**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 September 30, 2007





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) 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. See definition of “accelerated filer and
      large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):





Large
      accelerated filer o Accelerated filer x Non-accelerated filer o





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
      November 8, 2007, there were 32,169,553 shares of the registrant's common
      stock, $.001 par value, outstanding.





**INDEX**





**Page****PART
                I****FINANCIAL
                INFORMATION**
            
            4Item
                1.****Unaudited
                Condensed Financial Statements
            
            4****Unaudited Condensed Balance
                Sheets
            
            4****Unaudited Condensed Statements of Operations
                and
                Other Comprehensive Loss
            5****Unaudited Condensed Statement of Changes
                in
                Stockholders' Equity
            
            6****Unaudited Condensed Statements of Cash
                Flows
            
            7****Notes to Unaudited Condensed Financial
                Statements
            
            8Item
                2.****Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations
            
            17Item
                3.****Quantitative
                and Qualitative Disclosure About Market
                Risk
            
            29Item
                4.****Controls
                and Procedures
            
            29**PART
                II****OTHER
                INFORMATION**
            
            31Item
                1.****Legal
                Proceedings
            
            31Item
                1A.****Risk
                Factors
            
            31Item
                2.****Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            
            31Item
                3.****Defaults
                Upon Senior Securities
            
            31Item
                4.****Submission
                of Matters to a Vote of Security
                Holders
            
            31Item
                5.****Other
                Information
            
            31Item
                6.****Exhibits
            
            31****Signatures
            
            32****Index of Exhibits Filed with this
                Report
            
            33




-
          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;





·
            our
                ability to market any of our products;





·
            our
                history of operating losses; our ability to compete against other
                companies and research institutions;





·
            our
                ability to secure adequate protection for our intellectual property;
                our
                ability to attract and retain key personnel;





·
            availability
                of reimbursement for our product candidates;





·
            the
                effect of potential strategic transactions on our business; 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. Accordingly, these
      statements involve estimates, assumptions and uncertainties that could cause
      actual results to differ materially from those expressed in them. Discussions
      containing these forward-looking statements may be found throughout this Form
      10-Q, 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 Quarterly Report on Form 10-Q for the quarter ended June 30,
      2007 (the “June 2007 Form 10-Q”), that could cause our actual results to differ
      materially from those in the forward-looking statements. We undertake no
      obligation to publicly release any revisions to the forward-looking statements
      or reflect events or circumstances after the date of this document. The risks
      discussed in the June 2007 Form 10-Q and elsewhere in this report should be
      considered in evaluating our prospects and future financial performance.





-
          3
          -





**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Unaudited Condensed Financial
      Statements**





**HANA
      BIOSCIENCES, INC.**





**CONDENSED
      BALANCE SHEETS**





**September30,**
            
            **December31,****2007**
            
            **2006****(Unaudited)****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            17,575,941
            
            $
            29,127,850Available-for-sale
                securities
            
            
            1,239,277
            
            
            6,131,000Prepaid
                expenses and other current assets
            
            
            423,530
            
            
            496,519Total
                current assets
            
            
            19,238,748
            
            
            35,755,369Property
                and equipment, net
            
            
            381,935
            
            
            424,452Restricted
                cash
            
            
            125,000
            
            
            125,000Total
                assets
            
            $
            19,745,683
            
            $
            36,304,821**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            1,876,164
            
            $
            2,739,956Accrued
                expenses
            
            
            982,297
            
            
            1,547,459Accrued
                personnel related expenses
            
            
            638,595
            
            
            1,050,657Accrued
                research and development costs
            
            
            540,899
            
            
            596,927Total
                current liabilities
            
            
            4,037,955
            
            
            5,934,999Commitment
                and contingencies:Stockholders'
                equity:Common
                stock, $0.001 par value:100,000,000
                shares authorized, 32,169,553 and 29,210,627 shares issued and outstanding
                at September 30, 2007 and December 31, 2006, respectively
            
            
            32,170
            
            
            29,211Additional
                paid-in capital
            
            
            100,906,382
            
            
            93,177,445Accumulated
                other comprehensive income
            
            
            —
            
            
            20,000Accumulated
                deficit
            
            
            (85,230,824
            )
            
            (62,856,834
            )Total
                stockholders' equity
            
            
            15,707,728
            
            
            30,369,822Total
                liabilities and stockholders' equity
            
            $
            19,745,683
            
            $
            36,304,821





See
      accompanying notes to unaudited condensed financial statements.




-
          4
          -





**HANA
      BIOSCIENCES, INC.**





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


**(Unaudited)**


**Three Months EndedSeptember 30,**
              
              **Nine Months EndedSeptember 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**License
                  revenue
              
              $
              1,150,000
              
              $
              —
              
              $
              1,150,000
              
              $
              —Operating
                  expenses:Selling,
                  general and administrative
              
              
              481,155
              
              
              3,440,436
              
              
              6,553,502
              
              
              7,000,719Research
                  and development
              
              
              5,730,859
              
              
              7,918,422
              
              
              17,442,556
              
              
              28,864,928Total
                  operating expenses
              
              
              6,212,014
              
              
              11,358,858
              
              
              23,996,058
              
              
              35,865,647Loss
                  from operations
              
              
              (5,062,014
              )
              
              (11,358,858
              )
              
              (22,846,058
              )
              
              (35,865,647
              )Other
                  income (expense):Interest
                  income, net
              
              
              264,169
              
              
              507,347
              
              
              969,125
              
              
              892,099Other
                  expense, net
              
              
              (302,418
              )
              
              (46,291
              )
              
              (497,057
              )
              
              (62,983
              )Total
                  other income (expense)
              
              
              (38,249
              )
              
              461,056
              
              
              472,068
              
              
              829,116Net
                  loss
              
              $
              (5,100,263
              )
              $
              (10,897,802
              )
              $
              (22,373,990
              )
              $
              (35,036,531
              )Net
                  loss per share, basic and diluted
              
              $
              (0.16
              )
              $
              (0.38
              )
              $
              (0.75
              )
              $
              (1.37
              )Shares
                  used in computing net loss per share, basic and diluted
              
              
              31,197,295
              
              
              28,787,445
              
              
              29,958,487
              
              
              25,656,244Comprehensive
                  loss:Net
                  loss
              
              $
              (5,100,263
              )
              $
              (10,897,802
              )
              $
              (22,373,990
              )
              $
              (35,036,531
              )Unrealized
                  gain (loss)
              
              
              —
              
              
              (16,000
              )
              
              (20,000
              )
              
              52,000Comprehensive
                  loss
              
              $
              (5,100,263
              )
              $
              (10,913,802
              )
              $
              (22,393,990
              )
              $
              (34,984,531
              )


See
      accompanying notes to unaudited condensed financial statements.




-
          5
          -


**HANA
      BIOSCIENCES, INC.**





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


**(Unaudited)**





**Period
      from January 1, 2007 to September 30, 2007**





**Common stock**
            
            **Additional**
              **paid-in**
            
            **Accumulatedothercomprehensiveincome**
            
            **Accumulated**
            
            **Totalstockholders'****Shares**
            
            **Amount**
            
            **capital**
            
            **(loss)**
            
            **deficit**
            
            **equity**Balance
                at January 1, 2007
            
            
            29,210,627
            
            $
            29,211
            
            $
            93,177,445
            
            $
            20,000
            
            $
            (62,856,834
            )
            $
            30,369,822Issuance
                of shares upon exercise of warrants,options
                and restricted stock
            
            
            482,593
            
            
            483
            
            
            26,516
            
            
            —
            
            
            —
            
            
            26,999Stock-based
                compensation of employeesamortized
                over vesting period of stock options
            
            
            —
            
            
            —
            
            
            4,006,878
            
            
            —
            
            
            —
            
            
            4,006,878Issuance
                of shares under employee stock purchase plan
            
            
            49,454
            
            
            49
            
            
            115,135
            
            
            —
            
            
            —
            
            
            115,184Share-based
                compensation tononemployees
                for services
            
            
            —
            
            
            —
            
            
            (150,165
            )
            
            —
            
            
            —
            
            
            (150,165
            )Shares
                returned1
            
            
            (73,121
            )
            
            (73
            )
            
            73Repurchase
                of employee stock options
            
            
            —
            
            
            —
            
            
            (117,000
            )
            
            —
            
            
            —
            
            
            (117,000
            )Sale
                of shares –
                Par
                Pharma
            
            
            2,500,000
            
            
            2,500
            
            
            3,847,500
            
            
            
            
            
            
            
            
            3,850,000Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (22,373,990
            )
            
            (22,373,990
            )Unrealized
                loss on available-for-sale securities
            
            
            —
            
            
            —
            
            
            —
            
            
            (20,000
            )
            
            —
            
            
            (20,000
            )Balance
                at September 30, 2007
            
            
            32,169,553
            
            $
            32,170
            
            $
            100,906,382
            
            $
            —
            
            $
            (85,230,824
            )
            $
            15,707,728





See
      accompanying notes to unaudited condensed financial statements.





1These
      shares were returned from NovaDel as part of an amendment to the Company’s
      license agreement for our product candidate Zensana. This is pursuant to a
      sublicense agreement signed in October 2007 with Par Pharmaceuticals for
      the same product candidate. See Note 8 in the “NOTES TO UNAUDITED CONDENSED
      FINANCIAL STATEMENTS” for additional information.


-
          6
          -


**HANA
      BIOSCIENCES, INC.**





**CONDENSED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**




**Nine****Months EndedSeptember
                  30,****2007**
              
              **2006****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (22,373,990
              )
              $
              (35,036,531
              )Adjustments
                  to reconcile net loss to net cash used in operating activities:Depreciation
              
              
              126,798
              
              
              69,503Stock-based
                  compensation of employees
              
              
              4,006,878
              
              
              6,277,914Share-based
                  compensation to nonemployees for services
              
              
              (150,165
              )
              
              235,650Shares
                  issued to nonemployees - transaction fee
              
              
              —
              
              
              185,841Issuance
                  of shares in partial consideration for license agreement
              
              
              —
              
              
              10,773,260Loss
                  on sale of capital assets
              
              
              1,052
              
              
              41,759Realized
                  loss on available-for-sale securities
              
              
              436,000
              
              
              —Unrealized
                  gain on available-for-sale securities
              
              
              —
              
              
              52,000Changes
                  in operating assets and liabilities:(Increase)
                  decrease in prepaid expenses and other assets
              
              
              29,964
              
              
              (153,114
              )Increase
                  (decrease) in accounts payable
              
              
              (863,791
              )
              
              819,434Increase
                  (decrease) in accrued and other liabilities
              
              
              (1,033,253
              )
              
              1,618,422Net
                  cash used in operating activities
              
              
              (19,820,507
              )
              
              (15,115,862
              )**Cash
                  flows from investing activities:**Purchase
                  of property and equipment
              
              
              (85,333
              )
              
              (490,916
              )Proceeds
                  from sale of equipment
              
              
              —
              
              
              2,760Purchase
                  of marketable securities
              
              
              (4,496,252
              )
              
              (6,075,000
              )Sale
                  of marketable securities
              
              
              8,975,000
              
              
              —Restricted
                  cash deposited in escrow
              
              
              —
              
              
              (125,000
              )Net
                  cash provided by (used in) investing activities
              
              
              4,393,415
              
              
              (6,688,156
              )**Cash
                  flows from financing activities:**Proceeds
                  from registered direct and private placements of preferred and
                  common
                  stock, net
              
              
              3,850,000
              
              
              37,118,305Repurchase
                  of employee stock options
              
              
              (117,000
              )
              
              —Proceeds
                  from exercise of warrants and options and employee stock purchase
                  plan
              
              
              142,183
              
              
              929,260Net
                  cash provided by financing activities
              
              
              3,875,183
              
              
              38,047,565Net
                  increase(decrease) in cash and cash equivalents
              
              
              (11,551,909
              )
              
              16,243,547Cash
                  and cash equivalents, beginning of period
              
              
              29,127,850
              
              
              17,082,521Cash
                  and cash equivalents, end of period
              
              $
              17,575,941
              
              
              33,326,068Supplemental
                  disclosures of cash flow data:Cash
                  paid for interest
              
              $
              3,807
              
              
              1,577Supplemental
                  disclosures of noncash financing activities:Unrealized
                  loss on available-for-sale securities
              
              
              20,000
              
              
              52,000Common
                  stock issued to as partial consideration for license agreement
              
              
              —
              
              
              10,279,642


See
      accompanying notes to unaudited condensed financial statements.


-
          7
          -


**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**





**NOTE
      1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





*Business*





Hana
      Biosciences, Inc. (“Hana”, “we” or the “Company”) 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.





*Basis
      of Presentation*





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, 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.”





The
      accompanying unaudited condensed financial statements have been prepared in
      accordance with United States generally accepted accounting principles for
      interim financial information of “publicly held companies” and, accordingly,
      they do not include all required disclosures for complete annual financial
      statements. These interim financial statements include all adjustments that
      the management of Hana believes are necessary for a fair presentation of
      the periods presented. These interim financial results are not necessarily
      indicative of results to be expected for the full fiscal year.





The
      accompanying condensed financial information should be read in conjunction
      with
      the audited financial statements for the year ended December 31, 2006, included
      in the Company's Annual Report on Form 10-K for the year ended December 31,
      2006
      (the “Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on
      April 2, 2007. The accompanying condensed balance sheet as of December 31,
      2006
      has been derived from the audited balance sheet as of that date included in
      the
      Form 10-K.





*Use
      of Management's Estimates*





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States 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 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**




*Revenue
      Recognition*





The
      Company recognizes all revenue in accordance with Staff Accounting Bulletin
      No. 104, “Revenue Recognition”, where revenue is recognized wh en
      (i) persuasive evidence of an arrangement exists; (ii) delivery of the
      services, supplies or technology license has occurred; (iii) the price is
      fixed or determinable; and (iv) collectability is reasonably
      assured.





The
      Company recognizes revenue from the license or assignment of intellectual
      property and rights to third parties, including development milestone payments
      associated with such agreements if the funds have been received, the rights
      to
      the property have been delivered, and the Company has no further obligations
      under the date(s) when the payment has been received or collection is
      assured.





To
      date,
      the Company has only earned revenue from a non-refundable upfront payment
      pursuant to a sublicense agreement, as described further in Note 8.





*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
      antidilutive effect because the Company incurred a net loss during each period
      presented. The number of shares potentially issuable at September 30, 2007
      and
      2006 upon exercise or conversion that were not included in the computation
      of
      net loss per share totaled 6,029,602 and 6,380,137 ,
      respectively.





*Cash
      and Cash Equivalents and Concentration of Risk*





The
      Company considers all highly-liquid investments with a maturity of three months
      or less when acquired to be cash equivalents. Financial instruments that
      potentially expose the Company to concentrations of credit risk consist
      primarily of cash and cash equivalents, and available-for-sale
      securities. The Company maintains its cash and cash equivalents with high
      credit quality financial institutions and available-for-sale securities consist
      of U.S. government and government agency securities, corporate notes, bonds
      and
      commercial paper.





*Available-for-sale
      Securities*





Available-for-sale
      securities consist of investments acquired with maturities exceeding three
      months. All available-for-sale securities are reported at fair value, based
      on
      quoted market price, with unrealized gains or losses included in other
      comprehensive income (loss). For available-for-sale securities, a loss is
      recognized in the period an investment is considered to have an
      other-than-temporary impairment. The recognized loss is equal to the difference
      between the cost basis of the security and the fair value of the security at
      the
      balance sheet date of the reporting period for which the assessment is made.
      The
      new cost basis of the security will become the fair value of the security at
      this same period.





In
      the
      past, the Company has owned certain auction rate securities in its managed
      funds
      account and may do so again in the future. These are highly liquid,
      investment-grade securities. Auction rate securities generally have stated
      maturities of 20 to 30 years. However, these securities have economic
      characteristics of short-term investments due to a rate-setting mechanism and
      the ability for holders to liquidate them through a Dutch auction process that
      occurs on pre-determined intervals of less than 90 days. As such and because
      of
      management's intent regarding these securities, the Company classifies these
      securities as short-term investments. There were no material unrealized gains
      or
      losses associated with these investments as of September 30, 2007.




-
          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 US and California taxes
      for tax jurisdictions, as defined. The only periods subject to examination
      for
      the Company’s federal return are the 2003 through 2006 tax years. The periods
      subject to examination for the Company’s state returns in California are the
      2002 through 2006 tax years. There are currently no ongoing examinations by
      the
      relevant tax authorities.





At
      the
      adoption date and as of September 30, 2007, we 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
      2. RECENT ACCOUNTING PRONOUNCEMENTS**





On
      September 15, 2006 FASB issued Statement No. 157, “ *Fair
      Value Measurement”s.* The Statement provides guidance for using fair value to measure assets and
      liabilities.  This Statement 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. The Statement 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.  It is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years.  The
      adoption of SFAS No. 157 is not expected to have a material impact on the
      Company’s financial statements.





In
      February 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.





**NOTE
      3. LIQUIDITY AND CAPITAL RESOURCES**





The
      Company reported a net loss of $22.4 million for the nine months ended September
      30, 2007. The Company has financed its operations since inception primarily
      through equity and debt financing. During the nine months ended September 30,
      2007, the Company had a net decrease of $11.6 million in cash and cash
      equivalents. This decrease primarily resulted from net cash used in operating
      activities of $19.8 million for the nine months ended September 30, 2007. Total
      cash and cash equivalents and available-for-sale securities as of September
      30,
      2007 were $18.8 million compared to $35.3 million at December 31, 2006.





The
      Company's continued operations 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. Through
      September 30, 2007, a significant portion of the Company's financing has been
      through private placements of common stock. The Company will continue to fund
      operations from cash on hand and through the potential sale of similar sources
      of capital previously described, or through debt.





With
      current cash,
      cash equivalents and available-for-sale securities, which totaled $18.8 million
      as of September 30, 2007, as well as the funds available to the Company pursuant
      to its October 2007 loan commitment ,
      the
      Company expects to be able to fund anticipated operating needs into the second
      half of 2009 (unaudited) based upon the current and desired pace of clinical
      development of the Company’s current product candidates, (including milestone
      payments that are expected to be triggered under the license agreements relating
      to the Company’s product candidates, all of which can be satisfied through the
      issuance of new shares of the Company’s common stock), and expected general
      corporate and administrative expenses. However,
      the actual amount of funds needed to operate is subject to many factors, some
      of
      which are beyond the Company’s control. The Company expects to incur substantial
      expenses as it continues its drug development efforts, particularly to the
      extent the Company advances its lead candidate Marqibo through a pivotal
      clinical study. Beyond the Company’s current cash and cash equivalents on hand,
      and the funds available to it under its October 2007 loan commitment, the
      Company cannot assure that future financing will be available in amounts or
      on
      terms acceptable to it, if at all. If the Company is unable to secure sufficient
      additional capital or enter into strategic partnerships and/or license
      agreements when it needs to, it will be forced to curtail the development of
      its
      product candidates, which would delay the time by which any of our product
      candidates could receive regulatory approval.




-
          10
          -


**HANA
        BIOSCIENCES, INC.**
 
 **NOTES
        TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**





**NOTE
      4. STOCKHOLDERS' EQUITY**





*Stock
      Incentive Plans.* The
      Company has two stockholder approved stock incentive plans under which it grants
      or has granted options to purchase shares of its 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 or the Chief
      Executive Officer, when designated by the Board, is responsible for
      administration of the Company’s employee stock incentive plans and determines
      the term, exercise price and vesting terms of each option. 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.





The
      2003
      Plan was adopted by the Company's Board of Directors in October 2003. The 2003
      Plan authorizes a total of 1,410,068 shares of common stock for issuance. In
      May
      2006, the Company's stockholders ratified and approved the 2003 Plan. The
      Company may make future stock option issuances from this plan.





In
      September 2004, the Company's Board of Directors approved and adopted the 2004
      Plan, which initially authorized 2,500,000 shares of common stock for issuance.
      On March 31, 2006, the Board approved, subject to stockholder approval, an
      amendment to the 2004 Plan to increase the total number of shares authorized
      for
      issuance there under to 4,000,000. At the Company’s May 2006 Annual Meeting, the
      Company's stockholders ratified and approved the 2004 Plan, as amended. At
      the
      2007 Annual Meeting on June 22, 2007, the Company's stockholders approved an
      additional increase of shares authorized for issuance from 4,000,000 to
      7,000,000. The Company may make future stock option issuances from this plan.





At
      the
      May 2006 Annual Meeting, the Company's Stockholders also ratified and approved
      the Company's 2006 Employee Stock Purchase Plan (the “2006 Plan”), which had
      been approved by the Company’s Board of Directors on March 31, 2006. The 2006
      Plan provides the Company's eligible employees with the opportunity to 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.
      As
      of September 30, 2007, there have been 49,454 shares issued under the 2006
      Plan.





*Restricted
      Stock Awards* The
      Company's Board of Directors has awarded, under the 2004 Plan, 524,264 shares
      of
      restricted stock as of September 30, 2007, at no cost to the Company's executive
      officers and directors.





A
      summary
      of the status of the Company's restricted stock awards as of September 30,
      2007
      and changes during the nine months ended September 30, 2007 is as follows:





**Nonvested
                Restricted Stock Awards**
            
            **Number of Shares**
            
            **Weighted Average**
              **Grant-Date**
              **Fair Value**Nonvested
                at January 1, 2007
            
            
            460,764
            
            $
            10.65Granted
            
            
            —
            
            
            —Vested
            
            
            (255,764
            )
            
            10.45Cancelled/Forfeited
            
            
            (205,000
            )
            
            10.90Nonvested
                at September 30, 2007
            
            
            —
            
            $
            —




-
          11
          -


**HANA
        BIOSCIENCES, INC.**
 
 **NOTES
        TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**


*Stock
      Options* The
      Company currently awards stock option grants under its 2003 and 2004 Plan.
      Under
      the 2003 Plan, the Company may grant incentive and non-qualified stock options
      to employees, directors, consultants and service providers to purchase up to
      an
      aggregate of 1,410,068 shares of its common stock. Under the 2004 Plan, the
      Company may grant incentive and non-qualified stock options to employees,
      directors, consultants and service providers to purchase up to an aggregate
      of
      7,000,000 shares. Historically, stock options issued under these plans primarily
      vest ratably on an annual basis over the vesting period, which has generally
      been three years.





The
      following table summarizes information about stock options outstanding at
      September 30, 2007 and changes in outstanding options in the nine months then
      ended, all of which are at fixed prices:





**Number ofShares Subjectto OptionsOutstanding**
            
            **Weighted AverageExercise Price perShare**
            
            **Weighted AverageRemainingContractualTerm****(in years)**
            
            **AggregateIntrinsicValue**Outstanding
                January 1, 2007
            
            
            5,123,917
            
            $
            4.42Options
                granted
            
            
            1,418,000
            
            
            2.48Options
                cancelled
            
            
            (2,301,388
            )
            
            4.27Options
                exercised
            
            
            (226,829
            )
            
            0.89Outstanding
                September 30, 2007
            
            
            4,013,700
            
            
            4.02
            
            
            8.56
            
            $
            145,543Exercisable
                at September 30, 2007
            
            
            1,196,140
            
            $
            3.25
            
            
            7.26
            
            $
            145,543





Total
      stock-based compensation expense was approximately $(0.2) million and $4.0
      million related to employee stock options and restricted stock recognized in
      the
      operating results for the three and nine months ended September 30, 2007
      compared to $3.6 million and $6.3 million stock-based compensation for the
      three
      and nine months ended September 30, 2006, respectively.


-
          12
          -


**HANA
        BIOSCIENCES, INC.**
 
 **NOTES
        TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**


The
      following table summarizes information about stock options outstanding at
      September 30, 2007:





**Options Outstanding**
            
            **Options Exercisable****Number ofSharesSubject toOptions**
            
            **Weighted
                AverageExercise**
            
            **WeightedAverageRemainingContractualLife ofOptions**
            
            **Number of
                Options**
            
            **Weighted
                Average**
              **Exercise****Exercise
                Price**
            
            **Outstanding**
            
            **Price**
            
            **Outstanding**
            
            **Exercisable**
            
            **Price**$0.07
                - $  1.74
            
            
            1,782,539
            
            $
            1.44
            
            
            8.5
                yrs
            
            
            639,539
            
            $
            1.15$2.04
                - $  4.97
            
            
            824,328
            
            
            4.32
            
            
            8.2
                yrs
            
            
            384,269
            
            
            4.46$5.01
                - $ 11.81
            
            
            1,406,833
            
            
            7.11
            
            
            8.9
                yrs
            
            
            172,333
            
            
            8.36$0.07
                - $11.81
            
            
            4,013,700
            
            $
            4.02
            
            
            8.6
                yrs
            
            
            1,196,140
            
            $
            3.25





*Employee
      Stock Purchase Plan.* The
      2006
      Plan allows employees to contribute a percentage of their gross salary toward
      the semi-annual purchase of shares of common stock of the Company. 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 Company’s 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
      September 30, 2007, the Company had issued 49,454 shares under the 2006 Plan.
      For the three and nine months ended September 30, 2007, the total stock-based
      compensation expense recognized related to the 2006 Plan under SFAS 123(R)
      was
      approximately $52,000 and $141,000, respectively, compared to approximately
      $47,000 stock-based compensation expense taken in both the three and nine months
      ended September 30, 2006.





*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 nine months ended September 30, 2007 and 2006,
      respectively:





**Three Months EndedSeptember 30,**
            
            **Nine Months EndedSeptember 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006*****Employee
                stock options***Risk-free
                interest rate
            
            
            4.5
            %
            
            5.01
            %
            
            4.5
            %
            
            5.01
            %Expected
                life (in years)
            
            
            6.0
            
            
            5.0
                - 6.0
            
            
            5.5
                - 6.0
            
            
            5.0
                - 6.0Volatility
            
            
            0.8
            
            
            0.7
            
            
            0.8
            
            
            0.7Dividend
                Yield
            
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %***Employee
                stock purchase plan***Risk-free
                interest rate
            
            
            4.82
                - 4.91
            %
            
            5.16
                –
                5.24
            %
            
            4.82
                - 5.09
            %
            
            5.16
                – 5.24
            %Expected
                life (in years)
            
            
            0.5
                - 2.0
            
            
            0.5
                - 2.0
            
            
            0.5
                - 2.0
            
            
            0.5
                - 2.0Volatility
            
            
            0.73
                - 0.93
            
            
            0.67
                – 1.10
            
            
            0.55
                - 1.03
            
            
            0.67
                – 1.10Dividend
                Yield
            
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %





The
      Company's computation of expected volatility of employee stock options is based
      on historical volatilities of peer companies. Peer companies' historical
      volatilities are used in the determination of expected volatility due to the
      short trading history of the Company's common stock. In selecting the peer
      companies, the Company considered the following factors: industry, stage of
      life
      cycle, size, and financial leverage. For the 2006 Plan, the Company used
      historical data of its common stock price to calculated expected volatility
      as
      the Company had sufficient historical data for the expected terms used in the
      Black-Scholes-Merton calculation. To determine the expected term of the
      Company's employee stock options granted upon adoption of SFAS 123(R), we
      utilized the simplified approach as defined by SEC Staff Accounting Bulletin
      No. 107, “Share-Based Payment” (SAB 107). This approach resulted in
      expected terms of 5.5 to 6 years for options granted during the nine months
      ended September 30, 2007. The interest rate for periods within the contractual
      life of the award is based on the U.S. Treasury yield curve in effect at
      the time of grant.




-
          13
          -




**HANA
        BIOSCIENCES, INC.**
 
 **NOTES
        TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**


*Non-Employee
      Stock Options.* The
      Company has also granted stock options to non-employee consultants. In
      accordance with Emerging Issues Task Force Issue 96-18, “ *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring
      or
      in Conjunction with Selling, Goods or Services* ”
(EITF
      96-18), 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 nine months ended September 30, 2007, the
      Company recognized approximately $1,500 and ($0.2) million of stock-based
      compensation expense related to awards held by non-employee consultants,
      respectively. The reversal of approximately $0.2 million of expense for the
      nine
      months ended September 30, 2007 is mainly due to the decline in the Company’s
      stock price at September 30, 2007 compared to December 31, 2006. During the
      three and nine months ended September 30, 2006, the Company recognized $0.1
      million and $0.2 million, respectively, in stock-based compensation related
      to
      awards held by non-employee consultants.





*Warrants* .
      The
      following table summarizes the warrants outstanding as of September 30, 2007
      and
      the changes in outstanding warrants in the nine months then ended:





NUMBER OF
              SHARES SUBJECT
              TO WARRANTS
              OUTSTANDING
            
            WEIGHTED-AVERAGEEXERCISEPRICEWarrants
                outstanding January 1, 2007
            
            
            2,015,901
            
            $
            3.42Warrants
                exercised
            
            
            —
            
            
            —Warrants
                cancelled
            
            
            —
            
            
            —Warrants
                outstanding September 30, 2007
            
            
            2,015,901
            
            $
            3.42





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





On
      September 30, 2007, the Company had $1,196,252 in total available-for-sale
      securities which consisted of shares of NovaDel Pharma, Inc (“NovaDel”)
      purchased in conjunction with the Zensana license agreement, and other
      short-term investments.





At
      September 30, 2007, the Company had $996,252 of available-for-sale securities
      invested in auction rate securities and other short-term investments and no
      material unrealized gains or losses were recognized as of September 30, 2007
      related to these investments.





In
      October 2004, the Company acquired 400,000 shares of common stock from NovaDel
      for $2.50 a share. The Company paid a premium of $0.91 per share over the market
      value of the NovaDel shares, which was $1.59 on the purchase date. Of the $1.0
      million paid for the 400,000 shares, the premium of $0.91 per share, or
      $364,000, was expensed upon acquisition. The remaining fair market value of
      $636,000 was recorded as an available-for-sale security. As a result of
      restrictions on its ability to sell the shares, the Company was required by
      SFAS
      No. 115, “ *Accounting
      for Certain Investments in Debt and Equity Securities* ,”
to
      account for those shares using the cost method through October 2005 and
      thereafter as marketable equity securities. Since October 2005, the Company
      has
      classified the shares as available-for-sale and recorded changes in their value
      as part of its comprehensive income. The market value of these shares on
      September 30, 2007 was $200,000, and the Company realized a loss of $436,000
      since the original purchase in October 2004. The Company recorded realized
      losses as of September 30, 2007, as the decline in value, in the opinion of
      management, is considered other-than-temporary. On September 30, 2006, the
      market value of these shares was $524,000 and the Company had an unrealized
      loss
      of $112,000 since the original purchase in October 2004.




-
          14
          -


**HANA
        BIOSCIENCES, INC.**
 
 **NOTES
        TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**




**NOTE
      6. 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 three-year period of the sub-lease.





**NOTE
      7. COMMITMENTS**





***Employment
      Agreements.*** ** The
      Company entered into a written three year employment agreement with its former
      Chief Executive Officer dated November 1, 2003, which was subsequently amended
      in December 2005 to provide for a term that expires in November 2008. Effective
      as of August 24, 2007, the former Chief Executive Officer resigned from such
      office and, as of September 15, 2007, he resigned as an employee of the Company.
      In accordance with the terms of the employment agreement, all of the Company’s
      future salary commitments were terminated as of September 15, 2007, and no
      additional compensation is owed.





The
      Company entered into a written two year employment agreement with its Vice
      President, Chief Business Officer on January 25, 2004. This agreement was
      amended in December 2005 and now provides for an employment term that expires
      in
      November 2008. The minimum aggregate amount of gross salary compensation to
      be
      provided over the remaining term of the agreement amounted to approximately
      $271,000 at September 30, 2007.





On
      May 6,
      2007, the Company entered into a written three year employment agreement with
      its Executive Vice President, Development and Chief Medical Officer, whose
      employment commenced May 21, 2007. This agreement provides for an employment
      term that expires in May 2010. Effective as of August 24, 2007, the Executive
      Vice President, Development and Chief Medical Officer, was appointed Chief
      Executive Officer. There was no change to the compensation terms of the
      employment agreement as a result of the change in position. The minimum
      aggregate amount of gross salary compensation and guaranteed bonuses to be
      provided for over the remaining term of the agreement amounted to approximately
      $1,150,000 at September 30, 2007.





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 $190,000 at September 30, 2007.





***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. The total cash payments due for the
      duration of the sublease equaled approximately $1.0 million on September 30,
      2007.





**NOTE
      8. AGREEMENT WITH PAR PHARMACEUTICAL**





On
      July
      31, 2007, the Company entered into a sublicense agreement with Par
      Pharmaceutical, Inc. (“Par”) and NovaDel, pursuant to which the Company granted
      to Par and its affiliates, and NovaDel consented to such grant, a
      royalty-bearing exclusive right and license to develop and commercialize Zensana
      within the United States and Canada. The Company previously had acquired such
      exclusive, sublicensable rights from NovaDel and commenced development of
      ZensanaTM, a pharmaceutical product that contains ondansetron, pursuant to a
      License Agreement with NovaDel dated October 24, 2004, as amended. As agreed
      by
      the Company and NovaDel, Par assumed primary responsibility for the development,
      regulatory approval by the U.S. Food and Drug Administration (the “FDA”), and
      sales and marketing of Zensana.




-
          15
          -


**HANA
        BIOSCIENCES, INC.**
 
 **NOTES
        TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**





In
      consideration for the license grant, Par purchased 2,500,000 newly-issued shares
      of the Company’s common stock at a price per share of $2.00 per share for
      aggregate consideration of $5,000,000. On July 31, 2007, the market value of
      the
      Company’s common stock was $1.54 per share. The difference between the sale
      price of $2.00 and the market value of the common stock on the purchase date
      was
      $0.46 per share premium. Of the total proceeds received from Par of $5.0
      million, $1.2 million is related to the premium paid and represents revenues
      that will be recognized over the service period required by the sublicense
      agreement, with the remaining $3.9 million accumulated to shareholder’s equity.
      As of September 30, 2007, the Company has recognized the entire $1.2 million
      in
      license fee revenue related to the sublicense agreement in accordance with
      the
      requirements of Staff Accounting Bulletin No. 104, as the Company fulfilled
      all
      obligations related to the upfront payment received from Par as part of the
      sublicense agreement.





As
      additional consideration for the sublicense, following regulatory approval
      of
      Zensana, Par is required to pay the Company an additional one-time payment
      of
      $6,000,000, of which $5,000,000 is payable by the Company to NovaDel under
      the
      License Agreement. In addition, the Sublicense Agreement provides for an
      additional aggregate of up to $44,000,000 in commercialization milestone
      payments based upon actual net sales of Zensana in the United States and Canada,
      which amounts are not subject to any corresponding obligations to NovaDel.
      The Company will also be entitled to royalty payments based on net sales of
      Zensana by Par or any of its affiliates in such territory, however, the amount
      of such royalty payments is generally equal to the same amount of royalties
      that
      the Company will owe NovaDel under the License Agreement, except to the extent
      that aggregate net sales of Zensana exceed a specified amount in the first
      5
      years following FDA approval of an NDA, in which case the royalty rate
      payable to the Company increases beyond its royalty obligation to NovaDel.





**NOTE
      9. SUBSEQUENT EVENTS**





On
      October 30, 2007, the Company entered into a loan facility agreement with
      certain affiliates of Deerfield Management (“Deerfield”). Deerfield has
      committed funds to assist with the development of the Company’s product
      candidates. Pursuant to the agreement, the
      Company may borrow from Deerfield up to an aggregate of $30 million, of which
      $20 million may be drawn down by the Company in as many as four installments
      every six months commencing October 30, 2007. Pursuant to such schedule, the
      Company 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 the Company’s Marqibo and
      Menadione product candidates. Deerfield’s obligation to disburse loan proceeds
      expires October 30, 2010 and the Company must repay all outstanding amounts
      owing under the loan no later than October 30, 2013. The Company is also
      required to make quarterly interest payments, at the rate of 9.85% annually.
      In
      accordance with the agreement, the Company paid a loan commitment fee of
      $1,050,000 to Deerfield Management.





As
      additional consideration for the loan, the Company also issued to Deerfield
      two
      series of 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 (subject to
      adjustment for stock splits, combinations and similar events), which represented
      the closing bid price of the Company’s common stock as reported on the Nasdaq
      Global Market on October 30, 2007. One series of such warrants represents the
      right to purchase 4,825,433 shares, which equals 15% of the Company’s currently
      issued and outstanding shares of common stock. These warrants contain an
      anti-dilution feature so 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 they always represent
      15%
      of the Company’s then outstanding common stock. The Company 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 the Company draws down the portion of the loan conditioned upon
      the
      achievement of clinical development milestones relating to Marqibo and
      Menadione, the Company is required to issue additional warrants to Deerfield
      which would represent the right to purchase an additional number of shares
      of
      common stock equal to 3.5% of the Company’s then outstanding shares if the
      Company drew down the entire $10 million subject to milestone achievement.
      These
      warrants, which will also be exercisable at $1.31 per share, will be identical
      in form as the first series of warrants, including the Company’s right to
      buy-out the anti-dilution feature of such warrants.


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          16
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**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 notes to those
      statements 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 II of the June2007  Form 10-Q, 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 companies.





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





·
            ***Marqibo***®***(vincristine
                sulfate injection, OPTISOMETM)****-*We
                acquired our rights to Marqibo from Tekmira Pharmaceuticals Corporation
                (formerly Inex Pharmaceuticals Corporation) in May 2006. To date,
                Marqibo
                has been evaluated in more than 600 patients in 13 clinical trials,
                including Phase 2 clinical trials in patients with non-Hodgkin’s lymphoma
                (NHL) and acute lymphoblastic leukemia (ALL). In August 2007, we
                initiated
                a multi-center, multi-national, Phase 2 registration-enabling clinical
                trial of Marqibo in adult patients with relapsed ALL, known as the
                rALLy
                study. The patient population is defined as Philadelphia
                chromosome-negative adult patients in second relapse or those patients
                who
                relapsed following two lines of anti-leukemia chemotherapy, including
                those who have previously undergone stem cell transplantation. We
                expect
                to enroll up to 56 evaluable patients in this clinical trial from
                approximately 30 sites. We also plan to conduct a Phase 3, supportive
                clinical trial in newly diagnosed, elderly adults with Philadelphia
                chromosome-negative ALL. This Phase 3 randomized trial will compare
                Marqibo to vincristine as part of a standardized multi-drug regimen
                in the
                induction, consolidation, and maintenance phases of treatment. We
                plan to
                conduct this study in collaboration with three major U.S. oncology
                cooperative groups with potential participation by ex-U.S. ALL oncology
                consortiums. Pending final review by the cooperative groups and approval
                by the Cancer Therapy Evaluation Program (CTEP), we anticipate this
                study
                will potentially commence in the first half of 2008. We are also
                planning
                a single-center pilot Phase 2 clinical trial of Marqibo in patients
                with
                metastatic malignant uveal melanoma. 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 up to 30 patients in this clinical trial and may add additional
                sites as needed to support enrollment. Additionally, the FDA granted
                Marqibo Orphan Drug Designation for the treatment of adult ALL and
                Fast
                Track status for the treatment of Philadelphia chromosome-negative
                adult
                patients in second relapse or those patients who relapsed following
                two
                lines of anti-leukemia
                chemotherapy.





·
            ***AlocrestTM
                (vinorelbine tartrate injection, OPTISOMETM)****-*In
                August 2006, we initiated a Phase 1 clinical trial to assess the
                safety,
                tolerability and preliminary efficacy of Alocrest in patients with
                advanced solid tumors. The trial is being conducted at the Cancer
                Therapy
                and Research Center in San Antonio, Texas,**McGill
                University in Montreal, Canada; and South Texas Accelerated Research
                Therapeutics, San Antonio. The trial is currently in its sixth dosing
                cohort and we expect to complete this Phase 1 trial in
                2007.





·
            ***BrakivaTM
                (topotecan hydrochloride injection, OPTISOMETM)****-*We
                have completed essential preclinical investigational new drug application
                (IND) activation enabling studies for Brakiva. We submitted the IND
                to the
                FDA and the IND was opened in October 2007. We expect to initiate
                a Phase
                1 clinical trial by the end of 2007 or in early
                2008.




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          17
          -





·
            ***TalvestaTM
                (talotrexin) for Injection****-*In
                April 2004, we commenced an NCI-sponsored Phase 1 clinical trial
                to evaluate the safety of Talvesta when administered intravenously
                on
                days 1, 8 and 15 of a 28-day cycle to patients with solid tumors. In
                March 2007, this clinical trial was discontinued due to one drug-related
                patient death following an extended course of therapy. We commenced
                a
                Phase 1/2 clinical trial of Talvesta in non-small cell lung cancer
                in
                February 2005. In the Phase 1 portion of this clinical trial, Talvesta
                was
                administered to patients to ascertain the maximum tolerated dose
                of the
                drug. We have suspended enrollment in this clinical trial for additional
                safety analysis. In May 2005, we commenced a Phase 1/2 clinical trial
                of
                Talvesta in ALL. The Phase 1 portion of this clinical trial is closed
                for
                enrollment.  While we have not seen issues related to unexpected
                toxicity in the ALL trial, we proactively suspended enrollment in
                the
                Phase 2 portion of the ALL trial as a safety precaution.  Subsequent
                to our postponement of initiating new clinical trials, the FDA notified
                us
                that it had placed the Talvesta studies on clinical hold. After a
                thorough
                medical review and evaluation of the resources required to enable
                this
                compound to reenter clinical trials, we have chosen to stop further
                development of this drug candidate as of November
                2007.





·
            ***KyrbaxTM
                (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 expect to submit an IND to the FDA by the
                end of
                2007.





·
            ***ZensanaTM
                (ondansetron HCI) Oral Spray*****-
                On July 31, 2007, we entered into a definitive agreement providing
                for the
                sublicense of all of our rights to develop and commercialize Zensana
                to
                Par Pharmaceutical, Inc. Under the terms of our agreement, Par is
                now
                responsible for all regulatory, development and commercialization
                activities for Zensana. Accordingly, we do not expect to incur
                additional expenses relating to Zensana. See “Off Balance Sheet
                Arrangements - License Agreements - Zensana License.”





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 license
      agreement entered into with Par Pharmaceuticals in July 2007 for one of our
      product candidates. The successful development of our 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.





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 success depends 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. We expect our revenues to increase in the future
      as
      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 will decrease and we may be forced to limit our development of our
      product candidates.




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          18
          -




*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). We adopted
      SFAS No.123R using the modified prospective method for share-based awards
      granted after we became a public entity and the prospective method for
      share-based awards granted prior to the time we became a public entity and,
      accordingly, financial statement amounts for prior periods presented in this
      Form 10-Q have not been restated to reflect the fair value method of recognizing
      compensation cost relating to stock options.





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, we
      used the “simplified method” for determining the expected life of the options
      granted. This method is allowed until December 31, 2007, after which we will
      be
      required to adopt another method to determine expected life of the option awards
      granted after this date. 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 10% annually of our stock options awarded will be
      forfeited. For options granted while we were a nonpublic entity, we applied
      the
      prospective method in which the awards that were valued under the minimum value
      method for pro forma disclosure purposes will continue to be expensed using
      the
      intrinsic value method of APB 25.




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          19
          -





Prior
      to
      January 1, 2006, we accounted for option grants to employees using the intrinsic
      value method in accordance with Accounting Principles Board Opinion No. 25,
      “Accounting for Stock Issued to Employees,” or APB No. 25, and related
      interpretations. The Company also followed the disclosure requirements of
      Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based
      Compensation”, as amended by Statement of Financial Accounting Standards No.
      148, “Accounting for Stock-Based Compensation-Transition and Disclosure.” Under
      the guidelines of APB No. 25, we were only required to record a charge for
      grants of options to employees if on the date of grant they had an “intrinsic
      value” which was calculated based on the excess, if any, of the market value of
      the common stock underlying the option over the exercise price.





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 currently is no 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 123R and SAB 107 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
      4 of our condensed unaudited financial statements included elsewhere in this
      Quarterly Report for further information regarding the SFAS 123R disclosures.





***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.




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          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.





***Revenue
      Recognition***





We
      recognize all revenue in accordance with Staff Accounting Bulletin No. 104,
“Revenue Recognition”, where revenue is recognized wh en
      (i) persuasive evidence of an arrangement exists; (ii) delivery of the
      services, supplies or technology license has occurred; (iii) the price is
      fixed or determinable; and (iv) collectability is reasonably
      assured.





We
      recognize revenue from the license or assignment of intellectual property and
      rights to third parties, including development milestone payments associated
      with such agreement if the funds have been received, the rights to the property
      have been delivered, and we have no further obligations under the date(s) when
      the payment has been received or collection is assured.





To
      date,
      we have only earned revenue from a non-refundable upfront payment pursuant
      to a
      sublicense agreement, as described further in Note 8 in the “Notes to Unaudited
      Condensed Financial Statements” section of this Form 10-Q. .





**Recent
      Accounting Pronouncements**





On
      September 15, 2006, FASB issued Statement No. 157, “ *Fair
      Value Measurements”.* This Statement provides guidance for using fair value to measure assets and
      liabilities.  This Statement 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. The Statement 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.  It is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years.  The
      adoption of SFAS No. 157 is not expected to have a material impact on the
      Company’s financial statements.





On
      February 15, 2007, FASB issued Statement of Financial Accounting Standards
      No.
      159, *“The Fair Value Option for Financial Assets and Financial
      Liabilities”*, or SFAS 159. The statement provides companies with an option
      to report selected financial assets and liabilities at fair value. SFAS 159
      also
      establishes presentation and disclosure requirements to facilitate comparisons
      between companies using different measurement attributes for similar types
      of
      assets and liabilities. The statement is effective as of the beginning of the
      first fiscal year that begins after November 15, 2007. Earlier adoption is
      permitted provided the company also elects to apply the provisions of SFAS
      157.
      The Company is currently evaluating the impact that this standard may have
      on
      our financial statements.




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          21
          -





**Results
      of Operations**





***Three
      Months Ended September 30, 2007 Compared to Three Months Ended September 30,
      2006***





*Revenue.* For
      the
      three months ended September 30, 2007, we recognized $1.2 million in revenue
      compared to none for the same period in 2006. This revenue consisted entirely
      of
      the recognition of the upfront payment received from Par as part of the
      sublicense agreement for Zensana. As of September 30, 2007, all obligations
      related to the upfront payment received were satisfied. Prior to this sublicense
      transaction, the Company was in the developmental stage and had not yet earned
      any revenues. We will not recognize additional revenue from the Par sublicense
      agreement in future periods unless Zensana is approved by the FDA, Par can
      successfully commercialize the product, and our royalties earned exceed our
      royalty commitment to Novadel as part of our license agreement with
      them.





*General
      and administrative expenses.* For
      the
      three months ended September 30, 2007, general and administrative, or G&A,
      expense was $0.5 million, as compared to $3.4 million for the three months
      ended
      September 30, 2006. The decrease of approximately $2.9 million is due primarily
      to a decrease in employee related expenses of $2.6 million, which includes
      a decrease in salaries, other employee benefits and personnel related costs
      of
      $0.1 million along with a decrease of $2.5 million in employee related
      share-based compensation expense. The decrease is mainly the result of a large
      number of share-based awards that were forfeited by the former chief executive
      officer when he resigned in September 2007. Salary and other employee related
      expenses decreased due to the reversal of expense accrued for the 2007 executive
      bonus for the former chief executive officer, which will not be paid out due
      to
      his resignation. This decrease was partially offset by an increase in salaries
      and other employee benefits in the three months ended September 30, 2007
      compared to the three months ended September 30, 2006 for G&A
      employees.





For
      the
      three months ended September 30, 2007, outside services and professional service
      fees decreased $0.1 million compared to the same period in 2006, due to
      decreased audit, and IT services. Our audit fees decreased partially due to
      switching audit firms in 2006, incurring increased fees during the three months
      ended September 30, 2006 due to the transition. Also, during the three months
      ended September 30, 2006, we incurred costs related to the audit of our internal
      controls for the fiscal year 2006. As of June 30, 2007, we are not required
      to
      perform such an audit for the fiscal year 2007, and therefore did not incur
      these costs in the three months ended September 30, 2007.





Also
      for
      the three months ended September 30, 2007, there was a decrease of $0.2 million
      in G&A related allocable expenses, including rent, insurance and other
      expenses compared to three months ended September 30, 2006, while travel costs
      decreased over the same periods.





*Research
      and development expenses.* For
      the
      three months ended September 30, 2007, research and development, or R&D,
      expense was $5.7 million, as compared to $7.9 million for the three months
      ended
      September 30, 2006. The decrease of $2.2 million is due primarily to a decrease
      of $1.1 million in costs related to the acquisition and development of our
      product candidates and a decrease of $1.1 million in employee related expenses
      and allocable costs.





Costs
      related to the development of our drug candidates decreased by $0.8 million
      in
      2007 over the same period as 2006. These development costs included the physical
      manufacturing of drug compounds and payments to our contract research
      organizations. The decrease was mainly due to a decrease of $2.6 million in
      costs related to Talvesta, Zensana and IPdR, off-set partially by an increase
      of
      $1.8 million in spending on our OPTISOME drugs candidates (Marqibo, Alocrest
      and
      Brakiva) as well as Menadione. As a result of our July 2007 sublicense agreement
      with Par Pharmaceutical, we do not expect to incur additional costs relating
      to
      the development of Zensana. Additionally, milestones and other transactions
      related to our drug candidates decreased by $0.5 million as there were no
      milestones reached in the three months ended September 30, 2007. Outside
      services, consultants and professional fees related to research and development
      projects increased by $0.1 million in the three months ended September 30,
      2007
      compared to the same period in 2006. The increased expenses are mainly due
      to
      additional services required to process statistical data related to our ongoing
      clinical trials.





Employee
      related expenses decreased by $1.1 million, including a $1.3 million decrease
      in
      employee stock based compensation which is offset partially by an increase
      of
      $0.2 million in salaries and other employee related benefits as head count
      increased from 22 R&D employees for the three months ended September 30,
      2006 to 29 R&D employees for the three months ended September 30, 2007.





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          22
          -




R&D
      related allocable operating expenses, including rent, insurance, and other
      expenses increased by approximately $0.1 million for the three months ended
      September 30, 2007 compared to the three months ended September 30, 2006. Travel
      expenses also increased in 2007 compared to 2006.





*Interest
      income (expense), net.* For
      the
      three months ended September 30, 2007, net interest income was $0.3 million
      as
      compared to net interest income of $0.5 million for the three months ended
      September 30, 2006. The decrease of $0.2 million resulted from a decreased
      cash
      balance in our interest bearing accounts.





*Other
      income (expense), net.* For
      the
      three months ended September 30, 2007, net other expense was approximately
      $0.3
      million as compared to net other expense of approximately $0.1 million for
      the
      three months ended September 30, 2006. The increase of approximately $0.2
      million resulted primarily due to a write-down on available-for-sale securities
      for an other-than-temporary loss.





***Nine
      Months Ended September 30, 2007 Compared to Nine Months Ended September 30,
      2006***





*Revenue.* For
      the
      nine months ended September 30, 2007, we recognized $1.2 million in revenue
      compared to none for the same period in 2006. This revenue consisted entirely
      of
      the recognition of the upfront payment received from Par as part of the
      sublicense agreement for Zensana. As of September 30, 2007, all obligations
      related to the upfront payment received were satisfied. We
      will
      not recognize additional revenue from the Par sublicense agreement in future
      periods unless Zensana is approved by the FDA, Par can successfully
      commercialize the product, and our royalties earned exceed our royalty
      commitment to Novadel as part of our license agreement with them.




*General
      and administrative expenses.* For
      the
      nine months ended September 30, 2007, G&A expense was $6.6 million, as
      compared to $7.0 million for the nine months ended September 30, 2006. The
      decrease of $0.4 million is due primarily to a decrease in employee related
      expenses of $1.0 million including a decrease in employee stock based
      compensation of $1.6 million, offset partially by an increase in salaries and
      other employee benefit related expenses of $0.6 million. The decrease in stock
      based compensation is mainly the result of a large number of share-based awards
      that were forfeited by the former Chief Executive Officer when he resigned
      in
      September 2007, decreased partially by additional stock options issued after
      the
      nine months ended September 30, 2006. The increase in employee expenses is
      due
      to two sales and marketing employees hired after the period ended September
      30,
      2006 for work on the planned commercial launch of Zensana in the second quarter
      of 2007, as well as increased salaries and other employee benefits in 2007
      over
      2006.





For
      the
      nine months ended September 30, 2007, outside services and professional service
      fees increased by approximately $0.4 million, mainly related to increased legal
      fees, audit fees, consulting fees and other outside services. The overall
      increase consisted of an increase of $0.7 million in accounting and consulting
      fees related, including complying with Section 404 of the Sarbanes-Oxley Act,
      increased information technology costs, increased legal costs and other
      professional services. We incurred certain costs related to the audit of our
      internal controls for the fiscal year 2006 during the nine months ended
      September 30, 2007. We also had increased costs due to marketing costs that
      were
      incurred in early 2007 in anticipation of the potential commercialization of
      Zensana. These increased expenses were partially offset by a decrease in stock
      based compensation to consultants of $0.3 million due to our decreased stock
      price on September 30, 2007 compared to September 30, 2006.





Rent,
      depreciation and other allocable costs were relatively unchanged, with a minimal
      increase of $0.1 million, mostly due to higher insurance costs.





*Research
      and development expenses.* For
      the
      nine months ended September 30, 2007, R&D expense was $17.4 million, as
      compared to $28.9 million for the nine months ended September 30, 2006. The
      decrease of $11.5 million is due primarily to a decrease in costs of $12.8
      million in 2007 related to R&D outside services, milestones, transactional
      costs related to our product candidates and development costs. These development
      costs included the physical manufacturing of drug compounds, payments to our
      contract research organizations and other costs related to clinical and
      pre-clinical development of our drug candidates.





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          23
          -




The
      decrease of $12.8 million includes a decrease of $13.5 million related to
      milestones, license fees and transactional costs related to the in-license
      agreement with Inex for our optisomal platform and AECOM for Menadione. Also
      included is a decrease of $4.5 million in development costs for our product
      candidates Zensana, IPdR and Talvesta. This decrease was partially offset by
      an
      increase in spending for the following programs: Marqibo increased by $1.4
      million, Alocrest increased by $1.0 million, Brakiva increased by $0.4 million
      and Menadione increased by $1.8 million. Outside services and other professional
      fees also increased by $0.6million.





Costs
      for
      Marqibo increased as the Phase 2 clinical trial in adult patients with relapsed
      ALL continued to initiate sites and enroll patients. Alocrest continued
      enrollment in the Phase 1 study in advanced solid tumors and had increased
      manufacturing costs in preparation for a potential Phase 2 study in 2008.
      Brakiva incurred significant pre-clinical and manufacturing costs as an IND
      was
      submitted to the FDA. Menadione was not added to the pipeline until October
      2006, therefore, there were no costs incurred in the nine months ended September
      30, 2006. Costs incurred to date have been mainly related to pre-clinical and
      manufacturing costs in preparation for an IND expected to be submitted by the
      end of 2007. Costs related to IPdR and Talvesta decreased by $1.1 million as
      IPdR was halted in January 2007 and Talvesta clinical trials were halted in
      May
      2007. Costs related to the development of Zensana decreased by $3.5 million
      in
      the nine months ended September 30, 2007 compared to September 30, 2006, due
      mainly to a decrease in manufacturing costs and clinical costs. As a result
      of
      our July 2007 sublicense agreement with Par Pharmaceutical, we do not expect
      to
      incur additional material costs relating to the development of Zensana. Cost
      for
      professional fees and outside services increased due to increased recruiting
      fees as our headcount increased in R&D. We also hired additional consultants
      to assist in the processing of statistical data related to our ongoing clinical
      trials.





Employee
      related expenses increased by $0.5 million in 2007, including an increase in
      salaries, other employee benefits and personnel related costs of approximately
      $1.2 million and a decrease of $0.7 million in employee related share-based
      compensation expense. The increase in salary, bonus and benefits was due to
      increased wages and increased headcount from 14 employees in 2006 to 24 in
      2007
      as the research and development teams expanded with the acquisition of 4
      additional drugs in 2006.





Other
      allocable operating expenses increased by approximately $0.9 million for the
      nine months ended September 30, 2007 compared to the nine months ended September
      30, 2006. This is mainly due to increased travel expenses, rent insurance and
      depreciation.





*Interest
      income (expense), net.* For
      the
      nine months ended September 30, 2007, net interest income was $1.0 million
      as
      compared to net interest income of $0.9 million for the nine months ended
      September 30, 2006. The increase of $0.1 million is due to mainly to higher
      yields on our cash and investments as we moved our money from low yield
      securities to higher yield securities after our financing in May 2006.





*Other
      income (expense), net.* For
      the
      nine months ended September 30, 2007, net other expense was $0.5 million as
      compared to net other expense of approximately $0.1 for the nine months ended
      September 30, 2006. The increase of approximately $0.4 million resulted
      primarily from a write-down on available-for-sale securities for an
      other-than-temporary loss.





**Liquidity
      and Capital Resources**





We
      have
      financed our operations since inception primarily through equity financing.
      As
      of September 30, 2007, we had aggregate cash and cash equivalents and
      available-for-sale securities of $18.8 million. We also entered into a loan
      facility agreement with Deerfield Mangement, which has committed $30 million
      to
      fund the development of our product candidates and other general corporate
      activities. 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 September 30, 2007, 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 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.




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          24
          -




***Financings.*** In
      July
      2007, we entered into a sublicense agreement with Par Pharmaceuticals, upon
      the
      execution of which, we received aggregate consideration of $5.0 million in
      exchange for 2,500,000 shares of our common stock and the rights to our product
      candidate Zensana.





On
      October 31, 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 may be drawn down by us in as many as four
      installments every six months commencing October 30, 2007. 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.





***Current
      and Future Capital Requirements.*** Our
      plan
      of operation for the remainder of the year ending December 31, 2007 is to
      continue implementing our business strategy, including the continued development
      of our product candidates that are currently in clinical and preclinical phases.
      We also intend to possibly expand our drug candidate portfolio by acquiring
      additional drug technologies for development. We expect our principal
      expenditures during the next 12 months to include:





·
            operating
                expenses, including on-going research and development and general
                and
                administrative expenses; and





·
            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, over the next 12 months we expect to
      spend approximately between $16.0 million and $20 million on clinical
      development (including milestone payments of $2.5 million that we expect to
      be
      triggered under the license agreements relating to our product candidates,
      all
      of which can be satisfied through the issuance of new shares of our common
      stock
      at our discretion), $4.0 million on general corporate and administrative
      expenses, including $0.6 million on facilities and rent.





We
      believe that our cash, cash equivalents and available-for-sale securities,
      which
      totaled $18.8 million as of September 30, 2007, as well as the funds committed
      by Deerfield as part of the debt agreement will be sufficient to meet our
      anticipated operating needs into the second half of 2009 based upon our current
      and desired pace of clinical development. 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;





·
            costs
                of acquiring new drug candidates;





·
            payments
                required under our current and any future license agreements and
                collaborations;




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          25
          -




·
            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.





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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, our
      assumptions relating 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.*** ** Since
      acquiring the exclusive world-wide rights to develop and commercialize Marqibo
      in May 2006, we have incurred $3.5 million in project costs related to our
      development of Marqibo through September 30, 2007, of which $2.2 million and
      $1.3 million was incurred in 2007 and 2006, respectively. In 2007, we have
      initiated a Phase 2, registration-enabling, open-label trial in relapsed adult
      ALL and plan to initiate 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 also anticipate conducting a Phase
      3 supportive trial in front-line ALL potentially commencing in the first 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 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 FDA approval of
      Marqibo, if ever.





***Alocrest.*** ** Since
      acquiring the exclusive world-wide rights to develop and commercialize Alocrest
      in May 2006, we have incurred $2.5 million in project costs related to our
      development of Alocrest through September 30, 2007, of which $1.7 million and
      $0.8 million was incurred in 2007 and 2006, respectively. We initiated a Phase
      1
      clinical trial in August 2006. This Phase 1 trial is designed to assess safety,
      tolerability and preliminary efficacy in patients with advanced solid tumors.
      The trial is currently in its sixth dosing cohort and we expect to complete
      this
      Phase 1 trial in 2007. We estimate that we will need to expend at least an
      aggregate of approximately $47 million, in order for us to obtain FDA approval
      for Alocrest, if ever, which amount includes milestone payments that would
      be
      owed to our licensor upon FDA approval.  We expect that it will take
      approximately five to six years until we will have completed development and
      obtained FDA approval of Alocrest, if ever.





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          26
          -




***Brakiva.*** Since
      acquiring the exclusive world-wide rights to develop and commercialize Brakiva
      in May 2006, we have incurred $1.8 million in project costs related to our
      development of this drug through September 30, 2007, of which $0.8 million
      and
      $1.0 million was incurred in 2007 and 2006, respectively. We have submitted
      an
      IND to the FDA which has been activated. We expect to initiate a Phase 1
      clinical trial in 2007 or in early 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.





***Talvesta*** **.** Through
      September 30, 2007, we have incurred $4.5 million of costs related to our
      development of Talvesta, of which $0.5 million and $4.0 million was incurred
      in
      2007 and 2006, respectively. As we have chosen to stop further clinical
      development of this drug, we do not expect to incur additional material costs
      related to Talvesta in the future.





***Menadione.*** ** We
      licensed our rights to menadione from the Albert Einstein College of Medicine
      in
      October 2006 and have incurred approximately $2.1 million in project costs
      related to our development of this drug through September 30, 2007, of which
      $1.8 million and $0.3 million was incurred in 2007 and 2006, respectively.
      We
      have finalized the formulation of Menadione and completed essential IND
      activation enabling studies. We expect to submit an IND to the FDA by the end
      of
      2007. As this drug is early in its clinical development, both the registrational
      strategy and total expenditures to obtain FDA approval are still being
      evaluated.





***Zensana
      (ondansetron HCl) Oral Spray.*** On
      July 31, 2007, we entered into a definitive agreement providing for the
      sublicense of all our rights to develop and commercialize Zensana to Par
      Pharmaceutical, Inc. Accordingly, we do not expect to incur additional costs
      relating to the development of Zensana. See “ - Off- Balance Sheet Arrangements
      - License Agreements - Zensana. ”





**Off-Balance
      Sheet Arrangements**





We
      do not
      have any “off-balance sheet agreements,” as that term is defined by SEC
      regulation. We do, however, have various commitments under certain agreements,
      as follows:





***License
      Agreements.***





In
      the
      event we achieve certain milestones in connection with the development of our
      product candidates, we will be obligated to make milestone payments to our
      licensors in accordance with the terms of our license agreements, as discussed
      below. The development of pharmaceutical product candidates is subject to
      numerous risks and uncertainties, including, without limitation, the following:
      (1) risk of delays in or discontinuation of development from lack of financing,
      (2) our inability to obtain necessary regulatory approvals to market the
      products, (3) unforeseen safety issues relating to the products, (4) our ability
      to enroll a sufficient number of patients in our clinical trials, and (5)
      dependence on third party collaborators to conduct research and development
      of
      the products. Additionally, on a historical basis, only approximately 11 percent
      of all product candidates that enter human clinical trials are eventually
      approved for sale. Accordingly, we cannot state that it is reasonably likely
      that we will be obligated to make any milestone payments under our license
      agreements. Summarized below are our future commitments under our license
      agreements, as well as the amounts we have paid to date under such agreements.





***Talvesta
      License*** *.* Our
      rights to Talvesta are governed by the terms of a December 2002 license
      agreement with Dana-Farber Cancer Institute and Ash Stevens, Inc. The agreement
      provides us with an exclusive worldwide royalty bearing license, including
      the
      right to grant sublicenses, to the intellectual property rights and know-how
      relating to Talvesta and all of its uses. Upon execution of the license
      agreement, we paid a $100,000 license fee and reimbursed our licensors for
      approximately $11,000 of patent-related expenses. The license agreement also
      requires us to make future payments totaling up to $6 million upon the
      achievement of certain milestones, including a $5 million payment upon approval
      by the FDA of a New Drug Application for Talvesta. To date, we have made two
      of
      these milestone payments totaling $200,000 following commencement of the Phase
      1
      clinical trial and upon reaching 50% enrollment of a Phase 1 clinical trial.
      Additionally, we are obligated to pay royalties in the amount of 3.5 percent
      of
“net sales” (as defined in the license agreement) of Talvesta. We are also
      required to pay to the licensors 20 percent of fees or non-royalty consideration
      (e.g., milestone payments, license fees) received by us in connection with
      any
      sublicense of Talvesta granted prior to the start of a Phase 2 trial, and 15
      percent of such fees after initiation of a Phase 2 clinical trial.




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          27
          -




***Zensana
      License.*** Our
      rights to Zensana are subject to the terms of an October 2004 license agreement
      with NovaDel Pharma, Inc. The license agreement grants us a royalty-bearing,
      exclusive right and license to develop and commercialize Zensana within the
      United States and Canada. The technology licensed to us under the license
      agreement currently covers one United States issued patent, which expires in
      March 2022. In consideration for the license, we issued 73,121 shares of our
      common stock to NovaDel and have agreed to make double-digit royalty payments
      to
      NovaDel based on a percentage of “net sales” (as defined in the agreement). In
      addition, we purchased from NovaDel 400,000 shares of its common stock at a
      price of $2.50 per share for an aggregate payment of $1 million.





On
      July
      31, 2007, we entered into a sublicense agreement with Par Pharmaceutical,
      Inc. and NovaDel , pursuant to which we granted to Par and its affiliates,
      and NovaDel consented to such grant, a royalty-bearing exclusive right and
      license to develop and commercialize Zensana within the United States and
      Canada. We previously had acquired such exclusive, sublicensable rights from
      NovaDel and commenced development of ZensanaTM, a pharmaceutical product that
      contains ondansetron, pursuant to a License Agreement with NovaDel dated October
      24, 2004, as amended. As agreed by us and NovaDel, Par assumed primary
      responsibility for the development, regulatory approval by the FDA, and sales
      and marketing of Zensana.





In
      consideration for the license grant to Par, and upon execution of the Sublicense
      Agreement, Par purchased 2,500,000 newly-issued shares of our common stock
      at a
      price per share of $2.00 per share for aggregate consideration of $5,000,000.





As
      additional consideration for the sublicense, following regulatory approval
      of
      Zensana, the Sublicense Agreement, Par is required to pay us an additional
      one-time payment of $6,000,000, of which $5,000,000 is payable by us to NovaDel
      under the License Agreement. In addition, the Sublicense Agreement provides
      for
      an additional aggregate of $44,000,000 in commercialization milestone payments
      based upon actual net sales of Zensana in the United States and Canada, which
      amounts are not subject to any corresponding obligations to NovaDel. We
      will also be entitled to royalty payments based on net sales of Zensana by
      Par
      or any of its affiliates in such territory, however, the amount of such royalty
      payments is generally equal to the same amount of royalties that we will owe
      NovaDel under the License Agreement, except to the extent that aggregate net
      sales of Zensana exceed a specified amount in the first 5 years following FDA
      approval of an NDA, in which case the royalty rate payable to us increases
      beyond its royalty obligation to NovaDel.





In
      order
      to give effect to and accommodate the terms of the Sublicense Agreement, on
      July
      31, 2007, we also entered into an Amended and Restated License Agreement with
      NovaDel. The primary modifications to the Amended and Restated License
      Agreement are as follows:





·
            we
                relinquished our right under the original License Agreement to reduced
                royalty rates to NovaDel until such time as we have recovered one-half
                of
                our costs and expenses incurred in developing Zensana from sales
                of
                Zensana or payments or other fees from a sublicensee;





·
            NovaDel
                surrendered for cancellation all 73,121 shares of our common stock
                that it
                acquired upon the execution of the original License Agreement;





·
            We
                will have the right, but not the obligation, to exploit the licensed
                product in Canada;





·
            We
                or our sublicensee must consummate the first commercial sale of the
                licensed product within 9 months of regulatory approval by the FDA
                of such
                product; and





·
            If
                the Sublicense Agreement is terminated, we may elect to undertake
                further
                development of Zensana.





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          28
          -




***Inex
      License Agreement.*** **** In
      May
      2006, we entered into a series of related agreements with Inex Pharmaceuticals
      Corporation. Pursuant to a license agreement with Inex, we received an
      exclusive, worldwide license to patents, technology and other intellectual
      property relating to our Marqibo, Alocrest and Brakiva product candidates.
      Under
      the license agreement, we also received an exclusive, worldwide sublicense
      to
      other patents and intellectual property relating to these product candidates
      held by the M.D. Anderson Cancer Center. In addition, we entered into a
      sublicense agreement with Inex and the University of British Columbia, or UBC,
      which licenses to Inex other patents and intellectual property relating to
      the
      technology used in Marqibo, sphingosome encapsulated vinorelbine and Brakiva.
      Further, Inex assigned to us its rights under a license agreement with Elan
      Pharmaceuticals, Inc., from which Inex had licensed additional patents and
      intellectual property relating to the three sphingosomal product candidates.





In
      consideration for the rights and assets acquired from Inex, we paid to Inex
      aggregate consideration of $11.8 million, which payment consisted of $1.5
      million in cash and 1,118,568 shares of our common stock. We also agreed to
      pay
      to Inex royalties on sales of the licensed products, as well as upon the
      achievement of specified development and regulatory milestones and up to a
      maximum aggregate amount of $30.5 million for all product candidates. The
      milestones and other payments may include annual license maintenance fees and
      milestones. To date, we have made one milestone payment of $1.0 million to
      Inex
      upon initiation of a Phase 1 clinical trial in Alocrest.





***Menadione
      License Agreement.*** In
      October 2006, we entered into a license agreement with the Albert Einstein
      College of Medicine of Yeshiva University, a division of Yeshiva University,
      or
      the College. Pursuant to the Agreement, we acquired an exclusive, worldwide,
      royalty-bearing license to certain patent applications, and other intellectual
      property relating to topical menadione. In consideration for the license, we
      agreed to issue the College $150,000 of our common stock, valued at
      $7.36 per share (representing the closing sale price on October 11, 2006).
      We
      also agreed to make an additional cash payment within 30 days of signing the
      agreement, and pay annual maintenance fees. Further, we agreed to make
      milestone payments in the aggregate amount of $2,750,000 upon the achievement
      of
      various clinical and regulatory milestones, as described in the agreement.
      We
      may also make annual maintenance fees as part of the agreement. We also agreed
      to make royalty payments to the College on net sales of any products covered
      by
      a claim in any licensed patent. We may also grant sublicenses to the licensed
      patents and the proceeds resulting from such sublicenses will be shared with
      the
      College.





**Lease
      Agreements** .
      We
      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 has relocated its executive offices. The total cash payments due for
      the
      duration of the sublease equaled approximately $1.0 million on September 30,
      2007.





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





Our
      exposure to market risk is confined to our cash, cash equivalents, auction
      rate securities and our investment in NovaDel Pharma, Inc. We have
      attempted to minimize risk by investing in high-quality financial instruments,
      primarily money market funds with no security having an effective duration
      longer than 90 days. We are subject to risk due to general market conditions,
      which may adversely impact the carrying value of our auction rate securities
      and
      our investment in NovaDel. If the market interest rate decreases by 100 basis
      points or 1%, the fair value of our cash and cash equivalents portfolio would
      have minimal to no impact on the carrying value of our portfolio. We did not
      hold any derivative instruments as of September 30, 2007, and we have never
      held
      such instruments in the past.





**Item
      4. Controls and Procedures**





We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our Securities Exchange Act of 1934
      reports is recorded, processed, summarized and reported within the time periods
      specified in the Securities and Exchange Commission’s rules and forms, and
      that such information is accumulated and communicated to our management,
      including our chief executive officer and chief financial officer, as
      appropriate, to allow timely decisions regarding required disclosure. In
      designing and evaluating the disclosure controls and procedures, management
      recognized that any controls and procedures, no matter how well designed and
      operated, can provide only reasonable and not absolute assurance of achieving
      the desired control objectives. In reaching a reasonable level of assurance,
      management necessarily was required to apply its judgment in evaluating the
      cost-benefit relationship of possible controls and procedures. In addition,
      the
      design of any system of controls also is based in part upon certain assumptions
      about the likelihood of future events, and there can be no assurance that any
      design will succeed in achieving its stated goals under all potential future
      conditions; over time, a control may become inadequate because of changes in
      conditions, or the degree of compliance with policies or procedures may
      deteriorate. Because of the inherent limitations in a cost-effective control
      system, misstatements due to error or fraud may occur and not be detected.




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          29
          -




Based
      on
      their evaluation as of September 30, 2007, our Chief Executive Officer and
      Chief
      Financial Officer, with the participation of management, have concluded that
      our
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      of the Securities Exchange Act of 1934) are effective to ensure that the
      information required to be disclosed by us in the reports that we file or submit
      under the Securities and Exchange Act of 1934 is recorded, processed, summarized
      and reported within the time periods specified in Securities and Exchange
      Commission rules and forms.





During
      the quarter ended September 30, 2007, 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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          30
          -





**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 II of our Quarterly Report on Form 10-Q for the quarter ended June
      30, 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**





None





**Item
      5. Other Information**





None





**Item
      6. Exhibits**





**Exhibit
                No.**
            
            **Description**10.1
            
            Product
                Development and Commercialization Sublicense Agreement dated July
                31, 2007
                Among
                Hana Biosciences, Inc., Par Pharmaceuticals, Inc., and NovaDel Pharma,
                Inc.**10.2
            
            Amended
                and Restated License Agreement dated July 31, 2007 between Hana Biosciences,
                Inc. and NovaDel Pharma, 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).





**
            Certain
                portions of this exhibit have been omitted pursuant to a request
                for
                confidential treatment. The entire exhibit has been separately filed
                with
                the Commission.





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          31
          -





**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:
                November 8, 2007
            By:
            /s/ Steven
                R. Deitcher, MDSteven
                R. DeitcherPresident
                and Chief Executive Officer





Dated:
                November 8, 2007
            By:
            /s/ John
                P. IparraguirreJohn
                P. Iparraguirre
              Vice
                President, Chief Financial Officer




-
          32
          -





**Index
      to Exhibits Filed with this Report**





**Exhibit
                No.**
            
            **Description**10.1
            
            Product
                Development and Commercialization Sublicense Agreement dated July
                31, 2007
                Among
                Hana Biosciences, Inc., Par Pharmaceuticals, Inc., and NovaDel Pharma,
                Inc.**10.2
            
            Amended
                and Restated License Agreement dated July 31, 2007 between Hana Biosciences,
                Inc. and NovaDel Pharma, 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).





**
            Certain
                portions of this exhibit have been omitted pursuant to a request
                for
                confidential treatment. The entire exhibit has been separately filed
                with
                the Commission.




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          33
          -