**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**








**FORM
      10-K**





**FOR
      ANNUAL AND TRANSITION REPORTS**


**PURSUANT
      TO SECTIONS 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**


(Mark
      One)


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





For
      the
      fiscal year ended December 31, 2006


OR





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





For
      the
      transition period from _____________ to _____________


Commission
      File Number 000-14879





logo(Exact
                Name of Registrant as Specified in Its
                Charter)





Delaware
            
            22-2322400(State
                or Other Jurisdiction of
            
            (I.R.S.
                Employer Identification No.)Incorporation
                or Organization)650
                College Road East, Suite 3100Princeton,
                New Jersey
            
            08540(Address
                of Principal Executive Offices)
            
            (Zip
                Code)




Registrant's
        telephone number, including area code: (609) 750-8200




Securities
      registered pursuant to Section 12(b) of the Act:




Title
                of Class
            
            Name
                  of Exchange onwhich
                  RegisteredCommon
                Stock, $0.01 par value per share
            
            The
                NASDAQStock
                Market LLC




Securities registered pursuant to Section 12(g) of the
      Act:  Preferred
      Stock Purchase Rights, $0.01 par value per share










Indicate
      by check mark whether the registrant is a well-known seasoned issuer, as defined
      in Rule 405 of the Securities Act. Yes ** ̈******No
      **x**





Indicate
      by check mark whether the registrant is not required to file reports pursuant
      to
      Section 13 or Section 15(d) of the Act. Yes ** ̈******No
      **x**





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes**x**
      No** ̈**





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.**x**





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.





Large
                Accelerated Filer ** ̈**
            Accelerated
                Filer **x**
            Non-
                Accelerated Filer ** ̈**





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


Yes
** ̈******No
      **x**





The
      aggregate market value of the registrant's voting shares of Common Stock held
      by
      non-affiliates of the registrant on June 30, 2006, based on $2.50 per share,
      the
      last reported sale price on the NASDAQ Global Market on that date, was
      $56,119,227.





The
      number of shares of Common Stock, $.01 par value, of the registrant outstanding
      as of March 9, 2007 was 29,605,631****shares.





The
      following documents are incorporated by reference into this Annual Report on
      Form 10-K: Portions of the registrant's definitive Proxy Statement for its
      2007
      Annual Meeting of Stockholders are incorporated by reference into Part III
      hereof.













**TABLE
      OF CONTENTS**





**Item**
            
            
            
            **Page****PART
                I**
            1.
            
            Business
            
            31.A
            
            Risk
                Factors
            
            401.B
            
            Unresolved
                Staff Comments
            
            642.
            
            Properties
            
            653.
            
            Legal
                Proceedings
            
            654.
            
            Submission
                of Matters to a Vote of Security
                Holders
            
            65**PART
                II**
            5.
            
            Market
                for the Company's Common Equity, Related Stockholder
                Matters and Company Purchases of Equity Securities
            
            666.
            
            Selected
                Financial Data
            
            687.
            
            Management's
                Discussion and Analysis of Financial Condition and
                Results of Operations
            
            697A.
            
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            
            918.
            
            Financial
                Statements and Supplementary Data
            
            929.
            
            Changes
                in and Disagreements with Accountants on Accounting and
                Financial Disclosure
            
            929A.
            
            Controls
                and Procedures
            
            929.B
            
            Other
                Information
            
            96**PART
                III**
            10.
            
            Directors,
                Executive Officers and Corporate
                Governance
            
            9611.
            
            Executive
                Compensation
            
            9612.
            
            Security
                Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters
            
            9613.
            
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            9614.
            
            Principal
                Accountant Fees and Services
            
            97





i




**PART
                IV**
            15.
            
            Exhibits
                and Financial Statement Schedules
            
            97SIGNATURES
            
            111INDEX
                TO CONSOLIDATED FINANCIAL STATEMENTS
            
            F-1





ii
 *Table
            of Contents*





This
      Annual Report contains forward-looking statements, which can be identified
      by
      the use of forward-looking terminology such as, "believe," "expect," "may,"
      "plan," "estimate," "intend," "will," "should," "potential" or "anticipate"
      or
      the negative thereof, or other variations thereof, or comparable terminology,
      or
      by discussions of strategy.  No assurance can be given that the future
      results covered by such forward-looking statements will be
      achieved.  The matters set forth in Item 1A.  Risk Factors
      constitute cautionary statements identifying important factors with respect
      to
      such forward-looking statements, including certain risks and uncertainties
      that
      could cause actual results, events or developments to differ materially from
      those indicated in such forward-looking statements.  All information
      in this Annual Report on Form 10-K is as of March 16, 2007.  We
      undertake no obligation to update this information to reflect events after
      the
      date of this report.





CAPHOSOL®,
      QUADRAMET® (samarium
      Sm-153 lexidronam injection) and PROSTASCINT® (capromab
      pendetide) are registered United States trademarks of Cytogen
      Corporation.  Other trademarks and trade names used in this Annual
      Report are the property of their respective owners.





We
      are
      sponsoring or supporting certain clinical investigations to explore potential
      new indications for the use of QUADRAMETand PROSTASCINT.This Annual Report contains discussions that include investigational
      clinical applications that differ from those reported in the package inserts
      for
      QUADRAMET and PROSTASCINT and have not been reviewed or approved by
      FDA.  QUADRAMET is indicated for the relief of pain in patients with
      confirmed osteoblastic metastatic bone lesions that enhance on a radionuclide
      bone scan. PROSTASCINT is approved for marketing in the United States in two
      clinical settings: (i) as a diagnostic imaging agent in newly diagnosed patients
      with biopsy-proven prostate cancer thought to be clinically localized after
      standard diagnostic evaluation and who are at high risk for spread of their
      disease to pelvic lymph nodes; and (ii) for use in post-prostatectomy patients
      with a rising PSA and a negative or equivocal standard metastatic evaluation
      in
      whom there is a high clinical suspicion of occult metastatic
      disease.





SOLTAMOXTM
      (tamoxifen citrate, oral solution 10mg/5mL) is indicated for the treatment
      of
      metastatic breast cancer and to reduce the incidence of breast cancer in women
      who are at high risk for the disease.  As with other versions of
      tamoxifen, the product label for SOLTAMOX includes a black box warning with
      information on the potential risk of adverse events.  The boxed
      warning states, in part, that: "Serious and life threatening events associated
      with tamoxifen in the risk reduction setting (women at high risk for cancer
      and
      women with ductal carcinoma in situ) include uterine malignancies, stroke and
      pulmonary embolism."





A
      copy of
      the full prescribing information for CAPHOSOL, QUADRAMET, PROSTASCINT and
      SOLTAMOX in the United States may be obtained from us by calling us toll free
      at
      800-833-3533 or by visiting our website at
www.cytogen.com.  Our website is not part of this Annual Report
      on Form 10-K.





We
      maintain www.cytogen.com to provide information to the general public and our
      stockholders on our products, as well as general information on Cytogen and
      its
      management, strategy, career opportunities, financial results and press
      releases.  Copies of our most recent Annual Reports on Form 10-K,
      Quarterly Reports on Form 10-Q, and other reports filed with the





1
 *Table
            of Contents*





Securities
      and Exchange Commission, or the SEC, can be obtained, free of charge as soon
      as
      reasonably practicable after such material is electronically filed with, or
      furnished to the SEC, from our Investor Relations Department by calling
      609-750-8213, through the Investor Relations page on our website at
      www.cytogen.com or directly from the SEC's website at
www.sec.gov.  Our website and the information contained therein
      or connected thereto are not intended to be incorporated into this Annual Report
      on Form 10-K.





We
      were
      incorporated in Delaware on March 3, 1980 under the name Hybridex, Inc. and
      changed our name to Cytogen Corporation on April 1, 1980.  Our
      executive offices are located at 650 College Road East, Suite 3100, Princeton,
      New Jersey, 08540 and our telephone number is 609-750-8200.





2
 *Table
            of Contents*





**PART
      I**





**Item
                1.**
            **Business**





**Overview**





Cytogen
      is a specialty pharmaceutical company dedicated to advancing the treatment
      and
      care of cancer patients by building, developing, and commercializing a portfolio
      of oncology products for underserved markets where there are unmet
      needs.  Our product portfolio includes four oncology products approved
      by the United States Food and Drug Administration ("FDA"), CAPHOSOL®, QUADRAMET®,
      PROSTASCINT®, and SOLTAMOXTM,
      which are marketed
      solely by our specialized sales force to the U.S. oncology
      market.  We introduced our fourth product, CAPHOSOL, in the first
      quarter of 2007.  CAPHOSOL is an advanced electrolyte solution for the
      treatment of oral mucositis and dry mouth that was approved as a prescription
      medical device.  QUADRAMET is approved for the treatment of pain in
      patients whose cancer has spread to the bone.  SOLTAMOX, which
      we introduced in the second half of 2006, is the first liquid hormonal
      therapy approved in the U.S. for the treatment of breast cancer in adjuvant
      and
      metastatic settings.  PROSTASCINT is a prostate-specific membrane antigen
      (PSMA) targeting monoclonal antibody-based agent to image the extent and spread
      of prostate cancer.  Currently, our clinical development initiatives
      are focused on new indications for QUADRAMET and PROSTASCINT, as well our
      product candidate, CYT-500, a radiolabeled antibody in Phase 1 development
      for
      the treatment of prostate cancer.





In
      2003,
      we realigned our corporate direction to focus on building a successful oncology
      franchise with a specialized commercial infrastructure equipped to deliver
      sustainable value.  To that end, we have established a growing
      commercial presence in the U.S., which targets both medical and radiation
      oncology.  We believe marketing proprietary specialty oncology
      products directly, as opposed to receiving royalties on sales by licensees,
      will
      enable us to build a growth-oriented oncology business.  Because there
      is a limited number of leading cancer clinics across the U.S., we believe our
      highly trained and focused sales team can effectively market a complementary
      product offering to a broad market segment.  Our sales and marketing
      infrastructure has played a critical role in our ability to add new
      commercial-stage products to our portfolio.  Further, we believe the
      commercial arm of our business is highly scalable and can readily support new
      product opportunities through modest capital investments.





**Strategy
      and Approach**





Our
      strategy focuses on growing our business organically and through in-licensing
      initiatives.  It revolves around three key priorities:





·
            *Expanding
                our near- and long-term revenues.*We have successfully implemented an
                active in-licensing program to broaden our revenue base with product
                opportunities that are complementary to our commercial presence in
                oncology.  In April 2006, we acquired the commercial rights to
                SOLTAMOX from Savient Pharmaceuticals, Inc. ("Savient") and in October
                2006, we acquired the commercial rights to CAPHOSOL from InPharma
                A/S
                ("InPharma").  These two products are new revenue sources
                for





3
 *Table
            of Contents*





2007.  We
      are also pursuing clinical-stage candidates in complementary therapeutic areas
      with promising regulatory pathways.





·
            *Maximizing
                the market potential of our approved products through data-driven
                initiatives.*A robust, data-driven strategy is underway to
                enhance the market opportunities for our products within their currently
                approved indications.  We are supporting numerous post-marketing
                studies for QUADRAMET to optimize its potential as a safe, effective,
                non-narcotic option for the palliation of pain from cancers that
                have
                spread to the bone.  We are also advancing initiatives to
                position PROSTASCINT as an important tool for managing the care of
                prostate cancer.  Recent progress includes:  (i) the
                publication of new data in the American Cancer Society's peer-reviewed
                journal, *Cancer*, demonstrating repeated dosing of QUADRAMET to be
                a safe and effective treatment option for patients with recurrent
                painful
                bone metastases; (ii) the expanded inclusion of PROSTASCINT within
                the
                National Comprehensive Cancer Network's ("NCCN") clinical practice
                guidelines to include patients with recurrent disease; and (iii)
                the
                publication of seven-year survival data in the American Brachytherapy
                Society's peer-reviewed journal, *Brachytherapy*, demonstrating the
                potential for PROSTASCINT fusion imaging to help determine
                patient-specific treatment regimens for prostate cancer patients
                undergoing brachytherapy.





·
            *Building
                long-term sustainability.*  We are focused on maintaining a
                balanced specialty portfolio through three key imperatives:  (i)
                evaluating new indications for our marketed products; (ii) accessing
                product candidates complementary to our commercial presence; and
                (iii)
                monetizing assets that are no longer a strategic fit and realigning
                our
                investment on projects that are in line with our business
                objectives.  Our 2006 progress includes the presentation of
                promising Phase 1 data for Quadramet in combination with bortezomib
                for
                relapsed multiple myeloma and the approval of an investigational
                new drug
                application to evaluate CYT-500 as a therapy for prostate
                cancer.  In addition, in April 2006, we monetized our interest
                in a preclinical-stage joint venture, PSMA Development Company LLC
                ("PDC")
                for a cash payment of $13.2 million and potential future milestone
                payments totaling up to $52 million.  We are also pursuing
                strategic opportunities to optimize the extensive intellectual property
                and technology associated with our AxCell BioSciences
                subsidiary.





**Marketed
      Products**





**CAPHOSOL**





*Overview*





CAPHOSOL
      is an advanced electrolyte solution indicated in the U.S. as an adjunct to
      standard oral care in treating oral mucositis caused by radiation or high dose
      chemotherapy.  It is also indicated for dryness of the mouth or
      dryness of the throat regardless of the cause or whether the conditions are
      temporary or permanent.  CAPHOSOL is approved in the U.S. as a
      prescription medical device.





4
 *Table
            of Contents*





We
      acquired the exclusive commercial rights for CAPHOSOL in North America from
      InPharma in October 2006 in exchange for aggregate up-front payments totaling
      $6.0 million which includes $1 million payable in 2007, a $400,000 payment
      contingent upon certain conditions, future royalties on product sales, and
      sales-based milestone payments.  We are also obligated to pay a
      finder's fee based on a percentage of milestone payments made to
      InPharma.  We also obtained options to acquire the rights to CAPHOSOL
      for the European and Asian markets, which we only intend to exercise in
      connection with obtaining a commercial partner for those areas.  We
      will be required to obtain consents from certain licensors but not InPharma,
      if
      we sublicense the rights to market CAPHOSOL in Europe and Asia to other
      parties.  In the event we exercise the options to license marketing
      rights for CAPHOSOL for the European and Asian markets, we would be obligated
      to
      pay additional fees, including sales-based milestone payments for the respective
      territories.





*Oral
      mucositis*





Oral
      mucositis is commonly described as one of the most significant and debilitating
      acute complications associated with radiation therapy and
      chemotherapy.  It is estimated to affect more than 400,000 cancer
      patients each year occurring in about 40% of patients receiving conventional
      chemotherapy, 75% to 85% of bone marrow transplant recipients, and nearly all
      patients undergoing radiation therapy for head and neck cancers.  Oral
      mucositis usually begins seven to ten days after initiation of cytotoxic
      therapy, and remains present for approximately two weeks after cessation of
      that
      therapy.





Oral
      mucositis is an oral mucosal change that manifests first by thinning of oral
      tissues leading to redness or inflammation of the skin or mucous
      membranes.  As these tissues continue to thin, ulceration eventually
      occurs.  In severe cases, oral mucositis can complicate the management
      of cancer by leading to interruption or stopping of treatment, which can
      negatively impact treatment outcomes.





While
      there are a number of agents available for oral mucositis, we believe the
      current market is significantly underserved thereby presenting us with a
      promising opportunity to substantially expand our revenue base.





*CAPHOSOL
       for oral mucositis*





CAPHOSOL
      lubricates the mucosa and helps maintain the integrity of the oral cavity
      through its mineralizing potential.  We believe the distinguishing
      feature of CAPHOSOL is its high concentrations of calcium and phosphate ions,
      which are hypothesized to exert their beneficial effects by diffusing into
      intracellular spaces in the epithelium and permeating the mucosal lesion in
      mucositis.  Calcium ions may play a crucial role in several aspects of
      the inflammatory process, the blood clotting cascade, and tissue
      repair.  Phosphate ions may be a valuable supplemental source of
      phosphates for damaged mucosal surfaces.





In
      two
      single-arm studies evaluating patients receiving hematopoietic stem cell
      transplantation (HSCT) and head and neck radiation therapy, the CAPHOSOL-based
      oral health management system was well tolerated and was associated with an
      improvement in oral mucositis as compared with previous controlled
      studies.  These favorable results were the basis for a prospective,
      randomized, double-blind, placebo-controlled trial demonstrating
      that





5
 *Table
            of Contents*





CAPHOSOL
      is a significant adjunct in the management of mucositis associated with
      high-dose chemotherapy and radiation therapy.  The trial evaluated 95
      patients undergoing HSCT with the duration and severity of mucositis and
      requirements for opioid medications prospectively evaluated.  Data
      demonstrated significant decreases in days of mucositis (3.72 vs. 7.20 days,
      P=0.001), maximum (peak) level of mucositis  using the National
      Institute of Dental and Craniofacial Research (NIDCR) scale (median level of
      1.0
      vs. 3.0, P=0.004), duration of pain (2.86 vs. 7.67 days, P=0.0001), dose of
      morphine (30.46 mg vs. 127.96 mg), and days of morphine (1.26 vs. 4.02 days,
      P=0.0001) for patients receiving CAPHOSOL as compared to those administered
      a
      placebo, respectively.  A total of 40% vs. 19% of patients had no
      mucositis in the CAPHOSOL and the control arms, respectively.  The
      lead investigator for the study was Athena Papas, DMD, PhD, Department of Oral
      Medicine, Tufts University School of Medicine, Boston MA and results were
      published in the April 2003 issue of the peer-reviewed journal *Bone Marrow
      Transplantation* (Papas et al. Bone Marrow Transplant. 2003
      April:31(8):705-12).





*Dry
      mouth*





Saliva
      is
      the principle protective mechanism for oral tissues.  Any absence of
      saliva or alteration in its composition leaves the mouth susceptible to
      infection or deterioration.  Xerostomia or dry mouth occurs when the
      salivary glands do not produce enough saliva.  It is a serious oral
      health problem that, when left untreated, leads to disease in the oral cavity
      and places patients at risk for oral infections.  Common complaints
      with dry mouth include difficulty in speaking, chewing, and tasting and
      swallowing foods.  Dry mouth may be caused by a variety of factors,
      including cancer treatment with chemotherapy and/or radiation, Sjögren syndrome
      and other autoimmune disorders, diabetes, renal dialysis, solid organ and bone
      marrow transplant, psychiatric disorders, and use of more than 400
      pharmaceutical products known to adversely affect salivary output.





*CAPHOSOL
       for dry mouth*





Saliva
      is
      an important part of the mucosal immune system.  Caphosol lubricates
      the oral cavity and its high concentrations of calcium and phosphate ions can
      help to maintain the integrity of the teeth.





Our
      products, including CAPHOSOL, are subject to significant regulation by
      governmental agencies, including the FDA, as is more fully described below
      under
      the section entitled "Government Regulation."  We cannot assure you
      that we will be able to successfully market CAPHOSOL for oral mucositis and/or
      dry mouth.





**QUADRAMET**





*Overview*





QUADRAMET
      is an oncology product that pairs the targeting ability of a small molecule,
      bone-seeking phosphonate (ethylenediaminetetramethylenephosphonic acid, or
      EDTMP) with the therapeutic potential of radiation (samarium
      Sm-153).  QUADRAMET is indicated for the relief of pain in patients
      with confirmed osteoblastic metastatic bone lesions that enhance on a
      radionuclide bone scan.  We market QUADRAMET to medical and radiation
      oncologists in the U.S.





6
 *Table
            of Contents*





*Bone
      metastases*





It
      is
      estimated that each year more than 100,000 patients in the U.S. develop bone
      metastases from spread of their primary cancer.  Bone is the third
      most common site of metastatic disease after liver and lung, and the spread
      of
      cancer to bone is associated with considerable morbidity.  This
      includes bone pain and fracture, spinal cord compression, and
      hypercalcemia.  The incidence of bone metastasis is expected to
      increase over the next decade as patient survival improves due to advances
      in
      anticancer therapy.  This will make the treatment of this problem more
      important in the overall management of the surviving cancer
      patient.  The majority of skeletal metastases arise from primary
      tumors of the thyroid, kidney, lung, prostate, and breast, with the latter
      two
      accounting for about 80% of metastatic bone disease.  While all bones
      can be affected, the most common site of disease spread is the spine with the
      subsequent development of spinal cord compression.  In advanced breast
      cancer, a majority of skeletal events will occur every three to four months
      resulting in significant morbidity and impaired quality of life.





*QUADRAMET
       for painful bone metastases*





Skeletal
      invasion by prostate, breast, multiple myeloma, and other cancers often create
      an imbalance between the normal process of bone destruction and
      formation.  QUADRAMET selectively targets such sites of imbalance,
      thereby delivering radioactivity directly to areas of the skeleton that have
      been invaded by metastatic tumor.  QUADRAMET has demonstrated a range
      of characteristics that may be advantageous for the treatment of pain arising
      from metastatic bone disease.  In clinical trials, QUADRAMET
      demonstrated significant reductions in pain scores accompanied by reductions
      in
      opioid analgesic use as compared to placebo.  Patients who respond to
      treatment with QUADRAMET may experience pain relief within the first week
      lasting a median of 16 weeks, with maximal relief generally occurring at three
      to four weeks after injection.  Patients who experience a reduction in
      pain may be encouraged to decrease their use of opioid analgesics.





Despite
      a
      favorable safety and efficacy profile, the routine use of QUADRAMET for the
      palliation of disseminated painful bone metastases has commonly been reserved
      for those patients with end-stage disease when other treatment options have
      been
      exhausted.  We believe this practice may have evolved as a result of
      experiences with earlier generation radiopharmaceuticals, such as strontium-89,
      which unlike QUADRAMET are associated with prolonged
      myelosuppression.  In December 2006, the American Cancer Society's
      journal, *Cancer*, published new data from a multi-center Phase 4 study
      evaluating the safety and efficacy of repeated doses of QUADRAMET in patients
      with metastatic bone pain.  This study is the first prospective
      clinical trial specifically evaluating the common clinical scenario of patients
      who initially respond to QUADRAMET and subsequently become candidates for
      re-treatment upon the recurrence of symptoms.  More than 200 patients,
      including 55 patients who received repeated dosing of QUADRAMET participated
      in
      the multi-center study.  The results demonstrated that repeated
      QUADRAMET dosing is a safe and effective treatment option in patients with
      painful bone metastases.  The article, "Safety and efficacy of repeat
      administration of Samarium Sm-153 lexidoronam to patients with metastatic bone
      pain," by A. Oliver Sartor, the lead author and a nationally renowned prostate
      cancer specialist with Dana-Farber Cancer Institute's Lank Center for
      Genitourinary Oncology, appeared in the February 1, 2007 edition of *Cancer
      2007*; 109: 637-43.





7
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            of Contents*





Because
      we believe QUADRAMET is underutilized as a pain therapy for patients whose
      cancer has spread to the bone, we are advancing numerous clinical and commercial
      initiatives to better support QUADRAMET and expand its market potential within
      its approved label for pain palliation.  In connection with our
      reacquisition of the commercial rights to QUADRAMET in 2003, we conducted
      detailed market research that formed the foundation of our product growth
      strategy.  The key components of this strategy are summarized
      below.





·
            *Distinguishing
                the physical properties of QUADRAMET from earlier generation agents
                within
                its class.*We believe the limited use of QUADRAMET for the
                palliation of disseminated painful bone metastases has evolved due
                to the
                myelosuppression associated with earlier generation radiopharmaceuticals,
                such as strontium-89.  While to date, there are no head-to-head
                clinical trials comparing QUADRAMET and strontium-89, we believe,
                there
                are several key differentiating features that distinguish QUADRAMET
                from
                strontium-89.  First, QUADRAMET's physical half life is 1.9
                days, as compared to 50.5 days for strontium-89.  A shorter half
                life results in a much faster time to deliver the total dose of radiation,
                as well as a shorter exposure to radioactivity.  In addition,
                particle emissions from strontium-89 are significantly higher in
                energy
                compared to QUADRAMET and higher-energy particles are associated
                with
                larger volumes of marrow exposed to radiation.  These key
                differences have been highlighted in recent peer-reviewed publications
                that our field force can utilize when they present QUADRAMET to health
                care providers.





·
            *Empowering
                and marketing to key prescribing audiences.*  We have
                broadened our commercial focus and are now introducing QUADRAMET
                to both
                medical and radiation oncologists, as we believe the effective treatment
                of bone metastases requires a cooperative effort between the two
                specialties.  We have retrained and refocused our sales force
                with new resources that highlight QUADRAMET's attributes for treating
                painful bone metastases, such as its rapid onset and duration of
                relief.





·
            *Broadening
                palliative use within label beyond prostate cancer to include breast,
                lung, and multiple myeloma.*Historically, the vast
                majority of QUADRAMET's use has been for bone metastases secondary
                to
                prostate cancer; however, bone metastases are also a frequent complication
                of a number of other cancers, including breast, lung, and multiple
                myeloma.  We have extended our therapeutic focus beyond prostate
                cancer specialists to include other cancers with a high propensity
                for
                painful bone metastases.  In addition, our 2006 acquisitions of
                SOLTAMOX for breast cancer and CAPHOSOL for oral mucositis and dry
                mouth,
                two common side effects of cancer therapy, offer expanded access
                to new
                therapeutic areas for QUADRAMET.





·
            *Generating
                data to support the role of QUADRAMET in contemporary oncology settings
                with other commonly used cancer therapeutics.*We are
                supporting numerous clinical development initiatives evaluating QUADRAMET
                in combination with chemotherapies and biologics for prostate cancer,
                breast cancer, multiple myeloma, and osteosarcoma.  These trials
                are designed with two key objectives.  First, to broaden
                QUADRAMET's market potential within its currently approved treatment
                setting for pain palliation by evaluating the safety and tolerability
                of
                administering





8
 *Table
            of Contents*





QUADRAMET
      in combination with other cancer regimens.  Second, to support our
      longer-term strategy for maximizing the QUADRAMET brand by progressing QUADRAMET
      beyond its currently approved treatment setting as a potential therapeutic
      for
      cancer that has spread to the bone as discussed below.





*Market
      expansion for QUADRAMET*





We
      believe that QUADRAMET's targeted delivery of radiotherapy may also have an
      important therapeutic effect beyond palliation of pain.  Phase 1
      clinical data suggest there may be synergistic effects between QUADRAMET and
      other cancer therapies for prostate cancer, breast cancer, multiple myeloma,
      and
      osteosarcoma.





*Prostate
      cancer*





In
      February 2007, we reported the presentation of interim data from a Phase 1
      study
      evaluating QUADRAMET in combination with docetaxel (Taxotere®) for the treatment
      of hormone-refractory prostate cancer.  Data from 18 patients were
      presented at the Prostate Cancer Symposium, a multidisciplinary meeting
      co-sponsored by the American Society of Clinical Oncology, the American Society
      for Therapeutic Radiology and Oncology, the Prostate Cancer Foundation, and
      the
      Society of Urologic Oncology.  This trial continues to accrue patients
      in a Phase 1 extension to explore the optimal dosing schedule for a Phase 2
      clinical study to be initiated in 2007.





*Breast
      cancer*





During
      2007, we plan on expanding our combination strategy for QUADRAMET to include
      breast cancer through the initiation of a Phase 1 trial evaluating QUADRAMET
      in
      combination with albumin-bound paclitaxel (Abraxane®) and a Phase 2 trial
      evaluating QUADRAMET in connection with hormonal therapies.





*Multiple
      myeloma*





In
      December 2006, we reported the presentation of interim data from a Phase 1
      dose
      escalation study evaluating QUADRAMET® in combination
      with
      bortezomib (Velcade®) in patients with relapsed multiple
      myeloma.  Data from 20 patients administered a total of 35 treatment
      cycles were presented at the Annual Meeting of the American Society of
      Hematology.  A treatment cycle is 8 weeks in duration and consists of
      four administrations of bortezomib (on Days 1, 4, 8 and 11) and a single
      administration of QUADRAMET (on Day 3).  Results indicated the
      combination of QUADRAMET and bortezomib was well-tolerated at the doses studied
      and we are preparing for the initiation of a follow-up Phase 2 study in
      2007.





*Osteosarcoma*





Following
      the presentation of encouraging data at the Connective Tissue Oncology Society
      (CTOS) annual meeting in November 2006, we are currently designing a Phase
      2
      protocol to evaluate QUADRAMET for the treatment of osteosarcoma.  We
      expect to initiate this study during 2007.





9
 *Table
            of Contents*





In
      addition to the aforementioned Company-sponsored clinical development
      initiatives in prostate cancer, breast cancer, multiple myeloma, and
      osteosarcoma, we continue to explore investigator-sponsored studies and studies
      with cooperative groups to advance our QUADRAMET combination
      strategy.




In
      July
      2006, we reported that the National Cancer Institutes's (NCI) Radiation
      Treatment  Oncology Group (RTOG) initiated a randomized phase III trial to
      evaluate either QUADRAMET or strontium-89 chloride in conjunction with
      zoledronic acid (Zometa®) in the treatment of osteoblastic metastases arising
      from lung, breast, and prostate cancer.  The study is designed to determine
      if the addition of a radiopharmaceutical to bisphosphonates for patients with
      asymptomatic or stable symptomatic bone metastasis will delay the time to
      development of malignant skeletal related events (SREs), defined as a
      pathological bone fracture, spinal cord compression, surgery to bone, or
      radiation to bone.  The study is expected to involve approximately 350
      patients.




In
      March
      2007, we reported that the NCI, part of the National Institutes of Health (NIH),
      initiated a randomized Phase 2 study to evaluate QUADRAMET in combination
      with the NIH's targeted therapeutic vaccine, PSA-TRICOM, for patients with
      progressive hormone-refractory  prostate cancer who have failed
      docetaxel-based regimens.  The primary objective of the study is to
      determine if there is an improvement in four-month progression-free survival
      for
      the combination regimen versus QUADRAMET therapy alone.  The study is
      expected to enroll 68 patients.  Currently, there is no standard of care
      for treating prostate cancer patients who have progressive disease following
      docetaxel-based therapy.




Our
      products, including QUADRAMET, are subject to significant regulation by
      governmental agencies, including the FDA, as is more fully described under
      the
      section entitled "Government Regulation" herein.  We cannot assure you
      that we will be able to complete any of our market expansion strategies set
      forth above.





**PROSTASCINT**





*Overview*





Our
      PROSTASCINT molecular imaging agent is the first, and currently the only,
      commercial product targeting PSMA.  PSMA is abundantly expressed on
      the surface of prostate cancer cells.  In contrast to other
      prostate-related antigens such as PSA, prostatic acid phosphatase, and prostate
      secretory protein, PSMA is a type II integral membrane glycoprotein that is
      not
      secreted.  PSMA expression is increased in high-grade cancers,
      metastatic disease, and hormone-refractory prostate cancer.  PSMA is
      also present at high levels on the newly formed blood vessels, or
      neovasculature, needed for the growth and survival of many solid
      tumors.  This unique expression pattern makes PSMA an excellent
      antigenic target for monoclonal antibody diagnostic and therapeutic
      options.





PROSTASCINT
      consists of our proprietary murine monoclonal antibody 7E11-C5.3 ("7E11")
      directed against PSMA and the radioisotope indium-111.  A radioisotope
      is an element which, because of nuclear instability, undergoes radioactive
      decay
      and emits gamma radiation.  Due to the selective expression of PSMA by
      prostate cancer cells, PROSTASCINT can image the extent and spread of prostate
      cancer using a common gamma camera.





10




PROSTASCINT
      is approved for marketing in the United States in two clinical settings: (i)
      as
      a diagnostic imaging agent in newly diagnosed patients with biopsy-proven
      prostate cancer thought to be clinically localized after standard diagnostic
      evaluation and who are at high risk for spread of their disease to pelvic lymph
      nodes and (ii) for use in post-prostatectomy patients with a rising PSA and
      a
      negative or equivocal standard metastatic evaluation in whom there is a high
      clinical suspicion of occult metastatic disease.





During
      the molecular imaging procedure, PROSTASCINT is administered intravenously
      into
      the patient.  The 7E11 antibody in PROSTASCINT travels through the
      bloodstream and binds to PSMA.  The radioactivity from the isotope
      that has been attached to the antibody can be detected from outside the body
      by
      a gamma camera.  Gamma cameras are found in the nuclear medicine
      departments of most hospitals.  The image captured by the camera
      assists in the identification of the location of the radiolabeled pharmaceutical
      thus identifying the sites of tumors.





Gamma
      cameras used in nuclear medicine have advanced in recent years.  Some
      manufacturers now sell cameras with wider segmented crystals, providing
      advantages in medium and high energy imaging of isotopes (e.g., indium-labeled
      agents, such as PROSTASCINT) thus enhancing system
      sensitivity.  System enhancements allow improved image quality or
      reduced scan
      time, which reduces the risks associated with patient
      motion.  Equipment vendors have introduced advanced single photon
      emission computed tomography (SPECT) reconstruction algorithms, as well as
      three
      dimensional iterative reconstruction techniques that potentially increase image
      contrast with inherent system gains in image quality.  These prominent
      new nuclear medicine imaging algorithms enable advances in image quality as
      compared to conventional "Filtered Back Projection" techniques.  In
      addition, PROSTASCINT may now be co-registered with an anatomic image obtained
      with either computed tomography (CT) or magnetic resonance (MR) imaging
      (PROSTASCINT fusion imaging.)  Device manufacturers generally offer
      two methods to achieve co-registration between metabolic and anatomical
      images.  Some manufacturers merge information in a single SPECT/CT
      system, while others utilize fusion software, which has become more widely
      available in the past few years, as computer workstations have become powerful
      enough to achieve co-registration.





*Prostate
      cancer*





Prostate
      cancer is the most common type of cancer found in American men, other than
      skin
      cancer.  In 2007, the American Cancer Society estimates that there
      will be about 219,000 new cases of prostate cancer diagnosed in the United
      States and that about 27,000 men will die from the disease.  It is
      estimated that there are more than 2 million American men currently living
      with
      prostate cancer.  Prostate-specific antigen (PSA) is a protein
      produced by the cells of the prostate gland.  Tests to determine the
      amount of PSA in the blood, along with a digital rectal exam, is used to help
      initially detect prostate cancer and is also used to monitor patients with
      a
      history of prostate cancer to see if the cancer has come back, or recurred;
      however, PSA levels cannot directly identify the extent or location of
      disease.





*PROSTASCINT
      for prostate cancer*





When
      deciding on a course of therapy for newly diagnosed prostate cancer, physicians
      must determine the extent of disease in the patient.  When disease has
      not spread beyond the




11




prostate
      gland, patients are most likely to benefit from local treatment options, such
      as
      surgical removal of the prostate gland.  Patients diagnosed with
      distant disease that has spread beyond the prostate gland have a poorer chance
      of five-year survival than th os e
      with
      disease confined to the gland and are more likely to benefit from systemic
      therapy.  In addition, in the United States, following initial
      therapy, prostate cancer patients are monitored to ascertain changes in the
      level of serum PSA.  In this setting, a consistent rise in PSA is
      evidence of recurrence of the patient's prostate cancer.  Knowledge of
      the extent and location of disease recurrence is important in choosing the
      most
      appropriate form of treatment.  PROSTASCINT is a non-invasive way to
      help determine if the cancer is confined to the prostate or if it has spread
      to
      other areas of the body.





Prior
      to
      the availability of PROSTASCINT, determining whether newly diagnosed disease
      was
      limited to the prostate or had spread beyond the gland, for instance to lymph
      nodes, was based upon statistical inference from the biopsy appearance of the
      tumor, the patient's level of serum PSA, and the stage of other primary
      tumors.  Conventional imaging methods such as CT or MR are all
      relatively insensitive because they rely on identifying significant changes
      to
      normal anatomic structure to indicate the presence of
      disease.  PROSTASCINT images are based upon expression of PSMA and,
      therefore, may identify disease not readily detectable with conventional
      procedures, such as CT or MR imaging alone.




In
      June
      2006, data from a series of studies evaluating PROSTASCINT fusion imaging and
      advancements in image processing methods were presented at the Society of
      Nuclear Medicine's annual meeting.  The data demonstrated new
      potential for PROSTASCINT fusion imaging to help determine patient-specific
      treatment regimens and improve outcomes for prostate cancer
      patients.





In
      January 2007, we reported that the National Comprehensive Cancer Network (NCCN)
      included PROSTASCINT in its updated clinical practice guidelines for recurrent
      prostate cancer.  We believe the expanded inclusion in the NCCN's
      guidelines further reinforces the value of PROSTASCINT for evaluation of
      prostate cancer in patients suspected of having locally recurrent
      disease.  NCCN is a non-profit alliance of 20 of the world's top
      cancer centers.  The NCCN's Clinical Guidelines in Oncology are a
      benchmark for clinical policy in the oncology community.  These
      guidelines are updated continually and are based upon evaluation of scientific
      data integrated with expert judgment by multidisciplinary panels of expert
      physicians from NCCN member institutions.  We believe the expanded
      NCCN guidelines reflect the growing awareness of the advancements in imaging
      processing and the value of PROSTASCINT fusion imaging.





In
      February 2007, the American Brachytherapy Society's peer-reviewed journal,
      *Brachytherapy* published the results of a seven-year survival study that
      suggest PROSTASCINT may help predict which patients are less likely to benefit
      from brachytherapy for prostate cancer.  The study, "Biochemical
      disease free survival rates following definitive low dose rate prostate
      brachytherapy with dose escalation to biologic target volumes identified with
      SPECT/CT Capromab Pendetide," by Ellis et al. (BrachytherapyVolume
      6, Issue 1, January-March 2007, Pages 16-25) evaluated the use of
      PROSTASCINT fusion imaging to define brachytherapy treatment regimens for 239
      newly-diagnosed prostate cancer patients.  PROSTASCINT fusion imaging
      was used to assess local and distant disease and to alter the radiation dose
      to
      areas of suspected high tumor burden.  In a multivariate analysis,
      uptake of PROSTASCINT outside of the prostate gland was found to be a
      significant and independent predictor of biochemical disease




12
 *Table
            of Contents*




free
      survival (bDFS).  Using the American Society for Therapeutic Radiation
      and Oncology (ASTRO) standard criteria to monitor PSA response for reporting
      disease free survival, the cure rate was 90.6% for patients whose fused
      PROSTASCINT scan showed local disease (n=217) versus 66.1% (n=22) for patients
      with distant disease (p=0.0005).  We believe this publication further
      reinforces PROSTASCINT's emerging potential as a valuable tool in managing
      the
      care of prostate cancer patients.





*Validation
      of PSMA prognostic value*





In
      May
      2006, Cytogen announced the presentation of clinical data demonstrating that
      a
      high level of PSMA in prostate tissue is a strong predictor of prostate cancer
      recurrence.  The data was presented at the 101st American Urological
      Association (AUA) Annual Meeting held May 20-25, 2006, in Atlanta,
      GA.





In
      the
      study, independent investigators from Ulm, Germany, and Boston, MA, analyzed
      PSMA expression by tissue microarray in 96 patients with either localized or
      metastatic prostate cancer who had undergone radical prostatectomy, or surgical
      removal of the prostate, as monotherapy.  One third of the patients
      had disease confined to the prostate gland with no spread to lymph nodes (LN),
      33% had only one positive LN, and the remaining third had more than one positive
      LN.  Following therapy, patients were monitored for a maximum of 12.6
      years with an average follow-up of 2.7 years.





Significant
      up-regulation of PSMA expression was noted in patients with metastatic disease
      as compared to those with localized prostate cancer and in localized disease
      compared to benign prostate tissue (p<0.05).  High PSMA levels were
      associated with a significant increase in disease recurrence following therapy
      (p<0.001) in univariate statistical analyses.  Other significant
      parameters for predicting disease recurrence included LN positivity,
      extraprostatic extension of disease, seminal vesicle invasion by disease, and
      Gleason score 8-10.  Using multivariate statistical analyses, the best
      model to predict disease recurrence included high PSMA expression (p<0.01)
      and extraprostatic extension (p=0.02) after adjusting for Gleason score and
      seminal vesicle invasion.





This
      new
      study validates and extends upon data previously published demonstrating that
      over-expression of PSMA in primary prostate cancer not only correlates with
      other adverse traditional prognostic factors, but can independently predict
      both
      a higher incidence and shorter time to disease recurrence.  There is a
      tremendous need for better prognostic markers in prostate cancer to assist
      in
      the identification of patients with aggressive forms of the disease who can
      potentially benefit from earlier and more intensive forms of
      treatment.  The findings presented at AUA further support our belief
      in the importance of PSMA as an independent prostate cancer marker and important
      diagnostic and therapeutic target.





*Market
      Expansion for PROSTASCINT*





We
      believe the major developments in imaging resolution, emerging clinical data,
      and the increasing level of recognition of the value of PROSTASCINT fusion
      imaging support an important near- and long-term market opportunity for
      PROSTASCINT.  We are focused on capitalizing on this opportunity by
      generating awareness and expanded usage for


13
 *Table
              of Contents*




PROSTASCINT
      fusion imaging through a number of clinical and commercial
      initiatives.  Key highlights from our strategy are summarized
      below.





·
            *Positioning
                PROSTASCINT fusion imaging as the standard of care for prostate cancer
                imaging.*  PROSTASCINT fusion imaging combines anatomic and
                functional information to provide a complete pathology picture in
                a single
                exam.  This can help physicians eliminate guesswork and enable
                them to better plan and individualize patient treatment. PROSTASCINT
                fusion imaging can be accomplished through software or hardware
                solutions. Of the approximately 400 sites able to perform PROSTASCINT
                imaging, there are approximately 150 sites currently proficient in
                PROSTASCINT fusion imaging.  We are focused on growing the
                number of these sites by increasing awareness of the significant
                advancements that have taken place and the value of PROSTASCINT fusion
                imaging to expand the number of
                sites.





·
            *Generating
                awareness of the prognostic value of the PSMA
                antigen.*There is a growing body of clinical data
                demonstrating that over-expression of PSMA in prostate cancer patients
                correlates with other adverse prognostic factors and can independently
                predict disease recurrence.  We are focused on generating
                awareness of PSMA as an important prognostic marker for prostate
                cancer
                and positioning




PROSTASCINT
      as an important tool for identifying patients who may benefit from more
      intensive treatment regimens.





·
            *Leveraging
                the presentation and publication of outcomes data*.  In
                2006, outcomes data from recent and ongoing clinical trials of PROSTASCINT
                were reported at major medical meetings and in the peer-reviewed
                publication, *Brachytherapy*.  These data continue to
                support the potential of PROSTASCINT fusion imaging as an important
                tool
                to define patients with local or metastatic disease, help clarify
                treatment decisions, and prevent or limit treatment-related side
                effects.





·
            *Advancing
                image-guided therapy applications*.  The advances in nuclear
                medicine imaging SPECT equipment, computer workstation power, as
                well as
                software enhancements allow researchers to utilize cutting-edge imaging
                technology to explore novel applications of the enhanced PROSTASCINT
                image.  With fusion of an enhanced SPECT, the PROSTASCINT image
                is registered with CT and/or MR anatomic images; the resulting images
                have
                been applied to clinical research in areas of guided brachytherapy
                (or
                radioactive seeds), guided external beam radiation therapy (EBRT),
                intensity modulated radiation therapy (IMRT), and image-guided
                biopsy.  The potential of this application is described in the
                previously discussed 2007 publication reporting seven-year biochemical
                outcomes after image-guided brachytherapy using PROSTASCINT fusion
                imaging.  The publication, "Biochemical disease free survival
                rates following definitive low dose rate prostate brachytherapy with
                dose
                escalation to biologic target volumes identified with SPECT/CT Capromab
                Pendetide," by Ellis et al. appeared in the American Brachytherapy
                Society's peer-reviewed journal, *Brachytherapy*(Brachytherapy
                Volume 6, Issue 1, January-March 2007, Pages
                16-25.)





·
            *Evaluating
                the potential for imaging other PSMA-expressing
                cancers.*PSMA was originally thought to be strictly
                expressed in prostate tissue, but studies
                have





14
 *Table
            of Contents*




demonstrated
      PSMA protein expression in the newly forming blood vessels associated with
      a
      variety of nonprostatic tumors.  The formation of new blood vessels
      (angiogenesis) is essential for the growth and development of both primary
      and
      metastatic tumors and may represent a unique target for the treatment and
      diagnosis of a variety of diverse tumors.  PSMA may be a unique
      antiangiogenesis target because it is selectively and consistently expressed
      in
      nonprostatic tumor-associated neovasculature but not in normal vessels in benign
      tissue.  A renal cell carcinoma discovered through PROSTASCINT imaging
      forms the basis upon which we believe PSMA's role as a molecular imaging target
      may be expanded.  The PROSTASCINT scan revealed suspicious uptake in a
      kidney, which subsequent conventional imaging revealed to be a solid renal
      mass
      with necrosis.  This example may demonstrate recognition of
      tumor-associated neovasculature by the PROSTASCINT monoclonal
      antibody.  Detection of other malignancies such as non-Hodgkin's
      lymphoma, neurofibromatosis, and meningioma has also been reported with
      PROSTASCINT imaging.  Accordingly, we are planning additional research
      to determine the role of PROSTASCINT imaging in nonprostatic primary and
      metastatic malignancies.




Our
      products, including PROSTASCINT, are subject to significant regulation by
      governmental agencies, including the FDA, as is more fully described below
      under
      the section entitled "Government Regulation." We cannot assure you that we
      will
      be able to complete any of our market expansion strategies set forth
      above.





**SOLTAMOX**





*Overview*





In
      the
      second half of 2006, we introduced SOLTAMOX in the
      U.S.  SOLTAMOX, a cytostatic estrogen receptor antagonist, is the
      first oral liquid hormonal therapy approved in the U.S.  SOLTAMOX is
      indicated for the treatment of breast cancer in adjuvant and metastatic settings
      and to reduce the risk of breast cancer in women with ductal carcinoma*in
      situ* (DCIS) or with high risk of breast cancer.  We market
      SOLTAMOX to the U.S. oncology market through our specialty sales and marketing
      team.





We
      acquired the exclusive U.S. marketing rights for SOLTAMOX in April 2006 from
      Savient.  We also entered into a supply agreement with Rosemont
      Pharmaceuticals Ltd ("Rosemont"), a former subsidiary of Savient, for the
      manufacture and supply of SOLTAMOX.  Such agreements were subsequently
      assigned by Savient to Rosemont.  Under the terms of the transaction
      we paid Savient an up-front licensing fee of $2.0 million, are obligated to
      pay
      royalties on net sales and may pay additional contingent sales-based payments
      of
      up to $4.0 million to Rosemont.





SOLTAMOX,
      a liquid formulation of tamoxifen developed by Savient, received U.S. regulatory
      approval in October 2005.





*Breast
      cancer*





Breast
      cancer is the most common non-skin cancer in women and the second leading cause
      of death in women after lung cancer.  According to the American Cancer
      Society, it is estimated that in 2007 about 178,480 new cases of invasive breast
      cancer will be diagnosed


15
 *Table
              of Contents*




among
      women in the United States.  At this time there are slightly over 2
      million breast cancer survivors in the United States.  In addition to
      invasive breast cancer, carcinoma in situ (CIS) will account for about 62,030
      new cases in 2007.  CIS is noninvasive and is the earliest form of
      breast cancer.  Breast cancer also occurs in men.  An
      estimated 2,030 cases of invasive breast cancer will be diagnosed in men in
      2007.  Breast cancer is the second leading cause of cancer death in
      women, exceeded only by lung cancer.  In 2007, about 40,460 women and
      450 men will die from breast cancer in the United States.  Estrogen is
      known to promote the growth of approximately two-thirds of breast cancers that
      contain estrogen or progesterone receptors.  Breast cancer treatment
      often involves agents designed to block the effect of estrogen or lower estrogen
      levels.  Tamoxifen, the most commonly used anti-estrogen drug, has
      been shown to reduce the risk of cancer recurrence and improve overall survival
      in all age groups.





*SOLTAMOX
       for breast cancer*





Tamoxifen
      interferes with the activity of the estrogen hormone.  Estrogen
      promotes the growth of breast cancer cells and tamoxifen works against these
      effects.  It has been used for more than 20 years to treat patients
      with advanced breast cancer.  Clinical trials have documented the
      benefits of adjuvant tamoxifen in women with early-stage breast cancer. Adjuvant
      tamoxifen therapy reduces the risk of a systemic recurrence and results in
      a
      significant increase in overall survival for women with
      hormone-receptor-positive breast cancer.  The standard recommendation
      for women with hormone receptor-positive breast cancer is five years of
      tamoxifen.  Soltamox is bioequivalent in rate and extent of absorption
      to tamoxifen citrate tablets and it is the only liquid formulation available
      in
      the U.S.





Because many
      patients prefer different formulations of pharmaceutical products, we believe
      that providing patients with a preferred delivery option can drive adherence
      to
      therapy and improve treatment outcome.  While tamoxifen citrate
      tablets are a standard of care for certain breast cancer settings, they are
      associated with compliance and persistency issues.  Recently published
      data show that although overall adherence to tamoxifen tablets is better than
      that seen with other chronic medications, adherence rates dropped to 50% after
      four years of therapy.  In 2003, the Journal of Clinical Oncology
      published a study evaluating the adherence and predictors of non-adherence
      in
      women starting tamoxifen as adjuvant breast cancer therapy.  The study
      "Nonadherence to Adjuvant Tamoxifen Therapy in Women with Primary Breast Cancer"
      by Partridge, et al., evaluated 2,378 patients initiating tamoxifen from 1990
      to
      1996 and concluded that nearly 25% of tamoxifen patients may be at risk for
      inadequate clinical response because of poor adherence.  While this
      level of adherence is high compared with other medications, further efforts
      are
      necessary to identify and prevent suboptimal adherence.





We
      believe that providing an alternative oral liquid dosing form of tamoxifen
      is an
      important option for patients that may allow more women to benefit from hormonal
      treatment for estrogen receptor positive breast cancer.





As
      with
      other versions of tamoxifen, the SOLTAMOX product label also includes a black
      box warning with information on the potential risk of adverse
      events.  The boxed warning states, in part, that: "Serious and life
      threatening events associated with tamoxifen in the risk reduction setting
      (women at high risk for cancer and women with ductal carcinoma *in situ*)
      include uterine malignancies, stroke, and pulmonary embolism.  The
      benefits of SOLTAMOX outweigh its risks in women already diagnosed with breast
      cancer."


16
 *Table
              of Contents*


Our
      products, including SOLTAMOX, are subject to significant regulation by
      governmental agencies, including the FDA, as is more fully described under
      the
      section entitled "Government Regulation" herein.  We cannot assure you
      that we will be able to successfully compete in the taxomifen
      market.





**Research
      and Development**





Our
      total
      research and development expenses, including our investment in PDC, a
      preclinical joint venture with Progenics that we sold in April
      2006, for the years ended December 31, 2006, 2005, and 2004 were $7.4
      million, $9.3 million, and $6.2 million, respectively.  These expenses
      included $120,000, $3.2 million, and $2.9 million related to our equity in
      the
      loss of PDC, for the years ended December 31, 2006, 2005, and 2004,
      respectively.  We are no longer responsible for funding
      PDC.





Our
      ongoing clinical development initiatives consist of expanding the market
      potential for our existing products along with development of new product
      candidates.  Our research and development strategy is mindful of risk
      management and over the past three years we have monetized or discontinued
      the
      vast majority of our investment in research and preclinical stage
      programs.  Our current
      clinical development strategy is to focus on clinical-stage opportunities that
      are complementary to our commercial presence and have an identifiable pathway
      to
      approval.





Our
      proprietary research and development activities in 2006 were primarily focused
      on clinical expansion studies for QUADRAMET and PROSTASCINT and preparation
      for the Phase 1 study for CYT-500, our radiolabeled monoclonal antibody
      that we are developing for the treatment of prostate cancer.





*CYT-500*





In
      February 2007, we announced the initiation of the first human clinical
      study of CYT-500, our proprietary radiolabeled monoclonal antibody targeted
      to
      PSMA.  The Phase 1 clinical trial will investigate the safety and
      tolerability of CYT-500 and determine the optimal antibody mass and therapeutic
      dose for further studies.  The clinical trial is being conducted at
      Memorial Sloan-Kettering Cancer Center under a Cytogen sponsored Investigational
      New Drug ("IND") application, which was approved by the United States Food
      and
      Drug Administration in May 2006, and is expected to enroll up to 36
      patients.





CYT-500
      employs the same 7E11 monoclonal antibody as our molecular imaging agent
      PROSTASCINT; however, it is linked to lutetium 177 (Lu-177), a particle emitting
      therapeutic radionuclide, as opposed to an imaging radionuclide.  We
      designed this novel product candidate to enable targeted delivery of high doses
      of radiation to PSMA-expressing cells.





Preclinical
      pharmacokinetic and biodistribution studies of CYT-500 demonstrated that the
      compound is stable in serum, accumulates at the tumor site and clears from
      normal organs and tissues.  Acute and expanded toxicology studies and
      safety pharmacology studies with unlabeled doses up to 20 times the anticipated
      human dose did not reveal significant adverse reactions.  The
      preclinical data were presented in November 2005 at the American Association


17
 *Table
              of Contents*




for
      Cancer Research-National Cancer Institute-European Organization for Research
      and
      Treatment of Cancer International Conference on Molecular Targets and Cancer
      Therapeutics.





We
      believe there is a strong rationale for development of CYT-500 for several
      factors, including:





·
            Radiotherapy
                has been successfully developed and used to treat hematological
                disorders.  Prostate cancer mirrors a hematological disorder in
                the sense that most of the disease is in the skeleton in the bone
                marrow.





·
            PSMA
                is a validated target and our proprietary 7E11 antibody is a confirmed
                effective PSMA-targeting agent that has been injected into more than
                60,000 patients as a component of
                PROSTASCINT.





·
            The
                7E11 antibody is conjugated with a bifunctional chelating agent that
                forms
                highly stable and kinetically inert complexes, which we believe lends
                to
                the optimal attachment of a therapeutic
                radioisotope.





·
            In
                terms of repetitive dosing, the clinical protocol in the approved
                IND
                allows for repeated administrations of the
                agent.




**Discontinued
      research and development programs**





Since
      2004, we have been realigning our research and development investment to focus
      on clinical-stage opportunities.





In
      April
      2006, we sold our interest in PDC to Progenics for a cash payment of $13.2
      million, potential future regulatory and sales-based milestone payments totaling
      up to $52.0 million, and royalties on any future PDC product
      sales.  PDC was formed in 1999 to develop *in vivo*
      immunotherapeutic products utilizing PSMA.





In
      July
      2004, we initiated the closure of the facility for our AxCell Biosciences
      subsidiary.  Currently, our business development initiatives include
      an active out-licensing program to capitalize on the proprietary technology
      associated with AxCell.  These technologies are discussed in further
      detail in the Technology section below.





**Technology**





Our
      strategy includes pursuing strategic opportunities to optimize the value of
      our
      intellectual property and associated proprietary technologies.  For
      example, in April 2006, we sold our interest in PDC for a cash payment of $13.2
      million, and potential future milestone and royalty payments.  This
      provided us with additional capital to grow our business and enabled us to
      substantially reduce our research and development investment in early-stage
      projects.  In addition, we have several technology platforms that
      are available for out-licensing.  These platforms are focused within
      the areas that are described below.





*Prostate-Specific
      Membrane Antigen or PSMA*





PSMA
      is
      protein that is highly expressed on the surface of prostate cancer cells and
      the
      neovasculature of solid tumors.  In 1987, Dr. Julius S. Horosziewicz
      identified the PSMA protein


18
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using
      a
      monoclonal antibody.  The antibody technology developed by Dr.
      Horosziewicz was assigned to Cytogen.  Researchers at the
      Sloan-Kettering Institute for Cancer Research identified and sequenced the
      gene
      encoding PSMA.  We have the exclusive worldwide license to these
      technologies, which are the foundation of our proprietary PSMA-targeting
      monoclonal antibody, 7E11.





Our
      PSMA-targeting platform has been successfully applied through the
      commercialization of our product PROSTASCINT, the first and only commercial
      monoclonal antibody-based agent targeting PSMA to image the extent and spread
      of
      prostate cancer.  We are also developing a third-generation
      radiolabeled antibody to treat prostate cancer, CYT-500.  CYT-500
      combines our proprietary PSMA-targeting monoclonal antibody with a high-affinity
      chelator and a beta-emitting isotope.





PSMA
      has
      also been found to be present at high levels in the new blood vessels, or
      neovasculature, formed in association with most solid tumors, including breast,
      lung and colorectal cancers.  Such neovasculature is necessary for the
      growth and survival of many types of solid tumors.  We believe that
      due to the unique characteristics of PSMA, technologies targeting this antigen
      may yield novel products for the treatment and diagnosis of
      cancer.  If PSMA-targeting
      therapies can destroy or prevent formation of these new blood vessels, we
      believe that such therapies may prove valuable in treating a broad range of
      cancers.





In
      August
      2000, we executed a sublicense agreement with Northwest Biotherapeutics Inc.
      (NWBT) pursuant to which we granted NWBT the right to develop and commercialize
      *ex vivo* immunotherapy products for prostate cancer that are produced by
      pulsing isolated populations of a patient's antigen presenting cells, such
      as
      dendritic cells, with PSMA.  Following encouraging results from a
      Phase 1/2 trial to evaluate the safety and efficacy of using PSMA with NWBT's
      proprietary dendritic cell immunotherapy, DCVax®, NWBT advanced DCVax-Prostate
      to the initiation of Phase 3 clinical trials.  In November 2002, NWBT
      suspended all clinical trial activity for its DCVax product candidates and
      withdrew its Investigative New Drug Application (IND) for DCVax- Prostate,
      which
      resulted in a termination of the license agreement with us.  As a
      result, we regained the rights to *ex vivo* prostate cancer immunotherapy
      using PSMA in December 2002.  In January 2005, NWBT announced that it
      received clearance from the FDA to begin assessment of DCVax-Prostate in a
      Phase
      3 clinical trial.  We are awaiting clarification from NWBT on the
      status of this PSMA-based program following termination of the license agreement
      with us.





*AxCell
      Biosciences Subsidiary*





In
      1993,
      we licensed from the University of North Carolina at Chapel Hill (UNC-CH)
      exclusive worldwide rights to novel reagents and technology for identifying
      targeting peptides that were developed under sponsored research funded by
      Cytogen.  This process utilizes random peptide libraries (Genetic
      Diversity Library, GDLTM) expressing an extensive collection of long peptides
      that, unlike conventional drugs or short peptides, can mimic natural proteins
      in
      terms of their folding and their corresponding molecular recognition
      functions.  This is similar in many regards to the ability of antibody
      molecules to selectively bind to antigens, or enzymes to bind to their
      substrates.  This proprietary approach facilitated the screening of a
      much more diverse family of compounds than was practical with previous methods
      and yielded several novel reagents (totally synthetic affinity reagents,
      TSAR's).  Originally, we expected to utilize these


19
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libraries
      to discover specific binding molecules that would represent attractive
      alternatives to monoclonal antibodies for diagnostic and therapeutic
      products.





In
      1996,
      Cytogen entered into a research and licensing agreement with Elan Corporation,
      plc, which marked the Company's first external collaboration in which
      GDL-derived products would be utilized for their ability to target drugs to
      specific sites within the body.  The research program with Elan was
      designed to discover GDL-derived peptides that could be used to target
      therapeutic agents to receptors expressed within the lining of the intestinal
      tract known to be involved in certain cellular uptake and transport
      processes.  In contrast to most biotechnology drugs that cannot be
      administered orally due to the fact that they break down prior to reaching
      the
      bloodstream, such peptides could be administered orally.  Under the
      agreement, Elan had the option for worldwide licensing rights to any products
      developed collaboratively and we would receive royalties based on the sale
      of
      any such products.  We subsequently assumed ownership and
      responsibility for Elan's pending patent portfolio related to GDL-derived
      peptides that could be used to target therapeutic agents to receptors expressed
      within the lining of the intestinal tract known to be involved in certain
      cellular uptake and transport processes.




In
      November 2006, we were issued United States patent number 7,135,457 covering
      oral drug delivery agents - random peptide compositions that bind to
      gastro-intestinal tract (GIT) transport receptors.  The patent
      specifically covers compositions of Cytogen's oral delivery agents that are
      capable of facilitating transport of an active agent through a human or animal
      GIT, and derivatives and analogs thereof, and nucleotide sequences coding for
      said proteins and derivatives.  The oral delivery agents have use in
      facilitating transport of active agents from the lumenal side of the GIT into
      the systemic blood system, and/or in targeting active agents to the
      GIT.





By
      binding (covalently or noncovalently) one of Cytogen's delivery agents to an
      orally administered drug or by coating the surface of nanoparticles or liposomes
      with the delivery agent, the drug can be targeted to specific receptor sites
      or
      transport pathways which are known to operate in the human gastrointestinal
      tract, thus facilitating its systemic absorption into the
      bloodstream.





The
      binding of Cytogen's delivery agents to these receptors has been confirmed
      in
      preclinical models, and successful *in vivo* delivery of both insulin and
      leuprolide in animal models have been demonstrated.  Based on these
      results, we are seeking partnerships for oral drug delivery.





A
      subsidiary of Cytogen, AxCell Biosciences was incorporated in 1996 to further
      commercialize the GDL technology in the field of accelerated new target
      discovery and validation.  Based on the prevalence of modular protein
      domains, such as Src homology domain 3 and 2 (SH3 and SH2), among many other
      important signaling molecules known to mediate protein-protein interactions,
      UNC-CH researchers advanced the use of ligands generated using GDL as probes
      to
      systematically isolate entire repertoires of modular domain-containing proteins
      from cloned DNA expression libraries.  This became AxCell's Cloning of
      Ligand Targets (CLTTM) technology.





As
      an
      initial 'proof of concept' for the automation and application of GDL and CLT
      technologies to rapidly and efficiently identify protein signaling pathways,
      AxCell created a


20
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comprehensive network
      (ProChartTM) of domain and ligand interactions throughout
      2001.  Because protein signaling pathways play a role in many
      diseases, researchers are working to develop drugs that specifically target
      these pathways.  While some interactions are likely to have positive
      clinical results, others can lead to unwanted drug side effects and
      toxicity.  By referring to a comprehensive network of the body's
      protein interactions, researchers may be better able to identify drugs that
      target a specific disease related interaction while avoiding those unspecific
      interactions associated with unwanted side effects.





AxCell
      initially partnered with a leading global provider of bioinformatics software
      solutions to make the ProChart database available to subscribing medical and
      scientific researchers around the world on a commercial
      basis.  However, due to the fact that AxCell identified
      protein-protein interactions through a high throughput, *in vitro*
      system, prospective customers were reluctant to make a significant subscription
      commitment in the absence of *in vivo* validation for the AxCell
      data.  The absence of such validation, combined with a reevaluation of
      the subscription database business model, resulted in a realignment of the
      AxCell business plan in 2002 to focus on applying its extensive protein
      interaction data in several major areas of scientific interest by entering
      into
      academic, governmental, and corporate research collaborations
      designed to both provide*in vivo* validation of novel protein-protein
      interactions discovered using its *in vitro* approach and the discovery
      of novel drug targets.  In most circumstances, AxCell has an exclusive
      option to negotiate an exclusive, worldwide, royalty-bearing license for
      inventions that result from the research collaboration.





In
      March
      2004, the first *in vivo* validation of a novel interaction discovered
      using AxCell's technology was published ("Functional association between Wwox
      tumor suppressor protein and p73, a p53 homolog."  PNAS March 30,
      2004: vol. 101; no. 13 pp. 4401–4406).  In November 2004, a second
      demonstration of *in vivo* validation for a novel interaction discovered
      using AxCell's technology was published ("Physical and functional interactions
      between the Wwox tumor suppressor protein and the AP-2gamma transcription
      factor.  "Cancer Res. November 2004: vol. 64; no. 22 pp.
      8256-61).





We
      believe the application of our ProChart database technology may accelerate
      research and drug development by:





·
            Discovering
                novel signal transduction pathways and their relevant protein-protein
                interactions, such as rapidly identifying qualified drug targets
                and
                identifying potential unwanted side
                effects.





·
            Identifying
                structure and activity relationship (SAR) information regarding domain
                and
                ligand interactions that can facilitate small molecule drug
                design.





·
            Providing
                high throughput screening reagents (eg, cloned domains and
                ligands).





In
      view
      of recent biological validation and progress through both internal data mining
      efforts and external research collaborations along with the oral drug delivery
      technology, Cytogen is currently exploring strategic transactions for
      AxCell.


21
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**Strategic
      Agreements**





We
      frequently enter into alliances with other companies to, among other things,
      increase our financial resources, manage risk, and retain an appropriate level
      of ownership of products currently in development.  In addition,
      through alliances with other pharmaceutical and biotechnology companies and
      other collaborators, we may obtain funding, expand existing programs, learn
      of
      new technologies and gain additional expertise in developing and marketing
      products.





*InPharma
      AS*





In
      October 2006, we entered into a license agreement with InPharma granting us
      exclusive rights to CAPHOSOL in North America.  Under the terms of the
      agreement, we are obligated to pay InPharma aggregate up-front fees totaling
      $6.0 million, of which $4.6 million was paid in the fourth quarter of 2006,
      $400,000 will be paid into an escrow account and $1.0 million is payable in
      the
      second quarter of 2007.  In addition, we are obligated to pay InPharma
      royalties on net sales and sales-based milestone payments up to an aggregate
      of
      $49.0 million, of which payments totaling $35 million are, based upon annual
      sales levels first exceeding $30 million.  We are also obligated to
      pay a finder's fee based on a percentage of milestone payments made to
      InPharma.




We
      also
      obtained options to acquire the rights to CAPHOSOL for the European and Asia
      markets that we only intent to exercise in connection with obtaining a
      commercial partner for those areas.  We will be required to obtain
      consents from certain licensors but not InPharma, if we sublicense the rights
      to
      market CAPHOSOL in Europe and Asia to other parties.  In the event we
      exercise the options to license the marketing rights for CAPHOSOL for the
      European and Asian markets, we would be obligated to pay additional fees,
      including sales-based milestone payments for the respective
      territories.





*Rosemont
      Pharmaceuticals Limited*





In
      April
      2006, we entered into a distribution agreement with Savient granting us
      exclusive marketing rights for SOLTAMOX in the United States.  In
      addition, we entered into a supply agreement with Savient and Rosemont for
      the
      manufacture and supply of SOLTAMOX.  Such agreements were subsequently
      assigned by Savient to Rosemont.  Under the terms of the final
      transaction, we paid Savient an up-front licensing fee of $2.0 million and
      may
      pay additional contingent sales-based payments of up to a total of $4.0 million
      to Rosemont.  We are also required to pay Rosemont royalties on net
      sales of SOLTAMOX.  Each of the distribution and supply agreements
      terminates upon the later the expiry of the last-to-expire patent covering
      SOLTAMOX in the United States or ten years from the date of launch of the
      SOLTAMOX in the United States.  Thereafter, such agreements will be
      automatically renewed for an additional year.  The manufacturing
      agreement is terminable by Rosemont or us on one year notice prior to the end
      of
      the then current term.  In the event the tamoxifen prescriptions for
      an agreed upon period of time are less than the pre-established minimum, the
      agreement may be terminated if we are unable to reach an agreement with Rosemont
      to amend the terms of the contract to account for such impact.


22
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*Bristol-Myers
      Squibb Medical Imaging, Inc.*





Effective
      January 1, 2004, we entered into a manufacturing and supply agreement with
      Bristol-Myers Squibb Medical Imaging, Inc. ("BMSMI"), under which BMSMI
      manufactures, distributes and provides order processing and customer service
      for
      us for QUADRAMET.  Under the terms of the agreement, we are obligated
      to pay at least $4.9 million annually, subject to future annual price
      adjustment, through 2008, unless we or BMSMI terminates on two years prior
      written notice.  This agreement will automatically renew for five
      successive one-year periods unless we or BMSMI terminates on two years prior
      written notice.  We also pay BMSMI a variable amount per month for
      each QUADRAMET order placed to cover the costs of customer service which is
      included in selling, general and administrative expenses.





*Laureate
      Pharma, L.P.*





In
      September 2006, we entered into a non-exclusive manufacturing agreement with
      Laureate Pharma, L.P. ("Laureate") under which Laureate manufactures PROSTASCINT
      and its primary raw materials for us in Laureate's Princeton, New Jersey
      facility.  The agreement will terminate, unless terminated earlier
      pursuant to its terms, upon Laureate's completion of the specified production
      campaign for PROSTASCINT and shipment of the resulting products from Laureate's
      facility.




In
      September 2005, we entered into a non-exclusive manufacturing agreement with
      Laureate for the scale-up for the cGMP manufacturing of CYT-500.  Our
      agreement with Laureate terminated on December 31, 2006.  We believe
      that such agreement provided us with a sufficient supply to satisfy our
      requirements for Phase 1 clinical trials of CYT-500.





*Holopack
      Verpackungstechnik GmbH*





In
      February 2007, we entered into a non-exclusive manufacturing agreement with
      Holopack Verpackungstechnik GmbH for the manufacture of CAPHOSOL.  The
      agreement has a term of two years and automatically renews for an additional
      year.  The agreement is terminable by Holopack or us on three months
      notice prior to the end of each term period.





*The
      Dow Chemical Company*





We
      acquired an exclusive license from The Dow Chemical Company ("Dow") for
      QUADRAMET for the treatment of osteoblastic bone metastases in certain
      territories.  The agreement requires us to pay Dow royalties based on
      a percentage of net sales of QUADRAMET, or a guaranteed contractual minimum
      payment, whichever is greater, and future payments upon achievement of certain
      milestones.





In
      May
      2005, we entered into a license agreement with Dow to create a targeted oncology
      product designed to treat prostate and other cancers.  The agreement
      applies proprietary MeO-DOTA bifunctional chelant technology from Dow to
      radiolabel our PSMA antibody with a therapeutic radionuclide.  Under
      the agreement, proprietary chelation technology and other capabilities, provided
      through ChelaMedSM
      radiopharmaceutical services from Dow, will be used to attach a therapeutic
      radioisotope to the 7E11 monoclonal antibody utilized in our PROSTASCINT
      molecular imaging agent.  As a result of the agreement, we are
      obligated to pay a minimal license fee and aggregate future milestone payments
      of $1.9 million for each licensed


23
 *Table
              of Contents*




product,
      if approved, and royalties based on sales of related products, if
      any.  Unless terminated earlier, the Dow agreement terminates at the
      later of (a) the tenth anniversary of the date of first commercial sale for
      each
      licensed product or (b) the expiration of the last to expire valid claim that
      would be infringed by the sale of the licensed product.  We may
      terminate the license agreement with Dow on 90 days written notice.





*Oncology
      Therapeutics Network, J.V.*





In
      June
      2006, we entered into a purchase and supply agreement with Oncology Therapeutics
      Network, JV. ("OTN") appointing OTN as the exclusive distributor of SOLTAMOX
      in
      the United States.  In August 2006, the agreement was amended to
      revise certain terms, including changing the role of OTN to the exclusive
      warehousing agent and non-exclusive distributor of SOLTAMOX.  Under
      the terms of the amended agreement, OTN will purchase SOLTAMOX from us for
      its
      own wholesaler channels and, along with third-party logistics providers,
      distribute SOLTAMOX to our other customers through its warehousing and
      distribution facilities.  In January 2007, we further amended our
      agreement with OTN to also include CAPHOSOL.




**Product
      Contribution to Revenues**





For
      the
      years ended December 31, 2006, 2005, and 2004, PROSTASCINT and QUADRAMET
      accounted for, substantially all of our product revenues.  For the
      years ended December 31, 2006, 2005 and 2004, revenues related to PROSTASCINT
      accounted for approximately 53%, 46% and 49%, respectively, of our total
      revenues; and revenues related to QUADRAMET accounted for approximately 47%,
      52%
      and 50%, respectively, of our total revenues.  During the second half
      of 2006, we introduced SOLTAMOX in the U.S., and during the first quarter
      of 2007, we introduced CAPHOSOL in the U.S.  In accordance with
      U.S. generally accepted accounting principles (GAAP), we will recognize revenues
      for SOLTAMOX and CAPHOSOL in our consolidated statement of operations when
      we
      have sufficient information to estimate expected product returns for
      these introduced products.





**Concentration
      of Sales**





During
      the year ended December 31, 2006, we received 64% of our total revenues from
      three customers, as follows: 41% from Cardinal Health (formerly Syncor
      International Corporation); 14% from Mallinckrodt Inc.; and 9% from GE
      Healthcare (formerly Amersham Health).





During
      the year ended December 31, 2005, we received 67% of our total revenues from
      three customers, as follows:****47% from Cardinal Health
      (formerly Syncor International Corporation); 11% from Mallinckrodt Inc., and
      9%
      from GE Healthcare (formerly Amersham Health).





**Competition**





The
      biotechnology and pharmaceutical industries are subject to intense competition,
      including competition from large pharmaceutical companies, biotechnology
      companies and other companies, universities and research
      institutions.  Our existing therapeutic and imaging/diagnostic
      products compete with the products of a wide variety of other
      firms,


24
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              of Contents*




including
      firms that provide products used in more traditional therapies or procedures,
      such as external beam radiation, chemotherapy agents, narcotic analgesics and
      other imaging/diagnostics.  In addition, our existing and potential
      competitors may be able to develop technologies that are as effective as, or
      more effective than those offered by us, which would render our products
      noncompetitive or obsolete.  Moreover, many of our existing and
      potential competitors have substantially greater financial, marketing, sales,
      manufacturing, distribution and technological resources than we
      do.  Our existing and potential competitors may be in the process of
      seeking FDA or foreign regulatory approval for their respective products or
      may
      also enjoy substantial advantages over us in terms of research and development
      expertise, experience in conducting clinical trials, experience in regulatory
      matters, manufacturing efficiency, name recognition, sales and marketing
      expertise and established distribution channels.  We believe that
      competition for our products is based upon several factors, including product
      efficacy, safety, cost-effectiveness, ease of use, availability, price, patent
      position and effective product promotion.





We
      expect
      competition to intensify in the fields in which we are involved, as technical
      advances in such fields are made and become more widely known.  We
      cannot assure you, however,
      that we or our collaborative partners will be able to develop our products
      successfully or that we will obtain patents to provide protection against
      competitors.  Moreover, we cannot assure you that our competitors will
      not succeed in developing therapeutic or imaging/diagnostic products that
      circumvent our products or that these competitors will not succeed in developing
      technologies or products that are more effective than those developed by
      us.  In addition, many of these companies may have more experience in
      establishing third-party reimbursement for their
      products.  Accordingly, we cannot assure you that we will be able to
      compete effectively against existing or potential competitors or that
      competition will not have a material adverse effect on our business, financial
      condition and results of operations.





*Competition
      Related to CAPHOSOL*





Currently,
      there is limited consensus standard of care for oral mucositis supported by
      clinical data and to date, there has only been one commercially available
      prescription pharmaceutical product approved by the FDA for oral mucositis,
      the
      intravenous growth factor palifermin.  Ice chips, local painkillers
      and narcotics are also used to reduce the patient's pain and doctors routinely
      prescribe mouthwashes containing traditional antibacterial and antifungal drugs
      for the treatment of oral mucositis, although most clinical trials have shown
      that they have suboptimal efficacy.  There are also a number of oral
      rinses that have been approved as medical devices by FDA for dry mouth; however,
      CAPHOSOL is the only approved calcium phosphate oral rinse that is indicated
      for
      both oral mucositis and dry mouth that is supported by significant efficacy
      data
      from a randomized placebo-controlled study.





We
      believe there are a number of key differentiating factors that give CAPHOSOL
      a
      competitive advantage including its high concentrations of calcium and phosphate
      ions, its intellectual property, and the efficacy data which support its
      beneficial effects for relieving oral mucositis.


25
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              of Contents*


*Competition
      Related to QUADRAMET*





Current
      competitive treatments for bone cancer pain include narcotic analgesics,
      external beam radiation therapy, bisphosphonates, and other skeletal targeting
      therapeutic radiopharmaceuticals such as strontium-89 chloride.





QUADRAMET
      primarily competes with strontium-89 chloride in the radiopharmaceutical pain
      palliation market.  Strontium-89 chloride is manufactured and marketed
      as a branded product by GE Healthcare and as a generic version by Bio-Nucleonics
      Pharma, Inc. GE Healthcare manufactures strontium-89 chloride and sells the
      product through its wholly owned network of radiopharmacies, direct to end-users
      and through other radiopharmacy distributors.  The generic version is
      distributed directly by the manufacturer, or is sold through radiopharmacy
      distributors such as Cardinal Health and AnazaoHealth (formerly Custom Care
      Pharmacy).





To
      meet
      future competitive challenges to QUADRAMET, we continue to, among other things,
      focus our efforts on managing radiopharmacy distributor
      relationships.  We also plan to continue to focus on research
      supporting additional applications and by documenting the safe and effective
      use
      of QUADRAMET when used in conjunction with metastatic disease therapies such
      as
      bisphosphonates, chemotherapeutics and hormonal therapy.




*Competition
      Related to SOLTAMOX*





The
      current competitive treatments for SOLTAMOX include the tablet form of tamoxifen
      citrate, a generic drug, and a class of drugs known as aromatase
      inhibitors.





*Competition
      Related to PROSTASCINT*





The
      spread of prostate cancer may be evaluated using a number of imaging modalities,
      including computed tomography, magnetic resonance imaging, or positron emission
      tomography.





**Manufacturing
      and Supply of Raw Materials**





We
      do not
      manufacture any of our products.  We have contracted with third-party
      manufacturers to supply the raw materials and finished products to meet our
      needs.  Our third-party manufacturers meet the FDA's current Good
      Manufacturing Practices or cGMP, regulations, and guidelines.  cGMP
      regulations require that all manufacturers of pharmaceuticals for sale in the
      U.S. achieve and maintain compliance with regulations governing the
      manufacturing, processing, packaging, storing and testing of drugs intended
      for
      human use.





Holopack
      is the sole manufacturer of CAPHOSOL under a manufacturing supply
      agreement.  The agreement has a term of two years and automatically
      renews for an additional year.  Such agreement is terminable by
      Holopack or us on three months notice prior to the end of each term
      period.





The
      two
      primary components of QUADRAMET, particularly samarium-153 and EDTMP, are
      provided to BMSMI by outside suppliers.  BMSMI obtains its supply of
      samarium-153 from a sole supplier, and EDTMP from another sole
      supplier.  Our manufacturing and supply agreement with BMSMI, under
      which BMSMI manufactures, distributes and provides order processing and customer
      service for us for QUADRAMET, runs through 2008, unless we


26
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              of Contents*




or
      BMSMI
      terminates on two years prior written notice.  This agreement will
      automatically renew for five successive one-year periods unless we or BMSMI
      terminates on two years prior written notice.





Laureate
      is the sole manufacturer of PROSTASCINT, the PSMA targeting antibody, 7E11,
      which is a component of PROSTASCINT, as well as our clinical compound,
      CYT-500.  In September 2006, we entered into a non-exclusive
      manufacturing agreement with Laureate under which Laureate manufactures
      PROSTASCINT and its primary raw materials for us in Laureate's Princeton, New
      Jersey facility.  The agreement will terminate, unless terminated
      earlier pursuant to its terms, upon Laureate's completion of the specified
      production campaign for PROSTASCINT and shipment of the resulting products
      from
      Laureate's facility.  In September 2005, we entered into a
      non-exclusive manufacturing agreement with Laureate for the scale-up for the
      cGMP manufacturing of CYT-500.  Our agreement with Laureate terminated
      on December 31, 2006.  We believe that such agreement provided us with
      a sufficient supply to satisfy our requirements for Phase 1 clinical trials
      of
      CYT-500.





Rosemont
      is the sole manufacturer of SOLTAMOX under a supply agreement.  The
      supply agreement terminates upon the later the expiry of the last-to-expire
      patent covering SOLTAMOX in the United States or ten years from the date of
      launch of the SOLTAMOX in the United States.  Thereafter, such
      agreements will be automatically renewed for an additional year.  The
      manufacturing agreement is terminable by Rosemont or us on one year notice
      prior
      to the end of the then current term.





Alternative
      sources for our manufacturing needs may not be readily available, and any
      alternate manufacturers and suppliers would have to be identified and qualified,
      subject to all applicable regulatory guidelines.  If our manufacturers
      cannot obtain and/or manufacture sufficient quantities of the components for
      our
      products at commercially reasonable terms, or in a timely manner, it could
      result in our inability to manufacture our products at a timely and
      cost-effective basis.





**Intellectual
      Property**





We
      believe that our success depends, in part, on our ability to protect our
      products and technology through patents and trade
      secrets.  Accordingly, our policy is to pursue a vigorous program of
      securing and maintaining patent and trade secret protection to preserve our
      right to exploit the results of our research and development activities and,
      to
      the extent it may be necessary or advisable, to exclude others from
      appropriating our proprietary technology.





We
      aggressively protect our proprietary technology by selectively seeking patent
      protection in a worldwide program.  In addition to the United States,
      we file patent applications in Canada, major European countries, Japan and
      additional foreign countries on a selective basis to protect inventions
      important to the development of our business.  We believe that the
      countries in which we have obtained and are seeking patent coverage for our
      proprietary technology represent the major focus of the pharmaceutical industry
      in which we will market our respective products.


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We
      also
      rely upon, and intend to continue to rely upon, trade secrets, unpatented
      proprietary know-how and continuing technological innovation to develop and
      maintain our competitive position.  It is our policy to require our
      employees, consultants, licensees, outside scientific collaborators, sponsored
      researchers and other advisors to execute confidentiality agreements upon the
      commencement of employment or consulting relationships with us.  These
      agreements also provide that all confidential information developed or made
      known to the individual during the course of the individual's relationship
      with
      us is to be kept confidential and not disclosed to third parties except in
      specific circumstances.  In the case of employees, the agreements
      provide that all inventions conceived by the individual shall be our exclusive
      property.  We cannot assure you, however, that these agreements will
      provide meaningful protection or adequate remedies for our trade secrets in
      the
      event of unauthorized use or disclosure of such information.





We
      believe that our valuable proprietary information is protected to the fullest
      extent commercially reasonable; however, we cannot assure you that:





·
            Additional
                patents will be issued to us in any or all appropriate
                jurisdictions.





·
            Litigation
                will not be commenced seeking to challenge our patent protection
                or that
                challenges will not be successful.





·
            Our
                processes or products do not or will not infringe upon the patents
                of
                third parties.




·
            The
                scope of patents issued will successfully prevent third parties from
                developing similar and competitive
                products.





The
      technology applicable to our products is developing rapidly.  A
      substantial number of patents have been issued to other biotechnology companies
      relating to PSMA.  In addition, competitors have filed applications
      for, have been issued, or may otherwise obtain patents and other proprietary
      rights relating to products or processes that are competitive with
      ours.  In addition, others may have filed patent applications and may
      have been issued patents relating to products and technologies potentially
      useful to us or necessary to commercialize our products or to achieve our
      business goals.  We cannot assure you that we will be able to obtain
      licenses to such patents on commercially reasonable terms if at
      all.  The failure to obtain licenses to such patents could prevent us
      from commercializing products or services covered by such patents.





We
      cannot
      predict how any patent litigation will affect our efforts to develop,
      manufacture or market our products.





*Intellectual
      Property Position Related to CAPHOSOL*





Under
      our
      agreement with InPharma, we are the licensee of two issued U.S.
      patents.  The patents licensed to us under this agreement are U.S.
      Pat. Nos. 5,993,785 and 6,387,352, each of which expires on September 18,
      2017.  We have the right to prosecute and maintain the patents
      included in our license agreement with InPharma.


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*Intellectual
      Property Position Related to QUADRAMET*





In
      May
      1993, we obtained an exclusive license from Dow to use QUADRAMET, in North
      America, as a therapeutic radiopharmaceutical for metabolic bone disease or
      tumor regression for cancer caused by metastatic or primary cancer in bone
      in
      humans, and for the treatment of disease characterized by osteoblastic response
      in humans.  Our license was expanded to include Latin America in 1995,
      and will remain in effect, unless earlier terminated, for a period of 20 years
      from May 30, 1993 or until the last to expire of the related
      patents.  We currently anticipate such termination date to be May 30,
      2013.





Under
      our
      agreement with Dow, we are the licensee of five issued United States patents
      and
      certain corresponding foreign patents.  Dow is responsible, at its own
      cost and expense, for prosecuting and maintaining any patents or patent
      applications included in our agreement.  One of these, U.S. Pat. No.
      4,898,724, includes claims directed to the QUADRAMET product and methods for
      its
      use in the treatment of calcific tumors and bone pain.  We have
      obtained an extension of the term of this U.S. patent, which will now expire
      March 28, 2011.  Other patents licensed to us under this agreement
      are: (i) U.S. Pat. No. 4,897,254, which expires on January 30, 2007; (ii) U.S.
      Pat. No. 4,937,333, which expires August 4, 2009; (iii) U.S. Pat. No. 5,300,279,
      which expires on November 19, 2008; and (iv) U.S. Pat. No. 5,066,478 which
      expires on November 19, 2008.  An additional patent, U.S. Pat. No.
      5,714,604, which expires on February 3, 2015, includes claims directed to the
      methods for QUADRAMET's preparation and administration.  We are the
      owner of a registered United States trademark relating to
      QUADRAMET.





Upon
      execution of our agreement with Dow, we issued warrants to Dow to purchase
      shares of our common stock, which have since expired.  As of December
      31, 2006, we have paid an
      aggregate of $5.2 million to Dow in milestone payments.  We remain
      obligated to pay Dow additional milestone payments as, and if, our sales of
      QUADRAMET increase and royalties, which are subject to certain minimum amounts,
      based on future sales of QUADRAMET.





*Intellectual
      Property Position Related to PROSTASCINT*





In
      1987,
      Dr. Julius S. Horosziewicz first identified PSMA in a prostate cancer cell
      line,
      known as LNCaP, by generating a monoclonal antibody against the
      protein.  That monoclonal antibody, known as 7E11, is conjugated via a
      proprietary linker technology to the radioisotope indium-111 to produce the
      PROSTASCINT product.  Dr. Horosziewicz's original patent claiming the
      7E11 antibody, as well as additional patents relating to the PROSTASCINT product
      and commercialization rights thereto, were assigned to us in
      1989.  Under our agreement, we have made, and may continue to make,
      certain payments to Dr. Horosziewicz, which obligation will remain in effect
      until the expiration of the last related patent in 2015.





As
      of
      December 31, 2006, we were the owner of several issued United States patents
      and
      certain corresponding foreign patents relating to PROSTASCINT.  One of
      these, U.S. Pat. No. 5,162,504, is the original Horosziewicz patent and includes
      claims directed to the monoclonal antibody and the cell line that produces
      it.  We have obtained an extension of the term for this U.S. patent,
      which will now expire October 28, 2010.  U.S. Pat. No. 4,671,958 and
      U.S. Pat. No. 4,741,900, both of which expired on June 9, 2004, included claims
      directed to antibody conjugates such as PROSTASCINT, methods for preparing
      such
      conjugates, methods for using such conjugates for *in vivo* imaging,
      testing and therapeutic treatment, and methods for delivering radioisotopes
      by
      linking them to such antibodies.  U.S. Pat. No. 4,867,973, which also
      expired on June 9, 2004, included claims directed to antibody


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c onjugates
      such as PROSTASCINT, and methods for preparing such conjugates.  The
      foregoing patents, which will expire in 2010 (or expired in 2004, as noted),
      provided or provide the primary patent protection for PROSTASCINT.  We
      also currently own the trademark PROSTASCINT.  We are responsible for
      the costs of prosecuting and maintaining this intellectual
      property.





In
      September 2004, we announced the settlement of a patent infringement suit
      against us and C.R. Bard Inc. for an agreed-upon payment, without any admission
      of fault or liability.  Immunomedics, Inc. filed suit on February 17,
      2000 against us and Bard, alleging that use of our PROSTASCINT product infringed
      U.S. Pat. No. 4,460,559, which claims a method for detecting and localizing
      tumors.  Under our agreement with Dr. Horosziewicz, we may offset our
      litigation expenses against payments we make to Dr. Horosziewicz.





*Intellectual
      Property Position Related to SOLTAMOX*





Under
      our
      exclusive license with Rosemont, we are the licensee of an issued United States
      patent covering SOLTAMOX.  This patent, U.S. Pat. No. 6,127,425 which
      includes claims directed to the SOLTAMOX product and manufacturing process,
      expires in June 2018.





*Intellectual
      Property Position Related to PSMA*





In
      1993,
      we entered into an option and license agreement with the Sloan-Kettering
      Institute for Cancer Research (SKICR), and began a development program involving
      PSMA and our proprietary monoclonal antibody.  In November 1996, we
      exercised our option and obtained an exclusive worldwide license to this
      technology.




Under
      our
      agreement with SKICR, we received, or subsequently obtained, rights to patents
      and patent applications****including: U.S. Pat. Nos.
      5,538,866 (expiring July 23, 2013), 5,935,818 (expiring August 10, 2016), and
      6,569,432 (expiring February 24, 2015), and U.S. Pat. Appln. Nos. 08/403,803
      (filed March 17, 1995), 08/466,381 (filed June 6, 1995), 08/470,735 (filed
      June
      6, 1995), 08/481,916 (filed June 7, 1995), 08/894,583 (filed February 23, 1998),
      09/724,026 (filed November 28, 2000), 09/990,595 (November 21, 2001), 10/012,169
      (filed October 24, 2001), 10/443,694 (filed May 21, 2003), and 10/614,625 (filed
      July 2, 2003).  The filing, prosecution and maintenance of licensed
      patents, as defined in the agreement, are the responsibility of SKICR, but
      are
      at our discretion and expense.  In the event that we decide not to
      file, prosecute or maintain any part of the licensed patents, SKICR may do
      so at
      its own expense.





The
      license shall terminate on the date of expiration of the last to expire of
      the
      licensed patents unless it is terminated earlier in accordance with the terms
      of
      the agreement.  The license agreement is also terminable by us upon 60
      days notice to SKICR.  Upon execution of our agreement with SKICR, we
      paid to SKICR an option fee, a license fee and a reimbursement for patent
      expenses paid by SKICR.  We are obligated to make certain royalty
      payments, which are subject to certain minimum amounts and other annual payments
      to SKICR for the term of the agreement.




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*Intellectual
      Property Position Related to AxCell Biosciences*





In
      November 2006, we were issued United States patent number 7,135,457 covering
      our
      oral drug delivery agents – random peptide compositions that bind to
      gastro-intestinal tract (GIT) transport receptors.  The patent
      specifically covers compositions of our oral delivery agents that are capable
      of
      facilitating transport of an active agent through a human or animal
      gastro-intestinal tract (GIT), and derivatives and analogs thereof, and
      nucleotide sequences coding for said proteins and derivatives.  The
      oral delivery agents have use in facilitating transport of active agents from
      the lumenal side of the GIT into the systemic blood system, and/or in targeting
      active agents to the GIT.





The
      patents and patent applications we have licensed from University of North
      Carolina at Chapel Hill (UNC) related to novel reagents and technology for
      identifying targeting peptides include: U.S. Pat. Nos. 5,498,538 (expiring
      March
      12, 2013), 5,625,033 (expiring April 29, 2014), 5,747,334 (expiring May 5,
      2015), 5,844,076 (expiring December 1, 2015), 5,852,167 (expiring December
      22,
      2015), 5,935,823 (expiring August 10, 2016), 6,011,137 (expiring April 3, 2016),
      6,184,205 (expiring July 22, 2014), 6,303,574 (expiring July 22, 2014),
      6,309,820 (expiring April 7, 2015), 6,432,920 (expiring July 22, 2014),
      6,703,482 (expiring July 22, 2014), and 6,709,821 (expiring April 7, 2015),
      and
      U.S. Pat. Appln. Nos. 10/161,791 (filed May 31, 2002), and 10/185,050 (filed
      June 28, 2002).  We are responsible for the costs of filing,
      prosecuting and maintaining domestic and foreign patents and patent applications
      under our agreement with UNC.





**Government
      Regulation**





The
      development, manufacture and sale of medical products utilizing our technology
      are governed by a variety of federal, state and local statutes and regulations
      in the United States and by comparable laws and agency regulations in most
      foreign countries.  Our two actively marketed products consist of a
      biologic (PROSTASCINT) and a drug (QUADRAMET).  Future applications
      for these may include expanded indications and could result in additional drugs,
      biologics, devices or combination products.  Our product development
      pipeline contains various other products, the majority of which will likely
      be
      classified as new drugs or biologics.





In
      the
      United States, medical products that we currently market or intend to develop
      are regulated by the Food and Drug Administration (FDA) under the Federal Food,
      Drug, and Cosmetic Act (FDC Act) and the Public Health Service Act (PHS Act),
      and the rules and regulations promulgated thereunder.  These laws and
      regulations require, among other things, carefully controlled research and
      preclinical and clinical testing of products, government notification, review
      and/or approval or clearance prior to investigating or marketing the product,
      inspection of manufacturing and production facilities, adherence to current
      Good
      Manufacturing Practices (cGMP), and compliance with product and manufacturer
      specifications or standards, and requirements for reporting, advertising,
      promotion, export, packaging, and labeling, and other applicable
      regulations.





The
      FDC
      Act requires that our products be manufactured in FDA registered facilities
      subject to inspection.  The manufacturer must be in compliance with
      cGMP, which imposes certain procedural, substantive, and recordkeeping
      requirements upon us and our manufacturing partners with respect to
      manufacturing and quality control activities, and, for devices, product


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design.  To
      ensure full technical compliance with such regulations, a manufacturer must
      spend funds, time and effort in the areas of production and quality
      control.  These regulations may also apply to us.  Any
      failure by us or our manufacturing partners to comply with the requirements
      of
      cGMP could have a material adverse effect on our business, financial condition
      and results of operations.





FDA
      approval of our proposed products, including a review of the manufacturing
      processes, controls and facilities used to produce such products, will be
      required before such products may be marketed in the United
      States.  The process required by the FDA before drug, biological or
      medical device products may be approved for marketing in the United States
      generally involves:





·
            Preclinical
                laboratory and animal tests that are conducted consistent with the
                FDA's
                good laboratory practice
                regulations.





·
            Submission
                to the FDA of an Investigational New Drug Application (IND) (for
                a drug or
                biologic) or Investigational Device Exemption (IDE) (for a device),
                which
                must become effective before clinical trials may begin; further,
                approval
                of the investigation by an Institutional Review Board (IRB) must
                also be
                obtained before the investigational product may be given to human
                subjects.





·
            Human
                clinical trial(s) to establish the safety and efficacy of the product
                for
                its intended indication.





·
            Submission
                to the FDA of a marketing application-New Drug Application (NDA)
                for a
                drug, Biologics License Application (BLA) for a biologic, and a premarket
                approval application (PMA) or premarket notification (510(k)) for
                a
                device.




·
            FDA
                review and approval or clearance of the marketing
                application.  Radiopharmaceutical drugs are subject to
                additional requirements pertaining to the description and support
                of their
                indications for use, and the evaluation of product effectiveness
                and
                safety, including, radiation safety.  We cannot assure you that
                the FDA review of marketing applications will result in product approval
                or clearance on a timely basis, or at
                all.





Clinical
      trials for drugs, devices, and biologics typically are performed in three phases
      to evaluate the safety and efficacy of the product.  In Phase 1, a
      product is tested in a small number of healthy subjects or patients primarily
      for safety at one or more dosages.  Phase 2 evaluates, in addition to
      safety, the efficacy of the product against particular diseases in a patient
      population that is generally somewhat larger than Phase 1.  Clinical
      trials of certain diagnostic and cancer therapeutic agents may combine Phase
      1
      and Phase 2 into a single Phase 1/2 study.  In Phase 3, the product is
      evaluated in a larger patient population sufficient to generate data to support
      a claim of safety and efficacy within the meaning of the FDC Act or PHS
      Act.  Permission by the FDA must be obtained before clinical testing
      can be initiated within the United States.  This permission is
      obtained by submission of an IND/IDE application which typically includes,
      among
      other things, the results of *in vitro* and non-clinical testing and any
      previous human testing done elsewhere.  The FDA has 30 days to review
      the information submitted and makes a final decision whether to permit clinical
      testing with the drug, biologic or device.  However, this


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process
      can take longer if the FDA raises questions or asks for additional information
      regarding the IND/IDE application.  Unless the FDA notifies the
      sponsor that the IND/IDE is subject to a clinical hold during the 30 day review
      period, the IND/IDE is considered effective and the trial may
      commence.





We
      cannot
      assure you that submission of an IND or IDE will result in the ability to
      commence clinical trials.  In addition, after a trial begins, the FDA
      may place it on hold or terminate it if, among other reasons, it concludes
      that
      clinical subjects are being exposed to an unacceptable health
      risk.  In addition, clinical trials require IRB approval before the
      drug may be given to subjects and are subject to continuing IRB
      review.  An IRB may suspend or terminate approval if the IRB's
      requirements are not followed or if unexpected serious harm to subjects is
      associated with the trial.  The FDA may decide not to consider, in
      support of an application for approval or clearance, any data that was collected
      in a trial without IRB approval and oversight.  After completion of
*in vitro*, non-clinical and clinical testing, authorization to market a
      drug, biologic or device must be granted by the FDA.  The FDA grants
      permission to market through the review and approval or clearance of either
      an
      NDA, BLA, PMA, or 510(k).  Historically, monoclonal antibodies have
      been regulated through the FDA's Center for Biologics Evaluation and Research
      (CBER).  As of late 2003, monoclonal antibodies, which include
      PROSTASCINT, were transferred to the Center for Drug Evaluation and Research
      (CDER), for regulation, review and approval.





An
      NDA is
      an application to the FDA to market a new drug.  A BLA is an
      application to the FDA to market a biological product.  An NDA or BLA,
      depending on the submission, must contain, among other things, information
      on
      chemistry, manufacturing controls and potency and purity; nonclinical
      pharmacology and toxicology; human pharmacokinetics and bioavailability; and
      clinical data.  The new drug or biologic may not be approved for
      marketing in the United States until the FDA has determined that the NDA product
      is safe and effective or that the BLA product
      is safe, pure, and potent and the facility in which it is manufactured,
      processed, packed or held meets standards designed to assure its continued
      safety, purity, and potency.  For both NDAs and BLAs, the application
      will not be approved until the FDA conducts a manufacturing inspection and
      approves the applicable manufacturing process for the drug or
      biologic.  A PMA is an application to the FDA to market certain
      medical devices, which must be approved in order for the product to be
      marketed.  It must be supported by valid scientific evidence, which
      typically includes extensive data, including pre-clinical data and clinical
      data
      from well-controlled clinical trials to demonstrate the safety and effectiveness
      of the device.  Product testing, manufacturing, controls,
      specifications and information must also be provided, and a pre-approval
      inspection is normally conducted.  NDA, BLA, and PMA submissions may
      be refused review if they do not meet submission requirements.





Conducting
      the studies, preparing these applications and securing approval from the FDA
      is
      expensive and time consuming, and takes several years to
      complete.  Difficulties or unanticipated costs may be encountered by
      us or our licensees in their respective efforts to secure necessary governmental
      approval or licenses, which could delay or preclude us or our licensees from
      marketing their products.  We cannot assure you that approvals of our
      proposed products, processes or facilities will be granted on a timely basis,
      or
      at all.  Limited indications for use or other conditions could also be
      placed on any approvals that could restrict the commercial applications of
      products.  With respect to patented products or technologies, delays
      imposed by


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the
      government approval process may materially reduce the period during which we
      will have the exclusive right to exploit them, because patent protection lasts
      only for a limited time, beginning on the date the patent is first granted
      (in
      the case of United States patent applications filed prior to June 6, 1995)
      and
      when the patent application is first filed (in the case of patent applications
      filed in the United States after June 6, 1995, and applications filed in the
      European Economic Community).  We intend to seek to maximize the
      useful lives of our patents under the Patent Term Restoration Act of 1984 in
      the
      United States and under similar laws if available in other
      countries.





Our
      new
      drug products may be subject to generic competition.  Once a NDA is
      approved, the product covered thereby becomes a "listed drug" which can, in
      turn, be cited by potential competitors in support of approval of an abbreviated
      new drug application (ANDA).  An ANDA provides for marketing of a drug
      product that has the same active ingredients in the same strengths and dosage
      form as the listed drug and has been shown through bioequivalence testing to
      be
      therapeutically equivalent to the listed drug.  Federal law provides
      for a period of three years of exclusivity following approval of a listed drug
      that contains previously approved active ingredients but is approved in a new
      dosage, dosage form, route of administration or combination, or for a new use,
      the approval of which was required to be supported by new clinical trials
      conducted by or for the sponsor.  Federal law also provides a period
      of five years following approval of a drug containing no previously approved
      active ingredients, during which ANDAs for generic versions of those drugs
      cannot be submitted unless the submission accompanies a challenge to a listed
      patent, in which case the submission may be made four years following the
      original product approval.  Additionally, in the event that the
      sponsor of the listed drug has properly informed the FDA of patents covering
      its
      listed drug, applicants submitting an ANDA referencing that drug are required
      to
      make certifications including that it believes one or more listed patents are
      invalid or not infringed.  If the ANDA applicant certifies that it
      does not intend to market its generic product before some or all listed patents
      on the listed drug expire, then
      the
      FDA cannot grant effective approval of the ANDA until those patents
      expire.  The first of the abbreviated new drug applicant(s) submitting
      substantially complete applications certifying that listed patents for a
      particular product are invalid or not infringed may qualify for a period of
      180
      days exclusivity running from when the generic product is first marketed, during
      which subsequently submitted ANDAs cannot be granted effective
      approval.





Certain
      of our future products may be regulated by the FDA as combination
      products.  Combination products are products comprised of a
      combination of two or more different types of components, *(e.g.,*
      drug/device, device/biologic, drug/device/biologic), or are comprised of two
      or
      more separate different types of products packaged together for use, or two
      or
      more different types of products packaged separately but labeled for use in
      combination with one another.  The regulation of a combination product
      is determined by the product's primary mode of action.  For example, a
      combination drug/device that has a primary mode of action as a drug would be
      regulated by the Center for Drug Evaluation and Research under an
      NDA.  In some cases, however, consultative reviews and/or separate
      approvals by each agency Center with jurisdiction over a component may be
      required.  The product designation, approval pathway, and submission
      requirements for a combination product may be difficult to predict, and the
      approval process may be fraught with unanticipated delays and
      difficulties.  In addition, post-approval requirements may be more
      extensive than for single entity products.  Even if products such as
      PROSTASCINT or QUADRAMET that we intend to develop for use with other separately
      regulated products are


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not
      regulated as combination products, they may be subject to similar multi-Center
      consultative reviews and additional post-market requirements.





Once
      the
      FDA approves a product, we are required to maintain approval status of the
      product by providing certain updated safety and efficacy information at
      specified intervals.  Most product or labeling changes to drugs or
      biologics as well as any change in a manufacturing process or equipment that
      has
      a substantial potential to adversely affect the safety or effectiveness of
      the
      product for a drug or biologic, or, for a device, changes that affect safety
      and
      effectiveness, would necessitate additional FDA review and
      approval.  Post approval changes in packaging or promotional materials
      may also necessitate further FDA review and approval.  Additionally,
      we are required to meet other requirements specified by the FDC Act, including
      but not limited to, cGMPs, enforced by periodic inspections, adverse event
      reporting, requirements governing labeling and promotional materials and, for
      drugs, biologics and restricted and PMA devices, requirements regarding
      advertising, and the maintenance of records.  Failure to comply with
      these requirements or the occurrence of unanticipated safety effects from the
      products during commercial marketing could result in product marketing
      restrictions, product withdrawal or recall and/or public notifications, or
      other
      voluntary or FDA-initiated action, which could delay further marketing until
      the
      products are brought into compliance.  Similar laws and regulations
      apply in most foreign countries where these products may be
      marketed.





Violations
      of the FDC Act, PHS Act, or regulatory requirements at any time during the
      product development process, approval process, or after approval may result
      in
      agency enforcement actions, including voluntary or mandatory recall, license
      suspension or revocation, new drug approval suspension or withdrawal, pre-market
      approval withdrawal, seizure of products, fines, injunction and/or civil or
      criminal penalties.  Any agency enforcement action could have a
      material adverse effect on our business, financial condition and results of
      operations.




*Orphan
      Drug Act*





The
      Orphan Drug Act is intended to provide incentives to pharmaceutical companies
      to
      develop and market drugs and biologics for rare diseases or conditions affecting
      fewer than 200,000 persons in the United States at the time of application
      for
      orphan drug designation.  A drug that receives orphan drug designation
      and is the first product to receive FDA marketing approval for a particular
      indication is entitled to orphan drug status, which confers a seven-year
      exclusive marketing period in the United States for that
      indication.  Clinical testing requirements for orphan drugs are the
      same as those for products that have not received orphan drug designation but
      pharmaceutical companies may receive grants or tax credits for research, as
      well
      as protocol assistance.  Under the Orphan Drug Act, the FDA cannot
      approve any application by another party to market the same drug for treatment
      of an identical indication unless the holder consents, the party has a license
      from the holder of orphan drug status, or the holder of orphan drug status
      is
      unable to assure an adequate supply of the drug, or it has been shown to be
      clinically superior to the approved orphan drug.  However, a drug that
      is considered by the FDA to be different from a particular orphan drug is not
      barred from sale in the United States during the seven-year exclusive marketing
      period even if it receives marketing approval for the same product
      claim.  In addition, holders of orphan drug status must notify the FDA
      of any decision to discontinue active pursuit of drug approval or biologics
      license, or, if such approval or license is in effect, notify the FDA at least
      one year prior to any discontinuance of product production.  If


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the
      holder of an orphan designation cannot assure the availability of sufficient
      quantities of the product to meet the needs of affected patients, the FDA may
      withdraw orphan drug status.





*Fraud
      and Abuse*





We
      are
      subject to various federal and state laws pertaining to health care fraud and
      abuse, including anti-kickback laws, false claims laws and physician
      self-referral laws.  Violations of these laws are punishable by
      criminal, civil and/or administrative sanctions, including, in some instances,
      imprisonment and exclusion from participation in federal and state health care
      programs, including Medicare, Medicaid and veterans' health
      programs.  Because of the far-reaching nature of these laws, we cannot
      assure you that the occurrence of one or more violations of these laws would
      not
      result in a material adverse effect on our business, financial condition and
      results of operations.





*Anti-Kickback
      Laws*





Our
      operations are subject to federal and state anti-kickback
      laws.  Certain provisions of the Social Security Act prohibit entities
      such as us from knowingly and willingly offering, paying, soliciting or
      receiving any form of remuneration (including any kickbacks, bribes or rebates)
      in return for the referral of items or services for which payment may be made
      under a federal health care program, or in return for the recommendation,
      arrangement, purchase, lease or order of items or services for which payment
      may
      be made under a federal health care program.  Violation of the federal
      anti-kickback law is a felony, punishable by criminal fines and imprisonment
      for
      up to five years or both.  In addition, the Department of Health and
      Human Services may impose civil penalties and exclude violators from
      participation in federal health care programs such as Medicare and
      Medicaid.  Many states have adopted similar prohibitions against
      payments intended to induce referrals of products or services paid by Medicaid
      or other third party payors.




*Physician
      Self-Referral Laws*





We
      also
      may be subject to federal and/or state physician self-referral
      laws.  Federal physician self-referral legislation (known as the Stark
      law) prohibits, subject to certain exceptions, a physician from referring
      Medicare or Medicaid patients to an entity to provide designated health
      services, including, among other things, certain radiology and radiation therapy
      services and clinical laboratory services in which the physician or a member
      of
      his immediate family has an ownership or investment interest or has entered
      into
      a compensation arrangement.  The Stark law also prohibits the entity
      receiving the improper referral from billing any good or service furnished
      pursuant to the referral.  The penalties for violations include a
      prohibition on payment by these government programs and civil penalties of
      as
      much as $15,000 for each improper referral and $100,000 for participation in
      a
      circumvention scheme.  Various state laws also contain similar
      provisions and penalties.




*False
      Claims*





The
      federal False Claims Act imposes civil and criminal liability on individuals
      or
      entities who submit (or cause the submission of) false or fraudulent claims
      for
      payment to the government.  Violations of the federal False Claims Act
      may result in penalties equal to three times the damages which the government
      sustained, an assessment of between $5,000 and


36
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$10,000
      per claim, civil monetary penalties and exclusion from participation in the
      Medicare and Medicaid programs.





The
      federal False Claims Act also allows a private individual to bring a *qui
      tam* suit on behalf of the government against an individual or entity for
      violations of the False Claims Act.  In a *qui tam*suit, the
      private plaintiff is responsible for initiating a lawsuit that may eventually
      lead to the government recovering money of which it was defrauded.  In
      return for bringing the suit on the government's behalf, the statute provides
      that the private plaintiff is entitled to receive up to 30% of the recovered
      amount from the litigation proceeds if the litigation is successful plus
      reasonable expenses and attorneys fees.  Recently, the number of
*qui tam* suits brought against entities in the health care industry has
      increased dramatically.  In addition, a number of states have enacted
      laws modeled after the False Claims Act that allow those states to recover
      money
      which was fraudulently obtained from the state.





*Other
      Fraud and Abuse Laws*





The
      Health Insurance Portability and Accountability Act of 1996 created, in part,
      two new federal crimes: (i) Health Care Fraud; and (ii) False Statements
      Relating to Health Care Matters.  The Health Care Fraud statute
      prohibits the knowing and willful execution of a scheme or artifice to defraud
      any health care benefit program.  A violation of the statute is a
      felony and may result in fines and/or imprisonment.  The False
      Statements statute prohibits knowingly and willfully falsifying, concealing
      or
      covering up a material fact by any trick, scheme or device or making any
      materially false, fictitious or fraudulent statement in connection with the
      delivery of or payment for health care benefits, items or services.  A
      violation of this statute is a felony and may result in fines and/or
      imprisonment.





We
      currently maintain several programs designed to minimize the likelihood that
      we
      would engage in conduct or enter into contracts in violation of the fraud and
      abuse laws. Contracts
      of the types subject to these laws are reviewed and approved by legal department
      personnel.  We also maintain various educational programs designed to
      keep our managers updated and informed on developments with respect to the
      fraud
      and abuse laws and to reinforce to all employees the policy of strict compliance
      in this area.  While we believe that all of our applicable agreements,
      arrangements and contracts comply with the various fraud and abuse laws and
      regulations, we cannot provide assurance that further administrative or judicial
      interpretations of existing laws or legislative enactment of new laws will
      not
      have a material adverse impact on our business.





*Other
      regulations*





In
      addition to regulations enforced by the FDA, and federal and state laws
      pertaining to health care fraud and abuse, we are also subject to regulation
      under the state and local authorities and other federal statutes and agencies
      including the Occupational Safety and Health Act, the Environmental Protection
      Act, the Toxic Substances Control Act, the Resource Conservation and Recovery
      Act and the Nuclear Regulatory Commission.





*Foreign
      regulatory approval*





The
      regulatory approval process in Europe has changed over the past few
      years.  There are two regulatory approval processes in Europe for
      products developed by us.  Beginning in


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1995,
      the
      centralized procedure became mandatory for all biotechnology
      products.  Under this regulatory scheme, the application is reviewed
      by two scientific project leaders referred to as the rapporteur and
      co-rapporteur.  Their roles are to prepare assessment reports of
      safety and efficacy and for recommending the approval for full European Union
      marketing.





The
      second regulatory scheme, referred to as the Mutual Recognition Procedure,
      is a
      process whereby a product's national registration in one member state within
      the
      European Union may be "mutually recognized" by other member states within the
      European Union.





Substantial
      requirements, comparable in many respects to those imposed under the FDC Act,
      will have to be met before commercial sale is permissible in most
      countries.  We cannot assure you, however, as to whether or when
      governmental approvals, other than those already obtained, will be obtained
      or
      as to the terms or scope of those approvals.





**Health
      Care Reimbursement**





Sales
      of
      our products depend in part on the coverage status of our products and the
      availability of reimbursement by various payers, including federal health care
      programs, such as Medicare and Medicaid, as well as private health insurance
      plans.  Whether a product receives favorable coverage depends upon a
      number of factors, including the payer's determination that the product is
      medically reasonable and necessary for the diagnosis or treatment of the illness
      or injury for which it is administered and not otherwise excluded from coverage
      by law or regulation.  There may be significant delays in obtaining
      coverage for newly-approved products, and coverage may be limited or expanded
      outside the purpose(s) for which the product is approved by the
      FDA.





Eligibility
      for coverage does not imply that any product will be reimbursed in all cases
      or
      at a rate that allows us or any health care provider to make a profit or even
      cover costs, including research,
      development, production, sales, and distribution costs.  Although new
      laws provide for expedited coverage for new technology, interim payments for
      new
      products, if applicable, may also not be sufficient to cover our costs and
      may
      not be made permanent.  Reimbursement rates may vary according to the
      approved and covered use of the product and the place of service in which it
      is
      used, may be based on payments allowed for lower-cost products that are already
      reimbursed, may be incorporated into existing payments for other products or
      services, and may reflect budgetary constraints and/or imperfections in Medicare
      or Medicaid claims data.  Net prices for products may be reduced by
      mandatory discounts or rebates required by law under government health care
      programs or by any future relaxation of laws that restrict imports of certain
      medical products from countries where they may be sold at lower prices than
      in
      the U.S.





In
      December 2003, the Medicare Prescription Drug, Improvement and Modernization
      Act
      of 2003 were signed into law.  This Act includes provisions that
      reduced Medicare reimbursement for many drugs and biologicals from a
      reimbursement rate of 95% of the average wholesale price to 80% of the average
      wholesale price, effective January 1, 2004.  As of January 2005, the
      general reimbursement methodology for many drugs and biologicals is now based
      on
      "average sales price", as defined by the Act, plus 6%.





Third
      party payers often mirror Medicare coverage policy and payment limitations
      in
      setting their own reimbursement payment and coverage policy and may have
      sufficient market


38
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penetration
      to demand significant price reductions.  Even if successful, securing
      reimbursement coverage at adequate payment levels from government and third
      party payers can be a time consuming and costly process that could require
      us to
      provide additional supporting scientific, clinical and cost-effectiveness data
      to permit payment and coverage of our products to payers.  Our
      inability to promptly obtain product coverage and profitable reimbursement
      rates
      from government-funded and private payers could have a material adverse effect
      on our business, financial condition and our results of operations.





Although
      health care funding has and will continue to be closely monitored by the
      government, the ability to diagnose patients quickly and more effectively has
      been one of the few areas where the government has increased health care
      spending.  Approval of payment for new technology has been another
      area with required spending outlined in the 2004 legislative requirements.





The
      Centers for Medicare and Medicaid Services (CMS) continually monitor and update
      product descriptors, coverage policies, product and service codes, payment
      methodologies, and reimbursement values.  Although it is not possible
      to predict or identify all of the risks relating to such changes, we believe
      that such risks include, but are not limited to: (i) increasing price pressures
      (including those imposed by regulations and practices of managed care groups
      and
      institutional and governmental purchasers); and (ii) judicial decisions and
      government laws related to health care reform including radiopharmaceutical,
      pharmaceutical and device reimbursement.  In addition, an increasing
      emphasis on managed care has and will continue to increase the pressure on
      pricing of these products and services.





Our
      business, financial condition and results of operations will continue to be
      affected by the efforts of governmental and third-party payers to contain or
      reduce the costs of health care.  There have been, and we expect that
      there will continue to be, federal and state proposals to constrain expenditures
      for medical products and services, which may affect payments for therapeutic
      and diagnostic imaging agents.  We rely heavily on the ability to
      monitor changes in reimbursement and coverage and proactively influence policy
      and legislative changes in the areas of health care that directly impact our
      products.  We have proven our ability to monitor changes that impact
      our products and have worked with the government and private payers to take
      advantage of the opportunities offered by legislative and policy changes for
      our
      products.  While we cannot predict if legislative or regulatory
      proposals will be adopted or the effects managed care may have on our business,
      the changes in reimbursement and the adoption of new health care proposals
      could
      have a material adverse effect on our business, financial condition and results
      of operations.  Further, to the extent that changes in health care
      reimbursement have a material adverse effect on other prospective corporate
      partners, our ability to establish strategic alliances may be materially and
      adversely affected.  In certain foreign markets, the pricing and
      profitability of our products are generally subject to governmental
      controls.





**Employees**





As
      of
      March 1, 2007, we employed 95 persons, 94 of whom are employed
      full-time.  Of such 95****persons, 59 were employed
      in sales and marketing, 8****in medical affairs, 3 in
      regulatory, and 25 in administration and management.  We believe that
      we have been successful in attracting skilled and experienced
      employees.  None of our employees are covered by a collective


39
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bargaining
      agreement.  All of our employees have executed confidentiality
      agreements.  We consider relations with our employees to be
      excellent.





**Item
                1A.**
            **Risk
                Factors**





Investing
      in our common stock involves a high degree of risk.  You should
      carefully consider the risks and uncertainties described below together with
      other information included or incorporated by reference in this Annual Report
      on
      Form 10-K in your decision as to whether or not to invest in our common
      stock.  If any of the following risks or uncertainties actually occur,
      our business, financial condition or results of operations would likely
      suffer.  In that case, the trading price of our common stock could
      fall, and you may lose all or part of the money you paid to buy our common
      stock.





*We
      have a history of operating losses and an accumulated deficit and expect to
      incur losses in the future.*





Given
      the
      high level of expenditures associated with our business and our inability to
      generate revenues sufficient to cover such expenditures, we have had a history
      of operating losses since our inception.  We had net losses of $15.1
      million, $26.3 million and $20.5 million for the years ended December 31, 2006,
      2005 and 2004, respectively.  We had an accumulated deficit of $427.7
      million as of December 31, 2006.





In
      order
      to develop and commercialize our technologies, particularly our
      prostate-specific membrane antigen technology, and expand our products, we
      expect to incur significant increases in our expenses over the next several
      years.  As a result, we will need to generate significant additional
      revenue to become profitable.





To
      date,
      we have taken affirmative steps to address our trend of operating
      losses.  Such steps include, among other things:





Ÿ
            undergoing
                steps to realign and implement our focus as a product-driven
                biopharmaceutical company;





Ÿ
            establishing
                and maintaining our in-house specialty sales
                force;





Ÿ
            reacquiring
                North American and Latin American marketing rights to QUADRAMET from
                Berlex Laboratories in August 2003;
                and





Ÿ
            enhancing
                our marketed product portfolio through marketing alliances and strategic
                arrangements.





Although
      we have taken these affirmative steps, we may never be able to successfully
      implement them, and our ability to generate and sustain significant additional
      revenues or achieve profitability will depend upon the factors discussed
      elsewhere in this section entitled, "Risk Factors." As a result, we may never
      be
      able to generate or sustain significant additional revenue or achieve
      profitability.


40
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*We
      depend on sales of QUADRAMET and PROSTASCINT for substantially all of our
      near-term revenues.*





We
      expect
      QUADRAMET and PROSTASCINT to account for substantially all of our product
      revenues in the near future.  For the year ended December 31, 2006,
      revenues from QUADRAMET and PROSTASCINT accounted for approximately 47% and
      53%,
      respectively, of our product revenues.  For the year ended December
      31, 2005, revenues from QUADRAMET and PROSTASCINT accounted for approximately
      53% and 47%, respectively, of our product revenues.  For the year
      ended December 31, 2004, revenues from QUADRAMET and PROSTASCINT each accounted
      for approximately 50% of our product revenues.  If QUADRAMET or
      PROSTASCINT does not achieve broader market acceptance, either because we fail
      to effectively market such products or our competitors introduce competing
      products, we may not be able to generate sufficient revenue to become
      profitable.





*We
      will depend on the market acceptance of SOLTAMOX and CAPHOSOL for future
      revenues.*





On
      April 21, 2006, we and Savient entered into a distribution agreement
      granting us exclusive marketing rights for SOLTAMOX in the United
      States.  We introduced SOLTAMOX to the U.S. oncology market in the
      second half of 2006.  We have recognized only $30,000 of SOLTAMOX
      sales through December 31, 2006.





On
      October 11, 2006, we entered into a license agreement with InPharma
      granting us exclusive marketing rights for CAPHOSOL in North
      America.  We introduced CAPHOSOL during the first quarter of
      2007.





Our
      future growth and success will depend on market acceptance of SOLTAMOX and
      CAPHOSOL by healthcare providers, third-party payors and
      patients.  Market acceptance will depend,
      in part, on our ability to demonstrate to these parties the effectiveness of
      these products.  Sales of these products will also depend on the
      availability of favorable coverage and reimbursement by governmental healthcare
      programs such as Medicare and Medicaid as well as private health insurance
      plans.  If SOLTAMOX or CAPHOSOL does not achieve market acceptance,
      either because we fail to effectively market such products or our competitors
      introduce competing products, we may not be able to generate sufficient revenue
      to become profitable.





*A
      Small Number of Customers Account for the Majority of Our Sales, and the Loss
      of
      One of Them, or Changes in Their Purchasing Patterns, Could Result in Reduced
      Sales, Thereby Adversely Affecting Our Operating Results.*





We
      sell
      our products to a small number of radiopharmacy networks.  During the
      year ended December 31, 2006, we received 64% of our total revenues from three
      customers, as follows: 41% from Cardinal Health (formerly Syncor International
      Corporation); 14% from Mallinckrodt Inc.; and 9% from GE Healthcare (formerly
      Amersham Health).  During the year ended December 31, 2005, we
      received 67% of our total revenues from three customers, as follows: 47% from
      Cardinal Health (formerly Syncor International Corporation); 11% from
      Mallinckrodt Inc.; and 9% from GE Healthcare (formerly Amersham
      Health).  During the year ended December 31, 2004, we received 68% of
      our total revenues from three customers, as


41
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follows:
      46% from Cardinal Health (formerly Syncor International Corporation); 12% from
      Mallinckrodt Inc.; and 10% from GE Healthcare (formerly Amersham
      Health).





The
      small
      number of radiopharmacies, consolidation in this industry or financial
      difficulties of these radiopharmacies could result in the combination or
      elimination of customers for our products.  We anticipate that our
      results of operations in any given period will continue to depend to a
      significant extent upon sales to a small number of customers.  As a
      result of this customer concentration, our revenues from quarter to quarter
      and
      business, financial condition and results of operations may be subject to
      substantial period-to-period fluctuations.  In addition, our business,
      financial condition and results of operations could be materially adversely
      affected by the failure of customer orders to materialize as and when
      anticipated.  None of our customers have entered into an agreement
      requiring on-going minimum purchases from us.  We cannot assure you
      that our principal customers will continue to purchase products from us at
      current levels, if at all.  The loss of one or more major customers
      could have a material adverse effect on our business, financial condition and
      results of operations.





*We
      depend on acceptance of our products by the medical community for the
      continuation of our revenues.*





Our
      business, financial condition and results of operations depend on the acceptance
      of our marketed products as safe, effective and cost-efficient alternatives
      to
      other available treatment and diagnostic protocols by the medical community,
      including:





Ÿ
            health
                care providers, such as hospitals and physicians;
                and




Ÿ
            third-party
                payors, including Medicare, Medicaid, private insurance carriers
                and
                health maintenance organizations.





With
      respect to PROSTASCINT, our customers, including technologists and physicians,
      must successfully complete our Partners in Excellence, or PIE, Program, a
      proprietary training program designed to promote the correct acquisition and
      interpretation of PROSTASCINT images.  This product is
      technique-dependent and requires a learning commitment by technologists and
      physicians and their acceptance of this product as part of their treatment
      practices.  With respect to QUADRAMET, we believe that challenges we
      may encounter in generating market acceptance for this product include the
      need
      to further educate patients and physicians about QUADRAMET's properties,
      approved uses and how QUADRAMET may be differentiated from other
      radiopharmaceuticals and used in combination with other treatments for the
      palliation of pain due to metastatic bone disease, such as analgesics, opioids,
      bisphosphonates, and chemotherapeutics.  If we are unable to educate
      our existing and future customers about PROSTASCINT and QUADRAMET, our revenues
      may decrease.  If PROSTASCINT or QUADRAMET does not achieve broader
      market acceptance, we may not be able to generate sufficient revenue to become
      profitable.





Generating
      market acceptance and sales of our products has proven difficult.  We
      introduced ONCOSCINT® CR/OV
      in December
      1992, PROSTASCINT in October 1996, QUADRAMET in March 1997, BRACHYSEEDTM in February
      2001
      and NMP22


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BLADDERCHEK®
      in November
      2002.  Revenues for PROSTASCINT grew from $55,000 in 1996 to $9.1
      million in 2006.  Royalties and sales of QUADRAMET grew from $3.3
      million in 1997 to $8.1 million in 2006.  We discontinued selling
      ONCOSCINT CR/OV in December 2002, brachytherapy products in January 2003 and
      NMP22 BLADDERCHEK in December 2004.  Currently, substantially all of
      our revenues are derived from sales of PROSTASCINT and QUADRAMET.





*We
      rely heavily on our collaborative partners.*





Our
      success depends largely upon the success and financial stability of our
      collaborative partners.  We have entered into the following agreements
      for the development, sale, marketing, distribution and manufacture of our
      products, product candidates and technologies:





Ÿ
            a
                license agreement with Dow relating to the QUADRAMET
                technology;





Ÿ
            a
                manufacturing and supply agreement for the manufacture of QUADRAMET
                with
                Bristol-Myers Squibb Medical Imaging,
                Inc.;





Ÿ
            a
                manufacturing agreement for the manufacture of PROSTASCINT with Laureate
                Pharma, L.P.;





Ÿ
            a
                distribution services agreement with Cardinal Health 105, Inc. (formerly
                Cord Logistics, Inc.) for
                PROSTASCINT;




Ÿ
            a
                license agreement with Dow relating to Dow's proprietary MeO-DOTA
                bifunctional chelant technology for use with our CYT-500
                program;





Ÿ
            a
                distribution agreement and a manufacture and supply agreement with
                Rosemont related to the supply and marketing of
                SOLTAMOX;





Ÿ
            a
                purchase and supply agreement with OTN for the distribution of
                SOLTAMOX;





Ÿ
            a
                license agreement with InPharma AS for the marketing of CAPHOSOL;
                and





Ÿ
            a
                manufacturing agreement with Holopack for the manufacturing and supply
                of
                CAPHOSOL.





Because
      our collaborative partners are responsible for certain manufacturing and
      distribution activities, among others, these activities are outside our direct
      control and we rely on our partners to perform their obligations.  In
      the event that our collaborative partners are entitled to enter into third
      party
      arrangements that may economically disadvantage us, or do not perform their
      obligations as expected under our agreements, our products may not be
      commercially successful.  As a result, any success may be delayed and
      new product development could be inhibited with the result that our business,
      financial condition and results of operation could be significantly and
      adversely affected.


43
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If
      our
      collaborative agreements expire or are terminated and we cannot renew or replace
      them on commercially reasonable terms, our business and financial results may
      suffer.  If the agreements described above expire or are terminated,
      we may not be able to find suitable alternatives to them on a timely basis
      or on
      reasonable terms, if at all.  The loss of the right to use these
      technologies that we have licensed or the loss of any services provided to
      us
      under these agreements would significantly and adversely affect our business,
      financial condition and results of operations.





In
      addition to the agreements described above, we currently depend on the following
      agreements for our present and future operating results:





*Agreement
      with Dr. Horosziewicz regarding PROSTASCINT.*In 1989, we entered
      into an agreement with Dr. Julius S. Horosziewicz.  Under this
      agreement, we were assigned certain rights to the patent claiming the 7E11
      antibody, as well as additional patents relating to the PROSTASCINT product
      and
      commercialization rights thereto.  Under this agreement, we have made,
      and may continue to make, certain payments to Dr. Horosziewicz, which obligation
      will remain in effect until the expiration of the last related patent in
      2015.





*Sloan-Kettering
      Institute for Cancer Research.*In 1993, we began a development
      program with SKICR involving PSMA and our proprietary monoclonal
      antibody.  In November 1996, we exercised an option for, and obtained,
      an exclusive worldwide license from the SKICR to its PSMA-related
      technology.  The license will terminate on the date of expiration of
      the last to expire of the licensed patents unless it is terminated
      earlier.




*Our
      business depends upon our patents and proprietary rights and the enforcement
      of
      these rights.  Our failure to obtain and maintain patent protection
      may increase competition and reduce demand for our technology.*





As
      a
      result of the substantial length of time and expense associated with developing
      products and bringing them to the marketplace in the biotechnology and
      agricultural industries, obtaining and maintaining patent and trade secret
      protection for technologies, products and processes is of vital
      importance.  Our success will depend in part on several factors,
      including, without limitation:





Ÿ
            our
                ability to obtain patent protection for our technologies and
                processes;





Ÿ
            our
                ability to preserve our trade secrets;
                and





Ÿ
            our
                ability to operate without infringing the proprietary rights of other
                parties both in the United States and in foreign
                countries.





Although
      we believe that our technology is unique and will not violate or infringe upon
      the proprietary rights of any third party, we cannot assure you that these
      claims will not be made or if made, could be successfully defended
      against.  If we do not obtain and maintain patent protection, we may
      face increased competition in the United States and internationally, which
      would
      have a material adverse effect on our business.


44
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Since
      patent applications in the United States are maintained in secrecy until patents
      are issued, and since publication of discoveries in the scientific and patent
      literature tend to lag behind actual discoveries by several months, we cannot
      be
      certain that we were the first creator of the inventions covered by our pending
      patent applications or that we were the first to file patent applications for
      these inventions.





In
      addition, among other things, we cannot assure you that:





Ÿ
            our
                patent applications will result in the issuance of
                patents;





Ÿ
            any
                patents issued or licensed to us will be free from challenge and
                that if
                challenged, would be held to be
                valid;





Ÿ
            any
                patents issued or licensed to us will provide commercially significant
                protection for our technology, products and
                processes;





Ÿ
            other
                companies will not independently develop substantially equivalent
                proprietary information which is not covered by our patent
                rights;





Ÿ
            other
                companies will not obtain access to our
                know-how;





Ÿ
            other
                companies will not be granted patents that may prevent the
                commercialization of our technology;
                or




Ÿ
            we
                will not require licensing and the payment of significant fees or
                royalties to third parties for the use of their intellectual property
                in
                order to enable us to conduct our
                business.





*Our
      competitors may allege that we are infringing upon their intellectual property
      rights, forcing us to incur substantial costs and expenses in resulting
      litigation, the outcome of which would be uncertain.*





Patent
      law is still evolving relative to the scope and enforceability of claims in
      the
      fields in which we operate.  We are like most biotechnology companies
      in that our patent protection is highly uncertain and involves complex legal
      and
      technical questions for which legal principles are not yet firmly
      established.  In addition, if issued, our patents may not contain
      claims sufficiently broad to protect us against third parties with similar
      technologies or products, or provide us with any competitive
      advantage.





The
      U.S.
      Patent and Trademark Office, or PTO, and the courts have not established a
      consistent policy regarding the breadth of claims allowed in biotechnology
      patents.  The allowance of broader claims may increase the incidence
      and cost of patent interference proceedings and the risk of infringement
      litigation.  On the other hand, the allowance of narrower claims may
      limit the value of our proprietary rights.


45
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The
      laws
      of some foreign countries do not protect proprietary rights to the same extent
      as the laws of the United States, and many companies have encountered
      significant problems and costs in protecting their proprietary rights in these
      foreign countries.





We
      could
      become involved in infringement actions to enforce and/or protect our
      patents.  Regardless of the outcome, patent litigation is expensive
      and time consuming and would distract our management from other
      activities.  Some of our competitors may be able to sustain the costs
      of complex patent litigation more effectively than we could because they have
      substantially greater resources.  Uncertainties resulting from the
      initiation and continuation of any patent litigation could limit our ability
      to
      continue our operations.





*If
      our technology infringes the intellectual property of our competitors or other
      third parties, we may be required to pay license fees or
      damages.*





If
      any
      relevant claims of third-party patents that are adverse to us are upheld as
      valid and enforceable, we could be prevented from commercializing our technology
      or could be required to obtain licenses from the owners of such
      patents.  We cannot assure you that such licenses would be available
      or, if available, would be on acceptable terms.  Some licenses may be
      non-exclusive and, therefore, our competitors may have access to the same
      technology licensed to us.  In addition, if any parties successfully
      claim that the creation or use of our technology infringes upon their
      intellectual property rights, we may be forced to pay damages, including treble
      damages.




*There
      are risks associated with the manufacture and supply of our
      products.*





If
      we are
      to be successful, our products will have to be manufactured by contract
      manufacturers in compliance with regulatory requirements and at costs acceptable
      to us.  If we are unable to successfully arrange for the manufacture
      of our products and product candidates, either because potential manufacturers
      are not cGMP compliant, are not available or charge excessive amounts, we will
      not be able to successfully commercialize our products and our business,
      financial condition and results of operations will be significantly and
      adversely affected.





PROSTASCINT
      is currently manufactured at a current Good Manufacturing Practices, or cGMP,
      compliant manufacturing facility operated by Laureate Pharma,
      Inc.  Although we entered into an agreement with Laureate in September
      2006 which provides for Laureate's manufacture of PROSTASCINT for us, our
      failure to maintain a long term supply agreement on commercially reasonable
      terms will have a material adverse effect on our business, financial condition
      and results of operations.  In October 2004, Laureate was acquired by
      Safeguard Scientifics, Inc. Laureate has continued to operate as a full service
      contract manufacturing organization and we have not experienced any disruption
      in Laureate's performance of its obligations to produce
      PROSTASCINT.





We
      have
      an agreement with Bristol-Myers Squibb Medical Imaging, Inc., or BMSMI, to
      manufacture QUADRAMET for us.  Both primary components of QUADRAMET,
      particularly samarium-153 and EDTMP, are provided to BMSMI by outside
      suppliers.  Due to radioactive


46
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  decay,
        samarium-153 must be produced on a weekly basis.  BMSMI obtains its
        requirements for samarium-153 from a sole supplier and EDTMP from another
        sole
        supplier.  Alternative sources for these components may not be readily
        available, and any alternative supplier would have to be identified and
        qualified, subject to all applicable regulatory guidelines.  If BMSMI
        cannot obtain sufficient quantities of the components on commercially reasonable
        terms, or in a timely manner, it would be unable to manufacture QUADRAMET
        on a
        timely and cost-effective basis, which would have a material adverse effect
        on
        our business, financial condition and results of operations.





We
      have a
      supply agreement with Rosemont to manufacture SOLTAMOX for us.  The
      supply agreement with Rosemont will terminate upon the expiration of the last
      to
      expire patent covering SOLTAMOX in the United States, which is currently June
      2018.  Our failure to maintain a long term supply agreement for
      SOLTAMOX on commercially reasonable terms will have a material adverse effect
      on
      our business, financial condition and results of operations.





We
      have a
      manufacturing agreement with Holopack to manufacture CAPHOSOL for
      us.  The agreement has a term of two years and automatically renews
      for an additional year.  Such agreement is terminable by Holopack or
      us on three months notice prior to the end of each term period.  Our
      failure to maintain a long term supply agreement for CAPHOSOL on commercially
      reasonable terms will have a material adverse effect on our business, financial
      condition and results of operations.





We,
      along
      with our contract manufacturers and our testing laboratories, are required
      to
      adhere to FDA regulations setting forth requirements for cGMP, and similar
      regulations in other countries,
      which include extensive testing, control and documentation
      requirements.  Ongoing compliance with cGMP, labeling and other
      applicable regulatory requirements is monitored through periodic inspections
      and
      market surveillance by state and federal agencies, including the FDA, and by
      comparable agencies in other countries.  Failure of our contract
      vendors or us to comply with applicable regulations could result in sanctions
      being imposed on us, including fines, injunctions, civil penalties, failure
      of
      the government to grant pre-market clearance or pre-market approval of drugs,
      delays, suspension or withdrawal of approvals, seizures or recalls of products,
      operating restrictions and criminal prosecutions any of which could
      significantly and adversely affect our business, financial condition and results
      of operations.





*Our
      products, generally, are in the early stages of development and
      commercialization and we may never achieve the revenue goals set forth in our
      business plan.*





We
      began
      operations in 1980 and have since been engaged primarily in research directed
      toward the development, commercialization and marketing of products to improve
      the diagnosis and treatment of cancer and other diseases.  In October
      1996, we introduced for commercial use our PROSTASCINT imaging
      agent.  In March 1997, we introduced for commercial use our QUADRAMET
      therapeutic product.





In
      April
      2006, we entered into a distribution agreement with Savient and Rosemont
      granting us exclusive marketing rights for SOLTAMOX in the United
      States.  We introduced SOLTAMOX in the United States in the
      second half of 2006.


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  In
        October 2006, we entered into a license agreement with InPharma granting
        us
        exclusive rights to CAPHOSOL in North America.  We introduced
        CAPHOSOL in the United States in the first quarter of 2007.





In
      May
      2006, the FDA cleared an Investigational New Drug application for CYT-500,
      our
      lead therapeutic candidate targeting PSMA.  In February 2007, we
      announced the initiation of the first U.S. Phase 1 clinical trial of CYT-500
      in
      patients with hormone-refractory prostate cancer. CYT-500 uses the same
      monoclonal antibody from our PROSTASCINT molecular imaging agent, but is linked
      through a higher affinity linker than is used for PROSTASCINT to a therapeutic
      as opposed to an imaging radionuclide.  This PSMA technology is still
      in the early stages of development.  We cannot assure you that we will
      be able to commercialize this product in the future.





In
      July
      2004, as part of our continuing efforts to reduce non-strategic expenses, we
      initiated the closure of facilities at our AxCell Biosciences
      subsidiary.  Research projects through academic, governmental and
      corporate collaborators will continue to be supported and additional
      applications for the intellectual property and technology at AxCell are being
      pursued.  We may be unable to further develop or commercialize any of
      these products and technologies in the future.





Our
      business is therefore subject to the risks inherent in an early-stage
      biopharmaceutical business enterprise, such as the need:




Ÿ
            to
                obtain sufficient capital to support the expenses of developing our
                technology and commercializing our
                products;





Ÿ
            to
                ensure that our products are safe and
                effective;





Ÿ
            to
                obtain regulatory approval for the use and sale of our
                products;





Ÿ
            to
                manufacture our products in sufficient quantities and at a reasonable
                cost;





Ÿ
            to
                develop a sufficient market for our products;
                and





Ÿ
            to
                attract and retain qualified management, sales, technical and scientific
                staff.





The
      problems frequently encountered using new technologies and operating in a
      competitive environment also may affect our business, financial condition and
      results of operations.  If we fail to properly address these risks and
      attain our business objectives, our business could be significantly and
      adversely affected.


48
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*All
      of our potential oncology products will be subject to the risks of failure
      inherent in the development of diagnostic or therapeutic products based on
      new
      technologies.*





Product
      development for cancer treatment involves a high degree of risk.  The
      product candidates we develop, pursue or offer may not prove to be safe and
      effective, may not receive the necessary regulatory approvals, may be precluded
      by proprietary rights of third parties or may not ultimately achieve market
      acceptance.  These product candidates will require substantial
      additional investment, laboratory development, clinical testing and regulatory
      approvals prior to their commercialization.  We may experience
      difficulties, such as the inability to agree with our collaborative partners
      on
      development, initiate clinical trials or receive timely regulatory approvals,
      that could delay or prevent the successful development, introduction and
      marketing of new products.





Before
      we
      obtain regulatory approvals for the commercial sale of any of our products
      under
      development, we must demonstrate through preclinical studies and clinical trials
      that the product is safe and effective for use in each target
      indication.  The results from preclinical studies and early-stage
      clinical trials may not be predictive of results that will be obtained in
      large-scale, later-stage testing.  Our clinical trials may not
      demonstrate safety and efficacy of a proposed product, and therefore, may not
      result in marketable products.  A number of companies in our industry
      have suffered significant setbacks in advanced clinical trials, even after
      promising results in earlier trials.  Clinical trials or marketing of
      any potential diagnostic or therapeutic products may expose us to liability
      claims for the use of these diagnostic or therapeutic products.  We
      may not be able to maintain product liability insurance or sufficient coverage
      may not be available at a reasonable cost.  In addition, internal
      development of diagnostic or therapeutic products will require significant
      investments in product development, marketing, sales and regulatory compliance
      resources.  We will also have to establish or contract for the
      manufacture of products, including supplies of drugs used in clinical trials,
      under the cGMP of the FDA.  We cannot assure you that product issues
      will not arise following successful clinical trials and FDA approval.





The
      rate
      of completion of clinical trials also depends on the rate of patient
      enrollment.  Patient enrollment depends on many factors, including the
      size of the patient population, the nature of the protocol, the proximity of
      patients to clinical sites and the eligibility criteria for the
      study.  Delays in planned patient enrollment may result in increased
      costs and delays, which could have a harmful effect on our ability to develop
      the products in our pipeline.  If we are unable to develop and
      commercialize products on a timely basis or at all, our business, financial
      condition and results of operations could be significantly and adversely
      affected.





*Competition
      in our field is intense and likely to increase.*





All
      of
      our products and product candidates are subject to significant competition
      from
      organizations that are pursuing technologies and products that are the same
      as
      or similar to our technology and products.  Many of the organizations
      competing with us have greater capital resources, research and development
      staffs and facilities and marketing capabilities.


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We
      face,
      and will continue to face, intense competition from one or more of the following
      entities:





Ÿ
            pharmaceutical
                companies;





Ÿ
            biotechnology
                companies;





Ÿ
            diagnostic
                companies;





Ÿ
            medical
                device companies;





Ÿ
            radiopharmaceutical
                distributors;





Ÿ
            academic
                and research institutions; and





Ÿ
            government
                agencies.





QUADRAMET
      primarily competes with strontium-89 chloride in the radiopharmaceutical pain
      palliation market.  Strontium-89 chloride is manufactured and marketed
      either as Metastron, by GE HealthCare, or in a generic form by Bio-Nucleonics
      Pharma, Inc.  GE HealthCare manufactures Metastron and sells the
      product through its wholly-owned network of radiopharmacies, direct to end-users
      and through other radiopharmacy distributors.  The generic version is
      distributed directly by the manufacturer or is sold through radiopharmacy
      distributors such as Cardinal Health and AnazaoHealth (formerly Custom Care
      Pharmacy).





Competitive
      imaging modalities to PROSTASCINT include CT, MR imaging, and position emission
      tomography (PET).




Additionally,
      we face competition in the development of PSMA-related technology and products
      primarily from Millennium Pharmaceuticals, Inc. and Medarex, Inc.





Currently,
      there is limited consensus standard of care for oral mucositis supported by
      clinical data and to date, there has only been one commercially available
      prescription pharmaceutical product approved by the FDA for oral mucositis,
      the
      intravenous growth factor palifermin.  Ice chips, local painkillers
      and narcotics are also used to reduce the patient's pain and doctors routinely
      prescribe mouthwashes containing traditional antibacterial and antifungal drugs
      for the treatment of oral mucositis, although most clinical trials have shown
      that they have suboptimal efficacy.  There are also a number of oral
      rinses that have been approved as medical devices by FDA for dry mouth; however,
      CAPHOSOL is the only approved calcium phsophate oral rinse that is indicated
      for
      both oral mucositis and dry mouth.





The
      current competitive treatments for SOLTAMOX include the tablet form of tamoxifen
      citrate, a generic drug, and a class of drugs known as aromatase
      inhibitors.





Before
      we
      recover development expenses for our products and technologies, the products
      or
      technologies may become obsolete as a result of technological developments
      by
      others or us.


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Our
      products could also be made obsolete by new technologies, which are less
      expensive or more effective.  We may not be able to make the
      enhancements to our technology necessary to compete successfully with newly
      emerging technologies and failure to do so could significantly and adversely
      affect our business, financial condition and results of operations.





*We
      have limited sales, marketing and distribution capabilities for our
      products.*





We
      have
      established an internal sales force that is responsible for marketing and
      selling CAPHOSOL, QUADRAMET, PROSTASCINT and SOLTAMOX.  Although we
      are continuing to expand our internal sales force, it still has limited sales,
      marketing and distribution capabilities compared to those of many of our
      competitors.  If our internal sales force is unable to successfully
      market CAPHOSOL, QUADRAMET, PROSTASCINT and SOLTAMOX, our business and financial
      condition may be adversely affected.  If we are unable to establish
      and maintain significant sales, marketing and distribution efforts within the
      United States, either internally or through arrangements with third parties,
      our
      business may be significantly and adversely affected.  In locations
      outside of the United States, we have not established a selling
      presence.  To the extent that our sales force, from time to time,
      markets and sells additional products, we cannot be certain that adequate
      resources or sales capacity will be available to effectively accomplish these
      tasks.





*Failure
      of third party payors to provide adequate coverage and reimbursement for our
      products could limit market acceptance and affect pricing of our products and
      affect our revenues.*





Sales
      of
      our products depend in part on the availability of favorable coverage and
      reimbursement by governmental healthcare programs such as Medicare and Medicaid
      as well as private health insurance plans.  Each payor has its own
      process and standards for determining whether and, if so, to what extent it
      will
      cover and reimburse a particular product or service.  Whether and to
      what extent a product may be deemed covered by a particular payor depends upon
      a
      number of factors, including the payor's determination that the product is
      reasonable and n ecessary
      for the diagnosis or treatment of the illness or injury for which it is
      administered according to accepted standards of medical practice, cost
      effective, not experimental or investigational, not found by the FDA to be
      less
      than effective, and not otherwise excluded from coverage by law, regulation,
      or
      contract.  There may be significant delays in obtaining coverage for
      newly-approved products, and coverage may not be available or could be more
      limited than the purposes for which the product is approved by the
      FDA.





Moreover,
      eligibility for coverage does not imply that any product will be reimbursed
      in
      all cases or at a rate that allows us to make a profit or even cover our costs,
      which include, for example, research, development, production, sales, and
      distribution costs.  Interim payments for new products, if applicable,
      also may not be sufficient to cover our costs and may not be made
      permanent.  Reimbursement rates may vary according to the use of the
      product and the clinical setting in which it is used, may be based on payments
      allowed for lower-cost products that are already reimbursed, may be incorporated
      into existing payments for other products or services, and may reflect budgetary
      constraints and/or imperfections in Medicare or Medicaid data.  Net
      prices for products may be reduced by mandatory discounts or rebates required
      by
      government healthcare programs, or other payors, or by any future relaxation
      of
      laws that restrict imports of


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certain
      medical products from countries where they may be sold at lower prices than
      in
      the United States.





Third
      party payors often follow Medicare coverage policy and payment limitations
      in
      setting their own coverage policies and reimbursement rates, and may have
      sufficient market power to demand significant price reductions.  Even
      if successful, securing coverage at adequate reimbursement rates from government
      and third party payors can be a time consuming and costly process that could
      require us to provide supporting scientific, clinical and cost-effectiveness
      data for the use of our products among other data and materials to each
      payor.  Our inability to promptly obtain favorable coverage and
      profitable reimbursement rates from government-funded and private payors for
      our
      products could have a material adverse effect on our business, financial
      condition and results of operations, and our ability to raise capital needed
      to
      commercialize products.





Our
      business, financial condition and results of operations will continue to be
      affected by the efforts of governmental and third-party payors to contain or
      reduce the costs of healthcare.  There have been, and we expect that
      there will continue to be, a number of federal and state proposals to regulate
      expenditures for medical products and services, which may affect payments for
      therapeutic and diagnostic imaging agents such as our products.  In
      addition, an emphasis on managed care increases possible pressure on the pricing
      of these products.  While we cannot predict whether these legislative
      or regulatory proposals will be adopted, or the effects these proposals or
      managed care efforts may have on our business, the announcement of these
      proposals and the adoption of these proposals or efforts could affect our stock
      price or our business.  Further, to the extent these proposals or
      efforts have an adverse effect on other companies that are our prospective
      corporate partners, our ability to establish necessary strategic alliances
      may
      be harmed.




*Our
      business is subject to various government regulations and, if we are unable
      to
      obtain regulatory approval, we may not be able to continue our
      operations.*





At
      present, the U.S. federal government regulation of biotechnology is divided
      among three agencies:





Ÿ
            the
                USDA regulates the import, field testing and interstate movement
                of
                specific types of genetic engineering that may be used in the creation
                of
                transgenic plants;





Ÿ
            the
                EPA regulates activity related to the invention of plant pesticides
                and
                herbicides, which may include certain kinds of transgenic plants;
                and





Ÿ
            the
                FDA regulates foods derived from new plant
                varieties.





The
      FDA
      requires that transgenic plants meet the same standards for safety that are
      required for all other plants and foods in general.  Except in the
      case of additives that significantly alter a food's structure, the FDA does
      not
      require any additional standards or specific approval for genetically engineered
      foods, but expects transgenic plant developers to consult the FDA before
      introducing a new food into the marketplace.


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Use
      of
      our technology, if developed for human health applications, will also be subject
      to FDA regulation.  The FDA must approve any drug or biologic product
      before it can be marketed in the United States.  In addition, prior to
      being sold outside of the U.S., any products resulting from the application
      of
      our human health technology must be approved by the regulatory agencies of
      foreign governments.  Prior to filing a new drug application or
      biologics license application with the FDA, we would have to perform extensive
      clinical trials, and prior to beginning any clinical trial, we need to perform
      extensive preclinical testing which could take several years and may require
      substantial expenditures.





We
      believe that our current activities, which to date have been confined to
      research and development efforts, do not require licensing or approval by any
      governmental regulatory agency.  However, federal, state and foreign
      regulations relating to crop protection products and human health applications
      developed through biotechnology are subject to public concerns and political
      circumstances, and, as a result, regulations have changed and may change
      substantially in the future.  Accordingly, we may become subject to
      governmental regulations or approvals or become subject to licensing
      requirements in connection with our research and development
      efforts.  We may also be required to obtain such licensing or approval
      from the governmental regulatory agencies described above, or from state
      agencies, prior to the commercialization of our genetically transformed plants
      and human health technology.  In addition, our marketing partners who
      utilize our technology or sell products grown with our technology may be subject
      to government regulations.  If unfavorable governmental regulations
      are imposed on our technology or if we fail to obtain licenses or approvals
      in a
      timely manner, we may not be able to continue our operations.




*Preclinical
      studies and clinical trials of our human health applications may be
      unsuccessful, which could delay or prevent regulatory
      approval.*





Preclinical
      studies may reveal that our human health technology is ineffective or harmful,
      and/or clinical trials may be unsuccessful in demonstrating efficacy and safety
      of our human health technology, which would significantly limit the possibility
      of obtaining regulatory approval for any drug or biologic product manufactured
      with our technology.  The FDA requires submission of extensive
      preclinical, clinical and manufacturing data to assess the efficacy and safety
      of potential products.  Furthermore, the success of preliminary
      studies does not ensure commercial success, and later-stage clinical trials
      may
      fail to confirm the results of the preliminary studies.





*Even
      if we receive regulatory approval, consumers may not accept products containing
      our technology, which will prevent us from being profitable since we have no
      other source of revenue.*





We
      cannot
      guarantee that consumers will accept products containing our
      technology.  Recently, there has been consumer concern and consumer
      advocate activism with respect to genetically engineered consumer
      products.  The adverse consequences from heightened consumer concern
      in this regard could affect the markets for products developed with our
      technology and could also result in increased government regulation in response
      to that concern.  If the public or potential customers perceive our
      technology to be genetic modification or genetic engineering, agricultural
      products grown with our technology may not gain market acceptance.


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  *Increasing
        political and social turmoil, such as terrorist and military actions, increase
        the difficulty for us and our strategic partners to forecast accurately and
        plan
        future business activities**.***





Recent
      political and social turmoil, including the conflict in Iraq and the current
      crisis in the Middle East, can be expected to put further pressure on economic
      conditions in the United States and worldwide.  These political,
      social and economic conditions may make it difficult for us to plan future
      business activities.





*We
      depend on attracting and retaining key personnel.*





We
      are
      highly dependent on the principal members of our management and scientific
      staff.  The loss of their services might significantly delay or
      prevent the achievement of development or strategic objectives.  Our
      success depends on our ability to retain key employees and to attract additional
      qualified employees.  Competition for personnel is intense, and
      therefore we may not be able to retain existing personnel or attract and retain
      additional highly qualified employees in the future.





We
      do not
      carry key person life insurance policies and we do not typically enter into
      long-term arrangements with our key personnel.  If we are unable to
      hire and retain personnel in key positions, our business, financial condition
      and results of operations could be significantly and adversely affected unless
      qualified replacements can be found.




*Our
      business exposes us to product liability claims that may exceed our financial
      resources, including our insurance coverage, and may lead to the curtailment
      or
      termination of our operations.*





Our
      business is subject to product liability risks inherent in the testing,
      manufacturing and marketing of our products and product liability claims may
      be
      asserted against us, our collaborators or our licensees.  While we
      currently maintain product liability insurance in the amount of $10.0 million,
      such coverage may not be adequate to protect us against future product liability
      claims.  In addition, product liability insurance may not be available
      to us in the future on commercially reasonable terms, if at
      all.  Although we have not had a history of claims payments that have
      exceeded our insurance coverage or available financial resources, if liability
      claims against us exceed our financial resources or coverage amounts, we may
      have to curtail or terminate our operations.  In addition, while we
      currently maintain directors and officers liability insurance in the amount
      of
      $25.0 million and an additional $5.0 million of personal liability coverage
      for
      directors and officers, such coverage may not be available on commercially
      reasonable terms or be adequate to cover any claims that we may be required
      to
      satisfy in the future.  Our insurance coverage is subject to industry
      standard and certain other limitations.


54
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*Our
      security measures may not adequately protect our unpatented technology and,
      if
      we are unable to protect the confidentiality of our proprietary information
      and
      know-how, the value of our technology may be adversely
      affected.*





Our
      success depends upon know-how, unpatentable trade secrets, and the skills,
      knowledge and experience of our scientific and technical
      personnel.  As a result, we require all employees to agree to a
      confidentiality provision that prohibits the disclosure of confidential
      information to anyone outside of our company, during the term of employment
      and
      thereafter.  We also require all employees to disclose and assign to
      us the rights to their ideas, developments, discoveries and
      inventions.  We also attempt to enter into similar agreements with our
      consultants, advisors and research collaborators.  We cannot assure
      you that adequate protection for our trade secrets, know-how or other
      proprietary information against unauthorized use or disclosure will be
      available.





We
      occasionally provide information to research collaborators in academic
      institutions and request the collaborators to conduct certain
      tests.  We cannot assure you that the academic institutions will not
      assert intellectual property rights in the results of the tests conducted by
      the
      research collaborators, or that the academic institutions will grant licenses
      under such intellectual property rights to us on acceptable terms, if at
      all.  If the assertion of intellectual property rights by an academic
      institution is substantiated, and the academic institution does not grant
      intellectual property rights to us, these events could limit our ability to
      commercialize our technology.





*We
      expect to raise additional capital, which may not be
      available.*





Our
      cash
      and cash equivalents were $32.5 million at December 31, 2006.  We
      expect that our existing capital resources along with the receipt of the $4.0
      million settlement from Advanced
      Magnetics, Inc. in the first quarter of 2007 should be adequate to fund our
      operations and commitments into 2008.





We
      have
      incurred negative cash flows from operations since our inception and have
      expended, and expect to continue to expend in the future, substantial funds
      based upon the:





Ÿ
            success
                of our product commercialization
                efforts;





Ÿ
            success
                of any future acquisitions of complementary products and technologies
                we
                may make;





Ÿ
            magnitude,
                scope and results of our product development and research and development
                efforts;





Ÿ
            progress
                of preclinical studies and clinical
                trials;





Ÿ
            progress
                toward regulatory approval for our
                products;


55
 *Table
              of Contents*


Ÿ
            costs
                of filing, prosecuting, defending and enforcing patent claims and
                other
                intellectual property rights;





Ÿ
            competing
                technological and market developments;
                and





Ÿ
            expansion
                of strategic alliances for the sale, marketing and distribution of
                our
                products.





Our
      business or operations may change in a manner that would consume available
      resources more rapidly than anticipated.  We expect that we will have
      additional requirements for debt or equity capital, irrespective of whether
      and
      when we reach profitability, for further product development costs, product
      and
      technology acquisition costs and working capital.  To the extent that
      our currently available funds and revenues are insufficient to meet current
      or
      planned operating requirements, we will be required to obtain additional funds
      through equity or debt financing, strategic alliances with corporate partners
      and others, or through other sources.  These financial sources may not
      be available when we need them or they may be available, but on terms that
      are
      not commercially acceptable to us.  If adequate funds are not
      available, we may be required to delay, scale back or eliminate certain aspects
      of our operations or attempt to obtain funds through arrangements with
      collaborative partners or others that may require us to relinquish rights to
      certain of our technologies, product candidates, products or potential
      markets.  If adequate funds are not available, our business, financial
      condition and results of operations will be materially and adversely
      affected.





*Our
      capital raising efforts may dilute stockholder interests.*





If
      we
      raise additional capital by issuing equity securities or convertible debentures,
      such issuance will result in ownership dilution to our existing stockholders,
      and new investors could have rights superior to those of our existing
      stockholders.  The extent of such dilution will vary b ased
      upon
      the amount of capital raised.





*We
      may need to raise funds other than through the issuance of equity
      securities.*





If
      we
      raise additional funds through collaborations and licensing arrangements, we
      may
      be required to relinquish rights to certain of our technologies or product
      candidates or to grant licenses on unfavorable terms.  If we
      relinquish rights or grant licenses on unfavorable terms, we may not be able
      to
      develop or market products in a manner that is profitable to us.


56
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*Our
      stockholders may experience substantial dilution as a result of the exercise
      of
      outstanding options and warrants to purchase our common stock.*





As
      of
      December 31, 2006, stock options and warrants to purchase 8,893,212 shares
      of
      our common stock were outstanding.  In addition, as of December 31,
      2006, we have 343,900 nonvested shares outstanding and have reserved an
      additional 1,949,494 shares of our common stock for future issuance of options
      granted pursuant to our 2006 Equity Compensation Plan, 2004 Stock Incentive
      Plan, 2004 Non-Employee Director Stock Incentive Plan and 2005 Employee Stock
      Purchase Plan.  The exercise of these options and warrants and vesting
      of nonvested shares will result in dilution to our existing stockholders and
      could have a material adverse effect on our stock price.





The
      following table summarizes information about outstanding warrants to purchase
      our common stock at December 31, 2006:





**Exercise
                  Price**
            
            
            **Outstanding****Warrants**
            
            
            **Aggregate
                  Exercise Price**$
            3.32
            
            
            
            3,546,107
            
            
            $
            11,773,075$
            4.25
            
            
            
            1,118,868
            
            
            $
            4,755,189$
            6.00
            
            
            
            776,096
            
            
            $
            4,656,576$
            6.91
            
            
            
            315,790
            
            
            $
            2,182,108$
            10.97
            
            
            
            250,000
            
            
            $
            2,742,500$
            12.80
            
            
            
            1,272,332
            
            
            $
            16,285,850





The
      warrants exercisable at $10.97 per share and $12.80 per share become
      automatically exercised, in full, if our common stock trades for 30 consecutive
      trading days at 130% of the respective exercise prices.





*A
      significant portion of our total outstanding shares of common stock may be
      sold
      in the market in the near future, which could cause the market price of our
      common stock to drop significantly.*





As
      of
      December 31, 2006, we had 29,605,631 shares of our common stock issued and
      outstanding, all of which are either eligible to be sold under SEC Rule 144
      or
      are in the public float.  In addition, we have registered shares of
      our Common Stock underlying warrants previously issued on numerous Form S-3
      registration statements, and we have also registered shares of our common stock
      underlying options granted or to be granted under our stock option plans.  Consequently,
      sales of substantial amounts of our common stock in the public market, or the
      perception that such sales could occur, may have a material adverse effect
      on
      our stock price.





*Our
      common stock has a limited trading market, which could limit your ability to
      resell your shares of common stock at or above your purchase
      price.*





Our
      common stock is quoted on the NASDAQ Global Market and currently has a limited
      trading market.  The NASDAQ Global Market requires us to meet minimum
      financial requirements in order to maintain our listing.  Currently,
      we believe that we meet the continued listing requirements of the NASDAQ Global
      Market.  We cannot assure you that an active trading market will
      develop or, if developed, will be maintained.  As a result, our
      stockholders


57
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may
      find
      it difficult to dispose of shares of our common stock and, as a result, may
      suffer a loss of all or a substantial portion of their investment.





*Our
      common stock may be subject to the "penny stock" regulations which may affect
      the ability of our stockholders to sell their shares.*





The
      NASDAQ Global Market requires us to meet minimum financial requirements in
      order
      to maintain our listing.  Currently, we believe we meet the continued
      listing requirements of the NASDAQ Global Market.  If we do not
      continue to meet the continued listing requirements, we could be
      delisted.  If we are delisted from the NASDAQ Global Market, our
      common stock likely will become a "penny stock." In general, regulations of
      the
      SEC define a "penny stock" to be an equity security that is not listed on a
      national securities exchange or the NASDAQ Stock Market and that has a market
      price of less than $5.00 per share or with an exercise price of less than $5.00
      per share, subject to certain exceptions.  If our common stock becomes
      a penny stock, additional sales practice requirements would be imposed on
      broker-dealers that sell such securities to persons other than certain qualified
      investors.  For transactions involving a penny stock, unless exempt, a
      broker-dealer must make a special suitability determination for the purchaser
      and receive the purchaser's written consent to the transaction prior to the
      sale.  In addition, the rules on penny stocks require delivery, prior
      to and after any penny stock transaction, of disclosures required by the
      SEC.





If
      our
      common stock were subject to the rules on penny stocks, the market liquidity
      for
      our common stock could be severely and adversely
      affected.  Accordingly, the ability of holders of our common stock to
      sell their shares in the secondary market may also be adversely
      affected.





*The
      liquidity of our common stock could be adversely affected if we are delisted
      from the NASDAQ Global Market.*





In
      the
      event that we are unable to maintain compliance with all relevant NASDAQ Listing
      Standards, our securities may be subject to delisting from the NASDAQ Global
      Market.  If such delisting occurs, the market price and market
      liquidity of our common stock may be adversely affected.  Such listing
      standards include, among other things, requirements related to the market value
      of our listed securities and publicly-held shares, and the minimum bid price
      for
      such shares.  The minimum bid requirement is $1.00 per
      share.  On March 14, 2007, the closing sale price of our common stock
      as reported by NASDAQ was $2.05.




If
      faced
      with delisting, we may submit an application to transfer the listing of our
      common stock to the NASDAQ Capital Market.  Alternatively, if our
      common stock is delisted by NASDAQ, our common stock would be eligible to trade
      on the OTC Bulletin Board maintained by NASDAQ, another over-the-counter
      quotation system, or on the pink sheets where an investor may find it more
      difficult to dispose of or obtain accurate quotations as to the market value
      of
      our common stock.  In addition, we would be subject to a rule
      promulgated by the Securities and Exchange Commission that, if we fail to meet
      criteria set forth in such rule, imposes various practice requirements on
      broker-dealers who sell securities governed by the rule to persons other than
      established customers and accredited investors.  Consequently, such
      rule


58
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may
      deter
      broker-dealers from recommending or selling our common stock, which may further
      affect the liquidity of our common stock.





Delisting
      from NASDAQ would make trading our common stock more difficult for investors,
      potentially leading to further declines in our share price.  It would
      also make it more difficult for us to raise additional
      capital.  Further, if we are delisted, we would also incur additional
      costs under state blue sky laws in connection with any sales of our
      securities.  These requirements could severely limit the market
      liquidity of our common stock and the ability of our shareholders to sell our
      common stock in the secondary market.





*Because
      we do not intend to pay, and have not paid, any cash dividends on our shares
      of
      common stock, our stockholders will not be able to receive a return on their
      shares unless the value of our common stock appreciates and they sell their
      shares.*





We
      have
      never paid or declared any cash dividends on our common stock and we intend
      to
      retain any future earnings to finance the development and expansion of our
      business.  We do not anticipate paying any cash dividends on our
      common stock in the foreseeable future.  Therefore, our stockholders
      will not be able to receive a return on their investment unless the value of
      our
      common stock appreciates and they sell their shares.





*We
      could be negatively impacted by future interpretation or implementation of
      federal and state fraud and abuse laws, including anti-kickback laws, false
      claims laws and federal and state anti-referral laws.*





We
      are
      subject to various federal and state laws pertaining to health care fraud and
      abuse, including anti-kickback laws, false claims laws and physician
      self-referral laws.  Violations of these laws are punishable by
      criminal and/or civil sanctions, including, in some instances, imprisonment
      and
      exclusion from participation in federal and state health care programs,
      including Medicare, Medicaid, and veterans' health programs.  We have
      not been challenged by a governmental authority under any of these laws and
      believe that our operations are in compliance with such laws.





However,
      because of the far-reaching nature of these laws, we may be required to alter
      one or more of our practices to be in compliance with these
      laws.  Health care fraud and abuse regulations are complex, and even
      minor, inadvertent irregularities can potentially give rise to claims that
      the
      law has been violated.  Any violations of these laws could result in a
      material


adverse
      effect on our business, financial condition and results of
      operations.  If there is a change in law, regulation or administrative
      or judicial interpretations, we may have to change our business practices or
      our
      existing business practices could be challenged as unlawful, which could have
      a
      material adverse effect on our business, financial condition and results of
      operations.





We
      could
      become subject to false claims litigation under federal or state statutes,
      which
      can lead to civil money penalties, criminal fines and imprisonment, and/or
      exclusion from participation in federal health care programs.  These
      false claims statutes include the federal False Claims Act, which allows any
      person to bring suit alleging the false or fraudulent


59
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submission
      of claims for payment under federal programs or other violations of the statute
      and to share in any amounts paid by the entity to the government in fines or
      settlement.  Such suits, known as qui tam actions, have increased
      significantly in recent years and have increased the risk that companies like
      us
      may have to defend a false claim action.  We could also become subject
      to similar false claims litigation under state statutes.  If we are
      unsuccessful in defending any such action, such action may have a material
      adverse effect on our business, financial condition and results of operations.





The
      healthcare fraud and abuse laws to which we are subject include the following,
      among others:





*Federal
      and State Anti-Kickback Laws and Safe Harbor Provisions.*The
      federal anti-kickback law makes it a felony to knowingly and willfully offer,
      or
      pay remuneration "to induce" a person to refer an individual or to recommend
      or
      arrange for the purchase, lease or ordering of any item or service for which
      payment may be made under the Medicare or state healthcare
      programs.  The anti-kickback prohibitions apply regardless of whether
      the remuneration is provided directly or indirectly, in cash or in
      kind.  Interpretations of the law have been very
      broad.  Under current law, courts and federal regulatory authorities
      have stated that this law is violated if even one purpose, as opposed to the
      sole or primary purpose, of the arrangement is to induce
      referrals.  Violations of the anti-kickback law carry potentially
      severe penalties including imprisonment of up to five years, criminal fines,
      civil money penalties and exclusion from the Medicare and Medicaid
      programs.





The
      U.S.
      Department of Health and Human Services Office of Inspector General, or OIG,
      has
      published "safe harbors" that exempt some arrangements from enforcement action
      under the anti-kickback statute.  These statutory and regulatory safe
      harbors protect various bona fide employment relationships, personal service
      arrangements, certain discount arrangements, among other things, provided that
      certain conditions set forth in the statute and regulations are
      satisfied.  The safe harbor regulations, however, do not
      comprehensively describe all lawful arrangements, and the failure of an
      arrangement to satisfy all of the requirements of a particular safe harbor
      does
      not mean that the arrangement is unlawful.  Failure to comply with the
      safe harbor provisions, however, may mean that the arrangement will be subject
      to scrutiny by the OIG.





Many
      states have adopted similar prohibitions.  Some of these state laws
      lack specific "safe harbors" that may be available under federal
      law.  Sanctions under these state anti-kickback laws
      may
      include civil money penalties, license suspension or revocation, exclusion
      from
      Medicare or Medicaid, and criminal fines or imprisonment.





We
      believe that our contracts and arrangements are not in violation of applicable
      anti-kickback or related laws.  We cannot assure you, however, that
      these laws will ultimately be interpreted in a manner consistent with our
      practices.





*False
      Claims Acts.*We are subject to state and federal laws that
      govern the submission of claims for reimbursement.  The Federal Civil
      False Claims Act imposes civil liability on individuals or entities that submit,
      or "cause" to be submitted, false or fraudulent claims for payment to the
      government.  Violations of the Civil False Claims Act may result in
      treble




60
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 damages,
          civil monetary penalties for each false claim submitted and exclusion from
          the
          Medicare and Medicaid programs.  In addition, we could be subject to
          criminal penalties under a variety of federal statutes to the extent that
          we
          knowingly violate legal requirements under federal health programs or otherwise
          present or cause the presentation of false or fraudulent claims or documentation
          to the government.  In addition, the OIG may impose extensive and costly
          corporate integrity requirements upon entities and individuals subject
          to a
          false claims judgment or settlement.  These requirements may include
          the creation of a formal compliance program, the appointment of an independent
          review organization, and the imposition of annual reporting requirements
          and
          audits conducted by an independent review organization to monitor compliance
          with the terms of the agreement and relevant laws and
          regulations.





The
      Federal Civil False Claims Act also allows a private individual to bring a
      "qui
      tam" suit on behalf of the government for violations of the Civil False Claims
      Act, and if successful, the "qui tam" relator shares in the government's
      recovery.  A qui tam suit may be brought by, with only a few
      exceptions, any private citizen who has material information of a false claim
      that has not yet been previously disclosed.  Recently, the number of
      qui tam suits brought in the healthcare industry has increased
      dramatically.  In addition, several states have enacted laws modeled
      after the Federal Civil False Claims Act.





*Civil
      Monetary Penalties.*The Civil Monetary Penalties Statute states
      that civil penalties ranging between $10,000 and $50,000 per claim or act may
      be
      imposed on any person or entity that knowingly submits, or causes the submission
      of, improperly filed claims for federal health benefits, or makes payments
      to
      induce a beneficiary or provider to reduce or limit the use of healthcare
      services or to use a particular provider or supplier.  Civil monetary
      penalties may be imposed for violations of the anti-kickback statute and for
      the
      failure to return known overpayments, among other things.





*Prohibition
      on Employing or Contracting with Excluded Providers.*The Social
      Security Act and federal regulations state that individuals or entities that
      have been convicted of a criminal offense related to the delivery of an item
      or
      service under the Medicare or Medicaid programs or that have been convicted,
      under state or federal law, of a criminal offense relating to neglect or abuse
      of residents in connection with the delivery of a healthcare item or service
      cannot participate in any federal healthcare programs, including Medicare and
      Medicaid.




*Health
      Insurance Portability and Accountability Act of 1996*.  HIPAA
      created new healthcare related crimes, and granted authority to the Secretary
      of
      the Department of Health and Human Services, or HHS, to impose certain civil
      penalties.  Particularly, the Secretary may now exclude from Medicare
      any individual with a direct or indirect ownership interest in an entity
      convicted of healthcare fraud or excluded from the program.  Under
      HIPAA and other healthcare laws, it is a crime to knowingly and willfully commit
      a healthcare fraud, and knowingly and willfully falsify, or conceal material
      information or make any materially false or fraudulent statements in connection
      with claims and payment for healthcare services by a healthcare benefit
      plan.  HIPAA also created new programs to control fraud and abuse, and
      requires new investigations, audits and inspections.


61
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              of Contents*


We
      believe that our operations materially comply with applicable regulatory
      requirements.  We cannot assure you of the outcome of any inquiry
      audit or investigation undertaken by HHS, OIG or DOJ.  If we are ever
      found to have engaged in improper practices, we could be subjected to civil,
      administrative or criminal fines, penalties or restitutionary relief, and
      suspension or exclusion of the entity or individuals from participation in
      federal and state healthcare programs.





*Patient
      Information and Privacy.*HIPAA also mandates, among other
      things, the establishment of regulatory standards addressing the electronic
      exchange of health information, standards for the privacy and security of health
      information maintained or exchanged electronically, and standards for assigning
      unique health identifiers to healthcare providers.  Sanctions for
      failure to comply with HIPAA standards include civil and criminal
      penalties.  The Security Standards require us to implement certain
      security measures to protect certain individually identifiable health
      information, called protected health information, or PHI, in electronic
      format.  The Standards for Privacy of Individually Identifiable
      Information restrict use and disclosure of PHI unless patient authorization
      for
      such disclosures are obtained.  These Privacy Standards not only
      require our compliance with standards restricting the use and disclosure of
      PHI,
      but also require us to obtain satisfactory assurances that any business
      associate of ours who has access to our PHI similarly will safeguard such
      PHI.





We
      have
      evaluated these rules to determine the effects of the rules on our business,
      and
      we believe that we have taken the appropriate steps to ensure that we will
      comply with these standards in all material respects by their respective
      compliance deadlines.





*Our
      business involves environmental risks that may result in
      liability.*





We
      are
      subject to a variety of local, state, federal and foreign government regulations
      relating to storage, discharge, handling, emission, generation, manufacture
      and
      disposal of toxic, infectious or other hazardous substances used to manufacture
      our products.  If we fail to comply with these regulations, we could
      be liable for damages, penalties, or other forms of censure and our business
      could be significantly and adversely affected.  We currently do not
      carry insurance for contamination or injury resulting from the use of such
      materials.





PROSTASCINT
      and QUADRAMET utilize radioactive materials.  PROSTASCINT is not
      manufactured or shipped as a radioactive material because the radioactive
      component is not added
      until the product has arrived at its final destination (a
      radiopharmacy).  Laureate Pharma, our contract manufacturer of
      PROSTASCINT, holds a radioactive materials license because such license is
      required for certain release and stability tests of the product.





QUADRAMET,
      however, is manufactured and shipped as radioactive, and therefore, the
      manufacturing and distribution of this product must comply with regulations
      promulgated by the U.S. Nuclear Regulatory Commission.  BMSMI
      manufacturers and distributes QUADRAMET, and is, therefore, subject to these
      regulations.


62
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              of Contents*


*We
      have been and, in the future, may be subject to patent
      litigation.*





On
      March
      17, 2000, we were served with a complaint filed against us in the United States
      District Court for the District of New Jersey by M. David Goldenberg and
      Immunomedics, Inc.  The litigation claimed that our PROSTASCINT
      product infringes a patent purportedly owned by Goldenberg and licensed to
      Immunomedics.  We believe that PROSTASCINT did not infringe this
      patent, and that the patent was invalid and unenforceable.  In June
      2004, the U.S. Court of Appeals for the Federal Circuit affirmed the district
      court's grant of summary judgment of no literal
      infringement.  Regarding infringement under the doctrine of
      equivalents, however, the U.S. Court of Appeals for the Federal Circuit
      disagreed with the district court's conclusion that there was no issue of
      material fact and reversed the district court's grant of summary judgment on
      this point and remanded for further proceedings on the issue.  In
      September 2004, we settled the patent infringement suit for an undisclosed
      payment, without any admission of fault or liability.





We
      cannot
      give any assurance that we will not become subject to additional patent
      litigation in the future, which could result in material expenditures to
      us.





*Our
      stock price has been and may continue to be volatile, and your investment in
      our
      stock could decline in value or fluctuate significantly.*





The
      market prices for securities of biotechnology and pharmaceutical companies
      have
      historically been highly volatile, and the market has from time to time
      experienced significant price and volume fluctuations that are unrelated to
      the
      operating performance of particular companies.  The market price of
      our common stock has fluctuated over a wide range and may continue to fluctuate
      for various reasons, including, but not limited to, announcements concerning
      our
      competitors or us regarding:





Ÿ
            results
                of clinical trials;





Ÿ
            technological
                innovations or new commercial
                products;





Ÿ
            changes
                in governmental regulation or the status of our regulatory approvals
                or
                applications;





Ÿ
            changes
                in earnings;




Ÿ
            changes
                in health care policies and
                practices;





Ÿ
            developments
                or disputes concerning proprietary
                rights;





Ÿ
            litigation
                or public concern as to safety of the our potential products;
                and





Ÿ
            changes
                in general market conditions.


63
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These
      fluctuations may be exaggerated if the trading volume of our common stock is
      low.  These fluctuations may or may not be based upon any of our
      business or operating results.  Our common stock may experience
      similar or even more dramatic price and volume fluctuations which may continue
      indefinitely.





*We
      have adopted various anti-takeover provisions which may affect the market price
      of our common stock and prevent or frustrate attempts by our stockholders to
      replace or remove our management team.*





Our
      Board
      of Directors has the authority, without further action by the holders of common
      stock, to issue from time to time, up to 5,400,000 shares of preferred stock
      in
      one or more classes or series, and to fix the rights and preferences of the
      preferred stock.  We have implemented a stockholder rights plan by
      which one preferred stock purchase right is attached to each share of common
      stock, as a means to deter coercive takeover tactics and to prevent an acquirer
      from gaining control of us without some mechanism to secure a fair price for
      all
      of our stockholders if an acquisition was completed.  These rights
      will be exercisable if a person or group acquires beneficial ownership of 20%
      or
      more of our common stock and can be made exercisable by action of our Board
      of
      Directors if a person or group commences a tender offer which would result
      in
      such person or group beneficially owning 20% or more of our common
      stock.  Each right will entitle the holder to buy one one-thousandth
      of a share of a new series of our junior participating preferred stock for
      $20.  If any person or group becomes the beneficial owner of 20% or
      more of our common stock (with certain limited exceptions), then each right
      not
      owned by the 20% stockholder will entitle its holder to purchase, at the right's
      then current exercise price, common shares having a market value of twice the
      exercise price.  In addition, if after any person has become a 20%
      stockholder, we are involved in a merger or other business combination
      transaction with another person, each right will entitle its holder (other
      than
      the 20% stockholder) to purchase, at the right's then current exercise price,
      common shares of the acquiring company having a value of twice the right's
      then
      current exercise price.





We
      are
      subject to provisions of Delaware corporate law which, subject to certain
      exceptions, will prohibit us from engaging in any "business combination" with
      a
      person who, together with affiliates and associates, owns 15% or more of our
      common stock for a period of three years following the date that the person
      came
      to own 15% or more of our common stock unless the business combination is
      approved in a prescribed manner.





These
      provisions of the stockholder rights plan, our certificate of incorporation,
      and
      of Delaware law may have the effect of delaying, deterring or preventing a
      change in control of Cytogen, may discourage bids for our common stock at a
      premium over market price and may




adversely
      affect the market price, and the voting and other rights of the holders, of
      our
      common stock.  In addition, these provisions make it more difficult to
      replace or remove our current management team in the event our stockholders
      believe this would be in the best interest of the Company and our
      stockholders.





**Item
                1B.**
            **Unresolved
                Staff
                Comments**





Not
      applicable.


64
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              of Contents*


**Item
                2.**
            **Properties**





In
      August
      2002, we moved our main offices from 600 College Road East to 650 College Road
      East in Princeton, New Jersey.  On February 10, 2004, we entered into
      an amendment to our existing sublease agreement for these premises to increase
      the amount of space we occupy from approximately 11,500 square feet to
      approximately 16,100 square feet.  This amendment also extended the
      expiration date of our sublease to October 2007, with a two year option to
      renew
      thereafter.  In February 2007, we exercised the two year option to
      renew our lease and extended the lease term through October 24,
      2009.  We intend to remain headquartered in Princeton, New Jersey for
      the foreseeable future.





We
      own
      substantially all of the equipment used in our offices and we believe that
      our
      facilities are adequate for our operations at present.





**Item
                3.**
            **Legal
                Proceedings**





In
      January 2006, we filed a complaint against Advanced Magnetics in the
      Massachusetts Superior Court for breach of contract, fraud, unjust enrichment,
      and breach of the implied covenant of good faith and fair dealing in connection
      with the parties' 2000 license agreement.  The complaint sought
      damages along with a request for specific performance requiring Advanced
      Magnetics to take all reasonable steps to secure FDA approval of COMBIDEX® (ferumoxtran
      -
      10) in compliance with the terms of the licensing agreement.  In
      February 2006, Advanced Magnetics filed an answer to our complaint and asserted
      various counterclaims, including tortuous interference, defamation, consumer
      fraud and abuse of process.





In
      February 2007, we settled our lawsuit against Advanced Magnetics, Inc., as
      well
      as Advanced Magnetics' counterclaims against Cytogen, by mutual
      agreement.  Under the settlement agreement, Advanced Magnetics paid us
      $4 million and will release 50,000 shares of Cytogen common stock currently
      being held in escrow.  In addition, both parties agreed to early
      termination of the 10-year license and marketing agreement and supply agreement
      established in August 2000, as amended, for two imaging agents being developed
      by Advanced Magnetics, COMBIDEX and ferumoxytol, previously Code
      7228.  The license and marketing agreement and supply agreement would
      have expired in August 2010.





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





Not
      applicable.




65
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**PART
      II**





**Item
                5.**
            **Market
                for theCompany's Common Equity, Related Stockholder
                Matters and Company Purchases of Equity
                Securities**





Our
      common stock is traded on the NASDAQ Global Market (formerly the NASDAQ National
      Market) under the trading symbol "CYTO."





The
      table
      below sets forth the high and low bid information for our common stock for
      each
      of the calendar quarters indicated, as reported on the Nasdaq Global
      Market.  Such quotations reflect inter-dealer prices, without retail
      mark-up, mark-down or commission and may not represent actual
      transactions.





**2006**
            
            **High**
            
            
            **Low**First
                Quarter
            
            $
            3.62
            
            
            $
            2.75Second
                Quarter
            
            $
            3.73
            
            
            $
            2.42Third
                Quarter
            
            $
            2.58
            
            
            $
            1.91Fourth
                Quarter
            
            $
            6.87
            
            
            $
            2.15**2005**First
                Quarter
            
            $
            15.72
            
            
            $
            5.44Second
                Quarter
            
            $
            5.95
            
            
            $
            3.46Third
                Quarter
            
            $
            5.47
            
            
            $
            3.68Fourth
                Quarter
            
            $
            4.09
            
            
            $
            2.71





As
      of
      March 7, 2007, there were 2,185 holders of record of our common
      stock.





We
      have
      never paid any cash dividends on our common stock and we do not anticipate
      paying any cash dividends on our common stock in the foreseeable
      future.  We intend to retain any future earnings to fund the
      development and growth of our business.  Any future determination to
      pay dividends will be at the discretion of our board of directors.





66
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            of Contents*




Stock
      Performance Graph




The
      following graph compares the cumulative total stockholder return on our common
      stock with the cumulative total return the NASDAQ Composite Index, the NASDAQ
      Biotechnology Index and the NASDAQ Pharmaceutical Index for a five-year period
      ended December 31, 2006.









**Company/Index
                  Name**
            
            ****
            **12/01**
            
            
            ****
            **12/02**
            
            
            ****
            **12/03**
            
            
            ****
            **12/04**
            
            
            ****
            **12/05**
            
            
            ****
            **12/06**CYTOGEN
                Corporation
            
            
            100.00
            
            
            
            10.80
            
            
            
            36.15
            
            
            
            38.27
            
            
            
            9.10
            
            
            
            7.74NASDAQ
                Composite Index
            
            
            100.00
            
            
            
            68.85
            
            
            
            101.86
            
            
            
            112.16
            
            
            
            115.32
            
            
            
            127.52NASDAQ
                Biotechnology Index
            
            
            100.00
            
            
            
            62.08
            
            
            
            90.27
            
            
            
            99.08
            
            
            
            111.81
            
            
            
            110.06NASDAQ
                Pharmaceutical Index
            
            
            100.00
            
            
            
            64.40
            
            
            
            92.31
            
            
            
            100.78
            
            
            
            113.36
            
            
            
            115.84




*The
      Perfomance Graph and related information shall not be deemed “soliciting
      material” or to be “filed” with the Securities and Exchange Commission, nor
      shall such information be incorporated by reference into any future
      filing under the Securities Act of 1933 or Securities Exchange Act of 1934,
      each as amended, except to the extent that we specifically incorporate it by
      reference into such filing.*




67
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            of Contents*





**Item
                6.**
            **Selected
                Financial
                Data**





The
      following selected financial information has been derived from our audited
      consolidated financial statements for each of the five years in the period
      ended
      December 31, 2006.  The selected financial data set forth below should
      be read in conjunction with the consolidated financial statements, including
      the
      notes thereto, "Management's Discussion and Analysis of Financial Condition
      and
      Results of Operations" and other information provided elsewhere in this
      report.





**Year
                  Ended December 31,****2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002****Statements
                of Operations Data:**
            
            **(All
                amounts in thousands, except per share data)**Revenues:Product
                revenues
            
            $
            17,296
            
            
            $
            15,757
            
            
            $
            14,480
            
            
            $
            9,823
            
            
            $
            10,626Royalties
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,105
            
            
            
            1,842License
                and contract
            
            
            11
            
            
            
            189
            
            
            
            139
            
            
            
            2,914
            
            
            
            463Total
                revenues
            
            
            17,307
            
            
            
            15,946
            
            
            
            14,619
            
            
            
            13,842
            
            
            
            12,931Operating
                Expenses:Cost
                of product related revenue
            
            
            10,150
            
            
            
            9,523
            
            
            
            9,223
            
            
            
            6,268
            
            
            
            4,748Selling,
                general and administrative
            
            
            30,166
            
            
            
            25,895
            
            
            
            20,318
            
            
            
            11,867
            
            
            
            11,272Research
                and development
            
            
            7,301
            
            
            
            6,162
            
            
            
            3,292
            
            
            
            2,342
            
            
            
            7,580Equity
                in loss of joint venture
            
            
            120
            
            
            
            3,175
            
            
            
            2,896
            
            
            
            3,452
            
            
            
            2,886Impairment
                of intangible assets(1)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            115
            
            
            
            1,729Total
                operating expenses
            
            
            47,737
            
            
            
            44,755
            
            
            
            35,729
            
            
            
            24,044
            
            
            
            28,215Operating
                loss
            
            
            (30,430
            )
            
            
            (28,809
            )
            
            
            (21,110
            )
            
            
            (10,202
            )
            
            
            (15,284
            )Loss
                on investment
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (516
            )Other
                income (expense), net
            
            
            1,415
            
            
            
            598
            
            
            
            263
            
            
            
            (44
            )
            
            
            101Gain
                on sale of equity interest in joint venture
            
            
            12,873
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Decrease
                in value of warrant liabilitites
            
            
            1,039
            
            
            
            1,666
            
            
            
            —
            
            
            
            —
            
            
            
            —Loss
                before income taxes
            
            
            (15,103
            )
            
            
            (26,545
            )
            
            
            (20,847
            )
            
            
            (10,246
            )
            
            
            (15,699
            )Income
                tax benefit
            
            
            —
            
            
            
            (256
            )
            
            
            (307
            )
            
            
            (888
            )
            
            
            —Net
                loss
            
            $
            (15,103
            )
            
            $
            (26,289
            )
            
            $
            (20,540
            )
            
            $
            (9,358
            )
            
            $
            (15,699
            )Basic
                and diluted net loss per share
            
            $
            (0.64
            )
            
            $
            (1.54
            )
            
            $
            (1.40
            )
            
            $
            (0.92
            )
            
            $
            (1.85
            )Weighted-average
                common shares outstanding, basic and diluted
            
            
            23,494
            
            
            
            17,117
            
            
            
            14,654
            
            
            
            10,205
            
            
            
            8,466





68
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            of Contents*




**December
                  31,****Consolidated
                Balance Sheet Data:**
            
            **2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002****(in
                thousands)**Cash,
                cash equivalents and short-term investments
            
            $
            32,507
            
            
            $
            30,337
            
            
            $
            35,825
            
            
            $
            30,215
            
            
            $
            14,725Total
                assets
            
            
            54,353
            
            
            
            44,790
            
            
            
            50,413
            
            
            
            43,695
            
            
            
            19,894Warrant
                liabilities
            
            
            6,464
            
            
            
            1,869
            
            
            
            —
            
            
            
            —
            
            
            
            —Other
                long-term
                liabilities
            
            
            59
            
            
            
            46
            
            
            
            47
            
            
            
            2,454
            
            
            
            2,614Accumulated
                deficit
            
            
            (427,670
            )
            
            
            (412,567
            )
            
            
            (386,278
            )
            
            
            (365,738
            )
            
            
            (356,380
            )Stockholders'
                equity
            
            
            37,662
            
            
            
            37,578
            
            
            
            40,030
            
            
            
            36,040
            
            
            
            10,588


_________


(1)
      Reflects a
      non-cash charge to write off the carrying value of the licensing fees associated
      with NMP22 BLADDERCHEK in 2003 and BRACHYSEED in 2002.





**Item
                7.**
            **Management's
                Discussion and Analysis of Financial Condition and
                Results of Operations**





**Cautionary
      Statement**





This
      Annual Report on Form 10-K contains forward-looking statements within the
      meaning of the Private Securities Litigation Reform Act of 1995 and Section
      21E
      of the Securities Exchange Act of 1934, as amended.  These
      forward-looking statements regarding future events and our future results are
      based on current expectations, estimates, forecasts, and projections and the
      beliefs and assumptions of our management including, without limitation, our
      expectations regarding results of operations, selling, general and
      administrative expenses, research and development expenses and the sufficiency
      of our cash for future operations.  Forward-looking statements may be
      identified by the use of forward-looking terminology such as "may," "will,"
      "expect," "estimate," "anticipate," "continue," or similar terms, variations
      of
      such terms or the negative of those terms.  These forward-looking
      statements include statements regarding growth and market penetration for
      CAPHOSOL, QUADRAMET, PROSTASCINT and SOLTAMOX, increased expenses resulting
      from
      our sales force and marketing expansion, including sales and marketing expenses
      for CAPHOSOL, PROSTASCINT, QUADRAMET and SOLTAMOX, the sufficiency of our
      capital resources and supply of products for sale, the continued cooperation
      of
      our contractual and collaborative partners, our need for additional capital
      and
      other statements included in this Annual Report on Form 10-K that are not
      historical facts.  Such forward-looking statements involve a number of
      risks and uncertainties and investors are cautioned not to put any undue
      reliance on any forward-looking statement.  We cannot guarantee that
      we will actually achieve the plans, intentions or expectations disclosed in
      any
      such forward-looking statements.  Factors that could cause actual
      results to differ materially, include, our ability to launch a new product,
      market acceptance of our products, the results of our clinical trials, our
      ability to hire and retain employees, economic and market conditions generally,
      our receipt of requisite regulatory approvals for our products and product
      candidates, the continued





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            of Contents*





cooperation
      of our marketing and other collaborative and strategic partners, our ability
      to
      protect our intellectual property, and the other risks identified under Item
      1A
      "Risk Factors" in this Annual Report on Form 10-K, and those under the caption
      "Risk Factors," as included in certain of our other filings, from time to time,
      with the Securities and Exchange Commission.





Any
      forward-looking statements made by us do not reflect the potential impact of
      any
      future acquisitions, mergers, dispositions, joint ventures or investments we
      may
      make.  We do not assume, and specifically disclaim, any obligation to
      update any forward-looking statements, and these statements represent our
      current outlook only as of the date given.





The
      following discussion and analysis should be read in conjunction with the
      consolidated financial statements and related notes thereto contained elsewhere
      herein, as well as from time to time in our other filings with the Securities
      and Exchange Commission.





**Overview**





We
      are a
      specialty pharmaceutical company dedicated to advancing the treatment and care
      of cancer patients by building, developing, and commercializing a portfolio
      of
      oncology products for underserved markets where there are unmet
      needs.  Our product portfolio includes four oncology products approved
      by the FDA, CAPHOSOL, QUADRAMET, PROSTASCINT, and SOLTAMOX, which are marketed
      solely by our specialized sales force to the U.S. oncology
      market.  We introduced our fourth product, CAPHOSOL, in the first
      quarter of 2007.  CAPHOSOL is an electrolyte solution for the
      treatment of oral mucositis and dry mouth that was approved as a prescription
      medical device.  QUADRAMET is approved for the treatment of pain in
      patients whose cancer has spread to the bone.  SOLTAMOX, which
      we introduced in the second half of 2006, is the first liquid hormonal
      therapy approved in the U.S. for the treatment of breast cancer in adjuvant
      and
      metastatic settings.  PROSTASCINT is a PSMA-targeting monoclonal
      antibody-based agent to image the extent and spread of prostate
      cancer.  Currently, our clinical development initiatives are focused
      on new indications for QUADRAMET and PROSTASCINT, as well our product candidate,
      CYT-500, a radiolabeled antibody in Phase 1 development for the treatment of
      prostate cancer.





**Significant
      Events in 2006**





*Cytogen
      Announces that FDA Clears IND for CYT-500, a Monoclonal Antibody for the
      Treatment of Metastatic Hormone-Refractory Prostate Cancer*





On
      May 8,
      2006, we announced that the U.S. Food and Drug Administration cleared an
      Investigational New Drug application for CYT-500, our lead therapeutic candidate
      targeting PSMA.  We expect to begin the first U.S. Phase 1 clinical
      trial of CYT-500 in patients with hormone-refractory prostate cancer, subject
      to
      Institutional Review Board (IRB) approval at the planned clinical
      site.  CYT-500 uses the same monoclonal antibody from our PROSTASCINT
      molecular imaging agent, but is linked through a higher affinity linker than
      is
      used for PROSTASCINT to a therapeutic as opposed to an imaging
      radionuclide.  This novel product candidate is designed to enable
      targeted delivery of a cytotoxic agent to PSMA-expressing cells.





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            of Contents*





We
      retain
      full and exclusive development rights to CYT-500.  In February 2007,
      we announced the initiation of the first human clinical study of
      CYT-500.





*Cytogen
      Sells Ownership in PSMA Development Joint Venture to Progenics*





On
      April
      20, 2006, we entered into a Membership Interest Purchase Agreement with
      Progenics providing for the sale to Progenics of our 50% ownership interest
      in
      PDC, our joint venture with Progenics for the development of *in vivo*
      cancer immunotherapies based on PSMA.  In addition, we entered into an
      Amended and Restated PSMA/PSMP License Agreement with Progenics and PDC pursuant
      to which we licensed PDC certain rights in PSMA technology.  Under the
      terms of such agreements, we sold our 50% interest in PDC for a cash payment
      of
      $13.2 million, potential future milestone payments totaling up to $52.0 million
      payable upon regulatory approval and commercialization of PDC products, and
      royalties on future PDC product sales, if any.  We are no longer
      responsible for funding PDC.





*Cytogen
      and Rosemont Execute Marketing Agreement for SOLTAMOX*





On
      April
      21, 2006, we entered into a distribution agreement with Savient granting us
      exclusive marketing rights for SOLTAMOX in the United
      States.  SOLTAMOX, a cytostatic estrogen receptor antagonist, is the
      first oral liquid hormonal therapy approved in the U.S.  It is
      indicated for the treatment of breast cancer in adjuvant and metastatic settings
      and to reduce the risk of breast cancer in women with ductal carcinoma in situ
      (DCIS) or with high risk of breast cancer.  In addition, we entered
      into a supply agreement with Savient and Rosemont, previously a wholly-owned
      subsidiary of Savient, for the manufacture and supply of
      SOLTAMOX.  Cytogen's agreements with Savient were subsequently
      assigned by Savient to Rosemont.  Under the terms of the final
      transaction, we paid Savient an up-front licensing fee of $2.0 million and
      may
      pay additional contingent sales-based payments of up to a total of $4.0 million
      to Rosemont.  We are also required to pay Rosemont royalties on net
      sales of SOLTAMOX.  We introduced SOLTAMOX to the U.S. oncology market
      in the second half of 2006.





*Cytogen
      Enters into Purchase and Supply Agreement with Oncology Therapeutics
      Network*





On
      June
      20, 2006, we entered into a purchase and supply agreement with Oncology
      Therapeutics Network appointing OTN as the exclusive distributor of SOLTAMOX
      in
      the United States.  In August 2006, the agreement was amended to
      revise certain terms, including changing the role of OTN to the exclusive
      warehousing agent and non-exclusive distributor of SOLTAMOX.  Under
      the terms of the amended agreement, OTN will purchase SOLTAMOX from us for
      its
      own wholesaler channels and, along with third party logistics providers,
      distribute SOLTAMOX to our other customers through its warehousing and
      distribution facilities.  In January 2007, the agreement was further
      amended for OTN to also distribute CAPHOSOL.





*Cytogen
      and InPharma Execute License Agreement for CAPHOSOL*





On
      October 11, 2006, we entered into a license agreement with InPharma granting
      us
      exclusive rights for CAPHOSOL in North America.  Approved as a
      prescription medical device, CAPHOSOL is a topical oral agent indicated in
      the
      United States as an adjunct to standard oral





71
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            of Contents*





care
      in
      treating oral mucositis caused by radiation or high dose
      chemotherapy.  CAPHOSOL is also indicated for dryness of the mouth or
      dryness of the throat regardless of the cause or whether the conditions are
      temporary or permanent.  Under the terms of the agreement, we are
      obligated to pay InPharma $6.0 million in aggregate up-front fees, of which
      $4.6
      million was paid upon the execution of the agreement, $400,000 will be paid
      into
      an escrow account, and $1.0 million will be paid after six months.  In
      addition, InPharma is eligible to receive royalties and sales-based milestone
      payments.  In addition, we are obligated to pay a finder's fee based
      on a percentage of milestone payments made to InPharma.  The
      transaction also provides us with options to acquire the rights to CAPHOSOL
      for
      the European and Asian markets that we only intend to exercise in connection
      with obtaining a commercial partner for those areas.  We will be
      required to obtain consents from certain licensors but not InPharma, if we
      sublicense the rights to market CAPHOSOL in Europe and Asia to other
      parties.  In the event we exercise the options to license marketing
      rights for CAPHOSOL for the European and Asia markets, we would be obligated
      to
      pay additional fees, including sales-based milestone payments for the respective
      territories.  We introduced CAPHOSOL in the U.S. in the first
      quarter of 2007.





*Sale
      of Common Stock and Warrants*





On
      November 10, 2006, we sold to certain institutional investors 7,092,203 shares
      of our common stock and 3,546,107 warrants to purchase shares of our common
      stock.  The warrants have an exercise price of $3.32 per share and are
      exercisable beginning six months and ending five years after their
      issuance.  In exchange for $2.82, the purchasers received one share of
      common stock and warrants to purchase .5 shares of common stock.  The
      offering provided net proceeds of approximately $18.4 million to
      us.  The placement agents in this transaction received a fee equal to
      7% of the aggregate gross proceeds.  In connection with this sale, we
      entered into a Registration Rights Agreement with the investors pursuant to
      which the common stock and shares of common stock underlying the warrants were
      registered under the Securities Act of 1933.





**RESULTS
      OF OPERATIONS**





**Year
      Ended December 31, 2006 as Compared to December 31, 2005**




**Revenues**





**Increase/(Decrease)****2006**
            
            
            **2005**
            
            
            **$**
            
            
            **%****(All
                amounts in thousands, except percentage data)**PROSTASCINT
            
            $
            9,125
            
            
            $
            7,407
            
            
            $
            1,718
            
            
            
            23
            %QUADRAMET
            
            
            8,141
            
            
            
            8,350
            
            
            
            (209
            )
            
            
            (3
            %)Other
                product
                revenue
            
            
            30
            
            
            
            --
            
            
            
            30
            
            
            
            n/aLicense
                and
                contract
            
            
            11
            
            
            
            189
            
            
            
            (178
            )
            
            
            (94
            %)$
            17,307
            
            
            $
            15,946
            
            
            $
            1,361
            
            
            
            9
            %





72
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            of Contents*





Total
      revenues for the year ended December 31, 2006 were $17.3 million compared to
      $15.9 million for the same period in 2005.  Product revenues accounted
      for substantially all of total revenues in 2006 and 99% of total revenues in
      2005.  License and contract revenues accounted for the remainder of
      revenues.  If QUADRAMET or PROSTASCINT does not achieve broader market
      acceptance, either because we fail to effectively market such products or our
      competitors introduce competing products, and if we fail to successfully market
      SOLTAMOX and CAPHOSOL, we may not be able to generate sufficient revenue to
      become profitable.





***PROSTASCINT.***  PROSTASCINT
      sales were $9.1 million for the year ended December 31, 2006, compared to $7.4
      million for the same period of 2005.  Sales of PROSTASCINT accounted
      for 53% and 47% of product revenues for 2006 and 2005,
      respectively.  The increase from the prior year period was due to the
      implementation of a 9% price increase for PROSTASCINT on September 1, 2006
      and
      increased demand associated with our focused marketing programs.  We
      believe recent developments in imaging resolution, emerging clinical data,
      and
      an increasing level of recognition of the value of PROSTASCINT fusion imaging
      support an important near- and long-term market opportunity for
      PROSTASCINT.  We are focusing on multiple key areas to position
      PROSTASCINT for future growth and market penetration, including: (i) positioning
      PROSTASCINT fusion imaging as the standard of care for prostate cancer imaging;
      (ii) generating awareness of the prognostic value of the PSMA antigen; (iii)
      leveraging the publication and presentation of outcomes data; (iv) advancing
      image-guided applications including brachytherapy, intensity modulated radiation
      therapy, surgery, and cryotherapy; and (v) evaluating the potential for imaging
      other PSMA-expressing cancers.  We cannot provide any assurance that
      we will be able to successfully market PROSTASCINT, or that PROSTASCINT will
      achieve greater market penetration on a timely basis or result in significant
      revenues for us.





***QUADRAMET.***  We
      recorded QUADRAMET sales of $8.1 million for the year ended December 31, 2006,
      compared to $8.4 million for the same period of 2005.  QUADRAMET sales
      accounted for 47% and 53% of product revenues for 2006 and 2005,
      respectively.  QUADRAMET year-over-year sales were essentially flat
      with the exception of a change in the timing of scheduled maintenance shutdowns
      for one of our raw material suppliers that negatively impacted product
      availability during the fourth quarter of 2006.  Currently, we market
      QUADRAMET only in the United States and have no rights to market QUADRAMET
      in
      Europe.  We are focusing on multiple key initiatives to position
      QUADRAMET for future growth and market penetration, including: (i)
      distinguishing the physical properties of QUADRAMET from first-generation agents
      within its class; (ii) empowering and marketing to key prescribing audiences;
      (iii) broadening palliative use within label beyond prostate cancer to include
      breast, lung and multiple myeloma; (iv) evaluating the role of QUADRAMET in
      combination with other commonly used oncology agents; and (v) expanding clinical
      development to demonstrate the potential tumoricidal versus palliative
      attributes of QUADRAMET.  We cannot provide any assurance that we will
      be able to successfully market QUADRAMET or that QUADRAMET will achieve greater
      market penetration on a timely basis or result in significant revenues for
      us.





***Other
      Product Revenue.***  For the year ended December 31, 2006,
      other product revenue was comprised of $30,000 of SOLTAMOX sales.  We
      introduced SOLTAMOX in the second half of 2006 and began supplying the
      distribution channels to support initial patient
      demand.  In





73
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2006,
      approximately $1.1 million of SOLTAMOX supply was shipped to wholesalers;
      however, in accordance with U.S. Generally Accepted Accounting Principles,
      we
      will only recognize revenues for SOLTAMOX in our consolidated statement of
      operations when we have sufficient information to estimate expected product
      returns or when the product return privilege expires.  We cannot
      provide any assurance that we will be able to successfully market SOLTAMOX
      or
      that SOLTAMOX will achieve greater market penetration on a timely basis or
      result in significant revenues for us.




***License
      and Contract Revenue.***  License and contract revenues
      were $11,000 and $189,000 for the years ended December 31, 2006 and 2005,
      respectively.  The 2005 revenue includes $185,000 of contract revenue
      for limited services provided by us to PDC, our former joint venture with
      Progenics Pharmaceuticals, Inc.  We did not provide any research
      services to the joint venture in 2006.




**Operating
      Expenses**





**Increase/(Decrease)****2006**
            
            
            **2005**
            
            
            **$**
            
            
            **%****(All
                amounts in thousands, except percentage data)**Cost
                of product revenues
            
            $
            10,150
            
            
            $
            9,523
            
            
            $
            627
            
            
            
            7
            %Selling,
                general and administrative
            
            
            30,166
            
            
            
            25,895
            
            
            
            4,271
            
            
            
            16
            %Research
                and development
            
            
            7,301
            
            
            
            6,162
            
            
            
            1,139
            
            
            
            18
            %Equity
                in loss of joint venture
            
            
            120
            
            
            
            3,175
            
            
            
            (3,055
            )
            
            
            (96
            %)$
            47,737
            
            
            $
            44,755
            
            
            $
            2,982
            
            
            
            7
            %





Total
      operating expenses for the year ended December 31, 2006 were $47.7 million
      compared to $44.8 million for the same period of 2005.




***Cost
      of Product Revenues.***Cost of product revenues for the
      year ended December 31, 2006 was $10.2 million compared to $9.5 million for
      the same period of 2005 and primarily reflects manufacturing costs for
      PROSTASCINT and QUADRAMET, royalties on our sales of products and amortization
      of the up-front payments to acquire the marketing rights to QUADRAMET in 2003,
      SOLTAMOX in April 2006 and CAPHOSOL in October 2006.  The increase
      from the prior year period was due primarily to higher product revenue and
      the
      amortization expenses for SOLTAMOX and CAPHOSOL in 2006.




***Selling,
      General and Administrative.***  Selling, general and
      administrative expenses for the year ended December 31, 2006 were $30.2 million
      compared to $25.9 million for the same period of 2005.  The increase
      in selling, general and administrative expenses is primarily attributable to
      $2.1 million of launch costs associated with SOLTAMOX, which we introduced
      in
      the second half of 2006, the pre-launch costs of $752,000 for CAPHOSOL and
      the
      recognition of $1.6 million of share-based compensation in 2006 for options
      and
      nonvested shares granted to employees, partially offset by the $750,000 of
      pre-launch costs in 2005 for Combidex.





***Research
      and Development.***Research and development expenses for
      the year ended December 31, 2006 were $7.3 million compared to $6.2 million
      for
      the same period of 2005.





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The
      increase in 2006 from the prior year period is primarily driven by costs
      associated with the clinical development initiatives for both QUADRAMET and
      PROSTASCINT and the pre-clinical development program for CYT-500.  The
      2006 expenses also include the recognition of $252,000 of share-based
      compensation in 2006 for options and nonvested shares granted to
      employees.  The 2005 expenses included a charge of $500,000 related to
      the issuance of shares of our common stock in August 2005 to the stockholders
      and debtholders of Prostagen Inc. made pursuant to the terms of an addendum
      to
      our Stock Exchange Agreement dated June 15, 1999.





***Equity
      in Loss of Joint Venture.***  Our share of the loss of the
      PSMA Development Company LLC (PDC), our former joint venture with Progenics,
      was
      $120,000 for the year ended December 31, 2006 compared to $3.2 million in the
      same period of 2005.  Such amounts represented 50% of the joint
      venture's net losses.  We equally shared ownership and costs of the
      joint venture with Progenics and accounted for the joint venture using the
      equity method of accounting until April 20, 2006 when we sold our ownership
      interest in PDC to Progenics.  Following the sale of our interest in
      the joint venture in April 2006, we have no further obligations to the joint
      venture.





***Interest
      Income/Expense.***  Interest income for the year ended
      December 31, 2006 was $1.5 million compared to $712,000 for the same period
      of
      2005.  The increase from the prior year period was due to higher
      average yield on a higher average cash balances in 2006.  Interest
      expense for the year ended December 31, 2006 was $36,000 compared to $114,000
      for the same period of 2005.  Interest expense includes finance
      charges on insurance premiums which were financed and purchases of various
      equipment that are accounted for as capital leases.  Interest expense
      in 2005 also includes interest on outstanding debt which was paid off in August
      2005.





***Gain
      on Sale of Equity Interest in Joint Venture.***  On April
      20, 2006, we entered into a Membership Interest Purchase Agreement with
      Progenics providing for the sale to Progenics of our 50% ownership interest
      in
      PDC, our joint venture with Progenics for the development of *in vivo*
      cancer immunotherapies based on PSMA.  In addition, we entered into an
      Amended and Restated PSMA/PSMP License Agreement with Progenics and PDC pursuant
      to which we licensed PDC certain rights in PSMA technology.  Under the
      terms of such agreements, we sold our 50% interest in PDC for a cash payment
      of
      $13.2 million, potential future milestone payments totaling up to $52.0 million
      payable upon regulatory approval and commercialization of PDC products, and
      royalties on future PDC product sales, if any.  As a result of the
      transaction, for the year ended December 31, 2006, we recorded $12.9 million
      in
      gain on sale of equity interest in the joint venture, which represents the
      net
      proceeds after transaction costs less the carrying value of our investment
      in
      the joint venture at the time of sale.





***Decrease
      in Warrant Liabilities.***  In connection with the sale of
      our common stock and warrants in 2005 and 2006, we recorded the warrants as
      a
      liability at their fair value at the dates of issuance using the Black-Scholes
      option-pricing model and will remeasure them at each reporting date until they
      are exercised or expire.  Changes in the fair value of the warrants
      are reported in the statements of operations as non-operating income or
      expense.  For the year ended December 31, 2006, we reported a gain of
      $1.0 million related to the decrease in fair value of these warrants since
      their
      issuance dates or December 31, 2005, whichever is later, compared to a $1.7
      million gain recorded in the same period of 2005 related to the decrease in
      fair
      value of





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these
      warrants since their issuance dates.  The market price for our common
      stock has been and may continue to be volatile.  Consequently, future
      fluctuations in the price of our common stock may cause significant increases
      or
      decreases in the fair value of these warrants.





***Income
      Tax Benefit****.*  During 2005, we sold a portion of
      our New Jersey state net operating loss carryforwards, which resulted in the
      recognition of $256,000 in income tax benefits.  We did not sell any
      New Jersey state net operating loss carryforwards in 2006.





***Net
      Loss.***  Net loss for the year ended December 31, 2006 was
      $15.1 million compared to $26.3 million for the same period of
      2005.  The basic and diluted net loss per share for 2006 was
      $0.64****based on 23.5 million weighted-average common shares
      outstanding, compared to a basic and diluted net loss per share of $1.54 based
      on 17.1 million weighted-average common shares outstanding for the same period
      in 2005.





**RESULTS
      OF OPERATIONS**





**Year
      Ended December 31, 2005 as Compared to December 31, 2004**





**Revenues**





**Increase/(Decrease)****2005**
            
            
            **2004**
            
            
            **$**
            
            
            **%****(All
                amounts in thousands, except percentage data)**PROSTASCINT
            
            $
            7,407
            
            
            $
            7,186
            
            
            $
            221
            
            
            
            3
            %QUADRAMET
            
            
            8,350
            
            
            
            7,293
            
            
            
            1,057
            
            
            
            14
            %NMP22
                BLADDERCHEK (ceased December 2004)
            
            
            --
            
            
            
            1
            
            
            
            (1
            )
            
            
            (100
            %)License
                and
                contract
            
            
            189
            
            
            
            139
            
            
            
            50
            
            
            
            36
            %$
            15,946
            
            
            $
            14,619
            
            
            $
            1,327
            
            
            
            9
            %





Total
      revenues for the year ended December 31, 2005 were $15.9 million compared to
      $14.6 million for the same period in 2004.  Product revenues accounted
      for 99% of total revenues in each of 2005 and 2004.  License and
      contract revenues accounted for the remainder of revenues.  If
      QUADRAMET or PROSTASCINT does not achieve broader market acceptance, either
      because we fail to effectively market such products or our competitors introduce
      competing products, we may not be able to generate sufficient revenue to become
      profitable.





***PROSTASCINT.***  PROSTASCINT
      sales were $7.4 million for the year ended December 31, 2005, an increase of
      $221,000 from $7.2 million for the same period of 2004.  Sales of
      PROSTASCINT accounted for 47% and 50% of product revenues for 2005 and 2004,
      respectively.  PROSTASCINT has historically been a challenging product
      for physicians and technologists to use, in part due to inherent limitations in
      nuclear medicine imaging.  We believe that future growth and market
      penetration of PROSTASCINT is dependent upon, among other things: (i) improving
      image quality through fusion technology; (ii) validating the antigen targeted
      by
      PROSTASCINT as an independent prognostic factor; (iii) the publication and
      presentation of





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outcomes
      data; (iv) development of image-guided applications including brachytherapy,
      intensity modulated radiation therapy, surgery, and cryotherapy; and (v)
      expanding clinical development to demonstrate the potential for PROSTASCINT
      to
      monitor response to cytotoxic therapies and image other cancers.  We
      cannot provide any assurance that we will be able to successfully market
      PROSTASCINT, or that PROSTASCINT will achieve greater market penetration on
      a
      timely basis or result in significant revenues for us.





***QUADRAMET.***  We
      recorded QUADRAMET sales of $8.4 million for the year ended December 31, 2005,
      an increase of $1.1 million from $7.3 million for the same period of
      2004.  QUADRAMET sales accounted for 53% and 50% of product revenues
      for 2005 and 2004, respectively.  We believe that such increase in
      QUADRAMET sales was due to increased demand associated with our focused
      marketing programs.  We have the right to market QUADRAMET in North
      America and Latin America.  Currently, we market QUADRAMET only in the
      United States.  We believe that the future growth and market
      penetration of QUADRAMET is dependent upon, among other things: (i)
      distinguishing the physical properties of QUADRAMET from first-generation agents
      within its class; (ii) empowering and marketing to key prescribing audiences;
      (iii) broadening palliative use within label beyond prostate cancer to include
      breast, lung and multiple myeloma; (iv) evaluating the role of QUADRAMET in
      combination with other commonly used oncology agents; and (v) expanding clinical
      development to demonstrate the potential tumoricidal versus palliative
      attributes of QUADRAMET.  We cannot provide any assurance that we will
      be able to successfully market QUADRAMET or that QUADRAMET will achieve greater
      market penetration on a timely basis or result in significant revenues for
      us.





***NMP22
      BLADDERCHEK.***  There were no NMP22 BLADDERCHEK sales
      during 2005 compared to $1,000 in 2004.  Effective December 31, 2004,
      we stopped selling NMP22 BLADDERCHEK.





***License
      and Contract Revenues.***  License and contract revenues
      were $189,000 and $139,000 for the years ended December 31, 2005 and 2004,
      respectively.  We recognized $185,000 of contract revenues in 2005,
      compared to $106,000 in 2004, for limited services provided by us to the PSMA
      Development Company LLC, our joint venture with Progenics Pharmaceuticals,
      Inc.





**Operating
      Expenses**





**Increase/(Decrease)****2005**
            
            
            **2004**
            
            
            **$**
            
            
            **%****(All
                amounts in thousands, except percentage data)**Cost
                of product
                revenues
            
            $
            9,523
            
            
            $
            9,223
            
            
            $
            300
            
            
            
            3
            %Selling,
                general and administrative
            
            
            25,895
            
            
            
            20,318
            
            
            
            5,577
            
            
            
            27
            %Research
                and development
            
            
            6,162
            
            
            
            3,292
            
            
            
            2,870
            
            
            
            87
            %Equity
                in loss of joint venture
            
            
            3,175
            
            
            
            2,896
            
            
            
            279
            
            
            
            (10
            %)$
            44,755
            
            
            $
            35,729
            
            
            $
            9,026
            
            
            
            25
            %





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Total
      operating expenses for the year ended December 31, 2005 were $44.8 million
      compared to $35.7 million for the same period of 2004.





***Cost
      of Product Revenues.***Cost of product revenues for the
      year ended December 31, 2005 was $9.5 million compared to $9.2 million for
      the same period of 2004 and primarily reflects manufacturing costs for
      PROSTASCINT and QUADRAMET, royalties on our sales of products and amortization
      of the up-front payment to Berlex Laboratories to reacquire the marketing rights
      to QUADRAMET in 2003.  The increase from the prior year was due
      primarily to contractual increases in 2005 related to our agreement with BMSMI,
      and higher royalties to Berlex on our sales of QUADRAMET as a result of
      increased product sales.





***Selling,
      General and Administrative.***  Selling, general and
      administrative expenses for the year ended December 31, 2005 were $25.9 million
      compared to $20.3 million for the same period of 2004.  The increase
      from the prior year was due primarily to the expansion of our sales force and
      the implementation of other marketing initiatives for our planned and existing
      products.  The selling, general and administrative expenses in 2004
      also include increased legal and professional fees as well as a payment related
      to the settlement, in September 2004, of a patent infringement suit filed by
      Immunomedics, Inc. against us and C.R. Bard Inc. in February 2000.  As
      of March 1, 2006, we employed 50 people in sales and marketing.





***Research
      and Development.***Research and development expenses for
      the year ended December 31, 2005 were $6.2 million compared to $3.3 million
      for
      the same period of 2004.  The increase from the prior year period is
      primarily driven by new clinical development initiatives for both QUADRAMET
      and
      PROSTASCINT, and the pre-clinical development costs associated with our
      radiolabeled therapeutic program to attach the therapeutic radionuclide
      lutetium-177 as a payload to the 7E11 monoclonal antibody utilized in
      PROSTASCINT.  The increase is partially offset by savings from the
      closure of our AxCell BioSciences facility in the fourth quarter of
      2004.  The 2005 and 2004 expenses also included a charge of $500,000
      and $497,000, respectively, related to the issuance of shares of our common
      stock in August 2005 and November 2004, respectively, to the stockholders and
      debtholders of Prostagen Inc. made pursuant to the terms of an addendum to
      our
      Stock Exchange Agreement dated June 15, 1999, related to the progress of certain
      PSMA development programs.





In
      2005
      and 2004, we incurred $50,000 and $621,000, respectively, in expenses relating
      to AxCell's operations.  In September 2002, we significantly reduced
      AxCell's workforce to reduce the cash expenditures relating to AxCell in order
      to leverage our oncology franchise.  Further, in July 2004, as part of
      our continuing efforts to reduce non-strategic expenses, we initiated the
      closure of AxCell's facilities.  Research projects through academic,
      governmental and corporate collaborators to be supported and additional
      applications for the intellectual property and technology at AxCell are being
      pursued.





***Equity
      in Loss of Joint Venture.***  Our share of the loss of the
      PSMA Development Company LLC, our joint venture with Progenics Pharmaceuticals,
      Inc., was $3.2 million in 2005 compared to $2.9 million for the same period
      of
      2004, and represented 50% of the joint venture's operating
      losses.  The increase over the prior year period reflects our share of
      the $2.0 million up-front fee incurred by the joint venture in the second
      quarter of 2005 to license proprietary





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antibody-drug
      conjugate technology from Seattle Genetics, Inc. for use with the joint
      venture's antibodies targeting PSMA.  We equally shared ownership and
      costs of the joint venture with Progenics and accounted for the joint venture
      using the equity method of accounting.





***Interest
      Income/Expense.***  Interest income for the year ended
      December 31, 2005 was $712,000 compared to $448,000 for the same period of
      2004.  The increase from the prior year period was due to higher
      average yields partially offset by lower average cash balances in
      2005.  Interest expense for the year ended December 31, 2005 was
      $114,000 compared to $185,000 for the same period of 2004.  Interest
      expense includes interest on outstanding debt which was paid off in August
      2005
      and finance charges on insurance premiums which were financed and purchases
      of
      various equipment that are accounted for as capital leases.





***Decrease
      in Value of Warrant Liability.***  In connection with the
      sale of our common stock and warrants that provided us with net proceeds of
      approximately $13.9 million in July and August 2005, we recorded the warrants
      as
      a liability at their fair value at the dates of issuance using the Black-Scholes
      option-pricing model and will remeasure them at each reporting date until they
      are exercised or expire.  Changes in the fair value of the warrants
      are reported in the statements of operations as non-operating income or
      expense.  For the year ended December 31, 2005, we reported a gain of
      $1.7 million related to the decrease in fair value of these warrants from
      issuance dates.  The market price for our common stock has been and
      may continue to be volatile.  Consequently, future fluctuations in the
      price of our common stock may cause significant increases or decreases in the
      fair value of these warrants.





***Income
      Tax Benefit****.*  During 2005, we sold a portion of
      our New Jersey state net operating loss carryforwards, which resulted in the
      recognition of $256,000 in income tax benefits.  In 2004, we
      recognized $307,000 in such income tax benefits.





***Net
      Loss.***  Net loss for the year ended December 31, 2005 was
      $26.3 million compared to $20.5 million for the same period of
      2004.  The basic and diluted net loss per share for 2005 was
      $1.54****based on 17.1 million weighted-average common shares
      outstanding, compared to a basic and diluted net loss per share of $1.40 based
      on 14.7 million weighted-average common shares outstanding for the same period
      in 2004.





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**COMMITMENTS**





We
      have
      entered into various contractual and commercial commitments.  The
      following table summarizes our obligations with respect to these commitments
      as
      of December 31, 2006:





**Contractual
                  Obligation**
            
            **Less
                  than**
                **1
                  year**
            
            
            **1
                  to 3**
                **years**
            
            
            **4
                  to 5**
                **years**
            
            
            **More**
                **than
                  5**
                **years**
            
            
            **Total****(All
                amounts in thousands)**Capital
                lease obligations
            
            $
            64
            
            
            $
            59
            
            
            $
            —
            
            
            $
            —
            
            
            $
            123Facility
                leases
            
            
            338
            
            
            
            620
            
            
            
            —
            
            
            
            —
            
            
            
            958Research
                and development
            
            
            131
            
            
            
            150
            
            
            
            150
            
            
            
            481
            
            
            
            912Marketing
                and other obligations
            
            
            2,490
            
            
            
            33
            
            
            
            —
            
            
            
            —
            
            
            
            2,523Manufacturing
                contracts(1)
            
            
            5,378
            
            
            
            4,859
            
            
            
            —
            
            
            
            —
            
            
            
            10,237Minimum
                royalty payments(2)
            
            
            1,000
            
            
            
            2,000
            
            
            
            2,000
            
            
            
            1,833
            
            
            
            6,833Total
            
            $
            9,401
            
            
            $
            7,721
            
            
            $
            2,150
            
            
            $
            2,314
            
            
            $
            21,586





_________


(1)
      Effective January
      1, 2004, we entered into a new manufacturing and supply agreement with BMSMI
      for
      QUADRAMET whereby BMSMI manufactures, distributes and provides order processing
      and customer services for us relating to QUADRAMET.  Under the terms
      of our agreement, we are obligated to pay at least $4.9 million annually,
      subject to future annual price adjustment, through 2008, unless terminated
      by
      BMSMI or us on a two year prior written notice.  This agreement will
      automatically renew for five successive one-year periods unless terminated
      by
      BMSMI or us on a two-year prior written notice.  Accordingly, we have
      not included commitments beyond December 31, 2008.





(2)
      We acquired an
      exclusive license from Dow for QUADRAMET for the treatment of osteoblastic
      bone
      metastases in certain territories.  The agreement requires us to pay
      Dow royalties based on a percentage of net sales of QUADRAMET, or a guaranteed
      contractual minimum payment, whichever is greater, and future payments upon
      achievement of certain milestones.  Future annual minimum royalties
      due to Dow are $1.0 million per year in 2007 through 2012 and $833,000 in
      2013.





In
      addition to the above, we are obligated to make certain royalty payments based
      on sales of the related product and certain milestone payments if our
      collaborative partners achieve specific development milestones or commercial
      milestones.  We are also obligated to pay a finder's fee based upon a
      percentage of milestone payments made to InPharma in connection with the
      licensing of CAPHOSOL.  We did not include in the table above any
      payments that do





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not
      represent fixed or minimum payments but are instead payable only upon the
      achievement of a milestone, if the achievement of that milestone is uncertain
      or
      the obligation amount is not determinable.





**LIQUIDITY
      AND CAPITAL RESOURCES**





**Condensed
      Statement of Cash Flows:**





**2006****(All
                amounts in thousands)**Net
                loss
            
            $
            (15,103
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities
            
            
            (7,750
            )Net
                cash used in operating activities
            
            
            (22,853
            )Net
                cash provided by investing activities
            
            
            6,116Net
                cash provided by financing activities
            
            
            18,907Net
                increase in cash and cash equivalents
            
            $
            2,170





Our
      cash
      and cash equivalents were $32.5 million as of December 31, 2006, compared to
      $30.3 million as of December 31, 2005.  The increase in cash and cash
      equivalents from the December 31, 2005 balance was primarily due to the sale
      of
      our 50% interest in PDC for a cash payment of $13.2 million in April 2006 and
      the termination of our funding obligations related to the joint venture, and
      the
      November 2006 sale of common stock and warrants which provided net proceeds
      of
      $18.4 million, partially offset by net cash paid for the acquisition of the
      product rights to SOLTAMOX and CAPHOSOL and increased operating expenditures
      in
      2006, including costs to launch SOLTAMOX and to promote and support our oncology
      products, new clinical development initiatives for both QUADRAMET and
      PROSTASCINT and pre-clinical development programs associated with the 7E11
      antibody.  During 2006 and 2005, net cash used for operating
      activities was $22.9****million and $29.5 million,
      respectively.  The decrease is primarily due to the increase in and
      timing of payments for accounts payable and accrued liabilities.





Historically,
      our primary sources of cash have been proceeds from the issuance and sale of
      our
      stock through public offerings and private placements, product revenues,
      revenues from contract research services, fees paid under license agreements,
      sale of assets, and interest earned on cash and short-term
      investments.





Our
      long-term financial objectives are to meet our capital and operating
      requirements through revenues from existing products and licensing
      arrangements.  To achieve these objectives, we may enter into research
      and development partnerships and acquire, in-license and develop other
      technologies, products or services.  Certain of these strategies may
      require





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payments
      by us in either cash or stock in addition to the costs associated with
      developing and marketing a product or technology.  However, we believe
      that, if successful, such strategies may increase long-term
      revenues.  We cannot assure you of the success of such strategies or
      that resulting funds will be sufficient to meet cash requirements until product
      revenues are sufficient to cover operating expenses, if ever.  To fund
      these strategic and operating activities, we may sell equity, debt or other
      securities as market conditions permit or enter into credit
      facilities.





We
      have
      incurred negative cash flows from operations since our inception, and have
      expended, and expect to continue to expend in the future, substantial funds
      to
      implement our planned product development efforts, including acquisition of
      products and complementary technologies, research and development, clinical
      studies and regulatory activities, and to further our marketing and sales
      programs.  We expect that our existing capital resources at December
      31, 2006, along with the receipt of the $4.0 million settlement from Advanced
      Magnetics, Inc. in the first quarter of 2007 should be adequate to fund our
      operations and commitments at least into 2008.  We cannot assure you
      that our business or operations will not change in a manner that would consume
      available resources more rapidly than anticipated.  We expect that we
      will have additional requirements for debt or equity capital, irrespective
      of
      whether and when we reach profitability, for further product development costs,
      product and technology acquisition costs, and working capital.




Our
      future capital requirements and the adequacy of available funds will depend
      on
      numerous factors, including: (i) the successful commercialization of our
      products; (ii) the costs associated with the acquisition of complementary
      products and technologies; (iii) progress in our product development efforts
      and
      the magnitude and scope of such efforts; (iv) progress with clinical trials;
      (v)
      progress with regulatory affairs activities; (vi) the cost of filing,
      prosecuting, defending and enforcing patent claims and other intellectual
      property rights; (vii) competing technological and market developments; and
      (viii) the expansion of strategic alliances for the sales, marketing,
      manufacturing and distribution of our products.  To the extent that
      the currently available funds and revenues are insufficient to meet current
      or
      planned operating requirements, we will be required to obtain additional funds
      through equity or debt financing, strategic alliances with corporate partners
      and others, or through other sources.  We cannot assure you that the
      financial sources described above will be available when needed or at terms
      commercially acceptable to us.  If adequate funds are not available,
      we may be required to delay, further scale back or eliminate certain aspects
      of
      our operations or attempt to obtain funds through arrangements with
      collaborative partners or others that may require us to relinquish rights to
      certain of our technologies, product candidates, products or potential
      markets.  If adequate funds are not available, our business, financial
      condition and results of operations will be materially and adversely
      affected.





**Other
      Liquidity Events**





On
      April
      20, 2006, we entered into a Membership Interest Purchase Agreement with
      Progenics providing for the sale to Progenics of our 50% ownership interest
      in
      PDC.  In addition, we entered into an Amended and Restated PSMA/PSMP
      License Agreement with Progenics and PDC pursuant to which we licensed PDC
      certain rights in PSMA technology.  Under the terms of such
      agreements, we sold our 50% interest in PDC for a cash payment of $13.2 million,
      potential future milestone payments totaling up to $52.0 million payable upon
      regulatory approval and





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commercialization
      of PDC products, and royalties on future PDC product sales, if
      any.  Following the sale of our interest in the joint venture in April
      2006, we have no further obligations to the joint venture.





On
      April
      21, 2006, we entered into a distribution agreement with Savient granting us
      exclusive marketing rights for SOLTAMOX in the United
      States.  SOLTAMOX, a cytostatic estrogen receptor antagonist, is the
      first oral liquid hormonal therapy approved in the U.S.  It is
      indicated for the treatment of breast cancer in adjuvant and metastatic settings
      and to reduce the risk of breast cancer in women with ductal carcinoma in situ
      (DCIS) or with high risk of breast cancer.  In addition, we entered
      into a supply agreement with Savient and Rosemont for the manufacture and supply
      of SOLTAMOX.  Our agreements with Savient were subsequently assigned
      to Rosemont by Savient.  Under the terms of the final transaction, we
      paid Savient an up-front licensing fee of $2.0 million and may pay additional
      contingent sales-based payments of up to a total of $4.0 million to
      Rosemont.  We introduced SOLTAMOX to the U.S. oncology market in the
      second half of 2006.  We are also required to pay Rosemont royalties
      on net sales of SOLTAMOX.  Beginning in 2007, we are obligated to pay
      Rosemont quarterly minimum royalties based on an agreed upon percentage of
      total
      tamoxifen prescriptions in the United States.  Unless terminated
      earlier, each of the distribution and supply agreements will terminate upon
      the
      expiration of the last to expire patent covering SOLTAMOX in the United States,
      which is currently June 2018.  In the event the tamoxifen
      prescriptions for an agreed upon period of time are less than the
      pre-established minimum, the agreement may be terminated if we are unable to
      reach an agreement with Rosemont to amend the terms of the contract to account
      for such impact.





On
      October 11, 2006, we entered into a license agreement with InPharma granting
      us
      exclusive rights for CAPHOSOL in North America and options to license the
      marketing rights for CAPHOSOL in Europe and Asia.  Approved as a
      prescription medical device, CAPHOSOL is a topical oral agent indicated in
      the
      United States as an adjunct to standard oral care in treating oral mucositis
      caused by radiation or high dose chemotherapy.  CAPHOSOL is also
      indicated for dryness of the mouth or dryness of the throat regardless of the
      cause or whether the conditions are temporary or permanent.  Under the
      terms of the Agreement, we are obligated to pay InPharma $6.0 million in
      aggregate up-front fees, of which $4.6 million was paid upon the execution
      of
      the agreement, $400,000 will be paid into an escrow account and $1.0 million
      will be paid after six months.  In addition, we are obligated to pay
      InPharma royalties based on a percentage of net sales and future payments of
      up
      to an aggregate of $49.0 million based upon the achievement of certain
      sales-based milestones of which payments totaling $35 million are based upon
      annual sales levels first reaching levels in excess of $30
      million.  In addition, we are obligated to pay a finder's fee based
      upon a percentage of milestone payments made to InPharma.





In
      the
      event we exercise the options to license marketing rights for CAPHOSOL in Europe
      and Asia, we are obligated to pay InPharma additional fees and payments,
      including sales-based milestone payments for the respective
      territories.  We also shall pay InPharma a portion of any up-front
      license fees and milestone payments, but not royalties, received by us in
      consideration of the grant by us to other parties of the right to market
      CAPHOSOL in Europe and Asia, to the extent such up-front license fees and
      milestone payments are in excess of the respective amounts paid by us to
      InPharma for such rights.





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On
      November 10, 2006, we sold to certain institutional investors 7,092,203 shares
      of our common stock and 3,546,107 warrants to purchase shares of our common
      stock.  The warrants have an exercise price of $3.32 per share and are
      exercisable beginning six months and ending five years after their
      issuance.  The warrant agreement contains a cash settlement feature,
      which is available to the warrant holders at their option, upon an acquisition
      in certain circumstances.  In exchange for $2.82, the purchasers
      received one share of common stock and warrants to purchase .5 shares of common
      stock.  The offering provided us with net proceeds of approximately
      $18.4 million.  The placement agents received compensation consisting
      of a fee equal to 7% of the aggregate gross proceeds.  In connection
      with this sale, we entered into a Registration Rights Agreement with the
      investors under which, we were obligated to file a registration statement with
      the SEC for the resale of Cytogen shares sold to the investors and shares
      issuable upon exercise of the warrants within a specified time
      period.  We are also required to use commercially reasonable efforts
      to cause the registration to be declared effective by the SEC and to remain
      continuously effective until such time when all of the registered shares are
      sold or three years from closing date, whichever is earlier.  In the
      event we fail to keep the registration statement effective, we are obligated
      to
      pay the investors liquidation damages equal to 1% of the purchase price paid
      by
      the investors ($20 million) for each thirty-day period that the registration
      statement is not effective, up to 10%.  On December 28, 2006, the SEC
      declared the registration statement effective.  We concluded that the
      contingent obligation was not probable, and therefore no contingent liability
      was recorded as of December 31, 2006.





In
      September 2006, we entered into a non-exclusive manufacturing agreement with
      Laureate pursuant to which Laureate shall manufacture PROSTASCINT and its
      primary raw materials for Cytogen in Laureate's Princeton, New Jersey
      facility.  The agreement will terminate, unless terminated earlier
      pursuant to its terms, upon Laureate's completion of the specified production
      campaign for PROSTASCINT and shipment of the resulting products from Laureate's
      facility.  Under the terms of the agreement, we anticipate paying at
      least an aggregate of $3.9 million through the end of the term of contract,
      of
      which $500,000 was incurred and paid in 2006.





Effective
      January 1, 2004, we entered into a manufacturing and supply agreement with
      BMSMI
      whereby BMSMI manufactures, distributes and provides order processing and
      customer services for us relating to QUADRAMET.  Under the terms of
      the new agreement, we are obligated to pay at least $4.9 million annually,
      subject to future annual price adjustment, through 2008, unless terminated
      by
      BMSMI or us on two years prior written notice.  During the year ended
      December 31, 2006, we incurred $4.5 million of manufacturing costs for
      QUADRAMET.  This agreement will automatically renew for five
      successive one-year periods unless terminated by BMSMI or us on a two year
      prior
      written notice.  We also pay BMSMI a variable amount per month for
      each QUADRAMET order placed to cover the costs of customer service.





We
      acquired an exclusive license from Dow for QUADRAMET for the treatment of
      osteoblastic bone metastases in certain territories.  The agreement
      requires us to pay Dow royalties based on a percentage of net sales of
      QUADRAMET, or a guaranteed contractual minimum payment, whichever is greater,
      and future payments upon achievement of certain milestones.  For the
      year ended December 31, 2006, we incurred $1.0 million in royalty
      expense.





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Future
      annual minimum royalties due to Dow are $1.0 million per year in 2007 through
      2012 and $833,000 in 2013.





On
      May 6,
      2005, we entered into a license agreement with Dow to create a targeted oncology
      product designed to treat prostate and other cancers.  The agreement
      applies proprietary MeO-DOTA bifunctional chelant technology from Dow to
      radiolabel our PSMA antibody with a therapeutic radionuclide.  Under
      the agreement, proprietary chelation technology and other capabilities, provided
      through ChelaMedSM
      radiopharmaceutical services from Dow, will be used to attach a therapeutic
      radioisotope to the 7E11 monoclonal antibody utilized in our PROSTASCINT
      molecular imaging agent.  As a result of the agreement, we are
      obligated to pay a minimal license fee and aggregate future milestone payments
      of $1.9 million for each licensed product, if approved, and royalties based
      on
      sales of related products, if any.  Unless terminated earlier, the Dow
      agreement terminates at the later of (a) the tenth anniversary of the date
      of
      first commercial sale for each licensed product or (b) the expiration of the
      last to expire valid claim that would be infringed by the sale of the licensed
      product.  We may terminate the license agreement with Dow on 90 days
      written notice.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





Financial
      Reporting Release No. 60 requires all companies to include a discussion of
      critical accounting policies or methods used in the preparation of financial
      statements.  Note 1 to our Consolidated Financial Statements in our
      Annual Report on Form 10-K for the year ended December 31, 2006 includes a
      summary of our significant accounting policies and methods used in the
      preparation of our Consolidated Financial Statements.  The following
      is a brief discussion of the more significant accounting policies and methods
      used by us.  The preparation of our Consolidated Financial Statements
      requires us to make estimates and assumptions that affect the reported amounts
      of assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period.  Our actual results could differ
      materially from those estimates.





**Revenue
      Recognition**





We
      generate revenue from product sales and license and contract
      revenues.  We recognize revenue in accordance with the SEC's Staff
      Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
      as
      amended by Staff Accounting Bulletin No. 104 (together, "SAB 101"), and FASB
      Statement No. 48 "Revenue Recognition When Right of Return Exists" ("SFAS
      48").  SAB 101 states that revenue should not be recognized until it
      is realized or realizable and earned.  Revenue is realized or
      realizable and earned when all of the following criteria are met:
      (1) persuasive evidence of an arrangement exists; (2) delivery has
      occurred or services have been rendered; (3) the seller's price to the
      buyer is fixed or determinable; and (4) collectibility is reasonably
      assured.  SFAS 48 states that revenue from sales transactions where
      the buyer has the right to return the product shall be recognized at the time
      of
      sale only if (1) the seller's price to the buyer is substantially fixed or
      determinable at the date of sale, (2) the buyer has paid the seller, or the
      buyer is obligated to pay the seller and the obligation is not contingent on
      resale of the product, (3) the buyer's obligation to the seller would not
      be changed in the event of theft or physical destruction or damage of the
      product, (4) the





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buyer
      acquiring the product for resale has economic substance apart from that provided
      by the seller, (5) the seller does not have significant obligations for
      future performance to directly bring about resale of the product by the buyer,
      and (6) the amount of future returns can be reasonably
      estimated.





**Product
      Sales**





We
      recognize revenues for product sales at the time title and risk of loss are
      transferred to the customer, and the other criteria of SAB 101 and SFAS 48
      are
      satisfied, which is generally at the time products are shipped to
      customers.  At the time gross revenue is recognized from product
      sales, an adjustment, or decrease, to revenue for estimated rebates, discounts
      and returns is also recorded.  This revenue reserve is determined on a
      product-by-product basis.  The rebate or discount reserve is recorded
      in accordance with Emerging Issues Task Force (EITF) Issue No. 01-9,
      "*Accounting for Consideration Given by a Vendor to a Customer"*("EITF
      01-9"), which states that cash consideration given by a vendor to a customer
      is
      presumed to be a reduction of the selling prices of the vendor's products or
      services and, therefore, should be characterized as a reduction of revenue
      when
      recognized in the vendor's income statement.  At the time product is
      shipped, an adjustment is recorded for estimated rebates and discounts based
      on
      the contractual terms with customers.  Revenue reserves including
      return allowances are established by management as its best estimate at the
      time
      of sale based on each product's historical experience adjusted to reflect known
      changes in the factors that impact such reserves.





In
      the
      case of new product like SOLTAMOX which we introduced in the second half of
      2006, product shipments made to wholesalers do not meet the revenue recognition
      criteria of SFAS 48 and SAB 101.  Since we cannot reliably estimate
      expected returns for this new product, we will defer recognition of revenue
      until the right of return no longer exists or until we develop sufficient
      historical experience to estimate sales returns.  In 2006,
      approximately $1.1 million of SOLTAMOX was shipped to
      wholesalers.  For these product shipments, we invoice the wholesalers,
      record the payment received as "Customer Liability", and classify the inventory
      shipped to wholesalers as "Inventory at Wholesalers" at the Company's cost
      of
      goods for such inventory.  We recognize revenue for SOLTAMOX when such
      product is sold through to the end-users, on a first-in first-out (FIFO)
      basis.  Additionally, royalty amount due based on unit shipments to
      wholesalers is deferred and recognized as royalty expense as those units are
      sold through and recognized as revenue.  We have the right to offset
      royalties paid for product that are later returned against subsequent royalty
      obligations.  Costs related to shipments of SOLTAMOX, for which we do
      not have the ability to recover if and when products are returned, are expensed
      as incurred.





When
      available, we may use the following information to estimate the prescription
      based sales for SOLTAMOX and to estimate gross to net sales adjustments: (1)
      the
      estimated prescription based sales, (2) our analysis of third-party information,
      including information obtained from certain wholesalers with respect to their
      inventory levels and sell-through to customers and third-party market research
      data, and (3) our internal product sales information.  Our estimates
      will be subject to the inherent limitations of estimates that rely on
      third-party data, as certain third-party information is itself in the form
      of
      estimates, and has other limitations.  Our





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sales
      and
      revenue recognition for SOLTAMOX will reflect our estimates of actual product
      sold through to the end user.





Provisions
      for Estimated Reductions to Gross Sales





At
      the
      time product sales are made, we reduce gross sales through accruals for product
      returns, rebates and volume discounts.  We account for these
      reductions in accordance with EITF 01-9 and SFAS 48, as applicable.





Returns





Quadramet
      is a radioactive product that is indicated for the relief of pain due to
      metastatic bone disease arising from various types of cancer.  Due to
      its rapid rate of radioactive decay, QUADRAMET has a shelf life of only about
      72
      hours.  For this reason, QUADRAMET is ordered for a specific patient
      on a pre-scheduled visit, and, as such, our customers are unable to maintain
      stock inventories of this product.  In addition, because the product
      is ordered for pre-scheduled visits for specific patients, product returns
      are
      very low.  Our methodology to estimate sales returns is based on
      historical experience that demonstrates that the vast majority of the returns
      occur within one month of when product was shipped.  At the time of
      sale, we estimate the quantity and value of QUADRAMET that may ultimately be
      returned.  We generally have the exact number of returns related to
      prior month sales in the current month, so the provision for returns is trued
      up
      to actual quickly.





We
      do not
      allow product returns for PROSTASCINT.





Returns
      from new product, like SOLTAMOX, are more difficult to assess.  Since
      we have no historical return experience with SOLTAMOX, we cannot reliably
      estimate expected returns of this new product.  Therefore, we will
      defer recognition of revenue until the right of return no longer exists or
      until
      we have developed sufficient historical experience to estimate sales
      returns.  We may use information from external sources to estimate our
      return provisions.





Volume
      Discounts





We
      provide volume discounts to certain customers****based on
      sales levels of given products during each calendar month.  We
      recognize revenue net of these volume discounts at the end of each
      month.  There are no volume discounts based on cumulative sales over
      more than a one month period.  Accordingly, there is no current need
      to estimate volume discounts.





Rebates





From
      time
      to time, we may offer rebates to our customers.  We establish a rebate
      accrual based on the specific terms in each agreement, in an amount equal to
      our
      reasonable estimate of the expected rebate claims attributable to the sales
      in
      the current period and adjust the accrual each reporting period to reflect
      the
      actual experience.  If the amount of future rebates cannot be
      reasonably estimated, a liability will be recognized for the maximum potential
      amount of the rebates.





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License
      and contract revenues include milestone payments and fees under collaborative
      agreements with third parties, revenues from research services, and revenues
      from other miscellaneous sources.  We defer non-refundable up-front
      license fees and recognize them over the estimated performance period of the
      related agreement, when we have continuing involvement.  Since the
      term of the performance periods is subject to management's estimates, future
      revenues to be recognized could be affected by changes in such
      estimates.





**Accounts
      Receivable**





Our
      accounts receivable balances are net of an estimated allowance for uncollectible
      accounts.  We continuously monitor collections and payments from our
      customers and maintain an allowance for uncollectible accounts based upon our
      historical experience and any specific customer collection issues that we have
      identified.  While we believe our reserve estimate to be appropriate,
      we may find it necessary to adjust our allowance for uncollectible accounts
      if
      the future bad debt expense exceeds our estimated reserve.  We are
      subject to concentration risks as a limited number of our customers provide
      a
      high percent of total revenues, and corresponding receivables.





**Inventories**





Inventories
      are stated at the lower of cost or market, as determined using the first-in,
      first-out method, which most closely reflects the physical flow of our
      inventories.  Our products and raw materials are subject to expiration
      dating.  We regularly review quantities on hand to determine the need
      to write down inventory for excess and obsolete inventories based primarily
      on
      our estimated forecast of product sales.  Our estimate of future
      product demand may prove to be inaccurate, in which case we may have understated
      or overstated our reserve for excess and obsolete inventories.





**Carrying
      Value of Fixed and Intangible Assets**





Our
      fixed
      assets and certain of our acquired rights to market our products have been
      recorded at cost and are being amortized on a straight-line basis over the
      estimated useful life of those assets.  We also acquired an option to
      purchase marketing rights to CAPHOSOL in Europe which was recorded as other
      assets and will transfer the costs to the appropriate asset account if
      exercised. If indicators of impairment exist, we assess the recoverability
      of
      the affected long-lived assets by determining whether the carrying value of
      such
      assets can be recovered through undiscounted future operating cash
      flows.  Regarding the option to purchase marketing rights to CAPHOSOL
      in Europe, we also assess our intent and ability to exercise the option, the
      option expiry date and market and product competitiveness.  If impairment
      is indicated, we measure the amount of such impairment by comparing the carrying
      value of the assets to the present value of the expected future cash flows
      associated with the use of the asset.  Adverse changes regarding
      future cash flows to be received from long-lived assets could indicate that
      an
      impairment exists, and would require the write down of the carrying value of
      the
      impaired asset at that time.


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  **Warrant
        Liabilities**





We
      follow
      Emerging Issues Task Force (EITF) No. 00-19, "Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
      Stock" which provides guidance for distinguishing between permanent equity,
      temporary equity and assets and liabilities.  Under EITF 00-19, to
      qualify as permanent equity, the equity derivative must permit us
      to
      settle in unregistered shares.  We do not have that ability under the
      securities purchase agreement for the warrants issued in July and August 2005
      and, as EITF 00-19 considers the ability to keep a registration statement
      effective as beyond our control, the warrants cannot be classified as permanent
      equity and are instead classified as a liability in the accompanying
      consolidated balance sheets.  Our warrants issued in November 2006
      which permit net cash settlement at the option of the warrant holders also
      require classification as a liability in accordance with EITF
      00-19.





We
      record
      the warrant liability at its fair value using the Black-Scholes option-pricing
      model and remeasure it at each reporting date until the warrants are exercised
      or expire.  Changes in the fair value of the warrants are reported in
      the consolidated statements of operations as non-operating income or
      expense.  The fair value of the warrants is subject to significant
      fluctuation based on changes in our stock price, expected volatility, expected
      life, the risk-free interest rate and dividend yield.  The market
      price for our common stock has been and may continue to be
      volatile.  Consequently, future fluctuations in the price of our
      common stock may cause significant increases or decreases in the fair value
      of
      the warrants issued.





We
      follow
      EITF No. 00-19-2 "Accounting for Registration Payment Arrangement" which
      specifies that registration payment arrangements should play no part in
      determining the initial classification and subsequent accounting for the
      securities they related to.  The Staff position requires the
      contingent obligation in a registration payment arrangement to be separately
      analyzed under FASB Statement No. 5, "Accounting for Contingencies" and FASB
      Interpretation No. 14, "Reasonable Estimation of the Amount of a
      Loss".  Consequently, if payment in a registration payment arrangement
      in connection with the warrants issued in November 2006 is probable and can
      be
      reasonably estimated, a liability will be recorded.





**Share-Based
      Compensation**





We
      account for share-based compensation in accordance with SFAS No. 123(R),
      "Share-Based Payment."  Under the fair value recognition provision of
      this statement, the share-based compensation, which is generally based on the
      fair value of the awards calculated using the Black-Scholes option pricing
      model
      on the date of grant, is recognized on a straight-line basis over the requisite
      service period, generally the vesting period, for grants on or after January
      1,
      2006.  For nonvested shares, we use the fair value of the underlying
      common stock on the date of grant.  Determining the fair value of
      share-based awards at the grant date requires judgment, including estimating
      expected dividend yield, expected forfeiture rates, expected volatility, the
      expected term and expected risk-free interest rates.  If we were to
      use different estimates or a different valuation model, our share-based
      compensation expense and our results of operations could be materially
      impacted.


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**New
      Accounting Pronouncements**





Accounting
      for Registration Payment Arrangements





On
      December 21, 2006, the FASB issued FASB Staff Position No. EITF 00-19-2,
      "Accounting for Registration Payment Arrangements" ("EITF 00-19-2"), which
      addresses an issuer's
      accounting for registration payment arrangements.  EITF 00-19-2
      specifies that the contingent obligation to make future payments or otherwise
      transfer consideration under a registration payment arrangement, whether issued
      as a separate agreement or included as a provision of a financial instrument
      or
      other agreement, should be separately recognized and measured in accordance
      with
      FASB Statement No. 5, Accounting for Contingencies.  EITF 00-19-2
      further clarifies that a financial instrument subject to a registration payment
      arrangement should be accounted for in accordance with other applicable
      accounting literature without regard to the contingent obligation to transfer
      consideration pursuant to the registration arrangement.  EITF 00-19-2
      is effective immediately for new and modified registration payment
      arrangements.  Early adoption of EITF 00-19-2 for the interim or
      annual period for which the financials statements have not been issued is
      permitted.  We adopted EITF 00-19-2 at the beginning of the
      fourth quarter 2006.  The adoption of EITF 00-19-2 did not have
      any impact on our consolidated financial statements in the year ended December
      31, 2006.





Evaluation
      of Misstatements





On
      September 13, 2006, the staff of the SEC issued Staff Accounting Bulletin No.
      108, "Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements" ("SAB 108"), which provides
      interpretive guidance on how the effects of prior year misstatements should
      be
      considered in evaluating a current year misstatement.  The cumulative
      effect from the initial adoption of SAB 108 may be reported as a cumulative
      effect adjustment to the beginning of year retained earnings with disclosure
      of
      the nature and amount of each individual error.  We applied the
      provisions of SAB 108 in the fourth quarter of 2006.  The adoption of
      SAB 108 did not have a material impact on our consolidated financial
      statements.





Fair
      Value Measurements





On
      September 15, 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
      ("SFAS 157").  SFAS 157 defines fair value, establishes a framework
      for measuring fair value and expands disclosures about fair value
      measurements.  SFAS 157 is effective as of the beginning of the first
      fiscal year beginning after November 15, 2007.  We are required to
      adopt this statement in the first quarter of 2008.  Management is
      currently evaluating the requirements of SFAS 157 and has not yet determined
      the
      impact this standard will have on its consolidated financial
      statements.





Income
      Taxes





In
      June
      2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
      in
      Income Taxes" ("FIN 48").  FIN 48 is applicable for fiscal years
      beginning after December 15,




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 2006.  This
        Interpretation clarifies the accounting for uncertainty in income taxes
        recognized in an enterprise's financial statements in accordance with FASB
        Statement No. 109, "Accounting for Income Taxes." This Interpretation prescribes
        a recognition threshold and measurement attribute for the financial statement
        recognition and measurement of a tax position taken or expected to be taken
        in a
        tax return.  This Interpretation also provides guidance on
        de-recognition, classification, interest and penalties, accounting in interim
        periods, disclosure, and transition.  We are currently evaluating the
        impact of the adoption of FIN 48 upon our financial statements and related
        disclosures.  We do not expect that the adoption will have a material
        effect on our results of operations or financial condition.





Sales
      Tax





In
      March
      2006, the FASB's Emerging Issues Task Force released Issue 06-3, "How Sales
      Taxes Collected From Customers and Remitted to Governmental Authorities Should
      Be Presented in the Income Statement" ("EITF 06-3").  A consensus was
      reached that entities may adopt a policy of presenting sales taxes in the income
      statement on either a gross or net basis.  If taxes are significant,
      an entity should disclose its policy of presenting taxes and the amount of
      taxes
      if reflected on a gross basis in the income statement.  The guidance
      is effective for periods beginning after December 15, 2006.  We
      present sales net of sales taxes in our consolidated statements of operations
      and do not anticipate changing our policy as a result of EITF 06-3.





Abnormal
      Inventory Costs





In
      November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
      of
      ARB No. 43, Chapter 4" ("SFAS No. 151"), to clarify that abnormal amounts of
      idle facility expense, freight, handling costs, and wasted material (spoilage)
      should be recognized as current period charges, and that fixed production
      overheads should be allocated to inventory based on the normal capacity of
      production facilities  This statement is effective for inventory costs
      incurred during fiscal years beginning after June 15,
      2005.  Accordingly, we adopted SFAS No. 151 in our fiscal year
      beginning January 1, 2006.  The adoption of this standard did not have
      any impact on our consolidated statement of operations in the year ended
      December 31, 2006.





**Item
                7A.**
            **Quantitativeand
                Qualitative Disclosures About Market
                Risk**





We
      do not
      have operations subject to risks of foreign currency fluctuations, nor do we
      use
      derivative financial instruments in our operations.  Our exposure to
      market risk is principally confined to interest rate sensitivity.  Our
      cash equivalents and short-term investments are conservative in nature, with
      a
      focus on preservation of capital.  Due to the short-term nature of our
      investments and our investment policies and procedures, we have determined
      that
      the risks associated with interest rate fluctuations related to these financial
      instruments are not material to our business.





We
      are
      exposed to certain risks arising from changes in the price of our common stock,
      primarily due to the potential effect of changes in fair value of the warrant
      liability related to the warrants issued in 2005 and 2006.  The
      warrant liability is measured at fair value using the Black-Scholes
      option-pricing model at each reporting date and is subject to significant
      increases


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or
      decreases in value and a corresponding loss or gain in the statement of
      operations due to the effects of changes in the price of common stock at period
      end and the related calculation of volatility.




**Item
                8.**
            **Financial
                Statements and Supplementary
                Data**





The
      financial statements required to be disclosed under this Item are submitted
      as a
      separate section of this Annual Report on Form 10-K.





**Item
                9.**
            **Changes
                in and Disagreements with Accountants on Accounting and
                Financial Disclosure**





Not
      applicable.





**Item
                9A.**
            **Controls
                and
                Procedures**





(a)
            Disclosure
                Controls and Procedures





Our
      management, with the participation of our chief executive officer and chief
      financial officer, evaluated the effectiveness of our disclosure controls and
      procedures as of December 31, 2006.  The term "disclosure controls and
      procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
      Exchange Act of 1934, means controls and other procedures of a company that
      are
      designed to ensure that information required to be disclosed by the Company
      in
      the reports that it files or submits under the Securities Exchange Act of 1934
      is recorded, processed, summarized and reported, within the time periods
      specified in the SEC's rules and forms.  Disclosure controls and
      procedures include, without limitation, controls and procedures designed to
      ensure that information required to be disclosed by a company in the reports
      that it files or submits under the Securities Exchange Act of 1934 is
      accumulated and communicated to the company's management, including its
      principal executive and principal financial officers, as appropriate to allow
      timely decisions regarding required disclosure.  Management recognized
      that any controls and procedures, no matter how well designed and operated,
      can
      provide only reasonable assurance of achieving their objectives and management
      necessarily applied its judgment in evaluating the cost-benefit relationship
      of
      possible controls and procedures.  Based on this evaluation, our chief
      executive officer and chief financial officer concluded that, as of December
      31,
      2006, our disclosure controls and procedures were effective.





(b)
            Internal
                Controls Over Financial Reporting





(1)         Management's
      Annual Report on Internal Control Over Financial Reporting Our management is responsible
      for
      establishing and maintaining adequate internal control over financial reporting,
      as such term is defined in Rule 13a-15(f) of the Exchange Act.  Under
      the supervision and with the participation of our management, including our
      Chief Executive Officer and Chief Financial Officer, we conducted an evaluation
      of the effectiveness of our internal control over financial reporting based
      upon
      the framework in Internal Control – Integrated Framework issued by the Committee
      of Sponsoring Organizations of the Treadway


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Commission.  Based
      on that
      evaluation, our management concluded that our internal control over financial
      reporting was effective as of December 31, 2006.





(2) Attestation
      Report of the Independent Registered Public Accounting Firm




KPMG
      LLP,
      the Company's independent registered public accounting firm has issued its
      report on our assessment
      and effectiveness of the Company's internal control over financial
      reporting.  This report appears on page 94 of this Annual Report on
      Form 10-K.





(3)
            Changes
                in Internal Control Over Financial
                Reporting





No
      change
      in our internal control over financial reporting (as defined in Rules 13a-15(f)
      under the Exchange Act) occurred during the fiscal quarter ended as of December
      31, 2006 that has materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.





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**Report
      of Independent Registered Public Accounting Firm**





The
      Board
      of Directors and Stockholders


Cytogen
      Corporation:





We
      have
      audited management's assessment, included in the accompanying Management's
      Annual Report on Internal Control over Financial Reporting, that Cytogen
      Corporation maintained effective internal control over financial reporting
      as of
      December 31, 2006, based on criteria established in Internal Control—Integrated
      Framework issued by the Committee of Sponsoring Organizations of the Treadway
      Commission (COSO).  Cytogen Corporation's management is responsible
      for maintaining effective internal control over financial reporting and for
      its
      assessment of the effectiveness of internal control over financial
      reporting.  Our responsibility is to express an opinion on
      management's assessment and an opinion on the effectiveness of the Company's
      internal control over financial reporting based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      effective internal control over financial reporting was maintained in all
      material respects.  Our audit included obtaining an understanding of
      internal control over financial reporting, evaluating management's assessment,
      testing and evaluating the design and operating effectiveness of internal
      control, and performing such other procedures as we considered necessary in
      the
      circumstances.  We believe that our audit provides a reasonable basis
      for our opinion.





A
      company's internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles.  A company's internal
      control over financial reporting includes those policies and procedures that
      (1)
      pertain to the maintenance of records that, in reasonable detail, accurately
      and
      fairly reflect the transactions and dispositions of the assets of the company;
      (2) provide reasonable assurance that transactions are recorded as necessary
      to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company's
      assets that could have a material effect on the financial
      statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements.  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.





In
      our
      opinion, management's assessment that Cytogen Corporation maintained effective
      internal control over financial reporting as of December 31, 2006, is fairly
      stated, in all material respects, based on criteria established in Internal
      Control—Integrated Framework issued by the Committee of Sponsoring Organizations
      of the Treadway Commission (COSO).  Also, in our





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opinion,
      Cytogen Corporation maintained, in all material respects, effective internal
      control over financial reporting as of December 31, 2006, based on the criteria
      established in Internal Control—Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission (COSO).





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of Cytogen
      Corporation and subsidiaries as of December 31, 2006 and 2005, and the related
      consolidated statements of operations, stockholders' equity and comprehensive
      loss, and cash flows for each of the years in the three-year period ended
      December 31, 2006, and our report dated March 15, 2007 expressed an unqualified
      opinion on those consolidated financial statements.





/s/
                KPMG LLP





Princeton,
      New Jersey


March
      15,
      2007





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**Item
                9B.**
            **Other
                Information**





Not
      applicable.








**PART
      III**





**Item
                10.**
            **Directors,
                Executive Officers and Corporate
                Governance**





The
      information relating to our directors, nominees for election as directors and
      executive officers under the headings "Election of Directors", "Executive
      Officers and Key Employees" and "Section 16(a) Beneficial Ownership Reporting
      Compliance" in our definitive proxy statement for the 2007 Annual Meeting of
      Stockholders is incorporated herein by reference to such proxy
      statement.





We
      have
      adopted a written code of business conduct and ethics that applies to our
      directors, officers and employees, including our principal executive officer,
      principal financial officer, principal accounting officer or controller, or
      persons performing similar functions.  We have made our code of
      business conduct and ethics available free of charge through our website which
      is located at www.cytogen.com, which is not part of this Annual Report on Form
      10-K.  We intend to disclose any amendments to, or waivers from, our
      code of business conduct and ethics that are required to be publicly disclosed
      pursuant to rules of the Securities and Exchange Commission and Nasdaq by filing
      such amendment or waiver with the Securities and Exchange Commission and by
      posting it on our website.





**Item
                11.**
            **Executive
                Compensation**





The
      discussion under the heading "Executive Compensation" in our definitive proxy
      statement for the 2007 Annual Meeting of Stockholders is incorporated herein
      by
      reference to such proxy statement.





**Item
                12.**
            **Security
                Ownership of Certain Beneficial Owners and Management and
                Related Stockholder
                Matters**





The
      discussion under the heading "Security Ownership of Certain Beneficial Owners
      and Management and Related Stockholder Matters" in our definitive proxy
      statement for the 2007 Annual Meeting of Stockholders is incorporated herein
      by
      reference to such proxy statement.





**Item
                13.**
            **Certain
                Relationships and Related Transactions, and Director
                Independence**





The
      discussion under the heading "Certain Relationships and Related Transactions
      and
      Director Independence" in our definitive proxy statement for the 2007 Annual
      Meeting of Stockholders is incorporated herein by reference to such proxy
      statement.





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**Item
                14.**
            **Principal
                Accountant Fees and
                Services**





The
      discussion under the heading "Independent Auditors' Fees and Services" in our
      definitive proxy statement for the 2007 Annual Meeting of Stockholders is
      incorporated herein by reference to such proxy statement.






**PART
      IV**





**Item
                15.**
            **Exhibits
                and Financial Statement
                Schedules.**





(a)
      Documents filed as a part of the Report:





(1)
      and
      (2) The response to this portion of Item 15 is submitted as a separate section
      of this Annual Report on Form 10-K, beginning on page F-1.





(3)
      Exhibits –





**Exhibit
                  No.**3.1.1
            
            Restated
                Certificate of Incorporation of Cytogen Corporation, as
                amended.  Filed as an exhibit to the Company's Quarterly Report
                on Form 10-Q for the quarter ended June 30, 1996, filed with the
                Commission on August 2, 1996, and incorporated herein by
                reference.3.1.2
            
            Certificate
                of Amendment to the Restated Certificate of Incorporation of Cytogen
                Corporation, as amended.  Filed as an exhibit to the Company's
                Quarterly Report on Form 10-Q for the quarter ended June 30, 2000,
                filed
                with the Commission on August 11, 2000, and incorporated herein by
                reference.3.1.3
            
            Certificate
                of Amendment to the Restated Certificate of Incorporation, as amended,
                as
                filed with the Secretary of State of the State of Delaware on October
                25,
                2002.  Filed as an exhibit to the Company's Current Report on
                Form 8-K, dated October 25, 2002, filed with the Commission on October
                25,
                2002, and incorporated herein by reference.3.1.4
            
            Certificate
                of Designations of Series C Junior Participating Preferred Stock
                of
                Cytogen Corporation.  Filed as an exhibit to the Company's
                Registration Statement on Form S-8 (Reg. No. 333-59718), filed with
                the
                Commission on April 27, 2001, and incorporated herein by
                reference.3.1.5
            
            Certificate
                of Amendment to the Restated Certificate of Incorporation dated June
                15,
                2005.  Filed as an exhibit to the Company's Quarterly Report on
                Form 10-Q for the quarter ended June 30, 2005, filed with the Commission
                on August 9, 2005, and incorporated herein by
                reference.





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**Exhibit
                  No.**3.2
            
            By-Laws
                of Cytogen Corporation, as amended and restated.  Filed as an
                exhibit to the Company's Current Report on Form 8-K, filed with the
                Commission on October 19, 2006, and incorporated herein by
                reference.4.1.1
            
            Amended
                and Restated Rights Agreement, dated as of October 19, 1998 between
                Cytogen Corporation and Chase Mellon Shareholder Services, L.L.C.,
                as
                rights agent.  The Amended and Restated Rights Agreement
                includes the Form of Certificate of Designations of Series C Junior
                Participating Preferred Stock as Exhibit A, the form of Right Certificate
                as Exhibit B and the Summary of Rights as Exhibit C.  Filed as
                an exhibit to the Company's Quarterly Report on Form 10-Q for the
                quarter
                ended September 30, 1998, filed with the Commission on November 13,
                1998,
                and incorporated herein by reference.4.1.2
            
            Agreement
                for Substitution and Amendment of Rights Agreement by and between
                Cytogen
                Corporation and American Stock Transfer & Trust Company dated
                September 1, 2004.  Filed as an exhibit to the Company's Current
                Report on Form 8-K, dated September 1, 2004, filed with the Commission
                on
                September 2, 2004, and incorporated herein by
                reference.10.1.1
            
            Lease
                Agreement, dated as of March 16, 1987, by and between Peregrine Investment
                Partners I, as lessor, and Cytogen Corporation, as
                lessee.  Filed as an exhibit to the Company's Annual Report on
                Form 10-K for the year ended January 2, 1988, filed with the Commission
                on
                April 1, 1988, and incorporated herein by reference.10.1.2
            
            Amendment,
                dated as of October 16, 1987, to Lease Agreement between Peregrine
                Investment Partners I and Cytogen Corporation.  Filed as an
                exhibit to the Company's Registration Statement on Form S-8 (Reg.
                No.
                33-30595), filed with the Commission on August 18, 1989, and incorporated
                herein by reference.10.2
            
            1989
                Employee Stock Option Plan.  Filed as an exhibit to Company's
                Registration Statement on Form S-8 (Reg. No. 33-30595), filed with
                the
                Commission on August 18, 1989, and incorporated herein by reference.
                +10.3.1
            
            1988
                Stock Option Plan for Non-Employee Directors.  Filed as an
                exhibit to the Company's Registration Statement on Form S-8 (Reg.
                No.
                33-30595), filed with the Commission on August 18, 1989, and incorporated
                herein by reference. +10.3.2
            
            Amendment
                No. 2 to the Cytogen Corporation 1988 Stock Option Plan for Non-Employee
                Directors dated May 22, 1996.  Filed as an exhibit to the
                Company's Quarterly Report on Form 10-Q for the quarter ended June
                30,
                1996, filed with the Commission on August 2, 1996, and incorporated
                herein
                by reference. +





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**Exhibit
                  No.**10.4
            
            1989
                Stock Option Policy for Outside Consultants.  Filed as an
                exhibit to Amendment No. 1 to the Company's Registration Statement
                on Form
                S-1 (Reg. No. 33-31280), and incorporated herein by reference.
                +10.5.1
            
            License
                Agreement dated March 31, 1993 between Cytogen Corporation and The
                Dow
                Chemical Company.  Filed as an exhibit to Amendment No. 1 to the
                Company's Quarterly Report on Form 10-Q for the quarter ended July
                3,
                1993, filed with the Commission on October 13, 1993, and incorporated
                herein by reference.*10.5.2
            
            Amendment
                of the License Agreement between Cytogen Corporation and The Dow
                Chemical
                Company dated September 5, 1995.  Filed as an exhibit to the
                Company's Quarterly Report on Form 10-Q for the quarter ended March
                31,
                1996, filed with the Commission on May 9, 1996, and incorporated
                herein by
                reference.*10.5.3
            
            Second
                Amendment to the License Agreement between Cytogen Corporation and
                The Dow
                Chemical Company dated May 20, 1996.  Filed as an exhibit to
                Amendment No. 1 to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended June 30, 1996, filed with the Commission on August
                2, 1996,
                and incorporated herein by reference.*10.6
            
            1992
                Cytogen Corporation Employee Stock Option Plan II, as
                amended.  Filed as an exhibit to the Company's Registration
                Statement on Form S-4 (Reg. No. 33-88612), filed with the Commission
                on
                January 19, 1995, and incorporated herein by reference.
                +10.7
            
            License
                Agreement, dated March 10, 1993, between Cytogen Corporation and
                The
                University of North Carolina at Chapel Hill, as amended.  Filed
                as an exhibit to the Company's Annual Report on Form 10-K for the
                year
                ended December 31, 1994, filed with the Commission on March 17, 1995,
                and
                incorporated herein by reference.*10.8
            
            Option
                and License Agreement, dated July 1, 1993, between Cytogen Corporation
                and
                Sloan-Kettering Institute for Cancer Research.  Filed as an
                exhibit to the Company's Annual Report on Form 10-K for the year
                ended
                December 31, 1994, filed with the Commission on March 17, 1995, and
                incorporated herein by reference.*10.9
            
            Horosziewicz-Cytogen
                Agreement, dated April 20, 1989, between Cytogen Corporation and
                Julius S.
                Horosziewicz, M.D., DMSe.  Filed as an exhibit to the Company' s
                Annual Report on Form 10-K for the year ended December 31, 1995,
                filed
                with the Commission on March 28, 1996, and incorporated herein by
                reference.*





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**Exhibit
                No.**10.10
            
            Severance
                Agreement effective as of March 26, 1996 between Cytogen Corporation
                and
                John D. Rodwell, Ph.D.  Filed as an exhibit to the Company's
                Annual Report on Form 10-K for the year ended December 31, 1996,
                filed
                with the Commission on March 24, 1997, and incorporated herein by
                reference. +10.11
            
            License
                Agreement between Targon Corporation and Elan Corporation, plc dated
                July
                21, 1997.  Filed as an exhibit to the Company's Quarterly Report
                on Form 10-Q for the quarter ended June 30, 1997, filed with the
                Commission on August 6, 1997, and incorporated herein by
                reference.*10.12
            
            Convertible
                Promissory Note dated as of August 12, 1998 between Cytogen Corporation
                and Elan International Services, Ltd.  Filed as an exhibit to
                the Company's Quarterly Report on Form 10-Q for the quarter ended
                June 30,
                1998, filed with the Commission on August 14, 1998, and incorporated
                herein by reference.10.13
            
            Employment
                agreement effective as of August 20, 1998 between Cytogen Corporation
                and
                H. Joseph Reiser.  Filed as an exhibit to the Company's
                Quarterly Report on Form 10-Q for the quarter ended September 30,
                1998,
                filed with the Commission on November 13, 1998, and incorporated
                herein by
                reference. +10.14
            
            License
                Agreement by and between Berlex Laboratories, Inc. and Cytogen Corporation
                dated as of October 28, 1998.  Filed as an exhibit to the
                Company's Quarterly Report on Form 10-Q for the quarter ended September
                30, 1998, filed with the Commission on November 13, 1998, and incorporated
                herein by reference.10.15
            
            Manufacturing
                Space Agreement between Bard BioPharma L.P. and Cytogen Corporation
                dated
                as of January 7, 1999.  Filed as an exhibit to Amendment No. 1
                to the Company's Registration Statement on form S-1 (Reg. No. 333-67947),
                filed with the Commission on January 27, 1999, and incorporated herein
                by
                reference.10.16.1
            
            Limited
                Liability Company Agreement of PSMA Development Company LLC by and
                among
                Cytogen Corporation, Progenics Pharmaceuticals, Inc. and the PSMA
                Development Company LLC dated June 15, 1999.  Filed as an
                exhibit to the Company's Registration Statement on Form S-3 (Reg.
                No.
                333-83215), filed with the Commission on July 20, 1999, and incorporated
                herein by reference.





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**Exhibit
                No.**10.16.2
            
            Amendment
                No. 1 to Limited Liability Company Agreement of PSMA Development
                Company
                LLC by and among Cytogen Corporation, Progenics Pharmaceuticals,
                Inc. and
                PSMA Development Company LLC dated as of March 22, 2002.  Filed
                as an exhibit to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended March 31, 2002, filed with the Commission on May 14,
                2002,
                and incorporated herein by reference.10.17.1
            
            Stock
                Exchange Agreement among Cytogen Corporation and the Stockholders
                and
                Debtholders of Prostagen, Inc.  Filed as an exhibit to the
                Company's Registration Statement on Form S-3 (Reg. No. 333-83215)
                dated
                July 19, 1999, as amended, filed with the Commission on July 20,
                1999, and
                incorporated herein by reference.10.17.2
            
            Addendum
                to Stock Exchange Agreement among Cytogen Corporation and the Shareholders
                and Debtholders of Prostagen, Inc. dated as of May 14, 2002, and
                amended
                as of August 13, 2002.  Filed as an exhibit to the Company's
                Quarterly Report on Form 10-Q for the quarter ended June 30, 2002,
                filed
                with the Commission on August 14, 2002, and incorporated herein by
                reference.10.17.3
            
            Addendum
                No. 2 to Stock Exchange Agreement among Cytogen Corporation and the
                Stockholders and Debtholders of Prostagen, Inc.  Filed as an
                exhibit to the Company's Current Report on Form 8-K dated November
                19,
                2004, filed with the Commission on November 22, 2004, and incorporated
                herein by reference.10.18
            
            Strategic
                Alliance Agreement between AxCell Biosciences Corporation and InforMax,
                Inc. dated as of September 15, 1999.  Filed as an exhibit to the
                Company's Annual Report on Form 10-K for the year ended December
                31, 1999,
                filed with the Commission on March 28, 2000, and incorporated herein
                by
                reference.*10.19
            
            AxCell
                Biosciences Corporation Stock Option Plan.  Filed as an exhibit
                to the Company's Annual Report on Form 10-K for the year ended December
                31, 1999, filed with the Commission on March 28, 2000, and incorporated
                herein by reference. +10.20
            
            Master
                Loan and Security Agreement No. S7600 among Cytogen Corporation,
                AxCell
                Biosciences Corporation and Finova Capital Corporation dated December
                30,
                1999.  Filed as an exhibit to the Company's Annual Report on
                Form 10-K for the year ended December 31, 1999, filed with the Commission
                on March 28, 2000, and incorporated herein by
                reference.





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**Exhibit
                  No.**10.21
            
            Written
                Compensatory Agreement by and between Cytogen Corporation and H.
                Joseph
                Reiser dated August 24, 1998, as revised on July 11,
                2000.  Filed as an exhibit to the Company's Registration
                Statement on Form S-8 (Reg. No. 333-48454), filed with the Commission
                on
                October 23, 2000, and incorporated herein by reference.
                +10.22
            
            Written
                Compensatory Agreement by and between Cytogen Corporation and Lawrence
                Hoffman dated July 10, 2000.  Filed as an exhibit to the
                Company's Registration Statement on Form S-8 (Reg. No. 333-48454),
                filed
                with the Commission on October 23, 2000, and incorporated herein
                by
                reference. +10.23
            
            License
                and Marketing Agreement by and between Cytogen Corporation and Advanced
                Magnetics, Inc. dated August 25, 2000.  Filed as an exhibit to
                the Company's Quarterly Report on Form 10-Q for the quarter ended
                September 30, 2000, filed with the Commission on November 14, 2000,
                and
                incorporated herein by reference.*10.24
            
            Development
                and Manufacturing Agreement by and between Cytogen Corporation and
                DSM
                Biologics Company B.V. dated July 12, 2000.  Filed as an exhibit
                to the Company's Quarterly Report on Form 10-Q for the quarter ended
                September 30, 2000, filed with the Commission on November 14, 2000,
                and
                incorporated herein by reference.*10.25
            
            Product
                Manufacturing and Supply Agreement by and between Cytogen Corporation
                and
                Draximage Inc. dated December 5, 2000.  Filed as an exhibit to
                the Company's Annual Report on Form 10-K for the year ended December
                31,
                2000, filed with the Commission on March 30, 2001, and incorporated
                herein
                by reference. *10.26
            
            License
                and Distribution Agreement by and between Cytogen Corporation and
                Draximage Inc. dated December 5, 2000.  Filed as an exhibit to
                the Company's Annual Report on Form 10-K for the year ended December
                31,
                2000, filed with the Commission on March 30, 2001, and incorporated
                herein
                by reference. *10.27
            
            Cytogen
                Corporation Stock Payment Program Bonus Plan.  Filed as an
                exhibit to the Company's Registration Statement on Form S-8 (Reg.
                No.
                333-58384), filed with the Commission on April 6, 2001, and incorporated
                herein by reference. +10.28
            
            MFS
                Fund Distributors, Inc. 401(K) Profit Sharing Plan and
                Trust.  Filed as an exhibit to the Company's Registration
                Statement on Form S-8 (Reg. No. 333-59718), filed with the Commission
                on
                April 27, 2001, and incorporated herein by reference.
                +





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**Exhibit
                  No.**10.29
            
            Adoption
                Agreement for MFS Fund Distributors, Inc. Non-Standardized 401(K)
                Profit
                Sharing Plan and Trust, with amendments.  Filed as an exhibit to
                the Company's Registration Statement on Form S-8 (Reg. No. 333-59718),
                filed with the Commission on April 27, 2001, and incorporated herein
                by
                reference.10.30
            
            Cytogen
                Corporation Performance Bonus Plan with Stock Payment
                Program.  Filed as an exhibit to Company's Registration
                Statement on Form S-8 (Reg. No. 333-75304), filed with the Commission
                on
                December 17, 2001, and incorporated herein by reference.
                +10.31
            
            Share
                Purchase Agreement by and between Cytogen Corporation and the State
                of
                Wisconsin Investment Board dated as of January 18, 2002.  Filed
                as an exhibit to the Company's Current Report on Form 8-K, dated
                January
                18, 2002, filed with the Commission on January 24, 2002, and incorporated
                herein by reference.10.32
            
            Form
                of Executive Change of Control Severance Agreement by and between
                Cytogen
                Corporation and each of its Executive Officers.  Filed as an
                exhibit to the Company's Annual Report on Form 10-K for the year
                ended
                December 31, 2001, filed with the Commission on March 28, 2002, and
                incorporated herein by reference. +10.33.1
            
            Office
                Space Lease by and between Yardley Associates, L.P. and AxCell Biosciences
                Corporation dated as of July 23, 1999.  Filed as an exhibit to
                the Company's Annual Report on Form 10-K for the year ended December
                31,
                2001, filed with the Commission on March 28, 2002, and incorporated
                herein
                by reference.10.33.2
            
            First
                Amendment to the Lease Agreement by and between 826 Newtown Associates,
                L.P. and AxCell Biosciences Corporation dated as of March 16,
                2001.  Filed as an exhibit to the Company's Quarterly Report on
                Form 10-Q for the quarter ended March 31, 2001, filed with the Commission
                on May 14, 2001, and incorporated herein by reference.10.34.1
            
            Sublease
                Agreement by and between Cytogen Corporation and Hale and Dorr LLP
                dated
                as of May 23, 2002.  Filed as an exhibit to the Company's
                Quarterly Report on Form 10-Q for the quarter ended June 30, 2002,
                filed
                with the Commission on August 14, 2002, and incorporated herein by
                reference.10.34.2
            
            First
                Amendment to Sublease Agreement by and between Cytogen Corporation
                and
                Hale and Dorr LLP dated February 10, 2004.  Filed as an exhibit
                to the Company's Quarterly Report on Form 10-Q for the quarter ended
                March
                31, 2004, filed with the Commission on May 7, 2004, and incorporated
                herein by reference.





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**Exhibit
                  No.**10.35
            
            Cytogen
                Corporation Amended and Restated 1995 Stock Option Plan.  Filed
                as an exhibit to the Company's Annual Report on Form 10-K for the
                year
                ended December 31, 2002, filed with the Commission on March 31, 2003,
                and
                incorporated herein by reference. +10.36
            
            Amended
                and Restated 1999 Stock Option Plan for Non-Employee
                Directors.  Filed as an exhibit to the Company's Annual Report
                on Form 10-K for the year ended December 31, 2002, filed with the
                Commission on March 31, 2003, and incorporated herein by reference.
                +10.37
            
            Distribution
                Agreement by and between Cytogen Corporation and Matritech Inc. dated
                October 18, 2002.  Filed as an exhibit to the Company's Annual
                Report on Form 10-K for the year ended December 31, 2002, filed with
                the
                Commission on March 31, 2003, and incorporated herein by reference.
                *10.38
            
            Written
                Compensatory Agreement by and between Cytogen Corporation and Michael
                D.
                Becker dated December 17, 2002.  Filed as an exhibit to the
                Company's Annual Report on Form 10-K for the year ended December
                31, 2002,
                filed with the Commission on March 31, 2003, and incorporated herein
                by
                reference. +10.39
            
            Contract
                Manufacturing Agreement by and between Cytogen Corporation and Laureate
                Pharma, L.P. dated January 15, 2003.  Filed as an exhibit to the
                Company's Annual Report on Form 10-K for the year ended December
                31, 2002,
                filed with the Commission on March 31, 2003, and incorporated herein
                by
                reference. *10.40
            
            Quality
                Agreement by and between Cytogen Corporation and Laureate Pharma,
                L.P.
                dated January 15, 2003.  Filed as an exhibit to the Company's
                Annual Report on Form 10-K for the year ended December 31, 2002,
                filed
                with the Commission on March 31, 2003, and incorporated herein by
                reference. *10.41
            
            Securities
                Purchase Agreement by and among Cytogen Corporation and certain purchasers
                of the Company's common stock dated June 6, 2003.  Filed as an
                exhibit to the Company's Current Report on Form 8-K dated June 6,
                2003,
                filed with the Commission on June 9, 2003, and incorporated herein
                by
                reference.





104
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            of Contents*




**Exhibit
                  No.**10.42
            
            Form
                of Common Stock Purchase Warrant issued by the Company in favor of
                certain
                purchasers of the Company's common stock dated June 6,
                2003.  Filed as an exhibit to the Company's Current Report on
                Form 8-K dated June 6, 2003, filed with the Commission on June 9,
                2003,
                and incorporated herein by reference.10.43
            
            Registration
                Rights Agreement by and among the Company and certain purchasers
                of the
                Company's common stock dated June 6, 2003.  Filed as an exhibit
                to the Company's Current Report on Form 8-K dated June 6, 2003, filed
                with
                the Commission on June 9, 2003, and incorporated herein by
                reference.10.44
            
            Securities
                Purchase Agreement by and among Cytogen Corporation and certain purchasers
                of the Company's common stock dated July 10, 2003.  Filed as an
                exhibit to the Company's Current Report on Form 8-K dated July 10,
                2003,
                filed with the Commission on July 11, 2003, and incorporated herein
                by
                reference.10.45
            
            Form
                of Common Stock Purchase Warrant issued by Cytogen Corporation in
                favor of
                certain purchasers of the Company's common stock dated July 10,
                2003.  Filed as an exhibit to the Company's Current Report on
                Form 8-K dated July 10, 2003, filed with the Commission on July 11,
                2003,
                and incorporated herein by reference.10.46
            
            Registration
                Rights Agreement by and among Cytogen Corporation and certain purchasers
                of the Company's common stock dated July 10, 2003.  Filed as an
                exhibit to the Company's Current Report on Form 8-K dated July 10,
                2003,
                filed with the Commission on July 11, 2003, and incorporated herein
                by
                reference.10.47
            
            Share
                Purchase Agreement by and among Cytogen Corporation and certain purchasers
                of the Company's common stock dated November 6, 2003.  Filed as
                an exhibit to the Company's Current Report on Form 8-K dated November
                6,
                2003, filed with the Commission on November 7, 2003, and incorporated
                herein by reference.10.48
            
            Manufacturing
                and Supply Agreement by and among Cytogen Corporation, Berlex
                Laboratories, Inc. and DuPont Pharmaceuticals Company dated November
                13,
                1998 and effective as of January 1, 1999.  Filed as an exhibit
                to the Company's Quarterly Report on Form 10-Q for the quarter ended
                September 30, 2003, filed with the Commission on November 12, 2003,
                and
                incorporated herein by reference. **10.49
            
            Termination
                Agreement between Cytogen Corporation and Berlex Laboratories, Inc.,
                dated
                June 16, 2003.  Filed as an exhibit to the Company's Quarterly
                Report on Form 10-Q for the quarter ended September 30, 2003, filed
                with
                the Commission on November 12, 2003, and incorporated herein by reference.
                **





105
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**Exhibit
                  No.**10.50
            
            Assignment
                Agreement between Cytogen Corporation and Berlex Laboratories, Inc.,
                dated
                August 1, 2003.  Filed as an exhibit to the Company's Quarterly
                Report on Form 10-Q for the quarter ended September 30, 2003, filed
                with
                the Commission on November 12, 2003, and incorporated herein by reference.
                **10.51
            
            Placement
                Agency Agreement by and among Cytogen Corporation, CIBC World Markets
                Corp., JMP Securities LLC and ThinkEquity Partners LLC dated April
                14,
                2004.  Filed as an exhibit to the Company's Current Report on
                Form 8-K dated April 14, 2004, filed with the Commission on April
                15,
                2004, and incorporated herein by reference.10.52
            
            Manufacturing
                and Supply Agreement by and between Cytogen Corporation and Bristol-Myers
                Squibb Medical Imaging, Inc. effective as of January 1,
                2004.  Filed as an exhibit to the Company's Quarterly Report on
                Form 10-Q for the quarter ended March 31, 2004, filed with the Commission
                on May 7, 2004, and incorporated herein by reference.
                **10.53
            
            Cytogen
                Corporation 2004 Stock Incentive Plan.  Filed as an exhibit to
                the Company's Quarterly Report on Form 10-Q for the quarter ended
                June 30,
                2004, filed with the Commission on August 9, 2004, and incorporated
                herein
                by reference. +10.54
            
            Cytogen
                Corporation 2004 Non-Employee Director Stock Incentive
                Plan.  Filed as an exhibit to the Company's Quarterly Report on
                Form 10-Q for the quarter ended June 30, 2004, filed with the Commission
                on August 9, 2004, and incorporated herein by reference.
                +10.55
            
            Manufacturing
                Agreement dated September 10, 2004 by and between Cytogen Corporation
                and
                Laureate Pharma, L.P.  Filed as an exhibit to the Company's
                Current Report on Form 8-K dated September 10, 2004, filed with the
                Commission on September 14, 2004, and incorporated herein by
                reference.**10.56
            
            Warrant
                Agreement, dated June 10, 2003, between Cytogen Corporation and Howard
                Soule, Ph.D.  Filed as an exhibit to the Company's Registration
                Statement on Form S-8 (Reg. No. 333-121320), filed with the Commission
                on
                December 16, 2004, and incorporated herein by reference.
                +10.57
            
            Cytogen
                Corporation Employee Stock Purchase Plan, amended as of February
                2005.  Filed as an exhibit to the Company's Current Report on
                Form 8-K dated February 8, 2005, filed with the Commission on February
                10,
                2005, and incorporated herein by reference.
                +





106
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            of Contents*




**Exhibit
                  No.**10.58
            
            Form
                of Securities Purchase Agreement by and among the Company and the
                Purchasers dated July 19, 2005.  Filed as an exhibit to the
                Company's Current Report on Form 8-K, filed with the Commission on
                July
                20, 2005, and incorporated herein by reference.10.59
            
            Form
                of Common Stock Purchase Warrant issued by the Company in favor of
                each
                Purchaser dated July 19, 2005.  Filed as an exhibit to the
                Company's Current Report on Form 8-K, filed with the Commission on
                July
                20, 2005, and incorporated herein by reference.10.60
            
            Cytogen
                Corporation 2005 Employee Stock Purchase Plan.  Filed as an
                exhibit to the Company's Current Report on Form 8-K, filed with the
                Commission on September 27, 2005, and incorporated herein by reference.
                +10.61
            
            Form
                of Securities Purchase Agreement by and among the Company and the
                Purchasers dated December 13, 2005.  Filed as an exhibit to the
                Company's Current Report on Form 8-K, filed with the Commission on
                December 14, 2005, and incorporated herein by
                reference.10.62
            
            Form
                of Common Stock Purchase Warrant issued by the Company in favor of
                each
                Purchaser dated December 13, 2005.  Filed as an exhibit to the
                Company's Current Report on Form 8-K, filed with the Commission on
                December 14, 2005, and incorporated herein by
                reference.10.63
            
            Engagement
                Agreement dated December 13, 2005 between Cytogen Corporation and
                Rodman
                & Renshaw, LLC.  Filed as an exhibit to the Company's
                Current Report on Form 8-K/A, filed with the Commission on December
                14,
                2005, and incorporated herein by reference.10.64
            
            Cytogen
                Corporation 2006 Equity Compensation Plan.  Filed as an exhibit
                to the Company's Quarterly Report on Form 10-Q for the quarter ended
                March
                31, 2006, filed with the Commission on May 10, 2006, and incorporated
                herein by reference. +10.65
            
            Membership
                Interest Purchase Agreement dated as of April 20, 2006 between the
                Company
                and Progenics Pharmaceutical, Inc.  Filed as an exhibit to the
                Company's Quarterly Report on Form 10-Q for the quarter ended March
                31,
                2006, filed with the Commission on May 10, 2006, and incorporated
                herein
                by reference.





107
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            of Contents*




**Exhibit
                  No.**10.66
            
            Amended
                and Restated PSMA/PSMP License Agreement dated April 20, 2006 among
                the
                Company, Progenics Pharmaceuticals, Inc. and PSMA Development Company
                LLC.**Filed
                as an exhibit to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended March 31, 2006, filed with the Commission on May 10,
                2006,
                and incorporated herein by reference.10.67
            
            Exclusive
                Distribution Agreement dated as of April 21, 2006 between the Company
                and
                Savient Pharmaceuticals, Inc.**Filed
                as an exhibit to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended March 31, 2006, filed with the Commission on May 10,
                2006,
                and incorporated herein by reference.10.68
            
            Manufacture
                and Supply Agreement dated April 21, 2006 between the Company, Savient
                Pharmaceuticals, Inc. and Rosemont Pharmaceuticals Limited.**Filed
                as an exhibit to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended March 31, 2006, filed with the Commission on May 10,
                2006,
                and incorporated herein by reference.10.69
            
            Product
                Purchase and Supply Agreement dated as of June 20, 2006 between the
                Company and Oncology Therapeutics Network, J.V.  Filed as an
                exhibit to the Company's Quarterly Report on Form 10-Q for the quarter
                ended June 30, 2006, filed with the Commission on August 9, 2006,
                and
                incorporated herein by reference.10.70
            
            Manufacturing
                Agreement dated September 29, 2006 by and between the Company and
                Laureate
                Pharma, Inc.**  Filed as an exhibit to the Company's Quarterly
                Report on Form 10-Q, filed with the Commission on November 9, 2006,
                and
                incorporated herein by reference.10.71
            
            Product
                License and Assignment Agreement dated as of October 11, 2006 by
                and among
                the Company, InPharma AS, and InPharma, Inc.**  Filed as an exhibit to the Company's Quarterly
                Report on Form 10-Q, filed with the Commission on November 9, 2006,
                and
                incorporated herein by reference.10.72
            
            Securities
                Purchase Agreement dated as of November 1, 2006, among the Company
                and
                certain Purchasers.  Filed as an exhibit to the Company's
                Current Report on Form 8-K, filed with the Commission on November
                9, 2006,
                and incorporated herein by reference.10.73
            
            Form
                of Common Stock Purchase Warrant issued by the Company in favor of
                certain
                Purchasers.  Filed as an exhibit to the Company's Current Report
                on Form 8-K, filed with the Commission on November 9, 2006, and
                incorporated herein by reference.





108
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            of Contents*




**Exhibit
                  No.**10.74
            
            Form
                of Registration Rights Agreement among the Company and certain
                Purchasers.  Filed as an exhibit to the Company's Current Report
                on Form 8-K, filed with the Commission on November 9, 2006, and
                incorporated herein by reference.10.75
            
            Settlement
                and Release Agreement dated February 15, 2007 between the Company
                and
                Advanced Magnetics, Inc.  Filed herewith.10.76
            
            Contract
                Manufacturing Agreement dated as of January 8, 2007 between the Company
                and Holopack Verpackungstechnik GmbH.  Filed herewith.**


21
              
              Subsidiaries
                  of Cytogen Corporation. Filed herewith.23.1
              
              Consent
                  of KPMG LLP. Filed herewith23.2
              
              Consent
                  of PricewaterhouseCoopers LLP. Filed herewith31.1
              
              Certification
                  of President and Chief Executive Officer pursuant to Rule 13a-14(a)
                  or
                  15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
                  to
                  Section 302 of the Sarbanes-Oxley Act 2002. Filed
                  herewith.31.2
              
              Certification
                  of Senior Vice President, Finance and Chief Financial Officer pursuant
                  to
                  Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
                  as
                  adopted pursuant to Section 302 of the Sarbanes-Oxley Act 2002.
                  Filed
                  herewith.32.1
              
              Certification
                  of President and Chief Executive Officer pursuant to 18 U.S.C.
                  Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of
                  2002. Filed herewith.32.2
              
              Certification
                  of Senior Vice President, Finance and Chief Financial Officer pursuant
                  to
                  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002. Filed
                  herewith.




+
      Management contract or compensatory plan or arrangement.





*
      We have
      received confidential treatment of certain provisions contained in this exhibit
      pursuant to an order issued by the Securities and Exchange
      Commission.  The copy filed as an exhibit omits the information
      subject to the confidentiality grant.





**
      We
      have submitted an application for confidential treatment with the Securities
      and
      Exchange Commission with respect to certain provisions contained in this
      exhibit.  The copy filed as an exhibit omits the information subject
      to the confidentiality application.


109
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              of Contents*


(b)
            Exhibits:





The
                Exhibits filed with this Form 10-K are listed above in response to
                Item
                15(a)(3).





(c)
            Financial
                Statement Schedules:





None.




110




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized on the16th****day
      of March, 2007.





CYTOGEN
                CORPORATIONBy:
            /s/
                  MICHAEL D. BECKERMichael
                D. Becker,President
                and Chief Executive Officer





111
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            of Contents*





**SIGNATURES
      AND POWER OF ATTORNEY**





We,
      the
      undersigned officers and directors of Cytogen Corporation, hereby severally
      constitute and appoint Michael D. Becker and Kevin J. Bratton and each of them
      singly, our true and lawful attorneys with full power to any of them, and to
      each of them singly, to sign for us and in our names in the capacities indicated
      below, the Annual Report on Form 10-K filed herewith and any and all amendments
      to said Annual Report on Form 10-K and generally to do all such things in our
      name and behalf in our capacities as officers and directors to enable Cytogen
      Corporation to comply with the provisions of the Securities Exchange Act of
      1934, as amended, and all requirements of the Securities and Exchange
      Commission, hereby ratifying and confirming our signatures as they may be signed
      by our said attorneys, or any of them, to said Annual Report on Form 10-K and
      any and all amendments thereto.





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.





**Signature**
            
            **Title**
            
            **Date**By:
            /s/  MICHAEL
                  D. BECKER
            
            President
                and Chief Executive Officer
            
            March
                16, 2007Michael
                D. Becker
            
            (Principal
                Executive Officer and Director)By:
            /s/  KEVIN
                  J. BRATTON
            
            Senior
                Vice President, Finance, and Chief Financial
            
            March
                16, 2007Kevin
                J. Bratton
            
            Officer
                (Principal Financial and Accounting Officer)By:
            /s/  JOHN
                  E. BAGALAY, JR.
            
            Director
            
            March
                16, 2007John
                E. Bagalay, Jr.By:
            /s/  ALLEN
                  BLOOM
            
            Director
            
            March
                16, 2007Allen
                BloomBy:
            /s/  STEPHEN
                  K. CARTER
            
            Director
            
            March16,
                2007Stephen
                K. CarterBy:
            /s/  JAMES
                  A. GRIGSBY
            
            Director
                and Chairman of the Board
            
            March
                16, 2007James
                A. GrigsbyBy:
            /s/  ROBERT
                  F. HENDRICKSON
            
            Director
            
            March
                16, 2007Robert
                F. Hendrickson





112
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            of Contents*




By:
            /s/  DENNIS
                  H. LANGER
            
            Director
            
            March
                16, 2007Dennis
                H. LangerBy:
            /s/  KEVIN
                  G. LOKAY
            
            Director
            
            March
                16, 2007Kevin
                G. LokayBy:
            /s/  JOSEPH
                  A. MOLLICA
            
            Director
            
            March
                16, 2007Joseph
                A. Mollica





113
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            of Contents*





**Form
      10-K Item 15(a)(1) and (2)**





**CYTOGEN
      CORPORATION AND SUBSIDIARIES**





Index
      to
      Consolidated Financial Statements





Report
                of Independent Registered Public Accounting
                Firm
            F-2Report
                of Independent Registered Public Accounting Firm
                (PricewaterhouseCoopers LLP)
            F-4Consolidated
                Balance Sheets as of December 31, 2006 and
                2005
            F-5Consolidated
                Statements of Operations–Years Ended December 31,
                2006, 2005 and 2004
            F-6Consolidated
                Statements of Stockholders' Equity and
                Comprehensive Loss–Years Ended December 31, 2006, 2005 and
                2004
            F-7Consolidated
                Statements of Cash Flows–Years Ended
                December 31, 2006, 2005 and 2004
            F-8Notes
                to Consolidated Financial
                Statements
            F-9





F
            - 1
 *Table
            of Contents*





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**




The
        Board
        of Directors and Stockholders


Cytogen
        Corporation:


We
      have
      audited the accompanying consolidated balance sheets of Cytogen Corporation
      and
      subsidiaries as of December 31, 2006 and 2005, and the related consolidated
      statements of operations, stockholders' equity and comprehensive loss, and
      cash
      flows for each of the years in the three-year period ended December 31,
      2006.  These consolidated financial statements are the responsibility
      of the Company's management.  Our responsibility is to express an
      opinion on these consolidated financial statements based on our
      audits.  We did not audit the financial statements of PSMA Development
      Company LLC (a development stage enterprise), a 50% owned unconsolidated
      investee company.  The Company's equity interest in the loss of PSMA
      Development Company LLC was $3.2 million and $2.9 million for the years ended
      December 31, 2005 and 2004, respectively.  The Company's investment in
      PSMA Development Company LLC was $379,000 as of December 31,
      2005.  The 2005 and 2004 financial statements of PSMA Development
      Company LLC were audited by other auditors whose report has been furnished
      to
      us, and our opinion, insofar as it relates to the 2005 and 2004 amounts
      included for PSMA Development Company LLC, is based solely on the report of
      the
      other auditors.  The report of the other auditors on the 2005 and 2004
      financial statements of PSMA Development Company LLC contains an explanatory
      paragraph that states that PSMA Development Company LLC has suffered recurring
      losses from operations and does not have a work plan or budget for 2006, all
      of
      which raise substantial doubt about its ability to continue as a going concern,
      and that its financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      the financial statements are free of material misstatement.  An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements.  An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement
      presentation.  We believe that our audits and the report of the other
      auditors provide a reasonable basis for our opinion.





In
      our
      opinion, based on our audits and the report of the other auditors, the
      consolidated financial statements referred to above present fairly, in all
      material respects, the financial position of Cytogen Corporation and
      subsidiaries as of December 31, 2006 and 2005, and the results of their
      operations and their cash flows for each of the years in the three-year period
      ended December 31, 2006, in conformity with U.S. generally accepted accounting
      principles.





F
            - 2
 *Table
            of Contents*





As
      discussed in notes 1 and 13 to the consolidated financial statements, the
      Company adopted the provisions of Statement of Financial Accounting Standards
      No. 123R, "Share-Based Payment" effective January 1, 2006.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of Cytogen Corporation's
      internal control over financial reporting as of December 31, 2006, based on
      criteria established in Internal Control-Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
      our
      report dated March 15, 2007 expressed an unqualified opinion on management's
      assessment of, and the effective operation of, internal control over financial
      reporting.





/s/
                KPMG LLP






Princeton,
        New Jersey
 March
        15,
        2007


F
            - 3
 *Table
            of Contents*





**Report
      of Independent Registered Public Accounting
      Firm**





To
      the
      Management Committee and Members of


PSMA
      Development Company LLC:





In
      our
      opinion, the balance sheet and the related statements of operations, of Members'
      (deficit) equity and of cash flows (not presented herein) present fairly, in
      all
      material respects, the financial position of PSMA Development Company LLC (the
      "Company") (a development stage enterprise) at December 31, 2005, and the
      results of its operations and its cash flows for each of the two years in the
      period ended December 31, 2005, and, cumulatively, for the period from June
      15,
      1999 (date of inception) to December 31, 2005 in conformity with accounting
      principles generally accepted in the United States of America.  These
      financial statements are the responsibility of the Company's management; our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.  We conducted our audits of these statements in accordance
      with the standards of the Public Company Accounting Oversight Board (United
      States).  Those standards require that we plan and perform the audit
      to obtain reasonable assurance about whether the financial statements are free
      of material misstatement.  An audit includes examining, on a test
      basis, evidence supporting the amounts and disclosures in the financial
      statements, assessing the accounting principles used and significant estimates
      made by management, and evaluating the overall financial statement
      presentation.  We believe that our audits provide a reasonable basis
      for our opinion.





The
      financial statements have been prepared assuming that the Company will continue
      as a going concern.  As discussed in Note 1 to the financial
      statements, the Company has suffered recurring losses from operations and does
      not have a work plan or budget for 2006, all of which raise substantial doubt
      about its ability to continue as a going concern.  Management's plans
      in regard to these matters are also described in Note 1.  The
      financial statements do not include any adjustments that might result from
      the
      outcome of this uncertainty.





/s/
      PricewaterhouseCoopers LLP





New
      York,
      New York


March
      15,
      2006





F
            - 4
 *Table
            of Contents*





**CYTOGEN
      CORPORATION AND SUBSIDIARIES**





**CONSOLIDATED
      BALANCE SHEETS**


**(All
      amounts in thousands, except share and per share data)**





**December
                  31,****2006**
            
            
            **2005****ASSETS:**Current
                assets:Cash
                and cash equivalents
            
            $
            32,507
            
            
            $
            30,337Restricted
                cash
            
            
            1,100
            
            
            
            —Accounts
                receivable, net
            
            
            2,113
            
            
            
            1,743Inventories
            
            
            2,538
            
            
            
            3,582Inventories
                at wholesalers
            
            
            93
            
            
            
            —Prepaid
                expenses
            
            
            1,571
            
            
            
            906Other
                current assets
            
            
            63
            
            
            
            354Total
                current assets
            
            
            39,985
            
            
            
            36,922Property
                and equipment, less accumulated depreciation and amortization of
                $1,409
                and $981 at December 31, 2006 and 2005, respectively
            
            
            691
            
            
            
            886Product
                license fees, less accumulated amortization of $2,577 and $1,673,
                at
                December 31, 2006 and 2005, respectively
            
            
            11,612
            
            
            
            6,327Other
                assets
            
            
            2,065
            
            
            
            655$
            54,353
            
            
            $
            44,790**LIABILITIES
                AND STOCKHOLDERS' EQUITY:**Current
                liabilities:Current
                portion of long-term liabilities
            
            $
            64
            
            
            $
            26Accounts
                payable and accrued liabilities
            
            
            10,104
            
            
            
            5,271Total
                current liabilities
            
            
            10,168
            
            
            
            5,297Warrant
                liabilities
            
            
            6,464
            
            
            
            1,869Other
                long-term liabilities
            
            
            59
            
            
            
            46Total
                liabilities
            
            
            16,691
            
            
            
            7,212Commitments
                and contingencies (Note 19)Stockholders'
                equity:Preferred
                stock, $.01 par value, 5,400,000 shares authorized – Series C Junior
                Participating Preferred Stock, $.01 par value, 200,000 shares authorized,
                none issued and outstanding
            
            
            —
            
            
            
            —Common
                stock, $.01 par value, 50,000,000 shares authorized, 29,605,631 and
                22,473,762 shares issued and outstanding at December 31, 2006 and
                2005,
                respectively
            
            
            296
            
            
            
            225Additional
                paid-in capital
            
            
            465,016
            
            
            
            450,502Unearned
                compensation
            
            
            —
            
            
            
            (610
            )Accumulated
                other comprehensive income
            
            
            20
            
            
            
            28Accumulated
                deficit
            
            
            (427,670
            )
            
            
            (412,567
            )Total
                stockholders' equity
            
            
            37,662
            
            
            
            37,578$
            54,353
            
            
            $
            44,790





The
      accompanying notes are an integral part of these statements.





F
            - 5
 *Table
            of Contents*





**CYTOGEN
      CORPORATION AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(All
      amounts in thousands, except per share data)**





**Year
                  Ended December 31,****2006**
            
            
            **2005**
            
            
            **2004****REVENUES:**Product
                revenue:PROSTASCINT
            
            $
            9,125
            
            
            $
            7,407
            
            
            $
            7,186QUADRAMET
            
            
            8,141
            
            
            
            8,350
            
            
            
            7,293Others
            
            
            30
            
            
            
            —
            
            
            
            1Total
                product
                revenue
            
            
            17,296
            
            
            
            15,757
            
            
            
            14,480License
                and contract
                revenue
            
            
            11
            
            
            
            189
            
            
            
            139Total
                revenues
            
            
            17,307
            
            
            
            15,946
            
            
            
            14,619**OPERATING
                EXPENSES:**Cost
                of product
                revenue
            
            
            10,150
            
            
            
            9,523
            
            
            
            9,223Selling,
                general and administrative
            
            
            30,166
            
            
            
            25,895
            
            
            
            20,318Research
                and
                development
            
            
            7,301
            
            
            
            6,162
            
            
            
            3,292Equity
                in loss of joint
                venture
            
            
            120
            
            
            
            3,175
            
            
            
            2,896Total
                operating
                expenses
            
            
            47,737
            
            
            
            44,755
            
            
            
            35,729Operating
                loss
            
            
            (30,430
            )
            
            
            (28,809
            )
            
            
            (21,110
            )Interest
                income
            
            
            1,451
            
            
            
            712
            
            
            
            448Interest
                expense
            
            
            (36
            )
            
            
            (114
            )
            
            
            (185
            )Gain
                on sale of equity interest in joint venture
            
            
            12,873
            
            
            
            —
            
            
            
            —Decrease
                in value of warrant liabilities
            
            
            1,039
            
            
            
            1,666
            
            
            
            —Loss
                before income
                taxes
            
            
            (15,103
            )
            
            
            (26,545
            )
            
            
            (20,847
            )Income
                tax
                benefit
            
            
            —
            
            
            
            (256
            )
            
            
            (307
            )Net
                loss
            
            $
            (15,103
            )
            
            $
            (26,289
            )
            
            $
            (20,540
            )Basic
                and diluted net loss per share
            
            $
            (0.64
            )
            
            $
            (1.54
            )
            
            $
            (1.40
            )Weighted-average
                common shares outstanding
            
            
            23,494
            
            
            
            17,117
            
            
            
            14,654





The
      accompanying notes are an integral part of these statements.





F
            - 6
 *Table
            of Contents*





**CYTOGEN
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS**


**(All
      amounts in thousands, except share data)**





**Common
                Stock**
            
            
            **Additional**
              **Paid-in**
            
            
            **Unearned**
            
            
            **Accumulated**
              **Other**
              **Comprehensive**
            
            
            **Accumulated**
            
            
            **Total**
              **Stockholders'****Share**
            
            
            **Amount**
            
            
            **Capital**
            
            
            **Compensation**
            
            
            **Income**
            
            
            **Deficit**
            
            
            **Equity****Balance,
                December 31, 2003**
            
            
            12,857,488
            
            
            $
            129
            
            
            $
            401,649
            
            
            $
            —
            
            
            $
            —
            
            
            $
            (365,738
            )
            
            $
            36,040Sale
                of shares of common stock including exercise of stock
                options
            
            
            2,580,755
            
            
            
            26
            
            
            
            23,992
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            24,018Issuance
                of shares of common stock and amendment of options related to
                compensation
            
            
            873
            
            
            
            —
            
            
            
            15
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            15Issuance
                of shares of common stock in connection with Prostagen
            
            
            50,000
            
            
            
            —
            
            
            
            497
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            497Net
                loss and comprehensive loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (20,540
            )
            
            
            (20,540
            )**Balance,
                December 31, 2004**
            
            
            15,489,116
            
            
            
            155
            
            
            
            426,153
            
            
            
            —
            
            
            
            —
            
            
            
            (386,278
            )
            
            
            40,030Sale
                of shares of common stock including exercise of stock options and
                warrants
            
            
            6,887,847
            
            
            
            69
            
            
            
            23,129
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            23,198Issuance
                of shares of common stock related to compensation
            
            
            4,000
            
            
            
            —
            
            
            
            19
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            19Issuance
                of shares of common stock related to Prostagen
            
            
            92,799
            
            
            
            1
            
            
            
            499
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            500Unearned
                compensation related to non-vested stock grants
            
            
            —
            
            
            
            —
            
            
            
            869
            
            
            
            (869
            )
            
            
            —
            
            
            
            —
            
            
            
            —Reversal
                of unearned compensation related to non-vested stock
                grants
            
            
            —
            
            
            
            —
            
            
            
            (167
            )
            
            
            167
            
            
            
            —
            
            
            
            —
            
            
            
            —Amortization
                of unearned compensation
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            92
            
            
            
            —
            
            
            
            —
            
            
            
            92Comprehensive
                loss:Net
                loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (26,289
            )
            
            
            (26,289
            )Unrealized
                gain on marketable securities
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            28
            
            
            
            —
            
            
            
            28Total
                comprehensive loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (26,261
            )**Balance,
                December 31, 2005**
            
            
            22,473,762
            
            
            
            225
            
            
            
            450,502
            
            
            
            (610
            )
            
            
            28
            
            
            
            (412,567
            )
            
            
            37,578Sale
                of shares of common stock
            
            
            7,131,869
            
            
            
            71
            
            
            
            13,247
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            13,318Share-based
                compensation expense
            
            
            —
            
            
            
            —
            
            
            
            1,877
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,877Reversal
                of unearned compensation related to non-vested stock
                grants
            
            
            —
            
            
            
            —
            
            
            
            (610
            )
            
            
            610
            
            
            
            —
            
            
            
            —
            
            
            
            —Comprehensive
                loss:Net
                loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (15,103
            )
            
            
            (15,103
            )Unrealized
                loss on marketable securities
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (8
            )
            
            
            —
            
            
            
            (8
            )Total
                comprehensive loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (15,111
            )**Balance,
                December 31, 2006**
            
            
            29,605,631
            
            
            $
            296
            
            
            $
            465,016
            
            
            $
            —
            
            
            $
            20
            
            
            $
            (427,670
            )
            
            $
            37,662





The
      accompanying notes are an integral part of these statements.





F
            - 7
 *Table
            of Contents*





**CYTOGEN
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(All
      amounts in thousands)**





**Year
                  Ended December 31,****2006**
            
            
            **2005**
            
            
            **2004****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (15,103
            )
            
            $
            (26,289
            )
            
            $
            (20,540
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            1,366
            
            
            
            1,018
            
            
            
            984Decrease
                in value of warrant liabilities
            
            
            (1,039
            )
            
            
            (1,666
            )
            
            
            —Share-based
                compensation expense
            
            
            1,877
            
            
            
            111
            
            
            
            15Share-based
                milestone obligation
            
            
            —
            
            
            
            500
            
            
            
            497Increase
                (decrease) in provision for doubtful accounts
            
            
            2
            
            
            
            (72
            )
            
            
            —Amortization
                of premiums on investments, net
            
            
            —
            
            
            
            52
            
            
            
            132Gain
                on sale of equity interest in joint venture
            
            
            (12,873
            )
            
            
            —
            
            
            
            —Asset
                impairment
            
            
            —
            
            
            
            —
            
            
            
            67Deferred
                rent
            
            
            (19
            )
            
            
            12
            
            
            
            15Gain
                on disposition of assets
            
            
            —
            
            
            
            —
            
            
            
            (2
            )Changes
                in assets and liabilities:Accounts
                receivables
            
            
            (372
            )
            
            
            (265
            )
            
            
            39Inventories
            
            
            1,044
            
            
            
            51
            
            
            
            (1,736
            )Other
                assets
            
            
            (1,588
            )
            
            
            (139
            )
            
            
            25Liability
                related to joint venture
            
            
            —
            
            
            
            (396
            )
            
            
            396Accounts
                payable and accrued liabilities
            
            
            3,852
            
            
            
            (2,385
            )
            
            
            2,435Net
                cash used in operating activities
            
            
            (22,853
            )
            
            
            (29,468
            )
            
            
            (17,673
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Purchases
                of product rights
            
            
            (6,845
            )
            
            
            —
            
            
            
            —Purchases
                of property and equipment
            
            
            (171
            )
            
            
            (405
            )
            
            
            (695
            )Net
                proceeds from sale of property and equipment
            
            
            —
            
            
            
            —
            
            
            
            187Proceeds
                from sale of equity interest in joint venture
            
            
            13,132
            
            
            
            —
            
            
            
            —Maturities
                of short-term investments
            
            
            —
            
            
            
            22,727
            
            
            
            16,700Purchases
                of short-term investments
            
            
            —
            
            
            
            —
            
            
            
            (23,026
            )Net
                cash provided by (used in) investing activities
            
            
            6,116
            
            
            
            22,322
            
            
            
            (6,834
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                from issuance of common stock
            
            
            13,318
            
            
            
            23,198
            
            
            
            24,018Proceeds
                from issuance of warrants
            
            
            5,634
            
            
            
            3,535
            
            
            
            —Payments
                of long-term liabilities
            
            
            (45
            )
            
            
            (2,296
            )
            
            
            (95
            )Net
                cash provided by financing activities
            
            
            18,907
            
            
            
            24,437
            
            
            
            23,923Net
                increase (decrease) in cash and cash equivalents
            
            
            2,170
            
            
            
            17,291
            
            
            
            (584
            )Cash
                and cash equivalents, beginning of year
            
            
            30,337
            
            
            
            13,046
            
            
            
            13,630Cash
                and cash equivalents, end of year
            
            $
            32,507
            
            
            $
            30,337
            
            
            $
            13,046Supplemental
                disclosure of non-cash information:Unrealized
                holding gain (loss) on marketable securities
            
            $
            (8
            )
            
            $
            28
            
            
            $
            —Capital
                lease of equipment
            
            
            96
            
            
            
            25
            
            
            
            73Supplemental
                disclosure of cash information:Cash
                paid for interest
            
            $
            32
            
            
            $
            395
            
            
            $
            185Cash
                received for taxes
            
            
            —
            
            
            
            256
            
            
            
            307





The
      accompanying notes are an integral part of these statements.





F
            - 8
 *Table
            of Contents*





**CYTOGEN
      CORPORATION AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








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





**Business**





Cytogen
      Corporation (the "Company") is a specialty pharmaceutical company dedicated
      to
      advancing the treatment and care of cancer patients by building, developing,
      and
      commercializing a portfolio of oncology products for underserved markets where
      there are unmet needs.  The Company's product portfolio includes four
      oncology products approved by the United States Food and Drug Administration
      ("FDA"), CAPHOSOL®, QUADRAMET®,
      PROSTASCINT®, and SOLTAMOXTM,
      which are marketed solely by the Company's specialized sales force to the
      U.S. oncology market.  The Company introduced its fourth product,
      CAPHOSOL, in the first quarter of 2007.  CAPHOSOL is an electrolyte
      solution for the treatment of oral mucositis and dry mouth that was approved
      as
      a prescription medical device.  QUADRAMET is approved for the
      treatment of pain in patients whose cancer has spread to the
      bone.  PROSTASCINT is a PSMA-targeting monoclonal antibody-based agent
      to image the extent and spread of prostate cancer.  SOLTAMOX, which
      the Company introduced in the second half of 2006, is the first liquid
      hormonal therapy approved in the U.S. for the treatment of breast cancer in
      adjuvant and metastatic settings.  Currently, the Company's clinical
      development initiatives are focused on new indications for QUADRAMET and
      PROSTASCINT, as well the product candidate, CYT-500, a radiolabeled antibody
      in
      Phase 1 development for the treatment of prostate cancer.





On
      April
      21, 2006, the Company and Savient Pharmaceuticals, Inc. ("Savient") entered
      into
      a distribution agreement granting the Company exclusive marketing rights for
      SOLTAMOX in the United States.  SOLTAMOX, a cytostatic estrogen
      receptor antagonist, is indicated for the treatment of breast cancer in adjuvant
      and metastatic settings and to reduce the risk of breast cancer in women with
      ductal carcinoma in situ (DCIS) or with high risk of breast
      cancer.  In addition, the Company entered into a supply agreement with
      Savient and Rosemont Pharmaceuticals Limited, previously a wholly-owned
      subsidiary of Savient ("Rosemont"), for the manufacture and supply of
      SOLTAMOX.





On
      October 11, 2006, the Company and InPharma AS ("InPharma") entered into a
      license agreement granting the Company exclusive rights for CAPHOSOL in North
      America.  Approved as a prescription medical device, CAPHOSOL is a
      topical oral agent indicated in the United States as an adjunct to standard
      oral
      care in treating oral mucositis caused by radiation or high dose
      chemotherapy.  CAPHOSOL is also indicated for dryness of the mouth or
      dryness of the throat regardless of the cause or whether the conditions are
      temporary or permanent.





Cytogen
      has a history of operating losses since its inception.  The Company
      currently relies on two products, PROSTASCINT and QUADRAMET, for substantially
      all of its revenues.  In addition, the Company has, from time to time,
      stopped selling certain products, such as NMP22 BLADDERCHEK, BRACHYSEED and
      ONCOSCINT, that the Company previously





F
            - 9
 *Table
            of Contents*





believed
      would generate significant revenues.  The Company's products are
      subject to significant regulatory review by the FDA and other federal and state
      agencies, which requires significant time and expenditures in seeking,
      maintaining and expanding product approvals.  In addition, the Company
      relies on collaborative partners to a significant degree, among other things,
      to
      manufacture its products, to secure raw materials, and to provide licensing
      rights to their proprietary technologies for the Company to sell and market
      to
      others.  The Company is also subject to revenue and credit
      concentration risks as a small number of its customers account for a high
      percentage of total revenues and corresponding receivables.  The loss
      of one of these customers or changes in their buying patterns could result
      in
      reduced sales, thereby adversely affecting the operating results.





The
      Company has incurred negative cash flows from operations since its inception,
      and has expended, and expects to continue to expend, substantial funds to
      implement its planned product development efforts, including acquisition of
      products and complementary technologies, research and development, clinical
      studies and regulatory activities, and to further the Company's marketing and
      sales programs including new product launches.  The Company expects
      its existing capital resources at December 31, 2006, along with the receipt
      of
      the $4.0 million settlement from Advanced Magnetics, Inc. in the first quarter
      of 2007, should be adequate to fund operations and commitments at least into
      2008.  The Company cannot assure you that its business or operations
      will not change in a manner that would consume available resources more rapidly
      than anticipated.  The Company expects that it will have additional
      requirements for debt or equity capital, irrespective of whether and when
      profitability is reached, for further product development costs, product and
      technology acquisition costs, and working capital.





**Basis
      of Consolidation**





The
      consolidated financial statements include the financial statements of Cytogen
      and its subsidiaries.  All intercompany balances and transactions have
      been eliminated in consolidation.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting
      period.  Actual results could differ from those
      estimates.





**Cash
      and Cash Equivalents**





Cash
      and
      cash equivalents include cash on hand, cash in banks and all highly-liquid
      investments with a maturity of three months or less at the time of
      purchase.





**Restricted
      Cash**





In
      connection with the Company's license agreement with InPharma executed in
      October 2006, the Company pledged $1.1 million as collateral to secure a letter
      of credit for $1.0 million in favor of InPharma to guarantee Cytogen's payment
      of $1.0 million on April 11, 2007 (see 
 F
              - 10
 *Table
              of Contents*


Note
      19).  Drawing under this letter of credit may not be made prior to
      April 12, 2007 and only if Cytogen fails to fulfill its payment
      obligation.  The cash collateral is restricted from use until the
      expiration of the letter of credit on April 17, 2007.





**Accounts
      Receivable**





The
      Company's accounts receivable balances are net of an estimated allowance for
      uncollectible accounts.  The Company continuously monitors collections
      and payments from its customers and maintains an allowance for uncollectible
      accounts based upon its historical experience and any specific customer
      collection issues that the Company has identified.  While the Company
      believes its reserve estimate to be appropriate, the Company may find it
      necessary to adjust its allowance for uncollectible accounts if the future
      bad
      debt expense exceeds its estimated reserve.  The Company is subject to
      concentration risks as a limited number of its customers provide a high percent
      of total revenues, and corresponding receivables.  The Company does
      not have any off-balance sheet credit exposure related to its
      customers.





At
      December 31, 2006 and 2005, accounts receivable were net of an allowance for
      doubtful accounts of $6,000 and $4,000, respectively.  Expense charged
      to the provisions for doubtful accounts during 2006 was $2,000, compared to
      an
      expense reversal of $72,000 recorded in 2005 which was a result of a decrease
      in
      the allowance for doubtful accounts.  No such expense was charged in
      2004.  The Company wrote off $7,000 of uncollectible accounts in 2004
      and none in 2006 or 2005.





**Inventories**





The
      Company's inventories include PROSTASCINT and SOLTAMOX with the majority of
      the
      inventories related to PROSTASCINT.  Inventories are stated at the
      lower of cost or market, as determined using the first-in, first-out method,
      which most closely reflects the physical flow of our inventories.  The
      Company's products and raw materials are subject to expiration
      dating.  The Company regularly reviews quantities on hand to determine
      the need to write-down inventory for excess and obsolete inventories based
      primarily on our estimated forecast of product sales.  The Company's
      estimate of future product demand may prove to be inaccurate, in which case
      the
      Company may have understated or overstated its reserve for excess and obsolete
      inventories.





**December
                  31,****2006**
            
            
            **2005****(All
                amounts in thousands)**Raw
                materials
            
            $
            325
            
            
            $
            291Work-in
                process
            
            
            1,296
            
            
            
            2,625Finished
                goods
            
            
            917
            
            
            
            666$
            2,538
            
            
            $
            3,582





F
            - 11
 *Table
            of Contents*





**Other
      Current Assets**





At
      December 31, 2006 and 2005, other current assets include $6,000 and $68,000,
      respectively, of receivables from employees for advances related to travel,
      tuition and sales incentive payments.





**Property
      and Equipment**





Property
      and equipment are stated at cost, net of accumulated depreciation or
      amortization.  Leasehold improvements are amortized on a straight-line
      basis over the lease period or the estimated useful life, whichever is
      shorter.  Equipment and furniture are depreciated on a straight-line
      basis over three to five years.  Expenditures for repairs and
      maintenance are charged to expense as incurred.  Property and
      equipment consisted of the following:





**December
                  31,****2006**
            
            
            **2005****(All
                amounts in thousands)**Leasehold
                improvements
            
            $
            175
            
            
            $
            168Equipment
                and furniture
            
            
            1,925
            
            
            
            1,6992,100
            
            
            
            1,867Less:
                Accumulated depreciation andamortization
            
            
            (1,409
            )
            
            
            (981
            )$
            691
            
            
            $
            886





Depreciation
      and amortization expense for property and equipment was $462,000, $331,000
      and
      $288,000 in 2006, 2005 and 2004, respectively.





**Fair
      Value of Financial Instruments**





The
      Company's financial instruments consist primarily of cash and cash equivalents,
      restricted cash, accounts receivable, accounts payable, accrued expenses and
      long-term debt.  Management believes the carrying value of these
      assets and accounts payable and accrued expenses are representative of their
      fair value because of the short-term nature of these instruments.  The
      fair value of long-term debt is estimated by discounting the future cash flows
      of each instrument at rates currently offered to the Company for similar debt
      instruments of comparable maturities by the Company's bankers.  The
      resulting fair value of long-term debt approximates its carrying
      amount.  The warrant liabilities are measured at fair value using the
      Black-Scholes option-pricing model at each reporting date (see Notes 11 and
      12).





**Impairment
      of Long-Lived Assets**





In
      accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
      "Accounting for the Impairment or Disposal of Long-Lived Assets," if indicators
      of impairment exist, management assesses the recoverability of the affected
      long-lived assets by determining whether the carrying value of such assets
      can
      be recovered through undiscounted future operating cash flows and eventual
      disposition of the asset.  If impairment is indicated,





F
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management
      measures the amount of such impairment by comparing the carrying value of the
      assets to the present value of the expected future cash flows associated with
      the use of the asset.





In
      July
      2004, as part of the Company's continuing effort to reduce non-strategic
      expenses, the Company initiated the closure of its AxCell Biosciences
      facilities.  In connection with such closure, the Company recorded a
      charge of $100,000 for equipment impairment to write down the carrying value
      of
      the assets to fair value based on prices of similar assets and similar
      conditions.  This charge is included in selling, general and
      administrative expenses for 2004 in the accompanying consolidated statement
      of
      operations.





**Costs
      Associated with Exit or Disposal Activities**





In
      accordance with the SFAS No. 146, "Accounting for Costs Associated with Exit
      or
      Disposal Activities," the Company is required to record a liability for costs
      associated with an exit or disposal activity, measured at fair value, in the
      period in which the liability is incurred.  A liability related to
      one-time termination benefits provided to severed employees as a result of
      the
      exit or disposal activity is recorded when certain criteria have been met and
      the employees are notified of the details of the plan.  A liability
      for costs to terminate a lease or other contract before the end of its term
      is
      recognized and measured at its fair value when the Company terminates the
      contract in accordance with the contract terms.  If the contract is an
      operating lease, the fair value of the liability at the cease-use date is
      determined based on the remaining lease rentals, reduced by estimated sublease
      rentals that could be reasonably obtained for the property, even if the Company
      does not intend to enter into a sublease.





As
      part
      of the Company's continuing effort to reduce non-strategic expenses, the Company
      restructured AxCell in September 2002 by reducing 75% of AxCell's workforce,
      initiated the closure of AxCell facilities in July 2004, and terminated early
      an
      operating lease in December 2004.  The Company accounted for the
      AxCell restructuring and subsequent facility closure pursuant to SFAS No.
      146.  In 2002, the Company established a liability of $350,000 for
      future payments on leased facilities that were no longer being used in
      operations.  In December 2004, in connection with the lease
      termination, the Company was obligated to pay a termination fee of $130,000,
      which was subsequently paid in January 2005.  The then remaining
      liability for future lease payments of $163,000 was eliminated in 2004 resulting
      in a gain of $33,000 which is recorded in selling, general and administrative
      expense in the accompanying consolidated statement of operations.





**Product
      License Fees**





Product
      license fees consisted of the following:





**December
                  31,****2006**
            
            
            **2005****(All
                amounts in thousands)**QUADRAMET
                license fee, net (see Note 6)
            
            $
            5,631
            
            
            $
            6,327SOLTAMOX
                license fee, net (see Note 17)
            
            
            1,890
            
            
            
            —CAPHOSOL
                license fee, net (see Note 19)
            
            
            4,091
            
            
            
            —$
            11,612
            
            
            $
            6,327





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QUADRAMET
      License Fee





In
      August
      2003, Cytogen reacquired marketing rights to QUADRAMET in North America and
      Latin America in exchange for an up-front payment of $8.0 million which was
      capitalized as a QUADRAMET license fee and is being amortized on a straight-line
      basis over approximately 12 years, the estimated performance period of the
      agreement.  The balance is comprised as follows:





**December
                  31,****2006**
            
            
            **2005****(All
                amounts in thousands)**QUADRAMET
                license
                fee
            
            $
            8,000
            
            
            $
            8,000Less:
                Accumulated
                amortization
            
            
            (2,369
            )
            
            
            (1,673
            )$
            5,631
            
            
            $
            6,327





During
      2006, 2005 and 2004, Cytogen recorded $696,000, $697,000 and $696,000,
      respectively, of such amortization as cost of product revenues in the
      accompanying consolidated statements of operations.  Estimated
      amortization expense is $696,000 for each of the next fiscal years through
      2014
      and $63,000 in 2015.





SOLTAMOX
      License Fee





In
      February and April 2006, Cytogen paid an aggregate total of $2.0 million to
      Savient Pharmaceuticals, Inc. representing an up-front licensing fee granting
      exclusive marketing rights for SOLTAMOX in the United States which was
      capitalized as a SOLTAMOX license fee and is being amortized on a straight-line
      basis over approximately 12 years, the estimated performance period of the
      agreement.  The balance is comprised as follows:





**December
                  31,****2006****(All
                amounts in thousands)**SOLTAMOX
                license fee
            
            $
            2,000Less:
                Accumulated amortization
            
            
            (110
            )$
            1,890





During
      2006, the Company recorded $110,000 of such amortization as cost of product
      revenues in the accompanying consolidated statements of
      operations.  Estimated amortization expense is $164,000 for each of
      the next fiscal years through 2017 and $86,000 in 2018.





CAPHOSOL
      License Fee





In
      October 2006, Cytogen acquired from InPharma the exclusive marketing rights
      to
      CAPHOSOL in North America and an option to acquire the marketing rights to
      CAPHOSOL in Europe and Asia.  Based on the relative fair value of the
      assets acquired, the Company allocated the license and option fees and related
      transaction costs as follows:  $4.2 million to CAPHOSOL





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            - 14
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marketing
      rights in North America which excludes a $400,000 payment contingent upon
      certain conditions, $1.7 million to the option to license the product rights
      in
      Europe and $162,000 to the option to license the product rights in Asia (see
      "Other Assets" below and Note 19).  The allocated license fee for
      North America was capitalized as CAPHOSOL license fee in the accompanying
      consolidated balance sheet and is being amortized on a straight-line basis
      over
      approximately eleven years, which is the estimated performance period of the
      agreement.  The balance is comprised as follows:








**December
                  31,****2006****(All
                amounts in thousands)**CAPHOSOL
                license fee
            
            $
            4,189Less:
                Accumulated amortization
            
            
            (98
            )$
            4,091





During
      2006, the Company recorded $98,000 of such amortization as cost of product
      revenues in the accompanying consolidated statements of
      operations.  Estimated amortization expense is $381,000 for each of
      the next fiscal year through 2016 and $281,000 in 2017.





**Other
      Assets**





Other
      assets consisted of the following:





**December
                  31,****2006**
            
            
            **2005****(All
                amounts in thousands)**Investment
                in PSMA Development Company LLC (Note 4)
            
            $
            --
            
            
            $
            379CAPHOSOL
                option fee for
                Europe
            
            
            1,656
            
            
            
            —Deferred
                royalty
                expense
            
            
            105
            
            
            
            —Other
            
            
            304
            
            
            
            276$
            2,065
            
            
            $
            655





In
      October 2006, the Company acquired from InPharma an option to purchase marketing
      rights to CAPHOSOL in Europe (see "CAPHOSOL License Fee" above and Note
      19).  The allocated option fee of $1.7 million for Europe is recorded
      as other assets and will be transferred to the appropriate asset account if
      exercised.  The Company periodically evaluates the option value for
      impairment by assessing, among other things, its intent and ability to exercise
      the option, the option expiry date and the market and product
      competitiveness.





In
      2006,
      the Company introduced SOLTAMOX to the U.S. oncology market and began supplying
      the distribution channels to support the initial patient
      demand.  Approximately $1.1 million of SOLTAMOX supply was shipped to
      wholesalers, however, these shipments have not been recognized as revenues
      because the Company does not have sufficient information to estimate expected
      product returns.  Accordingly, royalties owed based on SOLTAMOX
      shipments to wholesalers are deferred, since the Company has the right to offset
      royalties paid





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            - 15
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for
      products that are later returned against subsequent royalty
      obligations.  At December 31, 2006, the deferred royalty expense of
      $105,000 is classified as other assets in the accompanying consolidated balance
      sheet and will be recognized as royalty expense as SOLTAMOX sales are recognized
      as revenue.





Other
      assets in 2006 and 2005 each include $48,000 of restricted cash which is used
      as
      collateral for a letter of credit required by a facility lease as a security
      deposit.  The letter of credit is automatically renewed annually but
      not beyond the term of the lease.





Other
      assets in 2006 and 2005 also include $20,000 and $28,000, respectively, of
      marketable securities that relate to the 275,350 shares of Northwest
      Biotherapeutics, Inc. common stock which the Company received in connection
      with
      the acquisition of Prostagen, Inc. in 1999.  The Company has
      classified this investment as available-for-sale securities in accordance with
      Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
      Certain Investments in Debt and Equity
      Securities."  Available-for-sale securities are carried at fair value,
      based on quoted market prices, with unrealized gains or losses reported as
      a
      separate component of stockholders' equity.  As of December 31, 2006,
      the Company had an unrealized gain of $20,000 related to this investment
      compared to an unrealized gain of $28,000 at December 31, 2005.  There
      is no assurance, however, that the Company can sell these securities within
      a
      reasonable amount of time without negatively affecting the price of the stock
      because of low daily trading volume.





**Warrant
      Liabilities**





Emerging
      Issues Task Force ("EITF") No. 00-19, "Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company's Own Stock"
      addresses accounting for equity derivative contracts indexed to, and potentially
      settled in a company's own stock, or equity derivatives, by providing guidance
      for distinguishing between permanent equity, temporary equity and assets and
      liabilities.  Under EITF 00-19, to qualify as permanent equity, the
      equity derivative must permit the issuer to settle in unregistered
      shares.  EITF 00-19 considers the ability to keep a registration
      statement effective as beyond a company's control and warrants that cannot
      be
      classified as permanent equity are instead classified as a
      liability.  In addition, warrants that permit net cash settlement at
      the option of the holder are also classified as a liability.





Equity
      derivatives not qualifying for permanent equity accounting are recorded at
      their
      fair value using the Black-Scholes option-pricing model and are remeasured
      at
      each reporting date until the warrants are exercised or
      expire.  Changes in the fair value of the warrants will be reported in
      the consolidated statements of operations as non-operating income or
      expense.  The fair value of the warrants as calculated using the
      Black-Scholes option-pricing model is subject to significant fluctuation based
      on changes in the Company's stock price, expected volatility, expected life,
      the
      risk-free interest rate and dividend yield.





EITF
      No.
      00-19-2 "Accounting for Registration Payment Arrangements" specifies that
      registration payment arrangements should play no part in determining the initial
      classification and subsequent accounting for the securities they related
      to.  The Staff position requires the





F
            - 16
 *Table
            of Contents*





contingent
      obligation in a registration payment arrangement to be separately analyzed
      under
      FASB Statement No. 5, "Accounting for Contingencies" and FASB Interpretation
      No.
      14, "Reasonable Estimation of the Amount of a Loss".  If payment in a
      registration payment arrangement is probable and can be reasonably estimated,
      a
      liability should be recorded.





**Revenue
      Recognition**





The
      Company generates revenue from product sales and license and contract
      revenues.  The Company recognizes revenue in accordance with the SEC's
      Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
      as amended by Staff Accounting Bulletin No. 104 (together, "SAB 101"), and
      FASB
      Statement No. 48 "Revenue Recognition When Right of Return Exists" ("SFAS
      48").  SAB 101 states that revenue should not be recognized until it
      is realized or realizable and earned.  Revenue is realized or
      realizable and earned when all of the following criteria are met:
      (1) persuasive evidence of an arrangement exists; (2) delivery has occurred
      or services have been rendered; (3) the seller's price to the buyer is
      fixed or determinable; and (4) collectibility is reasonably
      assured.  SFAS 48 states that revenue from sales transactions where
      the buyer has the right to return the product shall be recognized at the time
      of
      sale only if (1) the seller's price to the buyer is substantially fixed or
      determinable at the date of sale, (2) the buyer has paid the seller, or the
      buyer is obligated to pay the seller and the obligation is not contingent on
      resale of the product, (3) the buyer's obligation to the seller would not
      be changed in the event of theft or physical destruction or damage of the
      product, (4) the buyer acquiring the product for resale has economic
      substance apart from that provided by the seller, (5) the seller does not
      have significant obligations for future performance to directly bring about
      resale of the product by the buyer, and (6) the amount of future returns
      can be reasonably estimated.





**Product
      Sales**





The
      Company recognizes revenues for product sales at the time title and risk of
      loss
      are transferred to the customer, and the other criteria of SAB 101 and SFAS
      48
      are satisfied, which is generally at the time products are shipped to
      customers.  At the time gross revenue is recognized from product
      sales, an adjustment, or decrease, to revenue for estimated rebates, discounts
      and returns is also recorded.  This revenue reserve is determined on a
      product-by-product basis.  The rebate or discount reserve is recorded
      in accordance with Emerging Issues Task Force (EITF) Issue No. 01-9,
      "*Accounting for Consideration Given by a Vendor to a Customer"*, which
      states that cash consideration given by a vendor to a customer is presumed
      to be
      a reduction of the selling prices of the vendor's products or services and,
      therefore, should be characterized as a reduction of revenue when recognized
      in
      the vendor's income statement.  At the time product is shipped, an
      adjustment is recorded for estimated rebates and discounts based on the
      contractual terms with customers.  Revenue reserves including return
      allowances are established by management as its best estimate at the time of
      sale based on each product's historical experience adjusted to reflect known
      changes in the factors that impact such reserves.





In
      the
      case of a new product like SOLTAMOX, which the Company introduced in the second
      half of 2006, product shipments made to wholesalers do not meet the revenue
      recognition criteria of SFAS 48 and SAB 101.  Because the Company
      cannot reliably estimate expected





F
            - 17
 *Table
            of Contents*





returns
      for this new product, the Company will defer recognition of revenue until the
      right of return no longer exists or until the Company develops sufficient
      historical experience to estimate sales returns.  In 2006,
      approximately $1.1 million of SOLTAMOX was shipped to
      wholesalers.  For these product shipments, the Company invoices the
      wholesalers, records the payment received as "Customer Liability", and
      classifies the inventory shipped to wholesalers as "Inventory at Wholesalers",
      $93,000 at December 31, 2006, at the Company's cost of goods for such
      inventory.  The Company recognizes revenue for SOLTAMOX when such
      product is sold through to the end users, on a first-in first-out
      (FIFO) basis.  Additionally, royalty amount due based on unit
      shipments to wholesalers is deferred and recognized as royalty expense as those
      units are sold through and recognized as revenue.  The Company has the
      right to offset royalties paid for product that are later returned against
      subsequent royalty obligations.  Expenses related to shipments of
      SOLTAMOX, for which the Company does not have the ability to recover if and
      when
      the products are returned, are expensed as incurred.





When
      available, the Company may use the following information to estimate the
      prescription-based sales for SOLTAMOX and to estimate gross-to-net sales
      adjustments: (1) the estimated prescription-based sales, (2) the Company's
      analysis of third-party information, including information obtained from certain
      wholesalers with respect to their inventory levels and sell-through to customers
      and third-party market research data, and (3) the Company's internal product
      sales information.  The Company's estimates will be subject to the
      inherent limitations of estimates that rely on third-party data, as certain
      third-party information is itself in the form of estimates, and reflect other
      limitations.  The Company's sales and revenue recognition for SOLTAMOX
      will reflect the Company's estimates of actual product sold through to the
      end
      user.





License
      and contract revenues include milestone payments and fees under collaborative
      agreements with third parties, revenues from research services, and revenues
      from other miscellaneous sources.  The Company defers non-refundable
      up-front license fees and recognizes them over the estimated performance period
      of the related agreement, when the Company has continuing
      involvement.  Since the term of the performance periods is subject to
      management's estimates, future revenues to be recognized could be affected
      by
      changes in such estimates.





In
      accordance with EITF No. 00-10, the Company records shipping and handling
      charges billed to customers as revenue and the related costs as cost of product
      revenues.





**Research
      and Development**





Research
      and development expenditures consist of projects conducted by the Company and
      payments made for sponsored research programs and consultants.  All
      research and development costs are charged to expense as incurred.


F
              - 18
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              of Contents*


**Advertising
      Costs**





Advertising
      costs are charged to expense as incurred.  In 2006, 2005 and 2004, the
      advertising costs were $2.1 million, $710,000 
and  $710,000, respectively, and are included
      in selling, general and administrative in the Company's consolidated statements
      of operations.





**Patent
      Costs**





Patent
      costs are charged to expense as incurred.





**Rent
      Expense**





Rental
      expenses for the Company's corporate offices are recognized over the term of
      the
      lease.  The Company recognizes rent starting when possession of the
      facility is taken from the landlord.  When a lease contains a
      predetermined fixed escalation of the minimum rent, the Company recognizes
      the
      related rent expense on a straight-line basis and records the difference between
      the recognized rental expense and the amounts payable under the lease as
      deferred lease credits.  Tenant leasehold improvement allowances are
      reflected in Accounts Payable and Accrued Liabilities in the consolidated
      balance sheet and are amortized as a reduction to rent expense in the statement
      of operations over the term of the lease.





**Income
      Taxes**





The
      Company accounts for income taxes under the asset and liability method in
      accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets
      and liabilities are recognized for the future tax consequences attributable
      to
      differences between the financial statement carrying amounts of existing assets
      and liabilities and their respective tax bases and operating loss and tax credit
      carryforwards.  Deferred tax assets and liabilities are measured using
      enacted tax rates expected to apply to taxable income in the years in which
      those temporary differences are expected to be recovered or
      settled.  The effect on deferred tax assets and liabilities of a
      change in tax rates is recognized in income in the period that includes the
      enactment date.





**Net
      Loss Per Share**





Basic
      net
      loss per common share is calculated by dividing the Company's net loss by the
      weighted-average common shares outstanding during each
      period.  Diluted net loss per common share is the same as basic net
      loss per share for each of the three years ended December 31, 2006, 2005 and
      2004, because the inclusion of common stock equivalents, which consist of
      nonvested shares, warrants and options to purchase shares of the Company's
      common stock, would be antidilutive due to the Company's losses (see Notes
      12
      and 13).





**Variable
      Interest Entities**





Financial
      Accounting Standards Board ("FASB") Interpretation No. 46 ("FIN 46R"),
      "Consolidation of Variable Interest Entities" ("VIEs"), addresses how a business
      enterprise 
 F
              - 19
 *Table
              of Contents*
 should
        evaluate whether it has a controlling financial interest in an entity through
        means other than voting rights and accordingly should consolidate the
        entity.  The Company was required to apply FIN 46R to variable
        interests in VIEs created after December 31, 2003.  For variable
        interests in VIEs created before January 1, 2004, FIN 46R applied beginning
        on
        March 31, 2004.





In
      June
      1999, Cytogen entered into a joint venture with Progenics Pharmaceuticals Inc.
      ("Progenics") to form the PSMA Development Company LLC (the "Joint
      Venture").  The Company sold its 50% ownership interest in the Joint
      Venture to Progenics in April 2006.  Cytogen accounted for the Joint
      Venture using the equity method of accounting.  The Company was not
      required to consolidate the Joint Venture under the requirements of FIN
      46R.





**Share-Based
      Compensation**





Effective
      January 1, 2006, the Company adopted SFAS No. 123(R), "Share-Based Payment,"
      using the modified prospective transition method.  Under this method,
      compensation expense is reflected in the financial statements beginning January
      1, 2006 with no restatement to the prior periods.  As such,
      compensation expense, which is measured based on the fair value of the
      instrument on the grant date, is recognized for awards that are granted,
      modified, repurchased or cancelled on or after January 1, 2006 as well as for
      the portion of awards previously granted that have not vested as of January
      1,
      2006.  The Company has adopted the straight-line expense attribution
      method for all options granted after January 1, 2006.  Compensation
      costs associated with awards granted prior to the adoption of SFAS 123(R) are
      recognized using the accelerated attribution method in accordance with FASB
      Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
      Variable Stock Option or Award Plan ("FIN 28"), consistent with the Company's
      prior policy.  Prior to the adoption of SFAS 123(R), the Company
      accounted for its stock-based employee compensation expense under the
      recognition and measurement principles of Accounting Principles Board Opinion
      No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related
      interpretations.





**Other
      Comprehensive Income**





The
      Company follows SFAS No. 130, "Reporting Comprehensive Income."  This
      statement requires the classification of items of other comprehensive income
      by
      their nature and disclosure of the accumulated balance of other comprehensive
      income separately from retained earnings and additional paid-in capital in
      the
      equity section of the balance sheet.





**Recent
      Accounting Pronouncements**





*Accounting
      for Registration Payment Arrangements*





On
      December 21, 2006, the FASB issued FASB Staff Position No. EITF 00-19-2,
      "Accounting for Registration Payment Arrangements" ("EITF 00-19-2"), which
      addresses an issuer's accounting for registration payment
      arrangements.  EITF 00-19-2 specifies that the contingent obligation
      to make future payments or otherwise transfer consideration under a registration
      payment arrangement, whether issued as a separate agreement or included as
      a
      provision of a financial instrument or other agreement, should be separately
      recognized and 
 F
              - 20
 *Table
              of Contents*
 measured
        in accordance with FASB Statement No. 5, Accounting for
        Contingencies.  EITF 00-19-2 further clarifies that a financial
        instrument subject to a registration payment arrangement should be accounted
        for
        in accordance with other applicable accounting literature without regard
        to the
        contingent obligation to transfer consideration pursuant to the registration
        arrangement.  EITF 00-19-2 is effective immediately for new and
        modified registration payment arrangements.  Early adoption of EITF
        00-19-2 for the interim or annual period for which the financials statements
        have not been issued is permitted.  The Company elected to adopt EITF
        00-19-2 at the beginning of the fourth quarter 2006.  The adoption of
        EITF 00-19-2 did not have any impact on the Company's consolidated financial
        statements in the year ended December 31, 2006.





*Evaluation
      of Misstatements*





On
      September 13, 2006, the staff of the SEC issued Staff Accounting Bulletin No.
      108, "Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements" ("SAB 108"), which provides
      interpretive guidance on how the effects of prior year misstatements should
      be
      considered in evaluating a current year misstatement.  The cumulative
      effect from the initial adoption of SAB 108 may be reported as a cumulative
      effect adjustment to the beginning of year retained earnings with disclosure
      of
      the nature and amount of each individual error.  The Company applied
      the provisions of SAB 108 in the fourth quarter of 2006.  The adoption
      of SAB 108 did not have a material impact on the Company's consolidated
      financial statements.





*Fair
      Value Measurements*





On
      September 15, 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
      ("SFAS 157").  SFAS 157 defines fair value, establishes a framework
      for measuring fair value and expands disclosures about fair value
      measurements.  SFAS 157 is effective as of the beginning of the first
      fiscal year beginning after November 15, 2007.  The Company will be
      required to adopt this statement in the first quarter of
      2008.  Management is currently evaluating the requirements of SFAS 157
      and has not yet determined the impact this standard will have on its
      consolidated financial statements.





*Income
      Taxes*





In
      June
      2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
      in
      Income Taxes" ("FIN 48").  FIN 48 is applicable for fiscal years
      beginning after December 15, 2006.  This Interpretation clarifies the
      accounting for uncertainty in income taxes recognized in an enterprise's
      financial statements in accordance with FASB Statement No. 109, "Accounting
      for
      Income Taxes."**This Interpretation prescribes a recognition
      threshold and measurement attribute for the financial statement recognition
      and
      measurement of a tax position taken or expected to be taken in a tax
      return.  This Interpretation also provides guidance on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure, and transition.  The Company is currently evaluating the
      impact of the adoption of FIN 48 upon its financial statements and related
      disclosures.  The Company does not expect that the adoption will have
      a material effect on its results of operations or financial
      condition.





F
            - 21
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            of Contents*





*Sales
      Tax*





In
      March
      2006, the FASB's Emerging Issues Task Force released Issue 06-3, "How Sales
      Taxes Collected From Customers and Remitted to Governmental Authorities Should
      Be Presented in the Income Statement" ("EITF 06-3").  A consensus was
      reached that entities may adopt a policy of presenting sales taxes in the income
      statement on either a gross or net basis.  If taxes are significant,
      an entity should disclose its policy of presenting sales taxes and the amount
      of
      sales taxes if reflected on a gross basis in the income
      statement.  The guidance is effective for periods beginning after
      December 15, 2006.  The Company presents sales net of sales taxes in
      its consolidated statements of operations and does not anticipate changing
      its
      policy as a result of EITF 06-3.





*Abnormal
      Inventory Costs*





In
        November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
        of ARB No. 43, Chapter 4" ("SFAS No. 151"), to clarify that abnormal
        amounts of idle facility expense, freight, handling costs, and wasted material
        (spoilage) should be recognized as current period charges, and that fixed
        production overheads should be allocated to inventory based on the normal
        capacity of production facilities.  This statement is effective for
        inventory costs incurred during fiscal years beginning after June 15,
        2005.  Accordingly, the Company adopted SFAS No. 151 in its fiscal
        year beginning January 1, 2006.  The adoption of this standard
        did not have any impact on the Company in the year ended December 31,
        2006.





**Reclassification**





Certain
      amounts in prior years' consolidated financial statements have been reclassified
      to conform to the current year presentation.





**2.**
            **ADVANCED
                MAGNETICS, INC.**





In
      August
      2000, the Company and Advanced Magnetics, Inc., a developer of superparamagnetic
      iron oxide nanoparticles used in pharmaceutical products, entered into
      marketing, license and supply agreements (the "AVM
      Agreements").  Under the AVM Agreements, Cytogen acquired certain
      rights in the United States to Advanced Magnetics' product candidates:
      COMBIDEX®, an
      investigational functional molecular imaging agent for all applications; and
      ferumoxytol (formerly referred to as Code 7228) for oncology applications
      only.  Advanced Magnetics will be responsible for all costs associated
      with the clinical development of, and if approved by the FDA, the supply and
      manufacture of COMBIDEX and ferumoxytol and will receive product transfer
      payments and royalties based upon product sales or certain minimum payments
      from
      Cytogen, whichever is greater.  The Company had no funding obligation
      regarding research and development for Advanced Magnetics and the Company did
      not earn any compensation nor incur any costs for the research and development
      activities related to COMBIDEX in 2006, 2005 and 2004.





In
      January 2006, the Company filed a complaint against Advanced Magnetics in the
      Massachusetts Superior Court for breach of contract, fraud, unjust enrichment,
      and breach of the implied covenant of good faith and fair dealing in connection
      with the parties' 2000 license





F
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 *Table
            of Contents*





agreement.  The
      complaint sought damages along with a request for specific performance requiring
      Advanced Magnetics to take all reasonable steps to secure FDA approval of
      Combidex in compliance with the terms of the licensing agreement.  In
      February 2006, Advanced Magnetics filed an answer to the Company's complaint
      and
      asserted various counterclaims, including tortuous interference, defamation,
      consumer fraud and abuse of process.  In February 2007, the Company
      settled its lawsuit against Advanced Magnetics, as well as Advanced Magnetics'
      counterclaims against Cytogen, by mutual agreement.  Under the terms
      of the settlement agreement, Advanced Magnetics paid $4.0 million to the Company
      and will release 50,000 shares of Cytogen common stock currently being held
      in
      escrow.  In addition, both parties agreed to early termination of the
      licensing agreement.





**3.**
            **ACQUISITION
                OF PROSTAGEN, INC.**





Pursuant
      to a Stock Exchange Agreement (the "Prostagen Agreement") related to the
      Company's acquisition of Prostagen Inc. ("Prostagen") in June 1999, the Company
      agreed to issue up to an additional $4.0 million worth of Cytogen Common Stock
      to the shareholders and debtholders of Prostagen (the "Prostagen Partners"),
      if
      certain milestones are achieved in the dendritic cell therapy and PSMA
      development programs.  In May 2002, the Company entered into an
      Addendum to the Prostagen Agreement (the "Addendum"), which clarifies the future
      milestone payments to be made under the Prostagen Agreement, as well as the
      timing of such payments.  Pursuant to the Addendum, the Company may be
      obligated to pay two additional milestone payments of $1.0 million each, upon
      certain clinical achievements regarding the PSMA development
      programs.  In November 2004, the Company entered into Addendum No. 2
      to the Prostagen Agreement (the "Second Addendum"), which further clarifies
      the
      future milestone payments to be made under the Prostagen
      Agreement.  Pursuant to the Second Addendum, the Company issued 92,799
      shares and 50,000 shares of Common Stock to the Prostagen Partners in 2005
      and
      2004, respectively.  As a result, the Company recorded charges to
      research and development expense of $500,000 and $497,000 in 2005 and 2004,
      respectively.  The Company may be obligated to pay an additional
      milestone payment of $1.0 million payable in shares of Cytogen common stock,
      upon certain clinical achievements regarding the PSMA development
      programs.





**4.**
            **PSMA
                DEVELOPMENT COMPANY LLC**





In
      June
      1999, Cytogen entered into a joint venture with Progenics to form the PSMA
      Development Company LLC (the "Joint Venture"), a development stage
      enterprise.  The Joint Venture was developing antibody-based and
      vaccine immunotherapeutic products utilizing Cytogen's proprietary PSMA
      technology.  The Joint Venture was owned equally by Cytogen and
      Progenics until April 20, 2006 (see below).  Cytogen accounted for the
      Joint Venture using the equity method of accounting.  Cytogen had
      recognized 50% of the Joint Venture's operating results in its consolidated
      statements of operations until April 20, 2006, when the Company entered into
      a
      Membership Interest Purchase Agreement with Progenics to sell the Company's
      50%
      ownership interest in the Joint Venture.  In addition, the Company
      entered into an Amended and Restated PSMA/PSMP License Agreement with Progenics
      and the Joint Venture pursuant to which the Company licensed the Joint Venture
      certain rights in PSMA technology.  Under the terms of such
      agreements, the Company sold its 50% interest in the Joint Venture for a
      cash





F
            - 23
 *Table
            of Contents*





payment
      of $13.2 million, potential future milestone payments totaling up to $52 million
      payable upon regulatory approval and commercialization of the Joint Venture
      products, and royalties on future product sales of the  Joint Venture,
      if any.  Cytogen has no continuing involvement and no further
      obligations to provide any products, services, or financial support to the
      Joint
      Venture.  This transaction was a sale of an asset in which the
      consideration was fully received and for which the earning process is
      complete.  As a result, the Company recorded $12.9 million in gain on
      sale of equity interest in the Joint Venture in the second quarter of 2006,
      which represents the net proceeds after transaction costs less the carrying
      value of the Company's investment in the Joint Venture at the time of
      sale.





For
      the
      years ended December 31, 2006, 2005 and 2004, Cytogen recognized $120,000,
      $3.2
      million and $2.9 million, respectively, in losses of the Joint
      Venture.  In 2005 and 2004, each Member contributed capital of $4.0
      million and $2.0 million, respectively, to the Joint Venture.  No
      capital contribution was made in 2006.  As of December 31, 2005, the
      carrying value of the Company's investment in the Joint Venture was $379,000,
      which represents Cytogen's investment in the Joint Venture, less its cumulative
      share of losses, which net investment is recorded in other assets (see Note
      1).  Selected financial statement information of the Joint Venture, is
      as follows (all amounts in thousands):





**Balance
      Sheet Data:**





**December
                31,**
              **2005****ASSETS:**Cash
            
            $
            873Prepaid
                expenses
            
            
            9Accounts
                receivable from Progenics Pharmaceuticals, Inc., a related
                party
            
            
            194$
            1,076**LIABILITIES
                AND MEMBERS' EQUITY:**Accounts
                payable to Cytogen Corporation, a related party
            
            $
            3Accounts
                payable and accrued
                expenses
            
            
            332Total
                liabilities
            
            
            335Capital
                contributions
            
            
            31,198Deficit
                accumulated during the development stage
            
            
            (30,457
            )Total
                members'
                equity
            
            
            741Total
                liabilities and members'
                equity
            
            $
            1,076





F
            - 24
 *Table
            of Contents*





**Income
      Statement Data:**





**From**
                **January
                  1,**
                **2006
                  to**
                **April
                  20,**
                **2006**
            
            
            **Year**
                **Ended**
                **December****31,**
                **2005**
            
            
            **Year**
                **Ended**
                **December****31,**
                **2004**
            
            
            **For
                  the Period**
              **From**
                **June
                  15,****1999**
                **(inception)**
                **to
                  April 20,**
              **2006**Interest
                income
            
            $
            6
            
            
            $
            9
            
            
            $
            7
            
            
            $
            256Total
                expenses
            
            
            246
            
            
            
            6,358
            
            
            
            5,799
            
            
            
            30,953Net
                loss
            
            $
            (240
            )
            
            $
            (6,349
            )
            
            $
            (5,792
            )
            
            $
            (30,697
            )





Prior
      to
      the sale of its interest in the Joint Venture in April 2006, the Company
      provided limited research and development services to the Joint
      Venture.  During 2005 and 2004, the Company recorded revenue related
      to the Joint Venture of $185,000 and $106,000, respectively, and incurred costs
      of $151,000 and $88,000, respectively.  The Company did not provide
      any research and development services to the Joint Venture in 2006.





**5.**
            **THE
                DOW CHEMICAL COMPANY**





In
      1993,
      Cytogen acquired an exclusive license from The Dow Chemical Company for
      QUADRAMET for the treatment of osteoblastic bone metastases in the United
      States.  This license was amended in 1995 to expand the territory to
      include Canada and Latin America and again in 1996 to expand the field to
      include all osteoblastic diseases.  The agreement requires the Company
      to pay Dow royalties based on a percentage of net sales of QUADRAMET, or a
      guaranteed annual minimum payment, whichever is greater, and future payments
      upon the achievement of certain milestones.  The Company recorded $1.0
      million in royalty expense for each of 2006, 2005 and 2004.  Future
      annual minimum royalties due to Dow are $1.0 million per year in 2007 through
      2012 and $833,000 in 2013.





In
      May
      2005, the Company entered into a license agreement with Dow to create a targeted
      oncology product designed to treat prostate and other cancers.  The
      agreement applies proprietary MeO-DOTA bifunctional chelant technology from
      Dow
      to radiolabel Cytogen's PSMA antibody with a therapeutic
      radionuclide.  Under the agreement, proprietary chelation technology
      and other capabilities, provided through ChelaMedSM radiopharmaceutical services
      from Dow, will be used to attach a therapeutic radioisotope to the same murine
      monoclonal antibody utilized in Cytogen's PROSTASCINT molecular imaging agent
      which is called 7E11-C5.3 ("7E11").  The 7E11 antibody was excluded
      from the PSMA technology licensed to the Joint Venture.  As a result
      of the agreement, Cytogen is obligated to pay a minimal license fee and
      aggregate future milestone payments of $1.9 million for each licensed product,
      if approved, and royalties based on sales of related products, if
      any.  Unless terminated earlier, the Dow agreement terminates on the
      later of (a) the tenth anniversary of the date of first commercial sale for
      each
      licensed product or (b) the expiration of the last to expire valid claim that
      would be infringed by the sale of the licensed product.  The Company
      may terminate the license agreement with Dow on 90 days written
      notice.





F
            - 25
 *Table
            of Contents*





**6.**
            **BERLEX
                LABORATORIES INC.**





On
      August
      1, 2003, the Company reacquired marketing rights to QUADRAMET in North America
      and Latin America from Berlex Laboratories Inc. ("Berlex") in exchange for
      an
      up-front payment of $8.0 million and royalties based on future sales of
      QUADRAMET.  As a result of the agreement, the Company began recording
      product revenue from the sales of QUADRAMET.  The up-front license
      payment of $8.0 million was capitalized in 2003 as the QUADRAMET license fee
      in
      the accompanying consolidated balance sheet and is being amortized on a
      straight-line basis over approximately twelve years, which is the estimated
      performance period of the agreement (see Note 1).  Cytogen also
      recorded $1.3 million, $1.4 million and $1.2 million of royalty expenses to
      Berlex based on its sales of QUADRAMET in 2006, 2005 and 2004, respectively,
      as
      cost of product revenues.





**7.**
            **BRISTOL-MYERS
                SQUIBB MEDICAL IMAGING,
                INC.**





Effective
      January 1, 2004, the Company entered into a manufacturing and supply agreement
      with Bristol-Myers Squibb Medical Imaging, Inc. ("BMSMI"), whereby BMSMI will
      manufacture, distribute and provide order processing and customer service for
      Cytogen relating to QUADRAMET.  Under the terms of the agreement,
      Cytogen is obligated to pay at least $4.9 million annually, subject to future
      annual price adjustment, through 2008, unless terminated by BMSMI or Cytogen
      on
      two years prior written notice.  This agreement will automatically
      renew for five successive one-year periods unless terminated by BMSMI or Cytogen
      on two years prior written notice.  During 2006, 2005 and 2004, the
      Company incurred $4.5 million, $4.3 million and $4.2 million, respectively,
      of
      manufacturing costs for QUADRAMET, of which $4.3 million, $4.2 million and
      $4.1
      million, respectively, are included in cost of product revenue and the remaining
      expenses for each respective period are charged to research and development
      expenses for clinical supplies.  The Company also pays BMSMI a
      variable amount per month for each QUADRAMET order placed to cover the costs
      of
      customer service which is included in selling, general and administrative
      expenses.





The
      two
      primary components of QUADRAMET, particularly Samarium-153 and EDTMP, are
      provided to BMSMI by outside suppliers.  BMSMI obtains its supply of
      Samarium-153 from a sole supplier, and EDTMP from another sole
      supplier.  Alternative sources for these components may not be readily
      available, and any alternate suppliers would have to be identified and
      qualified, subject to all applicable regulatory guidelines.  If BMSMI
      cannot obtain sufficient quantities of these components on commercially
      reasonable terms, or in a timely manner, it would be unable to manufacture
      QUADRAMET on a timely and cost-effective basis.





**8.**
            **LAUREATE
                PHARMA, L.P.**





In
      September 2004, the Company entered into a non-exclusive manufacturing agreement
      with Laureate Pharma, L.P. pursuant to which Laureate manufactured PROSTASCINT
      and its primary raw materials for Cytogen in Laureate's Princeton, New Jersey
      facility.  Laureate is the sole manufacturer of PROSTASCINT and its
      antibodies.  The agreement terminated in the third quarter of 2006,
      upon Laureate's completion of the specified production campaign for POSTASCINT
      and shipment of the resulting products from Laureate's
      facility.  Under the terms





F
            - 26
 *Table
            of Contents*





of
      the
      agreement, the Company incurred $35,000 and $1.8 million for the years ended
      December 31, 2006 and 2005, respectively, all of which were recorded as
      inventory when purchased.





In
      September 2006, the Company entered into a non-exclusive manufacturing agreement
      with Laureate pursuant to which Laureate shall manufacture PROSTASCINT and
      its
      primary raw materials for Cytogen in Laureate's Princeton, New Jersey
      facility.  The agreement will terminate, unless terminated earlier
      pursuant to its terms, upon Laureate's completion of the specified production
      campaign for PROSTASCINT and shipment of the resulting products from Laureate's
      facility.  Under the terms of the agreement, the Company anticipates
      it will pay at least an aggregate of $3.9 million through the end of the term
      of
      contract, of which $500,000 was incurred and paid in 2006 and recorded as
      inventory when purchased.





**9.**
            **REVENUES
                FROM MAJOR CUSTOMERS**





Revenues
      from major customers (greater than 10%) as a percentage of total revenues were
      as follows:





**Year
                  Ended December 31,****2006**
            
            
            **2005**
            
            
            **2004**Cardinal
                Health (formerly Syncor International Corporation)
            
            
            41
            %
            
            
            47
            %
            
            
            46
            %Mallinckrodt
                Inc.
            
            
            14
            %
            
            
            11
            %
            
            
            12
            %GE
                Healthcare (formerly Amersham Health)
            
            
            9
            %
            
            
            9
            %
            
            
            10
            %





Cardinal
      Health, Mallinckrodt Inc. and GE Healthcare are chains of radiopharmacies,
      which
      distribute PROSTASCINT and QUADRAMET.





As
      of
      December 31, 2006 and 2005, the receivables from the above-mentioned major
      customers accounted for 56% and 60%, respectively, of gross accounts
      receivable.





F
            - 27
 *Table
            of Contents*





**10.**
            **ACCOUNTS
                PAYABLE AND ACCRUED
                LIABILITIES**





Significant
      components of the accounts payable and accrued liabilities were as
      follows:





**December
                  31,****2006**
            
            
            **2005****(All
                amounts in thousands)**Accounts
                payable
            
            $
            2,199
            
            
            $
            1,288Accrued
                payroll, sales commission and related expenses
            
            
            1,766
            
            
            
            656Accrued
                royalty
                expense
            
            
            909
            
            
            
            764Accrued
                professional and legal
                expenses
            
            
            806
            
            
            
            451Accrued
                research contracts and
                materials
            
            
            467
            
            
            
            734Accrued
                manufacturing
                costs
            
            
            170
            
            
            
            453Accrued
                marketing
                expenses
            
            
            1,545
            
            
            
            307Liability
                to InPharma (see Note
                19)
            
            
            1,000
            
            
            
            --Insurance
                liability
            
            
            338
            
            
            
            261Other
                accruals
            
            
            904
            
            
            
            357$
            10,104
            
            
            $
            5,271





**11.**
            **LONG-TERM
                LIABILITIES**





Components
      of long-term liabilities were as follows:





**December
                  31,****2006**
            
            
            **2005****(All
                amounts in thousands)**Capital
                lease
                obligations
            
            $
            123
            
            
            $
            72Warrant
                liabilities
            
            
            6,464
            
            
            
            1,8696,587
            
            
            
            1,941Less:
                Current portion of long-term liabilities
            
            
            (64
            )
            
            
            (26
            )$
            6,523
            
            
            $
            1,915





In
      August
      1998, Cytogen received $2.0 million from Elan Corporation, plc ("Elan") in
      exchange for a convertible promissory note.  The note bore annual
      interest of 7%, compounded semi-annually, however, such interest was not payable
      in cash but was added to the principal for the first 24 months; thereafter,
      interest was payable in cash.  The Company recorded $98,000 and
      $160,000 in interest expense on this note for 2005 and 2004,
      respectively.  In August 2005, the Company made a payment of $2.3
      million to satisfy its obligations on the $2.0 million promissory note and
      $280,000 unpaid accrued interest.





The
      Company leases certain equipment under capital lease obligations, which will
      expire on various dates through 2009.  The leased equipment in the
      gross amount of $202,000 and $108,000 at December 31, 2006 and 2005,
      respectively, are included in the Property and





F
            - 28
 *Table
            of Contents*





Equipment
      in the accompanying consolidated balance sheet with the related accumulated
      depreciation of $118,000 and $51,000 at December 31, 2006 and 2005,
      respectively.  Depreciation of assets held under capital leases is
      included with depreciation expense.  Payments to be made under capital
      lease obligations (including total interest of $19,000) are $75,000 in 2007,
      $55,000 in 2008 and $12,000 in 2009.  The Company has the option to
      purchase the leased equipment at its fair value or for a dollar, depending
      on
      the term of each respective lease.





In
      July
      and August 2005, the Company sold 3,104,380 shares of its common stock and
      776,096 warrants to purchase shares of its common stock having an exercise
      price
      of $6.00 per share (see Note 12).  These warrants are exercisable
      beginning six months and ending ten years after their issuance.  The
      shares of common stock underlying the warrants were registered under the
      Company's existing shelf registration statement.  The Company is
      required to maintain the effectiveness of the registration statement as long
      as
      any warrants are outstanding.





Under
      EITF 00-19, to qualify as permanent equity, the equity derivative must permit
      the issuer to settle in unregistered shares.  The Company does not
      have that ability under the securities purchase agreement for the warrants
      issued in July and August 2005 and, as EITF 00-19 considers the ability to
      keep
      a registration statement effective as beyond the Company's control, the warrants
      cannot be classified as permanent equity and are instead classified as a
      liability in the accompanying consolidated balance sheets.  Upon
      issuance of the warrants in July and August 2005, the Company recorded the
      warrant liability at its initial fair value of $3.5 million using the
      Black-Scholes option-pricing model with the following assumptions:





July
                20,
              2005
            
            
            August
                2,
              2005
            
            
            December
                31,
              2005
            
            
            December
                31,
              2006Dividend
                yield
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %Expected
                volatility
            
            
            105.27
            %
            
            
            105.03
            %
            
            
            105.86
            %
            
            
            104.00
            %Expected
                life
            10.0
                years
            10.0
                years
            9.6
                years
            8.6
                yearsRisk-free
                interest rate
            
            
            4.25
            %
            
            
            4.41
            %
            
            
            4.40
            %
            
            
            4.77
            %Company
                Common Stock Price
            
            $
            4.92
            
            
            $
            5.04
            
            
            $
            2.74
            
            
            $
            2.33





In
      November 2006, the Company sold to certain institutional investors 7,092,203
      shares of its common stock and 3,546,107 warrants to purchase shares of its
      common stock with an exercise price of $3.32 per share (see Note
      12).  These warrants are exercisable beginning six months and ending
      five years after their issuance.  The warrant agreement contains a
      cash settlement feature, which is available to the warrant holders at their
      option, upon an acquisition in certain circumstances.  As a result,
      the warrants cannot be classified as permanent equity and are instead classified
      as a liability at their fair value in the accompanying consolidated balance
      sheet.  Upon issuance of the warrants in November 2006, the Company
      recorded the warrant liability at its initial fair value of $5.6 million using
      the Black-Scholes option-pricing model with the following
      assumptions:





F
            - 29
 *Table
            of Contents*








November
                10, 2006
            
            
            December
                31, 2006Dividend
                yield
            
            
            0
            %
            
            
            0
            %Expected
                volatility
            
            
            81.11
            %
            
            
            80.15
            %Expected
                life
            5.0
                years
            4.9
                yearsRisk-free
                interest
                rate
            
            
            4.61
            %
            
            
            4.74
            %Company
                Common Stock Price
            
            $
            2.53
            
            
            $
            2.33





Equity
      derivatives not qualifying for permanent equity accounting are recorded at
      fair
      value and are remeasured at each reporting date until the warrants are exercised
      or expire.  Changes in the fair value of the warrants issued in 2005
      and 2006 as described above will be reported in the consolidated statements
      of
      operations as non-operating income or expense.  At December 31, 2006,
      the aggregate fair value of these warrants decreased to $6.5 million, using
      the
      Black-Scholes option pricing model with the respective assumptions in the
      preceding tables, from their initial fair value or the fair value at December
      31, 2005, as applicable, resulting in a gain of $1.0 million for the year ended
      December 31, 2006.  At December 31, 2005, the fair value of the
      warrants decreased to $1.9 million, from their initial fair value, resulting
      in
      a gain of $1.7 million for the year ended December 31, 2005.





**12.**
            **PREFERRED
                STOCK, COMMON STOCK AND
                WARRANTS**





On
      November 10, 2006, the Company sold to certain institutional investors 7,092,203
      shares of its common stock and 3,546,107 warrants to purchase shares of its
      common stock, through a private placement offering.  The warrants have
      an exercise price of $3.32 per share and are exercisable beginning six months
      and ending five years after their issuance.  The warrant agreement
      contains a cash settlement feature, which is available to the warrant holders
      at
      their option, upon an acquisition in certain circumstances (see
      Note 11).  In exchange for $2.82, the purchasers received one share of
      common stock and warrants to purchase .5 shares of common stock.  The
      offering provided net proceeds of approximately $18.4 million to the
      Company.  The placement agents in this transaction received a fee
      equal to 7% of the aggregate gross proceeds.  In connection with this
      sale, the Company entered into a Registration Rights Agreement with the
      investors under which, the Company was obligated to file a registration
      statement with the SEC for the resale of Cytogen shares sold to the investors
      and shares issuable upon exercise of the warrants within a specified time
      period.  The Company is also required to use commercially reasonable
      efforts to cause the registration to be declared effective by the SEC and to
      remain continuously effective until such time when all of the registered shares
      are sold or three years from closing date, whichever is earlier.  In
      the event the Company fails to keep the registration statement effective, the
      Company is obligated to pay the investors liquidation damages equal to 1% of
      the
      purchase price paid by the investors ($20 million) for each thirty-day period
      that the registration statement is not effective, up to 10%.  On
      December 28, 2006, the SEC declared the registration statement
      effective.  The Company concluded that the contingent obligation was
      not probable, and therefore no contingent liability was recorded as of December
      31, 2006.





In
      December 2005, the Company sold 3,729,556 shares of its common stock and 932,390
      warrants to purchase shares of its common stock, through a registered direct
      offering.  The warrants have an exercise price of $4.25 per share and
      are exercisable beginning six months and ending five years after their
      issuance.  In exchange for $3.56, the purchasers received one
      share





F
            - 30
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            of Contents*





of
      common
      stock and warrants to purchase .25 shares of common stock.  The
      offering provided net proceeds of approximately $12.5 million to the
      Company.  The placement agent in this transaction received
      compensation consisting of (i) a cash fee equal to 5% of the aggregate gross
      proceeds and (ii) warrants to purchase 186,478 shares of Cytogen common stock
      having an exercise price of $4.25 per share and exercisable beginning six months
      and ending five years after their issuance (see Note 13).





In
      July
      and August 2005, the Company sold 3,104,380 shares of its common stock and
      776,096 warrants to purchase shares of its common stock having an exercise
      price
      of $6.00 per share, through a registered direct offering.  In exchange
      for $4.50, the purchasers received one share of common stock and warrants to
      purchase .25 shares of common stock.  These warrants are exercisable
      beginning six months and ending ten years after their issuance.  The
      transaction provided net proceeds of approximately $13.9 million to the Company
      (see Note 11).





In
      June
      2005, the Company stockholders approved an amendment to the Company's
      Certificate of Incorporation to increase the total authorized shares of common
      stock of the Company from 25,000,000 to 50,000,000 shares.





In
      April
      2004, the Company issued and sold 2,570,000 shares of its common stock for
      $10.10 per share through a registered direct offering that provided net proceeds
      of approximately $23.9 million after the payment of placement agent fees and
      expenses related to the offering.





In
      2005
      and 2004, the Company issued to certain members of Cytogen's Board of Directors
      an aggregate total of 4,000 and 873 shares, respectively, of its common stock
      as
      compensation for their services as directors of the Company.  No
      shares were issued as compensation in 2006.





See
      Note
      3 for information regarding Cytogen common stock issued to the Prostagen
      Partners, and Notes 13 and 14 for information regarding Cytogen common stock
      issued to employees under the stock option and employee stock purchase plans
      and
      401(k) plan, respectively.





As
      of
      December 31, 2006 and 2005, including warrants to purchase Cytogen common stock
      issued to non-employees (see Note 13), the Company has outstanding warrants
      to
      purchase 7,279,193 and 3,803,086 shares, respectively, of Cytogen common stock
      at exercise prices ranging from $3.32 to $12.80 per share in 2006, and at
      exercise prices ranging from $4.25 to $12.80 per share in 2005.  The
      warrants outstanding as of December 31, 2006 expire at various times through
      August 2015.  During 2006, 70,000 warrants to purchase shares of the
      Company's common stock, with an exercise price of $5.65 per share
      expired.  30,000 warrants with an exercise price of $5.65 per share
      were exercised during 2005.  At December 31, 2006, warrants to
      purchase 3,733,086 shares of Cytogen's common stock with exercise prices ranging
      from $4.25 to $12.80 per share are exercisable.  Some warrants may
      become automatically exercised, in full, subject to certain
      conditions.





F
            - 31
 *Table
            of Contents*





The
      following table summarizes information about outstanding warrants to purchase
      Cytogen common stock at December 31, 2006:





**Exercise
                  Price**
            
            
            **Outstanding****Warrants**
            
            
            **Aggregate
                  Exercise****Price**$
            3.32
            
            
            
            3,546,107
            
            
            $
            11,773,075$
            4.25
            
            
            
            1,118,868
            
            
            $
            4,755,189$
            6.00
            
            
            
            776,096
            
            
            $
            4,656,576$
            6.91
            
            
            
            315,790
            
            
            $
            2,182,108$
            10.97
            
            
            
            250,000
            
            
            $
            2,742,500$
            12.80
            
            
            
            1,272,332
            
            
            $
            16,285,850





The
      warrants exercisable at $10.97 per share and $12.80 per share become
      automatically exercised, in full, if the Company's common stock trades for
      30
      consecutive trading days at 130% of the respective exercise prices.





The
      Board
      of Directors of the Company has the authority, without further action by the
      holders of common stock, to issue from time to time, up to 5,400,000 shares
      of
      preferred stock in one or more classes or series, and to fix the rights and
      preferences of the preferred stock.





The
      Company has implemented a stockholder rights plan by which one preferred stock
      purchase right is attached to each share of common stock, as a means to deter
      coercive takeover tactics and to prevent an acquirer from gaining control of
      the
      Company without some mechanism to secure a fair price for all of the Company's
      stockholders if an acquisition was completed.  These rights will be
      exercisable if a person or group acquires beneficial ownership of 20% or more
      of
      Cytogen common stock and can be made exercisable by action of the Company's
      Board of Directors if a person or group commences a tender offer which would
      result in such person or group beneficially owning 20% or more of Cytogen common
      stock.  Each right will entitle the holder to buy one one-thousandth
      of a share of a new series of Cytogen's junior participating preferred stock
      for
      $20.  If any person or group becomes the beneficial owner of 20% or
      more of Cytogen common stock (with certain limited exceptions), then each right
      not owned by the 20% stockholder will entitle its holder to purchase, at the
      right's then current exercise price, common shares having a market value of
      twice the exercise price.  In addition, if after any person has become
      a 20% stockholder, the Company is involved in a merger or other business
      combination transaction with another person, each right will entitle its holder
      (other than the 20% stockholder) to purchase, at the right's then current
      exercise price, common shares of the acquiring company having a value of twice
      the right's then current exercise price.





**13.**
            **SHARE-BASED
                COMPENSATION**





The
      Company has various share-based compensation plans that provide for the issuance
      of common stock and incentive and non-qualified stock options to purchase the
      Company's common stock to employees, non-employee directors and outside
      consultants.  These plans are administered by the Compensation
      Committee of the Board of Directors (the "Compensation
      Committee").  From time to time, the Company may issue warrants to
      purchase Cytogen common stock to non-employees, which are outside of the
      approved share-based compensation plans,
      in
      exchange for goods or services.  The grants, terms and conditions of
      the warrants must




F
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            of Contents*




be
      approved by the Board of Directors.  The Company utilizes newly issued
      common shares to satisfy option exercises or upon satisfaction of service
      requirement for nonvested shares.




*Cytogen
      Stock Options*





Currently,
      the Company has three plans which allow for the issuance of stock options and
      other awards: the 2006 Equity Compensation Plan (the "2006 Plan"); the 2004
      Stock Incentive Plan (the "2004 Plan"); and the 2004 Non-Employee Director
      Stock
      Incentive Plan (the "2004 Director Plan").  An aggregate of 1,500,000,
      1,200,000 and 375,000 shares of Cytogen common stock have been reserved for
      issuance upon the exercise of options or stock awards (as applicable) under
      the
      2006 Plan, 2004 Plan and 2004 Director Plan, respectively.  As of
      December 31, 2006, the number of remaining options or stock authorized and
      available for grant is approximately 1,489,160.  The Company also has
      certain other option plans, for which there are options outstanding but no
      new
      options can be granted under those plans.  Options shall become
      exercisable in accordance with such terms and conditions as may be determined
      by
      the Compensation Committee.  Generally, options granted to employees
      will vest 40%, 30% and 30% one year, two years and three years after the date
      of
      grant, respectively.  Options granted to officers will generally vest
      annually one third each year over a three-year period from the date of
      grant.





On
      June
      13, 2006, the Company's stockholders approved the 2006 Plan at the 2006 Annual
      Meeting of Stockholders.  The 2006 Plan provides for the grant of
      incentive stock options, nonqualified stock options, stock units, stock awards,
      stock appreciation rights and other stock-based awards to the Company's
      employees and non-employee directors.  Performance-based awards, which
      will vest upon the achievement of objective performance goals, may also be
      granted under the 2006 Plan.  As long as Cytogen common stock is
      traded on the Nasdaq National Market, the exercise price of Cytogen stock
      options under the 2006 Plan will be equal to the last reported sales price
      for
      Cytogen common stock on the date of grant, unless a higher exercise price is
      specified by the Compensation Committee.  Except for certain
      circumstances, the options will generally expire upon the earlier of ten years
      after the date of grant or within a certain period of time after termination
      of
      services as determined by the Compensation Committee.





The
      2004
      Plan provides for the grant of incentive stock options, non-qualified stock
      options or nonvested shares (see below) to the Company's employees, officers,
      consultants and advisors.  Performance options, which will vest upon
      the achievement of certain milestones, may also be granted under the 2004
      Plan.  The exercise price of Cytogen stock options is equal to the
      average of high and low trading prices for Cytogen common stock on the date
      of
      grant, unless a higher exercise price is specified by the Compensation
      Committee.  Except for certain circumstances, the options will
      generally expire upon the earlier of ten years after the date of grant or 90
      days after termination of employment.





The
      2004
      Director Plan provides for the grant of non-qualified stock options and shares
      of Cytogen common stock, in certain circumstances, to members of the Company's
      Board of Directors who are not employees of the Company.  According to
      the 2004 Director Plan, each re-elected Director shall automatically receive
      options to purchase shares of Cytogen common stock




F
            - 33
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            of Contents*





on
      the
      day following each Annual Meeting of Stockholders.  Each new Director
      who is appointed after the date of the most recent Annual Meeting of
      Stockholders will receive a certain number of options, pro-rated for the number
      of months remaining until the next Annual Meeting.  The exercise price
      of Cytogen stock options is equal to the average of high and low trading prices
      for Cytogen common stock on the date of grant.  All options will
      become exercisable on the first anniversary of the date of grant, unless options
      are granted to a Director who has served on the Company's Board of Directors
      for
      at least three years and retires or resigns after reaching 55 years of
      age.  In such case, the options may be exercised in full regardless of
      the time lapse since the date of grant and for these options eligible for this
      accelerated vesting, the share-based compensation expense is recognized entirely
      on the date of grant in accordance with SFAS 123(R).  Prior to the
      adoption of SFAS 123(R), the Company recorded the compensation expense related
      to all such awards over the vesting period.  In 2006, $76,000 of
      compensation expense was recognized for previous awards that would have been
      recognized in 2005 had the treatment required by SFAS 123(R) been applied to
      awards granted prior the adoption of SFAS 123(R).  Except for certain
      circumstances, the options will generally expire upon the earlier of ten years
      after the date of grant or 90 days after termination date.





A
      summary
      of option activities related to Cytogen stock options other than performance
      options, for the year ended December 31, 2006 is as follows:





**Cytogen
                  Options****Other than****Performance
                  Options**
            
            **Number
                  of**
                **Cytogen**
                **Stock**
                **Options**
            
            
            **Weighted-****Average**
                **Exercise**
                **Price
                  Per**
                **Share**
            
            
            **Weighted-****Average**
                **Remaining**
                **Contractual**
                **Life**
            
            
            **Aggregate**
                **Intrinsic**
                **Value**Balance
                at December 31, 2005
            
            
            980,796
            
            
            $
            10.04Granted
            
            
            703,350
            
            
            
            3.23Exercised
            
            
            --
            
            
            
            --Forfeited
            
            
            (155,480
            )
            
            
            4.89Expired
            
            
            (68,147
            )
            
            
            13.64Balance
                at December 31, 2006
            
            
            1,460,519
            
            
            $
            7.14
            
            
            
            8.12
            
            
            $
            4,000Exercisable
                and expected to vest at December 31, 2006
            
            
            1,337,924
            
            
            $
            7.36
            
            
            
            8.10
            
            
            $
            3,000Exercisable
                at December 31, 2006
            
            
            629,266
            
            
            $
            11.23
            
            
            
            6.79
            
            
            $
            --





At
      December 31, 2006, the weighted-average exercise price of exercisable options
      was higher than the market price of the Company's underlying common share,
      and
      as a result, the aggregate intrinsic value was zero.





F
            - 34
 *Table
            of Contents*





A
      summary
      of option activities related to performance options for the year ended December
      31, 2006 is as follows:





**Performance
                  Options**
            
            **Number**
                **of**
                **Cytogen**
                **Stock**
                **Options**
            
            
            **Weighted-****Average**
                **Exercise**
                **Price
                  Per**
                **Share**
            
            
            **Weighted-****Average**
                **Remaining**
                **Contractual**
                **Life**
            
            
            **Aggregate**
                **Intrinsic**
                **Value**Balance
                at December 31, 2005
            
            
            150,000
            
            
            $
            3.54Granted
            
            
            --
            
            
            
            --Exercised
            
            
            --
            
            
            
            --Forfeited
                and Expired
            
            
            --
            
            
            
            --Balance
                at December 31, 2006
            
            
            150,000
            
            
            $
            3.54
            
            
            
            5.97
            
            
            
            --Exercisable
                and expected to vest at December 31, 2006
            
            
            50,000
            
            
            $
            3.54
            
            
            
            5.97
            
            
            
            --Exercisable
                at December 31, 2006
            
            
            50,000
            
            
            $
            3.54
            
            
            
            5.97
            
            
            
            --





In
      2002,
      options to purchase 150,000 shares of Cytogen common stock were granted to
      a key
      employee.  These options have three separate and equal tranches which
      vest upon the achievement of certain milestones established by the Company's
      Board of Directors.  In June 2006, the Board of Directors determined
      that one of the performance milestones had been met, and as a result, approved
      the vesting of 50,000 performance options.  During the year ended
      December 31, 2006, the Company recorded $152,000 in selling, general and
      administrative expenses, which represent the grant date fair value of the vested
      options based on the Black-Scholes option pricing model.  The
      remaining 100,000 performance options are not deemed probable of becoming
      exercisable at December 31, 2006.





At
      December 31, 2006, the weighted-average exercise price of outstanding,
      exercisable and expected to vest, and exercisable options each was higher than
      the market price of the Company's underlying common share, and as a result,
      the
      aggregate intrinsic value was zero.





*Nonvested
      Shares*





Under
      the
      2004 Plan, the Company may issue nonvested shares to employees, officers,
      consultants and advisors.  The maximum number of shares authorized for
      grant under the 2004 Incentive Plan is 200,000.  Generally, the
      nonvested shares will vest in installments over three to six year
      periods.  The Company may also issue stock awards to its employees and
      non-employee directors under the 2006 Plan.





F
            - 35
 *Table
            of Contents*





A
      summary
      of the Cytogen's nonvested share activities for the year ended December 31,
      2006
      is as follows:





**Nonvested
                  Shares**
            
            **Number**
                **of**
                **Nonvested**
                **Shares**
            
            
            **Weighted-****Average**
                **Grant
                  Date**
                **Fair
                  Value**
            
            
            **Weighted-****Average**
                **Remaining**
                **Vesting**
                **Term**
            
            
            **Aggregate**
                **Intrinsic**
                **Value**Balance
                at December 31, 2005
            
            
            136,200
            
            
            $
            5.15Granted
            
            
            246,800
            
            
            
            3.00Vested
            
            
            --
            
            
            
            --Forfeited
            
            
            (39,100
            )
            
            
            4.82Balance
                at December 31, 2006
            
            
            343,900
            
            
            $
            3.65
            
            
            
            2.56
            
            
            $
            801,000Vested
                and expected to vest at December 31, 2006
            
            
            300,156
            
            
            $
            3.58
            
            
            
            2.56
            
            
            $
            699,000Vested
                at December 31, 2006
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --





*Employee
      Stock Purchase Plan*





In
      September 2005, the Board of Directors of the Company adopted the 2005 Employee
      Stock Purchase Plan (the "2005 ESPP").  The 2005 ESPP, which was
      approved by the Company's stockholders on June 13, 2006, is effective October
      1,
      2005, and replaces the Company's existing employee stock purchase plan which
      had
      no remaining shares available for future issuance.  Under the 2005
      ESPP, eligible employees may elect to purchase shares of Cytogen common stock
      at
      85% of the lower of fair value as of the first or last trading day of each
      participation period.  Under the 2005 ESPP, officers of the Company
      who purchase shares may not transfer such shares for a period of 12 months
      after
      the purchase date.  The initial offering period was a nine-month
      period beginning on October 1, 2005 and ending on June 30,
      2006.  Subsequent purchase periods will be three-month periods
      beginning on the first day in July, October, January and April.  The
      Company has reserved 500,000 shares of common stock for future issuance under
      the 2005 ESPP.  The 2005 ESPP plan is compensatory under SFAS
      123(R).  In the year ended December 31, 2006, employees purchased
      39,666 shares of common stock for aggregate proceeds to the Company of
      $82,000.  At December 31, 2006, 460,334 shares remain available for
      purchase under the 2005 ESPP.





*Warrants
      and Options Issued to Non-Employees*





From
      time
      to time, the Company may issue warrants and options to purchase Cytogen common
      stock to non-employees, excluding directors, in exchange for goods or
      services.  Warrants are issued outside of any approved compensation
      plans.  Terms of warrants and options vary among various arrangements,
      with vesting period generally up to one year and may require exercise if certain
      conditions are met.  Contractual term ranges up to ten
      years.





F
            - 36
 *Table
            of Contents*





A
      summary
      of the Cytogen warrants and options issued to non-employees for the year ended
      December 31, 2006 is as follows:





**Warrants
                  and Options to Non-Employees**
            
            **Number****of**
                **Cytogen**
                **Warrants**
                **And**
                **Options**
            
            
            **Weighted-****Average**
                **Exercise**
                **Price
                  Per**
                **Share**
            
            
            **Weighted-****Average**
                **Remaining**
                **Contractual**
                **Life**
            
            
            **Aggregate**
                **Intrinsic**
                **Value**Balance
                at December 31, 2005
            
            
            359,978
            
            
            $
            6.96Granted
            
            
            --
            
            
            
            --Exercised
            
            
            --
            
            
            
            --Forfeited
            
            
            --
            
            
            
            --Expired
            
            
            (70,000
            )
            
            $
            5.65Balance
                at December 31, 2006
            
            
            289,978
            
            
            $
            7.27
            
            
            
            3.09
            
            
            
            --Exercisable
                and expected to vest at December 31, 2006
            
            
            289,978
            
            
            $
            7.27
            
            
            
            3.09
            
            
            
            --Exercisable
                at December 31, 2006
            
            
            289,978
            
            
            $
            7.27
            
            
            
            3.09
            
            
            
            --





At
      December 31, 2006, the weighted-average exercise price of outstanding,
      exercisable and expected to vest, and exercisable warrants each was higher
      than
      the market price of the Company's underlying common share, and as a result,
      the
      aggregate intrinsic value was zero.





*AxCell
      BioSciences Stock Options*





AxCell
      BioSciences, a non-publicly traded subsidiary of Cytogen Corporation, also
      has a
      stock option plan that provides for the issuance of incentive and non-qualified
      stock options to purchase AxCell common stock ("AxCell Stock Options") to
      employees, for which 2,000,000 shares of AxCell common stock have been
      reserved.  AxCell Stock Options are granted with a term of 10 years
      and generally become exercisable in installments over periods of up to five
      years.





F
            - 37
 *Table
            of Contents*





A
      summary
      of AxCell stock option activities for the year ended December 31, 2006 is as
      follows:





**AxCell
                  Stock Options**
            
            **Number
                  of**
                **AxCell**
                **Stock**
                **Options**
            
            
            **Weighted-**
                **Average**
                **Exercise**
                **Price**
            
            
            **Weighted-**
                **Average**
                **Remaining**
                **Contractual**
                **Term**Balance
                at December 31, 2005
            
            
            69,405
            
            
            $
            4.34
            
            
            
            6.10Granted
            
            
            --
            
            
            
            --Exercised
            
            
            --
            
            
            
            --Forfeited
            
            
            --
            
            
            
            --Expired
            
            
            (19,405
            )
            
            
            3.60Balance
                at December 31, 2006
            
            
            50,000
            
            
            $
            4.63
            
            
            
            5.33Exercisable
                and expected to vest at December 31, 2006
            
            
            50,000
            
            
            $
            4.63
            
            
            
            5.33Exercisable
                at December 31, 2006
            
            
            50,000
            
            
            $
            4.63
            
            
            
            5.33





AxCell
      is
      not a publicly traded subsidiary.  While there was not a readily
      available market price for AxCell's underlying common share at December 31,
      2006, the Company estimated that its fair value was less than the exercise
      price, and as a result, the aggregate intrinsic value was zero.





*Adoption
      of SFAS No. 123(R)*





Effective
      January 1, 2006, the Company adopted SFAS No. 123(R) which requires companies
      to
      measure and recognize compensation expense for all share-based payments at
      fair
      value.  Prior to the adoption of SFAS 123(R), the Company accounted
      for its stock-based employee compensation expense under the recognition and
      measurement principles of APB 25, and related interpretations.  Under
      APB 25, compensation costs related to stock options granted with exercise prices
      equal to or greater than the fair value of the underlying shares at the date
      of
      grant under those plans were not recognized in the consolidated statements
      of
      operations.  Compensation costs related to nonvested shares and stock
      options granted with exercise prices below fair value of the underlying shares
      at the date of grant were recognized in the consolidated statements of
      operations over the requisite service period, generally the vesting periods
      of
      the awards.  Compensation costs associated with those awards granted
      prior to the adoption of SFAS 123(R) were recognized using the accelerated
      attribution method in accordance with FIN 28 and forfeitures were recorded
      as
      incurred.  The following table illustrates the effect on net loss and
      net loss per share as if the fair value method under SFAS 123 had been
      applied for the years ended December 31, 2005 and 2004 (all amounts in
      thousands, except per share data):





F
            - 38
 *Table
            of Contents*








**Year
                  Ended December 31,****2005**
            
            
            **2004****(All
                amounts in thousands, except per share data)**Net
                loss, as
                reported
            
            $
            (26,289
            )
            
            $
            (20,540
            )Add:
                Stock-based employee compensation expense included in reported net
                loss
            
            
            111
            
            
            
            15Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value-based method for all awards
            
            
            (1,894
            )
            
            
            (2,152
            )Pro
                forma net
                loss
            
            $
            (28,072
            )
            
            $
            (22,677
            )Basic
                and diluted net loss per share, as reported
            
            $
            (1.54
            )
            
            $
            (1.40
            )Pro
                forma basic and diluted net loss per share
            
            $
            (1.64
            )
            
            $
            (1.55
            )





The
      Company adopted SFAS No. 123(R) using the modified prospective transition
      method, which requires that share-based compensation cost be based on the
      grant-date fair value estimated in accordance with the provisions of SFAS 123(R)
      and is recognized for all awards granted, modified or settled after the
      effective date as well as awards granted to employees prior to the effective
      date that remain unvested as of the effective date.  In 2006, the
      Company recorded $1.9 million of share-based compensation expense, of which
      $1.6
      million was included in selling, general and administrative expenses and
      $252,000 was recorded in research and development expenses.  No
      compensation costs were capitalized in 2006.  In 2005 and 2004, the
      Company recorded a charge of $111,000 and $15,000, respectively, for share-based
      compensation.  There were no modification to the share-based awards in
      2006, 2005 and 2004.





The
      adoption of SFAS 123(R) resulted in higher net loss for the year ended December
      31, 2006 of $1.6 million or $0.07 per basic and diluted share, than if the
      Company had continued to account for the share-based compensation under APB
      25.  At December 31, 2006, unrecognized compensation expense, which
      includes the impact of estimated forfeitures, related to unvested awards granted
      under the Company's share-based compensation plans is approximately $2.3 million
      and remains to be recognized over a weighted average period of 1.3
      years.  The Company recognizes share-based compensation on a
      straight-line basis over the requisite service period for grants on or after
      January 1, 2006, however, the cumulative amount of compensation expense
      recognized at any point in time for an award cannot be less than the portion
      of
      the grant date fair value of the award that is vested at that
      date.  Unrecognized compensation expense related to grants made prior
      to adoption of SFAS 123(R) are recognized using the accelerated amortization
      method.  Prior periods were not restated to reflect the impact of
      adopting the new standard.  No cumulative effect adjustment was
      recorded for the accounting change related to recording actual forfeitures
      as
      incurred under APB 25 to estimating forfeitures in accordance with SFAS 123(R)
      as the amount was de minimus.




The
      Company's share-based compensation costs are generally based on the fair value
      of the option awards calculated using the Black-Scholes option pricing model
      on
      the date of grant.




F
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The
      weighted-average fair value per share of the options granted under the Cytogen
      stock option plans during 2006, 2005 and 2004 is estimated at $2.59, $3.67
      and
      $8.74 per share, respectively, on the date of grant using the Black-Scholes
      option pricing model with the following weighted-average assumptions for 2006,
      2005 and 2004:





**Valuation
                  Assumptions**
            
            **2006**
            
            
            **2005**
            
            
            **2004**Dividend
                yield
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %Expected
                volatility
            
            
            95.64
            %
            
            
            96.27
            %
            
            
            109.66
            %Risk-free
                interest
                rate
            
            
            4.88
            %
            
            
            3.97
            %
            
            
            3.78
            %Expected
                life
            6.4
                yrs
            4.6
                yrs
            4.6
                yrs





The
      compensation costs for nonvested share awards are based on the fair value of
      Cytogen common stock on the date of grant.  The weighted-average grant
      date fair value per share of nonvested share awards granted during 2006 and
      2005
      was $3.00 and $5.15, respectively.





The
      weighted-average fair value per share ascribed to the shares purchased under
      the
      employee stock purchase plan during 2006, 2005 and 2004 is estimated at $0.57,
      $3.35 and $3.81 per share, respectively, on the date of grant using the
      Black-Scholes option pricing model with the following weighted-average
      assumptions for 2006, 2005 and 2004:





**Valuation
                  Assumptions**
            
            **2006**
            
            
            **2005**
            
            
            **2004**Dividend
                yield
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %Expected
                volatility
            
            
            43.97
            %
            
            
            112.23
            %
            
            
            52.63
            %Risk-free
                interest
                rate
            
            
            4.91
            %
            
            
            2.71
            %
            
            
            1.26
            %Expected
                life
            2
                months
            3
                months
            3
                months





The
      weighted-average fair value per share of the warrants granted to non-employees
      in exchange for services during 2005 is estimated at $2.30 per share on the
      date
      of grant using the Black-Scholes option pricing model with the weighted-average
      assumptions of 0% for dividend yield, 93.3% for expected volatility, 4.43%
      for
      risk-free interest rate and 5 years for expected life.  The Company
      recognized the compensation charge for the associated warrants of $430,000
      as
      transaction costs and netted them against the proceeds received from the 2005
      financing transaction (see Note 12).  No warrants were granted to non
      employees in exchange for services during 2006 and 2004.





Because
      the Company has never declared cash dividends and has no intention to declare
      cash dividends in the near future, an expected dividend yield of zero is
      used.  The Company calculates expected volatility for stock-based
      awards using historical volatility, measured over a period equal to the expected
      term of the award, which it believes is a reasonable estimate of future
      volatility.  The Company bases the risk-free interest rate on the
      implied yield available on U.S. Treasury zero-coupon issues with the remaining
      term equal to the expected term used.





In
      2005
      and 2004, the Company determined the expected term of an award by analyzing
      historical exercise experience and post-vesting employment termination behavior
      from its history of grants and exercises.  In 2006, the Company
      calculates the expected life using the simplified method as described in the
      SEC's Staff Accounting Bulletin No. 107 ("SAB 107") for "plain





F
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            of Contents*





vanilla"
      options meeting certain criteria.  The simplified method is based on
      the vesting period and the contractual term for each grant or each
      vesting-tranche of awards with graded vesting.  The mid-point between
      the vesting date and the expiration date is used as the expected term under
      this
      method.  As options granted to the Board of Director members do not
      meet the criteria of "plain vanilla" options, the Company determines the
      expected term for these options by analyzing the historical exercise experience
      and post-vesting termination behaviors.  The Company believes the
      result is a reasonable estimate of the length of time that the options are
      expected to be outstanding.





In
      addition, under SFAS 123(R), the Company is required to estimate expected
      forfeitures of options and stock grants over the requisite service period and
      adjust shared-based compensation accordingly.  The estimate of
      forfeitures will be adjusted over the requisite service period to the extent
      that actual forfeitures differ, or are expected to differ, from such
      estimates.  The cumulative effect of changes in estimated forfeitures
      will be recognized in the period of change and will also impact the amount
      of
      stock compensation expense to be recognized in future periods.  Under
      the provisions of SFAS 123(R), the Company will record additional expense if
      the
      actual forfeiture rate is lower than what had been estimated and the Company
      will record a recovery of prior expense if the actual forfeiture rate is higher
      than what had been estimated.





There
      was
      no vesting of nonvested shares in 2006, 2005 and 2004.  There were no
      option exercises in 2006.  Total intrinsic value was $2,000 and
      $46,000 for options exercised in 2005 and 2004, respectively.  Cash
      received from the option exercises in 2005 and 2004 was $7,000 and $25,000,
      respectively.





**14.**
            **RETIREMENT
                SAVINGS PLAN**





The
      Company maintains a defined contribution 401(k) plan for its
      employees.  The contribution is determined by the Board of Directors
      and is based upon a percentage of gross wages of eligible
      employees.  The plan provides for vesting over four years, with credit
      given for prior service.  The Company also makes contributions in cash
      or its common stock, at the Company's discretion, under the 401(k) plan in
      amounts which match up to 50% of the salary deferred by the participants up
      to
      6% of total salary.  Total expense related to the 401(k) contributions
      was $223,000, $164,000 and $136,000 for 2006, 2005 and 2004,
      respectively.  All contributions were made in cash.





**15.**
            **INCOME
                TAXES**





As
      of
      December 31, 2006, Cytogen had federal and state net operating loss
      carryforwards of approximately $304.7****million and $244.4
      million, respectively.  The components of the federal net operating
      loss carryforward that will expire in the next five years are as follows: $15.7
      million in 2007, $10.9 million in 2008, $3.8 million in 2009, $11.9 million
      in
      2010 and $24.8 million in 2011.  The components of the state net
      operating loss carryforward that will expire in the next five years are as
      follows: $13.9 million in 2007, $31.9 million in 2008, $16.9 million in 2009,
      $20.4 million in 2010 and $19.4 million in 2011.  The Company also had
      federal and state research and development tax credit carryforwards of
      approximately $4.6 million and





F
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 *Table
            of Contents*





$441,000,
      respectively.  These net operating loss and credit carryforwards have
      begun to expire and will continue to expire through 2026.





The
      Tax
      Reform Act of 1986 contains provisions that limit the utilization of net
      operating loss and tax credit carryforwards if there has been an "ownership
      change".  Such an "ownership change", as described in Section 382 and
      383 of the Internal Revenue Code, may limit the Company's utilization of its
      net
      operating loss and tax credit carryforwards.  Additionally, various
      states have similar limitations on utilization of certain state net operating
      loss and credit carryforwards that may limit the Company's ability to realize
      the benefits of these carryforwards.





Deferred
      income taxes reflect the net tax effect of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amount used for income tax purposes.  Based on the Company's loss
      before income taxes during 2006, 2005 and 2004, the Company would have been
      expected to record a tax benefit using the statutory tax rate.  During
      2006, there was a decrease in the valuation allowance of $1.1 million due
      primarily to the expiration of federal and state net operating loss
      carryforwards in 2006.  During 2005 and 2004, there were increases of
      $4.3 million and $3.1 million, respectively, in the valuation allowance, due
      to
      the Company's loss history, and uncertainty regarding the realization of
      deferred tax assets.  These increases to the valuation allowance
      reduced the actual benefit to $256,000 and $307,000 in 2005 and 2004,
      respectively, which amounts are related to the sales of New Jersey state
      operating loss carryforwards as discussed below.  The Company did not
      sell any New Jersey state net operating loss carryforwards in
      2006.  Deferred tax assets have been fully reserved as of December 31,
      2006 and 2005.





**2006**
            
            
            **2005****(All
                amounts in thousands)**Deferred
                tax assets:Net
                operating loss carryforwards
            
            $
            117,533
            
            
            $
            111,341Capitalized
                research and development expenses
            
            
            1,461
            
            
            
            8,220Research
                and development credit
            
            
            5,023
            
            
            
            5,606Acquisition
                of in-process technology
            
            
            613
            
            
            
            722Other,
                net
            
            
            7,040
            
            
            
            6,873Total
                deferred tax
                assets
            
            
            131,670
            
            
            
            132,762Valuation
                allowance
            
            
            (131,670
            )
            
            
            (132,762
            )Net
                deferred tax
                assets
            
            $
            —
            
            
            $
            —





During
      2005 and 2004, the Company sold New Jersey state operating loss carryforwards,
      resulting in the recognition of $256,000 and $307,000 of income tax benefit,
      respectively.





F
            - 42
 *Table
            of Contents*





The
      effective income tax rate for the Company's continuing operations differs from
      the statutory tax rate as follows:





**2006**
            
            
            **2005**
            
            
            **2004**Federal
                statutory income tax rate
            
            
            34.0
            %
            
            
            34.0
            %
            
            
            34.0
            %Increase
                in valuation allowance
            
            
            (29.4
            %)
            
            
            (29.9
            %)
            
            
            (39.0
            %)Sale
                of New Jersey net operating loss carryforwards
            
            
            —
            %
            
            
            1.0
            %
            
            
            1.5
            %Other
            
            
            (4.6
            %)
            
            
            (4.1
            %)
            
            
            5.0
            %Effective
                income tax
                rate
            
            
            —
            %
            
            
            1.0
            %
            
            
            1.5
            %





**16.**
            **COMMITMENTS
                AND CONTINGENCIES**





The
      Company leases its facilities and certain equipment under non-cancelable
      operating leases that expire in October 2009.  Rent expense on these
      leases was $320,000, $351,000 and $510,000 in 2006, 2005 and 2004,
      respectively.  Minimum future obligations under the operating leases
      are $958,000 as of December 31, 2006 and will be paid as follows: $338,000
      in
      2007, $338,000 in 2008 and $282,000 in 2009.





The
      Company is obligated to make minimum future payments under contracts for
      research and development, marketing, investor relations, consulting and other
      supporting services that expire at various times.  As of December 31,
      2006, the minimum future payments under these contracts are $4.0 million and
      will be paid as follows: $3.1 million in 2007, $106,000 in 2008, $76,000 in
      2009, $75,000 each year from 2010 to 2017, and $31,000 in 2018.  In
      addition, under the BMSMI agreement, the Company is obligated to pay at least
      $4.9 million annually, subject to future annual price adjustment, through
      2008.  The Company may terminate this agreement on two years prior
      written notice (see Note 7).  The Company is also obligated to pay
      milestone payments upon achievement of certain milestones and royalties on
      revenues from commercial product sales including certain guaranteed minimum
      payments.  Such obligations include payments to Dow (see Note 5),
      Berlex Laboratories (see Note 6), Rosemont (see Note 17) and InPharma (see
      Note
      19).





Each
      of
      the Company's executive officers is currently party to an Executive Change
      of
      Control Severance Agreement with the Company.  Such agreements
      provide, generally, for the payment of twelve months base salary, a pro rata
      portion of such officer's bonus compensation, the continuation of all benefits,
      reasonable Company-paid outplacement assistance and certain other accrued
      rights, in the event such officer's employment with the Company is terminated
      in
      connection with certain changes in control.





In
      the
      ordinary course of business, the Company enters into agreements with third
      parties that include indemnification provisions which, in its judgment, are
      normal and customary for companies in its industry sector.  These
      agreements are typically with business partners, clinical sites, and
      suppliers.  Pursuant to these agreements, the Company generally agrees
      to indemnify, hold harmless and reimburse the indemnified parties for losses
      suffered or incurred by the indemnified parties with respect to the Company's
      products or product candidates, use of such





F
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products
      or other actions taken or omitted by the Company.  The maximum
      potential amount of future payments the Company could be required to make under
      these indemnification provisions is unlimited.  The Company has not
      incurred material costs to defend lawsuits or settle claims related to these
      indemnification provisions.  The current estimated liabilities
      relating to this provision are minimal.  Accordingly, the Company has
      no liabilities recorded for these provisions as of December 31, 2006 and
      2005.





**17.**
            **SAVIENT
                PHARMACEUTICALS, INC.**





On
      April
      21, 2006, the Company and Savient entered into a distribution agreement granting
      the Company exclusive marketing rights for SOLTAMOX in the United
      States.  SOLTAMOX, a cytostatic estrogen receptor antagonist, is the
      first oral liquid hormonal therapy approved in the U.S.  It is
      indicated for the treatment of breast cancer in adjuvant and metastatic settings
      and to reduce the risk of breast cancer in women with ductal carcinoma in situ
      (DCIS) or with high risk of breast cancer.  The Company introduced
      SOLTAMOX to the U.S. oncology market in the second half of 2006.





In
      addition, the Company entered into a supply agreement with Savient and Rosemont
      previously a wholly-owned subsidiary of Savient, for the manufacture and supply
      of SOLTAMOX.  Cytogen's agreements with Savient were subsequently
      assigned to Rosemont by Savient.  Under the terms of the final
      transaction, the Company paid Savient an up-front licensing fee of $2.0 million
      and may pay additional contingent sales-based payments of up to a total of
      $4.0
      million to Savient and Rosemont.  The Company is also required to pay
      Rosemont royalties on net sales of SOLTAMOX.  Such royalty expense was
      $111,000 in 2006.  Beginning in 2007, Cytogen is obligated to pay
      Rosemont quarterly minimum royalties based on an agreed upon percentage of
      total
      tamoxifen prescriptions in the United States.  Unless terminated
      earlier, the distribution and supply agreements will each terminate upon the
      expiration of the last to expire patent covering SOLTAMOX in the United States,
      which is currently June 2018.  The manufacturing agreement is
      terminable by Rosemont or the Company on one year notice prior to the end of
      the
      then current term.  In the event the tamoxifen prescriptions for an
      agreed upon period of time are less than the pre-established minimum, the
      agreement may be terminated if the parties are unable to reach an agreement
      to
      amend the terms of the contract to account for such impact.





The
      up-front license payment of $2.0 million was capitalized as SOLTAMOX license
      fee
      in the accompanying consolidated balance sheet and is being amortized on a
      straight-line basis over approximately twelve years which is the estimated
      performance period of the agreement.  The amortization expense for
      2006 was $110,000 and is recorded as cost of product revenue (see Note
      1).


**18.**
              **ONCOLOGY
                  THERAPEUTICS NETWORK, J.V.**
 
 On
        June
        20, 2006, the Company entered into a purchase and supply agreement with Oncology
        Therapeutics Network, J.V. ("OTN") appointing OTN as the exclusive distributor
        of SOLTAMOX in the United States.  In August 2006 and January 2007,
        the agreement was amended to revise certain terms, including changing the
        role
        of OTN to the exclusive


F
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 *Table
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warehousing
      agent and non-exclusive distributor of SOLTAMOX and CAPHOSOL
      ("Products").  Under the terms of the amended agreements, OTN will
      purchase Products from the Company for its own wholesaler channels and, along
      with third party logistics providers, distribute the Products to the Company's
      other customers through its warehousing and distribution
      facilities.  The Company was obligated to pay OTN a minimal set up fee
      upon execution of the agreement which was recorded as selling, general and
      administrative expense in the second quarter of 2006.  In addition,
      the Company also pays OTN management fees based upon a percentage of the value
      of Products shipped during the period.  In 2006, the management fees
      totaled $67,000 and are included in cost of product revenues.  This
      agreement has a three-year term and will automatically renew for successive
      one-year periods unless terminated by OTN or Cytogen on a 90 days written notice
      prior to the end of the applicable term.  Either party also may
      terminate the agreement, without cause, on 180 days written notice.





In
      2006,
      the Company received a payment from OTN for the purchase of SOLTAMOX, of which
      $50,000 is subject to be refunded to OTN if the product is returned to the
      Company.  Such amount is recorded as "Customer Liability" in Accounts
      Payable and Accrued Liabilities in the accompanying consolidated balance sheet
      at December 31, 2006.





**19.**
            **INPHARMA
                AS**





On
      October 11, 2006, the Company and InPharma entered into a license agreement
      granting the Company exclusive rights for CAPHOSOL in North America and options
      to license the marketing rights for CAPHOSOL in Europe and
      Asia.  Approved as a prescription medical device, CAPHOSOL is a
      topical oral agent indicated in the United States as an adjunct to standard
      oral
      care in treating oral mucositis caused by radiation or high dose
      chemotherapy.  CAPHOSOL is also indicated for dryness of the mouth
      (hyposalivation) or dryness of the throat (xerostomia) regardless of the cause
      or whether the conditions are temporary or permanent.  Under the terms
      of the Agreement, the Company is obligated to pay InPharma $6.0 million in
      aggregate up-front fees, of which $4.6 million was paid upon the execution
      of
      the agreement, $400,000 will be paid into an escrow account and to be released
      over time provided there are no indemnification claims by the Company, and
      $1.0
      million will be paid upon the six-month anniversary of the execution of the
      agreement.  In addition, the Company is obligated to pay InPharma
      royalties based on a percentage of net sales and future payments of up to an
      aggregate of $49.0 million based upon the achievement of certain sales-based
      milestones of which payments totaling $35 million are based upon annual sales
      levels first reaching levels in excess of $30 million.  The Company is
      also obligated to pay a finder's fee based upon a percentage of milestone
      payments paid to InPharma.





In
      the
      event the Company exercises the options to license marketing rights for CAPHOSOL
      in Europe and Asia, the Company is obligated to pay InPharma additional fees
      and
      payments, including sales-based milestone payments for the respective
      territories.The Company is required to obtain consents from certain licensors
      but not InPharma, if the Company sublicenses the rights to market CAPHOSOL
      in
      Europe and Asia to other parties.  The Company shall pay InPharma a
      portion of any up-front license fees and milestone payments, but not royalties,
      received by Cytogen in consideration of the grant by Cytogen to other parties
      of
      the right to market CAPHOSOL in Europe and Asia, to the extent such up-front
      license fees





F
            - 45
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            of Contents*





and
      milestone payments are in excess of the respective amounts paid by Cytogen
      to
      InPharma for such rights.





Based
      on
      the relative fair value of the assets acquired, the Company allocated the
      up-front fees and related transaction costs as follows: $4.2 million to CAPHOSOL
      marketing rights in North America which excludes the $400,000 contingent
      payment, $1.7 million to the option to license the product rights in Europe
      and
      $162,000 to the option to license the product rights in Asia.  The
      allocated license fee for North America was capitalized as CAPHOSOL license
      fee
      in the accompanying consolidated balance sheet and is being amortized on a
      straight-line basis over approximately eleven years, which is the estimated
      performance period of the agreement.  The amortization expense in 2006
      was $98,000 and is recorded as cost of product revenue.  The allocated
      option fee for Europe is recorded as other assets and will be transferred to
      the
      appropriate asset account if exercised.  The Company periodically
      evaluates the option value for impairment by assessing, among other things,
      its
      intent and ability to exercise the option, the option expiry date and the market
      and product competitiveness.  The allocated option fee for Asia is
      charged to research and development expense in the accompanying consolidated
      statement of operations, because the product was not approved in Asia at the
      time of purchase and there was no future alternative uses for the
      asset.  In 2006, there was no royalty expense, since CAPHOSOL was not
      introduced to the market until the first quarter of 2007.





**20.**
            **LITIGATION
                AND RELATED MATTERS**





In
      September 2004, the Company announced the settlement of a patent infringement
      suit brought by Immunomedics Inc. against Cytogen and C.R. Bard Inc. for an
      agreed-upon payment without any admission of fault or liability.  The
      charge related to this settlement is recorded in the accompanying statement
      of
      operations for the year ended December 31, 2004.  Immunomedics, Inc.
      filed suit on February 17, 2000 against Cytogen and Bard, alleging that use
      of
      Cytogen's PROSTASCINT product infringed U.S. Patent No. 4,460,559, which claims
      a method for detecting and localizing tumors.  The settlement with
      Immunomedics was on behalf of Cytogen and Bard.





In
      December 2005, Trapezoid Healthcare Communications LLC filed a complaint against
      the Company in the Superior Court of New Jersey, Law Division, Mercer County,
      seeking approximately $426,000 in damages arising from the Company's alleged
      failure to pay Trapezoid for marketing services allegedly provided to the
      Company.  On May 22, 2006, the Company settled this matter for
      $365,000, without any admission of fault or liability.  The Company
      had previously established a reserve for the full amount of this claim in
      2005.





In
      January 2006, the Company filed a complaint against Advanced Magnetics in the
      Massachusetts Superior Court for breach of contract, fraud, unjust enrichment,
      and breach of the implied covenant of good faith and fair dealing in connection
      with the parties' 2000 license agreement.  The complaint sought
      damages along with a request for specific performance requiring Advanced
      Magnetics to take all reasonable steps to secure FDA approval of COMBIDEX in
      compliance with the terms of the licensing agreement.  In February
      2006, Advanced Magnetics filed an answer to the Company's complaint and asserted
      various counterclaims, including tortuous interference, defamation, consumer
      fraud and abuse of process.  In February 2007, the Company settled its
      lawsuit against Advanced Magnetics, as well as





F
            - 46
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            of Contents*





Advanced
      Magnetics' counterclaims against Cytogen, by mutual agreement.Under
      the terms of the settlement agreement, Advanced Magnetics paid $4 million to
      the
      Company and will release 50,000 shares of Cytogen common stock currently being
      held in escrow.  In addition, both parties agreed to early termination
      of the licensing agreement.





In
      addition, the Company is, from time to time, subject to claims and suits arising
      in the ordinary course of business.  In the opinion of management, the
      ultimate resolution of any such current matters would not have a material effect
      on the Company's financial condition, results of operations or
      liquidity.




**21.**
            **CONSOLIDATED
                QUARTERLY FINANCIAL DATA -
                UNAUDITED**





The
      following tables provide quarterly data for the years ended December 31, 2006
      and 2005.





**Three
                  Months Ended****March
                  31,**
                **2006**
            
            
            **June
                  30,**
                **2006**
            
            
            **Sept.
                  30,**
                **2006**
            
            
            **Dec.
                  31,**
                **2006****(amounts
                in thousands except per share data)**Total
                revenues
            
            $
            4,442
            
            
            $
            4,172
            
            
            $
            4,172
            
            
            $
            4,521Total
                operating
                expenses
            
            
            11,768
            
            
            
            11,038
            
            
            
            10,408
            
            
            
            14,523Operating
                loss
            
            
            (7,326
            )
            
            
            (6,866
            )
            
            
            (6,236
            )
            
            
            (10,002
            )Gain
                on sale of equity interest in joint venture
            
            
            —
            
            
            
            12,873
            
            
            
            —
            
            
            
            —Other
                (expense)/income,
                net
            
            
            (340
            )
            
            
            1,199
            
            
            
            498
            
            
            
            1,097Income
                (loss) before income taxes
            
            
            (7,666
            )
            
            
            7,206
            
            
            
            (5,738
            )
            
            
            (8,905
            )Income
                tax
                benefit
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Net
                loss
            
            $
            (7,666
            )
            
            $
            7,206
            
            
            $
            (5,738
            )
            
            $
            (8,905
            )Basic
                and diluted net income (loss) per share
            
            $
            (0.34
            )
            
            $
            0.32
            
            
            $
            (0.26
            )
            
            $
            (0.34
            )Weighted-average
                common shares outstanding, basic and diluted
            
            
            22,474
            
            
            
            22,474
            
            
            
            22,494
            
            
            
            26,468Product
                related gross margin(1)
            
            $
            2,078
            
            
            $
            1,616
            
            
            $
            1,538
            
            
            $
            1,914





**Three
                  Months Ended****March
                  31,**
                **2005**
            
            
            **June
                  30,**
                **2005**
            
            
            **Sept.
                  30,**
                **2005**
            
            
            **Dec.
                  31,**
                **2005****(amounts
                in thousands except per share data)**Total
                revenues
            
            $
            3,994
            
            
            $
            4,156
            
            
            $
            3,551
            
            
            $
            4,245Total
                operating
                expenses
            
            
            10,688
            
            
            
            12,009
            
            
            
            11,549
            
            
            
            10,509Operating
                loss
            
            
            (6,694
            )
            
            
            (7,853
            )
            
            
            (7,998
            )
            
            
            (6,264
            )Other
                income,
                net
            
            
            101
            
            
            
            112
            
            
            
            877
            
            
            
            1,174Loss
                before income
                taxes
            
            
            (6,593
            )
            
            
            (7,741
            )
            
            
            (7,121
            )
            
            
            (5,090
            )Income
                tax
                benefit
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (256
            )Net
                loss
            
            $
            (6,593
            )
            
            $
            (7,741
            )
            
            $
            (7,121
            )
            
            $
            (4,834
            )Basic
                and diluted net loss per share
            
            $
            (0.43
            )
            
            $
            (0.50
            )
            
            $
            (0.40
            )
            
            $
            (0.25
            )Weighted-average
                common shares outstanding, basic and diluted
            
            
            15,513
            
            
            
            15,564
            
            
            
            17,857
            
            
            
            19,466Product
                related gross margin(1)
            
            $
            1,539
            
            
            $
            1,854
            
            
            $
            1,156
            
            
            $
            1,685


_________


(1)Reflectsreclassifications
      of certain costs related to QUADRAMET clinical supplies from cost of product
      revenue to research and development expenses.






F
      -
      47