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, 2007

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

995 E. Arques AvenueSunnyvale, California 94085-4521(Address of Principal Executive Offices including Zip Code)Registrant's telephone number, including
area code:  (408) 774-0330

Securities registered pursuant to Section 12(b) of the
Act:  Common Stock, $.0001 Par Value
Securities registered pursuant to Section 12(g) of the
Act: None(Title of Class)

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

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 $94,669,955 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, 2007 was 25,968,189.

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 2007 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, 2007
     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                                                                                                   | 31  
|Item           | 3.  | Legal Proceedings                                                                                            | 31  
|Item           | 4.  | Submission of Matters to a Vote of Security Holders                                                          | 31  
|PART II        |     |                                                                                                              |     
|Item           | 5.  | Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities | 31  
|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                                                  | 42  
|Item           | 8.  | Financial Statements and Supplementary Data                                                                  | 43  
|Item           | 9.  | Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure                         | 68  
|Item           | 9A. | Controls and Procedures                                                                                      | 68  
|Item           | 9B. | Other Information                                                                                            | 68  
|PART III       |     |                                                                                                              |     
|Item           | 10. | Directors and Executive Officers of the Registrant                                                           | 68  
|Item           | 11. | Executive Compensation                                                                                       | 69  
|Item           | 12. | Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters               | 69  
|Item           | 13. | Certain Relationships and Related Transactions                                                               | 69  
|Item           | 14. | Principal Accountant Fees and Services                                                                       | 69  
|PART IV        |     |                                                                                                              |     
|Item           | 15. | Exhibits and Financial Statement Schedules                                                                   | 69  
|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.

---



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:

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

- 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 developing patented new drugs to treat cancer
and other diseases. Our pharmaceutical agents are synthetic small molecules
designed to target key biochemical pathways in diseased cells.   In oncology,
Xcytrin® (motexafin gadolinium) Injection has completed
Phase 3 trials and is now being evaluated in various Phase 2 trials for patients
with non-small cell lung cancer (NSCLC).  A New Drug

1

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Application  (NDA) was
filed over protest for treatment of brain metastases from (NSCLC). Other product
candidates under development in oncology are in either Phase 1 or pre-clinical
studies.

Xcytrin (motexafin gadolinium) Injection, our most advanced
product candidate, is an anti-cancer agent with a novel mechanism of action.
Xcytrin is designed to accumulate selectively in cancer cells.  Once inside
cancer cells, Xcytrin induces apoptosis (programmed cell death) by inhibiting
thioredoxin reductase and disrupting redox-dependent pathways.  We believe
Xcytrin 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
or radiation therapy.

We submitted an NDA to the Food and Drug
Administration (FDA) in December 2006, for the use of Xcytrin in combination
with radiation therapy for the treatment of patients with brain metastases from
NSCLC. In February 2007, we received a refuse to file letter from the FDA citing
failure to demonstrate statistically significant differences between treatment
arms in the primary endpoint of the pivotal study to support approval. In the
pivotal SMART trial, (Study of Neurologic Progression with Motexafin Gadolinium
and Radiation Therapy), investigators found that patients given Xcytrin 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 Xcytrin.  In April
2007, we requested that the FDA file our NDA over protest.  File over protest is
a procedure permitted by FDA regulations, which allows sponsors to have their
NDA filed and reviewed when there is disagreement over the acceptability of the
NDA.  In April 2007, we announced that the FDA had filed our NDA. The
Prescription Drug User Fee Act (PDUFA) date for completion of review by the FDA
is December 31, 2007.  The FDA has also designated Xcytrin as an orphan drug for
the treatment of brain metastases arising from solid tumors.

We also are evaluating Xcytrin for the treatment of a diverse range of cancer
types and in various clinical situations including Xcytrin as a single agent and
in combination with chemotherapy and/or radiation therapy.  One of Xcytrin's
chemical features allows it to be visualized in the body using standard magnetic
resonance imaging (MRI) procedures. Using MRI, we have established that Xcytrin
localizes selectively in cancers.  We own the worldwide rights to Xcytrin.

PCI-24781 is a histone deacetylase (HDAC) inhibitor which is now in a
Phase 1 trial in patients with advanced relapsed solid tumors.  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.  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-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.
Laboratory studies and animal models indicate that inhibitors of Factor VIIa may
block tumor growth and metastasis.  We are conducting the required preclinical
safety studies to support the potential filing of an Investigational New Drug
(IND), application with the FDA.

PCI-32765 is a small molecule tyrosine kinase inhibitor.  When immune
cells called B-lymphocytes 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.  We are developing
compounds that can inhibit an enzyme, known as BTK, which is required for early
B-cells to mature into fully functioning cells.  In published studies, these
compounds have demonstrated a dose dependent ability to inhibit disease
development in rheumatoid arthritis animal models.  Recent studies have shown
that these compounds may inhibit the proliferation of lymphoma cells, or
malignancies involving B-cells, indicating their potential for treatment of
certain lymphomas and leukemias.  We are conducting the required preclinical
safety studies to support the potential filing of an IND application with the
FDA.

2

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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.

- Evaluating Xcytrin in many types of cancer including its use as a single
agent, in combination with radiation therapy and in combination with
chemotherapy.

Establishing strategic alliances. We own the worldwide rights to our
multiple product candidates. We intend to establish strategic alliances for the
development and commercialization of certain of our products.

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
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.

3

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- 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.

Status of Products Under Development

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

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

   Single Agent              Lung cancer                                              Phase 2 -- enrollment complete

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

   With Chemotherapy         Recurrent lung cancer (with Taxotere®)                   Phase 2 -- enrolling
                             Recurrent lung cancer (with Alimata®)                    Phase 2 -- enrolling

--------------------------------------------------------------------------------------------------------------------------
PCI-24781                    Advanced solid tumors                                    Phase 1 -- enrolling
(HDAC INHIBITOR)

--------------------------------------------------------------------------------------------------------------------------
Selective HDAC               Cancer therapy                                           Preclinical
Inhibitor

--------------------------------------------------------------------------------------------------------------------------
PCI-24783                    Cancer therapy                                           Preclinical
Factor VIIa Inhibitor

--------------------------------------------------------------------------------------------------------------------------
PCI-32765 B cell             B cell malignancies and autoimmune disease               Preclinical
tyrosine kinase 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

4

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1. Pivotal Phase 3 trial has been completed with NDA filed in April 2007.
2. Study conducted by the Radiation Therapy Oncology Group (RTOG).

Cancer Therapy with Xcytrin

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.  Xcytrin's 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 Xcytrin's novel mechanism of action. We believe Xcytrin
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,
Xcytrin is designed to weaken, and in some cases, kills the cancer cells. Tumor
selectivity occurs because cancer cells have greater abundance of these proteins
compared to normal cells. In laboratory studies, cancer cells incubated with
Xcytrin undergo either growth arrest or apoptosis, a programmed sequence of
events leading to cell death.  The sensitivity of cancer cells to Xcytrin
varies, depending on the type of cancer.  Also in laboratory studies, Xcytrin
enhances the activity of several commonly used chemotherapy agents and
radiation.  In published preclinical studies, animals receiving Xcytrin 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 Xcytrin increases the effect of radiation therapy at the tumor site, with
no increased damage to surrounding healthy tissues. An additional feature of
Xcytrin 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.

We are seeking U.S. Food and Drug Administration (FDA) approval of Xcytrin
for treatment of patients receiving whole brain radiation therapy (WBRT) for
non-small cell lung cancer (NSCLC) that has spread to the brain. Patients with
this problem, known as 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
Xcytrin could eventually be used for the treatment of many other types of
cancer.

Clinical Status. We have completed a Phase 1 clinical trial of
Xcytrin 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 Xcytrin 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 Xcytrin in cancer patients
receiving radiation therapy for treatment of tumors which had spread to the
brain. Ten once-daily treatments of Xcytrin and whole brain radiation therapy
were well tolerated. The maximally tolerated dose of Xcytrin 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. Xcytrin'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 Xcytrin increased tumor control in the brain beyond that expected
with radiation alone.

5

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Based on the results of our Phase 1b/2 trial, we conducted an initial
randomized, controlled Phase 3 trial with Xcytrin 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 Xcytrin. 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 decline 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 Xcytrin. 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 Xcytrin had a benefit in time to
neurologic progression.

By investigator neurologic assessment, treatment with Xcytrin 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 in patients who received Xcytrin
(median 5.2 months) or who did not receive Xcytrin (median 4.9 months). 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 Xcytrin were found to have a
reduction in death due to brain tumor progression as assessed by investigators.

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,
Xcytrin has been shown in the laboratory to inhibit thioredoxin reductase and
this function may be responsible for Xcytrin'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 Xcytrin.
These results were published in January 2004 in the Journal of Clinical
Oncology.

6

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The administration of Xcytrin 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 Xcytrin. The primary endpoint for the study
was time to neurologic progression (TNP) as determined by a blinded events
review committee.  In December 2005, we announced the top line results of this
trial.  Although patients receiving Xcytrin had a longer time to neurologic
progression, the study's primary endpoint, the difference compared to patients
in the control arm did not reach statistical significance.

The results of the study were presented at the 2006 Annual Meeting of the
American Society of Clinical Oncology (ASCO).  In an intent-to-treat analysis,
the median TNP was 15.4 months for patients receiving WBRT plus Xcytrin compared
to 10.0 months for patients treated with WBRT alone (P=0.12, 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 Xcytrin treatment was 24.2 months compared to 8.8
months for WBRT alone (P=0.004, hazard ratio=0.53). By contrast, for regions
outside of North America, there was no significant difference in TNP between
treatment arms. Xcytrin was well tolerated in the study. The most common drug
related grade 3 and 4 adverse events were hypertension (4%), elevated liver
enzymes (3%) and fatigue (3%), all of which were reversible. We believe the
reasons for the regional differences in treatment benefit may be related to the
time interval between diagnosis of brain metastases and initiation of WBRT.

In North America, most patients (79%) received WBRT within three weeks of
their diagnosis of brain metastases. In certain European centers, there was
substantial delay in the initiation of WBRT either due to use of chemotherapy as
the initial therapy for brain metastases, or clinical practice patterns
resulting in delays in access to radiation therapy.  Moreover, there was an
imbalance in treatment delay favoring the control arm of the study.  We believe
that the clinical data indicate Xcytrin 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
brain metastases from NSCLC, which includes all patients with NSCLC enrolled in
our randomized trials, Xcytrin plus WBRT prolonged time to neurologic
progression compared to WBRT alone (P=0.016).

In meetings with FDA in early 2006, FDA noted that the applicable review
Division has not approved drugs based on the results of non-pre-specified
subgroup analyses when the trial has failed to meet its primary endpoint. FDA
discouraged the submission of an NDA based on subset analyses from the SMART
trial. However, in subsequent meetings with the FDA and further review of the
data, the Agency indicated a willingness to review an NDA based on analyses
which include all of the data. We submitted an NDA to the FDA in December 2006,
for the use of Xcytrin in combination with radiation therapy for the treatment
of patients with brain metastases from NSCLC.  In February 2007, we received a
refuse to file letter from the FDA citing failure to demonstrate statistically
significant differences between treatment arms in the primary endpoint of the
pivotal study to support approval.  In April 2007, we requested that the FDA
file our NDA over protest.  File over protest is a procedure permitted by FDA
regulations, which allows sponsors to have their NDA filed and reviewed when
there is disagreement over the acceptability of the NDA.  In April 2007, we
announced that the FDA had filed our NDA. The Prescription Drug User Fee Act
(PDUFA) date for completion of review by FDA is December 31, 2007.  The FDA has
also designated Xcytrin as an orphan drug for the treatment of brain metastases
arising from solid tumors.  There can be no assurance that FDA will agree with
our interpretation of the data, that FDA will not require us to conduct
additional clinical trials, or that FDA will approve our NDA in a timely
fashion, or at all.

7

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We continue to evaluate Xcytrin for the treatment of a diverse range of
cancer types and in various clinical situations including Xcytrin as a single
agent and in combination with chemotherapy and/or radiation therapy.

A Phase 2 clinical trial of Xcytrin plus stereotactic radiosurgery has been
completed and the results were presented at the 2007 ASCO Meeting.  The results
indicated that Xcytrin 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. Xcytrin 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.

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 Xcytrin plus WBRT followed by
stereotactic radiosurgery boost therapy to tumor sites in the brain. The study
was also designed to evaluate if the MRI scan obtained with Xcytrin 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
Xcytrin that were not seen with standard MRI. The Xcytrin-based treatment
planning MRI detected one occult lesion in seven patients, two occult lesions in
one patient, and three occult lesions in three patients. 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. Xcytrin 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%).

We have completed patient enrollment in an open-label Phase 2 clinical trial
of Xcytrin as a second-line treatment for patients with recurrent, metastatic
NSCLC who failed at least one platinum-based chemotherapy regimen. Preliminary
results from this trial were reported at the 2007 ASCO meeting.  Of 58 evaluable
patients there was a confirmed response rate of 5.2%, or three partial
responses. Twenty patients (34.5%) had stable disease. Median time to
progression was seven weeks for all patients. Twenty (34.5%) patients received
four or more cycles of Xcytrin, of whom seven did not respond to first line
chemotherapy. Thirteen percent were free from progression at six months. Median
survival was eight months, with 62% and 30% of patients alive at 6 and 12
months, respectively. Xcytrin was well-tolerated in this study. The most common
grade 3 or 4 adverse events were hypophosphatemia (24%), dyspnea (12%), fatigue
(10%), hypoxia (7%), and finger blisters (5%).

We are currently enrolling patients in two open-label, multi-center Phase 2
clinical trials supporting the potential use of Xcytrin, in combination with
Alimta (pemetrexed) and in combination with Taxotere (docetaxel) as a second-line
treatment for patients with NSCLC who failed at least one platinum-based
chemotherapy regimen.

Other Cancer Drugs Under Development

Histone Deacetylase (HDAC) Inhibitors

PCI-24781 is a novel 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.

PCI-24781 is now in a Phase 1 trial in patients with advanced solid tumors.
The objective of the trial is to determine the drug's safety and tolerability,
when given intravenously, and also to assess absorption and plasma levels of the
drug following oral administration.  Studies indicate that PCI-24781 achieves
sustained plasma levels following oral administration.  We believe PCI-24781 has
desirable potency and pharmacokinetic properties, which may provide clinical
advantages.

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Laboratory studies also demonstrate that PCI-24781 inhibits homologous
recombination, a cellular mechanism of DNA repair. These data suggest that PCI-24781
could be used successfully in combination with other cancer therapies that
generate DNA damage repaired by homologous recombination, such as gamma-irradiation,
cisplatin, and certain other chemotherapy drugs.

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.

Factor VIIa Inhibitor

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.
Laboratory studies and animal models indicate that inhibitors of Factor VIIa may
block tumor growth and metastasis.We are conducting the required preclinical
safety studies to support the potential filing of an Investigational New Drug
(IND), applilication with the FDA.

Btk Inhibitor

PCI-32765 is a small molecule tyrosine kinase inhibitor.  When immune
cells called B-lymphocytes 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.  We are developing
compounds  that can inhibit an enzyme, known as BTK, which is required for early
B-cells to mature into fully functioning cells.  In published studies, these
compounds have demonstrated a dose dependent ability to inhibit disease
development in rheumatoid arthritis animal models.  Recent studies have shown
that these compounds may inhibit the proliferation of lymphoma cells, or
malignancies involving B-cells, indicating their potential for treatment of
certain lymphomas and leukemias.  We are conducting the required preclinical
safety studies to support the potential filing of an IND application with the
FDA.

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. 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. Future
milestone payments under the agreement could total as much as $144 million,
although we currently can not predict if or when any of the milestones will be achieved. In addition, Celera will

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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.

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.



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

- 81 issued U.S. patents; and

- 43 other pending U.S. patent applications.

These issued U.S. patents expire between the years 2009 and 2022. In
addition, Pharmacyclics owns or licenses approximately 92 foreign patents,
including 74 patents issued in various European countries, more than 90 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.

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
$21,115,000 in fiscal 2007, $25,737,000 in fiscal 2006, and $24,964,000 in
fiscal 2005. In fiscal 2006, we recorded $6,647,000 of purchased in-process
research and expense associated with the acquisition of drug candidates from
Celera.

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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 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 Xcytrin 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. Stereotactic radiosurgery,
or delivery of high doses of focused radiation, is being used to treat brain
metastases. Although currently used in limited clinical situations, use of
stereotactic radiosurgery is expected to increase. See "Risk Factors - 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

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- 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 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.

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The FDA has designated Xcytrin 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.

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.

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Third-Party Payor Coverage and Reimbursement

Sales of pharmaceutical products depend in significant part on the
availability of coverage and reimbursement from government and other third-party
payors, including the Medicare and Medicaid programs. Third-party payors are
increasingly challenging the pricing of pharmaceutical products and may not
consider our products cost-effective or may not provide coverage of and
reimbursement for our products, in whole or in part.  In the United States,
there have been and we expect there will continue to be a number of legislative
and regulatory proposals to change the healthcare system in ways that could
significantly affect our business.  For instance, on December 8, 2003, President
Bush signed into law the Medicare Prescription Drug, Improvement and
Modernization Act of 2003, or MMA, which, among other things, established a new
prescription drug benefit beginning January 1, 2006 and changed reimbursement
for certain oncology drugs under existing benefits.  It remains difficult to
predict the full impact that the MMA will have on us and our industry.
Furthermore, we cannot predict the impact on our business of any legislation or
regulations that may be enacted or adopted in the future.

Employees

As of June 30, 2007, we had 88 employees.  Seventy-two of our employees are
engaged in research, development, preclinical and clinical testing,
manufacturing, quality assurance and quality control and regulatory affairs and
16 in finance and administration. Twenty 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.

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.

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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

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 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. The outcome of the
Phase 3 SMART trial did not reach statistical significance for the primary
endpoint, which may limit or prevent the regulatory approval of Xcytrin as a
treatment for brain metastases in patients with lung cancer and may result in
material harm to our business. The outcomes of our other ongoing Phase 1
and Phase 2 trials with Xcytrin for additional cancer indications may not
provide sufficient data supporting advancement of the development of Xcytrin for
these additional cancer indications and also may result in material harm to our
business.

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

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

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

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

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

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

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

We have incurred significant operating losses since our inception in 1991
and, as of  June 30, 2007, had an accumulated deficit of approximately $315.2
million. We expect to continue to incur substantial additional operating losses
until such time, if ever, as the commercialization of our products generates
sufficient revenues to cover our expenses. Our achieving profitability depends
upon our ability, alone or with others, to successfully complete the development
of our products, and to obtain required regulatory approvals and to successfully
manufacture and market our proposed products. If our lead product, Xcytrin,
fails to receive regulatory approval on a timely basis, or at all, our ability
to become profitable would be materially impacted. To date, we have not
generated revenue from the commercial sale of our products.

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

The manufacture and marketing of our products and our research and
development activities are subject to extensive regulation for safety, efficacy
and quality by numerous government authorities in the United States

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

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

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

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

- failure to obtain and thereafter maintain requisite governmental
approvals;

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

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

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

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

We have expended and will continue to expend substantial funds to
complete the research, development and clinical testing of our products. We also
will be required to expend additional funds to establish

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commercial-scale manufacturing arrangements, and to provide for the approval, marketing and
distribution of our products. Specifically, we will require additional funds to
commercialize our products. We are unable to entirely fund these efforts with
our current financial resources.

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

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

- continued progress of our research and development programs;

- our ability to obtain approval of our NDA for the use of Xcytrin in
combination with radiation therapy for the treatment of patients with brain
metastases from NSCLC on a timely basis;

- our ability to establish collaborative arrangements and maintain existing
ones;

- progress with preclinical studies and clinical trials;

- the time and costs involved in obtaining regulatory approval;

- the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims;

- the amount and timing of capital equipment purchases;

- competing technological and market developments; and

- our ability to market and distribute our products and establish new
licensing arrangements.

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

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

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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;

- 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

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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
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 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.

We rely on contract clinical research organizations, or CROs, for various
aspects of our clinical development activities including clinical trial
monitoring, data collection 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 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

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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:

- 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

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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 product candidates. The support of our NDA requires
highly specialized skills. Our success depends on our continued ability to
attract, retain and motivate highly qualified management and pre-clinical and
clinical personnel. We will need to hire additional personnel as we continue to
expand our research and development activities, support our NDA filing, and
build a sales and marketing team in the United States.



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

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.

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We may need to implement additional finance and accounting systems,
procedures and controls to satisfy new 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 new reporting requirements. While we have been able to complete a
favorable assessment as to the adequacy of our internal control over financial
reporting for our fiscal year ending June 30, 2007, there is no assurance that
future assessments of the adequacy of our internal control over financial
reporting will be favorable. 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
controls over financial reporting, which could adversely affect our stock
price.

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.

If we sell shares of our common stock under our equity line of
credit arrangement or in other future financings, existing common stockholders
will experience immediate dilution and, as a result, our stock price may go
down.

We may from time to time issue additional shares of common stock at a
discount from the current trading price of our common stock. As a result, our
existing common stockholders will experience immediate dilution upon the
purchase of any shares of our common stock sold at such discount. For example,
in August 2006, we entered into a common stock purchase agreement with Azimuth
Opportunity Ltd., which provides that, upon the terms and subject to the
conditions set forth in the purchase agreement, Azimuth is committed to purchase
up to $20 million of our common stock, or 4,189,337 shares, whichever occurs
first, at a discount of 5% to 7%, to be determined based on our market
capitalization at the start of each sale period. The term of the purchase
agreement is 18 months. Upon each sale of our common stock to Azimuth under the
purchase agreement, we have also agreed to pay Reedland Capital Partners a
placement fee equal to one percent of the aggregate dollar amount of common
stock purchased by Azimuth.  Our existing common stockholders will experience

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immediate dilution upon the purchase of any shares of our common stock by
Azimuth. To date, we have not sold any stock to Azimuth.

In addition, as opportunities present themselves, we may enter into financing
or similar arrangements in the future, including the issuance of debt
securities, preferred stock or common stock. If we issue common stock or
securities convertible into common stock, our common stockholders will
experience dilution.

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.

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.

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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, 2004 and ending August 31, 2007, the sales price
for one share of our common stock reached a high of $12.86 per share and a low
of $1.64 per share.  The market price of our common stock may fluctuate
significantly due to a variety of factors, including:

- timing and outcome of FDA review of our NDA submission for Xcytrin in
combination with radiation therapy for the treatment of patients with brain
metastases from NSCLC;

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

- quarterly fluctuations in our financial results;

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

- changes in governmental regulation;

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

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

- litigation;

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

- departure of key personnel;

- ability to manufacture our products to commercial standards;

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

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

- comments by securities analysts; and

- general market conditions in our industry.

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

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.

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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,
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

26

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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 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.

27

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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.

Item	1B.	Unresolved Staff Comments

None.

28

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Executive Officers and Directors

Executive officers and directors of the company, and their ages as of August
31, 2007, are as follows:

|Name                              | Age | Position                                                                            
|--------------------------------- | --- | ------------------------------------------------------------------------------------
|Richard A. Miller, M.D.           | 56  | President, Chief Executive Officer and Director                                     
|Michael K. Inouye                 | 52  | Senior Vice President, Corporate and Commercial Development                         
|Markus F. Renschler, M.D.         | 46  | Senior Vice President, Oncology Clinical Development                                
|Leiv Lea                          | 53  | Vice President, Finance and Administration and
Chief Financial Officer and Secretary
|David Loury, Ph.D.                | 51  | Vice President, Preclinical Studies                                                 
|Miles R. Gilburne(2)(3)           | 56  | Director                                                                            
|James L. Knighton(2)(3)           | 53  | Director                                                                            
|Richard M. Levy, Ph.D.(1)(3)      | 69  | Director                                                                            
|William R. Rohn(1)(3)             | 64  | Director                                                                            
|Christine A. White, M.D.(1)(2)(3) | 55  | Director                                                                            

__________

(1)

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. Inouye has served as Senior Vice President, Corporate and
Commercial Development since May 2007.  From March 2006 to February 2007, Mr.
Inouye served as Senior Vice President, Commercial Operations with Telik, Inc.,
a pharmaceutical company.  From May 2005 through February 2006, Mr. Inouye
worked as an independent pharmaceutical industry consultant.  From August 1995
through April 2005, he was employed by Gilead Sciences, Inc., a pharmaceutical
company, most recently as Senior Vice President, Commercial Operations.   Prior
to joining Gilead, he served in sales and marketing and business development
roles at InSite Vision, Merck & Co. and American Home Products. Mr.
Inouye is a director of Pharmasset, Inc., a pharmaceutical company.
Mr. Inouye received a B.S. in Food & Science Technology from the
University of California at Davis and an M.B.A. from California State
Polytechnic University, Pomona.

Dr. Renschler has served as Senior Vice President, Oncology Clinical
Development since May 2006. Prior to that, Dr. Renschler served as Vice
President, Oncology Clinical Development from May 2001 to May 2006. Prior to
that, Dr. Renschler served as Senior Director of Clinical Development from May
1998 to May 2001. Prior to that, Dr. Renschler served as Director of Clinical
Development from January 1996 to May 1998. Dr. Renschler is also a Clinical
Associate Professor of Medicine/Oncology at Stanford University School of
Medicine. He is board certified both in Medical Oncology and Internal Medicine.
Dr. Renschler received his M.D. from Stanford University and a B.A. degree in
Public and International Affairs from Princeton University.

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.

29

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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 molecular diagnostics business group of
Applera Corporation.  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 Pharmacology and
Toxicology and a B.S. in Bio-Environmental Toxicology from the University of
California, Davis.

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, 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. 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.

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.

Mr. Rohn was elected as a Director of the company in March 2000. Mr.
Rohn retired in January 2005 from his position as the Chief Operating Officer of
Biogen Idec Inc., a biopharmaceutical company, a position he held since the
merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in November 2003. He
served as the President and Chief Operating Officer of IDEC Pharmaceuticals
Corporation from January 2002 to November 2003. He joined IDEC in August 1993 as
Senior Vice President, Commercial and Corporate Development and was appointed
Senior Vice President, Commercial Operations in April 1996 and Chief Operating
Officer in May 1998. From 1984 to 1993, he was employed by Adria Laboratories,
most recently as Senior Vice President of Sales and Marketing. Mr. Rohn is
currently also a Director of Elan Corporation, plc, a pharmaceutical company,
Metabasis Therapeutics, Inc., a pharmaceutical company, Cerus Corporation, a

30

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biotechnology company, and Raven Biotechnologies, a private biotechnology
company. Mr. Rohn received a B.A. in Marketing from Michigan State
University.

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 Chairman, Department of Medicine.  Dr. White is also a
director of Arena Pharmaceuticals, Inc., a biopharmaceutical company and Apoptos Inc., a private
biopharmaceutical company. 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 we lease
approximately 65,000 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.

|                                                                                              | HIGH                                                                                                                                                                                                                                                    | LOW                                                                                                                                                                                                                                                    
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|FISCAL YEAR ENDED JUNE 30, 2007

First Quarter

Second Quarter

Third Quarter

Fourth Quarter | $
                                                       5.36
 
                                                       6.29
 
                                                       5.59
 
                                                       3.99 | $
                                                       3.48
 
                                                       4.65
 
                                                       2.50
 
                                                       2.60
|FISCAL YEAR ENDED JUNE 30, 2006

First Quarter

Second Quarter

Third Quarter

Fourth Quarter | $
                                                       9.64
 
                                                       9.48
 
                                                       5.48
 
                                                       5.22 | $
                                                       7.15
 
                                                       3.26
 
                                                       3.47
 
                                                       3.57

31

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As of June 30, 2007, there were 129 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.

Stock Performance Graph(1)

The graph depicted below shows the Company's Common Stock price as an index
assuming $100 invested on June 30, 2002 at the then current market price of
$4.44 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).

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN(2)



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,
2002.

|                         | Cumulative Total Return
|------------------------ | -----------------------
|                         | 6/02                   
|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,
                                             2007     2006       2005       2004       2003         2007
                                           -------- ---------  ---------  ---------  ---------    ---------
                                                    (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 ..............   21,115    25,737     24,964     24,447     23,912      293,742
  General and administrative ............    7,403    11,919      7,905      5,843      6,167       68,809
  Purchased in-process research
   and development ......................       --     6,647         --         --         --        6,647
                                           -------- ---------  ---------  ---------  ---------    ---------
      Total operating expenses ..........   28,518    44,303     32,869     30,290     30,079      369,198
                                           -------- ---------  ---------  ---------  ---------    ---------
Loss from operations ....................  (28,392)  (44,122)   (32,869)   (30,290)   (30,079)    (355,189)
Interest income .........................    2,175     1,964      1,821      1,132      1,809       41,600
Interest expense and other
   income (expense), net ................       --        --         --         (7)       (28)      (1,564)
                                           -------- ---------  ---------  ---------  ---------    ---------
Net loss................................. $(26,217) $(42,158) $ (31,048) $ (29,165) $ (28,298)   $(315,153)
                                           ======== =========  =========  =========  =========    =========
Basic and diluted net
   loss per share(1)..................... $  (1.08) $  (2.12) $   (1.57) $   (1.71) $   (1.75)
                                           ======== =========  =========  =========  =========
Shares used to compute basic and
  diluted net loss per share ............   24,175    19,889     19,720     17,064     16,205
                                           ======== =========  =========  =========  =========

                                                               June 30,
                                           ---------------------------------------------------
                                             2007     2006       2005       2004       2003
                                           -------- ---------  ---------  ---------  ---------
                                                                         (in thousands)
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
  securities ............................ $ 38,762 $  40,477  $  71,899  $ 101,418  $  87,735
Total assets ............................   41,095    42,729     74,564    104,667     91,853
Deficit accumulated during
  development stage ...................   (315,153) (288,936)  (246,778)  (215,730)  (186,565)
Total stockholders' equity ..............   38,401    39,320     69,994    100,288     89,410(1)	See Note 1 to the financial statements
for a description of the computation of basic and diluted net loss per
share.

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

We have incurred significant operating losses since our inception in 1991,
and as of June 30, 2007, had an accumulated deficit of approximately $315.2
million.  The process of developing and commercializing our products requires
significant research and development, preclinical testing and clinical trials,
manufacturing arrangements as well as regulatory and marketing approvals. These
activities, together with our general and administrative expenses, are expected
to result in significant operating losses until the commercialization of our
products generates sufficient revenues to cover our expenses.  We expect that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial. Our achieving profitability depends upon our ability, alone or with
others, to successfully complete the development of our products under
development, obtain required regulatory approvals and successfully manufacture
and market our products.

Xcytrin, our lead product candidate, is an anti-cancer drug being evaluated
in various clinical trials. Based on the clinical activity seen in our initial
Phase 3 trial in a subset of patients with brain metastases from non-small cell
lung cancer (NSCLC), we conducted a pivotal Phase 3 clinical trial to confirm
the potential clinical benefits observed in patients with brain metastases from
non-small cell lung cancer. This trial, known as the SMART (Study
of Neurologic Progression with Motexafin Gadolinium And
Radiation Therapy) trial, enrolled 554 patients with brain
metastases from non-small cell lung cancer.  The SMART trail was designed to
compare the safety and efficacy of whole brain radiation therapy (WBRT) alone to
WBRT plus Xcytrin. The primary endpoint for the study was time to neurologic
progression (TNP) as determined by a blinded events review committee.

In December 2006, we submitted a New Drug Application (NDA) to the Food
and Drug Administration (FDA) for the use of Xcytrin in combination with
radiation therapy for the treatment of patients with brain metastases from
NSCLC. In February 2007, we received a refuse to file letter from the FDA citing
failure to demonstrate statistically significant differences between treatment
arms in the primary endpoint of the pivotal study to support approval. In the
pivotal SMART trial, investigators found that patients given Xcytrin in addition
to 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 Xcytrin.  In April 2007, we requested that the FDA file our
NDA over protest.  File over protest is a procedure permitted by FDA
regulations, which allows sponsors to have their NDA filed and reviewed when
there is disagreement over the acceptability of the NDA.  In April 2007, we
announced that the FDA had filed our NDA. The Prescription Drug User Fee Act
(PDUFA) date for completion of review by FDA is December 31, 2007.The FDA has
also designated Xcytrin as an orphan drug for the treatment of brain metastases
arising from solid tumors.

We also are evaluating Xcytrin for the treatment of a diverse range of
cancer types and in various clinical situations including Xcytrin as a single
agent and in combination with chemotherapy and/or radiation therapy.  One of
Xcytrin's chemical features allows it to be visualized in the body using
standard magnetic resonance imaging (MRI) procedures. Using MRI, we have
established that Xcytrin localizes selectively in cancers.  We own the worldwide
rights to Xcytrin.

We are also developing several other oncology drugs.  PCI-24781
is a novel compound that inhibits all isoforms of HDAC enzymes.  In
the cell nucleus, DNA is present with proteins as part of a tightly compacted

34

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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.

PCI-24781 is now in a Phase 1 trial in patients with advanced solid tumors.
The objective of the trial is to determine the drug's safety and tolerability,
when given intravenously, and also to assess absorption and plasma levels of the
drug following oral administration.  Studies indicate that PCI-24781 achieves
sustained plasma levels following oral administration.  We believe PCI-24781 has
desirable potency and pharmacokinetic properties, which may provide clinical
advantages.

Laboratory studies also demonstrate that PCI-24781 inhibits homologous
recombination, a cellular mechanism of DNA repair. These data suggest that PCI-24781
could be used successfully in combination with other cancer therapies that
generate DNA damage repaired by homologous recombination, such as gamma-
irradiation, cisplatin, and certain other chemotherapy drugs.

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.

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.
Laboratory studies and animal models indicate that inhibitors of Factor VIIa may
block tumor growth and metastasis.We are conducting the required preclinical
safety studies to support the potential filing of an Investigational New Drug
(IND), applilication with the FDA.

PCI-32765 is a small molecule tyrosine kinase inhibitor.  When immune
cells called B-lymphocytes 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.  We are developing
compounds  that can inhibit an enzyme, known as BTK, which is required for early
B-cells to mature into fully functioning cells.  In published studies, these
compounds have demonstrated a dose dependent ability to inhibit disease
development in rheumatoid arthritis animal models.  Recent studies have shown
that these compounds may inhibit the proliferation of lymphoma cells, or
malignancies involving B-cells, indicating their potential for treatment of
certain lymphomas and leukemias.  We are conducting the required preclinical
safety studies to support the potential filing of an IND application with the
FDA.

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

35

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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, 2007, all
other investment securities are classified as available-for-sale and
consequently are recorded on the balance sheet at fair value with unrealized
gains and losses reported as a component of accumulated other comprehensive
income (loss) within stockholders' equity. Management assesses whether declines
in the fair value of investment securities are other than temporary. If the
decline in fair value is judged to be other than temporary, the cost basis of
the individual security is written down to fair value and the amount of the
write down is included in earnings. In determining whether a decline is other
than temporary, management considers the following factors:

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

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

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

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

Research and Development Expenses and Accruals

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

Our cost accruals for clinical trials are based on estimates of the services
received and efforts expended pursuant to contracts with numerous clinical trial
centers and clinical research organizations. In the normal course of business we
contract with third parties to perform various clinical trial activities in the
on-going development of potential products. The financial terms of these
agreements are subject to negotiation and vary from contract to contract and may
result in uneven payment flows. Payments under the contracts depend on factors
such as the achievement of certain events, the successful enrollment of patients, the completion of

36

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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 has not been rendered that are outstanding
as of the July 1, 2005 shall be recognized as the requisite service is rendered.

The fair value of each stock option is estimated on the date of grant using
the Black-Scholes valuation model. 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 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 the Company in fiscal years
beginning July 1, 2008. 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. The
Company is currently evaluating the potential impact of this statement on its
consolidated financial position, results of operations and cash flows.

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

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

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

37

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Results of Operations

Revenues

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

`2007    Change     2006    Change     2005
                               --------- -------  --------- -------  ---------
Grant and contract revenues   $ 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:

`2007      Change       2006      Change       2005
                          ----------- ---------  ----------- ---------  -----------
Research and development
  expenses               $21,115,000       -18% $25,737,000         3% $24,964,000`

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 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.

R&D expenses in fiscal 2006 increased by $773,000 compared to fiscal 2005
primarily due to an increase of $2,908,000 in share-based compensation and an
increase of $1,358,000 in drug manufacturing costs, partially offset by a
$3,192,000 decrease in third-party clinical trial 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:

38

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`Related R&D Expenses
                                                                                               Years ended June 30,
                                                                                     -------------------------------------
                                                                          Estimated
                                                       Phase of           Completion
Product                Description                    Development          of Phase     2007         2006         2005
----------- --------------------------------- --------------------------- ---------- -----------  -----------  -----------
Xcytrin     Cancer                              Several Phase 1 trials    Unknown   $ 7,680,000  $14,331,000  $16,045,000
                                                Several Phase 2 trials    Unknown
                                                        Phase 3          Fiscal 2006

HDAC        Cancer                                      Phase 1           Unknown     2,547,000      235,000          ---
Inhibitors

Btk         Cancer                                   Pre-clinical         Unknown     1,150,000       19,000          ---
Inhibitors

Factor VIIa Cancer                                   Pre-clinical         Unknown       919,000        3,000          ---
Inhibitor

OTHER                                                                                    50,000      650,000      708,000
                                                                                     -----------  -----------  -----------
            Total direct costs.....................................................  12,346,000   15,238,000   16,753,000
            Indirect costs.........................................................   8,769,000   10,499,000    8,211,000
                                                                                     -----------  -----------  -----------
            Total research and
               development costs................................................... $21,115,000  $25,737,000  $24,964,000
                                                                                     ===========  ===========  ===========`

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:

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

— 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.

Research and development expenses decreased $773,000, or 3%, for the year
ended June 30, 2006 compared to the year ended June 30, 2005, and were primarily
comprised of the following:

- Xcytrin program costs decreased $1,714,000, or 11%, primarily due
to:

— a $3,118,000 decrease in third-party clinical trial costs and related clinical trial activities as 
      
we completed our Phase 3 SMART trial in December 2005.

— an increase in drug costs of $1,438,000 as we purchased an additional drug intermediate.

- Indirect costs increased $2,310,000, or 28%, primarily due to an increase in
share-based compensation expense of $2,908,000.

We expect research and development expenses in the first half of fiscal 2008
to increase over the comparable period of fiscal 2007.

39

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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.

`2007     Change       2006      Change       2005
                            ---------- ---------  ----------- ---------  ----------
General and
  administrative expenses  $7,403,000       -38% $11,919,000        51% $7,905,000`

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.

G&A expenses in fiscal 2006 increased by $4,014,000 as compared to fiscal
2005 primarily due to an increase of $3,307,000 in share-based compensation
expense and a $720,000 increase in personnel costs to support our business.

We expect general and administrative expenses in the first half of fiscal
2008 to decrease over the comparable period of fiscal 2007.

Purchased In-Process Research and Development. Purchased in-process
research and development expense for the years ended June 30, 2007, 2006 and
2005 was $0, $6,647,000 and $0, 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. One drug candidate is in a Phase 1 clinical trial while
the other drug candidates are 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 $2,175,000,
$1,964,000 and $1,821,000 for the years ended June 30, 2007, 2006 and 2005,
respectively. The increases in the years ended June 30, 2007 and 2006 were
primarily due to higher average interest rates earned on the company's
investments.

Income Taxes. At June 30, 2007, we had net operating loss
carryforwards of approximately $300,554,000 for federal income tax reporting
purposes and tax credit carryforwards of approximately $9,841,000 for federal
reporting purposes.  These amounts expire at various times through 2027. 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 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 $284,104,000 of cash for operating activities and
approximately $15,979,000 of cash for the purchase of laboratory and office
equipment, leasehold improvements, and payments under capital lease
agreements.

40

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As of June 30, 2007, we had approximately $38,762,000 in cash, cash
equivalents and marketable securities. Net cash used in operating activities was
$23,407,000, $31,674,000 and $29,930,000 for the years ended June 30, 2007, 2006
and 2005, 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 by) investing activities of $(9,028,000),
$25,731,000 and $42,841,000 in the years ended June 30, 2007, 2006 and 2005,
respectively, primarily consisted of the net effect of purchases, maturities and
sales of marketable securities.

Net cash provided by financing activities of $22,093,000, $559,000 and
$748,000 in the years ended June 30, 2007, 2006 and 2005, 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.

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

Our future contractual obligations at June 30, 2007 are as follows:

`Operating
                                          Lease
                                       Commitments
                                       -----------

Less than 1 year .................... $   952,000
1-3 years ...........................   1,433,000
                                       -----------
  Total ............................. $ 2,385,000
                                       ===========`

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

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

41

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

- the costs and timing of obtaining regulatory approvals;

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

- the timing and scope of commercialization expenses for Xcytrin.

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

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.

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, 2007
would have potentially declined by $212,000.

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
                                  2008       2009           Total    at June 30, 2007
                                ---------  ---------      ---------  ----------------

Marketable securities ........ $  17,932  $   8,898      $  26,830  $        26,821

Weighted-average interest rate      5.28%      5.37%          5.31%              --`

42

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Item	8.	Financial
Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS



|                                                        | Page
|------------------------------------------------------- | ----
|Report of Independent Registered Public Accounting
Firm | 44  
|Balance Sheets                                          | 45  
|Statements of Operations                                | 46  
|Statements of Cash Flows                                | 47  
|Statements of Stockholders' Equity (Deficit)            | 48  
|Notes to Financial Statements                           | 55  

43

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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 and cash flows present fairly, in all material
respects, the financial position of Pharmacyclics, Inc. (a development stage
enterprise) at  June 30, 2007 and 2006, and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 2007
and, cumulatively, for the period from April 19, 1991 (date of inception) to
June 30, 2007

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
   PricewaterhouseCoopers LLP

San Jose, California
   September 13, 2007

44

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PHARMACYCLICS, INC.
                  (a development stage enterprise)

BALANCE SHEETS
                  (in thousands, except share and per share amounts)

`June 30,
                                                              --------------------
                                                                2007       2006
                                                              ---------  ---------
                           ASSETS
Current assets:
  Cash and cash equivalents ................................ $  11,941  $  22,283
  Marketable securities ....................................    26,821     18,194
  Prepaid expenses and other current assets ................       961        961
                                                              ---------  ---------
          Total current assets .............................    39,723     41,438
Property and equipment, net ................................       849        764
Other assets ...............................................       523        527
                                                              ---------  ---------
                                                             $  41,095  $  42,729
                                                              =========  =========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable ......................................... $   1,426  $   1,908
  Accrued liabilities ......................................     1,189      1,431
                                                              ---------  ---------
          Total current liabilities ........................     2,615      3,339
Deferred rent ..............................................        79         70
                                                              ---------  ---------
          Total liabilities ................................     2,694      3,409
                                                              ---------  ---------
Commitments (Note 2 and 7)

Stockholders' equity:
  Preferred stock, $0.0001 par value; 1,000,000 shares
    authorized at June 30, 2007 and 2006; no shares
    issued and outstanding .................................        --         --
  Common stock, $0.0001 par value; 49,000,000 shares
    authorized at June 30, 2007 and 2006; shares issued
    and outstanding -- 25,968,189 at June 30, 2007
    and 20,946,694 at June 30, 2006 ........................         3          2
  Additional paid-in capital ...............................   353,560    328,386
  Accumulated other comprehensive loss .....................        (9)      (132)
  Deficit accumulated during development stage .............  (315,153)  (288,936)
                                                              ---------  ---------
          Total stockholders' equity .......................    38,401     39,320
                                                              ---------  ---------
                                                             $  41,095  $  42,729
                                                              =========  =========`

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

45

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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,
                                           2007       2006       2005        2007
                                         ---------  ---------  ---------  ----------
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* ...........    21,115     25,737     24,964     293,742
  General and administrative* .........     7,403     11,919      7,905      68,809
  Purchased in-process research
     and development ..................        --      6,647         --       6,647
                                         ---------  ---------  ---------  ----------
          Total operating expenses ....    28,518     44,303     32,869     369,198
                                         ---------  ---------  ---------  ----------
Loss from  operations .................   (28,392)   (44,122)   (32,869)   (355,189)
Interest income .......................     2,175      1,964      1,821      41,600
Interest expense and other
   income (expense), net ..............        --         --         --      (1,564)
                                         ---------  ---------  ---------  ----------
Net loss .............................. $ (26,217) $ (42,158) $ (31,048) $ (315,153)
                                         =========  =========  =========  ==========

Basic and diluted net loss per share .. $   (1.08) $   (2.12) $   (1.57)
                                         =========  =========  =========
Shares used to compute basic
and diluted net loss per share ........    24,175     19,889     19,720
                                         =========  =========  =========

  *Includes non-cash share-based
   compensation of the following:
     Research and development ......... $   1,782  $   2,932  $      24  $    5,015
     General and administrative ....... $   1,300  $   3,332  $      25  $    5,248`

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



46

---





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,
                                                                          2007       2006       2005        2007
                                                                        ---------  ---------  ---------  ----------
Cash flows from operating activities:
  Net loss ........................................................... $ (26,217) $ (42,158) $ (31,048) $ (315,153)
  Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization ...................................       439        588        703      14,637
     Amortization of premium/discount on marketable securities, net...      (137)      (145)       484         202
     Purchased in-process research and development ...................        --      4,500         --       4,500
     Share-based compensation ........................................     3,082      6,264         49      10,263
     Gain on sale of marketable securities ...........................        --         --         --          58
     Write-down of fixed assets ......................................        --         --         --         381
     Changes in assets and liabilities:
       Prepaid expenses and other assets .............................         4        293        175      (1,484)
       Accounts payable ..............................................      (482)    (1,207)       (51)      1,426
       Accrued liabilities ...........................................      (242)        73        230       1,189
       Deferred rent .................................................         9        (27)        12          79
                                                                        ---------  ---------  ---------  ----------
            Net cash used in operating activities ....................   (23,544)   (31,819)   (29,446)   (283,902)
                                                                        ---------  ---------  ---------  ----------
Cash flows from investing activities:
  Purchase of property and equipment .................................      (524)      (468)      (294)    (12,098)
  Proceeds from sale of property and equipment .......................        --         --         --         112
  Purchases of marketable securities .................................   (14,867)   (12,232)   (11,185)   (524,100)
  Proceeds from sales of marketable securities .......................        --         --     33,426      77,942
  Proceeds from maturities of marketable securities ..................     6,500     38,577     20,410     419,068
                                                                        ---------  ---------  ---------  ----------
            Net cash provided by (used in) investing activities ......    (8,891)    25,877     42,357     (39,076)
                                                                        ---------  ---------  ---------  ----------
Cash flows from financing activities:
  Issuance of common stock, net of issuance costs ....................    21,510        392        476     308,855
  Exercise of stock options ..........................................       583        167        272       6,431
  Proceeds from notes payable ........................................        --         --         --       3,000
  Issuance of convertible preferred stock, net of issuance costs .....        --         --         --      20,514
  Payments under capital lease obligations ...........................        --         --         --      (3,881)
                                                                        ---------  ---------  ---------  ----------
            Net cash provided by financing activities ................    22,093        559        748     334,919
                                                                        ---------  ---------  ---------  ----------
Increase (decrease) in cash and cash equivalents .....................   (10,342)    (5,383)    13,659      11,941
Cash and cash equivalents at beginning of period .....................    22,283     27,666     14,007          --
                                                                        ---------  ---------  ---------  ----------
Cash and cash equivalents at end of period ........................... $  11,941  $  22,283  $  27,666  $   11,941
                                                                        =========  =========  =========  ==========
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.



47

---





PHARMACYCLICS, INC.
                  (a development stage enterprise)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

For the period from inception (April 19, 1991) through June 30, 2007
                  (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
                                           ===========  ======== ============  ========  ==========  ===============  ===========  ==========`

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

48 - 54

---



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

Note 1 - The Company and Significant Accounting Policies:

Description of the company

Pharmacyclics, Inc. (the "company") was incorporated in Delaware on
April 19, 1991 and commenced operations during 1992 to develop and market
pharmaceutical products to improve upon current therapeutic approaches to the
treatment of cancer and atherosclerosis. Since inception, the company has been
in the development stage, principally involved in research and development and
other business planning activities, with no commercial revenues from product
sales. Successful future operations depend upon the company's ability to
develop, to obtain regulatory approval for, and to commercialize its products.
The company operates in one business segment.

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

Reclassifications

Certain reclassifications have been made to the prior period statements of
cash flows to conform to the current year presentation.  Effective this year, a
new line titled "Amortization of premium/discount on marketable securities,
net" is being presented in the statement of cash flows within cash flows
from operating activities.  This presentation has also been adopted for prior
periods and accordingly, amounts previously included within the line titled
"Proceeds from maturities of marketable securities" within cash from
financing activities in the statement of cash flows have been reclassified.  The
reclassified amounts for fiscal 2006 and 2005 were ($145,000) and $484,000,
respectively.

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 5,589,114, 5,266,802 and 4,785,838 shares of common stock
were outstanding at June 30, 2007, 2006 and 2005, 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.

55

---



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

`Net    Estimated
                                          Amortized  Unrealized    Fair
                                            Cost      Losses      Value
                                       ---------  ---------  ----------
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
                                          =========  =========  ==========

June 30, 2006                                                             
Debt (state or political subdivision)... $   2,499  $     (21) $    2,478
Debt (corporate)........................    15,827       (111)     15,716
                                          ---------  ---------  ----------
                                         $  18,326  $    (132) $   18,194
                                          =========  =========  ==========`

At June 30, 2007 and 2006, all of the company's debt investments are
classified as short-term, as the investments are available to fund the company's
current operations. Unrealized gains were not material and have therefore been
netted against unrealized losses. At June 30, 2007, the company's marketable
securities had the following contractual maturities (in thousands):

`Estimated
                                          Amortized    Fair
                                            Cost       Value
                                          ---------  ---------
Less than one year...................... $  17,932  $  17,916
Between one and two years...............     8,898      8,905
                                          ---------  ---------
                                         $  26,830  $  26,821
                                          =========  =========`

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, 2007 and 2006.

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, cash equivalents and marketable securities 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.

56

---



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.

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.

57

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

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



The following table illustrates the effect on net loss per common share if
the company had applied the fair value recognition provisions of SFAS No. 123 in
the year ended June 30, 2005:

`Year Ended
                                           June 30, 2005
                                         ------------------
Net loss, as reported                   $      (31,048,000)
Employee share-based compensation using
  the fair value based method                   (8,217,000)
                                         ------------------
Pro forma net loss                      $      (39,265,000)
                                         ==================
Basic and diluted net loss
  per share, as reported                $            (1.57)
                                         ==================
Pro forma basic and
  diluted net loss per share            $            (1.99)
                                         ==================`

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

58

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`Year Ended June 30,
                                        -------------------------------
                                           2007       2006       2005
                                        ----------  ---------  --------
Stock option plans:
  Expected dividend yield ............          0 %        0 %       0 %
  Expected stock price volatility ....         73 %       79 %      75 %
  Risk free interest rate ............       4.54 %     4.90 %    3.72 %
  Expected life (years) ..............       4.61       4.98      5.06

Employee stock purchase plan:
  Expected dividend yield ............          0 %        0 %       0 %
  Expected stock price volatility ....         54 %       54 %      77 %
  Risk free interest rate ............       4.42 %     4.42 %    1.90 %
  Expected life (years) ..............       1.25       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 2007,
2006 and 2005 was $1.84, $3.03 and $5.16 per share, respectively. The weighted
average estimated grant date fair value of purchase awards under the company's
employee stock purchase plan during fiscal 2007, 2006 and 2005 was $3.30, $3.30
and $3.32 per share, respectively.

As of June 30, 2007, $6,707,000 of total unrecognized compensation costs
related to non-vested options are scheduled to be recognized over a weighted
average period of 2.66 years and $130,000 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 0.15
years. There were no capitalized share-based compensation costs at June 30,
2007.

The company accounts for equity instruments issued to non-employees for goods
or services in accordance with the provisions of SFAS No. 123 and Emerging Task
Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services("EITF 96-18"). Accordingly, as these instruments vest,
the company is required to remeasure the fair value of the equity instruments at
each reporting period prior to vesting and then finally at the vesting date of
the equity instruments.

Recent Accounting Pronouncements

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 the Company in fiscal years
beginning July 1, 2008. 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. The
Company is currently evaluating the potential impact of this statement on its
consolidated financial position, results of operations and cash flows.

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

In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157 (SFAS No. 157), "Fair Value Measurements" which
clarifies the principle that fair value should be based on the assumptions
market participants would use when pricing an asset or liability and establishes
a fair value hierarchy that prioritizes the information used to develop those
assumptions.  Under the standard, fair value measurements would be separately
disclosed by level within the fair value hierarchy. SFAS No. 157 is

59

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effective the first quarter of our 2008 fiscal year with early adoption permitted. We have
not yet determined the impact, if any, that the implementation of SFAS No. 157
will have on our financial statements.

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

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. Under the terms of the
agreement, 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. The HDAC drug candidate is in a Phase 1 clinical trial the other drug
candidates are in pre-clinical development. Future milestone payments under the
agreement could total as much as $144 million, although the company 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.

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 $6,647,000 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.

Note 3 - Balance Sheet Components:

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

`June 30,
                                                    --------------------
                                                      2007       2006
                                                    ---------  ---------
Equipment ........................................ $   7,229  $   7,121
Leasehold improvements ...........................     2,976      2,976
Furniture and fixtures ...........................       870        864
                                                    ---------  ---------
                                                      11,075     10,961
Less accumulated depreciation and amortization ...   (10,226)   (10,197)
                                                    ---------  ---------
                                                   $     849  $     764
                                                    =========  =========`

60

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Accrued liabilities consist of the following (in thousands):



`June 30,
                                                    --------------------
                                                      2007       2006
                                                    ---------  ---------
Employee compensation ............................ $   1,189  $   1,431
                                                    ---------  ---------
                                                   $   1,189  $   1,431
                                                    =========  =========`

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.

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

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.

Shareholder rights plan

In April 1997, the Board of Directors approved a shareholder rights plan (the
"Plan") under which stockholders of record on May 1, 1997 received a
right to purchase (a "Right") one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $.001 per share (the "Series A
Preferred Stock"), at an exercise price of $125 per one one-hundredth of a
share, subject to adjustment. The Rights will separate from the common stock and
Rights certificates will be issued and will become exercisable upon the earlier
of (i) 10 business days following a public announcement that a person or group
of affiliated or associated persons has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of the company's outstanding common
stock or (ii) 10 business days or such later date as may be determined by a
majority of the Board of Directors following the commencement of, or
announcement of, an intention to make a tender offer or exchange offer, the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of the outstanding common stock of the company. The Rights
expire at the close of business on April 30, 2007. The company has designated
120,000 shares of its preferred stock as Series A Junior Participating Preferred
Stock in connection with this Plan. In December 2001, the Board of Directors approved

61

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an amendment to the Plan so that each Right entitles the holder to
purchase one one-thousandth of a share of Series A Preferred Stock at a price of
$125 per one one-thousandth of a share, subject to adjustment. On August 7,
2006, the Board of Directors approved an amendment to the Plan to accelerate the
expiration date to August 18, 2006, effectively terminating the Plan as of that
date.

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

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

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

The following table summarizes the company's stock option activity (in
thousands, except per share amounts):

62

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`Options 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`

63

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`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 ..................      1,000         --
Exercised ...................         --       (191)      7.02
Granted .....................     (1,351)     1,351       4.58
Forfeited or expired ........        679       (679)     12.85
                              ----------- ----------
Balance at June 30, 2006 ....      1,088      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 .....       633      5,589  $   10.98
                              =========== ==========`

The total intrinsic value of stock options exercised during the years ended
June 30, 2007, 2006 and 2005 were $64,000, $374,000 and $387,000, respectively.
No income tax benefits were realized by the company in the years ended June 30,
2007, 2006 or 2005.

A summary of outstanding and vested stock options as of June 30, 2006 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
--------------------- -----------   -----------  -----------   -----------  -----------  -----------  -----------
   $2.64 - $2.64.....     32,810          9.76  $   2.64                        32,810  $      2.64
   $2.76 - $2.76.....    852,829          9.70      2.76                        54,182         2.76
   $3.08 - $4.13.....    357,359          9.03      3.35                        94,323         3.58
   $4.16 - $4.16.....  1,087,408          8.90      4.16                       307,270         4.16
   $4.25 - $4.47.....    627,062          5.53      4.38                       627,062         4.38
   $4.50 - $7.39.....    623,725          5.70      6.73                       591,268         6.78
   $7.43 - $9.99.....    559,395          7.91      8.08                       337,406         8.25
  $10.00 - $21.73....    559,838          4.19      15.26                      504,115        15.71
  $23.75 - $38.25....    611,993          2.89      28.46                      611,993        28.46
  $41.69 - $78.13....    276,695          2.99      57.03                      276,695        57.03
                      -----------                              -----------  -----------               -----------
                       5,589,114          6.78  $   10.98     $     2,625    3,437,124  $     15.28  $     2,625
                      ===========                              ===========  ===========               ===========`

64

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The company had outstanding exercisable options to purchase 5,015,019,
4,835,821, and 4,436,153 shares of common stock with a weighted average exercise
price of $11.81, $13.94, and $16.05 at June 30, 2007, 2006, and 2005,
respectively.

Employee Stock Purchase Plan. The company adopted an Employee Stock
Purchase Plan (the "Purchase Plan") in August 1995. Qualified
employees may elect to have a certain percentage of their salary withheld to
purchase shares of the company's common stock under the Purchase Plan. The
purchase price per share is equal to 85% of the fair market value of the stock
on specified dates. Sales under the Purchase Plan in fiscal 2007, 2006 and 2005
were 58,331, 82,851, and 90,704 shares of common stock at an average price of
$3.66, $4.73, and $5.24 per share, respectively. Shares available for future
purchase under the Purchase Plan are 260,807 at June 30, 2007.

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 $141,000, $185,000 and $151,000 for the
years ended June 30, 2007, 2006 and 2005, respectively, and $846,000 for the
period from inception (April 19, 1991) through June 30, 2007.

Note 6 - Income Taxes:

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

`June 30,
                                        ---------------------
                                           2007       2006
                                        ----------  ---------
Net operating loss carryforwards ..... $  106,548  $  99,630
Tax credit carryforwards .............     14,981     14,086
Capitalized start-up and R&D costs ...      6,547      5,019
Depreciation and amortization.........      3,613      3,676
Share-based compensation .............      2,078      1,510
Reserves and accruals.................        289        322
                                        ----------  ---------
Gross deferred tax assets ............    134,056    124,243
Less valuation allowance .............   (134,056)  (124,243)
                                        ----------  ---------
Net deferred tax assets .............. $       --  $      --
                                        ==========  =========`

A full valuation allowance has been established for the company's deferred
tax assets at June 30, 2007 and 2006 since realization of such assets through
the generation of future taxable income is uncertain. The change in the
valuation allowance was approximately $9,813,000, $16,545,000 and $14,046,000 for
the years ended June 30, 2007, 2006 and 2005, respectively.

65

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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,
                                        -------------------------------
                                           2007       2006       2005
                                        ----------  ---------  --------
Tax benefit at statutory rate ........ $   10,047  $  16,511  $ 12,367

Research and development credits .....        852        978     1,485
Deferred tax assets not benefited ....     (9,813)   (15,457)  (14,059)
State NOL disallowed/expired .........         --     (1,088)       --
Share-based compensation .............       (620)      (970)       --
Other ................................       (466)        26       207
                                        ----------  ---------  --------
                                       $       --  $      --  $     --
                                        ==========  =========  ========`

At June 30, 2007, the company had federal and state net operating loss
carryforwards of approximately $300.5 million and $74.3 million, respectively.
The federal and state net operating loss carryforwards will begin to expire in
2007. Federal and state tax credit carryforwards of $9.8 million and $7.5
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.

Note 7 - Commitments:

The company leases its facility under a non-cancelable operating lease that
expires in fiscal 2010. Future minimum lease payments under the non-cancelable
operating leases are as follows (in thousands):

`Operating
                                          Lease
                                        Commitments
Year Ending June 30,                    ----------
--------------------------------------
2008.................................. $      952
2009..................................        946
2010..................................        487
                                        ----------
  Total minimum lease payments
     and operating lease income ...... $    2,385
                                        ==========`

Rent expense for the years ended June 30, 2007, 2006 and 2005 was $996,000,
$1,278,000 and $1,226,000, respectively, and $15,155,000 for the period from
inception (April 19, 1991) through June 30, 2007. Sublease income was $0 for
each of the years ended June 30, 2007, 2006 and 2005, and $924,000 from the
period from inception (April 19, 1991) through June 30, 2007. 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, 2007.

66

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Note 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 2007

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

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

                                                            Quarter Ended
                                        --------------------------------------------------------
                                        September 30,   December 31,   March 31,      June 30,
                                        ------------    ------------  ------------  ------------
Fiscal 2006

Loss from operations ................. $    (10,689)   $    (10,384) $     (7,842) $    (15,207)
Net loss .............................      (10,201)         (9,890)       (7,375)      (14,692)[1]

Basic and diluted net loss per share . $      (0.51)   $      (0.50) $      (0.37) $      (0.73)

Shares used in computation of basic
   and diluted net loss per share ....       19,830          19,878        19,904        19,944`

[1]  The net loss for the quarter ended June 30, 2006, includes $6,647,000 of purchased in-process
        research and development expense relating to the acquisition of multiple small molecule drug
        candidates from Celera Genomic

67

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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, 2007, 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.

(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, 2007 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, 2007.

Management's assessment of the effectiveness of our internal control over
financial reporting as of June 30, 2007 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which is included on page 44 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

68

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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.

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.

Item	13.	Certain Relationships and Related
Transactions

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 43.

(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 71.

69

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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 13, 2007

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 13, 2007
|                                                       |  |                                                                                                                                   |  |                   
|/s/  LEIV LEA
Leiv Lea                                 |  | Vice President, Finance and Administration and Chief Financial
Officer and Secretary (Principal Financial and Accounting Officer) |  | September 13, 2007
|                                                       |  |                                                                                                                                   |  |                   
|/s/  MILES R. GILBURNE
Miles R. Gilburne               |  | Director                                                                                                                          |  | September 13, 2007
|                                                       |  |                                                                                                                                   |  |                   
|/s/  JAMES L. KNIGHTON
James L. Knighton               |  | Director                                                                                                                          |  | September 13, 2007
|                                                       |  |                                                                                                                                   |  |                   
|/s/  RICHARD M. LEVY, PH.D.
Richard M. Levy            |  | Director                                                                                                                          |  | September 13, 2007
|                                                       |  |                                                                                                                                   |  |                   
|/s/  WILLIAM R. ROHN
William R. Rohn                   |  | Director                                                                                                                          |  | September 13, 2007
|                                                       |  |                                                                                                                                   |  |                   
|/s/  CHRISTINE A. WHITE, M.D.
Christine A. White, M.D. |  | Director                                                                                                                          |  | September 13, 2007

70

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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).7110.8*
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).7210.29+
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).10.35+
Form of Severance Agreement between the Company and certain
executive officers (Incorporated by reference to exhibit of the same number to
the Quarterly report on Form 10-Q for the quarter ended September 30, 1997).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).7310.54
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
     PDF provided as courtesy23.1
Consent of Independent Registered Public Accounting
Firm.7424.1
Power of Attorney. (see page 70)31.1
Section 302 Certification of Chief Executive Officer31.2
Section 302 Certification of Chief Financial Officer32.1
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.75