UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-Q




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





For the
quarterly period ended March 31, 2010





OR





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





For the
transition period __________ to __________.





Commission
file number 001-32626




Hana
Biosciences, Inc.


(Exact
Name of Registrant as Specified in Its Charter)




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




(650)
588-6404


(Registrant's
Telephone Number, Including Area Code)





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).   Yes o
     No  ̈




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




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





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).


Yes 
o  No 
x




As of May
14, 2010, there were 79,788,264 shares of the registrant's common stock,
$.001 par value, outstanding.








INDEX





PagePART
      I
            FINANCIAL INFORMATION
            4Item
      1.
            Unaudited Condensed Financial
Statements
            4Unaudited Condensed Balance
    Sheets
            4Unaudited Condensed Statements of Operations and
      Other Comprehensive Loss
            5Unaudited Condensed Statement of Changes in
      Stockholders' Deficit
            6Unaudited Condensed Statements of Cash
      Flows
            7Notes to Unaudited Condensed Financial
      Statements
            8Item
      2.
            Management's Discussion and Analysis of Financial Condition
      and Results of Operations
            16Item
      3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            19Item
      4T.
            Controls and Procedures
            20PART
      II
            OTHER INFORMATION
            21Item
      1.
            Legal Proceedings
            21Item
      1A.
            Risk Factors
            21Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            22Item
      3.
            Defaults Upon Senior Securities
            22Item
      4.
            Removed and Reserved
            22Item
      5.
            Other Information
            22Item
      6.
            Exhibits
            22Signatures
            23Index of Exhibits Filed with this
      Report
            24




- 2
-


Forward-Looking
Statements





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





·
            our
      ability to obtain adequate
financing;




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




·
            the
      regulatory approval of our drug
candidates;




·
            our
      use of clinical research centers and other
  contractors;




·
            our
      ability to find collaborative partners for research, development and
      commercialization of potential
products;




·
            acceptance
      of our products by doctors, patients or payors and the availability of
      reimbursement for our product
candidates;




·
            our
      ability to market any of our
products;




·
            our
      history of operating losses;




·
            our
      ability to secure adequate protection for our intellectual
      property;





·
            our
      ability to compete against other companies and research
      institutions;




·
            the
      effect of potential strategic transactions on our
  business;





·
            our
      ability to attract and retain key personnel;
and




·
            the
      volatility of our stock price.





These
statements are often, but not always, made through the use of words or phrases
such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,”
“expect,” “believe,” “intend” and similar words or phrases. For such statements,
we claim the protection of the Private Securities Litigation Reform Act of 1995.
Readers of this Quarterly Report on Form 10-Q are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the time
this Quarterly Report on Form 10-Q was filed with the Securities and Exchange
Commission, or SEC. These forward-looking statements are based largely on our
expectations and projections about future events and future trends affecting our
business, and are subject to risks and uncertainties that could cause actual
results to differ materially from those anticipated in the forward-looking
statements. Discussions containing these forward-looking statements may be found
throughout this report, including Part I, the section entitled “Item 2:
Management's Discussion and Analysis of Financial Condition and Results of
Operations.” These forward-looking statements involve risks and uncertainties,
including the risks discussed in our Annual Report on Form 10-K for the year
ended December 31, 2009 (the “2009 Form 10-K”), that could cause our actual
results to differ materially from those in the forward-looking statements.
Except as required by law, we undertake no obligation to publicly revise our
forward-looking statements to reflect events or circumstances that arise after
the filing of this report or documents incorporated by reference herein that
include forward-looking statements. The risks discussed in this report should be
considered in evaluating our prospects and future financial
performance.





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





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





- 3
-


PART
I - FINANCIAL INFORMATION




Item
1. Unaudited Condensed Financial Statements




HANA
BIOSCIENCES, INC.





CONDENSED
BALANCE SHEETS





March
      31,
              2010
            
            
            December
      31,
              2009ASSETS
            
            (Unaudited)Current
      assets:Cash
      and cash equivalents
            
            $
            4,096,056
            
            
            $
            9,570,453Available-for-sale
      securities
            
            
            76,000
            
            
            
            68,000Prepaid
      expenses and other current assets
            
            
            104,414
            
            
            
            114,067Total
      current assets
            
            
            4,276,470
            
            
            
            9,752,520Property
      and equipment, net
            
            
            217,492
            
            
            
            252,455Restricted
      cash
            
            
            125,000
            
            
            
            125,000Debt
      issuance costs
            
            
            1,018,755
            
            
            
            1,193,594Total
      assets
            
            $
            5,637,717
            
            
            $
            11,323,569LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Accounts
      payable and accrued liabilities
            
            $
            3,416,775
            
            
            $
            4,027,075Other
      short-term liabilities
            
            
            27,382
            
            
            
            43,586Total
      current liabilities
            
            
            3,444,157
            
            
            
            4,070,661Notes
      payable, net of discount
            
            
            22,836,344
            
            
            
            22,597,050Other
      long-term liabilities
            
            
            6,224
            
            
            
            6,540Warrant
      liabilities
            
            
            2,104,666
            
            
            
            2,145,511Total
      long term liabilities
            
            
            24,947,234
            
            
            
            24,749,101Total
      liabilities
            
            
            28,391,391
            
            
            
            28,819,762Commitments
      and contingencies (Notes 4, 6, 9 and 10):Stockholders'
      deficit:Common
      stock; $0.001 par value:200,000,000
      shares authorized, 79,788,264 and 79,649,976 shares issued and outstanding
      at March 31, 2010 and December 31, 2009,
respectively
            
            
            79,788
            
            
            
            79,650Additional
      paid-in capital
            
            
            117,779,666
            
            
            
            117,572,373Accumulated
      other comprehensive income
            
            
            (16,000)
            
            
            
            (24,000)Accumulated
      deficit
            
            
            (140,597,128)
            
            
            
            (135,124,216)Total
      stockholders' deficit
            
            
            (22,753,674)
            
            
            
            (17,496,193)Total
      liabilities and stockholders' deficit
            
            $
            5,637,717
            
            
            $
            11,323,569




See
accompanying notes to unaudited condensed financial statements.





- 4
-


HANA
BIOSCIENCES, INC.





CONDENSED
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS


(Unaudited)





Three Months Ended
              March 
      31,2010
            
            
            2009Operating
      expenses:General
      and administrative
            
            $
            1,170,895
            
            
            $
            1,377,600Research
      and development
            
            
            3,258,545
            
            
            
            4,192,483Total
      operating expenses
            
            
            4,429,440
            
            
            
            5,570,083Loss
      from operations
            
            
            (4,429,440)
            
            
            
            (5,570,083)Other
      income (expense):Interest
      income
            
            
            267
            
            
            
            11,582Interest
      expense
            
            
            (1,084,584)
            
            
            
            (727,007)Other
      expense, net
            
            
            —
            
            
            
            (4,907)Change
      in fair market value of warrant liabilities
            
            
            40,845
            
            
            
            664,060Total
      other expense
            
            
            (1,043,472)
            
            
            
            (56,272)Net
      loss
            
            $
            (5,472,912)
            
            
            $
            (5,626,355)Net
      loss per share, basic and diluted
            
            $
            (0.07)
            
            
            $
            (0.17)Weighted
      average shares used in computing net loss per share, basic and
      diluted
            
            
            79,782,118
            
            
            
            32,449,739Comprehensive
      loss:Net
      loss
            
            $
            (5,472,912)
            
            
            $
            (5,626,355)Unrealized
      holding gains (losses) arising during the period
            
            
            8,000
            
            
            
            (32,000)Comprehensive
      loss
            
            $
            (5,464,912)
            
            
            $
            (5,658,355)





See
accompanying notes to unaudited condensed financial statements.





- 5
-


HANA
BIOSCIENCES, INC.





CONDENSED
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT


(Unaudited)





Period
from January 1, 2010 to March 31, 2010





Common stock
            
            
            Additional
              paid-in
            
            
            Accumulated
              Other
              Comprehensive
            
            
            Accumulated
            
            
            Total
              stockholders'Shares
            
            
            Amount
            
            
            capital
            
            
            income
            
            
            deficit
            
            
            deficitBalance
      at January 1, 2010
            
            
            79,649,976
            
            
            $
            79,650
            
            
            $
            117,572,373
            
            
            $
            (24,000)
            
            
            $
            (135,124,216)
            
            
            $
            (17,496,193)Share-based
      compensation of employees amortized over vesting period of stock
      options
            
            
            —
            
            
            
            —
            
            
            
            185,098
            
            
            
            —
            
            
            
            —
            
            
            
            185,098Issuance
      of shares under employee stock purchase plan
            
            
            138,288
            
            
            
            138
            
            
            
            22,195
            
            
            
            —
            
            
            
            —
            
            
            
            22,333Unrealized
      loss on available-for-sale securities
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            8,000
            
            
            
            —
            
            
            
            8,000Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (5,472,912)
            
            
            
            (5,472,912)Balance
      at March 31, 2010
            
            
            79,788,264
            
            
            $
            79,788
            
            
            $
            117,779,666
            
            
            $
            (16,000)
            
            
            $
            (140,597,128)
            
            
            $
            $(22,753,674)




See
accompanying notes to unaudited condensed financial statements.





- 6
-


HANA
BIOSCIENCES, INC.





CONDENSED
STATEMENTS OF CASH FLOWS


(Unaudited)





Three Months Ended March 31,2010
            
            
            2009Cash
      flows from operating activities:Net
      loss
            
            $
            (5,472,912)
            
            
            $
            (5,626,355)Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
            
            
            41,462
            
            
            
            50,906Share-based
      compensation of employees for services
            
            
            185,098
            
            
            
            379,803Amortization
      of discount and debt issuance costs
            
            
            414,133
            
            
            
            176,808Unrealized
      gain on warrant liability
            
            
            (40,845)
            
            
            
            (664,060)Changes
      in operating assets and liabilities:(Increase)
      decrease in prepaid expenses and other assets
            
            
            9,653
            
            
            
            (760)Increase
      (decrease) in accrued and other current liabilities
            
            
            (610,300)
            
            
            
            167,402Net
      cash used in operating activities
            
            
            (5,473,711)
            
            
            
            (5,516,256)Cash
      flows from investing activities:Purchase
      of property and equipment
            
            
            (6,499)
            
            
            
            —Net
      cash used in investing activities
            
            
            (6,499)
            
            
            
            —Cash
      flows from financing activities:Proceeds
      from exercise of warrants and options and issuance of shares under
      employee stock purchase plan
            
            
            22,333
            
            
            
            13,271Payments
      on capital leases
            
            
            (16,520)
            
            
            
            (16,458)Net
      cash provided by (used in) financing activities
            
            
            5,813
            
            
            
            (3,187)Net
      decrease in cash and cash equivalents
            
            
            (5,474,397)
            
            
            
            (5,519,443)Cash
      and cash equivalents, beginning of period
            
            
            9,570,453
            
            
            
            13,999,080Cash
      and cash equivalents, end of period
            
            $
            4,096,056
            
            
            $
            8,479,637Supplemental
      disclosures of cash flow data:Cash
      paid for interest
            
            $
            685,294
            
            
            $
            482,057Supplemental
      disclosures of noncash financing activities:Unrealized
      gain (loss) on available-for-sale securities
            
            $
            8,000
            
            
            $
            (32,000)Equipment
      purchases financed through capital lease
            
            $
            —
            
            
            $
            9,895





See
accompanying notes to unaudited condensed financial
statements.





- 7
-


HANA
BIOSCIENCES, INC.


NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS





NOTE
1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION





BUSINESS





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




·
            Marqibo®
      (vincristine sulfate liposomes injection), our lead product candidate, is
      a novel, targeted OptisomeTM encapsulated formulation product candidate of
      the anti-cancer drug vincristine, which is approved by the Food and Drug
      Administration, or FDA, and is currently in development primarily for the
      treatment of adult acute lymphoblastic leukemia, or ALL, and metastatic
      uveal melanoma.





·
            Menadione
      Topical Lotion, a novel supportive care product candidate being
      developed for the prevention and/or treatment of the skin toxicities
      associated with the use of epidermal growth factor receptor inhibitors
      (EGFRI), a type of anti-cancer agent used in the treatment of lung, colon,
      head and neck , pancreatic and breast
cancer.





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





·
            AlocrestTM
      (vinorelbine liposomes injection), a novel, targeted OptisomeTM
      encapsulated formulation product candidate of the FDA-approved anticancer
      drug vinorelbine.





BASIS
OF PRESENTATION AND LIQUIDITY





The
accompanying unaudited condensed financial statements of the Company have been
prepared in accordance with U.S. generally accepted accounting principles (GAAP)
for interim financial information and the instructions to Form 10-Q. In the
opinion of the Company’s management, the unaudited condensed financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting of only normal recurring
adjustments, necessary for the fair presentation of the Company’s financial
position for the periods presented herein. These interim financial results are
not necessarily indicative of the results to be expected for the full fiscal
year ending December 31, 2010 or any subsequent interim period.





As of
March 31, 2010, the Company has a stockholder's deficit of approximately $22.8
million and an accumulated deficit of $140.6 million.  For the three
months ended March 31, 2010, the Company recognized a net loss of $5.5 million.
The Company has financed operations primarily through equity and debt financing
and expects such losses to continue over the next several years.  The
Company currently has a limited supply of cash available for operations. As of
March 31, 2010, the Company had aggregate cash and cash equivalents and
available-for-sale securities of $4.2 million.  The Company has drawn
down $27.5 million of the total $30 million available under the loan facility
agreement with Deerfield Management.  In October 2009, the commitment
period of the loan facility agreement expired and the Company is no longer able
to draw down the remaining $2.5 million of the total $30.0 million commitment by
Deerfield.




The
Company does not generate any recurring revenue and will require substantial
additional capital before it will generate cash flow from its operating
activities, if ever. The Company’s currently available capital is only
sufficient to fund its operations through the end of June 2010 and will require
the Company to significantly reduce its current level of expenses and may impede
its progress toward the continued development of its product
candidates.  Accordingly, the Company’s continued operations are
entirely dependent upon immediately obtaining additional capital and it does not
currently have any committed sources of such additional capital. The Company
will be unable to continue development of its product candidates unless it is
able to obtain additional funding through equity or debt financings or from
payments in connection with potential strategic transactions.  The Company
can give no assurances that any additional capital that it is able to obtain, if
any, will be sufficient to meet its needs. Moreover, there can be no assurance
that such capital will be available to the Company on favorable terms or at all,
especially given the current economic environment and its current financial
condition, which has severely restricted the Company’s access to the capital
markets. If the Company is unable to raise additional capital, it may be
required to cease operations altogether.    These conditions
raise substantial doubt as to the Company’s ability to continue as a going
concern.
 
 Since the
Company does not generate any recurring revenue, the most likely sources of the
additional capital it needs to continue funding its operating activities include
private sales of the Company’s equity securities, including shares of its common
or preferred stock, loans or other debt financings, or potentially through a
strategic licensing or collaboration transaction involving the rights to one or
more of its product candidates.  To the extent that the Company raises
additional capital by issuing equity securities, its stockholders will likely
experience significant dilution. The Company may also grant to future investors
rights superior to those of its existing stockholders, including rights with
respect to liquidation, voting and dividends.  If the Company raises
additional funds through collaborations and licensing arrangements, it may be
necessary to relinquish some rights to its technologies, product candidates or
products, or grant licenses on terms that are not favorable to the
Company.  If the Company raises additional funds by incurring debt, it
could incur significant interest expense and become subject to covenants in the
related transaction documentation that could affect the manner in which it
conducts its business.  Even if the Company is successful in securing
immediate additional capital to continue funding its near-term operating
activities, The Company will continue to need significant amounts of additional
capital thereafter until it can achieve profitability, if ever.
 
 The actual amount of funds the Company will need to operate is
subject to many factors, some of which are beyond its control. These factors
include the following:
 
 ·
              costs
      associated with conducting preclinical and clinical testing of its product
      candidates;
  ·
              costs
      of establishing arrangements for manufacturing its product
      candidates;
  ·
              payments
      required under its current and any future license agreements and
      collaborations;
  ·
              costs,
      timing and outcome of regulatory
reviews;
  ·
              costs
      of obtaining, maintaining and defending patents on its product candidates;
      and
  ·
              costs
      of increased general and administrative
  expenses.
 
 The
Company has based its estimate on assumptions that may prove to be wrong, in
which case, it may need to obtain additional funds sooner or in greater amounts
than currently anticipated.


- 8
-


NOTE
2. SIGNIFICANT ACCOUNTING POLICIES





Use
of Management's Estimates




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





Segment
Reporting




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




Loss
Per Share





Basic net
loss per common share is calculated by dividing net loss by the weighted-average
number of common shares outstanding for the period. Diluted net loss per common
share is the same as basic net loss per common share, since potentially dilutive
securities from stock options and stock warrants would have an anti-dilutive
effect because the Company incurred a net loss during each period presented. The
number of shares potentially issuable at March 31, 2010 and 2009 upon exercise
or conversion that were not included in the computation of net loss per share
totaled 23,500,956 and 13,533,200, respectively.





Cash
and Cash Equivalents and Concentration of Risk




The
Company considers all highly-liquid investments with a maturity of three months
or less when acquired to be cash equivalents. Short-term investments
consist of investments acquired with maturities exceeding three months and are
classified as available-for-sale. All short-term investments are reported
at fair value, based on quoted market price, with unrealized gains or losses
included in other comprehensive loss.





Fair
Value of Financial Instruments





Financial
instruments include cash and cash equivalents, marketable securities, accounts
payable, notes payable and warrant liabilities. Marketable securities are
carried at fair value. Cash and cash equivalents and accounts payable are
carried at cost, which approximates fair value due to the relative short
maturities of these instruments.  The fair value of the Company’s note
payable at March 31, 2010 is $13.6 million.  The fair value of the
Company’s warrant liability is discussed in Note 6.





Debt
Issuance Costs





As
discussed in Note 4, the debt issuance costs relate to fees paid in the form of
cash and warrants to secure a firm commitment to borrow funds.  These fees
are deferred, and if the commitment is exercised, amortized over the life of the
related loan using the interest method.  If the commitment expires
unexercised, the deferred fee is expensed immediately.





Warrant
Liabilities


We have
issued certain warrants that have the characteristics of both equity and
liabilities.  These warrants were evaluated to be classified as liabilities
at the time of issuance and are revalued at fair value from period to period
with the resulting change in value included in net
income/(expense).  See Note 6.





Reclassification




Approximately
$0.3 million in research & development expenses have been reclassified as
general administrative expenses for the three month period ending March 31, 2009
in the Company’s Statement of Operations, to conform to the current year
presentation.





NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS




In
October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue
Arrangements ,” or ASU 2009-13, which amends existing revenue recognition
accounting pronouncements that are currently within the scope of ASC 605. This
guidance eliminates the requirement to establish the fair value of undelivered
products and services and instead provides for separate revenue recognition
based upon management’s estimate of the selling price for both delivered and
undelivered items when there is no other means to determine the fair value of
those items. ASU 2009-13 is effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
June 15, 2010. The Company is currently evaluating the impact, if any, that
the adoption of this amendment will have on its financial
statements.





- 9
-


NOTE
4.  FACILITY LOAN AGREEMENT





On
October 30, 2007, we entered into a Facility Agreement (the “loan agreement”)
with Deerfield under which Deerfield agreed to loan to us an aggregate principal
amount of up to $30 million. Of the total $30 million funds committed pursuant
to the loan agreement, $20 million was available for disbursement to us in four
installments every six months commencing October 30, 2007 and $10 million
was available based on achievement of certain development milestones related to
our Marqibo and Menadione product candidates.  As of December 31, 2009 and
March 31, 2010, we had drawn down $27.5 million.  We are unable to
draw down the remaining $2.5 million as the commitment period for loan
agreement  expired in October 2009.  We must repay all
outstanding principal and interest owing under the loan no later than October
30, 2013. We are also required to make quarterly interest payments on
outstanding principal, at a stated annual rate of 9.85%. In accordance with and
upon execution of the loan agreement, we paid a loan commitment fee of $1.1
million to an affiliate of Deerfield.  Our obligations under the loan are
secured by all assets owned (or that will be owned in the future) by us, both
tangible and intangible. The effective interest rate on the $20 million notes
payable for funds available on the six month installments, including discount on
debt, is approximately 18.05%.  The effective interest rate on the $7.5
million notes payable related to the achievement of development milestones,
including discount on debt, is approximately 11.6%.  As of March 31, 2010,
we had accrued $0.7 million in interest payable that was paid in April 2010.





Fair Value of Warrants. The
aggregate fair values of the warrant series issued upon execution of the loan
agreement, under which an aggregate of the 5,225,433 shares of our common stock
were issuable upon purchase, pursuant to the loan agreement was $5.9 million.
$5.5 million of the total fair value, related to the warrant series to purchase
an aggregate of 4,825,433 shares with an anti-dilution feature, was recorded as
a discount to the note payable. The remaining $0.4 million fair value, relating
to the additional warrant series to purchase an aggregate of 400,000 shares of
common stock, was recorded as a debt issuance cost and is being amortized, using
the interest method, over the life of the loan.   The aggregate fair values
of the warrant series issued when we drew down the funds related to clinical
development milestones, under which an aggregate of the 850,136 shares of our
common stock were issuable upon purchase, pursuant to the loan agreement was
$0.5 million, which was accounted for as a discount to the notes payable in the
balance sheet.  Deerfield required us to redeem these warrants in September
2009, and the $3.9 million obligation was satisfied by issuing units of common
stock and warrants.  Since the redemption of these warrants, there have
been no warrants outstanding pursuant to the loan facility agreement with
Deerfield, whereas the warrants issued under the loan facility agreement had a
value of $0.8 million on March 31, 2009.  See Note 7 for the
discussion of the change in fair value of these warrants in the three months
ended March 31, 2009.





Summary of Notes Payable. On
November 1, 2007, we drew down $7.5 million of the $30.0 million in total loan
proceeds available. On October 14, 2008 and November 12, 2008, we drew down an
additional $12.5 million and $2.5 million, respectively. On May 20, 2009, we
drew down $5.0 million which was available pursuant to the terms of the loan
agreement.  We are not required to pay back any portion of the principal
amount until October 30, 2013.  Upon issuance of these notes, the fair
value of the warrants was determined and included as additional discount on the
debt to Deerfield.  Because the Company issued the warrants pursuant to the
loan, the Company recognized a discount on the note.  The table below is a
summary of the change in carrying value of the notes payable, including the
discount on debt for the three months ended March 31, 2010 and
2009:





Carrying
              Value at
              January 1,
            
            
            Gross
              Borrowings
              Incurred
            
            
            Debt
              Discount
              Incurred
            
            
            Amortized
              Discount
            
            
            Carrying
              Value at
              March 31,2010Notes
      payable
            
            $
            27,500,000
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            27,500,000Discount
      on debt
            
            
            (4,902,950
            )
            
            
            —
            
            
            
            —
            
            
            
            239,294
            
            
            
            (4,663,656
            )Carrying
      value
            
            $
            22,597,050
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            22,836,3442009Notes
      payable
            
            $
            22,500,000
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            22,500,000Discount
      on debt
            
            
            (5,648,459
            )
            
            
            —
            
            
            
            —
            
            
            
            144,114
            
            
            
            (5,504,345
            )Carrying
      value
            
            $
            16,851,541
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            16,995,655




A summary
of the debt issuance costs and changes during the periods ending March 31, 2010
and 2009 is as follows:





Deferred
              Transaction
              Costs on
              January 1,
            
            Amortized
              Deferred
              Transaction
              Costs
            
            Deferred
              Transaction
              Costs
      on
              March
      31,2010
            
            $
            1,193,594
            
            
            $
            (174,8391
            )
            
            $
            1,018,7552009
            
            $
            1,361,356
            
            
            $
            (32,694
            )
            
            $
            1,328,662




1Includes
approximately $0.1 million expense related to unallocated long-term deferred
transaction costs that were expensed in the three months ended March 31, 2010
related to termination of the commitment period of funding of the Deerfield
Agreement.  The commitment period terminated in October
2009.


- 10
-


NOTE
5. STOCKHOLDERS' DEFICIT





Private
Placement.On October 7 2009, the Company entered into a
securities purchase agreement pursuant to which it agreed to sell in a private
placement an aggregate of 54,593,864 units of its securities, each unit
consisting of (i) either (a) one share of common stock, or (b) a seven-year
warrant to purchase one share of common stock at an exercise price of $0.01 per
share (a “Series A Warrant”), and (ii) a seven-year warrant to purchase
one-tenth of one share of common stock at an exercise price of $0.60 (a “Series
B Warrant”), which represented the closing bid price of the Company’s common
stock on October 7, 2009.





Pursuant
to the securities purchase agreement, the Company sold 30,655,999 units for $8.5
million, or $0.30 per unit.  These units consisted of shares of common
stock and Series B Warrants, with a fair value of $7.8 million and $0.6 million,
respectively.  The Company also sold 11,031,722 units consisting of Series
A Warrants and Series B Warrants at a purchase price of $3.2 million, or $0.29
per unit.  The total cash proceeds of the offering were, net of offering
costs of $0.7 million, approximately $11.7 million.  The Company also
issued 12,906,146 units to Deerfield, consisting of shares of common stock
and Series B Warrants, with fair values of $3.6 million and $0.3 million,
respectively.  These units were issued to satisfy a $3.9 million warrant
redemption obligation of the Company to Deerfield, as discussed in Note 4
above.  As described in Note 6, all warrants issued in the offering are
classified as liabilities.





Stock Incentive Plans. As of
March 31, 2010, the Company had three stockholder approved stock incentive plans
under which it grants or has granted options to purchase shares of its common
stock and restricted stock awards to employees: the 2010 Equity Incentive Plan
(the “2010 Plan”), the 2004 Stock Incentive Plan (the “2004 Plan”) and the 2003
Stock Option Plan (the “2003 Plan”).   The Board of Directors, or the
Chief Executive Officer when designated by the Board, is responsible for
administration of the Company’s employee stock incentive plans and determines
the term, exercise price and vesting terms of each option. In general, stock
options issued under all the current plans have a vesting period of three years
and expire ten years from the date of grant. Additionally, the Company has an
Employee Stock Purchase Plan, the 2006 Employee Stock Purchase Plan (the “2006
Plan”).




On
February 16, 2010, the Company's Board of Directors adopted the 2010 Equity
Incentive Plan.  Under the 2010 Plan, the Board or a committee appointed by
the Board may award nonqualified stock options, incentive stock options,
restricted stock, restricted stock units, performance awards, and stock
appreciation rights to participants.  Officers, directors, employees or
non-employee consultants or advisors of the Company (including its subsidiaries
and affiliates) are eligible to receive awards under the 2010 Plan. The total
number of shares of the Company's common stock available for grants of awards to
participants under the 2010 Plan is 8,000,000 shares.  Also on
February 16, 2010, the Board adopted amendments to the Company’s 2003 and 2004
Plan.  Pursuant to the amendments, the number of shares of common stock
authorized for issuance under the 2003 Plan was reduced from 1,410,068 to
528,342, of which 259,664 shares are reserved for issuance pursuant to the
exercise of outstanding stock options, and 268,678 shares have previously been
issued under the 2003 Plan.  Similarly, the number of shares of common
stock authorized for issuance under the 2004 Plan was reduced from 7,000,000 to
4,747,257, of which 4,279,661 shares are reserved for issuance pursuant to the
exercise of outstanding stock options, and 467,596 shares have previously been
issued under the 2004 Plan.  The Company intends for all future stock
option awards to be issued under the 2010 Plan, with no additional awards being
issued under the 2003 Plan or 2004 Plan.





Stock Options. The following
table summarizes information about stock options outstanding at March 31, 2010
and changes in outstanding options in the three months then ended, all of which
are at fixed prices:




Number of
              Shares Subject
              to Options
              Outstanding
            
            
            Weighted Average
              Exercise Price per
              Share
            
            
            Weighted Average
              Remaining
              Contractual
              Term
              (in years)
            
            
            Aggregate
              Intrinsic
              ValueOutstanding
      January 1, 2010
            
            
            4,834,038
            
            
            $
            1.82Options
      granted
            
            
            4,365,000
            
            
            
            0.19Options
      cancelled
            
            
            (441,333
            )
            
            
            3.60Options
      exercised
            
            
            —
            
            
            
            —Outstanding
      March 31, 2010
            
            
            8,757,705
            
            
            $
            0.92
            
            
            
            8.6
            
            
            $
            57,590Exercisable
      at March 31, 2010
            
            
            2,957,370
            
            
            $
            2.08
            
            
            
            6.9
            
            
            $
            31,123




- 11
-


Total
share-based compensation expense was approximately $0.2 million and $0.4 million
related to employee stock options recognized in the operating results for the
three months ended March 31, 2010 and 2009, respectively.




The
following table summarizes information about stock options outstanding at March
31, 2010:





Options Outstanding
            
            
            Options ExercisableExercise Price
            
            
            Number of
              Shares
              Subject to
              Options
              Outstanding
            
            Weighted
              Average
              Exercise
              Price
            
            
            Weighted
              Average
              Remaining
              Contractual
              Life of
              Options
              Outstanding
            
            
            Number
              of Options
              Exercisable
            
            Weighted
              Average
              Exercise
              Price$ 0.07 - $ 0.20
            
            
            5,389,505
            
            $
            0.18
            
            
            9.6
      yrs
            
            
            525,172
            
            $
            0.13$ 0.21 - $ 1.32
            
            
            1,892,044
            
            
            0.97
            
            
            7.6
      yrs
            
            
            1,160,712
            
            
            1.00$ 1.33 - $ 4.50
            
            
            912,656
            
            
            1.67
            
            
            6.4
      yrs
            
            
            707,986
            
            
            1.67$ 4.51 - $ 10.98
            
            
            563,500
            
            
            6.63
            
            
            6.1
      yrs
            
            
            563,500
            
            
            6.63$0.07 - $10.98
            
            
            8,757,705
            
            $
            0.92
            
            
            8.6
      yrs
            
            
            2,957,370
            
            $
            2.08





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





Through
March 31, 2010, we have issued 466,811 shares under the 2006 Plan. For the three
months ended March 31, 2010 and 2009, the total share-based compensation expense
recognized related to the 2006 Plan under SFAS 123(R) was approximately $25,000
and $43,000, respectively.




Assumptions. The Company
estimates the fair value of each option award on the date of grant using the
Black-Scholes-Merton option-pricing model.  The following table
summarizes the assumptions used in applying the Black-Scholes-Merton option
pricing model to determine the fair value of awards granted during the three
months ended March 31, 2010 and 2009, respectively:





Three Months Ended March 31,2010
            
            
            2009Employee
      stock optionsRisk-free
      interest rate
            
            
            3.00
            %
            
            
            1.90
            %Expected
      life (in years)
            
            
            5.5 –
      6.0
            
            
            
            5.5 –
      6.0Volatility
            
            
            0.99
            
            
            
            0.95Dividend
      Yield
            
            
            —
            %
            
            
            —
            %Employee
      stock purchase planRisk-free
      interest rate
            
            
            0.20 –
      1.14
            %
            
            
            0.27 –
      0.76
            %Expected
      life (in years)
            
            
            0.5
      - 2
            
            
            
            0.5
      - 2Volatility
            
            
            1.74 –
      2.12
            
            
            
            1.30 –
      1.99Dividend
      Yield
            
            
            —
            %
            
            
            —
            %







Warrants. As of March 31,
2010, all outstanding warrants were available for exercise. Warrants to acquire
892,326 shares of common stock at $1.57 per share expired on April 22, 2010.
 Warrants to acquire 864,648 shares of common stock at $5.80 per share
expire in October of 2010. There are
outstanding Series A warrants to purchase an aggregate of 7,526,895 shares of
common stock and Series B warrants to purchase an aggregate of 5,459,382 shares
of common stock, which warrants were issued in connection with the Company’s
October 2009 private placement.  If the Company issues equity
securities in the future, other than to employees, directors or consultants of
the Company pursuant to the Company’s stock plans, at a price per share lower
than $0.60, the exercise price of the Series B Warrants will be reduced to such
lower price, but not lower than $0.30 per share.





The
following table summarizes the warrants outstanding as of March 31, 2010 and the
changes in outstanding warrants in the years then ended:





Number Of
              Shares Subject
              To Warrants
              Outstanding
            
            
            Weighted-Average
              Exercise PriceWarrants
      outstanding January 1, 2010
            
            
            14,743,251
            
            
            $
            0.66Warrants
      granted
            
            
            -
            
            
            
            -Warrants
      cancelled
            
            
            -
            
            
            
            -Warrants
      outstanding March 31, 2010
            
            
            14,743,251
            
            
            $
            0.66




- 12
-


NOTE
6. WARRANT LIABILITY





On
October 30, 2007, we entered into a loan facility agreement with Deerfield
Private Design Fund, L.P., Deerfield Special Situations Fund, L.P., Deerfield
Special Situations Fund International Limited and Deerfield Private Design
International, L.P. (collectively, “Deerfield”). As partial consideration for
the loan, we also issued to Deerfield warrants to purchase shares of our common
stock. Certain of these warrants included an anti-dilution feature. This feature
required that, as we issued additional shares of our common stock during the
term of the warrant, the number of shares purchasable under this series was
automatically increased so that they always represented a fixed percentage of
our then outstanding common stock. Because the warrants were redeemable if
certain events occurred, we recorded the fair value of the warrants as a
liability, updating our estimate of the fair value of the warrant liabilities in
each reporting period as new information became available and any gains or
losses resulting from the changes in fair value from period to period being
included as other income/(expense).





On September 8, 2009, we received a
notice from the Staff of The NASDAQ Stock Market indicating that we failed to
regain compliance with NASDAQ listing requirements and that trading of our
common stock on the NASDAQ Capital Market would be suspended effective at the
opening of business on September 10, 2009.  In accordance with the terms of
the warrants issued pursuant to the October 2007 loan agreement, Deerfield had
previously notified us of its intention to require us redeem the warrants, upon
such suspension.  However, pursuant to the terms of a September 3, 2009
letter agreement, we and Deerfield agreed that, in lieu of satisfying the
warrant redemption price of approximately $3.87 million in cash, we could
satisfy such obligation at Deerfield’s election as follows:





·
            upon
      the completion by us of a “Qualified Financing” at any time or from time
      to time on or prior to June 30, 2010, by the issuance to Deerfield of the
      same type of securities that Deerfield would have received had the
      redemption price been invested in such financing; or·
            on
      any date on or prior to July 1, 2010 specified in a written notice by
      Deerfield to we, by the issuance to Deerfield of shares of our common
      stock equal to the redemption price divided by the lesser of $.60 or the
      average closing sale price of the common stock during the 10 trading days
      immediately preceding the date of such
notice.





We
satisfied the warrant redemption price by issuing to Deerfield securities in
connection with our October 2009 private
placement.    Additionally, the warrants issued as part of
the October 2009 securities purchase (see Note 5) agreement are classified as a
liability on the balance sheet based on certain cash settlement provisions
available to the warrant holders upon certain reorganization events in our
equity structure, including mergers.  Specifically, in the event we are
acquired in an all cash transaction, a transaction whereby we cease to be a
publicly held entity under Rule 13e-3 of the Securities Exchange Act of 1934, or
a reorganization involving an entity not traded on a national securities
exchange, the warrant holders may elect to receive an amount of cash equal to
the value of the warrants as determined in accordance with the
Black-Scholes-Merton option pricing model with certain defined
assumptions.  At any time when the resale of the warrant shares is not
covered by an effective registration statement under the Securities Act of 1933,
the warrant holders can elect a cashless exercise of all or any portion of
shares outstanding under a warrant, in which case they would receive a number of
shares with a value equal to the intrinsic value on the date of exercise of the
portion of the warrant being exercised.  Additionally, warrant holders have
certain registration rights and we would be obligated to make penalty payments
to them under certain circumstances if we were unable to maintain effective
registration of the shares underlying the warrants with the SEC.





As of
March 31, 2010, the Company remeasured the fair value of the remaining Series A
and Series B Warrants with the following assumptions:  risk-free interest
rate of 3.28%, an expected life of 6.5 years, which is the remaining contractual
life of the instrument; an expected volatility factor of 99% and a dividend
yield of 0.0%. The fair value of these warrants on March 31, 2010 was $2.1
million.  The Company recognized a gain of approximately $40,000 in
the three months ended March 31, 2010 in the Statement of Operations,
representing a reduction in the value of such warrants as compared to December
31, 2009.  For additional details on the change in value of these
liabilities, see Note 7.








NOTE
7. FAIR VALUE MEASUREMENTS




ASC 820
defines fair value, establishes a framework for measuring fair value under
generally accepted accounting principles and enhances disclosures about fair
value measurements. Fair value is defined under ASC 820 as the exchange price
that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value under ASC 820 must maximize the
use of observable inputs and minimize the use of unobservable inputs. The
standard describes a fair value hierarchy based on three levels of inputs, of
which the first two are considered observable and the last unobservable, that
may be used to measure fair value which are the following:





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





- 13
-


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





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







The
following table represents the fair value hierarchy for our financial assets and
liabilities held by the Company measured at fair value on a recurring
basis:





As of March 31, 2010Level 1
            
            
            Level 2
            
            
            Level 3
            
            
            TotalAssetsMoney
      market funds
            
            $
            51,039
            
            
            $
            —
            
            
            $
            —
            
            
            $
            51,039Available-for-sale
      equity securities
            
            
            76,000
            
            
            
            —
            
            
            
            —
            
            
            
            76,000Total
            
            $
            127,039
            
            
            $
            —
            
            
            $
            —
            
            
            $
            127,039LiabilitiesWarrant
      liabilities
            
            
            —
            
            
            
            —
            
            
            $
            2,104,666
            
            
            $
            2,104,666Total
            
            $
            —
            
            
            $
            —
            
            
            $
            2,104,666
            
            
            $
            2,104,666





As of March 31, 2009Level 1
            
            
            Level 2
            
            
            Level 3
            
            
            TotalAssetsMoney
      market funds
            
            $
            69,031
            
            
            $
            —
            
            
            $
            —
            
            
            $
            69,031Available-for-sale
      equity securities
            
            
            96,000
            
            
            
            —
            
            
            
            —
            
            
            
            96,000Total
            
            $
            165,031
            
            
            $
            —
            
            
            $
            —
            
            
            $
            165,031LiabilitiesWarrant
      liabilities
            
            
            —
            
            
            
            —
            
            
            $
            786,419
            
            
            $
            786,419Total
            
            $
            —
            
            
            $
            —
            
            
            $
            786,419
            
            
            $
            786,419








A summary
of the activity of the fair value of the Level 3 liabilities2 is as follows:





Beginning
              Value of
              Level 3
              Liabilities
            
            Additional
              Level 3
              Liabilities
              Incurred
            
            Liabilities
              extinguished
            
            Net
              Gain on
              Change in Fair
              Value of
              Level 3
              Liabilities
            
            
            Ending Fair
              Value of
              Level 3
              LiabilitiesFor
      the three months ended March 31, 2010
            
            $
            2,145,511
            
            
            $
            —
            
            
            $
            —
            
            
            $
            (40,845)
            
            
            $
            2,104,666For
      the three months ended March 31, 2009
            
            $
            1,450,479
            
            
            $
            —
            
            
            $
            —
            
            
            $
            (664,060)
            
            
            $
            786,419







2 All
Level 3 liabilities are comprised of warrant liabilities. For the three months
ended March 31, 2009, all warrant activity related to warrants issued to
Deerfield Management as part of the loan facility agreement.  See Note
4 for details of this transaction.  For three months ended March 31,
2010, all warrant activity related to warrants issued as part of the October
2009 Securities Purchase Agreement. See Note 5 for details of this
transaction.
  - 14
-


NOTE
8. AVAILABLE-FOR-SALE SECURITIES





On March
31, 2010, the Company had $76,000 in total marketable securities which consisted
of shares of NovaDel Pharma, Inc. (“NovaDel”) purchased in conjunction with the
Zensana license agreement originally entered into in October 2004.





The
following table summarizes the NovaDel shares classified as available-for-sale
securities during the three months ended March 31 2010 and 2009:





Beginning
              Value
            
            Net
              Unrealized
              Gain/(Loss)
            
            Gross
              Realized
              Gain/(Loss)
            
            Ending ValueFor
      the three months ended March 31, 2010
            
            $
            68,000
            
            
            $
            8,000
            
            
            $
            —
            
            
            $
            76,000For
      the three months ended March 31, 2009
            
            $
            128,000
            
            
            $
            (32,000)
            
            
            $
            —
            
            
            $
            96,000





NOTE 9.  ACCOUNTS PAYABLE
AND ACCRUED LIABILITIES





Accounts
payable and accrued liabilities consist of the following at March 31, 2010 and
December 31, 2009:





March
      31,
              2010
            
            
            December
      31,
              2009Trade
      accounts payable
            
            $
            1,186,134
            
            
            $
            1,008,560Clinical
      research and other development related costs
            
            
            1,256,219
            
            
            
            1,232,291Accrued
      personnel related expenses
            
            
            189,019
            
            
            
            979,963Interest
      payable
            
            
            667,911
            
            
            
            682,753Accrued
      other expenses
            
            
            117,492
            
            
            
            123,508Total
            
            $
            3,416,775
            
            
            $
            4,027,075





NOTE
10. COMMITMENTS





Lease Agreements. The Company
entered into a three year sublease, which commenced on May 31, 2006, for
property at 7000 Shoreline Court in South San Francisco, California, where the
Company’s executive offices are located. In May 2008, the Company and its
sublessor entered into an amendment to the sublease agreement, which increased
the term of the lease from three years to four years. Effective June 24, 2009,
the Company entered into a further amendment to the sublease, which extended the
term of the lease through March 2011 and reduced the monthly lease payments from
$2.80 per square foot to $2.45 per square foot for the eleven month period from
July 2009 through May 2010 and reduced the lease payments from $2.90 per square
foot to $1.95 per square feet for the ten month period from June 2010 through
March 2011.  The total cash payments due for the duration of the sublease
equaled approximately $0.4 million at December 31, 2009.





Employment Agreements. On
June 6, 2008, the Company entered into a new employment agreement with its
President and Chief Executive Officer. This agreement provides for an employment
term that expires in December 2010. The minimum aggregate amount of gross salary
compensation to be provided for over the remaining term of the agreement
amounted to approximately $0.3 million at March 31, 2010.





NOTE
11. RESTRICTED CASH





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





- 15
-


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 unaudited condensed financial statements and the notes to those statements
included elsewhere in this Quarterly Report on Form 10-Q. This discussion
includes forward-looking statements that involve risks and uncertainties. As a
result of many factors, such as those set forth under “Risk Factors” in Item 1A
of Part I of the 2009 Form 10-K, our actual results may differ
materially from those anticipated in these forward-looking statements
..





Overview





We are a
biopharmaceutical company dedicated to developing and commercializing new,
differentiated cancer therapies designed to improve and enable current standards
of care.  We currently have four product candidates in various stages
of development:




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




·
            Menadione
      Topical Lotion, a novel supportive care product candidate, being developed
      for the prevention and/or treatment of the skin toxicities associated with
      the use of epidermal growth factor receptor inhibitors, a type of
      anti-cancer agent used in the treatment of certain
  cancers.




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




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





Revenues





We do not
expect to generate any significant revenue from product sales or royalties in
the foreseeable future.   We may have revenues in the future only
if we are able to develop and commercialize our products, license our technology
and/or enter into strategic partnerships. If we are unsuccessful, our ability to
generate future revenues will be significantly diminished.




Research
and Development Expenses





Research
and development expenses, which account for the bulk of our expenses, consist
primarily of salaries and related personnel costs, fees paid to consultants and
outside service providers for laboratory development, manufacturing, and other
expenses relating to the acquiring, design, development, testing, and
enhancement of our product candidates, including milestone payments for licensed
technology. We expense research and development costs as they are
incurred.





While
expenditures on current and future clinical development programs are expected to
be substantial, particularly in light of our available resources, they are
subject to many uncertainties, including the results of clinical trials and
whether we develop any of our drug candidates with a partner or independently.
As a result of such uncertainties, we cannot predict with any significant degree
of certainty the duration and completion costs of our research and development
projects or whether, when and to what extent we will generate revenues from the
commercialization and sale of any of our product candidates. The duration and
cost of clinical trials may vary significantly over the life of a project as a
result of unanticipated events arising during clinical development and a variety
of factors, including:





·
            the
      number of trials and studies in a clinical
  program;





·
            the
      number of patients who participate in the
  trials;





·
            the
      number of sites included in the
trials;





·
            the
      rates of patient recruitment and
enrollment;





·
            the
      duration of patient treatment and
follow-up;





·
            the
      costs of manufacturing our drug candidates;
and





·
            the
      costs, requirements, timing of, and the ability to secure regulatory
      approvals.




- 16
-


General
and Administrative Expenses





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





Share-based
Compensation





Share-based
compensation expenses consist primarily of expensing the fair-market value of a
share-based award over the vesting term.  This expense is included in our
operating expenses for each reporting period.





Critical
Accounting Policies





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




Share
Based Compensation




We have
adopted revised authoritative guidance related to stock-based compensation under
FASB ASC TOPIC 718 “ Compensation – Stock
Compensation .”  We have adopted a Black-Scholes-Merton model
to estimate the fair value of stock options issued and the resultant expense is
recognized in the statement of operations each reporting period.  See
Note 4 of our unaudited condensed financial statements included elsewhere in
this Form 10-Q for further information regarding the required disclosures
related to share-based compensation.





Warrant
Liabilities





We have
issued certain warrants that have characteristics of both equity and
liabilities.  These warrants were evaluated to be classified as
liabilities at the time of issuance and are revalued at fair value from period
to period with the resulting change in value included in the statement of
operations.




Licensed
In-Process Research and Development


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





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




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





- 17
-


Results
of Operations





Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009




General and administrative
expenses. For the three months ended March 31, 2010, general and
administrative, or G&A, expense was $0.9 million, as compared to $1.1
million for the three months ended March 31, 2009.  The decrease of
$0.2 million is due to decreased personnel related expenses of $0.1 million and
decreased costs for outside services and professional services of $0.1
million.





The $0.1
million decrease in employee-related expenses includes a decrease of $0.1
million in employee related share-based compensation expense due to decreased
valuation of stock options issued to employees as a result of the decrease in
value of the Company’s stock price.





The $0.1
million decrease in outside services and professional fees was due to decreased
accounting and legal fees.





Research and development
expenses. The following table summarizes our R&D expenses incurred
for preclinical support, contract manufacturing for clinical supplies and
clinical trial services provided by third parties, as well as milestone payments
for in-licensed technology for each of our current major product development
programs for the three months ended March 31, 2010 and 2009.  The
table also summarizes unallocated costs, which consist of personnel, facilities
and other costs not directly allocable to development programs.





Product candidates ($ in thousands)
            
            2010
            
            
            2009
            
            
            Annual %
              ChangeMarqibo
            
            $
            951
            
            
            $
            1,221
            
            
            
            -22
            %Menadione
            
            
            16
            
            
            
            431
            
            
            
            -96
            %Brakiva
            
            
            (11)
            
            
            
            136
            
            
            
            N/AAlocrest
            
            
            -
            
            
            
            (13)
            
            
            
            N/ADiscontinued/out-licensed
      product candidates
            
            
            -
            
            
            
            5
            
            
            
            N/A
            %Total
      third party development costs
            
            
            866
            
            
            
            662
            
            
            
            31
            %Allocable
      costs and overhead
            
            
            261
            
            
            
            276
            
            
            
            -5
            %Personnel
      related expense
            
            
            1,092
            
            
            
            1,275
            
            
            
            -14
            %Share-based
      compensation expense
            
            
            84
            
            
            
            199
            
            
            
            -58
            %Total
      research and development expense
            
            $
            3,259
            
            
            $
            4,192
            
            
            
            -22
            %






Marqibo.
 Marqibo costs
decreased by $0.3 million in the three months ended March 31, 2010 compared to
the same period in 2009.  The main cause of the decrease costs was due
to the completion of enrollment in our Phase 2 clinical trial in adult
Philadelphia chromosome negative ALL patients in second relapse, or those who
have progressed following two prior lines of anti-leukemia therapy, or the rALLy
study, in the fourth quarter of 2009.  These costs were partially
offset by increased manufacturing costs in preparation for a pre-New Drug
Application, or NDA, meeting which was completed on April 20, 2010, with the
FDA.  The purpose of the meeting was to discuss the proposed NDA and
to confirm the clinical, non-clinical and manufacturing requirements for the NDA
submission.  Following the pre-NDA meeting, we intend to proceed with
our plan to submit a rolling NDA for Marqibo in relapsed/refractory adult
Philadelphia chromosome-negative ALL in the second half of 2010 to seek
accelerated approval.  In the first quarter of 2010, we continued to
finalize data for the rALLy study and continued enrollment in our pilot Phase 2
trial in metastic uveal melanoma. We plan to initiate a confirmatory trial of
Marqibo in ALL in 2011.  We expect to spend a total of approximately
$7.3 million on external project costs relating to Marqibo in 2010. We estimate
that we will need to expend at least an additional $10 million of external costs
in order to obtain accelerated approval which would permit us to sell Marqibo to
a limited segment of the market.  If we receive accelerated approval,
we will need to run additional trials to receive full FDA approval in order to
sell Marqibo to a larger segment of the market.  The additional
external costs to run these trials to obtain full FDA approval are $62
million.  External costs include drug manufacture, clinical trial
costs, data management and supporting activities not provided by our full-time
employees.  We expect that it will take approximately three to four
years until we will have completed development and obtained full FDA approval of
Marqibo, if ever.





Menadione.
 In the three months ended March 31, 2010 Menadione costs decreased by $0.4
million in compared to the same period in 2009, due largely to completion of
enrollment in a Phase 1 study in cancer patients.  We plan to initiate
a Phase 2 clinical trial in cancer patients in mid 2010, pending final results
of the Phase 1 study and our ability to obtain additional
financing.  As this drug is early in its clinical development, both
the registrational strategy and total expenditures to obtain FDA approval are
still being evaluated. However, we expect to spend approximately $0.5 million on
external project costs relating to Menadione in 2010, and while we are still
evaluating the development plan for Menadione, we estimate that we will need to
expend at least an aggregate of approximately $55 million of additional funds on
external costs in order for us to obtain full FDA approval for Menadione, if
ever.  External costs include drug manufacture, clinical trial costs,
data management and supporting activities not provided by our full-time
employees.  We expect that it will take approximately two to three
years until we will have completed development and obtained FDA approval, if
ever.  Per the terms of the securities purchase agreement completed in
October 2009, we agreed to use the proceeds of the sale of those securities
solely for the clinical and regulatory development of our Marqibo program. As
such, future development of Menadione is contingent on obtaining additional
funding, if any such funding is available in the future.





Brakiva. In the three months ended March 31, 2010 Brakiva costs decreased
by $0.1 million in compared to the same period in 2009, due to slow enrollment
in a Phase 1 clinical study, which we initiated in November 2008.  We
are exploring options for further development of Brakiva beyond the phase 1
trial.  As this drug is early in its clinical development, both the
registrational strategy and total expenditures to obtain FDA approval are still
being evaluated.  Per the terms of the securities purchase agreement
completed in October 2009, we agreed to use the proceeds of the sale of those
securities solely for the clinical and regulatory development of our Marqibo
program. As such, future development of Brakiva is contingent on obtaining
additional funding, if any such funding is available in the future.





- 18
-


Alocrest. We are currently exploring options for the continued development
of Alocrest and do not expect to incur significant project costs in
2010.





Discontinued/Out-licensed
projects. We did not pursue development on our Zensana
product candidates in 2010 which was out-licensed in 2007.   We may
incur only incidental expenses in 2010 related to the continued disposition of
this product.





Other R&D
expenses. Third-party costs related to indirect support of
our clinical trials and product candidates increased by $0.2 million in the
three months ended March 31, 2010 compared to the same period in
2009.  These costs are not directly allocable to an individual product
candidate and primarily relate to outside services and professional fees related
to indirect support of our research and development functions including data
management, regulatory and clinical development.  The main increase in
costs was due to increased consultants used to prepare for our intended NDA
submission of our product candidate Marqibo as well as consultants used to
collect the final data for our Phase 2 clinical trial, rALLy, in
Marqibo.





Personnel
related costs decreased by $0.2 million in the three months ended March 31, 2010
compared to the same period in 2009, due to lower headcount and cost reduction
measures implemented to reduce employee benefit costs.   We
expect these costs to increase slightly in 2010 as we continue to add the
necessary resources in order to submit our NDA to the FDA.





Stock
compensation expense decreased due to a lower valuation for options issued in
2010 due to the Company’s lower stock price.  We expect stock-based
compensation will continue to decrease until our stock price increases or the
amount of options issued increase.





Interest expense. For the
three months ended March 31, 2010, interest expense was $1.1 million as compared
to interest expense of $0.7 million for the three months ended March 31, 2009.
The increase resulted from a larger average balance outstanding on our loan
facility with Deerfield as well as $0.1 million of long-term deferred
transaction costs that were expensed as interest expense in
2010.  These long-term deferred transaction costs related to the
unused funds at the termination of the commitment period of the Deerfield loan
facility agreement.  We originally entered into this loan agreement in
October 2007.





Gain or loss on change in fair
market value of warrant liabilities. For the three months ended March 31,
2010, we recognized a gain related to the change in fair market value of the
warrant liabilities of less than $0.1 million.  In three months ended
March 31, 2009, we recognized a gain on warrant liabilities of approximately
$0.7.  The value of these warrants is largely dependent on the price of our
common stock, and as the stock price is reduced, the value of these warrants
will decrease and our gain on the change in market value will increase.





Liquidity
and Capital Resources




As of
March 31, 2010, we had a stockholder's deficit of approximately $22.8 million
and an accumulated deficit of $140.6 million.  For the three months
ended March 31, 2010, we recognized a net loss of $5.5 million. We have financed
operations primarily through equity and debt financing and expect such losses to
continue over the next several years.  We currently have a limited supply
of cash available for operations. As of March 31, 2010, we had aggregate cash
and cash equivalents and available-for-sale securities of $4.2 million and
available working capital of $0.8 million.  We have drawn down $27.5
million of the total $30 million available under the loan facility agreement
with Deerfield Management.  In October 2009, the commitment period of
the loan facility agreement expired and we are no longer able to draw down the
remaining $2.5 million of the total $30.0 million commitment by
Deerfield.





We do not
generate any recurring revenue and will require substantial additional capital
before it will generate cash flow from our operating activities, if ever. Our
currently available capital is only sufficient to fund our operations through
the end of June 2010 and will require us to significantly reduce our current
level of expenses and may impede our progress toward the continued development
of our product candidates.  Accordingly, our continued operations are
entirely dependent upon immediately obtaining additional capital, and we do not
currently have any committed sources of such additional capital. We will be
unable to continue development of our product candidates unless we are able to
obtain additional funding through equity or debt financings or from payments in
connection with potential strategic transactions.  We can give no
assurances that any additional capital that we are able to obtain, if any, will
be sufficient to meet our needs. Moreover, there can be no assurance that such
capital will be available to us on favorable terms or at all, especially given
the current economic environment and our current financial condition, which has
severely restricted our access to the capital markets. If we are unable to raise
additional capital, we may be required to cease operations
altogether.    These conditions raise substantial doubt as
to our ability to continue as a going concern.
 
 Since we
do not generate any recurring revenue, the most likely sources of the additional
capital we need to continue funding our operating activities include private
sales of our equity securities, including shares of our common or preferred
stock, loans or other debt financings, or potentially through a strategic
licensing or collaboration transaction involving the rights to one or more of
our product candidates.  To the extent that we raise additional
capital by issuing equity securities, our stockholders will likely experience
significant dilution. We may also grant to future investors rights superior to
those of our existing stockholders, including rights with respect to
liquidation, voting and dividends.  If we raise additional funds
through collaborations and licensing arrangements, we may be necessary to
relinquish some rights to our technologies, product candidates or products, or
grant licenses on terms that are not favorable to us. If we raise additional
funds by incurring debt, we could incur significant interest expense and become
subject to covenants in the related transaction documentation that could affect
the manner in which we conduct our business.  Even if we are
successful in securing immediate additional capital to continue funding our
near-term operating activities, we will continue to need substantial amounts of
additional capital thereafter until we can achieve profitability, if
ever.
 
 The actual amount of funds we will need to operate is subject to
many factors, some of which are beyond our control. These factors include the
following:
 
 ·
              costs
      associated with conducting preclinical and clinical testing of our product
      candidates;
  ·
              costs
      of establishing arrangements for manufacturing our product
      candidates;
  ·
              payments
      required under our current and any future license agreements and
      collaborations;
  ·
              costs,
      timing and outcome of regulatory
reviews;
  ·
              costs
      of obtaining, maintaining and defending patents on our product candidates;
      and
  ·
              costs
      of increased general and administrative
  expenses.
 
 We have
based our estimate on assumptions that may prove to be wrong, in which case, we
may need to obtain additional funds sooner or in greater amounts than we
currently anticipate.


Off-Balance Sheet Arrangements




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





Item
3.  Quantitative and Qualitative Disclosures About Market Risk




Not
applicable.




- 19
-


Item
4T. Controls and Procedures




Evaluation
of Disclosure Controls and Procedures





We
conducted an evaluation as of March 31, 2010, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures, which are defined under SEC rules as
controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files
under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within required time periods. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that, as of such date, our disclosure controls and procedures were
effective.





Limitations
on the Effectiveness of Controls





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




Changes
in Internal Controls Over Financial Reporting





During
the quarter ended March 31, 2010, 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.





- 20
-


PART
II - OTHER INFORMATION





Item
1. Legal Proceedings





We are
not involved in any legal proceeding.




Item
1A. Risk Factors





An
investment in our common stock involves significant risk. You should carefully
consider the information described in the following risk factors, together with
the other information appearing elsewhere in this report, before making an
investment decision regarding our common stock. You should also consider the
risk factors set forth in our Annual Report on Form 10-K for the year ended
December 31, 2009(“2009 Annual Report”) under the caption “Item 1A. Risk
Factors,”  If any of the risks described below or in our 2009 Annual
Report actually occur, our business, financial conditions, results of operation
and future growth prospects would likely be materially and adversely affected.
In these circumstances, the market price of our common stock could decline, and
you may lose all or a part of your investment in our common stock. Moreover,
the risks described below and in our 2009 Annual Report are not the only ones
that we face. Additional risks not presently known to us or that we currently
deem immaterial may also affect our business, operating results, prospects or
financial condition.








We
need immediate additional capital to fund our continued operations. If we are
unable to raise such additional capital, we will be forced to discontinue our
product development programs, relinquish our rights to some or all of our
product candidates or cease operations altogether. The manner in which we raise
any additional funds may affect the value of your investment in our common
stock.





We
believe that our currently available capital is only sufficient to fund our
operations into June 2010.  Given our desired clinical
development plans for the next 12 months, our financial statements reflect an
uncertainty about our ability to continue as a going concern, which is also
stated in the report from our auditors on the audit of our financial statements
as of and for the year ended December 31, 2009.  Accordingly, we need
immediate additional capital to fund our continued operations.





Since we
do not generate any recurring revenue, the most likely sources of such
additional capital include private placements of our equity securities,
including our common stock, debt financing or from a potential strategic
licensing or collaboration transaction involving the rights to one or more of
our product candidates.  To the extent that we raise additional
capital by issuing equity securities, our stockholders will likely experience
significant dilution. We may also grant to future investors rights superior to
those of our existing stockholders, including rights with respect to
liquidation, voting and dividends.  If we raise additional funds
through collaborations and licensing arrangements, we may be necessary to
relinquish some rights to our technologies, product candidates or products, or
grant licenses on terms that are not favorable to us. If we raise additional
funds by incurring debt, we could incur significant interest expense and become
subject to covenants in the related transaction documentation that could affect
the manner in which we conduct our business.





However,
we have no committed sources of additional capital and our access to capital
funding is always uncertain. This uncertainty is exacerbated due to the ongoing
global economic turmoil, which has severely restricted access to the U.S. and
international capital markets, particularly for small biopharmaceutical and
biotechnology companies like us.  In addition, our ability to access
capital is made more difficult due to our relative size and our current
financial condition.  Accordingly, despite our ability to secure
adequate capital in the past, there is no assurance that additional equity or
debt financing will be available to us when needed, on acceptable terms or even
at all. If we fail to obtain the necessary additional capital when needed, we
will be forced to significantly curtail our planned research and development
activities, which will cause a delay in our drug development
programs.  If we do not obtain additional capital before we have
consumed our currently available resources, we may be forced to cease our
operations altogether, in which case you will lose your entire investment in our
company.





Further,
our available capital may be consumed sooner than we anticipate depending on a
variety of factors, including:





·
            costs
      associated with conducting our ongoing and planned clinical trials and
      regulatory development activities;





·
            costs,
      timing and outcome of regulatory
reviews;





·
            costs
      of establishing arrangements for manufacturing our product
      candidates;





·
            costs
      associated with commercializing our lead programs, including establishing
      sales and marketing functions;





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





·
            costs
      of obtaining, maintaining and defending patents on our product candidates;
      and





·
            costs
      of acquiring any new drug
candidates.





- 21
-


Our
near-term viability is substantially dependent on our ability to obtain
accelerated approval of Marqibo by the FDA.





A
substantial portion of our current human and financial resources is focused in
the development of Marqibo, our lead product candidate.  We are
currently evaluating the data from our global, registration-enabling Phase 2
clinical trial of Marqibo in adult Philadelphia chromosome negative ALL patients
in second relapse or those who have progressed following two prior lines of
therapy.  We refer to this Phase 2 clinical trial as the rALLy
study.  The primary outcome measure of the rALLy study is complete
remission, or CR, or CR without full hematological recovery, or
CRi.  Our target enrollment for the rALLy study is 65 patients, which
we achieved in December 2009.  In December 2009, we announced
preliminary data indicating that of the first 56 patients dosed in the study, 12
patients, or 21 % of the first 56 patients enrolled, had achieved a CR or CRi
and that the estimated median overall survival in complete responders was 7.3
months.





In April
2010, we met with the FDA concerning our plans to initiate a rolling submission
new drug application, or NDA, seeking accelerated approval of Marqibo for the
treatment of ALL.  Following such meeting, we intend to proceed with
our plan to initiate a rolling NDA submission in 2010, subject to the
availability of additional capital.  There can be no guarantee that
our submission will be accepted for filing by the FDA and, even if our planned
NDA filing is accepted for filing, there is no assurance that the FDA will find
that the data and other information relating to Marqibo included in such
submission will be sufficient to support accelerated approval of
Marqibo.  If the final data is insufficient to support
the submission of an NDA for accelerated approval, or if the FDA accepts
our NDA for review but subsequently denies approval, our business would be
substantially and adversely affected and we would be forced to significantly
curtail or even cease our operations..




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





None





Item
3. Defaults Upon Senior Securities





Not
applicable





Item
4. Removed and Reserved







Item
5. Other Information





None





Item
6. Exhibits





Exhibit No.
            
            Description10.1
            
            Letter
      agreement dated February 5, 2010 between Hana Biosciences, Inc. and Craig
      W. Carlson, as amended on February 17, 2010.10.2
            
            Hana
      Biosciences, Inc. 2010 Equity Incentive Plan (incorporated by reference to
      Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed February
      22, 2010)10.3
            
            Form
      of Stock Option Agreement under 2010 Equity Incentive Plan (incorporated
      by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
      8-K filed February 22, 2010).31.1
            
            Certification
      of Chief Executive Officer, as required by Rule 13a-14(a) or Rule
      15d-14(a).31.2
            
            Certification
      of Chief Financial Officer, as required by Rule 13a-14(a) or Rule
      15d-14(a).32.1
            
            Certification
      of Chief Executive Officer and Chief Financial Officer, as required
      by Section 1350 of Chapter 63 of Title 18 of the United States Code (18
      U.S.C. 1350).




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SIGNATURES




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




HANA
      BIOSCIENCES, INC.Dated:
      May 14, 2010
            By:
            /s/ Steven
      R. Deitcher, MDSteven
      R. Deitcher, MDPresident
      and Chief Executive OfficerDated:
      May 14, 2010
            By:
            /s/ Craig
      W. CarlsonCraig
      W. Carlson
              Vice
      President, Chief Financial Officer





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-


Index
to Exhibits Filed with this Report




Exhibit No.
            
            Description10.1
            
            Letter
      agreement dated February 5, 2010 between Hana Biosciences, Inc. and Craig
      W. Carlson, as amended on February 17, 2010.31.1
            
            Certification
      of Chief Executive Officer, as required by Rule 13a-14(a) or Rule
      15d-14(a).31.2
            
            Certification
      of Chief Financial Officer, as required by Rule 13a-14(a) or Rule
      15d-14(a).32.1
            
            Certification
      of Chief Executive Officer and Chief Financial Officer, as required
      by Section 1350 of Chapter 63 of Title 18 of the United States Code (18
      U.S.C. 1350).





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