**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**




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





For
      the
      quarter ended June 30, 2008





OR





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





For
      the
      transition period __________ to __________.





**Commission
      file number 001-32626**





**Hana
      Biosciences, Inc.**


(Exact
      Name of Registrant as Specified in Its Charter)




**Delaware**
              (State
                or other jurisdiction of
              incorporation
                or organization)
            **32-0064979**
              (I.R.S.
                Employer Identification No.)**7000
                Shoreline Ct., Suite 370, South San**
              **Francisco,
                CA.**
            **94080**(Address
                of principal executive offices)
            (Zip
                Code)




**(650)
      588-6404**


(Registrant's
      Telephone Number, Including Area Code)





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




Indicate
      by check mark whether the registrant is a large accelerated filer, accelerated
      filer, or a non-accelerated filer, or a smaller reporting company. See
      definition of “large accelerated filer”, “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act (check one):





Large
                accelerated filer  
                o
            
            Accelerated
                filer   oNon-accelerated
                filer   o
            
            Smaller
                reporting company   x(Do
                not check if smaller reporting
                company)





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




As
      of
      August 11, 2008, there were 32,386,130 shares of the registrant's common
      stock, $.001 par value, outstanding.







**INDEX**





**Page****PART
                I**
            
            **FINANCIAL
                INFORMATION**Item
                1.
            
            Financial
                Statements
            
            
            4Unaudited
                Condensed Balance Sheets
            
            
            4Unaudited
                Condensed Statements of Operations and Other Comprehensive
                Loss
            
            
            5Unaudited
                Condensed Statement of Changes in Stockholders' Equity
            
            
            6Unaudited
                Condensed Statements of Cash Flows
            
            
            7Notes
                to Unaudited Condensed Financial Statements
            
            
            8Item
                2.
            
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            
            18Item
                3.
            
            Quantitative
                and Qualitative Disclosure About Market Risk
            
            
            27Item
                4T.
            
            Controls
                and Procedures
            
            
            27**PART
                II**
            
            **OTHER
                INFORMATION**Item
                1.
            
            Legal
                Proceedings
            
            
            28Item
                1A.
            
            Risk
                Factors
            
            
            28Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            
            28Item
                3.
            
            Defaults
                Upon Senior Securities
            
            
            28Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            
            28Item
                5.
            
            Other
                Information
            
            
            28Item
                6.
            
            Exhibits
            
            
            28Signatures
            
            
            29Index
                of Exhibits Filed with this Report
            
            
            30


-
          2 -




**Forward-Looking
      Statements**





This
      Quarterly Report contains forward-looking statements within the meaning of
      Section 27A of the Securities Act of 1933, as amended, or the Securities
      Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or
      the Exchange Act. Any statements about our expectations, beliefs, plans,
      objectives, assumptions or future events or performance are not historical
      facts
      and may be forward-looking. These forward-looking statements include, but are
      not limited to, statements about:


·
              the
                  development of our drug candidates, including when we expect to
                  undertake,
                  initiate and complete clinical trials of our product
                  candidates;


·
              the
                  regulatory approval of our drug
                  candidates;
  ·
              our
                  use of clinical research centers and other
                  contractors;
  ·
              our
                  ability to find collaborative partners for research, development
                  and
                  commercialization of potential
                  products;
  ·
              acceptance
                  of our products by doctors, patients or payors and the availability
                  of
                  reimbursement for our product
                  candidates;
  ·
              our
                  ability to market any of our
                  products;
  ·
              our
                  history of operating losses;
  ·
              our
                  ability to secure adequate protection for our intellectual
                  property;
  ·
              our
                  ability to compete against other companies and research
                  institutions;
  ·
              the
                  effect of potential strategic transactions on our
                  business;
  ·
              our
                  ability to attract and retain key
                  personnel;
  ·
              our
                  ability to obtain adequate financing;
                  and
  ·
              the
                  volatility of our stock
                  price.




These
      statements are often, but not always, made through the use of words or phrases
      such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,”
“expect,” “believe,” “intend” and similar words or phrases. For such statements,
      we claim the protection of the Private Securities Litigation Reform Act of
      1995.
      Readers of this Quarterly Report on Form 10-Q are cautioned not to place undue
      reliance on these forward-looking statements, which speak only as of the time
      this report was filed with the Securities and Exchange Commission, or SEC.
      These
      forward-looking statements are based largely on our expectations and projections
      about future events and future trends affecting our business, and are subject
      to
      risks and uncertainties that could cause actual results to differ materially
      from those anticipated in the forward-looking statements. Discussions containing
      these forward-looking statements may be found throughout this report, including
      Part I, the section entitled “Item 2: Management's Discussion and Analysis of
      Financial Condition and Results of Operations.” These forward-looking statements
      involve risks and uncertainties, including the risks discussed in our Annual
      Report on Form 10-K for the year ended December 31, 2007 (the “2007 Form 10-K”),
      that could cause our actual results to differ materially from those in the
      forward-looking statements. Except as required by law, we undertake no
      obligation to publicly revise our forward-looking statements to reflect events
      or circumstances that arise after the filing of this report or documents
      incorporated by reference herein that include forward-looking statements. The
      risks discussed in this report should be considered in evaluating our prospects
      and future financial performance.





In
      addition, past financial or operating performance is not necessarily a reliable
      indicator of future performance and you should not use our historical
      performance to anticipate results or future period trends. We can give no
      assurances that any of the events anticipated by the forward-looking statements
      will occur or, if any of them do, what impact they will have on our results
      of
      operations and financial condition.





References
      to the “Company,” “Hana,” the “Registrant,” “we,” “us,” or “our” in this report
      refer to Hana Biosciences, Inc., a Delaware corporation, unless the context
      indicates otherwise.


-
          3 -





**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**HANA
      BIOSCIENCES, INC.**





**CONDENSED
      BALANCE SHEETS**


(Unaudited)


**June 30,**
              **2008**
            
            **December 31,**
              **2007****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            9,197,341
            
            $
            20,795,398Available-for-sale
                securities
            
            
            92,000
            
            
            96,000Prepaid
                expenses and other current assets
            
            
            147,460
            
            
            489,293Total
                current assets
            
            
            9,436,801
            
            
            21,380,691Property
                and equipment, net
            
            
            497,005
            
            
            432,529Restricted
                cash
            
            
            125,000
            
            
            125,000Debt
                issuance costs
            
            
            1,404,812
            
            
            1,423,380Total
                assets
            
            $
            11,463,618
            
            $
            23,361,600**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            103,683
            
            $
            1,682,739Accrued
                other expenses
            
            
            312,405
            
            
            496,239Accrued
                personnel related expenses
            
            
            541,208
            
            
            763,050Leased
                equipment: short-term
            
            
            48,085
            
            
            13,919Accrued
                clinical development costs
            
            
            2,141,433
            
            
            1,156,011Total
                current liabilities
            
            
            3,146,814
            
            
            4,111,958Notes
                payable
            
            
            2,134,703
            
            
            2,025,624Warrant
                liabilities
            
            
            2,414,674
            
            
            4,232,355Leased
                equipment: long-term
            
            
            73,186
            
            
            33,861Total
                long term liabilities
            
            
            4,622,563
            
            
            6,291,840Total
                liabilities
            
            
            7,769,377
            
            
            10,403,798Commitments
                and contingencies (Notes 9 and 10):Stockholders'
                equity:Common
                stock; $0.001 par value:100,000,000
                shares authorized, 32,315,816 and 32,169,553 shares issued and outstanding
                at June 30, 2008 and December 31, 2007, respectively
            
            
            32,316
            
            
            32,170Additional
                paid-in capital
            
            
            103,413,413
            
            
            101,843,390Accumulated
                other comprehensive loss
            
            
            —
            
            
            (104,000
            )Accumulated
                deficit
            
            
            (99,751,488
            )
            
            (88,813,758
            )Total
                stockholders' equity
            
            
            3,694,241
            
            
            12,957,802Total
                liabilities and stockholders' equity
            
            $
            11,463,618
            
            $
            23,361,600





See
      accompanying notes to unaudited condensed financial statements.


-
          4 -





**HANA
      BIOSCIENCES, INC.**





**CONDENSED
      STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS**


**(Unaudited)**





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Operating
                expenses:General
                and administrative
            
            $
            1,749,555
            
            $
            2,725,362
            
            $
            3,650,475
            
            $
            6,072,347Research
                and development
            
            
            4,419,464
            
            
            6,473,793
            
            
            8,683,796
            
            
            11,711,697Total
                operating expenses
            
            
            6,169,019
            
            
            9,199,155
            
            
            12,334,271
            
            
            17,784,044Loss
                from operations
            
            
            (6,169,019
            )
            
            (9,199,155
            )
            
            (12,334,271
            )
            
            (17,784,044
            )Other
                income (expense):Interest
                income
            
            
            60,457
            
            
            314,685
            
            
            231,365
            
            
            707,625Interest
                expense
            
            
            (252,477
            )
            
            (1,293
            )
            
            (501,641
            )
            
            (2,667
            )Other
                expense, net
            
            
            (36,802
            )
            
            (13,388
            )
            
            (42,864
            )
            
            (18,640
            )Gain
                or loss on derivative
            
            
            1,827,611
            
            
            —
            
            
            1,817,681
            
            
            —Realized
                loss on marketable securities
            
            
            (108,000
            )
            
            (176,000
            )
            
            (108,000
            )
            
            (176,000
            )Total
                other income (expense)
            
            
            1,490,789
            
            
            124,004
            
            
            1,396,541
            
            
            510,318Net
                loss
            
            $
            (4,678,230
            )
            $
            (9,075,151
            )
            $
            (10,937,730
            )
            $
            (17,273,726
            )Net
                loss per share, basic and diluted
            
            $
            (0.15
            )
            $
            (0.31
            )
            $
            (0.34
            )
            $
            (0.59
            )Weighted
                average shares used in computing net loss per share, basic and
                diluted
            
            
            32,227,195
            
            
            29,383,420
            
            
            32,204,171
            
            
            29,334,829Comprehensive
                loss:Net
                loss
            
            $
            (4,678,230
            )
            $
            (9,075,151
            )
            $
            (10,937,730
            )
            $
            (17,273,726
            )Unrealized
                holdings gains (losses) arising during the period
            
            
            (28,000
            )
            
            (60,000
            )
            
            (4,000
            )
            
            (196,000
            )Less:
                reclassification adjustment for losses included in net
                loss
            
            
            108,000
            
            
            176,000
            
            
            108,000
            
            
            176,000Comprehensive
                loss
            
            $
            (4,598,230
            )
            $
            (8,959,151
            )
            $
            (10,833,730
            )
            $
            (17,293,726
            )





See
      accompanying notes to unaudited condensed financial statements.


-
          5 -




**HANA
      BIOSCIENCES, INC.**





**CONDENSED
      STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY**


**(Unaudited)**





**Period
      from January 1, 2008 to June 30, 2008**





**Common stock**
            
            **Additional**
              **paid-in**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **income**
            
            **Accumulated**
            
            **Total**
              **stockholders'****Shares**
            
            **Amount**
            
            **capital**
            
            **(loss)**
            
            **deficit**
            
            **equity**Balance
                at January 1, 2008
            
            
            32,169,553
            
            $
            32,170
            
            $
            101,843,390
            
            $
            (104,000
            )
            $
            (88,813,758
            )
            $
            12,957,802Stock-based
                compensation of employees amortized over vesting period of stock
                options
            
            
            —
            
            
            —
            
            
            1,435,314
            
            
            —
            
            
            —
            
            
            1,435,314Issuance
                of shares under employee stock purchase plan
            
            
            11,854
            
            
            12
            
            
            10,668
            
            
            —
            
            
            —
            
            
            10,680Stock-based
                compensation of non-employees amortized over vesting period of stock
                options
            
            
            —
            
            
            —
            
            
            (825
            )
            
            —
            
            
            —
            
            
            (825
            )Issuance
                of shares in partial consideration of milestone payment
            
            
            134,409
            
            
            134
            
            
            124,866
            
            
            —
            
            
            —
            
            
            125,000Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (10,937,730
            )
            
            (10,937,730
            )Unrealized
                gain on available-for-sale securities, net of reclassification
                adjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            104,000
            
            
            —
            
            
            104,000Balance
                at June 30, 2008
            
            
            32,315,816
            
            $
            32,316
            
            $
            103,413,413
            
            $
            —
            
            $
            (99,751,488
            )
            $
            3,694,241




See
      accompanying notes to unaudited condensed financial statements.


-
          6 -





**HANA
      BIOSCIENCES, INC.**





**CONDENSED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**





**Six Months Ended June 30,****2008**
            
            **2007****Cash
                flows from operating activities:**Net
                loss
            
            $
            (10,937,730
            )
            $
            (17,273,726
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            91,245
            
            
            83,322Share-based
                compensation to employees for services
            
            
            1,435,314
            
            
            4,173,679Share-based
                compensation to nonemployees for services
            
            
            (825
            )
            
            (151,670
            )Shares
                issued for license milestone
            
            
            125,000
            
            
            —Amortization
                of discount and debt issuance costs
            
            
            127,647
            
            
            —Realized
                loss on available for sale securities
            
            
            108,000
            
            
            176,000Unrealized
                loss on derivative liability
            
            
            (1,817,681
            )
            
            —Changes
                in operating assets and liabilities:Increase
                in prepaid expenses and other assets
            
            
            341,833
            
            
            55,119Decrease
                in accounts payable
            
            
            (1,579,056
            )
            
            453,156Increase(decrease)
                in accrued and other current liabilities
            
            
            579,746
            
            
            (1,515,313
            )Net
                cash used in operating activities
            
            
            (11,526,507
            )
            
            (13,999,433
            )**Cash
                flows from investing activities:**Purchase
                of property and equipment
            
            
            (64,680
            )
            
            (76,754
            )Purchase
                of marketable securities
            
            
            —
            
            
            (3,480,494
            )Sale
                of marketable securities
            
            
            —
            
            
            2,825,000Net
                cash used in investing activities
            
            
            (64,680
            )
            
            (732,248
            )**Cash
                flows from financing activities:**Repurchase
                of employee stock options
            
            
            —
            
            
            (117,000
            )Proceeds
                from exercise of warrants and options and issuance of shares under
                employee stock purchase plan
            
            
            10,680
            
            
            88,843Payments
                on capital leases
            
            
            (17,550
            )
            
            —Net
                cash used in financing activities
            
            
            (6,870
            )
            
            (28,157
            )Net
                decrease in cash and cash equivalents
            
            
            (11,598,057
            )
            
            (14,759,838
            )Cash
                and cash equivalents, beginning of period
            
            
            20,795,398
            
            
            29,127,850Cash
                and cash equivalents, end of period
            
            $
            9,197,341
            
            $
            14,368,012Supplemental
                disclosures of cash flow data:Cash
                paid for interest
            
            $
            373,994
            
            $
            2,668Supplemental
                disclosures of noncash financing activities:Equipment
                financed with capital leases
            
            
            64,476
            
            
            —Unrealized
                gain(loss) on available-for-sale securities
            
            $
            (4,000
            )
            $
            (196,000
            )





See
      accompanying notes to unaudited condensed financial
      statements.


-
          7 -




**HANA
      BIOSCIENCES, INC.**


**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**





**NOTE
      1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION**





**BUSINESS**


Hana
      Biosciences, Inc. (“Hana,” the “Company,” “we,” “us” or “our”) is a
      biopharmaceutical company based in South San Francisco, California, which seeks
      to acquire, develop, and commercialize innovative products to strengthen the
      foundation of cancer care. The Company is committed to creating value by
      accelerating the development of its product candidates, including entering
      into strategic partnership agreements and expanding its product candidate
      pipeline by being an alliance partner of choice to universities, research
      centers and other companies.  Our product candidates consist of the
      following:





***Cancer
      Therapeutics***


·
            Marqibo®
                (vincristine sulfate liposomes injection), a novel, targeted OptisomeTM
                encapsulated formulation product candidate of the FDA-approved anticancer
                drug vincristine, being developed for the treatment of adult acute
                lymphoblastic leukemia (ALL), and metastatic uveal
                melanoma.





·
            AlocrestTM
                (vinorelbine liposomes injection), a novel, targeted OptisomeTM
                encapsulated formulation product candidate of the FDA-approved anticancer
                drug vinorelbine, being developed for the treatment of solid tumors
                such
                as non-small-cell lung cancer
                (NSCLC).





·
            BrakivaTM
                (topotecan liposomes injection), a novel targeted OptisomeTM encapsulated
                formulation product candidate comprised of the FDA-approved anticancer
                drug topotecan, being developed for the treatment of solid tumors
                including small cell lung cancer and ovarian
                cancer.





***Supportive
      Care***


·
            Menadione,
                a novel product candidate being developed for the prevention and/or
                treatment of the skin toxicities associated with the use of epidermal
                growth factor receptor inhibitors (EGFRI) in the treatment of certain
                cancers.





**BASIS
      OF PRESENTATION**


The
      accompanying unaudited condensed financial statements of the Company have been
      prepared in accordance with U.S. generally accepted accounting principles (GAAP)
      for interim financial information and the instructions to Form 10-Q. In the
      opinion of the Company’s management, the unaudited condensed financial
      statements have been prepared on the same basis as the audited financial
      statements and include all adjustments, consisting of only normal recurring
      adjustments, necessary for the fair presentation of the Company’s financial
      position for the periods presented herein. The condensed balance sheet as of
      December 31, 2007 has been derived from the Company’s audited balance sheet as
      of that date. These interim financial results are not necessarily indicative
      of
      the results to be expected for the full fiscal year ending December 31,
      2008 or any subsequent interim period.





From
      inception to July 31, 2007, when the Company entered into a sublicense agreement
      with Par Pharmaceuticals, Inc., the Company was a development stage enterprise
      since it had not generated revenue from the sale of its products or through
      licensing agreements. Accordingly, prior to July 31, 2007, the financial
      statements were prepared in accordance with the provisions of Statement of
      Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by
      Development Stage Enterprises.” Upon execution of the Par sublicense agreement,
      the Company has commenced principal operations.





The
      Company has financed operations primarily through equity and debt financing
      and
      expects such losses to continue over the next several years.  The Company's
      continued operations will depend on whether it is able to continue the
      progression of clinical compounds and obtain additional funding through equity
      or debt financings.  The Company can give no assurances that any additional
      capital that it is able to obtain, if any, will be sufficient to meet its needs.
      Moreover, there can be no assurance that such capital will be available to
      the
      Company on favorable terms or at all. The Company will need additional financing
      thereafter until it can achieve profitability, if ever. If the Company is unable
      to raise additional capital, it will likely be forced to curtail its desired
      development activities beyond 2008, which will delay the development of its
      product candidates.





**NOTE
      2. SIGNIFICANT ACCOUNTING POLICIES**





*Use
      of Management's Estimates*




The
      preparation of financial statements in conformity with GAAP requires management
      to make estimates based upon current assumptions that affect the reported
      amounts of assets and liabilities, disclosures of contingent assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      expenses during the reporting period. Examples include provisions for deferred
      taxes, the valuation of the warrant liabilities, the cost of contracted clinical
      study activities and assumptions related to share-based compensation expense.
      Actual results may differ materially from those estimates.





*Segment
      Reporting*




The
      Company has determined that it currently operates in only one segment, which
      is
      the research and development of oncology therapeutics and supportive care for
      use in humans. All assets are located in the United
      States.


-
          8 -




**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**





*Loss
      Per Share*





Basic
      net
      loss per common share is calculated by dividing net loss by the weighted-average
      number of common shares outstanding for the period. Diluted net loss per common
      share is the same as basic net loss per common share, since potentially dilutive
      securities from stock options, stock warrants and restricted stock would have
      an
      anti-dilutive effect because the Company incurred a net loss during each period
      presented. The number of shares potentially issuable at June 30, 2008 and 2007
      upon exercise or conversion that were not included in the computation of net
      loss per share totaled 12,059,477 and 7,719,348, respectively.





*Cash
      and Cash Equivalents and Concentration of Risk*




Financial
      instruments that potentially expose the Company to concentrations of credit
      risk
      consist primarily of cash and cash equivalents. The Company maintains its cash
      and cash equivalents with high credit quality financial institutions. The
      Company’s credit risk lies with the exposure to loss in the event of
      nonperformance by these financial institutions as balances on deposit exceed
      federally insured limits.





*Fair
      Value of Financial Instruments*





Financial
      instruments include cash and cash equivalents, marketable securities, and
      accounts payable. Marketable securities are carried at fair value. Cash and cash
      equivalents and accounts payable are carried at cost, which approximates fair
      value due to the relative short maturities of these instruments.





*Debt
      Issuance Costs*





As
      discussed in Note 5, the debt issuance costs relate to fees paid in the form
      of
      cash and warrants to secure a firm commitment to borrow funds. These fees are
      deferred, and if the commitment is exercised, amortized over the life of the
      related loan using the interest method. If the commitment expires unexercised,
      the deferred fee is expensed immediately.





*Warrant
      Liabilities*





On
      October 30, 2007, the Company entered into a loan facility agreement with
      certain affiliates of Deerfield Management (collectively, “Deerfield”).
      Deerfield has committed funds to assist with the development of the Company’s
      product candidates. Under the agreement, the Company may borrow from Deerfield
      up to an aggregate of $30 million, of which $20 million becomes available in
      four installments every six months commencing October 30, 2007. We are not
      obligated to draw down these funds when the installment becomes available to
      us.
      As additional consideration for the loan, the Company also issued to Deerfield
      6-year warrants to purchase an aggregate of 5,225,433 shares of the Company’s
      common stock at an exercise price of $1.31 per share, of which warrants to
      purchase 4,825,433 shares include an anti-dilution feature. This anti-dilution
      feature requires that, as the Company issues additional shares of its common
      stock during the term of the warrant, the number of shares purchasable under
      this series is automatically increased so that it always represents the right
      to
      purchase 15% of the Company’s then outstanding common stock. The Company also
      entered into a registration rights agreement with Deerfield, pursuant to which
      the Company registered the resale of the shares issuable upon exercise of the
      warrants under the Securities Act of 1933. These financing transactions were
      recorded in accordance with Emerging Issues Task Force “EITF” No. 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, a Company's Own Stock” and related interpretations. Because the
      warrants are redeemable in the event of, among other things, a change in control
      or if the Company’s shares are no longer listed on a national securities
      exchange, the fair value of the warrants based on the Black-Scholes-Merton
      option pricing model is recorded as a liability. The Company updates its
      estimate of the fair value of the warrant liabilities in each reporting period
      as new information becomes available and any gains or losses resulting from
      the
      changes in fair value from period to period are included as other income
      (expense).


-
          9 -




**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**




*Income
      Taxes*





In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an
      interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the
      recognition, measurement, accounting and disclosure for uncertainty in tax
      positions. The Company is subject to the provisions of FIN 48 as of January
      1,
      2007, and has analyzed filing positions in federal and state jurisdictions
      where
      it has filed income tax returns, as well as all open tax years in these
      jurisdictions. The Company is subject to U.S. and California taxes for tax
      jurisdictions, as defined. The only periods subject to examination for the
      Company’s federal return are the 2004 through 2007 tax years. The periods
      subject to examination for the Company’s state returns in California are the
      2003 through 2007 tax years. There are currently no ongoing examinations by
      the
      relevant tax authorities.





At
      the
      adoption date and as of June 30, 2008, the Company had no material unrecognized
      tax benefits and no adjustments to liabilities or operations were required.
      There was no interest or penalties recognized related to uncertain tax
      positions. The Company will account for any interest related to uncertain tax
      positions as interest expense, and for penalties as tax expense.




**NOTE
      3. RECENT ACCOUNTING PRONOUNCEMENTS**




On
      September 15, 2006, FASB issued Statement No. 157, “Fair Value Measurements”
(“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure
      assets and liabilities. SFAS No. 157 references fair value as the price that
      would be received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants in the market in which the reporting
      entity transacts. SFAS No. 157 applies whenever other standards require (or
      permit) assets or liabilities to be measured at fair value. SFAS No. 157 does
      not expand the use of fair value in any new circumstances. Originally, SFAS
      No.
      157 was effective for financial statements issued for fiscal years beginning
      after November 15, 2007, and interim periods within those fiscal years.
      Accordingly, we adopted SFAS No. 157 in the first quarter of fiscal year 2008.
      In February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date
      of FASB Statement No. 157”, which provides a one year deferral of the
      effective date of SFAS No. 157 for non-financial assets and non-financial
      liabilities, except those that are recognized or disclosed in the financial
      statements at fair value at least annually. Therefore, the Company has adopted
      the provisions of SFAS No. 157 with respect to its financial assets and
      liabilities only. See Note 7 Fair Value Measurements in the Notes to Unaudited
      Condensed Financial Statements herein.





On
      February 15, 2007, FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities—Including an amendment of FASB
      Statement No. 115.” SFAS No. 159 permits entities to choose to measure many
      financial instruments and certain other items at fair value. This statement
      provides entities the opportunity to mitigate volatility in reported earnings
      caused by measuring related assets and liabilities differently without having
      to
      apply the hedge accounting provisions as prescribed by SFAS No. 133, “Accounting
      for Derivative Instruments and Hedging Activities.” This Statement is effective
      as of the beginning of an entity’s first fiscal year that begins after November
      15, 2007. The adoption of SFAS No. 159 did not have material affect on the
      Company’s financial statements.





In
      December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
      Consolidated Financial Statements.” SFAS No. 160 requires all entities to report
      non-controlling (minority) interests in subsidiaries as equity in the
      consolidated financial statements. SFAS No. 160 requires that transactions
      between an entity and non-controlling interests are treated as equity
      transactions. SFAS No. 160 is effective for fiscal years beginning after
      December 15, 2008. The Company does not own subsidiaries and as such, adoption
      of SFAS No. 160 is expected to have no impact on its financial position and
      results of operations.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities” as an amendment to SFAS No. 133. SFAS 161 is intended to
      improve financial reporting about derivative instruments and hedging activities
      by requiring companies to enhance disclosure about how these instruments and
      activities affect their financial position, performance and cash flows. SFAS
      161
      also improves the transparency about the location and amounts of derivative
      instruments in a company’s financial statements and how they are accounted for
      under SFAS 133. SFAS 161 is effective for financial statements issued for fiscal
      years beginning after November 15, 2008 (the Company’s 2009 fiscal year),
      and interim periods within beginning after that date. The Company is currently
      evaluating the impact this adoption will have on the Company’s financial
      statements.





On
      May 5,
      2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
      Principles”. SFAS No. 162 identifies the sources of accounting principles and
      the framework for selecting the principles to be used in the preparation of
      financial statements that are presented in conformity with generally accepted
      accounting principles in the U.S. We are evaluating the impact, if any, this
      Standard will have on our financial statements.


**NOTE
      4. LIQUIDITY AND CAPITAL RESOURCES**





We
      reported a net loss of $10.9 million for the six months ended June 30, 2008.
      We
      have financed our operations since inception primarily through equity and debt
      financing. During the six months ended June 30, 2008, we had a net decrease
      of
      $11.6 million in cash and cash equivalents. This decrease during this period
      resulted primarily from net cash used in operating activities of $11.5 million.
      Total cash and cash equivalents and available-for-sale securities as of June
      30,
      2008 were $9.3 million compared to $20.9 million at December 31, 2007. In
      October 2007, we entered into a loan facility agreement with Deerfield
      Management, which has committed $30 million to fund the development of our
      product candidates and other general corporate purposes. As of June 30, 2008,
      we
      had drawn down $7.5 million of the total $30 million available under the
      agreement. As of June 30, 2008, we are eligible to draw down an additional
      $7.5
      million, including $2.5 million for milestones reached under the loan facility
      agreement. See “Note 5. Facility Agreement.” We also anticipate that we will be
      able to draw down at least an additional $7.5 million in the next twelve months
      from our loan facility agreement based on the funding schedule with Deerfield.


-
          10 -




**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**




The
      Company's success will depend on whether it is able to continue the progression
      of the development of its product candidates, identify and acquire new and
      innovative oncology focused products, and whether the Company is able to
      successfully commercialize and sell products that have obtained FDA approval
      or
      enter into partnerships and/or license agreements regarding the
      commercialization of the Company’s products and product candidates.





Our
      continued operations will depend on whether we are able to raise additional
      funds through various potential sources, such as equity and debt financing.
      Through June 30, 2008, a significant portion of our financing has been and
      will
      continue to be through private placements of common stock, preferred stock
      and
      debt financing. We can give no assurances that any additional capital that
      we
      are able to obtain will be sufficient to meet our needs. Given the current
      and
      desired pace of clinical development of our product candidates, we estimate
      that
      we will have sufficient cash on hand, together with amounts committed under
      our
      loan facility agreement with Deerfield, to fund clinical development into the
      second half of 2009. We may, however, choose to raise additional capital before
      then in order to fund our future development activities, likely by selling
      shares of our capital stock or through debt financing. If we are unable to
      raise
      additional capital or enter into strategic partnerships and/or license
      agreements, we will likely be forced to curtail our desired development
      activities, which will delay the development of our product candidates. There
      can be no assurance that such capital will be available to us on favorable
      terms
      or at all. We will need additional financing thereafter until we can achieve
      profitability, if ever. ****





**NOTE
      5. FACILITY LOAN AGREEMENT**





On
      October 30, 2007, we entered into a Facility Agreement (the “loan agreement”)
      with Deerfield under which Deerfield has agreed to loan to us an aggregate
      principal amount of up to $30 million. Our obligations under the loan are
      secured by all assets owned (or that will be owned in the future) by us, both
      tangible and intangible. The covenants of the loan agreement require that we,
      among other things, remain a viable entity, comply with all regulatory agency
      requirements and the requirements of our license agreements. We are also
      prohibited from disposing of certain assets related to certain product
      candidates we are currently developing. The loan proceeds are to be used to
      fund
      the development of our product candidates and for other general and working
      capital purposes. Pursuant to the loan agreement, of the total $30 million
      available to us, $20.0 million will become available to us in installments
      every
      six months commencing October 30, 2007. We are not obligated to draw down any
      portion of the available loan at such six month installments. Pursuant to such
      schedule, we drew down $7.5 million on November 1, 2007. The effective interest
      rate on this note payable, including debt issuance costs and discount on debt,
      is approximately 18.9%. The remaining $10.0 million of the total $30.0 million
      facility is subject to disbursement in three installments upon the achievement
      of clinical development milestones relating to our Marqibo and Menadione product
      candidates. Deerfield’s obligation to disburse loan proceeds expires October 30,
      2010, and we must repay all outstanding principal and interest owing under
      the
      loan no later than October 30, 2013. We are also required to make quarterly
      interest payments on outstanding principal, at the annual rate of 9.85%. In
      accordance with and upon execution of the loan agreement, we paid a loan
      commitment fee of $1.1 million to an affiliate of Deerfield.





As
      additional consideration for the loan, we issued to Deerfield two series of
      6-year warrants to purchase an aggregate of 5,225,433 shares of our common
      stock
      at an exercise price of $1.31 per share (subject to adjustment for stock splits,
      combinations and similar events), which represented the closing bid price of
      our
      common stock as reported on the Nasdaq Global Market on October 30, 2007. One
      series of such warrants initially represented the right to purchase 4,825,433
      shares, which equaled 15% of our currently issued and outstanding shares of
      common stock as of October 30, 2007. These warrants contain an anti-dilution
      feature so that, as we issue additional shares of our common stock during the
      term of the warrant, the number of shares purchasable under this series is
      automatically increased so that they always represent 15% of our then
      outstanding common stock. Pursuant to this anti-dilution feature and as a result
      of additional shares of our common stock that we issued following October 30,
      2007, this series of warrants represented the right to purchase an aggregate
      of
      4,827,211 shares of our common stock as of June 30, 2008. We may buy out
      Deerfield’s rights under the anti-dilution provision of the first series after
      October 30, 2010 by paying $2.5 million, or after October 30, 2011 by paying
      $1.5 million, provided the loan has been repaid at the time. The second series
      of warrants, representing the right to purchase an aggregate of 400,000 shares,
      is identical in form except that it does not contain such anti-dilution feature.
      If and when we draw down the $10.0 million of the loan conditioned upon the
      achievement of clinical development milestones relating to Marqibo and
      Menadione, we are required to issue additional warrants to Deerfield which
      would
      represent the right to purchase an additional number of shares of common stock
      equal to up to 3.5% of our then outstanding shares. These additional warrants,
      which will also be exercisable at $1.31 per share, will be identical in form
      as
      the first series of warrants, including our right to buy-out the anti-dilution
      feature of such warrants.




*Fair
      Value of Warrants* .
      The
      aggregate fair values of the warrant series issued upon execution of the loan
      agreement, under which an aggregate of the 5,225,433 shares of our common stock
      were issuable upon purchase, pursuant to the loan agreement was $5.9 million.
      $5.5 million of the total fair value, related to the warrant series to purchase
      an aggregate of 4,825,433 shares with an anti-dilution feature, was recorded
      as
      a discount to the note payable. The remaining $0.4 million fair value, relating
      to the additional warrant series to purchase an aggregate of 400,000 shares
      of
      common stock, was recorded as a debt issuance cost and is being amortized,
      using
      the interest method, over the life of the loan.


-
          11 -




**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**




We
      used a
      Black-Scholes-Merton option pricing model to obtain the fair market value of
      these warrants. In order to estimate the fair market value of the anti-dilution
      feature, we estimated the number of additional shares potentially purchasable
      under the warrant agreement using weighted probability scenarios.





A
      summary
      of the assumptions used to estimate the fair market value of the warrants issued
      pursuant to the execution of the loan agreement as well as the estimated
      additional shares purchasable under the warrants pursuant to the anti-dilution
      feature as of the last audited period ended June 30, 2008 and December 31,
      2007
      is as follows:




**June 30**
            
            **December 31****2008**
            
            **2007*****Warrants***Stock
                price
            
            $
            0.72
            
            $
            1.06Risk-free
                interest rate
            
            
            4.1
            %
            
            4.1
            %Expected
                life (in years)
            
            
            5.28
            
            
            5.83Volatility
            
            
            69.3
            %
            
            67.2
            %Dividend
                yield
            
            
            0
            %
            
            0
            %Estimated
                fair market value of shares issuable under warrants
            
            $
            0.36
            
            $
            0.62





*Warrant
      liabilities.* The fair
      market value of the warrants issued pursuant to the loan agreement was recorded
      in accordance with Emerging Issues Task Force Issue No. 00-19, “Accounting for
      Derivative Financial Instruments Indexed to, and Potentially Settled in, a
      Company's Own Stock.” Accordingly, we determined that the fair market value of
      the warrants represented a liability because the warrants are redeemable in
      the
      event of, among other things, a change in control or if our common stock is
      no
      longer listed on a national securities exchange.  The fair market value of
      the warrants is recalculated each reporting period with the change in value
      taken as income or expense in the “Statement of Operations.”  A summary of
      the status of the fair market value of the warrants liability as of the last
      audited period ended December 31, 2007 and June 30, 2008 is as
      follows:




**June 30, 2008**
              **Fair Value of**
              **Warrant**
              **Liabilities**
            
            **December 31, 2007**
              **Fair Value of**
              **Warrant**
              **Liabilities**
            
            **Realized**
              **Gain/(Loss) on**
              **Change in**
              **Warrant**
              **Liabilities**Deerfield
                Warrants
            
            $
            2,414,674
            
            $
            4,232,355
            
            $
            1,817,681





*Summary
      of Notes Payable.* On
      November 1, 2007, we drew down $7.5 million of the $30.0 million in total loan
      proceeds available under the loan agreement. We are not required to repay any
      portion of the principal until October 30, 2013. Because we issued the warrants
      pursuant to the loan, we recognized a discount on the note.  As of June 30,
      2008, our notes payable are comprised of the following:




**Face Value of**
              **Notes Payable**
              **Outstanding**
            
            **Allocation of**
              **Discount**
              **of Debt****1**
            
            **Carrying Value**Drawdown
                 #1 – November 1, 2007
            
            $
            7,500,000
            
            $
            (1,923,179
            )
            $
            5,576,821Unallocated
                discount
            
            
            —
            
            
            (3,442,118
            )
            
            (3,442,118
            )Net
                carrying value of all notes outstanding
            
            $
            7,500,000
            
            $
            (5,365,297
            )
            $
            2,134,703





1 The
      discount has been allocated ratably to the available proceeds of the loan.
       For funds that have not yet been drawn down, we will maintain the discount
      in the balance sheet, but will not amortize the discount until the funds have
      been drawn down.


-
          12 -





**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**




**NOTE
      6. STOCKHOLDERS' EQUITY**





*Stock
      Incentive Plans.* We have
      two stockholder-approved stock incentive plans under which we grant or have
      granted options to purchase shares of our common stock and restricted stock
      awards to employees: the 2003 Stock Option Plan (the “2003 Plan”) and the 2004
      Stock Incentive Plan (the “2004 Plan”). The Board of Directors is responsible
      for administration of the Company’s stock incentive plans and determines the
      term, exercise price and vesting terms of each option. The Board has also
      authorized the Company’s Chief Executive Officer to award grants under the 2004
      Plan in certain circumstances to new employees. In general, stock options issued
      under the 2003 Plan and 2004 Plan have a vesting period of three years and
      expire ten years from the date of grant. We may grant a maximum of 7,000,000
      shares for issuance under the 2004 plan and a maximum of 1,410,068 shares under
      the 2003 plan.





*Stock
      Options.*The
      following table summarizes information about stock options outstanding at June
      30, 2008 and changes in outstanding options in the six months then ended, all
      of
      which are at fixed prices:





**Number of**
              **Shares Subject**
              **to Options**
              **Outstanding**
            
            **Weighted Average**
              **Exercise Price per**
              **Share**
            
            **Weighted Average**
              **Remaining**
              **Contractual**
              **Term**
              **(in years)**
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                January 1, 2008
            
            
            5,290,038
            
            $
            3.12
            
            
            —Options
                granted
            
            
            616,500
            
            
            0.96Options
                cancelled
            
            
            (1,110,333
            )
            
            4.04Options
                exercised
            
            
            —
            
            
            —Outstanding
                June 30, 2008
            
            
            4,796,205
            
            
            2.63
            
            
            8.64
            
            $
            57,437Exercisable
                at June 30, 2008
            
            
            1,660,538
            
            $
            3.77
            
            
            7.34
            
            $
            56,587





Total
      stock-based compensation expense was approximately $0.9 million and $1.4 million
      related to employee stock options and restricted stock recognized in the
      operating results for the three and six months ended June 30, 2008,
      respectively, as compared to total stock-based compensation of $1.8 million
      and
      $4.2 million recognized in the operating results for the three and six months
      ended June 30, 2007. Included in the stock-based compensation expense for the
      three and six months ending June 30, 2008 is approximately $0.4 million of
      expense related to the correction of an error related to prior periods.


-
          13 -




**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**




The
      following table summarizes information about stock options outstanding at June
      30, 2008:


**Options Outstanding**
              
              **Options Exercisable****Exercise Price**
              
              **Number of**
                **Shares**
                **Subject to**
                **Options**
                **Outstanding**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              
              **Weighted**
                **Average**
                **Remaining**
                **Contractual**
                **Life of**
                **Options**
                **Outstanding**
              
              **Number**
                **of Options**
                **Exercisable**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**$ 0.07 - $ 1.35
              
              
              2,441,048
              
              $
              1.03
              
              
              9.0
                  yrs
              
              
              374,548
              
              $
              0.82$ 1.36 - $ 1.74
              
              
              1,053,657
              
              
              1.67
              
              
              8.3
                  yrs
              
              
              454,324
              
              
              1.66$ 1.75 - $ 4.97
              
              
              355,000
              
              
              4.14
              
              
              7.8
                  yrs
              
              
              303,333
              
              
              4.29$ 4.98 - $ 7.40
              
              
              820,333
              
              
              6.73
              
              
              8.3
                  yrs
              
              
              431,500
              
              
              6.70$ 7.41 - $ 11.81
              
              
              126,167
              
              
              10.43
              
              
              6.5
                  yrs
              
              
              96,833
              
              
              10.39$0.07 - $11.81
              
              
              4,796,205
              
              $
              2.63
              
              
              8.6
                  yrs
              
              
              1,660,538
              
              $
              3.77




*Assumptions.* The
      following table summarizes the assumptions used in applying the
      Black-Scholes-Merton option pricing model to determine the fair value of awards
      granted during the three and six months ended June 30, 2008 and 2007,
      respectively:




**Three Months Ended June 30,**
            
            **Six Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007*****Employee
                stock options***Risk-free
                interest rate
            
            
            2.65
            %
            
            4.5
            %
            
            2.65
            %
            
            4.5
            %Expected
                life (in years)
            
            
            5.5 –
                6.0
            
            
            5.75 -
                6.0
            
            
            5.5 –
                6.0
            
            
            5.5 -
                6.0Volatility
            
            
            0.9
            
            
            0.8
            
            
            0.9
            
            
            0.8Dividend
                Yield
            
            
            
            %
            
            0
            %
            
            
            %
            
            0
            %***Employee
                stock purchase plan***Risk-free
                interest rate
            
            
            3.05-3.49
            %
            
            4.82
                - 4.91
            %
            
            3.05-49
            %
            
            4.82
                - 5.09
            %Expected
                life (in years)
            
            
            0.5
                - 2.0
            
            
            0.5
                - 2.0
            
            
            0.5
                - 2.0
            
            
            0.5
                - 2.0Volatility
            
            
            0.75-0.80
            
            
            0.73
                - 0.93
            
            
            0.75-0.80
            
            
            0.55
                - 1.03Dividend
                Yield
            
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %


-
          14 -




**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**




We
      estimate the fair value of each option award on the date of grant using the
      Black-Scholes-Merton option pricing model. As allowed by SFAS No. 123R for
      companies with a short period of publicly traded stock history, our estimate
      of
      expected volatility is based on the average expected volatilities of a sampling
      of five companies with similar attributes to us, including industry, stage
      of
      life cycle, size and financial leverage. As we have so far only awarded “plain
      vanilla options” as described by the SEC’s Staff Accounting Bulletin No. 107
“SAB 107”, we used the “simplified method” for determining the expected life of
      the options granted. Originally, under SAB 107, this method was allowed until
      December 31, 2007.  However, on December 21, 2007, the SEC’s Staff issued
      Accounting Bulletin No. 110 “SAB 110”, which will allow a company to continue to
      use the “simplified method” under certain circumstances. We will continue to use
      the simplified method as we do not have sufficient historical data to estimate
      the expected term of share based award.  The risk-free rate for periods
      within the contractual life of the option is based on the U.S. treasury yield
      curve in effect at the time of grant valuation. SFAS No. 123R does not
      allow companies to account for option forfeitures as they occur. Instead,
      estimated option forfeitures must be calculated upfront to reduce the option
      expense to be recognized over the life of the award and updated upon the receipt
      of further information as to the amount of options expected to be forfeited.
      Based on our historical information, we currently estimate that 22% annually
      of
      our stock options awarded will be forfeited.





*Non-Employee
      Stock Options.* We have
      has also granted stock options to non-employee consultants. In accordance with
      EITF No. 96-18, “ *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring
      or
      in Conjunction with Selling, Goods or Services* ”,
      compensation cost for options issued to non-employee consultants is measured
      at
      each reporting period and adjusted until the commitment date is reached, being
      either the date that a performance commitment is reached or the performance
      of
      the consultant is complete. The Company utilized a Black-Scholes-Merton option
      pricing model to determine the fair value of such awards.  For the
      three and six months ended June 30, 2008, the Company recognized no stock-based
      compensation expense related to awards held by non-employee consultants. During
      the three and six months ended June 30, 2007, the Company recognized credits
      to
      expense of $0.1 million and $0.2 million due almost entirely to the decrease
      in
      stock price during that period.




*Warrants* .
      As of
      June 30, 2008, all outstanding warrants were available for exercise. Warrants
      to
      acquire 258,927 shares of common stock at $1.85 per share expire in February
      of
      2009.  Warrants to acquire 892,326 shares of common stock at $1.57 per
      share expire in April 2010. Warrants to acquire 864,648 shares of common stock
      at $5.80 per share expire in October 2010.  Additionally, in connection
      with our October 2007 loan agreement, we issued to Deerfield warrants to
      initially purchase 5,225,433 shares of our common stock, of which warrants
      to
      initially purchase 4,825,433 shares of our common stock were subject to an
      anti-dilution feature. This anti-dilution feature provides that the number
      of
      shares purchasable under this series automatically increased so that they always
      represent 15% of our then outstanding common stock. Pursuant to this
      anti-dilution feature and as a result of issuances of our common stock since
      the
      date of the loan agreement, the number of shares purchasable under these
      warrants increased by 21,938 in the six months ended June 30, 2008. Accordingly,
      at June 30, 2008, the warrants containing the anti-dilution feature represented
      the right to purchase an aggregate of 4,847,371 shares.   All of the
      warrants issued to Deerfield expire in October 2013.  The following table
      summarizes the warrants outstanding as of June 30, 2008 and the changes in
      outstanding warrants in the period then ended:




**Number Of**
              **Shares Subject**
              **To Warrants**
              **Outstanding**
            
            **Weighted-Average**
              **Exercise Price**Warrants
                outstanding January 1, 2008
            
            
            7,241,334
            
            $
            1.90Warrants
                granted
            
            
            21,938
            
            
            1.31Warrants
                cancelled
            
            
            **—**
            
            
            —Warrants
                outstanding June 30, 2008
            
            
            7,263,272
            
            $
            1.90





*Employee
      Stock Purchase Plan.* The
      Company also has adopted the 2006 Employee Stock Purchase Plan (the “2006 Plan”)
      under which the Company's eligible employees may purchase shares of Company
      common stock through lump sum payments or payroll deductions. The 2006 Plan
      is
      intended to qualify as an “employee stock purchase plan” under Section 423
      of the Internal Revenue Code. As adopted, the 2006 Plan authorized the issuance
      of up to a maximum of 750,000 shares of common stock.




The
      2006
      Plan allows employees to contribute a percentage of their gross salary toward
      the semi-annual purchase of shares of the Company’s common stock. The price of
      each share will not be less than the lower of 85% of the fair market value
      of
      the Company’s common stock on the last trading day prior to the commencement of
      the offering period or 85% of the fair market value of the common stock on
      the
      last trading day of the purchase period. A total of 750,000 shares of common
      stock were initially reserved for issuance under the 2006 Plan.




Through
      June 30, 2008, the Company has issued 61,308 shares under the 2006 Plan and
      another 70,314 shares were issued on July 1, 2008. For the three and six months
      ended June 30, 2008, the total stock-based compensation expense recognized
      related to the 2006 Plan under SFAS 123(R) was approximately $12,000 and
      $62,000, respectively, compared to total stock-based compensation expense
      recognized in the three and six months ended June 30, 2007 of $21,000 and
      $89,000, respectively.





**NOTE
      7. FAIR VALUE MEASUREMENTS**




SFAS
      No.
      157 defines fair value, establishes a framework for measuring fair value under
      GAAP and enhances disclosures about fair value measurements. Fair value is
      defined under SFAS No. 157 as the exchange price that would be received for
      an
      asset or paid to transfer a liability (an exit price) in the principal or most
      advantageous market for the asset or liability in an orderly transaction between
      market participants on the measurement date. Valuation techniques used to
      measure fair value under SFAS No. 157 must maximize the use of observable inputs
      and minimize the use of unobservable inputs. The standard describes a fair
      value
      hierarchy based on three levels of inputs, of which the first two are considered
      observable and the last unobservable, that may be used to measure fair value
      which are the following:




•
            
            Level
                1 - Quoted prices in active markets for identical assets or
                liabilities;




•
            
            Level
                2 - Inputs other than Level 1 that are observable, either directly
                or
                indirectly, such as quoted prices for similar assets or liabilities;
                quoted prices in markets that are not active; or other inputs that
                are
                observable or can be corroborated by observable market data for
                substantially the full term of the assets or liabilities;
                and




•
            
            Level
                3 - Unobservable inputs that are supported by little or no market
                activity
                and that are significant to the fair value of the assets or
                liabilities.


-
          15 -




**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**




In
      accordance with SFAS 157, the following table represents the fair value
      hierarchy for our financial assets and liabilities held by the Company measured
      at fair value on a recurring basis as of June 30, 2008:





**Level 1**
            
            **Level 2**
            
            **Level 3**
            
            **Total**AssetsMoney
                market funds
            
            $
            8,194,364
            
            $
            —
            
            $
            —
            
            $
            8,194,364Available-for-sale
                equity securities
            
            
            92,000
            
            
            —
            
            
            —
            
            
            92,000Total
            
            $
            8,286,364
            
            $
            —
            
            $
            —
            
            $
            8,286,364





**Level 1**
            
            **Level 2**
            
            **Level 3**
            
            **Total**LiabilitiesWarrant
                liabilities
            
            
            —
            
            
            —
            
            $
            2,414,674
            
            $
            2,414,674Total
            
            $
            —
            
            $
            —
            
            $
            2,414,674
            
            $
            2,414,674





**NOTE
      8. AVAILABLE-FOR-SALE SECURITIES**





On
      June
      30, 2008, the Company had $92,000 in total available-for-sale securities which
      consisted of shares of NovaDel Pharma, Inc. (“NovaDel”) purchased in conjunction
      with the Zensana license agreement originally entered into in October 2004.





During
      the six months ended June 30, 2008, the Company recorded an unrealized loss
      of
      $4,000, compared to an unrealized loss of $196,000 for the six months ended
      June
      30, 2007.  The Company recorded realized losses in the second and third
      quarters of 2007, and in the second quarter of 2008 as the decline in value
      of
      the shares, in the opinion of management, was considered other-than-temporary.
      The following table summarizes the NovaDel shares classified as
      available-for-sale securities during the six months ended June 30, 2008 and
      2007:





**Beginning**
                **Value**
              
              **Unrealized**
                **Gain/(Loss), net**
                **of**
                **reclassification**
                **adjustment**
              
              **Gross**
                **Realized**
                **Gain/(Loss)**
              
              **Ending Value**Six
                  months ended June 30, 2007
              
              $
              656,000
              
              $
              (20,000
              )
              $
              (176,000
              )
              $
              460,000Six
                  months ended June 30, 2008
              
              $
              96,000
              
              $
              104,000
              
              $
              (108,000
              )
              $
              92,000






-
          16 -




**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**





**NOTE
      9. COMMITMENTS**





***Employment
      Agreements.***  ** On June
      6, 2008, the Company entered into a new employment agreement with its President
      and Chief Executive Officer. This agreement provides for an employment term
      that
      expires in December 2010. The minimum aggregate amount of gross salary
      compensation to be provided for over the remaining term of the agreement
      amounted to approximately $1.1 million at June 30, 2008.





The
      Company entered into a written employment agreement with its Vice President
      and
      Chief Financial Officer on December 18, 2006. This agreement provides for an
      employment term that expires in November 2008. The minimum aggregate amount
      of
      gross salary compensation to be provided for over the remaining term of the
      agreement amounted to approximately $0.1 million at June 30, 2008.





***Lease.*** The
      Company entered into a three year sublease, which commenced on May 31, 2006,
      for
      property at 7000 Shoreline Court in South San Francisco, California, where
      the
      Company’s executive offices are located. In May 2008, the Company and its
      sublessor entered into an amendment to the sublease agreement, which increased
      the term of the lease from three years to four years. The total cash payments
      due for the duration of the sublease equaled approximately $1.2 million at
      June
      30, 2008.





**NOTE
      10. RESTRICTED CASH**





On
      May
      31, 2006, the Company entered into a sublease agreement relating to its South
      San Francisco, CA offices. The sublease required the Company to provide a
      security deposit in the amount of $125,000. To satisfy this obligation the
      Company obtained a $125,000 letter of credit with the sublessor as the
      beneficiary in case of default or failure to comply with the sublease
      requirements. In order to obtain the letter of credit, the Company was required
      to deposit a compensating balance of $125,000 into a restricted money market
      account with its financial institution. This compensating balance for the letter
      of credit will be restricted for the entire four-year period of the
      sub-lease.


-
          17 -





**Item
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS**




*The
      following discussion of our financial condition and results of operations should
      be read in conjunction with the financial statements and the accompanying notes
      included elsewhere in this Quarterly Report on Form 10-Q. This discussion
      includes forward-looking statements that involve risks and uncertainties. As
      a
      result of many factors, such as those set forth under “Risk Factors” in Item 1A
      of Part I of the 2007 Form 10-K, our actual results may differ
      materially from those anticipated in these forward-looking
      statements* .





**Overview**





We
      are a
      biopharmaceutical company focused on acquiring, developing, and commercializing
      innovative products to strengthen the foundation of cancer care. The Company
      is
      committed to creating value by accelerating the development of its product
      candidates, including entering into strategic partnership agreements and
      expanding its product candidate pipeline by being an alliance partner of choice
      to universities, research centers and other biotechnology and pharmaceutical
      companies.





We
      currently have rights to the following product candidates in various stages
      of
      development:





·
            ***Marqibo******®******(vincristine
                sulfate liposomes injection) -***Marqibo has been evaluated in over 13 clinical trials with over 600
                patients, including Phase 2 clinical trials in patients with non-Hodgkin’s
                lymphoma, or NHL, and acute lymphoblastic leukemia, or ALL. Based
                on the
                results from these studies, we are conducting a registration-enabling
                Phase 2 clinical trial. The study population is adults with Philadelphia
                chromosome negative ALL in second relapse or those who failed 2 prior
                lines of therapy.  The primary outcome measure is complete remission
                or CR, or complete remission without full hematologic recovery or
                CRp.  The sample size is 56 evaluable subjects from 30 sites. We also
                plan to conduct a confirmatory, Phase 3 front-line trial.  The study
                population will be subjects (at least 70 years of age) with newly
                diagnosed Philadelphia chromosome negative ALL.  The primary outcome
                measure will be event-free survival, death, failure to achieve CR/CRp,
                and
                relapse after CR/CRp are the defining events. We are also conducting
                a
                Phase 2 study to assess the efficacy of Marqibo in patients with
                metastatic malignant uveal melanoma as determined by Disease Control
                Rate
                (CR, partial recovery or durable stable disease).  Secondary
                objectives are to assess the safety and antitumor activity of Marqibo
                as
                determined by response rate, progression free survival, overall survival
                and safety.  The patient population is defined as adults with uveal
                melanoma and confirmed metastatic disease that is untreated or that
                has
                progressed following one prior therapy.  We expect to enroll
                approximately 30 subjects in this clinical trial. Marqibo received
                a U.S.
                orphan drug designation in January 2007 as well as a European Commission
                orphan drug designation in July 2008 for the ALL indication. Marqibo
                also
                received a U.S. orphan drug designation in July 2008 for metastatic
                uveal
                melanoma. Marqibo received a fast track designation in August 2007
                for the
                treatment of adult ALL from the
                FDA.




·
            ***AlocrestTM
                (vinorelbine liposomes injection)***-
                In February 2008, we completed enrollment in a Phase 1 study of Alocrest.
                The trial enrolled 30 adult subjects with confirmed solid tumors
                refractory to standard therapy or for which no standard therapy was
                known
                to exist. The objectives of the Phase 1 clinical trial were: (1)
                to assess
                the safety and tolerability of Alocrest; (2) to determine the maximum
                tolerated dose of Alocrest; (3) to characterize the pharmacokinetic
                profile of Alocrest; and (4) to explore preliminary efficacy of Alocrest.
                The study was conducted at the Cancer Therapy and Research Center
                and
                South Texas Accelerated Research Therapeutics (START), both located
                in San
                Antonio, Texas and at McGill University in Montreal.  The majority of
                study subjects had heavily pretreated disease. Reversible neutropenia,
                a
                low white blood cell count, was the dose-limiting toxicity. The results
                of
                this study indicated promising anti-cancer activity and expected
                toxicity,
                and a 46% disease control rate was achieved across a broad range
                of
                doses.





·
            ***BrakivaTM
                (topotecan liposomes injection) -***We
                currently have an open and activated investigational new drug application,
                or IND, in the U.S. and plan to initiate a Phase 1 dose-escalation
                clinical trial in the second half of 2008 to assess
                safety.





·
            ***Menadione***-
                We acquired the rights to Menadione in October 2006 pursuant to a
                license
                agreement with the Albert Einstein College of Medicine (AECOM). We
                have finalized an initial formulation of Menadione and completed
                essential
                IND-enabling studies. We initiated a Phase 1 clinical trial in April
                2008.





To
      date,
      we have not received regulatory approval and marketing authorization for any
      drug candidates in any market.  However we have received revenues from a
      sublicense agreement entered into with Par Pharmaceuticals in July 2007 for
      Zensana. The successful development of our current product candidates is highly
      uncertain. Product development costs and timelines can vary significantly for
      each product candidate and are difficult to accurately predict. Various laws
      and
      regulations also govern or influence the manufacturing, safety, labeling,
      storage, record keeping and marketing of each product. The lengthy process
      of
      seeking these approvals and the subsequent compliance with applicable statutes
      and regulations require the expenditure of substantial resources. Any failure
      by
      us to obtain, or any delay in obtaining, regulatory approvals could materially,
      adversely affect our business. Also, if we are unable to enter into strategic
      partnerships, we may not be able to develop or we may be forced to slow down
      development and commercialization of some or all our product
      candidates.


-
          18 -





We
      will
      not generate any product commercial sales until we receive approval from the
      FDA
      or equivalent foreign regulatory bodies to begin marketing and selling our
      pharmaceutical candidates. Developing pharmaceutical products, however, is
      a
      lengthy and very expensive process. In addition, as we continue the development
      of our remaining product pipeline, our research and development expenses will
      further increase. To the extent we are successful in acquiring additional
      product candidates for our development pipeline, our need to finance further
      research and development will continue increasing. Our successes depend not
      only
      on the safety and efficacy of our product candidates, but also on our ability
      to
      finance the development of these product candidates or in some instances, enter
      into strategic partnerships. Our major sources of working capital have been
      proceeds from various private financings, primarily private sales of our common
      stock and other equity securities.





*Revenues*





We
      do not
      expect to generate any significant revenue from product sales or royalties
      in
      the foreseeable future. We anticipate that any revenues that we may recognize
      in
      the near future will be related to upfront, milestone development funding
      payments received pursuant to strategic license agreements or partnerships
      and
      that we may have large fluctuations of revenue recognized from quarter to
      quarter as a result of the timing and the amount of these payments. We may
      be
      unable to control the development of commercialization of these products and
      may
      be unable to estimate the timing and amount of revenue to be recognized pursuant
      to these agreements. Revenue from these agreements and partnerships help us
      fund
      our continuing operations. Our revenues may increase in the future if we are
      able to develop and commercialize our products, license our technology and/or
      enter into strategic partnerships. If we are unsuccessful, our future revenues
      may be insignificant compared to our costs, and we may be forced to limit our
      development of our product candidates.




*Research
      and Development Expenses*





Research
      and development expenses consist primarily of salaries and related personnel
      costs, fees paid to consultants and outside service providers for laboratory
      development, manufacturing, legal expenses resulting from intellectual property
      protection, business development and organizational affairs and other expenses
      relating to the acquiring, design, development, testing, and enhancement of
      our
      product candidates, including milestone payments for licensed technology. We
      expense our research and development costs as they are incurred.





*General
      and Administrative Expenses*





General
      and administrative expenses consist primarily of salaries and related expenses
      for executive, finance and other administrative personnel, recruitment expenses,
      professional fees and other corporate expenses, including accounting
      and general legal activities.





**Critical
      Accounting Policies**





The
      accompanying discussion and analysis of our financial condition and results
      of
      operations are based on our condensed unaudited financial statements, which
      have
      been prepared in accordance with accounting principles generally accepted in
      the
      United States of America. We believe there are certain accounting policies
      that
      are critical to understanding our condensed unaudited financial statements,
      as
      these policies affect the reported amounts of expenses and involve management’s
      judgment regarding significant estimates. We have reviewed our critical
      accounting policies and their application in the preparation of our financial
      statements and related disclosures with our Audit Committee of the Board of
      Directors. Our critical accounting policies and estimates are described
      below.




***Share
      Based Compensation***




Effective
      January 1, 2006, we adopted the provisions of SFAS No. 123R requiring that
      compensation cost relating to all share-based employee payment transactions
      be
      recognized in the financial statements. The cost is measured at the grant date,
      based on the fair value of the award using the Black-Scholes-Merton option
      pricing model, and is recognized as an expense over the employee's requisite
      service period (generally the vesting period of the equity award).




In
      applying the modified prospective transition method of SFAS No. 123R, we
      estimated the fair value of each option award on the date of grant using the
      Black-Scholes-Merton option-pricing model. As allowed by SFAS No. 123R for
      companies with a short period of publicly traded stock history, our estimate
      of
      expected volatility is based on the average expected volatilities of a sampling
      of five companies with similar attributes to us, including industry, stage
      of
      life cycle, size and financial leverage. As we have so far only awarded “plain
      vanilla options” as described by the SEC’s Staff Accounting Bulletin No. 107
      (SAB 107), we used the “simplified method” for determining the expected life of
      the options granted. Originally, under SAB 107, this method was allowed until
      December 31, 2007.  However, on December 21, 2007, the SEC issued SEC’s
      Staff Accounting Bulletin No. 110 (SAB 110), which will allow a company to
      continue to use the “simplified method” under certain circumstances, which we
      will continue to use as we do not have sufficient historical data to estimate
      the expected term of share based award.  The risk-free rate for periods
      within the contractual life of the option is based on the U.S. treasury yield
      curve in effect at the time of grant valuation. SFAS No. 123R does not
      allow companies to account for option forfeitures as they occur. Instead,
      estimated option forfeitures must be calculated upfront to reduce the option
      expense to be recognized over the life of the award and updated upon the receipt
      of further information as to the amount of options expected to be forfeited.
      Based on our historical information, we currently estimate that 22% annually
      of
      our stock options awarded will be forfeited.


-
          19 -




If
      factors change and we employ different assumptions for estimating stock-based
      compensation expense in future periods or if we decide to use a different
      valuation model, the future periods may differ significantly from what we have
      recorded in the current period and could materially affect our operating loss,
      net loss and net loss per share.




The
      Black-Scholes-Merton option-pricing model was developed for use in estimating
      the fair value of traded options that have no vesting restrictions and are
      fully
      transferable, characteristics not present in our option grants and employee
      stock purchase plan shares. Existing valuation models, including the
      Black-Scholes-Merton and lattice binomial models, may not provide reliable
      measures of the fair values of our stock-based compensation. Consequently,
      there
      is a risk that our estimates of the fair values of our stock-based compensation
      awards on the grant dates may bear little resemblance to the actual values
      realized upon the exercise, expiration, early termination or forfeiture of
      those
      stock-based payments in the future. Certain stock-based payments, such as
      employee stock options, may expire worthless or otherwise result in zero
      intrinsic value as compared to the fair values originally estimated on the
      grant
      date and reported in our financial statements. Alternatively, value may be
      realized from these instruments that are significantly higher than the fair
      values originally estimated on the grant date and reported in our financial
      statements. There is not currently a market-based mechanism or other practical
      application to verify the reliability and accuracy of the estimates stemming
      from these valuation models, nor is there a means to compare and adjust the
      estimates to actual values.


The
      guidance in SFAS No. 123R, SAB No. 107 and SAB No. 110 is relatively new. The
      application of these principles may be subject to further interpretation and
      refinement over time. There are significant differences among valuation models,
      and there is a possibility that we will adopt different valuation models in
      the
      future. This may result in a lack of consistency in future periods and
      materially affect the fair value estimate of stock-based payments. It may also
      result in a lack of comparability with other companies that use different
      models, methods and assumptions. See Note 6 of our unaudited financial
      statements included elsewhere in this Form 10-Q report for further information
      regarding the SFAS No. 123R disclosures.





***Warrant
      Liabilities***


On
      October 30, 2007, we entered into a loan facility agreement with certain
      affiliates of Deerfield Management (collectively, “Deerfield”). Deerfield has
      committed funds to assist with the development of our product candidates. Under
      the agreement, we may borrow from Deerfield up to an aggregate of $30 million,
      of which $20 million may be drawn down by us in as many as four installments
      every six months commencing October 30, 2007.  As additional consideration
      for the loan, we also issued to Deerfield 6-year warrants to initially purchase
      an aggregate of 5,225,433 shares of our common stock at an exercise price of
      $1.31 per share, of which warrants to initially purchase 4,825,433 shares
      include an anti-dilution feature.  This anti-dilution feature requires
      that, as we issue additional shares of our common stock during the term of
      the
      warrant, the number of shares purchasable under this series is automatically
      increased so that they always represent 15% of our then outstanding common
      stock.  As a result of additional issuances of our common stock since
      October 30, 2007, as of June 30, 2008, these warrants represented the right
      to
      purchase an additional 21,938 shares of common stock, or 5,247,371 shares in
      the
      aggregate. Pursuant to the loan facility agreement, we also entered into a
      registration rights agreement, so that Deerfield may sell the shares issuable
      upon exercise of the warrants.  These financing transactions were recorded
      in accordance with Emerging Issues Task Force Issue No. 00-19, “Accounting for
      Derivative Financial Instruments Indexed to, and Potentially Settled in, a
      Company's Own Stock.” Because the warrants are redeemable in the event of, among
      other things, a change in control or if our shares are no longer listed on
      a
      national securities exchange, the fair value of the warrants based on the
      Black-Scholes-Merton option pricing model is recorded as a liability.  We
      update our estimate of the fair value of the warrant liabilities in each
      reporting period as new information becomes available and any gains or losses
      resulting from the changes in fair value from period to period are included
      as
      an increase or decrease of interest expense.





***Licensed
      In-Process Research and Development***


Licensed
      in-process research and development relates primarily to technology,
      intellectual property and know-how acquired from another entity. We evaluate
      the
      stage of development as well as additional time, resources and risks related
      to
      development and eventual commercialization of the acquired technology. As we
      historically have acquired non-FDA approved technologies, the nature of the
      remaining efforts for completion and commercialization generally include
      completion of clinical trials, completion of manufacturing validation,
      interpretation of clinical and preclinical data and obtaining marketing approval
      from the FDA and other regulatory bodies. The cost in resources, probability
      of
      success and length of time to commercialization are extremely difficult to
      determine. Numerous risks and uncertainties exist with respect to the timely
      completion of development projects, including clinical trial results,
      manufacturing process development results and ongoing feedback from regulatory
      authorities, including obtaining marketing approval. Additionally, there is
      no
      guarantee that the acquired technology will ever be successfully commercialized
      due to the uncertainties associated with the pricing of new pharmaceuticals,
      the
      cost of sales to produce these products in a commercial setting, changes in
      the
      reimbursement environment or the introduction of new competitive products.
      Due
      to the risks and uncertainties noted above, we will expense such licensed
      in-process research and development projects when incurred. However, the cost
      of
      acquisition of technology is capitalized if there are alternative future uses
      in
      other research and development projects or otherwise based on internal review.
      All milestone payments will be expensed in the period the milestone is
      reached.


-
          20 -





***Clinical
      Study Activities and Other Expenses from Third-Party Contract Research
      Organizations***




Much
      of
      our research and development activities related to clinical study activity
      are
      conducted by various third parties, including contract research organizations,
      which may also provide contractually defined administration and management
      services. Expense incurred for these contracted activities are based upon a
      variety of factors, including actual and estimated patient enrollment rates,
      clinical site initiation activities, labor hours and other activity-based
      factors. On a regular basis, our estimates of these costs are reconciled to
      actual invoices from the service providers, and adjustments are made
      accordingly.





**Recent
      Accounting Pronouncements**





On
      September 15, 2006 FASB issued Statement No. 157, “Fair Value Measurements”
(“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure
      assets and liabilities. SFAS No. 157 references fair value as the price that
      would be received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants in the market in which the reporting
      entity transacts. SFAS No. 157 applies whenever other standards require (or
      permit) assets or liabilities to be measured at fair value. The Statement does
      not expand the use of fair value in any new circumstances. Originally, SFAS
      No.
      157 was effective for financial statements issued for fiscal years beginning
      after November 15, 2007, and interim periods within those fiscal years.
      Accordingly, we adopted SFAS No. 157 in the first quarter of fiscal year 2008.
      In February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date
      of FASB Statement No. 157”, which provides a one year deferral of the
      effective date of SFAS No. 157 for non-financial assets and non-financial
      liabilities, except those that are recognized or disclosed in the financial
      statements at fair value at least annually. Therefore, the Company has adopted
      the provisions of SFAS No. 157 with respect to its financial assets and
      liabilities only. See Note 7 Fair Value Measurements in the Notes to Unaudited
      Condensed Financial Statements herein.





On
      February 15, 2007, FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities—Including an amendment of FASB
      Statement No. 115.” SFAS No. 159 permits entities to choose to measure many
      financial instruments and certain other items at fair value. This statement
      provides entities the opportunity to mitigate volatility in reported earnings
      caused by measuring related assets and liabilities differently without having
      to
      apply the hedge accounting provisions as prescribed by SFAS No. 133, “Accounting
      for Derivative Instruments and Hedging Activities.” This Statement is effective
      as of the beginning of an entity’s first fiscal year that begins after November
      15, 2007. Management is currently evaluating the impact of adopting this
      Statement.





In
      December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
      Consolidated Financial Statements.” SFAS No. 160 requires all entities to report
      non-controlling (minority) interests in subsidiaries as equity in the
      consolidated financial statements. SFAS No. 160 requires that transactions
      between an entity and non-controlling interests are treated as equity
      transactions. SFAS No. 160 is effective for fiscal years beginning after
      December 15, 2008. The Company does not own subsidiaries and as such, adoption
      of SFAS No. 160 is expected to have no impact on its financial position and
      results of operations.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities” as an amendment to SFAS No. 133. SFAS No. 161 is
      intended to improve financial reporting about derivative instruments and hedging
      activities by requiring companies to enhance disclosure about how these
      instruments and activities affect their financial position, performance and
      cash
      flows. SFAS 161 also improves the transparency about the location and amounts
      of
      derivative instruments in a company’s financial statements and how they are
      accounted for under SFAS No. 133. SFAS No. 161 is effective for financial
      statements issued for fiscal years beginning after November 15, 2008 (the
      Company’s 2009 fiscal year), and interim periods within beginning after that
      date. The Company is currently evaluating the impact this adoption will have
      on
      the Company’s consolidated financial statements.





On
      May 5,
      2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
      Principles”. SFAS No. 162 identifies the sources of accounting principles and
      the framework for selecting the principles to be used in the preparation of
      financial statements that are presented in conformity with generally accepted
      accounting principles in the U.S. We are evaluating the impact, if any, this
      Standard will have on our financial statements.





**Results
      of Operations**





***Three
      Months Ended June 30, 2008 Compared to Three Months Ended June 30,
      2007***




*General
      and administrative expenses.* For the
      three months ended June 30, 2008, general and administrative, or G&A,
      expense was $1.7 million, as compared to $2.7 million for the three months
      ended
      June 30, 2007. The decrease of approximately $1.0 million is due primarily
      to a decrease in employee related expenses of $0.6 million, which includes
      a decrease in salaries, employee benefits and other personnel related costs
      of
      $0.3 million along with a decrease of $0.3 million in employee related
      share-based compensation expense. The decrease in salaries, employee benefits
      and other personnel related costs are mainly due to the termination of
      employment for all sales and marketing employees during the three months ended
      June 30, 2007 due to the cessation of the planned Zensana commercial launch
      in
      early 2007. Additionally, share-based compensation decreased as the price of
      our
      common stock declined in 2007 and 2008, so options granted in 2007 and 2008
      have
      a smaller fair value compared to older options granted in 2006. A large number
      of share-based awards were forfeited by our former chief executive officer
      when
      he resigned in September 2007, which decreased subsequent stock-based
      compensation expense in future periods. For the three months ended June 30,
      2008, stock-based compensation expense included approximately $0.4 million
      of
      expenses related to the correction of an error related to prior periods which
      slightly offset the gross decrease in stock-based compensation
      expense.





For
      the
      three months ended June 30, 2008, outside services and professional service
      fees
      decreased $0.3 million compared to the three months ended June 30, 2007, mainly
      due to decreased legal, consulting and accounting fees.





For
      the
      three months ended June 30, 2008, there was a decrease of $0.1 million in
      G&A related allocable expenses, including rent, insurance and other expenses
      compared to three months ended June 30, 2007 due to the termination of the
      sales
      and marketing department during the three months ended June 30, 2007.


-
          21 -





*Research
      and development expenses* .
      For the
      three months ended June 30, 2008, research and development, or R&D, expense
      was $4.4 million, as compared to $6.5 million for three months ended June 30,
      2007. The decrease of $2.1 million is due to:





·
            A
                decrease in employee related expenses of $0.8
                million;





·
            A
                decrease in direct drug development costs, professional fees and
                outside
                services of $0.8 million; and





·
            A
                decrease in rent, depreciation, insurance and other allocated expenses
                of
                $0.5 million.





Employee
      related expenses decreased by $0.8 million in 2008 due to a decrease of
      share-based compensation expense of $0.6 million, as well as a decrease of
      $0.2
      million in salaries, bonuses and other employee related expenses as the
      headcount in R&D departments decreased in the three months ended June 30,
      2008 compared to the three months ended June 30, 2007. Share-based compensation
      decreased as the price of our common stock declined in 2007, so options granted
      in 2007 and 2008 have a smaller fair value compared to older options granted
      in
      2006.





The
      decrease of $0.8 million in expenses for the clinical development of our product
      pipeline includes an increase of $0.4 million in professional and outside
      services, and a decrease in direct development costs for our product candidates
      of $1.2 million. These clinical costs included the physical manufacturing of
      drug compounds and payments to our contract research organizations. Also, we
      had
      a decrease in expenses related to product candidates that are no longer in
      our
      pipeline. A summary of the results of operations by drug candidate is as
      follows:





·
            Talvesta
                expenses decreased by $0.3 million in the three months ended June
                30,
                2008, compared to the same period ended in 2007. The costs associated
                with
                this program decreased after the program was put on clinical hold
                in early
                2007 and later terminated in October 2007. There were large clinical
                wrap-up costs in the various programs in 2007. These costs have
                substantially decreased in 2008 as have manufacturing costs.





·
            Zensana
                expenses decreased by $0.2 million in the three months ended June
                30,
                2008, compared to the same period ended in 2007. The Zensana program
                was
                halted in the first quarter of 2007 and an NDA filed with the FDA
                in 2007
                was pulled. In July 2007, we entered into a sub-license agreement
                with Par
                Pharmaceuticals, wherein Par will be responsible for all development
                and
                related costs going forward. During the three months ended June 30,
                2007,
                we were still incurring manufacturing costs related to an analysis
                of the
                stability of Zensana.





·
            Marqibo
                expenses increased by $0.1 million in the three months ended June
                30,
                2008, compared to the same period ended in 2007. We initiated a Phase
                2
                clinical trial in mid-2007 and the manufacturing costs for this trial
                as
                well as the uveal melanoma trial accounted for the increase in expenses.
                These costs were partially offset by decreased clinical costs as
                we
                incurred large start-up costs for the Phase 2 clinical trial in the
                three
                months ended June 30, 2007.





·
            Alocrest
                expenses decreased by $0.7 million in the three months ended June
                30,
                2008, compared to the same period ended in 2007. The majority of
                the
                decrease relates to a decrease of $0.6 million in manufacturing costs
                incurred in 2007 as part of the preparation for the Phase 1 trial
                for the
                Alocrest program initiated in 2007 and which completed enrollment
                in
                February 2008.





·
            Brakiva
                expenses decreased by $0.2 million in the three months ended June
                30,
                2008, compared to the same period ended in 2007. In October 2007,
                we
                activated an IND in the US and we are preparing to initiate a Phase
                1
                trial of Brakiva in the second half of 2008. Manufacturing costs
                decreased
                by $0.3 million. These costs decreased because we have not yet initiated
                a
                Phase 1 trial of Brakiva, although we completed manufacturing work
                in
                2007, prior to the IND activation with additional manufacturing production
                for clinical trials performed in early 2008. The decrease in manufacturing
                costs was partially offset by increased clinical expense of $0.1
                million
                as preliminary work was done in anticipation for a Phase 1 trial
                to start
                in the second half of 2008.





·
            Menadione
                expenses increased by $0.1 million in the three months ended June
                30,
                2008, compared to the same period ended in 2007. Menadione costs
                increased
                during the three months ended June 30, 2008 as we initiated a Phase
                1
                trial and continued drug stability studies.




R&D
      related allocable operating expenses; including rent, insurance, and other
      expenses increased by approximately $0.5 million for the three months ended
      June
      30, 2008 compared to the three months ended June 30, 2007. We decreased spending
      on conferences and travel in 2008 by $0.4 million as part of a cost cutting
      plan.




-
          22 -




*Interest
      income.* For the
      three months ended June 30, 2008, interest income was $0.1 million as compared
      to interest income of $0.3 million for the three months ended June 30, 2007.
      The
      decrease of $0.2 million resulted from a decreased cash balance in our interest
      bearing accounts as well as decreasing interest rates.





*Interest
      expense.* For the
      three months ended June 30, 2008, interest expense was $0.3 million as compared
      to no interest expense for the three months ended June 30, 2007. The increase
      resulted from accrued interest related to an outstanding loan balance from
      a
      draw down of funds on November 1, 2007 pursuant to the facility loan facility
      agreement with Deerfield.





*Loss
      on change in fair market value of warrant liabilities* .
      For the
      three months ended June 30, 2008, we recognized a gain related to the
      change in fair market value of the warrant liabilities, pursuant to the warrants
      issued to Deerfield as part of the loan facility agreement (see Note 5) of
      approximately $1.8 million.  There was no such transaction that affected
      the financial statements for the three months ended June 30,
      2007.





*Realized
      loss on impairment of available-for-sale securities* .
      For the
      three months ended June 30, 2008, we recognized a loss of $0.1 million related
      to the impairment in the fair market value of our available-for-sale securities,
      compared to a loss of $0.2 million in the three months ended June 30, 2007.
      The
      reason for the impairment was that the decline in value of the shares held
      was
      determined to be other-than-temporary.




***Six
      Months Ended June 30, 2008 Compared to Six Months Ended June 30,
      2007***




*General
      and administrative expenses.* For the
      six months ended June 30, 2008, G&A expense was $3.7 million, as compared to
      $6.1 million for the six months ended June 30, 2007. The decrease of
      approximately $2.4 million is due primarily to a decrease in employee
      related expenses of $1.8 million, which includes a decrease in salaries,
      employee benefits and other personnel related costs of $0.6 million along with
      a
      decrease of $1.2 million in employee related share-based compensation expense.
      The decrease in salaries, employee benefits and other personnel related costs
      are mainly due to the termination of employment of all our sales and marketing
      employees during the six months ended June 30, 2007 due to the cessation of
      the
      Zensana commercial launch in early 2007. Additionally, share-based compensation
      decreased as the price of our common stock declined in 2007 and 2008, so options
      granted in 2007 and 2008 have a smaller fair value compared to older options
      granted in 2006. A large number of share-based awards were forfeited by our
      former chief executive officer when he resigned in September 2007. For the
      six
      months ended June 30, 2008, stock-based compensation expense included
      approximately $0.4 million of expenses related to the correction of an error
      related to prior periods which slightly offset the gross decrease in stock-based
      compensation expense.





For
      the
      six months ended June 30, 2008, outside services and professional service fees
      decreased $0.4 million compared to the six months ended June 30, 2007, mainly
      due to decreased legal, consulting and accounting fees of $0.3 million and
      an
      additional decrease of $0.1 million related to sales & marketing costs in
      2007.





For
      the
      six months ended June 30, 2008, there was a decrease of $0.2 million in G&A
      related allocable expenses, including rent, insurance and other expenses
      compared to six months ended June 30, 2007. These costs decreased by $0.3
      million due to the termination of the sales and marketing department during
      the
      six months ended June 30, 2007, and partially offset by increased G&A costs
      of $0.1 for product market research done in the three months ended June 30,
      2008.





*Research
      and development expenses* .
      For the
      six months ended June 30, 2008, research and development, or R&D, expense
      was $8.7 million, as compared to $11.7 million for six months ended June 30,
      2007. The decrease of $3.0 million is due primarily to:





·
            A
                decrease in employee related expenses of $2.0
                million;





·
            A
                decrease in direct drug development costs, professional fees and
                outside
                services of $0.7 million; and





·
            A
                decrease in rent, depreciation, insurance and other allocated expenses
                of
                $0.3 million.





Employee
      related expenses decreased by $2.0 million in 2008 due to a decrease of
      share-based compensation expense of $1.6 million, as well as a decrease of
      $0.4
      million in salaries, bonuses and other employee related expenses as the
      headcount in R&D departments decreased in the six months ended June 30, 2008
      compared to the six months ended June 30, 2007. Share-based compensation
      decreased as the price of our common stock declined in 2007, so options granted
      in 2007 and 2008 have a smaller fair value compared to older options granted
      in
      2006.





The
      decrease of $0.7 million in expenses for the clinical development of our product
      pipeline includes an increase of $0.5 million in professional and outside
      services, and a decrease in direct development costs for our product candidates
      of $1.2 million. These clinical costs included the physical manufacturing of
      drug compounds and payments to our contract research organizations. Also, we
      had
      a decrease in expenses related to product candidates that are no longer in
      our
      pipeline. A summary of the results of operations by drug candidate is as
      follows:




-
          23 -




·
            Talvesta
                expenses decreased by $0.6 million in the six months ended June 30,
                2008
                compared to the same period ended in 2007. The costs associated with
                this
                program decreased after the program was put on clinical hold in early
                2007
                and later terminated in October 2007. There were large clinical wrap-up
                and on-going manufacturing costs in the various programs in 2007.
                These
                costs have substantially decreased in 2008.





·
            Zensana
                expenses decreased by $0.9 million in the six months ended June 30,
                2008
                compared to the same period ended in 2007. The Zensana program was
                halted
                in the first quarter of 2007 and an NDA filed with the FDA in 2007
                was
                pulled. In July 2007, we entered into a sub-license agreement with
                Par
                Pharmaceuticals, wherein Par will be responsible for all development
                and
                related costs going forward. During the six months ended June 30,
                2007 the
                Company was still incurring manufacturing and regulatory costs related
                to
                the NDA.





·
            Marqibo
                expenses increased by $0.3 million in the six months ended June 30,
                2008
                compared to the same period ended in 2007. We initiated two Phase
                2
                clinical trials in 2007, which increased manufacturing and clinical
                costs
                in 2008. These costs were partially offset by decreased pre-clinical
                and
                regulatory costs as the Company was pursuing a special protocol assessment
                for Marqibo in 2007.





·
            Alocrest
                expenses decreased by $0.7 million in the six months ended June 30,
                2008
                compared to the same period ended in 2007. Manufacturing and clinical
                costs decreased due to the completion of enrollment in the Phase
                1 trial
                for the Alocrest program in February 2008 and the Company does not
                currently plan to initiate an additional clinical study in 2008.





·
            Brakiva
                expenses increased by $0.3 million in the six months ended June 30,
                2008
                compared to the same period ended in 2007. The Company activated
                an IND in
                the US and Canada and is preparing to initiate a Phase 1 trial in
                the
                second half of 2008. Manufacturing costs increased by $0.2 million
                in 2008
                as the Company made new batches of Brakiva for testing purposes and
                use in
                the planned Phase 1 trial. Additinoally, clinical trial expenses
                increased
                by $0.1 million as preliminary work was done in anticipation for
                a Phase 1
                trial to start in the second half of
                2008.





·
            Menadione
                expenses increased by $0.4 million in the six months ended June 30,
                2008
                compared to the same period ended in 2007. Menadione costs increased
                during the six months ended June 30, 2008 as we initiated a Phase
                1 trial
                and continued drug stability studies. During the six months ended
                June 30,
                2007, the Company had started to perform some pre-clinical and
                manufacturing activities in preparation for the Phase 1 clinical
                trial,
                which costs increased in 2008 as the product moved into the clinic.




R&D
      related allocable operating expenses; including rent, insurance, and other
      expenses decreased by approximately $0.4 million for the six months ended June
      30, 2008 compared to the six months ended June 30, 2007. The Company decreased
      spending on conferences and travel in 2008 by $0.6 million as part of a cost
      cutting plan. These costs were offset partially by increased advertising for
      the
      Phase 2 ALL clinical trial in Marqibo as well as increase of $0.1 million in
      rent, insurance and other allocable expenses.





*Interest
      income.* For the
      six months ended June 30, 2008, interest income was $0.2 million as compared
      to
      interest income of $0.7 million for the six months ended June 30, 2007. The
      decrease of $0.5 million resulted from decreased cash balance in our interest
      bearing accounts as well as decreasing interest rates.





*Interest
      expense.* For the
      six months ended June 30, 2008, interest expense was $0.5 million as compared
      to
      no interest expense for the six months ended June 30, 2007. The increase
      resulted from accrued interest related to an outstanding loan balance from
      a
      draw down of funds on November 1, 2007 pursuant to the loan facility agreement
      with Deerfield.





*Loss
      on change in fair market value of warrant liabilities* .
      For the
      six months ended June 30, 2008, we recognized a gain related to the change
      in fair market value of the warrant liabilities, pursuant to the warrants issued
      to Deerfield as part of the Facility Loan Agreement (see Note 5) of
      approximately $1.8 million.  There was no such transaction that affected
      the financial statements for the six months ended June 30,
      2007.





*Realized
      loss on impairment of available-for-sale securities* .
      For the
      six months ended June 30, 2008, we recognized a loss of $0.1 related to the
      impairment in the fair market value of our available-for-sale securities,
      compared to a loss of $0.2 million in the six months ended June 30, 2007. The
      reason for the impairment was that the decline in value of the shares held
      was
      determined to be other-than-temporary.


-
          24 -


**Liquidity
      and Capital Resources**




As
      of
      June 30, 2008, we had aggregate cash and cash equivalents and available-for-sale
      securities of $9.3 million. Through June 30, 2008, a significant portion of
      our
      financing has been and we expect will continue to be through sales of our common
      stock, preferred stock and borrowings. We can give no assurances that any
      additional capital that we are able to obtain will be sufficient to meet our
      needs. Given the current and desired pace of clinical development of our product
      candidates, we estimate that our cash on hand, together with the remaining
      funds
      available from Deerfield through our loan facility agreement, to fund clinical
      development into the second half of 2009. We may, however, choose to raise
      additional capital before then in order to fund our future development
      activities, likely by selling shares of our capital stock or through debt
      financing. If we are unable to raise additional capital or enter into strategic
      partnerships and/or license agreements, we will likely be forced to curtail
      our
      desired development activities, which will delay the development of our product
      candidates. There can be no assurance that such capital will be available to
      us
      on favorable terms or at all. We will need additional financing thereafter
      until
      we can achieve profitability, if ever.





***Financings.*** On
      October 30, 2007, we entered into a loan facility agreement with Deerfield.
      Pursuant to the terms of the agreement, we may borrow from Deerfield up to
      an
      aggregate of $30 million, of which $20 million becomes available in four
      installments every six months commencing October 30, 2007. We are not obligated
      to draw down these funds when the installment becomes available to us. Pursuant
      to such schedule, we drew down $7.5 million on November 1, 2007. The remaining
      $10 million of the loan is subject to disbursement in three installments upon
      the achievement of clinical development milestones relating to our Marqibo
      and
      Menadione product candidates. Deerfield’s obligation to disburse loan proceeds
      expires October 30, 2010 and we must repay all outstanding amounts owing under
      the loan no later than October 30, 2013. As of June 30, 2008, we are eligible
      to
      draw down an additional $7.5 million, including $2.5 million for milestones
      reached under the loan facility agreement. We also anticipate that we will
      be
      able to draw down at least an additional $7.5 million in the next twelve months
      from our loan facility agreement based on the funding schedule with Deerfield.





***Current
      and Future Financing Needs.*** For the
      remainder of the year ending December 31, 2008 we plan to continue focusing
      on
      the continued development of our four product candidates that are currently
      in
      clinical and preclinical phases.  We expect our principal expenditures
      during 2008 to include:




·
            operating
                expenses, including expanded R&D and G&A
                expenses;


·
              product
                  development expenses, including the costs incurred with respect
                  to
                  applications to conduct clinical trials in the United States, as
                  well as
                  outside of the United States, for our product candidates, including
                  manufacturing, intellectual property prosecution and regulatory
                  compliance.


As
      part
      of our planned research and development, we intend to use clinical research
      organizations and third parties to help perform our clinical studies and
      manufacturing. As indicated above, at our current and desired pace of clinical
      development of our product candidates, in the second half of 2008 we expect
      to
      spend approximately between $8.0 million and $10.0 million on clinical
      development (including milestone payments that we expect to be triggered under
      the license agreements relating to our product candidates, which may be
      satisfied through the issuance of shares of our common stock, at our
      discretion), between $2.0 million and $4.0 million on general corporate and
      administrative expenses, including $0.3 million on facilities and rent.  We
      may receive additional debt funding under the Deerfield agreement upon reaching
      certain development milestones, which may be used to fund the milestone payments
      that we expect to be triggered under our license agreements for Menadione and
      our Optisome product candidates.





We
      believe that our cash, cash equivalents and marketable securities, which totaled
      $9.3 million as of June 30, 2008, along with the funds available through the
      Deerfield agreement, will be sufficient to meet our anticipated operating needs
      into the second half of 2009 based upon current operating and spending
      assumptions. However, we expect to incur substantial expenses as we continue
      our
      drug discovery and development efforts, particularly to the extent we advance
      our lead candidate Marqibo through a pivotal clinical study. We cannot guarantee
      that future financing will be available in amounts or on terms acceptable to
      us,
      if at all.





However,
      the actual amount of funds we will need to operate is subject to many factors,
      some of which are beyond our control. These factors include the
      following:


·
              costs
                  associated with conducting preclinical and clinical
                  testing;
 
 ·
              costs
                  of establishing arrangements for manufacturing our product
                  candidates;
 
 ·
              payments
                  required under our current and any future license agreements and
                  collaborations;
 
 ·
              costs,
                  timing and outcome of regulatory
                  reviews;
 
 ·
              costs
                  of obtaining, maintaining and defending patents on our product
                  candidates;
                  and
 
 ·
              costs
                  of increased general and administrative
                  expenses.


-
          25 -





We
      have
      based our estimate on assumptions that may prove to be wrong. We may need to
      obtain additional funds sooner or in greater amounts than we currently
      anticipate. Potential sources of financing include strategic relationships,
      public or private sales of our stock or debt and other sources. We may seek
      to
      access the public or private equity markets when conditions are favorable due
      to
      our long-term capital requirements. We do not have any committed sources of
      financing at this time, and it is uncertain whether additional funding will
      be
      available when we need it on terms that will be acceptable to us, or at all.
      If
      we raise funds by selling additional shares of common stock or other securities
      convertible into common stock, the ownership interest of our existing
      stockholders will be diluted. If we are not able to obtain financing when
      needed, we may be unable to carry out our business plan. As a result, we may
      have to significantly limit our operations and our business, financial condition
      and results of operations would be materially harmed.





***Research
      and Development Projects***





The
      discussion below describes for each of our development projects the research
      and
      development expenses we have incurred to date and, to the extent we are able
      to
      reasonably ascertain, the amounts we estimate we will have to expend in order
      to
      complete development of each project and the time we estimate it will take
      to
      complete development of each project. In addition to those risks identified
      in
      our Annual Report on Form 10-K for the year ended December 31, 2007, our
      assumptions relating to the expected costs of development and timeframe for
      completion are dependent on numerous risks and other factors, including the
      availability of capital, unforeseen safety issues, lack of effectiveness, and
      significant unforeseen delays in the clinical trial and regulatory approval
      process, any of which could be extremely costly. In addition, our estimates
      assume that we will be able to enroll a sufficient number of patients in
      clinical trials.





Since
      our
      business does not currently generate positive cash flow, we will likely need
      to
      raise additional capital in the future to continue development of our product
      candidates. If we are to raise such capital, we expect to raise it primarily
      by
      selling shares of our capital stock. To the extent additional capital is not
      available when we need it, we may be forced to discontinue or scale-back our
      development efforts relating to one or more of our product candidates or
      out-license our rights to our product candidates to a third party, any of which
      would have a material adverse effect on the prospects of our
      business.





***Marqibo.***  ** We have
      incurred $2.0 million and $1.7 million in project costs related to our
      development of Marqibo in the six months ending June 30, 2008 and 2007,
      respectively. In 2007, we initiated a Phase 2, registration-enabling, open-label
      trial in relapsed adult ALL and a pilot Phase 2 trial in metastic uveal
      melanoma. Pending finalization of the protocol with cooperative groups and
      approval by the Cancer Therapy Evaluation Program (CTEP), we anticipate
      conducting a confirmatory Phase 3 supportive trial in front-line ALL potentially
      commencing in the second half of 2008. We estimate that we will need to expend
      at least an aggregate of approximately $47 million in order for us to obtain
      full FDA approval for Marqibo, if ever, which includes a milestone payment
      that
      would be owed to our licensor upon FDA approval.  We expect that it will
      take approximately three to four years until we will have completed development
      and obtained full FDA approval of Marqibo, if ever. During the remainder of
      2008, we estimate that we will spend between $3.0 million and $4.0 million
      on
      the clinical development of Marqibo.





***Alocrest.*** We have
      incurred $0.4 million and $1.1 million in project costs related to our
      development of Alocrest in the six months ending June 30, 2008 and 2007,
      respectively. We initiated a Phase 1 clinical trial in August 2006 and completed
      enrollment in February 2008. This Phase 1 trial was designed to assess safety,
      tolerability and preliminary efficacy in patients with advanced solid tumors.
      We
      plan to present the clinical data from this Phase 1 trial in mid 2008. With
      this
      data in hand, we plan to seek out a third-party with which to partner the
      further development of Alocrest.





***Brakiva.*** We have
      incurred $0.9 million and $0.6 million in project costs related to our
      development of Brakiva in the six months ending June 30, 2008 and 2007,
      respectively. We have submitted an IND to the FDA which has been activated.
      We
      expect to initiate a Phase 1 clinical trial in the second half of 2008. As
      this
      drug is early in its clinical development, both the registrational strategy
      and
      total expenditures to obtain FDA approval are still being evaluated. During
      the
      remainder of 2008, we estimate that we will spend between $0.5 million and
      $1.0
      million on the clinical development of Brakiva and we are not currently in
      a
      position to estimate the amount of capital we will require to fund the
      development of Brakiva until completion.





***Menadione.*** We have
      incurred $0.8 million and $0.5 million in project costs related to our
      development of Menadione in the six months ending June 30, 2008 and 2007,
      respectively. We initiated a Phase 1 clinical trial in April 2008.  As this
      drug is early in its clinical development, both the registrational strategy
      and
      total expenditures to obtain FDA approval are still being evaluated. During
      the
      remainder of 2008, we estimate that we will spend between $1.0 million and
      $1.5
      million on the clinical development of Menadione.


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          26 -




**Off-Balance
      Sheet Arrangements**




We
      do not
      have any “off-balance sheet agreements,” as that term is defined by SEC
      regulation.





**Item
      3.  Quantitative and Qualitative Disclosure About Market
      Risk**




Not
      applicable.





**Item
      4T. Controls and Procedures**




*Evaluation
      of Disclosure Controls and Procedures* .





We
      conducted an evaluation as of June 30, 2008, under the supervision and with
      the
      participation of our management, including our Chief Executive Officer and
      Chief
      Financial Officer, of the effectiveness of the design and operation of our
      disclosure controls and procedures, which are defined under SEC rules as
      controls and other procedures of a company that are designed to ensure that
      information required to be disclosed by a company in the reports that it files
      under the Securities Exchange Act of 1934, as amended, is recorded, processed,
      summarized and reported within required time periods. Based upon that
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that, as of such date, our disclosure controls and procedures were
      effective.





*Limitations
      on the Effectiveness of Controls*





Our
      management, including our Chief Executive Officer and Chief Financial Officer,
      does not expect that our disclosure controls and procedures or our internal
      control over financial reporting will prevent all error and all fraud. A control
      system, no matter how well conceived and operated, can provide only reasonable,
      not absolute, assurance that the objectives of the control system are met.
      Further, the design of a control system must reflect the fact that there are
      resource constraints, and the benefit of controls must be considered relative
      to
      their costs. Because of the inherent limitations in all control systems, no
      evaluation of controls can provide absolute assurance that all control issues
      and instances of fraud, if any, within Hana have been detected. 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.




*Changes
      in Internal Controls Over Financial Reporting*





During
      the quarter ended June 30, 2008, there were no changes in our internal controls
      over financial reporting that have materially affected, or are reasonably likely
      to materially affect, our internal controls over financial
      reporting.


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          27 -





**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**





We
      are
      not involved in any legal proceeding.





**Item
      1A. Risk Factors**





We
      have
      not had any material changes to our risk factors disclosed in response to Item
      1A of Part I of our Annual Report on Form 10-K for the year ended December
      31,
      2007.





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





None





**Item
      3. Defaults Upon Senior Securities**





Not
      applicable.





**Item
      4. Submission of Matters to a Vote of Securities
      Holders**





We
      held
      our Annual Meeting of Stockholders at the Radisson Sierra Point Hotel, 5000
      Sierra Point Parkway in Brisbane, California on May 28, 2008. At the meeting,
      our stockholders elected six directors to serve until the next Annual Meeting
      of
      Stockholders. The stockholders present in person or by proxy cast the following
      numbers of votes in connection with the election of directors, resulting in
      the
      election of the six persons identified below:




**Nominee**
            
            **Votes
                For**
            
            **Votes
                Withheld**Arie
                S. Belldegrun
            
            
            19,857,079
            
            
            873,333Steven
                R. Deitcher
            
            
            19,955,748
            
            
            774,664Paul
                V. Maier
            
            
            19,942,305
            
            
            788,107Leon
                E. Rosenberg
            
            
            19,947,513
            
            
            782,899Michael
                Weiser
            
            
            19,857,879
            
            
            872,533Linda
                E. Wiesinger
            
            
            19,856,780
            
            
            873,632





**Item
      5. Other Information**





None





**Item
      6. Exhibits**





**Exhibit No.**
            
            **Description**10.1
            
            Employment
                Agreement by and between Hana Biosciences, Inc. and Steven R. Deitcher,
                dated June 6, 2008 (incorporated by reference to Exhibit 10.1 of
                the
                Company’s Form 8-K filed June 11, 2008).10.2
            
            Second
                Amendment to Sublease Agreement dated May 19, 2008 by and between
                MJ
                Research Company and Hana Biosciences, Inc.31.1
            
            Certification
                of Chief Executive Officer, as required by Rule 13a-14(a) or Rule
                15d-14(a).31.2
            
            Certification
                of Chief Financial Officer, as required by Rule 13a-14(a) or Rule
                15d-14(a).32.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer, as required
                by Section 1350 of Chapter 63 of Title 18 of the United States Code
                (18
                U.S.C. 1350).


-
          28 -





**SIGNATURES**




In
      accordance with the requirements of the Exchange Act of 1934, the registrant
      caused this report to be signed on its behalf by the undersigned, thereunto
      duly
      authorized.




**HANA
                BIOSCIENCES, INC.**Dated:
                August 11, 2008
            By:
            /s/ Steven
                R. Deitcher, MDSteven
                R. Deitcher, MDPresident
                and Chief Executive Officer





Dated:
                August 11, 2008
            By:
            /s/ John
                P. IparraguirreJohn
                P. Iparraguirre
              Vice
                President, Chief Financial Officer




-
          29 -




**Index
      to Exhibits Filed with this Report**




**Exhibit No.**
            
            **Description**10.2
            
            Second
                Amendment to Sublease Agreement dated May 19, 2008 by and between
                MJ
                Research Company and Hana Biosciences, Inc.31.1
            
            Certification
                of Chief Executive Officer, as required by Rule 13a-14(a) or Rule
                15d-14(a).31.2
            
            Certification
                of Chief Financial Officer, as required by Rule 13a-14(a) or Rule
                15d-14(a).32.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer, as required
                by Section 1350 of Chapter 63 of Title 18 of the United States Code
                (18
                U.S.C. 1350).




-
          30 -