**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**




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





For
      the
      quarter ended March 31, 2008





OR





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





For
      the
      transition period __________ to __________.





**Commission
      file number 001-32626**




**Hana
      Biosciences, Inc.**


(Exact
      Name of Registrant as Specified in Its Charter)




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




**(650)
      588-6404**


(Registrant's
      Telephone Number, Including Area Code)





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




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




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





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


Yes o No x




As
      of May
      13, 2008, there were 32,181,407 shares of the registrant's common stock,
      $.001 par value, outstanding.









**INDEX**


**Page****PART
                  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' Equity
              
              
              6Unaudited
                  Condensed Statements of Cash Flows
              
              
              7Notes
                  to Unaudited Condensed Financial Statements
              
              
              8Item
                  2.
              
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              
              18Item
                  3.
              
              Quantitative
                  and Qualitative Disclosure About Market Risk
              
              
              25Item
                  4.
              
              Controls
                  and Procedures
              
              
              25**PART
                  II**
              
              **OTHER
                  INFORMATION**
              
              
              26Item
                  1.
              
              Legal
                  Proceedings
              
              
              26Item
                  1A.
              
              Risk
                  Factors
              
              
              26Item
                  2.
              
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              
              26Item
                  3.
              
              Defaults
                  Upon Senior Securities
              
              
              26Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              
              
              26Item
                  5.
              
              Other
                  Information
              
              
              26Item
                  6.
              
              Exhibits
              
              
              26Signatures
              
              
              27Index
                  of Exhibits Filed with this Report
              
              
              28




-
          2
          -




**Forward-Looking
      Statements**





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





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




·
            the
                regulatory approval of our drug
                candidates;




·
            our
                use of clinical research centers and other
                contractors;




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




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




·
            our
                ability to market any of our
                products;




·
            our
                history of operating losses;




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




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




·
            the
                effect of potential strategic transactions on our business;




·
            our
                ability to attract and retain key
                personnel;




·
            our
                ability to obtain adequate financing;
                and





·
            the
                volatility of our stock price.





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





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





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




-
          3
          -




**PART
      I - FINANCIAL INFORMATION**




**Item
      1. Unaudited Condensed Financial Statements**




**HANA
      BIOSCIENCES, INC.**





**CONDENSED
      BALANCE SHEETS**





**March
                31,**
              **2008**
            
            **December
                31,**
              **2007**(Unaudited)**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            13,945,983
            
            $
            20,795,398Available-for-sale
                securities
            
            
            120,000
            
            
            96,000Prepaid
                expenses and other current assets
            
            
            424,735
            
            
            489,293Total
                current assets
            
            
            14,490,718
            
            
            21,380,691Property
                and equipment, net
            
            
            432,415
            
            
            432,529Restricted
                cash
            
            
            125,000
            
            
            125,000Debt
                issuance costs
            
            
            1,413,973
            
            
            1,423,380Total
                assets
            
            $
            16,462,106
            
            $
            23,361,600**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            379,933
            
            $
            1,682,739Accrued
                other expenses
            
            
            1,278,574
            
            
            496,239Accrued
                personnel related expenses
            
            
            288,435
            
            
            763,050Leased
                equipment: short-term
            
            
            13,919
            
            
            13,919Accrued
                research and development costs
            
            
            897,161
            
            
            1,156,011Total
                current liabilities
            
            
            2,858,022
            
            
            4,111,958Notes
                payable
            
            
            2,080,000
            
            
            2,025,624Warrant
                liabilities
            
            
            4,242,285
            
            
            4,232,355Leased
                equipment: long-term
            
            
            30,548
            
            
            33,861Total
                long term liabilities
            
            
            6,352,833
            
            
            6,291,840Total
                liabilities
            
            
            9,210,855
            
            
            10,403,798Commitments
                and contingencies (Notes 9 and 10):Stockholders'
                equity:Common
                stock; $0.001 par value:100,000,000
                shares authorized, 32,181,407 and 32,169,553 shares issued and outstanding
                at March 31, 2008 and December 31, 2007,
                respectively
            
            
            32,181
            
            
            32,170Additional
                paid-in capital
            
            
            102,372,328
            
            
            101,843,390Accumulated
                other comprehensive loss
            
            
            (80,000
            )
            
            (104,000
            )Accumulated
                deficit
            
            
            (95,073,258
            )
            
            (88,813,758
            )Total
                stockholders' equity
            
            
            7,251,251
            
            
            12,957,802Total
                liabilities and stockholders' equity
            
            $
            16,462,106
            
            $
            23,361,600





See
      accompanying notes to unaudited condensed financial statements.




-
          4
          -




**HANA
      BIOSCIENCES, INC.**





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


**(Unaudited)**





**Three Months 
                Ended**
              **March 
                31,****2008**
            
            **2007**Operating
                expenses:General
                and administrative
            
            $
            1,900,920
            
            $
            3,346,985Research
                and development
            
            
            4,264,332
            
            
            5,237,904Total
                operating expenses
            
            
            6,165,252
            
            
            8,584,889Loss
                from operations
            
            
            (6,165,252
            )
            
            (8,584,889
            )Other
                income (expense):Interest
                income
            
            
            170,908
            
            
            392,940Interest
                expense
            
            
            (249,164
            )
            
            (1,376
            )Other
                expense, net
            
            
            (6,062
            )
            
            (5,251
            )Change
                in fair market value of warrant liabilities
            
            
            (9,930
            )
            
            —Total
                other income(loss)
            
            
            (94,248
            )
            
            386,313Net
                loss
            
            $
            (6,259,500
            )
            $
            (8,198,576
            )Net
                loss per share, basic and diluted
            
            $
            0.19
            
            $
            0.28Weighted
                average shares used in computing net loss per share, basic and
                diluted
            
            
            32,181,275
            
            
            29,286,139Comprehensive
                loss:Net
                loss
            
            $
            (6,259,500
            )
            $
            (8,198,576
            )Unrealized
                holdings gains (losses) arising during the period
            
            
            24,000
            
            
            (136,000
            )Comprehensive
                loss
            
            $
            (6,235,500
            )
            $
            (8,334,576
            )





See
      accompanying notes to unaudited condensed financial statements.




-
          5
          -





**HANA
      BIOSCIENCES, INC.**





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


**(Unaudited)**





**Period
      from January 1, 2008 to March 31, 2008**





**Common stock**
            
            **Additional**
              **paid-in**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **income**
            
            **Accumulated**
            
            **Total**
              **stockholders'****Shares**
            
            **Amount**
            
            **capital**
            
            **(loss)**
            
            **deficit**
            
            **equity**Balance
                at January 1, 2008
            
            
            32,169,553
            
            $
            32,170
            
            $
            101,843,390
            
            $
            (104,000
            )
            $
            (88,813,758
            )
            $
            12,957,802Stock-based
                compensation of employees amortized over vesting period of stock
                options
            
            
            —
            
            
            —
            
            
            518,269
            
            
            —
            
            
            —
            
            
            518,269Issuance
                of shares under employee stock purchase plan
            
            
            11,854
            
            
            11
            
            
            10,669
            
            
            —
            
            
            —
            
            
            10,680Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (6,259,500
            )
            
            (6,259,500
            )Unrealized
                gain on available-for-sale securities
            
            
            —
            
            
            —
            
            
            —
            
            
            24,000
            
            
            —
            
            
            24,000Balance
                at March 31, 2008
            
            
            32,181,407
            
            $
            32,181
            
            $
            102,372,328
            
            $
            (80,000
            )
            $
            (95,073,258
            )
            $
            7,251,251




See
      accompanying notes to unaudited condensed financial statements.




-
          6
          -




**HANA
      BIOSCIENCES, INC.**





**CONDENSED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**


**Three Months Ended March 31,****2008**
                
                **2007****Cash
                    flows from operating activities:**Net
                    loss
                
                $
                (6,259,500
                )
                $
                (8,198,576
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                    and amortization
                
                
                43,572
                
                
                39,785Share-based
                    compensation to employees for services
                
                
                518,269
                
                
                2,401,591Share-based
                    compensation to nonemployees for services
                
                
                —
                
                
                (137,002
                )Amortization
                    of discount and debt issuance costs
                
                
                63,783
                
                
                —Unrealized
                    loss on derivative liability
                
                
                9,930
                
                
                —Changes
                    in operating assets and liabilities:Increase
                    in prepaid expenses and other assets
                
                
                64,558
                
                
                347,226Decrease
                    in accounts payable
                
                
                (1,302,806
                )
                
                (1,234,410
                )Increase(decrease)
                    in accrued and other current liabilities
                
                
                48,870
                
                
                (628,326
                )Net
                    cash used in operating activities
                
                
                (6,813,324
                )
                
                (7,409,712
                )**Cash
                    flows from investing activities:**Purchase
                    of property and equipment
                
                
                (43,458
                )
                
                (28,768
                )Purchase
                    of marketable securities
                
                
                —
                
                
                (1,500,000
                )Sale
                    of marketable securities
                
                
                —
                
                
                1,325,000Net
                    cash used in investing activities
                
                
                (43,458
                )
                
                (203,768
                )**Cash
                    flows from financing activities:**Repurchase
                    of employee stock options
                
                
                —
                
                
                (117,000
                )Proceeds
                    from exercise of warrants and options and issuance of shares
                    under
                    employee stock purchase plan
                
                
                10,680
                
                
                61,845Payments
                    on notes payable and capital leases
                
                
                (3,313
                )
                
                —Net
                    cash provided by (used in) financing activities
                
                
                7,367
                
                
                (55,155
                )Net
                    decrease in cash and cash equivalents
                
                
                (6,849,415
                )
                
                (7,668,635
                )Cash
                    and cash equivalents, beginning of period
                
                
                20,795,398
                
                
                29,127,850Cash
                    and cash equivalents, end of period
                
                $
                13,945,983
                
                
                21,459,215Supplemental
                    disclosures of cash flow data:Cash
                    paid for interest
                
                $
                186,332
                
                
                1,376Supplemental
                    disclosures of noncash financing activities:Unrealized
                    gain(loss) on available-for-sale securities
                
                $
                24,000
                
                
                (136,000
                )





See
      accompanying notes to unaudited condensed financial
      statements.




-
          7
          -




**HANA
      BIOSCIENCES, INC.**


**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**





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





**BUSINESS**


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





***Cancer
      Therapeutics***


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





·
            AlocrestTM
                (vinorelbine liposomes injection), a novel, targeted Optisome encapsulated
                formulation product candidate of the FDA-approved anticancer drug
                vinorelbine, being developed for the treatment of solid tumors including
                NSCLC and breast cancer.





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





***Supportive
      Care***


·
            KyrbaxTM
                (menadione), a novel preclinical product candidate for the prevention
                and
                treatment of skin rash associated with the use of epidermal growth
                factor
                receptor inhibitors (EGFRI) in the treatment of certain
                cancers.





**BASIS
      OF PRESENTATION**


The
      accompanying unaudited condensed financial statements of Hana
      Biosciences, Inc. (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, 2008 or
      any subsequent interim period .





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





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





**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.




-
          8
          -




**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**





*Loss
      Per Share*





Basic
      net
      loss per common share is calculated by dividing net loss by the weighted-average
      number of common shares outstanding for the period. Diluted net loss per common
      share is the same as basic net loss per common share, since potentially dilutive
      securities from stock options, stock warrants and restricted stock would have
      an
      anti-dilutive effect because the Company incurred a net loss during each period
      presented. The number of shares potentially issuable at March 31, 2008 and
      2007
      upon exercise or conversion that were not included in the computation of net
      loss per share totaled 12,128,150 and 7,621,514, respectively.





*Cash
      and Cash Equivalents and Concentration of Risk*




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





*Fair
      Value of Financial Instruments*





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





*Debt
      Issuance Costs*





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





*Warrant
      Liabilities*





On
      October 30, 2007, the Company entered into a loan facility agreement with
      certain affiliates of Deerfield Management (collectively, “Deerfield”).
      Deerfield has committed funds to assist with the development of the Company’s
      product candidates. Under the agreement, the Company may borrow from Deerfield
      up to an aggregate of $30 million, of which $20 million may be drawn down by
      the
      Company in as many as four installments every six months commencing October
      30,
      2007. As additional consideration for the loan, the Company also issued to
      Deerfield 6-year warrants to purchase an aggregate of 5,225,433 shares of the
      Company’s common stock at an exercise price of $1.31 per share, of which
      warrants to purchase 4,825,433 shares include an anti-dilution feature. This
      feature requires that, as the Company issues additional shares of its common
      stock during the term of the warrant, the number of shares purchasable under
      this series is automatically increased so that they always represent 15% of
      the
      Company’s then outstanding common stock. Pursuant to the agreement, the Company
      also entered into a registration rights agreement, pursuant to which the Company
      registered the resale of the shares issuable upon exercise of the warrants
      under
      the Securities Act of 1933. These financing transactions were recorded in
      accordance with Emerging Issues Task Force Issue No. 00-19, “Accounting for
      Derivative Financial Instruments Indexed to, and Potentially Settled in, a
      Company's Own Stock” and related interpretations. Because the warrants are
      redeemable in the event of a change in control or if the Company’s shares become
      delisted, the fair value of the warrants based on the Black-Scholes-Merton
      option pricing model is recorded as a liability. The Company updates its
      estimate of the fair value of the warrant liabilities in each reporting period
      as new information becomes available and any gains or losses resulting from
      the
      changes in fair value from period to period are included as other
      income(expense).




-
          9
          -




**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**




*Income
      Taxes*





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





At
      the
      adoption date and as of March 31, 2008, the Company had no material unrecognized
      tax benefits and no adjustments to liabilities or operations were required.
      There was no interest or penalties recognized related to uncertain tax
      positions. The Company will account for any interest related to uncertain tax
      positions as interest expense, and for penalties as tax expense.




**NOTE
      3. RECENT ACCOUNTING PRONOUNCEMENTS**




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





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





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





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





**NOTE
      4. LIQUIDITY AND CAPITAL RESOURCES**





We
      reported a net loss of $6.3 million for the three months ended March 31, 2008.
      We have financed our operations since inception primarily through equity and
      debt financing. During the three months ended March 31, 2008, we had a net
      decrease of $6.8 million in cash and cash equivalents. This decrease during
      this
      period resulted primarily from net cash used in operating activities of $6.8
      million. Total cash and cash equivalents and available-for-sale securities
      as of
      March 31, 2008 were $14.1 million compared to $20.9 million at December 31,
      2007. In October 2007, we entered into a loan facility agreement with Deerfield
      Management, which has committed $30 million to fund the development of our
      product candidates and other general corporate activities. As of March 31,
      2008,
      we had drawn down $7.5 million of the total $30 million available under the
      agreement. As of April 30, 2008, we are eligible to draw down an additional
      $7.5
      million, including $2.5 million for milestones reached under the loan facility
      agreement. See “Note 4. Facility Agreement.”




-
          10
          -




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




The
      Company's continued operations will depend on whether it is able to continue
      the
      progression of the development of its product candidates, identify and acquire
      new and innovative oncology focused products, and whether the Company is able
      to
      successfully commercialize and sell products that have obtained FDA approval
      or
      enter into partnerships and/or license agreements regarding the
      commercialization of the Company’s products and product candidates. Through
      March 31, 2008, a significant portion of the Company's financing has been
      through private placements of common stock. The Company will continue to fund
      operations from cash on hand and through the potential sale of similar sources
      of capital previously described, or through debt.





Our
      continued operations will depend on whether we are able to raise additional
      funds through various potential sources, such as equity and debt financing.
      Through March 31, 2008, a significant portion of our financing has been and
      will
      continue to be through private placements of common stock, preferred stock
      and
      debt financing. We can give no assurances that any additional capital that
      we
      are able to obtain will be sufficient to meet our needs. Given the current
      and
      desired pace of clinical development of our product candidates, we estimate
      that
      we will have sufficient cash on hand, together with amounts committed under
      our
      loan facility agreement with Deerfield, to fund clinical development into the
      second half of 2009. We may, however, choose to raise additional capital before
      then in order to fund our future development activities, likely by selling
      shares of our capital stock or through debt financing. If we are unable to
      raise
      additional capital or enter into strategic partnerships and/or license
      agreements, we will likely be forced to curtail our desired development
      activities, which will delay the development of our product candidates. There
      can be no assurance that such capital will be available to us on favorable
      terms
      or at all. We will need additional financing thereafter until we can achieve
      profitability, if ever. ****





**NOTE
      5. FACILITY LOAN AGREEMENT**





On
      October 30, 2007, we entered into a Facility Agreement (“loan agreement”) with
      Deerfield under which Deerfiled has agreed to loan to us an aggregate principal
      amount of up to $30 million. Our obligations under the loan are secured by
      all
      assets owned (or that will be owned in the future) by us, both tangible and
      intangible. The covenants of the loan agreement require that we remain a viable
      entity, comply with all regulatory agency requirements and the requirements
      of
      our license agreements. We are also prohibited from disposing of certain assets
      related to certain product candidates we are currently developing. The proceeds
      to us from the loan are to be used to fund the development of our product
      candidates and for other general and working capital purposes. Pursuant to
      the
      loan agreement, of the total $30 million available to us, $20.0 million may
      be
      drawn down by us in as many as four installments every six months commencing
      October 30, 2007. Pursuant to such schedule, we drew down $7.5 million on
      November 1, 2007. The effective interest rate on this note payable, including
      debt issuance costs and discount on debt, is approximately 18.9%. The remaining
      $10.0 million of the total $30.0 million facility is subject to disbursement
      in
      three installments upon the achievement of clinical development milestones
      relating to our Marqibo and Kyrbax product candidates. Deerfield’s obligation to
      disburse loan proceeds expires October 30, 2010, and we must repay all
      outstanding principal and interest owing under the loan no later than October
      30, 2013. We are also required to make quarterly interest payments, at the
      annual rate of 9.85%. In accordance with and upon execution of the loan
      agreement, we paid a loan commitment fee of $1.1 million to an affiliate of
      Deerfield.





As
      additional consideration for the loan, we issued to Deerfield two series of
      6-year warrants to purchase an aggregate of 5,225,433 shares of our common
      stock
      at an exercise price of $1.31 per share (subject to adjustment for stock splits,
      combinations and similar events), which represented the closing bid price of
      our
      common stock as reported on the Nasdaq Global Market on October 30, 2007. One
      series of such warrants initially represented the right to purchase 4,825,433
      shares, which equals 15% of our currently issued and outstanding shares of
      common stock. These warrants contain an anti-dilution feature so that, as we
      issue additional shares of our common stock during the term of the warrant,
      the
      number of shares purchasable under this series is automatically increased so
      that they always represent 15% of our then outstanding common stock. Pursuant
      to
      this anti-dilution feature and as a result of additional shares of our common
      stock that we issued following October 30, 2007, this series of warrants
      represented the right to purchase an aggregate of 4,827,211 shares of our common
      stock as of March 31, 2008. We may buy out Deerfield’s rights under the
      anti-dilution provision of the first series after October 30, 2010 by paying
      $2.5 million, or after October 30, 2011 by paying $1.5 million, provided the
      loan has been repaid at the time. The second series of warrants, representing
      the right to purchase an aggregate of 400,000 shares, is identical in form
      except that it does not contain such anti-dilution feature. If and when we
      draw
      down the $10.0 million of the loan conditioned upon the achievement of clinical
      development milestones relating to Marqibo and Kyrbax, we are required to issue
      additional warrants to Deerfield which would represent the right to purchase
      an
      additional number of shares of common stock equal to up to 3.5% of our then
      outstanding shares. These warrants, which will also be exercisable at $1.31
      per
      share, will be identical in form as the first series of warrants, including
      our
      right to buy-out the anti-dilution feature of such warrants.




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




-
          11
          -




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




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





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





**December
                31**
            
            **March
                31****2007**
            
            **2008*****Warrants***Stock
                price
            
            $
            1.06
            
            $
            0.93Risk-free
                interest rate
            
            
            4.1
            %
            
            3.51
            %Expected
                life (in years)
            
            
            5.83
            
            
            5.53Volatility
            
            
            67.2
            %
            
            86.8
            %Dividend
                yield
            
            
            0
            %
            
            0
            %Estimated
                fair market value of shares issuable under warrants
            
            $
            0.62
            
            $
            0.63





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





**December 31,**
              **2007 Fair Value**
              **of Warrant**
              **Liabilities**
            
            **March 31, 2008**
              **Fair Value of**
              **Warrant**
              **Liabilities**
            
            **Realized**
              **Gain/(Loss) on**
              **Change in**
              **Warrant**
              **Liabilities**Deerfield
                Warrants
            
            $
            4,232,355
            
            $
            4,242,284
            
            $
            (9,929
            )





*Summary
      of Notes Payable.* On
      November 1, 2007, we drew down $7.5 million of the $30.0 million in total loan
      proceeds available under the loan agreement.  We are not required to pay
      back any portion of the face value until October 30, 2013. Because we issued
      the
      warrants pursuant to the loan, we recognized a discount on the note.  As of
      March 31, 2008, our notes payable are comprised of the following:





**Face
                Value of**
              **Notes
                Payable**
              **Outstanding**
            
            **Allocation
                of**
              **Discount**
              **of
                Debt****1**
            
            **Carrying
                Value**Drawdown
                 #1 – November 1, 2007
            
            $
            7,500,000
            
            $
            (1,977,882
            )
            $
            5,522,118Unallocated
                discount
            
            
            —
            
            
            (3,442,118
            )
            
            (3,442,118
            )Net
                carrying value of all notes outstanding
            
            $
            7,500,000
            
            $
            (5,420,000
            )
            $
            2,080,000





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





-
          12
          -




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




**NOTE
      6. STOCKHOLDERS' EQUITY**





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





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





*Stock
      Options.* The
      following table summarizes information about stock options outstanding at March
      31, 2008 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**
              **Value**Outstanding
                January 1, 2008
            
            
            5,290,038
            
            $
            3.12Options
                granted
            
            
            187,000
            
            
            0.97Options
                cancelled
            
            
            (592,000
            )
            
            3.82Options
                exercised
            
            
            —
            
            
            —Outstanding
                March 31, 2008
            
            
            4,885,038
            
            
            2.95
            
            
            8.64
            
            $
            95,903Exercisable
                at March 31, 2008
            
            
            1,701,205
            
            $
            4.17
            
            
            7.34
            
            $
            90,993





Total
      stock-based compensation expense was approximately $0.5 million and $2.4 million
      related to employee stock options and restricted stock recognized in the
      operating results for the three months ended March 31, 2008 and 2007,
      respectively.


-
          13
          -




**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**




The
      following table summarizes information about stock options outstanding at March
      31, 2008:


**Options Outstanding**
                
                **Options Exercisable****Exercise Price**
                
                **Number of**
                  **Shares**
                  **Subject to**
                  **Options**
                  **Outstanding**
                
                **Weighted**
                  **Average**
                  **Exercise**
                  **Price**
                
                **Weighted**
                  **Average**
                  **Remaining**
                  **Contractual**
                  **Life of**
                  **Options**
                  **Outstanding**
                
                **Number**
                  **of Options**
                  **Exercisable**
                
                **Weighted**
                  **Average**
                  **Exercise**
                  **Price**$ 0.07 - $ 1.35
                
                
                2,166,547
                
                $
                1.06
                
                
                9.0
                    yrs
                
                
                419,048
                
                $
                0.87$ 1.36 - $ 1.74
                
                
                1,063,657
                
                
                1.67
                
                
                8.6
                    yrs
                
                
                225,490
                
                
                1.67$ 1.75 - $ 4.97
                
                
                571,667
                
                
                4.29
                
                
                7.8
                    yrs
                
                
                458,333
                
                
                4.55$ 4.98 - $ 7.40
                
                
                933,667
                
                
                6.74
                
                
                8.6
                    yrs
                
                
                528,167
                
                
                6.73$ 7.41 - $ 11.81
                
                
                149,500
                
                
                10.48
                
                
                7.0
                    yrs
                
                
                70,167
                
                
                10.23$0.07 - $11.81
                
                
                4,885,038
                
                $
                2.95
                
                
                8.6
                    yrs
                
                
                1,701,205
                
                $
                4.17





*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, 2008, we have issued 61,308 shares under the 2006 Plan. For the three
      months ended March 31, 2008 and 2007, the total stock-based compensation expense
      recognized related to the 2006 Plan under SFAS 123(R) was approximately $50,000
      and $68,000, respectively.




*Assumptions.* The
      following table summarizes the assumptions used in applying the
      Black-Scholes-Merton option pricing model to determine the fair value of awards
      granted during the three months ended March 31, 2008 and 2007,
      respectively:





**Three Months Ended March 31,****2008**
            
            **2007*****Employee
                stock options***Risk-free
                interest rate
            
            
            2.65
            %
            
            4.50
            %Expected
                life (in years)
            
            
            5.5 –
                6.0
            
            
            5.5
                - 6.0Volatility
            
            
            0.9
            
            
            0.8Dividend
                Yield
            
            
            —
            %
            
            —
            %***Employee
                stock purchase plan***Risk-free
                interest rate
            
            
            3.05 –
                3.49
            %
            
            4.82
                -5.24
            %Expected
                life (in years)
            
            
            0.5
                - 2
            
            
            0.5
                - 2Volatility
            
            
            0.75 –
                0.8
            
            
            0.54
                - 1.15Dividend
                Yield
            
            
            —
            %
            
            —
            %


-
          14
          -




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




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





*Non-Employee
      Stock Options.* We have
      has also granted stock options to non-employee consultants. In accordance with
      Emerging Issues Task Force Issue 96-18, “ *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring
      or
      in Conjunction with Selling, Goods or Services* ”
(EITF
      96-18), compensation cost for options issued to non-employee consultants is
      measured at each reporting period and adjusted until the commitment date is
      reached, being either the date that a performance commitment is reached or
      the
      performance of the consultant is complete. The Company utilized a
      Black-Scholes-Merton option pricing model to determine the fair value of
      such awards.  For the three months ended March 31, 2008, the Company
      recognized no stock-based compensation expense related to awards held by
      non-employee consultants. During the three months ended March 31, 2007, the
      Company recognized a credit of $0.1 million in stock-based compensation related
      to awards held by non-employee consultants, due almost entirely to the decrease
      in stock price during that period.




*Warrants* .
      As of
      December 31, 2007, all outstanding warrants were available for exercise.
      Warrants to acquire 258,927 shares of common stock at $1.85 per share expire
      in
      February of 2009.  Warrants to acquire 892,326 shares of common stock at
      $1.57 per share expire in April 2010.  Warrants to acquire 864,648 shares
      of common stock at $5.80 per share expire in October 2010.  Additionally,
      in connection with our October 2007 loan agreement, we issued to Deerfield
      warrants to initially purchase 5,225,433 shares of our common stock, of which
      warrants to initially purchase 4,825,433 shares of our common stock were subject
      to an anti-dilution feature. This anti-dilution feature provides that the
      number of shares purchasable under this series automatically increased so that
      they always represent 15% of our then outstanding common stock. Pursuant to
      this
      anti-dilution feature and as a result of issuances of our common stock since
      the
      date of the loan agreement, the number of shares purchasable under these
      warrants increased by 1,778
      in
      the three months ended March 31, 2008. Accordingly, at March 31, 2008, the
      warrants containing the anti-dilution feature represented the right to purchase
      an aggregate of 4,827,211 shares.   All of the warrants issued to Deerfield
      expire in October 2013.  The following table summarizes the warrants
      outstanding as of March 31, 2008 and the changes in outstanding warrants in
      the
      period then ended:





**Number Of**
              **Shares Subject**
              **To Warrants**
              **Outstanding**
            
            **Weighted-Average**
              **Exercise Price**Warrants
                outstanding January 1, 2008
            
            
            7,241,334
            
            $
            1.90Warrants
                granted
            
            
            1,778
            
            
            1.31Warrants
                cancelled
            
            
            **—**
            
            
            —Warrants
                outstanding March 31, 2008
            
            
            7,243,112
            
            $
            1.90




**NOTE
      7. FAIR VALUE MEASUREMENTS**




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




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




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




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




-
          15
          -




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


In
      accordance with SFAS 157, the following table represents the fair value
      hierarchy for our financial assets and liabilities held by the Company measured
      at fair value on a recurring basis as of March 31, 2008:





Assets
            
            **Level 1**
            
            **Level 2**
            
            **Level 3**
            
            **Total**Money
                market funds
            
            $
            12,444,511
            
            $
            —
            
            $
            —
            
            $
            12,444,511Available-for-sale
                equity securities
            
            
            120,000
            
            
            —
            
            
            —
            
            
            120,000Total
            
            $
            12,564,511
            
            $
            —
            
            $
            —
            
            $
            12,564,511





Liabilities
            
            **Level 1**
            
            **Level 2**
            
            **Level 3**
            
            **Total**Warrant
                liabilities
            
            
            —
            
            
            —
            
            $
            4,242,285
            
            $
            4,242,285Total
            
            $
            —
            
            $
            —
            
            $
            4,242,285
            
            $
            4,242,285





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





On
      March
      31, 2008, the Company had $120,000 in total marketable securities which
      consisted of shares of NovaDel Pharma, Inc. (“NovaDel”) purchased in conjunction
      with the Zensana license agreement.





During
      the three months ended March 31, 2008, the Company recorded an unrealized gain
      of $24,000, compared to an unrealized loss of $136,000 for the three months
      ended March 31, 2007.  The Company recorded realized losses in the second
      and third quarters of 2007, as the decline in value of the shares, in the
      opinion of management, was considered other-than-temporary. The following table
      summarizes the NovaDel shares classified as available-for-sale securities during
      the three months ended March 31, 2008 and 2007:





**Beginning**
              **Value**
            
            **Net**
              **Unrealized**
              **Gain/(Loss)**
            
            **Gross**
              **Realized**
              **Gain/(Loss)**
            
            **Ending Value**Three
                months ended March 31, 2007
            
            $
            656,000
            
            $
            (136,000
            )
            $
            —
            
            $
            520,000Three
                months ended March 31, 2008
            
            $
            96,000
            
            $
            24,000
            
            $
            —
            
            $
            120,000




-
          16
          -




**HANA
      BIOSCIENCES, INC.**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**





**NOTE
      9. COMMITMENTS**





***Employment
      Agreements.***  ** On May
      6, 2007, the Company entered into a written three-year employment agreement
      with
      its Executive Vice President, Development and Chief Medical Officer, whose
      employment commenced May 21, 2007. This agreement provides for an employment
      term that expires in May 2010. Effective as of August 24, 2007, the Executive
      Vice President, Development and Chief Medical Officer was appointed Chief
      Executive Officer. At the time of his appointment to Chief Executive Officer,
      no
      change was made to the compensation terms of the employment agreement; however,
      the annual base salary was subsequently increased to $420,000, effective January
      1, 2008. The minimum aggregate amount of gross salary compensation to be
      provided for over the remaining term of the agreement amounted to approximately
      $875,000 at March 31, 2008.





The
      Company entered into a written employment agreement with its Vice President
      and
      Chief Financial Officer on December 18, 2006. This agreement provides for an
      employment term that expires in November 2008. The minimum aggregate amount
      of
      gross salary compensation to be provided for over the remaining term of the
      agreement amounted to approximately $117,000 at March 31, 2008.





The
      Company entered into a written two year employment agreement with its former
      Vice President, Chief Business Officer dated January 25, 2004, which was
      subsequently amended in December 2005 to provide for a term that expires in
      November 2008. Effective as of January 22, 2008, the former Vice President,
      Chief Business Officer resigned as an employee of the Company. As part of a
      January 22, 2008 separation agreement with the Company, the former Vice
      President, and Chief Business Officer received a lump-sum payment of
      approximately $167,000. The Company has no future salary commitments beyond
      the
      severance payment.





***Lease.*** The
      Company entered into a three year sublease, which commenced on May 31, 2006,
      for
      property at 7000 Shoreline Court in South San Francisco, California, where
      the
      Company’s executive offices are located. The total cash payments due for the
      duration of the sublease equaled approximately $0.7 million on March 31,
      2008.





**NOTE
      10. RESTRICTED CASH**





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


-
          17
          -




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




*The
      following discussion of our financial condition and results of operations should
      be read in conjunction with the financial statements and the 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 2007 Form 10-K, our actual
      results may differ materially from those anticipated in these forward-looking
      statements* .





**Overview**





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





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





·
            ***Marqibo******®******(vincristine sulfate liposomes injection) -***We
                acquired our rights to Marqibo from Tekmira Pharmaceuticals Corporation
                (formerly Inex Pharmaceuticals Corporation) in May 2006. Marqibo
                has been
                evaluated in 13 clinical trials with over 600 patients, including
                Phase 2
                clinical trials in patients with NHL and ALL. Based on the results
                from
                these studies, we are conducting a registration-enabling Phase 2
                clinical
                trial. The study population is adults with Philadelphia chromosome
                negative ALL in second relapse or those who failed 2 prior lines
                of
                therapy.  The primary outcome measure is confirmed complete remission
                or CR, or complete remission without full platelet recovery or CRp.
                 The sample size is 56 evaluable subjects at approximately 30 sites.
                We also plan to conduct a confirmatory, Phase 3 front-line trial.
                 The study population is elderly subjects (at least 70 years of age)
                with newly diagnosed Philadelphia chromosome negative ALL.  The
                primary outcome measure is event-free survival with death, failure
                to
                achieve CR/CRp, and relapse after CR/CRp as events. We are also conducting
                a pilot, Phase 2 study to assess the efficacy of Marqibo as determined
                by
                Disease Control Rate (CR, partial recovery or durable stable disease)
                in
                patients with metastatic malignant uveal melanoma.  Secondary
                objectives are to assess the safety and antitumor activity of Marqibo
                as
                determined by response rate, progression free survival, overall survival
                and safety.  The patient population is defined as adults with uveal
                melanoma and confirmed metastatic disease that is untreated or that
                has
                progressed following one prior therapy.  We expect to enroll up to 30
                subjects in this clinical trial. Marqibo received a U.S. orphan drug
                designation in January 2007 and a fast track designation in August
                2007
                for the treatment of adult ALL from the
                FDA.




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





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





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





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


-
          18
          -


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





*Revenues*





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




*Research
      and Development Expenses*





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





*General
      and Administrative Expenses*





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





**Critical
      Accounting Policies**





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




***Share
      Based Compensation***




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




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


-
          19
          -




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




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


The
      guidance in SFAS No. 123R, SAB No. 107 and SAB No. 110 is relatively new. The
      application of these principles may be subject to further interpretation and
      refinement over time. There are significant differences among valuation models,
      and there is a possibility that we will adopt different valuation models in
      the
      future. This may result in a lack of consistency in future periods and
      materially affect the fair value estimate of stock-based payments. It may also
      result in a lack of comparability with other companies that use different
      models, methods and assumptions. See Note 5 of our unaudited financial
      statements included elsewhere in this Form 10-Q report for further information
      regarding the SFAS No. 123R disclosures.





***Warrant
      Liabilities***


On
      October 30, 2007, we entered into a loan facility agreement with certain
      affiliates of Deerfield Management (collectively, “Deerfield”). Deerfield has
      committed funds to assist with the development of our product candidates. Under
      the agreement, we may borrow from Deerfield up to an aggregate of $30 million,
      of which $20 million may be drawn down by us in as many as four installments
      every six months commencing October 30, 2007.  As additional consideration
      for the loan, we also issued to Deerfield 6-year warrants to initially purchase
      an aggregate of 5,225,433 shares of our common stock at an exercise price of
      $1.31 per share, of which warrants to initially purchase 4,825,433 shares
      include an anti-dilution feature.  This feature requires that, as we issue
      additional shares of our common stock during the term of the warrant, the number
      of shares purchasable under this series is automatically increased so that
      they
      always represent 15% of our then outstanding common stock.  As a result of
      additional issuances of our common stock since October 30, 2007, as of March
      31,
      2008, these warrants represented the right to purchase an additional 1,778
      shares of common stock, or 5,227,211 shares in the aggregate. Pursuant to the
      loan facility agreement, we also entered into a registration rights agreement,
      so that Deerfield may sell the shares issuable upon exercise of the warrants.
       These financing transactions were recorded in accordance with Emerging
      Issues Task Force Issue No. 00-19, “Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.”
Because the warrants are redeemable in the event of a change in control or
      if
      our shares are no longer listed on a national securities exchange, the fair
      value of the warrants based on the Black-Scholes-Merton option pricing model
      is
      recorded as a liability.  We update our estimate of the fair value of the
      warrant liabilities in each reporting period as new information becomes
      available and any gains or losses resulting from the changes in fair value
      from
      period to period are included as an increase or decrease of interest
      expense.





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


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


-
          20
          -


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




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





**Recent
      Accounting Pronouncements**





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





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





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





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





**Results
      of Operations**





***Three
      Months Ended March 31, 2008 Compared to Three Months Ended March 31,
      2007***




*General
      and administrative expenses.* For the
      three months ended March 31, 2008, general and administrative, or G&A,
      expense was $1.9 million, as compared to $3.3 million for the three months
      ended
      March 31, 2007. The decrease of approximately $1.4 million is due primarily
      to a decrease in employee related expenses of $1.2 million, which includes
      a decrease in salaries, employee benefits and other personnel related costs
      of
      $0.3 million along with a decrease of $0.8 million in employee related
      share-based compensation expense. The decrease in salaries, employee benefits
      and other personnel related costs are mainly due to the termination of all
      sales
      and marketing employees in April 2007 due to the cessation of the Zensana
      commercial launch in early 2007. Additionally, share-based compensation
      decreased as the price of our common stock declined in 2007, so options granted
      in 2007 and early 2008 have a smaller fair value compared to older options
      granted in 2006. A large number of share-based awards were forfeited by our
      former chief executive officer when he resigned in September 2007





For
      the
      three months ended March 31, 2008, outside services and professional service
      fees decreased $0.1 million compared to the three months ended March 31, 2007,
      due to decreased expenses for sales and marketing services related to the
      planned commercial launch of Zensana in April 2007.





For
      the
      three months ended March 31, 2008, there was a decrease of $0.1 million in
      G&A related allocable expenses, including rent, insurance and other expenses
      compared to three months ended March 31, 2007. The sales and marketing allocated
      expenses decreased by $0.3 million during these periods due to termination
      of
      all sales and marketing employees in April 2007. This was partially off-set
      by
      an increase of $0.2 million in general administrative expenses, due largely
      to
      commercial market research performed on the Optisome platform portfolio.


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          21
          -





*Research
      and development expenses* .
      For the
      three months ended March 31, 2008, research and development, or R&D, expense
      was $4.3 million, as compared to $5.3 million for three months ended March
      31,
      2007. The decrease of $1.0 million is due primarily to:





·
            A
                decrease in employee related expenses of $1.2
                million;





·
            An
                increase in direct drug development costs, professional fees and
                outside
                services of $0.1 million; and





·
            An
                increase in rent, depreciation, insurance and other allocated expenses
                of
                $0.1 million.





Employee
      related expenses decreased by $1.2 million in 2008 due to a decrease of
      share-based compensation expense of $1.0 million, as well as a decrease of
      $0.2
      million in salaries, bonuses and other employee related expenses as the
      headcount in R&D departments decreased in the three months ended March 31,
      2008 compared to the three months ended March 31, 2007. Share-based compensation
      decreased as
      the
      price of our common stock declined in 2007, so options granted in 2007 and
      early
      2008 have a smaller fair value compared to older options granted in 2006.





The
      increase of $0.1 million in expenses for the clinical development of our product
      pipeline includes an increase of $0.2 million in professional and outside
      services, and a decrease in direct development costs for our product candidates
      of $0.1 million. These clinical costs included the physical manufacturing of
      drug compounds and payments to our contract research organizations. Also, we
      had
      a decrease in expenses related to product candidates that are no longer in
      our
      pipeline. A summary of the results of operations by drug candidate is as
      follows:





·
            Talvesta
                expenses decreased by $0.2 million in the three months ended March
                31,
                2008 compared to the same period ended in 2007. The costs associated
                with
                this program decreased after the program was put on clinical hold
                in early
                2007 and later terminated in October
                2007.





·
            Zensana
                expenses decreased by $0.7 million in the three months ended March
                31,
                2008 compared to the same period ended in 2007. The Zensana program
                was
                halted in the first quarter of 2007 and an NDA filed with the FDA
                in 2007
                was pulled. In July 2007, we entered into a sub-license agreement
                with Par
                Pharmaceuticals, wherein Par will be responsible for all development
                and
                related costs going forward.





·
            Marqibo
                expenses increased by $0.2 million in the three months ended March
                31,
                2008 compared to the same period ended in 2007. We initiated a Phase
                2
                clinical trial in mid-2007.





·
            Alocrest
                expenses increased by $0.1 million in the three months ended March
                31,
                2008 compared to the same period ended in 2007. The Phase 1 trial
                for the
                Alocrest program completed enrollment in February 2008.





·
            Brakiva
                expenses increased by $0.4 million in the three months ended March
                31,
                2008 compared to the same period ended in 2007. The Company has an
                open
                and actived IND in the US and is preparing to initiate a Phase 1
                trial in
                the second half of 2008.





·
            Kyrbax
                expenses increased by $0.1 million in the three months ended March
                31,
                2008 compared to the same period ended in 2007. During the three
                months
                ended March 31, 2008, we finalized an initial formulation of Kyrbax
                and
                was preparing for a Phase 1 that was initiated in April 2008.




R&D
      related allocable operating expenses, including rent, insurance, and other
      expenses increased by approximately $0.1 million for the three months ended
      March 31, 2008 compared to the three months ended March 31, 2007. Travel
      expenses also increased in 2007 compared to 2006.





*Interest
      income.* For
      the
      three months ended March 31, 2008, interest income was $0.2 million as compared
      to interest income of $0.4 million for the three months ended March 31, 2007.
      The decrease of $0.2 million resulted from decreased cash balance in our
      interest bearing accounts as well as decreasing interest rates.





*Interest
      expense.* For
      the
      three months ended March 31, 2008, interest expense was $0.2 million as compared
      to interest expense of less than $2,000 for three months ended March 31, 2007.
      The increase resulted from accrued interest related to an outstanding loan
      balance from a draw down of funds on November 1, 2007 pursuant to the facility
      loan agreement with Deerfield.





*Loss
      on change in fair market value of warrant liabilities* .
      For the
      three months ended March 31, 2008, we recognized a loss related to the change
      in
      fair market value of the warrant liabilities, pursuant to the warrants issued
      to
      Deerfield as part of the Facility Loan Agreement (see Note 5) of approximately
      $10,000.  There was no such transaction that affected the financial
      statements for the three months ended March 31, 2007.


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          22
          -




**Liquidity
      and Capital Resources**




We
      have
      financed our operations since inception primarily through equity financing.
      As
      of March 31, 2008, we had aggregate cash and cash equivalents and
      available-for-sale securities of $14.1 million. Through March 31, 2008, a
      significant portion of our financing has been and will continue to be through
      private placements of common stock, preferred stock and debt financing. We
      can
      give no assurances that any additional capital that we are able to obtain will
      be sufficient to meet our needs. Given the current and desired pace of clinical
      development of our product candidates, we estimate that we will have sufficient
      cash on hand to fund clinical development into the second half of 2009. We
      may,
      however, choose to raise additional capital before then in order to fund our
      future development activities, likely by selling shares of our capital stock
      or
      through debt financing. If we are unable to raise additional capital or enter
      into strategic partnerships and/or license agreements, we will likely be forced
      to curtail our desired development activities, which will delay the development
      of our product candidates. There can be no assurance that such capital will
      be
      available to us on favorable terms or at all. We will need additional financing
      thereafter until we can achieve profitability, if ever.





***Financings.*** On
      October 30, 2007, we entered into a loan facility agreement with Deerfield.
      Pursuant to the terms of the agreement, we may borrow from Deerfield up to
      an
      aggregate of $30 million, of which $20 million may be drawn down by us in as
      many as four installments every six months commencing October 30, 2007. Pursuant
      to such schedule, we drew down $7.5 million on November 1, 2007. The remaining
      $10 million of the loan is subject to disbursement in three installments upon
      the achievement of clinical development milestones relating to our Marqibo
      and
      Menadione product candidates. Deerfield’s obligation to disburse loan proceeds
      expires October 30, 2010 and we must repay all outstanding amounts owing under
      the loan no later than October 30, 2013. As of April 30, 2008, we are eligible
      to draw down an additional $7.5 million, including $2.5 million for milestones
      reached under the loan facility agreement.





***Current
      and Future Financing Needs.*** Our
      plan
      of operation for the remainder of the year ending December 31, 2008 is to
      continue implementing our business strategy, including the continued development
      of our four product candidates that are currently in clinical and preclinical
      phases.  We expect our principal expenditures during 2008 to
      include:





·
            operating
                expenses, including expanded research and development and general
                and
                administrative expenses;





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





As
      part
      of our planned research and development, we intend to use clinical research
      organizations and third parties to help perform our clinical studies and
      manufacturing. As indicated above, at our current and desired pace of clinical
      development of our product candidates, in 2008 we expect to spend approximately
      between $16.0 million and $20 million on clinical development (including
      milestone payments of $2.5 million that we expect to be triggered under the
      license agreements relating to our product candidates, all of which can be
      satisfied through the issuance of new shares of our common stock at our
      discretion), $4.0 million on general corporate and administrative expenses,
      including $0.6 million on facilities and rent.  We may receive additional
      debt funding under the Deerfield agreement upon reaching certain development
      milestones, which may be used to fund the milestone payments that we expect
      to
      be triggered under our license agreements for Menadione and our Optisome product
      candidates.





We
      believe that our cash, cash equivalents and marketable securities, which totaled
      $14.1 million as of March 31, 2008, along with the funds available through
      the
      Deerfield agreement, will be sufficient to meet our anticipated operating needs
      into the second half of 2009 based upon current operating and spending
      assumptions. However, we expect to incur substantial expenses as we continue
      our
      drug discovery and development efforts, particularly to the extent we advance
      our lead candidate Marqibo through a pivotal clinical study. We cannot guarantee
      that future financing will be available in amounts or on terms acceptable to
      us,
      if at all.





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





·
            costs
                associated with conducting preclinical and clinical
                testing;





·
            costs
                of establishing arrangements for manufacturing our product
                candidates;





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





·
            costs,
                timing and outcome of regulatory
                reviews;





·
            costs
                of obtaining, maintaining and defending patents on our product candidates;
                and  ·
            costs
              of increased general and administrative
              expenses.




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          23
          -


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





***Research
      and Development Projects***





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





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





***Marqibo.*** ** We
      have
      incurred $0.9 million and $0.7 million in project costs related to our
      development of Marqibo in the three months ending March 31, 2008 and 2007,
      respectively. In 2007, we have initiated a Phase 2, registration-enabling,
      open-label trial in relapsed adult ALL and a pilot Phase 2 trial in metastic
      uveal melanoma. Pending finalization of the protocol with cooperative groups
      and
      approval by the Cancer Therapy Evaluation Program (CTEP), we anticipate
      conducting a confirmatory Phase 3 supportive trial in front-line ALL potentially
      commencing in the second half of 2008. We estimate that we will need to expend
      at least an aggregate of approximately $47 million in order for us to obtain
      full FDA approval for Marqibo, if ever, which includes a milestone payment
      that
      would be owed to our licensor upon FDA approval.  We expect that it will
      take approximately three to four years until we will have completed development
      and obtained full FDA approval of Marqibo, if ever.





***Alocrest.*** We
      have
      incurred $0.3 million in project costs related to our development of Alocrest
      in
      each of the three month periods ending March 31, 2008 and 2007. We initiated
      a
      Phase 1 clinical trial in August 2006. This Phase 1 trial was designed to assess
      safety, tolerability and preliminary efficacy in patients with advanced solid
      tumors. In February 2008, we completed enrollment in a Phase 1 study of Alocrest
      and plan to present the Phase 1 data in mid 2008. With this data in hand, we
      plan to seek out a third-party with which to partner the further development
      of
      Alocrest.





***Brakiva.*** We
      have
      incurred $0.6 million and $0.1 million in project costs related to our
      development of Brakiva in the three months ending March 31, 2008 and 2007,
      respectively. We have submitted an IND to the FDA which has been activated.
      We
      expect to initiate a Phase 1 clinical trial in the second half of 2008. As
      this
      drug is early in its clinical development, both the registrational strategy
      and
      total expenditures to obtain FDA approval are still being
      evaluated.





***Kyrbax.*** We have
      incurred $0.3 million and $0.2 million in project costs related to our
      development of Kyrbax in the three months ending March 31, 2008 and 2007,
      respectively. We have finalized the formulation of Kyrbax and completed
      essential IND activation enabling studies. We submitted an IND to the FDA by
      the
      end of 2007 which has been activated.  We initiated a Phase 1 clinical
      trial in April 2008.  As this drug is early in its clinical development,
      both the registrational strategy and total expenditures to obtain FDA approval
      are still being evaluated.





***Zensana.*** On
      July 31, 2007, we entered into a definitive agreement providing for the
      sublicense of all our rights to develop and commercialize Zensana to Par
      Pharmaceutical, Inc. Accordingly, we do not expect to incur additional costs
      relating to the development of Zensana.


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          24
          -




**Off-Balance
      Sheet Arrangements**




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





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




Not
      applicable.




**Item
      4T. Controls and Procedures**




*Evaluation
      of Disclosure Controls and Procedures* .





We
      conducted an evaluation as of March 31, 2008, under the supervision and
      with the participation of our management, including our Chief Executive Officer
      and Chief Financial Officer, of the effectiveness of the design and operation
      of
      our disclosure controls and procedures, which are defined under SEC
      rules as controls and other procedures of a company that are designed to
      ensure that information required to be disclosed by a company in the reports
      that it files under the Securities Exchange Act of 1934, as amended, is
      recorded, processed, summarized and reported within required time periods.
      Based
      upon that evaluation, our Chief Executive Officer and Chief Financial Officer
      concluded that, as of such date, our disclosure controls and procedures were
      effective.





*Limitations
      on the Effectiveness of Controls*





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




*Changes
      in Internal Controls Over Financial Reporting*





During
      the quarter ended March 31, 2008, there were no changes in our internal controls
      over financial reporting that have materially affected, or are reasonably likely
      to materially affect, our internal controls over financial
      reporting.




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            25
            -




**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**





We
      are
      not involved in any legal proceeding.




**Item
      1A. Risk Factors**





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




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





None





**Item
      3. Defaults Upon Senior Securities**





Not
      applicable





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





None




**Item
      5. Other Information**





None





**Item
      6. Exhibits**





**Exhibit No.**
            
            **Description**10.1
            
            Separation
                and release agreement dated January 22, 2008 between Hana Biosciences,
                Inc. and Fred L. Vitale10.2
            
            Letter
                agreement dated March 16, 2008 between Hana Biosciences, Inc. and
                Anne E.
                Hagey, M.D.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).




-
          26
          -




**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 13, 2008
            By:
            /s/ Steven
                R. Deitcher, MDSteven
                R. Deitcher, MDPresident
                and Chief Executive Officer





Dated:
                May 13, 2008
            By:
            /s/ John
                P. IparraguirreJohn
                P. Iparraguirre
              Vice
                President, Chief Financial
                Officer


-
          27
          -




**Index
      to Exhibits Filed with this Report**




**Exhibit No.**
            
            **Description**10.1
            
            Separation
                and release agreement dated January 22, 2008 between Hana Biosciences,
                Inc. and Fred L. Vitale10.2
            
            Letter
                agreement dated March 16, 2008 between Hana Biosciences, Inc. and
                Anne E.
                Hagey, M.D.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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          28
          -