................         --        --       96,283        --         264               --           --         264
Issuance of common stock upon exercise
  of purchase rights at an exercise
  price of $10.51 per share ..............         --        --       14,557        --         153               --           --         153
Share-based compensation expense .........         --        --           --        --         126               --           --         126
Net loss .................................         --        --           --        --          --               --      (10,258)    (10,258)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 1997 .................         --        --   10,102,454         1      74,911               --      (38,216)     36,696
Issuance of common stock, net of
  issuance costs, for cash at $21.75
  per share ..............................         --        --    2,012,500        --      40,796               --           --      40,796
Issuance of common stock upon exercise
  of stock options at an average
  price of $6.57 per share ...............         --        --       88,933        --         584               --           --         584
Issuance of common stock upon exercise
  of purchase rights at an exercise
  price of $14.36 per share ..............         --        --       10,372        --         149               --           --         149
Issuance of common stock upon exercise
  of warrants ............................         --        --       80,033        --          --               --           --          --
Share-based compensation expense .........         --        --           --        --          91               --           --          91
Net loss .................................         --        --           --        --          --               --       (9,675)     (9,675)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 1998 .................         --        --   12,294,292         1     116,531               --      (47,891)     68,641
Issuance of common stock upon exercise
  of stock options at an average price
  of $5.10 per share .....................         --        --       75,275        --         384               --           --         384
Issuance of common stock upon exercise
  of purchase rights at an exercise
  price of $12.77 per share ..............         --        --       13,643        --         174               --           --         174
Issuance of common stock upon exercise
  of warrants ............................         --        --       45,661        --          --               --           --          --
Share-based compensation expense .........         --        --           --        --          89               --           --          89
Change in unrealized gain (loss) on
  marketable securities ..................         --        --           --        --          --              (85)          --         (85)
Net loss .................................         --        --           --        --          --               --      (19,246)    (19,246)
                                                                                                                                   ----------
Total comprehensive loss .................                                                                                           (19,331)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 1999 .................         --        --   12,428,871         1     117,178              (85)     (67,137)     49,957
Issuance of common stock upon exercise
  of stock options at an average price
  of $13.88 per share ....................         --        --      102,372        --       1,421               --           --       1,421
Issuance of common stock upon exercise
  of purchase rights at an exercise
  price of $25.62 per share ..............         --        --       11,213        --         287               --           --         287
Issuance of common stock, net of
  issuance costs, for cash at an
  average price of $44.36 per share ......         --        --    3,465,000         1     153,711               --           --     153,712
Share-based compensation expense .........         --        --           --        --          88               --           --          88
Change in unrealized gain (loss) on
    marketable securities ................         --        --           --        --          --             (421)          --        (421)
Net loss .................................         --        --           --        --          --               --      (23,630)    (23,630)
                                                                                                                                   ----------
Total comprehensive loss .................                                                                                           (24,051)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 2000 .................         --        --   16,007,456         2     272,685             (506)     (90,767)    181,414
Issuance of common stock upon exercise
  of stock options at an average price
  of $16.17 per share ....................         --        --       93,528        --       1,512               --           --       1,512
Issuance of common stock upon exercise
  of purchase rights at an exercise
  price of $27.89 per share ..............         --        --       15,386        --         429               --           --         429
Share-based compensation expense .........         --        --           --        --         326               --           --         326
Change in unrealized gain (loss) on
    marketable securities ................         --        --           --        --          --            1,599           --       1,599
Net loss .................................         --        --           --        --          --               --      (30,925)    (30,925)
                                                                                                                                   ----------
Total comprehensive loss .................                                                                                           (29,326)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 2001 .................         --        --   16,116,370         2     274,952            1,093     (121,692)    154,355
Issuance of common stock upon exercise
  of stock options at an average price
  of $13.93 per share ....................         --        --       13,257        --         183               --           --         183
Issuance of common stock upon exercise
  of purchase rights at an exercise
  price of $8.32 per share ...............         --        --       58,169        --         484               --           --         484
Share-based compensation expense .........         --        --           --        --          91               --           --          91
Change in unrealized gain (loss) on
    marketable securities ................         --        --           --        --          --             (930)          --        (930)
Net loss .................................         --        --           --        --          --               --      (36,575)    (36,575)
                                                                                                                                   ----------
Total comprehensive loss .................                                                                                           (37,505)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 2002 .................         --        --   16,187,796         2     275,710              163     (158,267)    117,608
Issuance of common stock upon exercise
  of stock options at an average price
  of $1.03 per share .....................         --        --        3,397        --           3               --           --           3
Issuance of common stock upon exercise
  of purchase rights at an exercise
  price of $2.64 per share ...............         --        --       38,908        --         103               --           --         103
Share-based compensation expense .........         --        --           --        --          13               --           --          13
Change in unrealized gain (loss) on
    marketable securities ................         --        --           --        --          --              (19)          --         (19)
Net loss .................................         --        --           --        --          --               --      (28,298)    (28,298)
                                                                                                                                   ----------
Total comprehensive loss .................                                                                                           (28,317)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 2003 .................         --        --   16,230,101         2     275,829              144     (186,565)     89,410
Issuance of common stock, net of
  issuance costs, for cash at an
  average price of $13.00 per share ......                         3,200,000                39,350                                    39,350
Issuance of common stock upon exercise
  of stock options at an average price
  of $4.91 per share .....................         --        --      181,136        --         889               --           --         889
Issuance of common stock upon exercise
  of purchase rights at an exercise
  price of $4.90 per share ...............         --        --       36,680        --         180               --           --         180
Share-based compensation expense .........         --        --           --        --          18               --           --          18
Change in unrealized gain (loss) on
    marketable securities ................         --        --           --        --          --             (394)          --        (394)
Net loss .................................         --        --           --        --          --               --      (29,165)    (29,165)
                                                                                                                                   ----------
Total comprehensive loss .................                                                                                           (29,559)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 2004 .................         --  $     --   19,647,917  $      2  $  316,266  $          (250) $  (215,730) $  100,288
Issuance of common stock upon exercise
  of stock options at an average price
  of $4.46 per share .....................         --        --       61,014        --         272               --           --         272
Issuance of common stock upon exercise
  of purchase rights at an exercise
  price of $5.24 per share ...............         --        --       90,704        --         476               --           --         476
Share-based compensation expense .........         --        --           --        --          49               --           --          49
Change in unrealized gain (loss) on
    marketable securities ................         --        --           --        --          --              (43)          --         (43)
Net loss .................................         --        --           --        --          --               --      (31,048)    (31,048)
                                                                                                                                   ----------
Total comprehensive loss .................                                                                                           (31,091)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 2005 .................         --        --   19,799,635         2     317,063             (293)    (246,778)     69,994
Issuance of common stock upon exercise
  of stock options and purchase rights at
  average price of $3.80 per share .......         --        --      147,059        --         559               --           --         559
Issuance of common stock for purchase
  of Celera assets                                 --        --    1,000,000        --       4,500               --           --       4,500
Share-based compensation expense .........         --        --           --        --       6,264               --           --       6,264
Change in unrealized gain (loss) on
    marketable securities ................         --        --           --        --          --              161           --         161
Net loss .................................         --        --           --        --          --               --      (42,158)    (42,158)
                                                                                                                                   ----------
Total comprehensive loss .................                                                                                           (41,997)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 2006 .................         --        --   20,946,694         2     328,386             (132)    (288,936)     39,320
Issuance of common stock, net of issuance
  costs, for cash at $4.75 per share ......        --        --    4,830,000         1      21,296               --           --      21,297
Issuance of common stock upon exercise
  of stock options and purchase rights at an
  average price $4.16 per share ...........        --        --      191,495        --         796               --           --         796
Share-based compensation expense ..........        --        --           --        --       3,082               --           --       3,082
Change in unrealized gain (loss) on
    marketable securities .................        --        --           --        --          --              123           --         123
Net loss ..................................        --        --           --        --          --               --      (26,217)    (26,217)
                                                                                                                                   ----------
Total comprehensive loss .................                                                                                           (26,094)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 2007 ..................        --  $     -- $ 25,968,189  $      3  $  353,560  $            (9) $  (315,153) $   38,401
Issuance of common stock upon exercise
  of stock options and purchase rights at an
  average price $1.34 per share ...........        --        --       47,200        --          63               --           --          63
Share-based compensation expense ..........        --        --           --        --       2,260               --           --       2,260
Change in unrealized gain (loss) on
    marketable securities .................        --        --           --        --          --               19           --          19
Net loss ..................................        --        --           --        --          --               --      (24,298)    (24,298)
                                                                                                                                   ----------
Total comprehensive loss ..................                                                                                          (24,279)
                                           -----------  -------- ------------  --------  ----------  ---------------  -----------  ----------
Balance at June 30, 2008 ..................        --        --   26,015,389         3     355,883               10     (339,451)     16,445
                                           ===========  ======== ============  ========  ==========  ===============  ===========  ==========`

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

49-55

---



PHARMACYCLICS, INC.

(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

Note 1 - The Company and Significant Accounting Policies:

Description of the company

We are a pharmaceutical company leveraging our small-molecule drug
development expertise to build a pipeline in oncology and immune mediated
diseases based on novel targets, pathways, and mechanisms. 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 June 30, 2008, had an accumulated deficit of approximately $339.5
million.  Based upon the current status of our product development and 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.  Currently,
we are actively seeking partnership collaborations for our product candidates.
We may also be required to raise additional funds through the public or private
sale of securities, bank debt or otherwise.  If we are unable to secure
additional funds, whether through partnership collaborations or sale of
securities, we will have to delay, reduce the scope of or discontinue one or
more of our product development programs.  Our actual capital requirements will
depend on many factors, including the following:

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

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

- the costs and timing of obtaining regulatory approvals.

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 highly dilutive, or otherwise disadvantageous, 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 and on acceptable terms,
would require us to reduce our operating expenses and would limit our ability to
respond to competitive pressures or unanticipated requirements, to develop our
product candidates, and to continue operations, any of which would have a
material adverse effect on our business, financial condition and results of
operations.

Management's use of estimates and assumptions

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial

56

---



statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.

Basic and diluted net loss per share

Basic earnings 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 5,540,544, 5,589,114 and 5,266,802 shares of common stock
were outstanding at June 30, 2008, 2007 and 2006, respectively, but have been
excluded from the computation of diluted net loss per share because their effect
was anti-dilutive.

Cash, cash equivalents and marketable securities

All highly liquid investments purchased with an original maturity date of
three months or less that are readily convertible into cash and have
insignificant interest rate risk are considered to be cash equivalents.

All other investments are reported as available-for-sale marketable
securities and are recorded on the balance sheet at fair value. Unrealized gains
and losses on available-for-sale securities are included in accumulated other
comprehensive income (loss). The amortized cost of debt securities in this
category is adjusted for amortization of premiums and accretions of discounts to
maturity. Such amortization is included in interest income. Gains and losses on
securities sold are recorded based on the specific identification method and are
included in interest expense and other income (expense), net in the statement of
operations.

The company's marketable securities consisted of the following (in
thousands):

`Net
                                                    Unrealized  Estimated
                                          Amortized    Gains       Fair
                                            Cost     (Losses)     Value
                                          ---------  ---------  ----------
June 30, 2008                                                             
Debt (state or political subdivision)... $      --  $      --   $      --
Debt (corporate)........................     4,485         10       4,495
                                          ---------  ---------  ----------
                                         $   4,485  $      10  $    4,495
                                          =========  =========  ==========

June 30, 2007                                                             
Debt (state or political subdivision)... $   1,999  $      (6) $    1,993
Debt (corporate)........................    24,831         (3)     24,828
                                          ---------  ---------  ----------
                                         $  26,830  $      (9) $   26,821
                                          =========  =========  ==========`



At June 30, 2008 and 2007, all of the company's debt investments are
classified as short-term, as the investments are available to fund the company's
current operations.  At June 30, 2008, the company's marketable securities had
the following contractual maturities (in thousands):

`Estimated
                                          Amortized    Fair
                                            Cost       Value
                                          ---------  ---------
Less than one year...................... $   4,485  $   4,495
                                          =========  =========`

57

---



Restricted investments

Under the company's lease agreement, it is required to maintain a $450,000
letter of credit as security for performance under the lease. The letter of
credit is secured by a $450,000 certificate of deposit which is included in
other assets at June 30, 2008 and 2007.

Concentration of credit risk and other risks and uncertainties

Financial instruments that potentially subject the company to credit risk
consist principally of cash, cash equivalents and marketable securities. The
company places its cash and cash equivalents with high-credit quality financial
institutions and invests in debt instruments of financial institutions,
corporations and government entities with strong credit ratings. Management of
the company believes it has established guidelines relative to credit quality,
diversification and maturities that maintain safety and liquidity.

The company's products require approvals from the United States Food and Drug
Administration (the "FDA") and international regulatory agencies prior
to commercialized sales. There can be no assurance that the company's future
products will receive required approvals. If the company was denied such
approvals or such approvals were delayed, it could have a materially adverse
impact on the company and its execution of its business strategy.

The company has expended and will continue to expend substantial funds to
complete the research, development and clinical testing of its products. The
company also will be required to expend additional funds  to establish
commercial-scale manufacturing arrangements and to provide for the marketing and
distribution of its products. Specifically, the company will require additional
funds to commercialize its products. The company is unable to entirely fund
these efforts with its 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, the company 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 its business, financial condition and
operations.

Property and equipment

Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the shorter of the estimated useful lives of the
assets, generally three to five years, or the lease term of the respective
assets, if applicable. Amortization of leasehold improvements is computed using
the straight-line method over the shorter of their estimated useful lives or
lease terms.

Long-lived assets

Management reviews the carrying values of its long-lived assets for possible
impairment whenever events or changes in business conditions indicate that the
carrying amount of the assets may not be recoverable. Management evaluates
impairment on the basis of undiscounted future cash flows from operations before
interest relating to such assets for the remaining useful life of the assets. If
present, impairment is measured based on the difference between fair value and
the net book value of the related assets.  No significant impairment losses have
been recorded to date with respect to the company's long-lived assets, which
consist primarily of property and equipment and leasehold improvements.

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 reasonable 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.

58

---



Inventories

The company has purchased quantities of its texaphyrin-based drug substance
that are expected to be used in the future to support the commercial launch of
its products currently under development. Until the commercial viability of such
products has been demonstrated and the necessary regulatory approvals received,
the company will continue to charge all such amounts to research and development
expense.

Research and development

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.

Clinical development costs are a significant component of research and
development expenses. The company has a history of contracting with third
parties that perform various clinical trial activities on its behalf in the
ongoing development of its product candidates. The financial terms of these
contracts are subject to negotiations and may vary from contract to contract and
may result in uneven payment flow. The company accrues and expenses costs for
clinical trial activities performed by third parties based upon estimates of the
percentage of work completed over the life of the individual study in accordance
with agreements established with contract research organizations and clinical
trial sites. The company determines its estimates through discussions with
internal clinical personnel and outside service providers to the progress or
stage of completion of trials or services and the agreed upon fee to be paid for
such services.

Income taxes

The company provides for income taxes using the asset and liability method.
This method requires that deferred tax assets and liabilities are recognized for
the expected future tax consequences of temporary differences between the tax
bases of assets and liabilities and their financial statement reported amounts.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.

Fair value of financial instruments

The carrying value of the company's financial instruments including cash and
cash equivalents, marketable securities, accounts payable and accrued
liabilities, approximate fair value due to their short maturities.

Accounting for 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 had not been rendered that were
outstanding as of the July 1, 2005 has been expensed as the requisite service
was rendered. The effect of recording share-based compensation was as
follows:

`Year Ended
                                      --------------------------------------------
                                      June 30, 2008   June 30, 2007  June 30, 2006
                                      --------------  -------------  -------------
Effect on net loss ................. $    2,260,000  $   3,082,000  $   6,264,000`

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

59

---



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 interest rate is based on a zero-coupon United States
Treasury bond whose maturity period equals the expected term of the company's
options.

`Year Ended June 30,
                                        -------------------------------
                                           2008       2007       2006
                                        ----------  ---------  --------
Stock option plans:
  Expected dividend yield ............          0 %        0 %       0 %
  Expected stock price volatility ....         74 %       73 %      79 %
  Risk free interest rate ............       2.66 %     4.54 %    4.90 %
  Expected life (years) ..............       5.00       4.61      4.98

Employee stock purchase plan:
  Expected dividend yield ............          0 %        0 %       0 %
  Expected stock price volatility ....         71 %       54 %      54 %
  Risk free interest rate ............       3.78 %     4.42 %    4.42 %
  Expected life (years) ..............       1.29       1.25      1.25`

The weighted average estimated grant date fair value, as defined by SFAS 123,
for options granted under the company's stock option plans during fiscal 2008,
2007 and 2006 was $0.65, $1.84 and $3.03 per share, respectively. The weighted
average estimated grant date fair value of purchase awards under the company's
employee stock purchase plan during fiscal 2008, 2007 and 2006 was $0.97, $3.30
and $3.30 per share, respectively.

As of June 30, 2008, $4,442,000 of total unrecognized compensation costs
related to non-vested options are scheduled to be recognized over a weighted
average period of 2.17 years and $64,000 of total unrecognized compensation
costs related to purchase awards under the company's employee stock purchase
plan are scheduled to be recognized over a weighted average period of 0.30
years. There were no capitalized share-based compensation costs at June 30,
2008.

The company accounts for equity instruments issued to non-employees for goods
or services in accordance with the provisions of SFAS No. 123R 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.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, "Fair Value
Measurements" ("SFAS 157"). This standard defines fair value,
establishes the framework for measuring fair value in accounting principles
generally accepted in the United States and expands disclosure about fair value
measurements. This pronouncement applies under other accounting standards that
require or permit fair value measurements. Accordingly, this statement does not
require any new fair value measurement. This statement is effective for fiscal
years beginning after November 15, 2007 and interim periods within those
fiscal years. However, on December 14, 2007, the FASB issued proposed FSP
FAS 157-b which would delay the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). This proposed FSP partially defers the effective date
of Statement 157 to fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years for items within the scope of this
FSP. Effective for the year beginning July 1, 2008, we will adopt
SFAS 157 except as it applies to those nonfinancial assets and nonfinancial
liabilities as noted in proposed FSP FAS 157-b. The adoption of
SFAS 157 is not expected to have a material impact on our financial
position, operating results or cash flows.

60

---

In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities -
Including an Amendment of FASB Statement No. 115, which is effective
for fiscal years beginning after November 15, 2007.  This statement permits
an entity to choose to measure many financial instruments and certain other
items at fair value at specified election dates. Subsequent unrealized gains and
losses on items for which the fair value option has been elected will be
reported in earnings. We are currently evaluating the impact of this standard on
our results of operations and our financial position.

In June 2007, the FASB ratified EITF Issue No. 07-3
("EITF 07-3"), Accounting for Nonrefundable Advance Payments for Goods or Services
to Be Used in Future Research and Development Activities.  The scope of EITF
07-3 is limited to nonrefundable advance payments for goods and services to be
used or rendered in future research and development activities pursuant to an
executory contractual arrangement.  This issue provides that nonrefundable
advance payments for goods or services that will be used or rendered for future
research and development activities should be deferred and capitalized. Such
amounts should be recognized as an expense as the related goods are delivered or
the related services are performed. EITF 07-3 is effective for fiscal years
beginning after December 15, 2007. Earlier application is not permitted.
Companies should report the effects of applying this issue prospectively for new
contracts entered into on or after the effective date of this issue.  We are
currently evaluating the impact of this standard on our results of operations
and our financial position.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles.  SFAS No. 162 identifies
the sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles (the GAAP hierarchy).  SFAS No. 162 will become effective
60 days following the SEC's approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.  We do not
expect the adoption of SFAS No. 162 to have a material effect on our
financial position, operating results or cash flows.

Note 2 - Agreements:

University of Texas License. The company has entered into a
license agreement with the University of Texas under which it received the
exclusive worldwide rights to develop and commercialize porphyrins, expanded
porphyrins and other porphyrin-like substances covered by their patents. The
company has made payments, under the license, to the University of Texas of
$50,000 in each of the years ended June 30, 2005 and 2004, respectively, and
cumulative payments of $300,000 from the inception of the license. No payments
are due after fiscal 2005.

Celera Genomics. In April 2006, the company acquired multiple small
molecule drug candidates for the treatment of cancer and other diseases from
Celera Genomics, an Applera Corporation business (now Celera Corporation). Under
the terms of the agreement as amended in May 2008, the company acquired Celera
technology and intellectual property relating to drugs that target histone
deacetylase (HDAC) enzymes, selective HDAC enzymes, a Factor VIIa inhibitor
targeting a tumor signaling pathway involved in angiogenesis, tumor growth and
metastases, and B-cell associated tyrosine kinase inhibitors potentially useful
for the treatment of lymphomas and autoimmune diseases. At the date of
acquisition, the HDAC drug candidate was in a Phase 1 clinical trial the other
drug candidates were in pre-clinical development. In May 2008, the company
amended its agreement with Celera pertaining to potential sublicensing of our
HDAC compounds.  Under the amendment, Celera may receive a portion of any
upfront licensing payments we receive from sublicensing an HDAC product under
the agreement and the total future potential milestone payments due to Celera
were reduced from $144 million to $104 million dollars.  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.

Total consideration paid was $6,647,000 which consisted of 1,000,000 shares
of the company's common stock, $2,000,000 of cash and $147,000 of transaction
costs. The company recorded an expense of $6,647,00061related to the consideration for the acquired drug candidates which had not yet reached
technological feasibility and had no alternative future use due to the early
stage of development and the significant regulatory requirements remaining.

Note 3 - Balance Sheet Components:

Property and equipment consists of the following (in thousands):

June 30,
                                                    --------------------
                                                       2008       2007
                                                    ---------  ---------
Equipment ........................................ $   6,409  $   7,229
Leasehold improvements ...........................     2,569      2,976
Furniture and fixtures ...........................       164        870
                                                    ---------  ---------
                                                       9,142     11,075
Less accumulated depreciation and amortization ...    (8,454)   (10,226)
                                                    ---------  ---------
                                                   $     688  $     849
                                                    =========  =========

Accrued liabilities consist of the following (in thousands):

June 30,
                                                    --------------------
                                                       2008       2007
                                                    ---------  ---------
Employee compensation ............................ $     796  $   1,189
                                                    =========  =========


Note 4 - Stockholders' Equity:

Common stock

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.

Preferred stock

As amended, the company's Certificate of Incorporation authorizes 1,000,000
shares of preferred stock, par value $0.0001 per share. The Board of Directors
is authorized to issue the preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders.

The ability of the company's Board of Directors to issue shares of preferred
stock without stockholder approval may have certain anti-takeover effects. The
company is also subject to provisions of the Delaware General Corporation Law,
which may make certain business combinations more difficult.

Stock plans

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 of 1,000,000 shares
available for issuance under the 2004 Plan. The 2004 Plan provides62for 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 following table summarizes the company's stock option activity (in
thousands, except per share amounts):

63Options Outstanding
                                          ---------------------
                                                      Weighted
                                                       Average
                                Shares                Exercise
                               Available              Price Per
                               for Grant    Number      Share
                              ----------- ----------  ---------
Authorized ..................      1,000         --  $      --
Granted .....................       (480)       480       0.19
                              ----------- ----------
Balance at June 30, 1993 ....        520        480       0.19
Exercised ...................         --       (324)      0.12
Granted .....................       (167)       167       2.22
Forfeited or expired ........          8         (8)      0.11
                              ----------- ----------
Balance at June 30, 1994 ....        361        315       1.37
Exercised ...................         --        (39)      0.24
Granted .....................       (193)       193       3.75
Forfeited or expired ........         38        (38)      1.82
                              ----------- ----------
Balance at June 30, 1995 ....        206        431       2.50
Authorized ..................        485         --
Exercised ...................         --        (92)      3.09
Granted .....................       (492)       492      10.03
Forfeited or expired ........         11        (11)      6.11
                              ----------- ----------
Balance at June 30, 1996 ....        210        820       9.20
Authorized ..................        842         --
Exercised ...................         --        (96)      2.74
Granted .....................       (569)       569      16.69
Forfeited or expired ........         31        (31)     12.21
                              ----------- ----------
Balance at June 30, 1997 ....        514      1,262      11.58
Authorized ..................        602         --
Exercised ...................         --        (89)      6.57
Granted .....................       (577)       577      25.33
Forfeited or expired ........        158       (158)     15.41
                              ----------- ----------
Balance at June 30, 1998 ....        697      1,592      16.43
Authorized ..................        524         --
Exercised ...................         --        (75)      5.10
Granted .....................       (671)       671      19.25
Forfeited or expired ........        221       (221)     20.37
                              ----------- ----------
Balance at June 30, 1999 ....        771      1,967      17.38
Authorized ..................        681         --
Exercised ...................         --       (103)     13.88
Granted .....................       (723)       723      56.97
Forfeited or expired ........         53        (53)     23.38
                              ----------- ----------
Balance at June 30, 2000 ....        782      2,534      28.70
Authorized ..................        811         --
Exercised ...................         --        (94)     16.17
Granted .....................       (947)       947      36.80
Forfeited or expired ........        114       (114)     45.70
                              ----------- ----------
Balance at June 30, 2001 ....        760      3,273      29.78
Authorized ..................        747         --
Exercised ...................         --        (13)     13.93
Granted .....................     (1,634)     1,634       8.76
Forfeited or expired ........        625       (625)     27.83
                              ----------- ----------
Balance at June 30, 2002 ....        498      4,269      21.82
Authorized ..................        162         --
Exercised ...................         --         (3)      1.03
Granted .....................       (749)       749       4.35
Forfeited or expired ........        837       (837)     25.30
                              ----------- ----------
Balance at June 30, 2003 ....        748      4,178      18.03
Authorized ..................        162         --
Exercised ...................         --       (181)      4.91
Granted .....................       (532)       532       9.53
Forfeited or expired ........        296       (296)     28.55
                              ----------- ----------
Balance at June 30, 2004 ....        674      4,233      16.78
Authorized ..................        700
Exercised ...................                   (61)      4.46
Granted .....................       (814)       814       8.08
Forfeited or expired ........        200       (200)     18.19
                              ----------- ----------
Balance at June 30, 2005 ....        760      4,786      15.40
Authorized ..................        900         --
Exercised ...................         --       (191)      7.02
Granted .....................     (1,351)     1,351       4.58
Forfeited or expired ........        679       (679)     12.85
                              ----------- ----------
Balance at June 30, 2006 ....        988      5,267      13.26
Exercised ...................         --       (133)      4.38
Granted .....................     (1,310)     1,310       3.01
Forfeited or expired ........        855       (855)     13.83
                              ----------- ----------
Balance at June 30, 2007 .....       533      5,589      10.98
Exercised ....................        --         --         --
Granted ......................    (1,555)     1,555       1.05
Forfeited or expired .........     1,603     (1,603)     11.31
                              ----------- ----------
Balance at June 30, 2008 .....       581      5,541       8.10
                              =========== ==========



The total intrinsic value of stock options exercised during the years ended
June 30, 2008, 2007 and 2006 were $0, $64,000 and $374,000, respectively. No
income tax benefits were realized by the company in the years ended June 30,
2008, 2007 or 2006.

64A summary of outstanding and vested stock options as of June 30, 2008 is as
follows:

Options Outstanding                               Options Vested
                      ----------------------------------------------------  --------------------------------------
                                     Weighted     Weighted                                Weighted
                                      Average      Average                                 Average
                        Number       Remaining    Exercise      Aggregate     Number      Exercise     Aggregate
Range of                  of        Contractual     Price       Intrinsic       of          Price      Intrinsic
Exercise Prices         Shares         Life       Per Share       Value       Shares      Per Share      Value
--------------------- -----------   -----------  -----------   -----------  -----------  -----------  -----------
   $0.78 - $0.78.....     91,826          9.75  $   0.78                        91,826  $      0.78
   $0.86 - $0.86.....  1,227,563          9.72      0.86                        25,227         0.86
   $1.57 - $2.64.....    258,527          8.50      2.23                       175,486         2.20
   $2.76 - $2.76.....    684,678          8.68      2.76                       215,119         2.76
   $3.08 - $4.13.....    164,641          6.38      3.58                       105,559         3.59
   $4.16 - $4.16.....    812,250          7.88      4.16                       424,245         4.16
   $4.25 - $5.53.....    573,356          4.78      4.58                       570,273         4.58
   $7.10 - $7.76.....    681,143          5.27      7.54                       605,352         7.51
   $8.20 - $27.51....    755,960          3.00      19.04                      754,000        19.07
  $32.75 - $78.13....    290,600          1.93      52.16                      290,600        52.16
                      -----------                              -----------  -----------               -----------
                       5,540,544          6.78  $   8.10      $ 1,191,000    3,257,687  $     12.25  $   120,000
                      ===========                              ===========  ===========               ===========




The company had outstanding exercisable options to purchase 4,928,736,
5,015,019, and 4,835,821 shares of common stock with a weighted average exercise
price of $8.86, $11.81, and $13.94 at June 30, 2008, 2007, and 2006,
respectively.

65Employee 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 fiscal 2008, 2007 and 2006
were 47,200, 58,331, and 82,851 shares of common stock at an average price of
$1.34, $3.66, and $4.73 per share, respectively. Shares available for future
purchase under the Purchase Plan are 213,607 at June 30, 2008.

Note 5 - Employee Benefit Plan:

The company maintains a defined contribution plan covering substantially all
employees under Section 401(k) of the Internal Revenue Code. The company's
matching contribution to the plan was $103,000, $141,000 and $185,000 for the
years ended June 30, 2008, 2007 and 2006, respectively, and $949,000 for the
period from inception (April 19, 1991) through June 30, 2008.

Note 6 - Income Taxes:

Deferred tax assets are summarized as follows (in thousands):

June 30,
                                        ---------------------
                                            2008       2007
                                        ----------  ---------
Net operating loss carryforwards ..... $  115,390  $ 106,548
Tax credit carryforwards .............     13,797     14,981
Capitalized start-up and R&D costs ...      6,600      6,547
Depreciation and amortization.........      3,257      3,613
Share-based compensation .............      2,243      2,078
Reserves and accruals.................        207        289
                                        ----------  ---------
Gross deferred tax assets ............    141,494    134,056
Less valuation allowance .............   (141,494)  (134,056)
                                        ----------  ---------
Net deferred tax assets .............. $       --  $      --
                                        ==========  =========


A full valuation allowance has been established for the company's deferred
tax assets at June 30, 2008 and 2007 since realization of such assets through
the generation of future taxable income is uncertain. The change in the
valuation allowance was approximately $7,438,000, $9,813,000 and $16,545,000 for
the years ended June 30, 2008, 2007 and 2006, respectively.

The provision for income taxes differs from the amount determined by applying
the U.S. statutory income tax rate to the loss before income taxes as summarized
below (in thousands):

Year Ended June 30,
                                        -------------------------------
                                            2008       2007      2006
                                        ----------  ---------  --------
Tax benefit at statutory rate ........ $    9,561  $  10,047  $ 16,511

Research and development credits .....      1,408        852       978
Deferred tax assets not benefited ....    (10,058)    (9,813)  (15,457)
State NOL disallowed/expired .........         --         --    (1,088)
Share-based compensation .............       (432)      (620)     (970)
Other ................................       (479)      (466)       26
                                        ----------  ---------  --------
                                       $       --  $      --  $     --
                                        ==========  =========  ========

66



At June 30, 2008, the company had federal and state net operating loss
carryforwards of approximately $322.4 million and $98.8 million, respectively.
The federal and state net operating loss carryforwards will begin to expire in
2008. Federal and state tax credit carryforwards of $11.0 million and $8.0
million, respectively, are available to offset future taxable income. The
federal tax credits will begin to expire in 2008. State research and development
credits can be carried forward indefinitely.

Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses and tax credit carryforwards that can be carried forward may be
impaired or limited in certain circumstances. These circumstances include, but
are not limited to, a cumulative stock ownership change of greater than 50%, as
defined, over a three year period. Such an annual limitation may result in the
expiration of net operating losses before utilization.

On July 1, 2007, the company adopted the provisions of
Financial Accounting Standards Board ("FASB") Interpretation No. 48,
Accounting for Uncertainty in Income Taxes-an interpretation of FASB
Statement No. 109 ("FIN 48").  FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
in accordance with SFAS No. 109, Accounting for Income Taxes, and
prescribes a recognition threshold and measurement process for financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return.  FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.

The following table summarizes the activity related to
the company's gross unrecognized tax benefits (in thousands):

Balance at July 1, 2007 upon adoption of FIN 48.... $ 2,890,000
Increases related to prior year tax positions......          --
Increases related to current year tax positions....      70,000
                                                     ----------
Balance at June 30, 2008........................... $ 2,960,000
                                                     ==========

As of the date of adoption, the company recorded a $2.89
million reduction to deferred tax assets for unrecognized tax benefits, all of
which were offset by a full valuation allowance and therefore did not result in
any adjustment to the beginning balance of deficit accumulated during
development stage of retained earnings on the balance sheet.  The company does
not anticipate a significant change to its unrecognized tax benefits over the
next twelve months.

The company may from time to time be assessed interest or
penalties by major tax jurisdictions, although there have been no such
assessments historically.  In the event the company receives an assessment for
interest and/or penalties, it would be classified in the financial statements as
income tax expense.  As of July 1, 2007 open tax years in major jurisdictions
date back to 1993 due to the taxing authorities' ability to adjust operating
loss carry forwards.

Note 7 - Commitments:

The company leases its facility under non-cancelable operating leases that
expire in fiscal 2009 and 2010 (based on a lease amendment entered into on July
11, 2008, see Note 9). Future minimum lease payments under the non-cancelable
operating leases are as follows (in thousands):

67Operating
                                           Lease
                                        Commitments
                                        ----------
2009.................................. $      918
2010..................................        763
2011..................................        644
2012....................................      330
                                        ----------
  Total minimum lease payments
     and operating lease income ...... $    2,655
                                        ==========

Rent expense for the years ended June 30, 2008, 2007 and 2006 was $952,000,
$996,000 and $1,278,000, respectively, and $16,107,000 for the period from
inception (April 19, 1991) through June 30, 2008. Sublease income was $0 for
each of the years ended June 30, 2008, 2007 and 2006, and $924,000 from the
period from inception (April 19, 1991) through June 30, 2008. The terms of the
facility lease provide for rental payments on a graduated scale. The company
recognizes rent expense on a straight-line basis over the lease period and has
accrued for rent expense incurred but not paid at June 30, 2008.


68Note 8 - Quarterly Results (Unaudited)

The following table is in thousands, except per share amounts:

Quarter Ended
                                        --------------------------------------------------------
                                        September 30,    December 31,   March 31,     June 30,
                                        ------------    ------------  ------------  ------------
Fiscal 2008

Loss from operations ................. $     (7,307)   $     (6,218) $     (7,220) $     (4,767)
Net loss .............................       (6,830)         (5,860)       (6,980)       (4,628)

Basic and diluted net loss per share . $      (0.26)   $      (0.23) $      (0.27) $      (0.18)

Shares used in computation of basic
   and diluted net loss per share ....       25,968          25,986        25,994        26,008


                                                            Quarter Ended
                                        --------------------------------------------------------
                                        September 30,   December 31,    March 31,     June 30,
                                        ------------    ------------  ------------  ------------
Fiscal 2007

Loss from operations ................. $     (6,983)   $     (6,496) $     (7,374) $     (7,539)
Net loss .............................       (6,491)         (5,977)       (6,759)       (6,990)[1]

Basic and diluted net loss per share . $      (0.31)   $      (0.25) $      (0.26) $      (0.27)

Shares used in computation of basic
   and diluted net loss per share ....       20,968          23,837        25,938        25,958


Note 9 - Subsequent Event

On July 11, 2008 the company entered into a lease amendment for its facility
that reduced the amount of leased space from 64,776 square feet to 47,520 square
feet.  The amendment resulted in a lease of 15,000 square feet that expires in
December 2009 and a lease for 32,520 square feet that expires in December
2011.

Item	9. Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure





Not Applicable.

Item	9A.	Controls and Procedures

(a)  Evaluation of Disclosure Controls and Procedures:

We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
for timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and in
reaching a reasonable level of assurance, management is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.

As of June 30, 2008, the end of the period covered by this report, we carried
out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on the foregoing, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective at the reasonable assurance level.

69(b)  Management's Annual Report on Internal Control Over Financial
Reporting:

Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting as of June 30, 2008 based on the
framework in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on that evaluation, our management concluded that our internal control over
financial reporting was effective as of June 30, 2008.

Management's assessment of the effectiveness of our internal control over
financial reporting as of June 30, 2008 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which is included on page 45 of this Annual Report on
Form 10-K.

(c)  Changes in Internal Control Over Financial Reporting:There has been no change in the company's internal
control over financial reporting during the company's most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting.

Item	9B.	Other Information

None.
PART III

Item	10.	Directors, Executive Officers and
Corporate Governance


Certain information required by this Item 10 is hereby incorporated by
reference to the information under (i) the caption, "Election of
Directors" and (ii) "Audit Committee," (iii) "Code of
Business Conduct and Ethics," and "Section 16(a) Beneficial Ownership
Reporting Compliance," contained in the company's Definitive Proxy
Statement to be filed with the Securities and Exchange Commission no later than
120 days from the end of the Company's last fiscal year.

Item	11.	Executive Compensation


The information required by this Item 11 is incorporated by reference to the
information under the caption "Executive Compensation and Other
Information" in the Definitive Proxy Statement.

Item	12.Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

The information required by this Item 12 with respect to stock ownership of
certain beneficial owners and management and securities authorized for issuance
under equity compensation plans are incorporated by reference to the information
under the captions "Stock Ownership of Management and Certain Beneficial
Owners" and "Securities Authorized For Issuance Under Equity
Compensation Plans" in the Definitive Proxy Statement.

70

---



Item	13.	 Certain Relationships and Related
Transactions and Director Independence

The information required by this Item 13 is incorporated by reference to the
information under the caption "Certain Relationships and Related
Transactions" in the Definitive Proxy Statement.

Item	14.	Principal Accountant Fees and
Services

The information required by this Item 14 is incorporated by reference
to the information in the Definitive Proxy Statement.

PART IV

Item 15.	Exhibits and Financial Statement
Schedules

(a) 1.	Financial Statements

See Index to Financial Statements under Item 8 on page 44.



(a) 2.	Financial Statement Schedules

All schedules are omitted because they are not applicable or are
not required or the information required to be set forth therein is included in
the Financial Statements or notes thereto.



(a) 3.	Exhibits

See Index to Exhibit beginning on page 73.







71

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated:  September 5, 2008

PHARMACYCLICS, INC.

By:  /s/  RICHARD A. MILLER, M.D.   	Richard A. Miller, M.D.President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, Richard A. Miller and Leiv
Lea, or either of them as his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Report on
Form 10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.

Pursuant to the requirements of the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.

|Signature                                              |  | Title                                                                                                                             |  | Date             
|------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------- |  | -----------------
|                                                       |  |                                                                                                                                   |  |                  
|/s/  RICHARD A. MILLER, M.D.
Richard A. Miller, M.D.   |  | President and Chief Executive Officer and Director (Principal
Executive Officer)                                                  |  | September 5, 2008
|                                                       |  |                                                                                                                                   |  |                  
|/s/  LEIV LEA
Leiv Lea                                 |  | Vice President, Finance and Administration and Chief Financial
Officer and Secretary (Principal Financial and Accounting Officer) |  | September 5, 2008
|                                                       |  |                                                                                                                                   |  |                  
|/s/  ROBERT W. DUGGAN
Robert W. Duggan                 |  | Director                                                                                                                          |  | September 5, 2008
|                                                       |  |                                                                                                                                   |  |                  
|/s/  MILES R. GILBURNE
Miles R. Gilburne               |  | Director                                                                                                                          |  | September 5, 2008
|                                                       |  |                                                                                                                                   |  |                  
|/s/  JAMES L. KNIGHTON
James L. Knighton               |  | Director                                                                                                                          |  | September 5, 2008
|                                                       |  |                                                                                                                                   |  |                  
|/s/  RICHARD M. LEVY, PH.D.
Richard M. Levy            |  | Director                                                                                                                          |  | September 5, 2008
|                                                       |  |                                                                                                                                   |  |                  
|/s/  CHRISTINE A. WHITE, M.D.
Christine A. White, M.D. |  | Director                                                                                                                          |  | September 5, 2008

72

---

EXHIBITS INDEX

ExhibitNumber
Description3.1
Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit of the same number to Form 8-A12G/A filed
on May 21, 2002).3.2
Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit of the same number to the Quarterly Report on Form 10-Q for
the quarter ended December 31, 2001).3.3
Amendment to the Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3.1 to the Periodic Report on Form 8-K
filed on August 9, 2006).3.4
Form of Amended and Restated Certificate of Designation of
Series A Junior Participating Preferred Stock of the Company (incorporated by
reference to Exhibit 3.2 to Form 8-A12G/ filed on May 21, 2002).3.5
Certificate of Elimination of the Certificate of Designation of
Series A Junior Participating Preferred Stock of Pharmacyclics, Inc. (incorporated by
reference to Exhibit of the same number to the Annual Report on Form 10-K for
the year ended June 30, 2006).4.1
Amended and Restated Rights Agreement, dated as of February 15,
2002 (incorporated by reference to Exhibit 3.2 to Form 8-A12G/A filed on May 21,
2002).4.2
Specimen Certificate of the Company's Common Stock (incorporated
by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-1,
Commission File No. 33-96048).4.3*
Stock Purchase Agreement By and Between Pharmacyclics, Inc. and
Applera Corporation dated April 7, 2006 (incorporated by reference to Exhibit
4.3 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).4.4
Amendment to the Amended and Restated Rights Agreement, dated as
of August 7, 2006, by and between Pharmacyclics, Inc. and Computershare Trust
Company, N.A. (formerly EquiServe Trust Company, N.A.) (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on August 11, 2006).10.6*
Patent License Agreement entered into between the Company and
The University of Texas, Austin entered into on or about July 1, 1991
(incorporated by reference to Exhibit 10.8 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048).10.7*
Patent License Agreement entered into between the Company and
The University of Texas, Dallas dated as of July 1, 1992, as amended by the
Patent License Agreement dated May 27, 1993 (incorporated by reference to
Exhibit 10.9 to the Company's Registration Statement on Form S-1, Commission
File No. 33-96048).7310.8*
Patent License Agreement entered into between the Company and
Stuart W. Young dated as of October 15, 1992 (incorporated by reference to
Exhibit 10.10 to the Company's Registration Statement on Form S-1, Commission
File No. 33-96048).10.9
Lease Agreement entered into between the Company and New England
Mutual Life Insurance Company dated as of June 17, 1993, as amended on July 22,
1993, and as further amended on March 1, 1994 (incorporated by reference to
Exhibit 10.11 to the Company's Registration Statement on Form S-1, Commission
File No. 33-96048).10.13+
The Company's 1995 Stock Option Plan (incorporated by reference
to Exhibit 99.1 to the Company's Registration Statement on Form S-8, Commission
File No. 333-52881).10.14+
The Company's 1995 Non-Employee Directors' Stock Option Plan
(incorporated by reference to Exhibit 99.7 to the Company's Registration
Statement on Form S-8, Commission File No. 33-98514).10.15+
The Company's Employee Stock Purchase Plan as amended on June 3, 2005.
(incorporated by reference to Exhibit of the same number to the Annual Report on Form 10-K for
the year ended June 30, 2005).10.16+
Employment Agreement entered into between the Company and
Richard A. Miller, M.D. dated as of June 10, 1992 (incorporated by reference to
Exhibit 10.19 to the Company's Registration Statement on Form S-1, Commission
File No. 33-96048).10.22+
Form of Notice of Grant of Stock Option generally to be used
under the 1995 Stock Option Plan (incorporated by reference to Exhibit 99.2 to
the Company's Registration Statement on Form S-8, Commission File No. 33-98514).10.23+
Form of Stock Option Agreement (incorporated by reference to
Exhibit 99.3 to the Company's Registration Statement on Form S-8, Commission
File No. 333-52881).10.25+
Form of Addendum to Stock Option Agreement (Special Tax
Election) (incorporated by reference to Exhibit 99.5 to the Company's
Registration Statement on Form S-8, Commission File No. 33-98514).10.26+
Form of Addendum to Stock Option Agreement (Involuntary
Termination following Change in Control) (incorporated by reference to Exhibit
99.6 to the Company's Registration Statement on Form S-8, Commission File No.
33-98514).10.27+
Form of Notice of Grant of Automatic Stock Option (Initial
Grant) (incorporated by reference to Exhibit 99.8 to the Company's Registration
Statement on Form S-8, Commission File No. 33-98514).10.28+
Form of Notice of Grant of Automatic Stock Option (Annual Grant)
(incorporated by reference to Exhibit 99.9 to the Company's Registration
Statement on Form S-8, Commission File No. 33-98514).7410.29+
Form of Non-Employee Director Stock Option Agreement
(incorporated by reference to Exhibit 99.10 to the Company's Registration
Statement on Form S-8, Commission File No. 33-98514).10.30+
Form of Employee Stock Purchase Plan Enrollment/Change Form
(incorporated by reference to Exhibit 99.12 to the Company's Registration
Statement on Form S-8, Commission File No. 33-98514).10.31+
Form of Stock Purchase Agreement (incorporated by reference to
Exhibit 99.13 to the Company's Registration Statement on Form S-8, Commission
File No. 33-98514).10.38+
Employment Agreement, dated December 18, 1997, by and between
the Company and Leiv Lea (incorporated by reference to Exhibit 10.38 to the
Quarterly report on Form 10-Q for the quarter ended March 31, 1998).10.44*
Master Development and Supply Agreement, dated March 20, 2000 by
and between Cook Imaging Corporation, D.B.A. Cook Pharmaceutical Solutions, and
the Registrant (incorporated by reference to Exhibit 10.1 to the Quarterly
report on Form 10-Q for the quarter ended March 31, 2000).10.47*
Supply Agreement, dated December 11, 2000 by and between Dixie
Chemical Company and the Registrant (incorporated by reference to Exhibit 10.1
to the Quarterly Report on Form 10-Q for the quarter ended December 31, 2000).10.48*
Supply Agreement, dated December 18, 2000 by and between Lonza,
AG and the Registrant (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q for the quarter ended December 31, 2000).10.49
Lease and Lease Termination Agreement dated June 14, 2000 by and
between the Registrant and Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 10.49 to the Annual Report on Form 10-K for the year ended
June 30, 2001).10.50
First Amendment to New Lease dated April 10, 2001 by and between
the Registrant and Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 10.50 to the Annual Report on Form 10-K for the year ended
June 30, 2001).10.51
Second Amendment to New Lease dated June 29, 2001 by and between
the Registrant and Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 10.51 to the Annual Report on Form 10-K for the year ended
June 30, 2001).10.53*
Supply Agreement, dated August 17, 2001 by and between EMS-Dottikon AG
and the Registrant (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).7510.54
Third Amendment to New Lease dated February 5, 2003 by and
between the Registrant and Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003).10.55
Form of Indemnification Agreement between the Company and its
directors and executive officers (incorporated by reference to Exhibit 10.55 to
the Annual Report on Form 10-K for the year ended June 30, 2004).10.56+
Company's 2004 Equity Incentive Award Plan (the "2004 Plan")
(incorporated by reference Exhibit B to the Company's 2004 Definitive Proxy
Statement on Schedule 14A filed with the Securities and Exchange Commission on
October 26, 2004).10.57+
Form of Option Agreement for the 2004 Plan (incorporated by
reference from Exhibit 99.1 Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 22, 2004).10.58+
Form of Non-employee Director Option Agreement for the 2004 Plan
(incorporated by reference from Exhibit 99.2 to the Company's Current Report on
Form 8-K filed with the Securities Exchange Commission on December 22, 2004).10.59+
Form of Amendment to Form of Notice of Grant of Stock Option
used under the Company's 1995 Stock Option Plan (the "1995 Plan") (incorporated
by reference to Exhibit 10.5 to the quarterly Report on Form 10-Q for the
quarter ended December 31, 2004).10.60+
Form of Non-Employee Directors Stock Option Election Option
Agreement used under the Company's 1995 Plan (incorporated by reference to
Exhibit 10.6 to the Quarterly Report on Form 10-Q for the quarter ended December
31, 2004).10.61
First Amendment To Patent License Agreement entered into on or
about July 1, 1991 by and between the Company and the University of Texas
System, Austin (incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 2005).10.64*
Assignment Agreement By and Between Pharmacyclics, Inc. and
Applera Corporation dated April 7, 2006 (incorporated by reference to
Exhibit 10.64 to the Quarterly Report on Form 10-Q for the quarter ended March
31, 2006).10.65
Fourth Amendment to New Lease dated August 14, 2006 by and
between the Company and Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 10.5 to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on August 17, 2006).10.66+
Offer letter dated May 2, 2007, by and between the Company and Michael K. Inouye
(incorporated by reference to Exhibit 10.66 to the company's Annual Report on Form 10-K for the year ended June 30, 2007).7610.67
Fifth Amendment to New Lease dated July 11, 2008 by and between the Registrant and
Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.6 of the
Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on
July 15, 2008).10.68**
Amendment No. 1 to Assignment Agreement By and Between Pharmacyclics, Inc. and Applera
Corporation dated May 12, 2008.PDF provided as courtesy10.69+
Form of Severance Agreement between the Company and certain executive officers.PDF provided as courtesy10.70+
Offer letter dated July 9, 2008 by and between the Company and James Lowder, M.D.PDF provided as courtesy23.1
Consent of Independent Registered Public Accounting
Firm.24.1
Power of Attorney (see page 72).31.1
Section 302 Certification of Chief Executive Officer.31.2
Section 302 Certification of Chief Financial Officer.32.1
Section 906 Certification of Chief Executive Officer and Chief
Financial Officer.________________* Confidential treatment has been granted as to certain portions of this agreement. 
   + Indicates a management contract or compensatory plan or arrangement. 
  ** Confidential treatment has been requested as to certain portions of this agreement.77