**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        DC 20549**
 
 **FORM
        10-QSB**
  x QUARTERLY
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
 
 For
        the
        quarter ended September 30, 2005
 
 OR
 
 o TRANSITION
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
 
 
 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.)
 
  400
        Oyster Point Blvd., Suite 215, South San Francisco, CA 94080
 (Address
        of principal executive offices)
  (650)
        588-6404
 (Issuer's
        telephone number)
  Check
        whether the issuer: (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 shell company (as defined by Rule
        12b-2 of the Exchange Act). Yes o No x
 
 As
        of
        November 7, 2005 there were 22,168,366 shares of the issuer's common stock,
        $.001 par value, outstanding.
 
 Traditional
        Small Business Disclosure Format (check one): Yes o No x
 
 
  
  
 **INDEX**
 
 Page**PART
                  I**
              **FINANCIAL
                  INFORMATION**Item
                  1.
              Unaudited
                  Condensed Consolidated Balance Sheets
              3Unaudited
                  Condensed Consolidated Statements of Operations
              4Unaudited
                  Condensed Consolidated Statement of Stockholders' Equity
              5Unaudited
                  Condensed Consolidated Statements of Cash Flows
              6Notes
                  to Unaudited Condensed Consolidated Financial Statements
              7Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              11Item
                  3.
              Controls
                  and Procedures
              18**PART
                  II**
              **OTHER
                  INFORMATION**Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              18Item
                  6.
              Exhibits
              19Signatures
              20Exhibit
                  Index
              21
 
 
 
 **Forward-Looking
        Statements**
  This
        Quarterly Report contains forward-looking statements within the meaning of
        the
        Private Securities Litigation Reform Act of 1995. These forward-looking
        statements are based on the current beliefs of our management as well as
        assumptions made by and information currently available to management, including
        statements related to the markets for our products, general trends in our
        operations or financial results, plans, expectations, estimates and beliefs.
        When used in this report, the words “may,”  “could,”  “should,” 
“anticipate,”  “believe,”  “estimate,”  “expect,” 
“intend,”  “plan,”  “predict” and similar expressions and their
        variants, as they relate to us or our management, may identify forward-looking
        statements. These statements reflect our judgment as of the date of this
        prospectus with respect to future events, the outcome of which are subject
        to
        risks, which may have a significant impact on our business, operating results
        or
        financial condition. Drug discovery and development involve a high degree
        of
        risk and you are cautioned that these forward-looking statements are inherently
        uncertain. Factors that might cause such a material difference include, among
        others, uncertainties related to the ability to attract and retain partners
        for
        our technologies, the identification of lead compounds, the successful
        preclinical development thereof, the completion of clinical trials, the FDA
        review process and other governmental regulation, our pharmaceutical
        collaborator's ability to successfully develop and commercialize drug
        candidates, competition from other pharmaceutical companies, product pricing
        and
        third party reimbursement, and other factors. Additional
        risks are described in the our Annual Report on Form 10-KSB for the year
        ended
        December 31, 2004. Should
        one or more of these risks or uncertainties materialize, or should underlying
        assumptions prove incorrect, actual results or outcomes may vary materially
        from
        those described herein.
 
 
 2
  **PART
        I - FINANCIAL INFORMATION**
 **Item
        1. Unaudited Condensed Financial Statements**
 
 **HANA
        BIOSCIENCES, INC.**
  **(A
        DEVELOPMENT STAGE COMPANY)**
  **CONDENSED
        BALANCE SHEETS**
 **(Unaudited)**
 **September
                  30,**
              
              **December
                  31,****2005**
              
              **2004****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              5,823,372
              
              $
              6,584,361Grant
                  receivable
              
              
              95,800
              
              
              --Prepaid
                  expenses
              
              
              92,007
              
              
              26,885Total
                  current assets
              
              
              6,011,179
              
              
              6,611,246Property
                  and equipment, net
              
              
              93,661
              
              
              109,604Investments
                  in restricted equity securities, at cost
              
              
              636,000
              
              
              636,000Other
                  assets
              
              
              20,453
              
              
              20,303Total
                  assets
              
              $
              6,761,293
              
              $
              7,377,153**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable
              
              $
              357,634
              
              $
              649,644Accrued
                  expenses
              
              
              476,589
              
              
              515,215Total
                  liabilities
              
              
              834,223
              
              
              1,164,859Commitments
                  and contingenciesStockholders'
                  equity:Preferred
                  stock; $0.001 par value:10,000,000
                  shares authorized, 0 and 2,395,210 shares issued and outstanding
                  at
                  September 30, 2005 and December 31, 2004, respectively (liquidation
                  preference $8,000,000)
              
              
              --
              
              
              2,395Common
                  stock; $0.001 par value:100,000,000
                  shares authorized, 18,433,650 and 10,792,702 shares issued and
                  outstanding
                  at September 30, 2005 and December 31, 2004,
                  respectively
              
              
              18,434
              
              
              10,793Additional
                  paid-in capital
              
              
              19,997,663
              
              
              13,975,514Common
                  stock to be issued - 52,500 and 55,500 shares at September 30,
                  2005 and
                  December 31, 2004, respectively
              
              
              148,838
              
              
              249,750Deficit
                  accumulated during the development stage
              
              
              (14,237,865
              )
              
              (8,026,158
              )Total
                  stockholders' equity
              
              
              5,927,070
              
              
              6,212,294Total
                  liabilities and stockholders' equity
              
              $
              6,761,293
              
              $
              7,377,153
 
  See
        accompanying notes to unaudited condensed financial statements.
   3
  **HANA
        BIOSCIENCES, INC.**
  **(A
        DEVELOPMENT STAGE COMPANY)**
  **CONDENSED
        STATEMENTS OF OPERATIONS**
 **(Unaudited)**
 
 **Three
                    Months Ended**
                  **September
                    30,**
                
                **Nine
                    Months Ended**
                  **September
                    30,**
                
                **Cumulative**
                  **Period
                    from**
                  **December
                    6, 2002 (date of inception) to**
                  **September
                    30,****2005**
                
                **2004**
                
                **2005**
                
                **2004**
                
                **2005**Operating
                    expenses:General
                    and administrative
                
                $
                959,199
                
                $
                678,870
                
                $
                2,629,682
                
                $
                1,632,011
                
                $
                5,670,054Research
                    and development
                
                
                776,350
                
                
                1,011,245
                
                
                3,648,522
                
                
                2,057,386
                
                
                8,646,822Total
                    operating expenses
                
                
                1,735,549
                
                
                1,690,115
                
                
                6,278,204
                
                
                3,689,387
                
                
                14,316,876Loss
                    from operations
                
                
                (1,735,549
                )
                
                (1,690,115
                )
                
                (6,278,204
                )
                
                (3,689,387
                )
                
                (14,316,876
                )Other
                    income (expense):Interest
                    income, net
                
                
                36,012
                
                
                15,745
                
                
                86,074
                
                
                3,039
                
                
                99,235Other
                    expense, net
                
                
                (9,440
                )
                
                (1,270
                )
                
                (19,577
                )
                
                (647
                )
                
                (20,224
                )Total
                    other income
                
                
                26,572
                
                
                14,475
                
                
                66,497
                
                
                2,392
                
                
                79,011Net
                    loss
                
                $
                (1,708,977
                )
                $
                (1,675,640
                )
                $
                (6,211,707
                )
                $
                (3,686,995
                )
                $
                (14,237,865
                )Net
                    loss per share, basic and diluted
                
                $
                (0.09
                )
                $
                (0.16
                )
                $
                (0.38
                )
                $
                (0.43
                )Shares
                    used in computing net loss per share, basic and diluted
                
                
                18,296,200
                
                
                10,370,011
                
                
                16,380,517
                
                
                8,627,308
 
  See
        accompanying notes to unaudited condensed financial statements.
 
  4
  **HANA
        BIOSCIENCES, INC.**
  **(A
        DEVELOPMENT STAGE COMPANY)**
  **CONDENSED
        STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)**
 **(Unaudited)**
  Period
        from December 6, 2002 (date of inception) to September 30, 2005
  
 **Preferred stock**
              
              
              **Common stock****Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              
              **Amount**
              
              
              **Additional**
                **paid-in**
                **capital**
              
              
              **Common
                  Stock to be Issued**
              
              
              **Subscription
                  receivable**
              
              
              **Unearned
                  consulting**
                **Fee**
              
              
              **Deficit
                  accumulated during development**
                **stage**
              
              
              **Total**
                **stockholders'
                  equity**
                **(deficiency)**Issuance
                  of common stock at $0.001 per share for subscription
                  receivable
              
              
              
              
              $
              --
              
              
              5,640,266
              
              
              $
              5,640
              
              $
              34,360
              
              $
              --
              
              $
              (40,000
              )
              $
              --
              
              $
              --
              
              $
              --Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (144,470
              )
              
              (144,470
              )Balance
                  at December 31, 2002
              
              
              
              
              
              
              
              
              5,640,266
              
              
              
              5,640
              
              
              34,360
              
              
              --
              
              
              (40,000
              )
              
              --
              
              
              (144,470
              )
              
              (144,470
              )Payment
                  for subscription receivable
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              --
              
              
              --
              
              
              4,000
              
              
              --
              
              
              --
              
              
              4,000Satisfaction
                  of subscription receivable through rendering of services
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              --
              
              
              --
              
              
              36,000
              
              
              --
              
              
              --
              
              
              36,000Stock
                  options issued to nonemployees for services
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              14,750
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              14,750Common
                  stock to be issued for services rendered
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              5,953
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              5,953Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              
              
              
              --
              
              
              --
              
              
              --
              
              
              (551,856
              )
              
              (551,856
              )Balance
                  at December 31, 2003
              
              
              --
              
              
              --
              
              
              5,640,266
              
              
              
              5,640
              
              
              55,063
              
              
              --
              
              
              --
              
              
              --
              
              
              (696,326
              )
              
              (635,623
              )Common
                  stock issued for services to be rendered
              
              
              
              
              
              
              
              
              126,131
              
              
              
              126
              
              
              212,319
              
              
              --
              
              
              --
              
              
              (212,445
              )
              
              --
              
              
              --Common
                  stock issued for services rendered in 2003
              
              
              --
              
              
              --
              
              
              3,887
              
              
              
              4
              
              
              591
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              595Proceeds
                  from private placement, net of $341,979 in fees
              
              
              --
              
              
              --
              
              
              2,802,989
              
              
              
              2,803
              
              
              4,376,352
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              4,379,155Stock
                  options issued to nonemployees for services
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              310,252
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              310,252Compensation
                  expense recorded upon issuance of stock options to
                  employees
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              375,552
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              375,552Proceeds
                  from private placement
              
              
              2,395,210
              
              
              2,395
              
              
              --
              
              
              
              --
              
              
              7,997,605
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              8,000,000Issuance
                  of shares for debt repayment
              
              
              --
              
              
              --
              
              
              63,326
              
              
              
              64
              
              
              149,936
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              150,000Issuance
                  of shares for license agreement
              
              
              --
              
              
              --
              
              
              73,121
              
              
              
              73
              
              
              499,927
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              500,00055,500
                  shares to be issued for services rendered
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              --
              
              
              249,750
              
              
              --
              
              
              --
              
              
              --
              
              
              249,750Shares
                  issued by accounting acquirer in reverse acquisition
              
              
              --
              
              
              --
              
              
              2,082,982
              
              
              
              2,083
              
              
              (2,083
              )
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --Satisfaction
                  of unearned consulting fees through rendering of services
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              212,445
              
              
              --
              
              
              212,445Net
                  loss
              
              
              
              
              
              
              
              
              --
              
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (7,329,832
              )
              
              (7,329,832
              )Balance
                  at December 31, 2004
              
              
              2,395,210
              
              $
              2,395
              
              
              10,792,702
              
              
              $
              10,793
              
              $
              13,975,514
              
              $
              249,750
              
              $
              --
              
              $
              --
              
              $
              (8,026,158
              )
              $
              6,212,294Automatic
                  conversion of Series A Preferred Stock
              
              
              (2,395,210
              )
              
              (2,395
              )
              
              3,377,409
              
              
              
              3,377
              
              
              (982
              )
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --Issuance
                  of 55,500 shares for services rendered in 2004
              
              
              --
              
              
              --
              
              
              55,500
              
              
              
              56
              
              
              249,694
              
              
              (249,750
              )
              
              --
              
              
              --
              
              
              --
              
              
              --Stock
                  options issued to nonemployees for services
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              44,777
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              44,777Compensation
                  expense recorded upon issuance of stock options to
                  employees
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              621,173
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              621,173Proceeds
                  from private placement, net of $334,519 in fees
              
              
              --
              
              
              --
              
              
              3,916,082
              
              
              
              3,916
              
              
              4,674,150
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              4,678,06652,500
                  shares to be issued for services rendered
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              --
              
              
              148,838
              
              
              --
              
              
              --
              
              
              --
              
              
              148,838Issuance
                  of stock upon exercise of warrants and options
              
              
              --
              
              
              --
              
              
              291,957
              
              
              
              292
              
              
              433,337
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              433,629Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (6,211,707
              )
              
              (6,211,707
              )Balance
                  at September 30, 2005
              
              
              --
              
              $
              --
              
              
              18,433,650
              
              
              $
              18,434
              
              $
              19,997,663
              
              $
              148,838
              
              $
              --
              
              $
              --
              
              $
              (14,237,865
              )
              $
              5,927,070
 
 5
 **HANA
        BIOSCIENCES, INC.**
  **(A
        DEVELOPMENT STAGE COMPANY)**
  **CONDENSED
        STATEMENTS OF CASH FLOWS**
 **(Unaudited)**
 
 **Nine
                  Months Ended**
                **September
                  30,**
              
              **Cumulative**
                **Period
                  from**
                **December
                  6, 2002**
                **(date
                  of inception)**
                **to
                  September 30,****2005**
              
              **2004**
              
              **2005****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (6,211,707
              )
              $
              (3,686,995
              )
              $
              (14,237,865
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              22,799
              
              
              14,121
              
              
              48,825Issuance
                  of options to employees
              
              
              621,173
              
              
              190,718
              
              
              996,725Issuance
                  of stock and options to nonemployees for services
              
              
              44,777
              
              
              281,433
              
              
              376,327Services
                  rendered for satisfaction of unearned consulting fee
              
              
              --
              
              
              195,743
              
              
              212,445Services
                  rendered in lieu of payment of subscription receivable
              
              
              --
              
              
              --
              
              
              36,000Shares
                  to be issued to nonemployees for services rendered
              
              
              148,838
              
              
              --
              
              
              148,838Shares
                  to be issued to employees for services rendered
              
              
              --
              
              
              --
              
              
              249,750Issuance
                  of shares in partial consideration for license agreement
              
              
              --
              
              
              --
              
              
              500,000Changes
                  in operating assets and liabilities:(Increase)
                  in prepaid expenses and other current assets
              
              
              (161,072
              )
              
              (18,648
              )
              
              (208,260
              )Increase
                  (decrease) in accounts payable
              
              
              (292,010
              )
              
              156,612
              
              
              357,634Increase
                  (decrease) in accrued and other current liabilities
              
              
              (38,626
              )
              
              41,352
              
              
              476,589Net
                  cash used in operating activities
              
              
              (5,865,828
              )
              
              (2,825,664
              )
              
              (11,042,992
              )**Cash
                  flows from investing activities:**Purchase
                  of property and equipment
              
              
              (6,856
              )
              
              (76,102
              )
              
              (142,486
              )Purchase
                  of equity securities
              
              
              --
              
              
              --
              
              
              (636,000
              )Net
                  cash used in investing activities
              
              
              (6,856
              )
              
              (76,102
              )
              
              (778,486
              )**Cash
                  flows from financing activities:**Proceeds
                  from issuances of notes payable to stockholders
              
              
              --
              
              
              125,000
              
              
              801,619Collection
                  of subscription receivable
              
              
              --
              
              
              --
              
              
              4,000Repayment
                  of notes payable to stockholders
              
              
              --
              
              
              (651,619
              )
              
              (651,619
              )Proceeds
                  from private placements of preferred and common stock, net
              
              
              4,678,066
              
              
              12,379,155
              
              
              17,057,221Proceeds
                  from exercise of warrants and options
              
              
              433,629
              
              
              --
              
              
              433,629Net
                  cash provided by financing activities
              
              
              5,111,695
              
              
              11,852,536
              
              
              17,644,850Net
                  increase (decrease) in cash and cash equivalents
              
              
              (760,989
              )
              
              8,950,770
              
              
              5,823,372Cash
                  and cash equivalents, beginning of period
              
              
              6,584,361
              
              
              87,675
              
              
              --Cash
                  and cash equivalents, end of period
              
              $
              5,823,372
              
              $
              9,038,445
              
              $
              5,823,372Supplemental
                  disclosures of cash flow data:Cash
                  paid for interest
              
              $
              1,238
              
              $
              37,749
              
              $
              38,987Supplemental
                  disclosures of noncash financing activities:Common
                  stock issued for repayment of debt
              
              $
              --
              
              $
              --
              
              $
              150,000Common
                stock issued on conversion of Preferred stock
              
              $
              2,395
              
              $
              --
              
              $
              2,395Common
                  stock issued for services to be rendered
              
              $
              --
              
              $
              450,948
              
              $
              450,948Common
                  stock issued to employees for services rendered in 2004
              
              $
              249,750
              
              $
              --
              
              $
              249,750
 
  See
        accompanying notes to unaudited condensed financial
        statements.
  
  6
  **HANA
        BIOSCIENCES, INC.**
 **(A
        DEVELOPMENT STAGE COMPANY)**
   **NOTES
        TO UNAUDITED FINANCIAL STATEMENTS**
  **NOTE
        1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 *Basis
        of Presentation*
 
 The
        accompanying unaudited condensed financial statements have been prepared
        in
        accordance with United States generally accepted accounting principles "for
        interim financial information." and, accordingly, they do not include all
        required disclosures for complete annual Financial Statements. The
        financial statements include all adjustments (consisting only of normal
        recurring adjustments) that the management of Hana Biosciences, Inc. ("Hana",
        the "Company" “we”, “us” or “our”) 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.
 
 Preparing
        financial statements requires management to make estimates and assumptions
        that
        affect the reported amounts of assets, liabilities, revenues and expenses.
        On an
        on-going basis, management evaluates its estimates and actual results may
        differ
        from these estimates. The accompanying condensed financial information should
        be
        read in conjunction with the audited consolidated financial statements for
        the
        year ended December 31, 2004, included in the Company's Annual Report on
        Form
        10-KSB for the year ended December 31, 2004 (the “10-KSB”) filed with the
        Securities and Exchange Commission ("SEC") on March 30, 2005. The accompanying
        condensed balance sheet as of December 31, 2004 has been derived from the
        audited balance sheet as of that date included in the Form 10-KSB.
 
 *Loss
        Per Share*
 
 Net
        loss
        per share is computed using the weighted average number of shares of common
        stock outstanding and is presented for basic and diluted loss per share.
        Basic
        loss per share is computed by dividing net loss by the weighted average number
        of common shares outstanding for the period.
 
 The
        Company has excluded all outstanding stock options and warrants from the
        calculation of diluted loss per share because all such securities are considered
        anti-dilutive. Accordingly, diluted loss per share equals basic loss per
        share.
        The total number of potential common shares excluded from the calculation
        of
        diluted loss per share for the three and nine months ended September 30,
        2005
        and 2004 was 4,222,063 and 1,677,040, respectively.
 
 **NOTE
        2. LIQUIDITY AND CAPITAL RESOURCES**
 
 The
        Company reported a net loss of $6,211,707 for the nine months ended September
        30, 2005. The net loss from date of inception, December 6, 2002 to September
        30,
        2005, amounted to $14,237,865.
 
 We
        have
        financed our operations since inception primarily through equity and debt
        financing. During the nine months ended September 30, 2005, we had a net
        decrease in cash and cash equivalents of $760,989. This decrease primarily
        resulted from net cash used in operating activities of $5,865,828 and net
        cash
        used in investing activities of $6,856 offset by net cash provided by financing
        activities of $5,111,695 for the nine months ended September 30, 2005. Total
        cash resources as of September 30, 2005 were $5,823,372 compared to $6,584,361
        at December 31, 2004.
 
 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, 2005, a significant portion of our financing has
          been
          through private placements of common stock, preferred stock and debt financing.
          We will continue to fund operations from cash on hand and through the similar
          sources of capital previously described. 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 three product
          candidates, we estimate that we will have sufficient cash on hand to fund
          clinical development through 2006 (See Item 2 in the Other Information
          section
          of the 10-QSB). The Company, however, may choose to raise additional capital
          before year-end 2006 in order to fund our future development activities,
          likely
          by selling shares of our capital stock or other securities. If we are unable
          to
          raise additional capital, we will likely be forced to curtail our desired
          development activities, which will delay the development of our product
          candidates. There can be no assurance that such capital will be available
          to us
          on favorable terms or at all. We will need additional financing thereafter
          until
          we can achieve profitability, if ever.
 
 **NOTE
        3. ISSUANCE OF SECURITIES**
 
 On
        January 19, 2005 the Company issued 55,500 shares of common stock as
        satisfaction of a recorded liability of $249,750 to certain current and former
        employees and a director of the Company. This grant was approved on September
        23, 2004 by the Board of Directors, which authorized the issuance following
        the
        date the Company completed its reincorporation merger (See Note 2 in the
        10-KSB).
 
 7
 On
        April
        22, 2005, the Company completed a private placement where it sold 3,916,082
        shares of its common stock at a price of $1.28 per share resulting in gross
        proceeds of approximately $5.01 million. In connection with the private
        placement, the Company issued to the investors and placement agents five-year
        warrants to purchase an aggregate of 1,525,629 shares of common stock at
        an
        exercise price of $1.57 per share, of which there remain outstanding warrants
        to
        purchase an aggregate of 1,250,069 shares.  The terms of the warrants
        provide that the Company may, at its option, redeem the warrants after such
        time
        that the average closing price of the Company's common stock exceeded $3.14
        per
        share for a 30-day period, which condition was satisfied in August 2005. 
        Accordingly, the Company may redeem the warrants, at a redemption price of
        $.01 per warrant share, at any time upon 30 days' prior written notice
        to
        the warrant holders.  The warrants remain exercisable by the holders
        until
        the expiration of such 30-day notice period. In connection with the private
        placement, the Company paid an aggregate of approximately $321,000 in
        commissions to placement agents.  Included in the amounts paid to
        placement
        agents were $52,500 in commissions and 58,593 warrants to Paramount BioCapital,
        Inc., a related party. The Company also incurred approximately $14,000 of
        legal
        expenses for the private placement.
 
 During
        the third quarter ended September 30, 2005 the Company issued 291,957 shares
        of
        common stock upon the exercise of warrants and options. These exercises of
        securities netted the Company total proceeds of $433,629.
 
 The
        following table summarizes information about stock options outstanding at
        September 30, 2005, all of which are at fixed prices:
 
 NUMBER
                  OF SHARES
              
              WEIGHTED AVERAGE
                  EXERCISE PRICEOutstanding
                  January 1, 2005
              
              
              2,259,355
              
              
              
              
              $
              0.97Options
                  granted under option plans
              
              
              699,000
              
              
              
              
              
              1.60Options
                  cancelled
              
              
              (295,360
              )
              
              
              
              
              1.62Options
                  exercised
              
              
              (14,101
              )
              
              
              
              
              0.07Outstanding
                  September 30, 2005
              
              
              2,648,894
              
              
              
              
              
              1.07Exercisable
                  at September 30, 2005
              
              
              925,365
              
              
              
              
              
              0.81
 
 The
        following table summarizes information about stock options outstanding at
        September 30, 2005:
 
 Weighted
                  Average
                Number
                  of Options
              
              
              Remaining
                  Contractual Life of Options
              
              
              Number
                  of OptionsExercise
                  Price
              
              
              Outstanding
              
              
              Outstanding
              
              
              Exercisable$  
                  0.07
              
              
              98,707
              
              
              8.5
                  yrs.
              
              
              98,707$  
                  0.17
              
              
              678,079
              
              
              8.2
                  yrs.
              
              
              226,026$  
                  0.34
              
              
              443,434
              
              
              8.6
                  yrs.
              
              
              190,113$  
                  1.01
              
              
              141,007
              
              
              8.4
                  yrs.
              
              
              141,007$  
                  1.33
              
              
              368,000
              
              
              9.5
                  yrs.
              
              
              0$  
                  1.62
              
              
              60,000
              
              
              9.8
                  yrs.
              
              
              0$  
                  1.65
              
              
              80,000
              
              
              9.8
                  yrs.
              
              
              0$  
                  1.69
              
              
              317,264
              
              
              8.5
                  yrs.
              
              
              239,711$  
                  2.17
              
              
              1,000
              
              
              1.7
                  yrs.
              
              
              1,000$  
                  2.39
              
              
              310,000
              
              
              9.1
                  yrs.
              
              
              5,000$  
                  2.40
              
              
              80,000
              
              
              9.3
                  yrs.
              
              
              0$  
                  3.34
              
              
              71,403
              
              
              9.0
                  yrs.
              
              
              23,801$ 
                  0.07 - $   3.34
              
              
              2,648,894
              
              
              8.7
                  yrs.
              
              
              925,365
 
 
 In
        addition on September 30, 2005, the Company also had 1,523,169 warrants
        outstanding in connection with the Company's Private Placement's. The weighted
        average exercise price of these warrants is $1.62 per share.
 
 **NOTE
        4. STOCK-BASED COMPENSATION**
 
 A
        description of the Company's 2003 and 2004 Stock Option Plans and other
        information related to stock options are included in Note 4 in the
        10-KSB.
 
 The
        Company measures compensation cost related to stock options issued to employees
        using the intrinsic value method of accounting prescribed by Accounting
        Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to
        Employees”. The Company has adopted the disclosure-only provisions of Statement
        of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for
        Stock-Based Compensation” and Statement of Financial Accounting Standards No.
        148, "Accounting for Stock-Based Compensation-Transition and Disclosure".
        During
        the three months ended September 30, 2005 and 2004, the Company recorded
        earned
        compensation cost of $206,261 and $73,796, respectively. During the nine
        months
        ended September 30, 2005 and 2004, the Company recorded earned compensation
        cost
        of $621,173 and $190,719, respectively. This cost was recognized in the
        accompanying condensed financial statements for the intrinsic value of the
        stock
        options granted by the Company to its employees since all of those options
        have
        been granted at exercise prices that were less than the market value at the
        date
        of grant.
  8
 Had
        compensation costs for the three and nine months ended September 30, 2005
        and
        2004 been determined in accordance with the fair value method prescribed
        by SFAS
        123 for all options issued to employees and amortized over the vesting period,
        the Company's net loss applicable to common shares and net loss per common
        share
        (basic and diluted) would have been increased to the pro forma amounts indicated
        below.
  Three
                  Months Ended September 30, 2005
              
              Three
                  Months Ended September 30, 2004Net
                  loss, as reported
              
              $
              (1,708,977
              )
              $
              (1,675,640
              )Add:
                  Stock-based employee compensation expense for stock options included
                  in
                  reported net loss per share
              
              
              206,261
              
              
              73,796Deduct:
                  Total stock-based employee compensation expense determined under
                  the fair
                  value method
              
              
              (347,965
              )
              
              (88,179
              )Net
                  loss, pro forma
              
              $
              (1,850,681
              )
              $
              (1,690,023
              )Net
                  loss per common share - basic and dilutedAs
                  reported
              
              $
              (0.09
              )
              $
              (0.16
              )Pro
                  forma
              
              $
              (0.10
              )
              $
              (0.16
              )
 
 
 Nine
                  Months Ended September 30, 2005
              
              Nine
                  Months Ended September 30, 2004Net
                  loss, as reported
              
              $
              (6,211,707
              )
              $
              (3,686,995
              )Add:
                  Stock-based employee compensation expense for stock options included
                  in
                  reported net loss per share
              
              
              621,173
              
              
              190,719Deduct:
                  Total stock-based employee compensation expense determined under
                  the fair
                  value method
              
              
              (953,415
              )
              
              (218,050
              )Net
                  loss, pro forma
              
              $
              (6,543,949
              )
              $
              (3,714,326
              )Net
                  loss per common share - basic and dilutedAs
                  reported
              
              $
              (0.38
              )
              $
              (0.43
              )Pro
                  forma
              
              $
              (0.40
              )
              $
              (0.43
              )
 
 
 As
        a
        result of amendments to SFAS 123, the Company will be required to expense
        the
        fair value of employee stock options over the vesting period beginning with
        its
        fiscal quarter ending March 31, 2006.
  In
        accordance with the provisions of SFAS 123, all other issuances of common
        stock,
        stock options or other equity instruments to non-employees as the consideration
        for goods or services received by the Company are accounted for based on
        the
        fair value of the equity instruments issued (unless the fair value of the
        consideration received can be more reliably measured). During the three months
        ended September 30, 2005 and 2004, the Company recognized $24,190 and $87,391
        of
        expense relating to the granting of options to non-employees for services
        and
        such expense is included in the accompanying statements of operations, for
        such
        periods. During the nine months ended September 30, 2005 and 2004, the Company
        recognized $44,777 and $274,088 of expense relating to the granting of options
        to non-employees for services and such expense is included in the accompanying
        statements of operations, for such periods. The value of the options granted
        in
        2005 was determined using the Black-Scholes option pricing model with the
        following assumptions: dividend yield of 0%; expected volatility of 87% -
        106%,
        risk-free interest rate of 3.0%; and expected lives of two to eight years.
        The
        value of the options granted in 2004 was determined using the Black-Scholes
        option pricing model with the following assumptions: dividend yield of 0%;
        expected volatility of 0% - 94%, risk-free interest rate of 3.0%; and expected
        lives of ten years.
 
 **NOTE
        5. AUTOMATIC CONVERSION OF PREFERRED SHARES**
 
 On
        January 18, 2005 the Company's registration statement on Form SB-2 was declared
        effective by the Securities and Exchange Commission. The Company filed and
        requested effectiveness of the SB-2 resale registration statement to satisfy
        certain of its obligations in connection with its private placements in February
        and July 2004. The registration statement covers the resale of the common
        shares
        underlying the Company's Series A Convertible Preferred Stock issued in July
        2004, among others. As a result of the effectiveness of the registration
        statement, all of the Series A Convertible Preferred Stock automatically
        converted into an aggregate of 3,377,409 common shares on January 18,
        2005.
  9
 **NOTE
        6. INVESTMENT IN EQUITY SECURITIES**
 
 As
        explained in Note 6 in the 10-KSB during October 2004, the Company
        acquired
        400,000 shares of common stock from NovaDel Pharma Inc, for, effectively,
        $636,000. The Company is restricted from selling the shares until October
        2006.
        Accordingly, the Company is accounting for the shares using the cost method.
        If
        the shares owned by the Company had been unrestricted at September 30, 2005,
        they would have had a market value of $700,000.
 
 **NOTE
        7. SHARES TO BE ISSUED**
 
 On
        April
        8, 2005, the Company entered into an agreement with an investor relations
        firm,
        pursuant to which a portion of the monthly fee owed to such firm is payable
        in
        common stock of the Company. As of September 30, 2005, the total number
        of
        shares earned under the agreement was 52,500. These shares had a fair value
        of
        $148,838 and will be issued in the future.
 
 **NOTE
        8. GRANT RECEIVABLE**
 
 On
        August
        8, 2005 the Company was awarded a $159,000 Small Business Innovation Research (SBIR) grant entitled “Development
        of PT-523 for the treatment of lung cancer” by  the
        National Institutes of Health (NIH). The award enables the Company to be
        reimbursed for preclinical studies of Talotrexin (formerly PT-523) in
        combination with other therapeutic agents as a potential first-in-class
        therapeutic approach to treating various forms of cancer. At September 30,
        2005
        the Company had incurred $95,800 in reimbursable expenses, none of which
        had
        been reimbursed at such date, relating to these preclinical studies which
        have
        been recognized as a receivable on the Company’s Balance Sheet.
 
 **NOTE
        9. SUBSEQUENT EVENT**
 
 On
        October 24, 2005, the Company completed a private placement of 3,686,716
        shares
        of its common stock. Of the total number of shares sold, 3,556,000 shares
        were
        sold at a price of $4.00 per share and 130,716 shares were sold to executive
        officers and affiliates of a director of the Company at a price of $4.59
        per
        share, which resulted in total gross proceeds to the Company of approximately
        $14.8 million. In addition to the shares of common stock, the investors also
        received 5-year warrants to purchase an aggregate of 737,343 shares at an
        exercise price of $5.80 per share. In connection with the private placement,
        the
        Company paid an aggregate of approximately $1,000,000 in commissions to
        placement agents and issued 5-year warrants to purchase an aggregate of 253,306
        shares at an exercise price of $5.80 per share . 
        The Company also incurred approximately $77,500 of legal and other expenses
        paid
        to placement agents.
  10
  **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 accompanying
        those statements included elsewhere in this Quarterly Report. 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” following
        Item 1 of our Annual Report filed on form 10-KSB for the year ended December
        31,
        2004, our actual results may differ materially from those anticipated in
        these
        forward-looking statements.
 
 **Overview**
 
 Hana
        Biosciences is a South San Francisco, CA based development stage
        biopharmaceutical company focused on the acquisition, development and
        commercialization of innovative products to enhance cancer care. 
        We aim to
        acquire proprietary rights to these products, by license or otherwise, fund
        their research and development and bring the products to market. 
        We
        currently have three product candidates in early-stage development - Talotrexin
        (PT-523), for the treatment of a variety of solid tumor cancers and
        hematological malignancies; IPdR, being developed primarily for the treatment
        of
        brain cancers; and Zensana (Ondansetron oral spray), which is being developed
        to
        alleviate chemotherapy-induced nausea and vomiting.  To date, we have
        not
        received approval for the sale of any drug candidates in any market and,
        therefore, have not generated any revenues from our drug
        candidates.
 
 Our
        objective is to be a leading oncology company. Our business model focuses
        on
        leveraging our experienced biopharmaceutical management team to advance our
        unique product candidates through translational research for timely transfer
        from the lab to clinical trials. We believe risk is mitigated by targeting
        multiple technologies with well-validated mechanisms of action and strong
        intellectual property rights to set the platform for accelerated
        growth.
 
 Hana
        currently has three products in development:
 ·
              **Talotrexin**(PT-523),our lead product candidate, is an antifolate, cytotoxic
                  agent
                  (i.e., substance harmful to the structure and function of cells)
                  being
                  evaluated for the treatment of solid tumors and hematological
                  malignancies, including NSCLC (non-small cell lung cancer), ALL
                  (acute
                  lymphocytic leukemia), cervical, endometrial, and ovarian cancers.
                  Compared to currently available antifolates such as methotrexate
                  or
                  pemetrexed (Alimta®; Eli Lilly) in preclinical studies, Talotrexin enters
                  into cells up to 10-times more efficiently, overcomes resistance
                  by
                  remaining active in tumors by not requiring polyglutamation, and
                  binds
                  more tightly to its anti-tumor target DHFR, which we believe will
                  enhance
                  its efficacy. Talotrexin is currently being studied in a Phase
                  I trial in
                  solid tumors, a Phase I/II trial in non-small cell lung cancer,
                  and a
                  Phase I/II trial in ALL are ongoing. Hana intends to initiate Phase
                  II
                  trials in cervical, endometrial, ovarian cancers after a maximum
                  tolerable
                  dose is established in one of the aforementioned Phase I
                  trials.
 
 ·
              **IPdR**is
                  a radiation therapy sensitizer that is designed for the treatment
                  of
                  certain types of brain cancers. Radiation therapy deposits energy
                  that
                  injures or destroys cells in the treated area. Radiosensitizers,
                  when used
                  in combination with radiation therapy, potentially make the tumor
                  cells
                  more likely to be damaged by the radiation therapy. IPdR is an
                  orally
                  administered prodrug for 5-iodo-2'-deoxyuridine, or IUdR. Prodrugs
                  are
                  compounds that are converted within the body into active form that
                  has
                  medical effects. A prodrug can be useful when the active drug is
                  too toxic
                  to administer systemically. IUdR would be an effective radiosensitizer,
                  but its systemic toxicity limits the duration and dosage such that
                  its
                  efficacy is limited. Wehave
                  initiated a Phase I IPdR clinical trial in colorectal, gastric,
                  pancreatic
                  and liver cancers.****
 
 
 ·
              **Ondansetron
                  Oral Spray (Zensana)**is
                  a delivery system that uses the vast and highly-absorptive surfaces
                  of the
                  oral mucosa to deliver ondansetron (Zofran®;GlaxoSmithkline) directly into
                  the blood stream to prevent chemotherapy, radiation and post-operative
                  induced nausea and vomiting. Taking pills for patients experiencing
                  nausea
                  and vomiting can be problematic. Drug delivery via oral mucosa
                  avoids
                  degradation in the GI tract and metabolism by liver enzymes--the
                  so-called
                  first-pass effect. Potential patient benefits include a faster
                  onset of
                  action, improved safety profile, and enhanced patient compliance.
                  Zensana
                  is being developed as a 505(b)(2) registration and targets a 2007
                  launch.
 
 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.
 
 To
        date,
        we have not received approval for the sale of any drug candidates in any
        market
        and, therefore, have not generated any revenues from our drug
        candidates.
 
 Since
        the
        inception of Hana Biosciences, Inc. in December 2002, our efforts and resources
        have been focused primarily on acquiring and developing our biopharmaceutical
        technologies, raising capital and recruiting personnel. We completed three
        financings of $17.7 million, before applicable fees, and secured research
        grants
        totaling approximately $12 million. We are a development stage company
        and
        have no product sales to date and we will not receive any product sales until
        we
        receive approval from the FDA or equivalent foreign regulatory bodies to
        begin
        selling our pharmaceutical candidates. Developing pharmaceutical products,
        however, is a lengthy and very expensive process. Assuming we do not encounter
        any unforeseen safety issues during the course of developing our product
        candidates, we do not expect to complete the development of a product candidate
        until approximately 2007 or 2008. Currently, a large portion of the development
        expenses relating to our lead product candidate, Talotrexin, are being funded
        by
        grants. Once the development covered by the grants is complete, we expect
        that
        our research and development expenses will increase significantly. In addition,
        as we initiate development of IPdR and ondansetron oral spray, our second
        and
        third product candidates, respectively, 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. Accordingly, our success
        depends not only on the safety and efficacy of our product candidates, but
        also
        on our ability to finance the development of the products. Our major sources
        of
        working capital have been proceeds from various private financings, primarily
        private sales of our common stock and other equity securities.
 
 11
 Our
        company resulted from the July 2004 merger of EMLR, a Colorado corporation
        incorporated in March 2001, and Hudson Health Sciences, Inc., a Delaware
        corporation. In connection with that transaction, a wholly-owned subsidiary
        of
        EMLR merged with and into Hudson Health Sciences, with Hudson Health Sciences
        remaining as the surviving corporation and a wholly-owned subsidiary of EMLR.
        Hudson Health Sciences changed its name to “Hana Biosciences, Inc.” in
        connection with the merger. In exchange for their shares of capital stock
        in
        Hana Biosciences, the former stockholders of Hana Biosciences received shares
        of
        capital stock of EMLR representing approximately 87 percent of the outstanding
        equity of EMLR on a fully-diluted basis after giving effect the to the
        transaction. In addition, the terms of the merger provided that the board
        of
        directors of EMLR would be reconstituted immediately following the effective
        time of the transaction such that the directors of EMLR were replaced by
        the
        directors of Hana Biosciences. Further, upon the effective time of the merger,
        the business of EMLR was abandoned and the business plan of Hana Biosciences
        was
        adopted. The transaction was therefore accounted for as a reverse acquisition
        with Hana Biosciences, Inc. as the acquiring party and EMLR as the acquired
        party. Accordingly, when we refer to our business and financial information
        relating to periods prior to the merger, we are referring to the business
        and
        financial information of Hana Biosciences, Inc., unless the context indicates
        otherwise.
 
 Research
        and development expenses consist primarily of salaries and related personnel
        costs, fees paid to consultants and outside service providers for laboratory
        development, legal expenses resulting from intellectual property prosecution
        and
        organizational affairs and other expenses relating to the design, development,
        testing, and enhancement of our product candidates. We expense our research
        and
        development costs as they are incurred.
 
 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 business development
        and general legal activities.
 
 Our
        results include non-cash compensation expense as a result of the issuance
        of
        stock and stock option grants. Compensation expense for options granted to
        employees represents the difference between the fair value of our common
        stock
        and the exercise price of the options at the date of grant. We account for
        stock-based employee compensation arrangements in accordance with the provisions
        of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
        Employees” and comply with the disclosure provisions of Statement of Financial
        Accounting Standards No. 123, “Accounting for Stock-Based Compensation.”
        However, as a result of amendments to SFAS 123, the Company will be required
        to
        expense the fair value of employees stock options over the vesting period
        beginning with its fiscal quarter ending March 31, 2006. Compensation
        for
        options granted to consultants has been determined in accordance with SFAS
        No.
        123 as the fair value of the equity instruments issued. APB Opinion No. 25
        has
        been applied in accounting for fixed and milestone-based stock options to
        employees and directors as allowed by SFAS No. 123. We currently have no
        outstanding milestone-based options. This amount is being recorded over the
        respective vesting periods of the individual stock options. The expense is
        included in the respective categories of expense in the statement of operations.
        We expect to record additional non-cash compensation expense in the future,
        which may be significant.
  **Results
        of Operations**
 
 **Three
        Months Ended September 30, 2005 Compared to Three Months Ended September
        30,
        2004**
  *General
        and administrative expenses.* For the
        three months ended September 30, 2005, general and administrative (“G&A”)
        expense was $959,199 as compared to $678,870 for the three months ended
        September 30, 2004. The increase of $280,329 is due primarily to an increase
        in
        salaries and other employee benefits of approximately $101,000 which resulted
        from the Company's increase in headcount from two fulltime employees at
        September 30, 2004 to five fulltime employees at September 30, 2005. For
        the
        three months ended September 30, 2005, we also incurred a decrease of
        approximately $10,000 associated professional fees. This reduction is mostly
        attributed to lower legal expenses when compared to the corresponding period
        of
        the previous year. For the three months ended September 30, 2005, our
        stock-based compensation expense for options issued to employees increased
        by
        approximately $60,000. Another contributing factor to the additional overall
        expense was an increase of approximately $14,000 in the current year relating
        to
        the fair value option grants of non employees for services rendered. In
        addition, the Company incurred an increase in stock-based expense of
        approximately $114,000 relating to the shares earned by the Company’s investor
        relations firm.
 
 12
 *Research
        and development expenses.* For the
        three months ended September 30, 2005, research and development (“R&D”)
        expense was $776,350 as compared to $1,011,245 for the three months ended
        September 30, 2004. The decrease of $234,895 is due primarily to a decrease
        in
        the physical manufacturing of drug compounds, payments to our contract research
        organization and legal expenses associated with our continued patent protection
        of approximately $325,000. For the three months ended September 30, 2004
        the
        Company incurred expenses relating to the drug manufacturing of two of its
        clinical compounds, these expenses were not present in the current period.
        The
        decrease in drug manufacturing and other professional services was offset
        by an
        increase in salaries and other employee benefits of approximately $112,000
        which
        resulted from increasing our full-time employees from six at September 30,
        2004
        to eight full-time employees devoted to R&D at September 30, 2005. For the
        three months ended September 30, 2005, our stock-based compensation expense
        for
        options issued to employees increased by approximately $73,000. In addition,
        for
        the three months ended September 30, 2005 we experienced a decrease of
        approximately $77,000 relating to the fair value option grants to non employees
        for services rendered.
 
 *Interest
        income (expense), net.* For the
        three months ended September 30, 2005, net interest income was $36,012 as
        compared to net interest income of $15,745 for the three months ended September
        30, 2004. The increase of $20,267 resulted from our increased cash balance
        deposited in interest earning money market accounts as well as our repayment
        of
        all notes payable during the latter half of 2004.
 
 *Other
        income (expense), net.* For the
        three months ended September 30, 2005, net other expense was $9,440 as compared
        to net other expense of $1,270 for the corresponding period of the previous
        year. The increase is attributed to our miscellaneous minimum state tax present
        in the current year.
 
 *Net
        loss.* Net loss
        for the three months ended September 30, 2005 was $1,708,977 as compared
        to
        $1,675,640 for the three months ended September 30, 2004. This increase in
        net
        loss is attributable primarily to an increase in general and administrative
        expenses of $280,329 offset by a decrease in research and development expenses
        of $234,895.
 
 **Nine
        Months Ended September 30, 2005 Compared to Nine Months Ended September 30,
        2004**
  *General
        and administrative expenses.* For the
        nine months ended September 30, 2005, general and administrative (“G&A”)
        expense was $2,629,682, compared to $1,632,011 for the nine months ended
        September 30, 2004. The increase of $997,671 is due primarily to an increase
        in
        salaries and other employee benefits of approximately $405,000, which resulted
        from an increase in headcount from two fulltime employees at September 30,
        2004
        to five fulltime employees at September 30, 2005. For the nine months ended
        September 30, 2005, we recognized an increase in professional fees of
        approximately $159,000 when compared to the nine months ended September 30,
        2004. The increase in professional fees primarily relates to legal, accounting
        and investor relations expenses for fiscal year 2005. Other increases for
        the
        nine months ended September 30, 2005 when compared to the corresponding period
        of the previous year is an increase in director and officer insurance of
        $37,000. For the nine months ended September 30, 2005, we also incurred an
        increase to stock-based compensation expense for the intrinsic value of options
        issued to employees of approximately $203,000. In addition, for the nine
        months
        ended September 30, 2005 we incurred expense of approximately $34,000 relating
        to the fair value option grants to non employees for services rendered, no
        corresponding expense existed for the nine months ended September 30, 2004.
        In
        addition, the Company incurred an increase in stock-based expense of
        approximately $149,000 relating to the shares earned by the Company’s investor
        relations firm.
 
 *Research
        and development expenses.* For the
        nine months ended September 30, 2005, research and development (“R&D”)
        expense was $3,648,522 as compared to $2,057,386 for the nine months ended
        September 30, 2004. The increase of $1,591,136 is due primarily to an increase
        in salaries and other employee benefits of approximately $813,000 which resulted
        from increasing our full-time employees from six at September 30, 2004 to
        eight
        full-time employees devoted to R&D at September 30, 2005. For the nine
        months ended September 30, 2005, we also recognized an increase in professional
        outside services of approximately $842,000. This increase relates to the
        continued development of our three lead compounds (Talotrexin, IPdR and Zensana)
        and includes costs incurred for the payments to our contract research
        organization and legal expenses associated with our continued patent protection.
        For the nine months ended September 30, 2005 we also incurred an increase
        of
        $96,000 in travel expense associated with various site monitoring visits
        when
        compared to the corresponding period of the previous year. For the nine months
        ended September 30, 2005 we also incurred a decrease of $175,000 associated
        with
        milestone payments related to advancements in our product candidates when
        compared to the nine months ended September 30, 2004. For the nine months
        ended
        September 30, 2005 we also incurred an increase to stock-based compensation
        expense for options issued to employees totaling approximately $227,000.
        In
        addition, for the nine months ended September 30, 2005 we experienced a decrease
        of approximately $263,000 relating to the fair value option grants to non
        employees for services rendered when compared to the corresponding period
        of the
        previous year. Given the current and desired pace of clinical development
        of our
        three product candidates, over the next twelve months we estimate that we
        will
        need approximately $11.5 million in order to fund our research and development
        activities.  This amount includes milestone payments that we expect
        to be
        triggered under the license agreements relating to our product candidates,
        the
        manufacturing and clinical trial costs for our three product candidates and
        the
        salaries associated with those individuals in the research and development
        department. Based on the current cash available on hand combined with the
        recently completed common stock financing the Company estimates that we will
        have sufficient capital to fund our research and development activities through
        2006.
 
 *Interest
        income (expense), net.* For the
        nine months ended September 30, 2005, net interest income was $86,074 as
        compared to net interest income of $3,039 for the nine months ended September
        30, 2004. The increase of $83,035 resulted from our increased cash balance
        deposited in interest earning money market accounts as well as our repayment
        of
        all notes payable during the latter half of 2004.
 
 13
 *Other
        income (expense), net.* For the
        nine months ended September 30, 2005, net other expense was $19,577 as compared
        to net other expense of $647 for the corresponding period of the previous
        year.
        The increase is attributed to our miscellaneous minimum state tax present
        in the
        current year.
 
 *Net
        loss.* Net loss
        for the nine months ended September 30, 2005 was $6,211,707 as compared to
        $3,686,995 for the nine months ended September 30, 2004. This increase in
        net
        loss is attributable primarily to an increase in research and development
        expenses of $1,591,136 and an increase in general and administrative expenses
        of
        $997,671.
  **Liquidity
        and Capital Resources**
 
 From
        inception to September 30, 2005, we have incurred an aggregate net loss of
        $14,237,865, primarily as a result of expenses incurred through a combination
        of
        research and development activities related to the various technologies under
        our control and expenses supporting those activities.
 
 We
        have
        financed our operations since inception primarily through equity and debt
        financing. From inception through September 30, 2005, we had a net increase
        in
        cash and cash equivalents of $5,823,372. This increase primarily resulted
        from
        net cash provided by financing activities of $17,644,850, substantially all
        of
        which was derived from our three private placements which netted us $17,057,221.
        The increase in cash provided by financing activities was offset by net cash
        used in operating activities of $11,042,992 and net cash used in investing
        activities of $778,486 for the cumulative period from inception to September
        30,
        2005.
 
 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, 2005, a significant portion of our financing has been
        through private placements of common stock, preferred stock and debt financing.
        We will continue to fund operations from cash on hand and through future
        placements of capital stock or debt financings. 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
        three
        product candidates, we estimate that we will have sufficient cash on hand
        to
        fund clinical development through 2006 (See Item 2 in the Other Information
        section of the 10-QSB). The Company, however, may choose to raise additional
        capital before year-end 2006 in order to fund our future development activities,
        likely by selling shares of our capital stock or other securities. If we
        are
        unable to raise additional capital, we will likely be forced to curtail our
        desired development activities, which will delay the development of our product
        candidates. There can be no assurance that such capital will be available
        to us
        on favorable terms or at all. We will need additional financing thereafter
        until
        we can achieve profitability, if ever.
 
 ***Financings.*** In
        February 2004, we raised gross proceeds of approximately $4.7 million through
        the sale of 2,802,989 shares of our common stock. In connection with this
        offering, we paid commissions and other offering-related expenses consisting
        of
        $341,979 in cash and issued a 5-year warrant to purchase 277,331 shares of
        our
        common stock to Paramount BioCapital, Inc., as placement agent services
        rendered.
 
 Immediately
        prior to the EMLR - Hana Biosciences merger in July 2004, we raised gross
        proceeds of $8 million through the sale of 2,395,210 shares of Series A
        Convertible Preferred Stock. Each share of Series A Convertible Preferred
        Stock
        is convertible at the holder's election into 1.410068 common shares. On January
        18, 2005 the effective date of the registration statement covering the resale
        of
        the common shares issuable upon conversion of the Series A Preferred Stock,
        the
        Series A Preferred Stock automatically converted into 3,377,409 shares of
        common
        shares.
 
 On
        April
        22, 2005, the Company completed a private placement where it sold 3,916,082
        shares of its common stock at a price of $1.28 per share resulting in gross
        proceeds of approximately $5.01 million. In connection with the private
        placement, the Company issued to the investors and placement agents five-year
        warrants to purchase an aggregate of 1,525,629 shares of common stock at
        an
        exercise price of $1.57 per share, of which there remain outstanding warrants
        to
        purchase an aggregate of 1,250,069 shares.  The terms of the warrants
        provide that the Company may, at its option, redeem the warrants after such
        time
        that the average closing price of the Company's common stock exceeded $3.14
        per
        share for a 30-day period, which condition was satisfied in August 2005. 
        Accordingly, the Company may redeem the warrants, at a redemption price of
        $.01 per warrant share, at any time upon 30 days' prior written notice
        to
        the warrant holders.  The warrants remain exercisable by the holders
        until
        the expiration of such 30-day notice period. In connection with the private
        placement, the Company paid an aggregate of approximately $321,000 in
        commissions to placement agents.  Included in the amounts paid to
        placement
        agents were $52,500 in commissions and 58,593 warrants to Paramount BioCapital,
        Inc., a related party. The Company also incurred approximately $14,000 of
        legal
        expenses for the private placement.
 
 ***Current
        and Future Financing Needs.*** We have
        incurred negative cash flow from operations since we started our business.
        We
        have spent, and expect to continue to spend, substantial amounts in connection
        with implementing our business strategy, including our planned product
        development efforts, our clinical trials, and our research and discovery
        efforts. Given the current and desired pace of clinical development of our
        three
        product candidates, over the next 12 months we estimate that we will need
        approximately $11.5 million in order to fund our research and development
        activities, including amounts to milestone payments that we expect
        to be
        triggered under the license agreements relating to our product candidates.
        The
        remaining amount is devoted to salaries associated with those individuals
        in the
        research and development department as well as and the manufacturing and
        clinical trial costs for our three product candidates. Based on the recently
        completed private placement the Company estimates that we will have sufficient
        capital to fund our research and development activities through
        2006.
  14
 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:
 
 ·
              progress
                  of our research activities;
  ·
              the
                  number and scope of our research
                  programs;
  ·
              the
                  progress of our pre-clinical and clinical development
                  activities;
  ·
              the
                  progress of the development efforts of parties with whom we have
                  entered
                  into research and development
                  agreements;
  ·
              our
                  ability to maintain current research and development programs and
                  to
                  establish new research and development and licensing
                  arrangements;
  ·
              our
                  ability to achieve our milestones under licensing
                  arrangements;
  ·
              the
                  costs involved in prosecuting and enforcing patent claims and other
                  intellectual property rights; and
  ·
              the
                  costs and timing of regulatory
                  approvals.
 
 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.
 
 ***Plan
        of Operation***
 
 Our
        plan
        of operation for the year ending December 31, 2005 is to continue implementing
        our business strategy, including the clinical development of our three product
        candidates. We also intend to expand our drug candidate portfolio by acquiring
        additional drug technologies for development. We expect our principal
        expenditures during the next 3 months to include:
 
 §
              operating
                  expenses, including expanded 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 for
                  Talotrexin, IPdR and Zensana (ondansetron oral
                  spray).
 
 As
        part
        of our planned expansion, we intend to use clinical research organizations
        and
        third parties to perform our clinical studies and manufacturing. As indicated
        above, at our current and desired pace of clinical development of our three
        product candidates, over the next 12 months we expect to spend approximately
        $11.5 million on clinical development (including milestone payments of $3.5
        million that we expect to be triggered under the license agreements relating
        to
        our product candidates), $1.9 million on general corporate, and $120,000
        on
        facilities rent. We expect to have completed all three Phase I clinical trials
        in Talotrexin. These trials include those in Solid tumors, non-small cell
        lung
        cancer or “NSCLC” and adult lymphoblastic leukemia or “ALL”. In addition we
        expect to initiate 3 Phase II trials in NSCLC, cervical cancer and ALL. We
        also
        expect to complete our Phase I clinical trial in gastrointestinal cancer
        in IPdR
        and also complete the pivotal trials in Zensana and file an NDA.
  15
 ***Research
        and Development Projects***
 
 ***Talotrexin.*** In 2003,
        we submitted an Investigational New Drug application (“IND”) with the U.S. Food
        and Drug Administration (“FDA”) to commence a Phase I clinical trial of
        Talotrexin for the treatment of cancer. This Phase I trial, which commenced
        in
        April 2004, will involve an estimated 25 - 45 patients, to date 26 subjects
        have
        received doses of Talotrexin. The primary purposes for this study are to
        evaluate the safety of Talotrexin when administered intravenously to patients
        with solid tumors and who have failed curative or survival prolonging therapy
        or
        for whom no such therapies exist, establish the maximum tolerated dose, and
        identify dose limiting toxicities.
 
 In
        February 2005, we commenced a Phase I and II study of Talotrexin in the
        treatment of relapsed or refractory non-small cell lung cancer or “NSCLC”. The
        primary objectives of the Phase I portion of this study are to: (1) evaluate
        the
        safety of Talotrexin and (2) establish the maximum tolerated dose and identify
        the dose limiting toxicities of Talotrexin. The primary objectives of the
        Phase
        II portion of this study are to evaluate the activity of Talotrexin as therapy
        in subjects with NSCLC who have progressed on or following first-line therapy's,
        as measured by overall survival. A total of 120 patients are expected to
        enroll
        in the Phase I and II clinical trial with 17 subjects already having received
        doses of Talotrexin. Further, we anticipate initiating a Phase II clinical
        trial
        in cervical cancer the first half of 2006.
 
 In
        May
        2005, we commenced a Phase I and II study of Talotrexin in the treatment
        of
        refractory adult lymphoblastic leukemia or “ALL”. The primary objectives of the
        Phase I portion of this study are to: (1) evaluate the safety of Talotrexin
        and
        (2) establish the maximum tolerated dose and identify the dose limiting
        toxicities of Talotrexin. The primary objectives of the Phase II portion
        of this
        study are to evaluate the activity of Talotrexin as therapy in leukemia patients
        with relapsed or refractory to frontline and/or salvage therapy as measured
        by
        overall response. A total of 75 patients are expected to enroll in the Phase
        I
        and II clinical trial with five subjects already having received doses of
        Talotrexin.
 
 Talotrexin
        has received clinical development grants from the National Cancer Institute
        covering approximately $8 million in development activities. These grants
        cover
        the predominant cost of pre-clinical efficacy and safety testing, clinical
        manufacturing, and Phase I clinical program. Under the terms of these grants,
        all amounts are disbursed directly to the institutions conducting the studies.
        None of the funds are disbursed to Hana Biosciences and we have no obligation
        to
        repay such funds. We estimate that the NCI has disbursed approximately $1
        million in connection with the development of Talotrexin. Through September
        30,
        2005, we have incurred $2,193,776 of costs related to our development of
        Talotrexin, of which $272,205 and $1,027,847 was incurred in fiscal 2003
        and
        2004, respectively. For the nine months ended September 30, 2005, we incurred
        $893,724 in the development of Talotrexin. We currently anticipate that we
        will
        need to expend approximately an additional $500,000 to $750,000 in development
        costs in fiscal 2005 and at least an aggregate of approximately $75 million
        until we receive FDA approval for Talotrexin, should we opt to continue
        development. Costs incurred are a direct result of ensuring proper study
        conduct
        in accordance with local regulations. Should we choose to continue development
        we expect that it will take an additional 4-5 years before we complete
        development and obtain FDA approval of Talotrexin, if ever.
 
 We
        believe we currently have sufficient capital to fund development activities
        of
        Talotrexin through 2006. Since our business does not generate any cash flow,
        however, we will need to raise additional capital to continue development
        of the
        product beyond 2006. We expect to raise such additional capital by either
        borrowing money or by selling shares of our capital stock. To the extent
        additional capital is not available when we need it, we may be forced to
        sublicense our rights to Talotrexin or abandon our development efforts
        altogether, either of which would have a material adverse effect on the
        prospects of our business. Further, our assumptions relating the expected
        costs
        of development and timeframe for completion are dependent on numerous factors
        other than available financing, including 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 each clinical trial.
  ***IPdR*** *.* In
        August 2004, an investigator-initiated IND was submitted to the FDA to initiate
        a Phase I clinical trial of IPdR for the treatment of selected radiosensitive
        cancers. After completing additional pre-clinical toxicology studies, the
        FDA
        approved the IND, and the phase I trial commenced in September 2005, which
        we
        estimate will involve approximately 40-60 patients. The primary purposes
        for
        this study will be to evaluate the safety of oral IPdR in patients with selected
        radiosensitive gastrointestinal cancers and who have failed curative or survival
        prolonging therapy or for whom no such therapies exist, establish the maximum
        tolerated dose, and identify dose limiting toxicities. . In addition,
        we
        continue activities toward initiating a clinical trial in glioblastoma
        multiforme, a type of brain cancer, in early 2006.
 
 IPdR
        has
        received clinical development grants from the National Cancer Institute.
        These
        grants cover the predominant cost of pre-clinical efficacy and safety testing,
        clinical manufacturing, and Phase I clinical program. Under our license
        agreement the Company was obligated to reimburse other parties approximately
        $15,000 for past patent expenses. Since acquiring our rights to IPdR, through
        September 30, 2005, we have incurred $1,389,633 of project costs related
        to our
        development of IPdR, of which $656,251 was incurred in fiscal 2004. Currently,
        we anticipate that we will need to expend an additional $100,000 to $200,000
        in
        development costs in fiscal 2005 and at least an aggregate of approximately
        $50
        million until we receive FDA approval for IPdR, should we opt to continue
        development. Should we choose to continue, we expect that it will take an
        additional 5 or 6 years until we will have completed development and obtained
        FDA approval of IPdR, if ever.
 
 16
 We
        believe we currently have sufficient capital to fund our development activities
        of IPdR during 2006. Since our business does not generate any cash flow,
        however, we will need to raise additional capital to continue development
        of the
        product beyond 2006. We expect to raise such additional capital by either
        borrowing money or by selling shares of our capital stock. To the extent
        additional capital is not available when we need it, we may be forced to
        sublicense our rights to IPdR or abandon our development efforts altogether,
        either of which would have a material adverse effect on the prospects of
        our
        business. Further, our assumptions relating the expected costs of development
        and timeframe for completion are dependent on numerous factors other than
        available financing, including 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
        each
        clinical trial.
  ***Ondansetron
        Oral Spray.*** In
        October 2004, we acquired the exclusive license rights to develop and
        commercialize ondansetron oral spray, or “Zensana,” in the United States and
        Canada. As initial consideration for that license, we purchased 400,000 shares
        of common stock of NovaDel Pharma, Inc., our licensor, for an aggregate price
        of
        $1 million, and we issued to NovaDel 73,121 shares of our common stock. .
        Since
        acquiring our rights to Zensana, through September 30, 2005, we have incurred
        $85,871 of project costs related to our development of which the entire amount
        was incurred in fiscal 2005. Currently, we anticipate that we will need to
        expend an additional $1,500,000 to $2,500,000 in development costs in fiscal
        2005 and at least an aggregate of approximately $20 million until we receive
        FDA
        approval for Zensana, should we opt to continue development. Should we choose
        to
        continue, we expect that it will take an additional 1 or 2 years until we
        will
        have completed development and obtained FDA approval of Zensana, if
        ever.
 
 **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.
  §
              *Talotrexin
                  License.*Our rights to Talotrexin 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 Talotrexin 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 an annual
                  license
                  fee payment of $25,000 and provides for 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
                  Talotrexin.
                  To date, we have made one of these milestone payments in the amount
                  of
                  $100,000 following commencement of the Phase I 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
                  Talotrexin. 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 Talotrexin
                  granted
                  prior to the start of a Phase II trial, and 15 percent of such
                  fees after
                  initiation of a Phase II clinical
                  trial.
 
 
 §
              *IPdR
                  License.*In
                  February 2004, we entered into an exclusive worldwide, royalty-bearing
                  license agreement with Yale University and The Research Foundation
                  of
                  State University of New York, including the right to grant sublicenses,
                  for the rights to the intellectual property relating to IPdR. The
                  license
                  agreement expires as the patent rights subject to the license expire.
                  The
                  IPdR license covers two issued patents, expiring in 2007 and 2015,
                  respectively. In addition to a $100,000 license fee paid on execution
                  of
                  the agreement, we are required to make additional license payments
                  in the
                  aggregate amount of $500,000 upon the completion of a Phase IIb
                  clinical
                  trial (currently estimated to be during fiscal 2006) and upon NDA
                  approval
                  by the FDA, which we estimate to occur no earlier than 2010, if
                  ever. As further consideration for the license, we are required
                  to
                  pay royalties to Yale and SUNY equal to 3 percent of net sales
                  (as defined
                  in the license agreement) from
                  IPdR.
 
 §
              *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). We are also obligated to make
                  various milestone payments in an aggregate amount of up to $10
                  million. 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.
 
 17
 ***Lease
        Agreements.*** In
        December 2004 the Company entered into an office lease that expires on December
        31, 2005. Total remaining lease commitments amount to approximately
        $31,000.
 
 ***Employment
        Agreements.*** The
        Company entered into a written three year employment agreement with its
        President and Chief Executive Officer dated November 1, 2003. The aggregate
        amount of compensation to be provided for over the remaining term of the
        agreement amounted to approximately $272,000 at September 30, 2005.
  The
        Company entered into a written two year employment agreement with its Vice
        President of Business Development on January 25, 2004. The aggregate amount
        of
        compensation to be provided for over the remaining term of the agreement
        amounted to approximately $56,000 at September 30, 2005.
 
 The
        Company entered into a written three year employment agreement with its Vice
        President and Chief Medical Officer on October 21, 2004. The aggregate amount
        of
        compensation to be provided for over the remaining term of the agreement
        amounted to approximately $309,000 at September 30, 2005.
 
 The
        Company entered into a written three year employment agreement with its Vice
        President and Chief Financial Officer on November 15, 2004. The aggregate
        amount
        of compensation to be provided for over the remaining term of the agreement
        amounted to approximately $372,000 at September 30, 2005.
 
 **Item
        3. Controls and Procedures**
 
 As
        of
        September 30, 2005, we carried out an evaluation, under the supervision and
        with
        the participation of our chief executive and chief financial officers, of
        the
        effectiveness of the design and operation of our disclosure controls and
        procedures (as defined in Rules 13A- 15(e) and 15d-15(e) of the Securities
        Exchange Act of 1934, as amended). Based upon that evaluation, our Chief
        Executive Officer and Chief Financial Officer concluded that our disclosure
        controls and procedures were effective as of that date in alerting them on
        a
        timely basis to material information required to be disclosed in our periodic
        reports to the Securities and Exchange Commission. During the quarter ended
        September 30, 2005, 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 subsequent
        to
        such evaluation.
 
 **PART
        II - OTHER INFORMATION**
 **Item
        1. Legal Proceedings**
 
 None
 
 **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds**
 
 Pursuant
        to a Securities Purchase Agreement dated October 19, 2005 (the “Agreement”)
        among the Company and certain institutional and other accredited investors
        identified therein, on October 24, 2005, the Company completed the sale of
        an
        aggregate of 3,686,716 shares (the “Shares”) of the Company’s common stock at a
        price of $4.00 per Share; provided, however that the purchase price was $4.59
        per Share with respect to certain affiliates of the Company who purchased
        Shares
        in the private placement, as described below. In addition to the Shares,
        the
        Company also issued five-year warrants to purchase, at an exercise price
        of
        $5.80 per share, an additional 737,343 shares of Common Stock. The Company
        previously disclosed the entry into the Agreement on its Current Report filed
        October 20, 2005.
 
 Among
        the
        investors participating in the private placement were Mark J. Ahn (together
        with
        his spouse) and Fred L. Vitale, who purchased 10,892 and 43,572 Shares,
        respectively. Mr. Ahn is President and Chief Executive Officer and a director
        of
        the Company. Mr. Vitale is Vice President, Business Development of the Company.
        In addition, Coqui Capital Partners, L.P. and Kier Family, L.P. purchased
        54,466
        and 21,786 Shares, respectively. Isaac Kier, a director of the Company, is
        a
        limited partner of Coqui Capital Partners, L.P and the general partner of
        Kier
        Family, L.P. Notwithstanding the $4.00 offering price applicable to
        non-affiliated investors, the per Share purchase price paid by Messrs. Ahn,
        Vitale and by Coqui Capital Partners, L.P. and Kier Family, L.P. was $4.59,
        which was the last closing sale price of the Company’s common stock prior to
        entry into the Agreement. Each of such affiliated investors also received
        warrants to purchase an additional number of shares of common stock equal
        to 20
        percent of the Shares purchased, which warrants have the same terms as those
        received by the other investors in the offering.
 
 The
        Company engaged Oppenheimer & Co., Inc. and Griffin Securities, Inc.
        (together, the “Placement Agents”) as placement agents in connection with the
        private placement. In consideration for their services, the Company paid
        the
        Placement Agents aggregate cash commissions of $1,002,680 and issued 5-year
        warrants to the Placement Agents to purchase an aggregate of 253,306 shares
        at
        an exercise price of $5.80 per share. The Company also reimbursed the Placement
        Agents an aggregate of $60,000 for expenses they incurred in connection with
        the
        private placement. In addition, the Company incurred approximately $17,500
        of
        legal expenses for the private placement.
 
 18
 The
        offer
        and sale of the Shares and Warrants were made in reliance on the exemption
        from
        registration requirements provided by Section 4(2) of the Securities Act
        and
        Regulation D promulgated thereunder. Each of the investors was “accredited” (as
        defined under Regulation D) and no general solicitation was used in connection
        with the offer and sale of such securities.
 
 **Item
        3. Defaults Upon Senior Securities**
 
 Not
        applicable
 
 **Item
        4. Submission of Matters to a Vote of Securities Holders**
 
 Not
        applicable
 
 **Item
        5. Other Information**
 
 Not
        applicable
  **Item
        6. Exhibits**
  10.1
              Amendment
                  No. 1 to License and Development Agreement dated August 8, 2005
                  between
                  Hana Biosciences, Inc. and NovaDel Pharma, Inc. (incorporated by
                  reference
                  to Exhibit 99.1 of Current Report on Form 8-K filed by NovaDel
                  Pharma,
                  Inc. on August 12, 2005)31.1
              Certification
                  of Chief Executive Officer31.2
              Certification
                  of Chief Financial Officer32.1
              Certification
                  of Chief Executive and Chief Financial Officers pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002.
 
 
  19
  **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.**Date:
                  November 14, 2005
              By:
              /s/ Mark
                  J. AhnMark
                  J. Ahn
                President
                  and Chief Executive Officer
 
 Date:
                  November 14, 2005
              By:
              /s/ Russell
                  L. SkibstedRussell
                  L. Skibsted
                Chief
                  Financial Officer
 
  
  20
   **Exhibit
        Index**
  **Exhibit
                  No.**
              
              **Description**10.1
              
              Amendment
                  No. 1 to License and Development Agreement dated August 8, 2005
                  between
                  Hana Biosciences, Inc. and NovaDel Pharma, Inc. (incorporated by
                  reference
                  to Exhibit 99.1 of Current Report on Form 8-K filed by NovaDel
                  Pharma,
                  Inc. on August 12, 2005).31.1
              
              Certification
                  of Chief Executive Officer31.2
              
              Certification
                  of Chief Financial Officer32.1
              
              Certification
                  of Chief Executive and Chief Financial Officers pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002.
 
  
 
  21