Table of Contents

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UNITEDSTATESSECURITIES AND EXCHANGECOMMISSION

Washington, D.C. 20549

FORM10-Q

(Mark One)

     QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGEACT OF 1934

For the quarterly period endedJune  30,2006

OR

     TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934

For the transition period from                to                

Commission File Number0-19635

GENTA INCORPORATED

(Exactname of Registrant as specified in its charter)

|                                                              |  |  |                                       |
|--------------------------------------------------------------|--|--|---------------------------------------|
| Delaware                                                     |  |  | 33-0326866                            |
| (State or other jurisdiction ofincorporation ororganization) |  |  | (I.R.S. EmployerIdentificationNumber) |
| 200 ConnellDriveBerkeley Heights, NJ                         |  |  | 07922                                 |
| (Address of principal executiveoffices)                      |  |  | (Zip Code)                            |
| (908)286-9800                                                |
| (Registrant's telephonenumber, including area code)          |
|                                                              |

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

Yes                        No    

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of‘‘accelerated filer and large acceleratedfiler’’ in Rule 12b-2 of the Exchange Act. (Checkone):

|                                                |  |  |                                          |  |  |                                              |
|------------------------------------------------|--|--|------------------------------------------|--|--|----------------------------------------------|
| Largeaccelerated filer     |  |  | Acceleratedfiler     |  |  | Non-acceleratedfiler     |
|                                                |

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of theSecurities Exchange Act of 1934).

Yes                        No    

Asof August  4,  2006, the registrant had 133,689,158 sharesof common stockoutstanding.

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GentaIncorporated INDEX TO FORM10-Q

|                              |  |        |                                                                                              |  |        |      |  |        |        |        |  |        |
|------------------------------|--|--------|----------------------------------------------------------------------------------------------|--|--------|------|--|--------|--------|--------|--|--------|
|                         |  |        |                                                                                         |  |        | Page |  |        |   |
| PART I. FINANCIALINFORMATION |  |        |                                                                                              |  |   |      |  |        |   |
| Item1.                       |  |        | ConsolidatedFinancial Statements(unaudited):                                                 |  |        |      |  |   |        |        |  |   |
|                         |  |        | Consolidated BalanceSheets at June  30,  2006 and December  31,2005                          |  |        |      |  | 3      |        |        |  |   |
|                         |  |        | Consolidated Statementsof Operations for the Three and Six MonthsEnded June30,  2006 and2005 |  |        |      |  | 4      |        |        |  |   |
|                         |  |        | Consolidated Statementsof Cash Flows for the Six Months Ended June  30,  2006and 2005        |  |        |      |  | 5      |        |        |  |   |
|                         |  |        | Notes toConsolidated FinancialStatements                                                     |  |        |      |  | 6      |        |        |  |   |
| Item2.                       |  |        | Management's Discussion and Analysis of FinancialCondition and Results ofOperations          |  |        |      |  | 17     |        |        |  |   |
| Item3.                       |  |        | Quantitative and Qualitative Disclosures about MarketRisk                                    |  |        |      |  | 25     |        |        |  |   |
| Item 4.                      |  |        | Controlsand Procedures                                                                       |  |        |      |  | 25     |        |        |  |   |
| PARTII. OTHER INFORMATION    |  |   |                                                                                              |  |   |      |  |        |        |   |  |        |  |   |
| Item1.                       |  |        | LegalProceedings                                                                             |  |        |      |  | 27     |        |        |  |   |
| Item1A.                      |  |        | Risk Factors                                                                                 |  |        |      |  | 28     |        |        |  |   |
| Item2.                       |  |        | Unregistered Sales of Equity Securities and Use ofProceeds                                   |  |        |      |  | 41     |        |        |  |   |
| Item3.                       |  |        | Defaults Upon SeniorSecurities                                                               |  |        |      |  | 41     |        |        |  |   |
| Item4.                       |  |        | Submission of Matters to a Vote of SecurityHolders                                           |  |        |      |  | 41     |        |        |  |   |
| Item 5.                      |  |        | OtherInformation                                                                             |  |        |      |  | 42     |        |        |  |   |
| Item6.                       |  |        | Exhibits                                                                                     |  |        |      |  | 43     |        |        |  |   |
| SIGNATURES                   |  |        |                                                                                              |  | 44     |      |  |        |   |
| CERTIFICATIONS               |  |        |                                                                                              |  |   |      |  |        |   |
|                              |

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Table of Contents

GENTA INCORPORATEDCONSOLIDATEDBALANCESHEETS(Unaudited)

|                                                                                                                                                                                              |  |  |               |   |          |                    |  |  |  |   |          |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|---------------|---|----------|--------------------|--|--|--|---|----------|---|
| (In thousands, exceptpar value data)                                                                                                                                                         |  |  | June  30,2006 |   |          | December  31, 2005 |
| ASSETS                                                                                                                                                                                       |  |  |               |   |     |                    |  |  |  |   |     |   |
| Currentassets:                                                                                                                                                                               |  |  |               |   |     |                    |  |  |  |   |     |   |
| Cash and cashequivalents                                                                                                                                                                     |  |  |               | $ | 9,211    |                    |  |  |  | $ | 9,314    |   |
| Marketablesecurities (Note3)                                                                                                                                                                 |  |  |               |   | 26,597   |                    |  |  |  |   | 11,968   |   |
| Accountsreceivable – net of allowances of $40 at June  30,2006 and December  31,  2005,respectively                                                                                    |  |  |               |   | 65       |                    |  |  |  |   | 59       |   |
| Inventory(Note 4)                                                                                                                                                                            |  |  |               |   | 358      |                    |  |  |  |   | 396      |   |
| Prepaidexpenses and other currentassets                                                                                                                                                      |  |  |               |   | 1,275    |                    |  |  |  |   | 1,655    |   |
| Totalcurrentassets                                                                                                                                                                      |  |  |               |   | 37,506   |                    |  |  |  |   | 23,392   |   |
| Propertyand equipment, net (Note5)                                                                                                                                                      |  |  |               |   | 405      |                    |  |  |  |   | 1,077    |   |
| Prepaidroyalties (Note6)                                                                                                                                                                |  |  |               |   | 1,268    |                    |  |  |  |   | 1,268    |   |
| Otherassets                                                                                                                                                                             |  |  |               |   | 1,662    |                    |  |  |  |   | 1,649    |   |
| Totalassets                                                                                                                                                                                  |  |  |               | $ | 40,841   |                    |  |  |  | $ | 27,386   |   |
| LIABILITIESAND STOCKHOLDERS'EQUITY                                                                                                                                                           |  |  |               |   |     |                    |  |  |  |   |     |   |
| Currentliabilities:                                                                                                                                                                          |  |  |               |   |     |                    |  |  |  |   |     |   |
| Accountspayable and accruedexpenses                                                                                                                                                     |  |  |               | $ | 10,112   |                    |  |  |  | $ | 10,960   |   |
| Notespayable                                                                                                                                                                                 |  |  |               |   | 275      |                    |  |  |  |   | 729      |   |
| Totalcurrentliabilities                                                                                                                                                                      |  |  |               |   | 10,387   |                    |  |  |  |   | 11,689   |   |
| Commitmentsand contingencies (Note12)                                                                                                                                                        |  |  |               |   |     |                    |  |  |  |   |     |   |
| Stockholders'equity (Note 7):                                                                                                                                                                |  |  |               |   |     |                    |  |  |  |   |     |   |
| Preferredstock, 5,000 sharesauthorized                                                                                                                                                  |  |  |               |   | —  |                    |  |  |  |   | —  |   |
| SeriesA convertible preferred stock, $.001 par value; 8 and 10 sharesissued and outstanding, liquidation value of $385 and $485 atJune  30,  2006 and December  31,  2005,respectively  |  |  |               |   | —  |                    |  |  |  |   | —  |   |
| SeriesG participating cumulative preferred stock, $.001 par value; 0 sharesissued and outstanding at June  30,  2006 andDecember  31,  2005                                                  |  |  |               |   | —  |                    |  |  |  |   | —  |   |
| Commonstock, $.001 par value; 250,000 and 150,000 shares authorized, 133,670and 114,550 shares issued and outstanding at June  30,2006 and December  31,  2005, respectively                 |  |  |               |   | 134      |                    |  |  |  |   | 115      |   |
| Additional paid-incapital                                                                                                                                                               |  |  |               |   | 412,956  |                    |  |  |  |   | 373,709  |   |
| Accumulateddeficit                                                                                                                                                                           |  |  |               |   | (382,725 | )                  |  |  |  |   | (358,187 | ) |
| Accumulatedother comprehensiveincome                                                                                                                                                    |  |  |               |   | 89       |                    |  |  |  |   | 60       |   |
| Totalstockholders'equity                                                                                                                                                                |  |  |               |   | 30,454   |                    |  |  |  |   | 15,697   |   |
| Totalliabilities and stockholders'equity                                                                                                                                                     |  |  |               | $ | 40,841   |                    |  |  |  | $ | 27,386   |   |
|                                                                                                                                                                                              |

Seeaccompanying notes to consolidated financialstatements

3

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GENTA INCORPORATEDCONSOLIDATEDSTATEMENTS OFOPERATIONS(Unaudited)

|                                                             |  |  |                           |   |         |                         |  |  |      |   |         |      |  |  |  |   |         |   |  |  |  |   |         |   |
|-------------------------------------------------------------|--|--|---------------------------|---|---------|-------------------------|--|--|------|---|---------|------|--|--|--|---|---------|---|--|--|--|---|---------|---|
|                                                        |  |  | ThreeMonths Ended June30, |   |         | SixMonths Ended June30, |
| (Inthousands, except par valuedata)                         |  |  | 2006                      |   |         | 2005                    |  |  | 2006 |   |         | 2005 |
| Revenues:                                                   |  |  |                           |   |    |                         |  |  |      |   |    |      |  |  |  |   |    |   |  |  |  |   |    |   |
| Licensefees androyalties                                    |  |  |                           | $ | — |                         |  |  |      | $ | 1,556   |      |  |  |  | $ | — |   |  |  |  | $ | 5,241   |   |
| Developmentfunding                                          |  |  |                           |   | — |                         |  |  |      |   | 6,234   |      |  |  |  |   | — |   |  |  |  |   | 20,988  |   |
| Productsales – net (Note2)                       |  |  |                           |   | 379     |                         |  |  |      |   | 97      |      |  |  |  |   | 446     |   |  |  |  |   | 172     |   |
| Totalrevenues                                               |  |  |                           |   | 379     |                         |  |  |      |   | 7,887   |      |  |  |  |   | 446     |   |  |  |  |   | 26,401  |   |
| Costof goodssold                                       |  |  |                           |   | 22      |                         |  |  |      |   | (3      | )    |  |  |  |   | 38      |   |  |  |  |   | 12      |   |
| Totalcost of goodssold                                      |  |  |                           |   | 22      |                         |  |  |      |   | (3      | )    |  |  |  |   | 38      |   |  |  |  |   | 12      |   |
| Operatingexpenses:                                          |  |  |                           |   |    |                         |  |  |      |   |    |      |  |  |  |   |    |   |  |  |  |   |    |   |
| Researchanddevelopment                                 |  |  |                           |   | 8,637   |                         |  |  |      |   | 5,551   |      |  |  |  |   | 13,387  |   |  |  |  |   | 9,421   |   |
| Selling,general andadministrative                      |  |  |                           |   | 6,716   |                         |  |  |      |   | 4,635   |      |  |  |  |   | 12,173  |   |  |  |  |   | 8,621   |   |
| Totaloperating expenses –gross                   |  |  |                           |   | 15,353  |                         |  |  |      |   | 10,186  |      |  |  |  |   | 25,560  |   |  |  |  |   | 18,042  |   |
| Aventisreimbursement                                   |  |  |                           |   | — |                         |  |  |      |   | (2,838  | )    |  |  |  |   | — |   |  |  |  |   | (6,090  | ) |
| Totaloperating expenses –net                     |  |  |                           |   | 15,353  |                         |  |  |      |   | 7,348   |      |  |  |  |   | 25,560  |   |  |  |  |   | 11,952  |   |
| Otherincome/(expense):                                      |  |  |                           |   |    |                         |  |  |      |   |    |      |  |  |  |   |    |   |  |  |  |   |    |   |
| Gainon forgiveness ofdebt                              |  |  |                           |   | — |                         |  |  |      |   | 1,297   |      |  |  |  |   | — |   |  |  |  |   | 1,297   |   |
| Gainon maturity of marketablesecurities                     |  |  |                           |   | 28      |                         |  |  |      |   | — |      |  |  |  |   | 121     |   |  |  |  |   | — |   |
| Interestincome and other income,net                         |  |  |                           |   | 343     |                         |  |  |      |   | 101     |      |  |  |  |   | 526     |   |  |  |  |   | 285     |   |
| Interestexpense                                             |  |  |                           |   | (17     | )                       |  |  |      |   | (21     | )    |  |  |  |   | (33     | ) |  |  |  |   | (75     | ) |
| Totalotherincome                                       |  |  |                           |   | 354     |                         |  |  |      |   | 1,377   |      |  |  |  |   | 614     |   |  |  |  |   | 1,507   |   |
| Net(loss)/income                                       |  |  |                           | $ | (14,642 | )                       |  |  |      | $ | 1,919   |      |  |  |  | $ | (24,538 | ) |  |  |  | $ | 15,944  |   |
| Net(loss)/income per basic and diluted share (Note 10)      |  |  |                           | $ | (0.11   | )                       |  |  |      | $ | 0.02    |      |  |  |  | $ | (0.19   | ) |  |  |  | $ | 0.17    |   |
| Sharesused in computing net (loss)/income per basic share   |  |  |                           |   | 133,667 |                         |  |  |      |   | 95,358  |      |  |  |  |   | 125,969 |   |  |  |  |   | 95,358  |   |
| Sharesused in computing net (loss)/income per diluted share |  |  |                           |   | 133,667 |                         |  |  |      |   | 95,531  |      |  |  |  |   | 125,969 |   |  |  |  |   | 95,535  |   |
|                                                             |

Seeaccompanying notes to consolidated financial statements

4

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GENTA INCORPORATEDCONSOLIDATEDSTATEMENTS OF CASHFLOWS(Unaudited)

|                                                                                    |  |  |                         |   |         |      |  |  |  |   |         |   |
|------------------------------------------------------------------------------------|--|--|-------------------------|---|---------|------|--|--|--|---|---------|---|
|                                                                               |  |  | SixMonths Ended June30, |
| (Inthousands)                                                                      |  |  | 2006                    |   |         | 2005 |
| OperatingActivities:                                                               |  |  |                         |   |    |      |  |  |  |   |    |   |
| Net(loss)/income                                                              |  |  |                         | $ | (24,538 | )    |  |  |  | $ | 15,944  |   |
| Adjustmentsto reconcile net (loss)/income to net cash used in operatingactivities: |  |  |                         |   |    |      |  |  |  |   |    |   |
| Depreciationandamortization                                                   |  |  |                         |   | 694     |      |  |  |  |   | 1,337   |   |
| Stock-basedcompensation (Note8)                                               |  |  |                         |   | 1,443   |      |  |  |  |   | — |   |
| Provisionfor salesreturns                                                     |  |  |                         |   | (300    | )    |  |  |  |   | — |   |
| Accountsreceivableallowances                                                       |  |  |                         |   | 7       |      |  |  |  |   | 4       |   |
| Gain onmaturity of marketablesecurities                                       |  |  |                         |   | (121    | )    |  |  |  |   | — |   |
| Losson disposition of property andequipment                                   |  |  |                         |   | — |      |  |  |  |   | 3       |   |
| Compensationexpense related to certain stock options issued in 1999 and2000   |  |  |                         |   | — |      |  |  |  |   | 22      |   |
| Non-cashreimbursement of research and developmentexpense                           |  |  |                         |   | — |      |  |  |  |   | (6,090  | ) |
| Provisionfor excessinventory                                                       |  |  |                         |   | — |      |  |  |  |   | (21     | ) |
| Gainon forgiveness ofdebt                                                     |  |  |                         |   | — |      |  |  |  |   | (1,297  | ) |
| Amortizationof deferredrevenues                                               |  |  |                         |   | — |      |  |  |  |   | (26,228 | ) |
| Changesin operating assets andliabilities:                                         |  |  |                         |   |    |      |  |  |  |   |    |   |
| Accountsreceivable                                                                 |  |  |                         |   | (13     | )    |  |  |  |   | (22     | ) |
| Inventory(Note4)                                                              |  |  |                         |   | 38      |      |  |  |  |   | 33      |   |
| Prepaidexpenses and other currentassets                                       |  |  |                         |   | 380     |      |  |  |  |   | 825     |   |
| Accountspayable and accruedexpenses                                                |  |  |                         |   | (548    | )    |  |  |  |   | (6,051  | ) |
| Otherassets                                                                   |  |  |                         |   | (13     | )    |  |  |  |   | (10     | ) |
| Netcash used in operatingactivities                                                |  |  |                         |   | (22,971 | )    |  |  |  |   | (21,551 | ) |
| InvestingActivities:                                                          |  |  |                         |   |    |      |  |  |  |   |    |   |
| Purchaseof marketable securities (Note3)                                      |  |  |                         |   | (34,880 | )    |  |  |  |   | (9,942  | ) |
| Maturitiesof marketable securities (Note3)                                    |  |  |                         |   | 20,401  |      |  |  |  |   | — |   |
| Purchaseof property andequipment                                              |  |  |                         |   | (22     | )    |  |  |  |   | (26     | ) |
| Proceedsfrom sale of property andequipment                                    |  |  |                         |   | — |      |  |  |  |   | 34      |   |
| Netcash used in investingactivities                                                |  |  |                         |   | (14,501 | )    |  |  |  |   | (9,934  | ) |
| FinancingActivities:                                                          |  |  |                         |   |    |      |  |  |  |   |    |   |
| Repaymentsof notepayable                                                           |  |  |                         |   | (454    | )    |  |  |  |   | (589    | ) |
| Issuanceof common stock, net (Note7)                                          |  |  |                         |   | 37,725  |      |  |  |  |   | — |   |
| Issuanceof common stock upon exercise of stockoptions                              |  |  |                         |   | 98      |      |  |  |  |   | — |   |
| Netcash provided by/(used in) financingactivities                                  |  |  |                         |   | 37,369  |      |  |  |  |   | (589    | ) |
| Decreasein cash and cashequivalents                                           |  |  |                         |   | (103    | )    |  |  |  |   | (32,074 | ) |
| Cashand cash equivalents at beginning ofperiod                                     |  |  |                         |   | 9,314   |      |  |  |  |   | 36,489  |   |
| Cashand cash equivalents at end ofperiod                                           |  |  |                         | $ | 9,211   |      |  |  |  | $ | 4,415   |   |
|                                                                                    |

Seeaccompanying notes to consolidated financialstatements

5

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Table of Contents

GENTAINCORPORATEDNOTES TO CONSOLIDATED FINANCIALSTATEMENTSJune  30,2006(Unaudited)

|          |                                                  |
|----------|--------------------------------------------------|
| 1.  | Organization andBusiness     |

Genta Incorporated(‘‘Genta’’ or the‘‘Company’’) is a biopharmaceutical companyengaged in drug research and development, its sole reportable segment.The Company is dedicated to the identification, development andcommercialization of novel drugs for the treatment of cancer andrelated diseases.

The Company has had recurring annual operatinglosses since its inception. Management expects that such losses willcontinue at least until its lead product, Genasense®(oblimersen sodium) Injection, receives approval for commercial sale inone or more indications. Achievement of profitability for the Companyis dependent on the timing of Genasense® regulatoryapprovals in the U.S. and outside the U.S. Any adverse events withrespect to approvals by the U.S. Food and Drug Administration(‘‘FDA’’) and/or European Medicines Agency(‘‘EMEA’’) could negatively impact theCompany’s ability to obtain additional funding or identifypotential partners.

The Company has prepared its financialstatements under the assumption that it is a going concern. TheCompany’s recurring losses and negative cash flows fromoperations raise substantial doubt about its ability to continue as agoing concern. The financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty.

TheCompany had $35.8  million of cash, cash equivalents andmarketable securities on hand at June  30,  2006. Net cashused in operating activities during the six months ended June30,  2006 was $23.0  million, which represents an averagemonthly outflow of $3.8  million. Management anticipates thatcash outflow will increase in the upcoming months to prepare for thepotential commercial approval and product launch ofGenasense®. The Company should have sufficient cashfunds to maintain its operations into the first quarter of2007.

If the New Drug Application for Genasense®is approved, the Company anticipates that it will requireadditional cash if it undertakes to launch the product in the U.S. inthe fourth quarter of 2006 in order to maximize the commercialopportunity. The Company has commenced discussions with severalcompanies regarding partnerships for the further development and globalcommercialization of Genasense®. Those discussionsare currently ongoing. Additional alternatives available to the Companyto subsequently sustain its operations include financing arrangementswith potential corporate partners, debt financing, asset-based loans,royalty-based financings, equity financing and other sources. However,there can be no assurance that any such collaborative agreements orother sources of funding will be available on favorable terms, if atall.

If the Company is unable to raise additional funds,management will need to do one or more of thefollowing:

|  |              |                                                                                                                                            |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | delay, scale back oreliminate some or all of the Company’s research and productdevelopment programs and sales and marketingactivity; |

|  |              |                                                                                                                                                         |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | license third parties todevelop and commercialize products or technologies that the Companywould otherwise seek to develop and commercializethemselves; |

|  |              |                             |
|--|--------------|-----------------------------|
|  | •  | attempt to sell theCompany; |

|  |              |                     |
|--|--------------|---------------------|
|  | •  | cease operations;or |

|  |              |                    |
|--|--------------|--------------------|
|  | •  | declarebankruptcy. |

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|          |                                           |
|----------|-------------------------------------------|
| 2.  | Summary of SignificantAccounting Policies |

Basis of Presentation

Theconsolidated financial statements are presented on the basis ofaccounting principles generally accepted in the United States ofAmerica. All professional accounting standards that are effective as ofJune  30,  2006 have been considered in preparing theconsolidated financial statements. The preparation of financialstatements in conformity with generally accepted accounting principlesrequires management to make certain estimates and assumptions thataffect reported earnings, financial position and various disclosures.Certain reclassifications have been made to prior-year amounts toconform to the current-year presentation. The unaudited consolidatedfinancial statements and related disclosures have been prepared withthe presumption that users of the interim financial information haveread or have access to the audited financial statements for thepreceding fiscal year. Accordingly, these financial statements shouldbe read in conjunction with the audited consolidated financialstatements and the related notes thereto included in theCompany's Annual Report on Form 10-K for the fiscal year endedDecember  31,  2005. Results for interim periods are notnecessarily indicative of results for the full year. The Company hasexperienced significant quarterly fluctuations in operating results andit expects those fluctuations will continue.

RevenueRecognition

Genta recognizes revenue from product saleswhen title to product and associated risk of loss has passed to thecustomer and the Company is reasonably assured of collecting paymentfor the sale. All revenue from product sales are recorded net ofapplicable allowances for returns, rebates and other applicablediscounts and allowances. The Company allows return of its product forup to twelve months after product expiration. In December  2004,a wholesaler contacted the Company to return a significant portion ofits inventory of Ganite®. The Company agreed to thereturn of this product and recorded a provision for sales returns, aswell as provided for potential returns from other wholesalers. InJanuary  2005, the wholesaler returned $0.5  million ofGanite®. In the second quarter of 2006, the Companyrevised its forecast of expected Ganite® returnsbased on actual experience to date, product expiration dates and dataobtained from wholesalers. As a result, the Company reduced its salesprovision by $0.3  million, to reflect this change in estimate.At June  30,  2006, the Company’s remainingprovision for sales returns was $0.3  million.

InApril  2002, the Company entered into a development andcommercialization agreement (‘‘CollaborativeAgreement’’) with Aventis. On November  8,2004, Aventis gave notice to Genta that it was terminating itsCollaborative Agreement with the Company. Under the terms of theagreement, Aventis continued to fund ongoing development activities fora six-month period. The Company follows the provisions of theSecurities and Exchange Commission’s Staff Accounting Bulletin(‘‘SAB’’) No. 104, RevenueRecognition and Emerging Issues Task Force(‘‘EITF’’) No. 00-21, Accounting forRevenue Arrangements with Multiple Deliverables.

Inaccordance with EITF No. 00-21 the Company analyzes its multipleelement arrangements to determine whether the elements can be separatedand accounted for individually as separate units of accounting. TheCompany recognizes license payments as revenue if the license hasstand-alone value and the fair value of the undelivered items can bedetermined. If the license is considered to have stand-alone value butthe fair value on any of the undelivered items cannot be determined,the license payments are recognized as revenue over the period ofperformance for such undelivered items or services. TheCompany’s estimate of the period of performance involvesmanagement judgment. Amounts received for milestones are recognizedupon achievement of the milestone, as long as the milestone is deemedto be substantive and the Company has no other performanceobligations.

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The Company determined that, due to thenature of the ongoing development work related to its CollaborativeAgreement with Aventis, the end of the development phase and the fairvalue of the undelivered elements were not determinable. Accordingly,the Company deferred recognition of the initial licensing fee andup-front development funding received from Aventis and recognized thesepayments on a straight-line basis over the original estimated usefullife of the related first-to-expire patent of 115 months. As a resultof the notice of termination of the agreement with Aventis, the Companydetermined that the remaining deferred revenue should be recognizedover the six-month termination notice period from November  2004to May  2005.

Research andDevelopment

Research and development costs are expensed asincurred, including raw material costs required to manufacture productsfor clinical trials. Reimbursements for applicableGenasense®-related costs under the CollaborativeAgreement, which terminated in May  2005, were recorded as areduction to expenses in the Consolidated Statements of Operations.

On March  23,  2006, the Company entered into anexclusive, worldwide licensing agreement with Emisphere Technologies,Inc. to develop an oral formulation of a gallium-containing compound.Under the terms of the new agreement, Genta will pay Emisphere up to$24  million only upon the achievement of certain milestonesduring the course of product development and royalties based uponsales. To date, no milestone payments have been made.

Cash,Cash Equivalents and Marketable Securities

The carryingamounts of cash, cash equivalents and marketable securities approximatefair value due to the short-term nature of these instruments.Marketable securities primarily consist of government securities, allof which are classified as available-for-sale marketable securities.Management determines the appropriate classification of securities atthe time of purchase and reassesses the classification at eachreporting date.

Property and Equipment

Propertyand equipment is stated at cost and depreciated using the straight-linemethod over the estimated useful lives of the assets, ranging fromthree to five years. Leasehold improvements incurred in the renovationof the Company’s current offices are being amortized over theremaining life of the leases. The Company’s policy is toevaluate the appropriateness of the carrying value of the undepreciatedvalue of long-lived assets. If such evaluation were to indicate animpairment of assets, such impairment would be recognized by awrite-down of the applicable assets.

Inventories

Inventories are stated at the lower ofcost or market, with cost being determined using the first-in,first-out (FIFO) method.

Income Taxes

The Companyuses the liability method of accounting for income taxes. Deferredincome taxes are determined based on the estimated future tax effectsof differences between the financial statement and tax bases of assetsand liabilities given the provisions of the enacted tax laws.Management records valuation allowances against net deferred taxassets, if based upon the available evidence, it is more likely thannot that some or all of the deferred tax assets will not be realized.The Company generated additional net operating losses during the sixmonths ended June  30,  2006 and continues to maintain afull valuation allowance against its net deferred taxassets.

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Stock Options

EffectiveJanuary 1, 2006, Genta adopted the fair value recognitionprovisions of Statement of Financial Accounting StandardsNo. 123 (revised 2004), Share-Based Payment,(‘‘SFAS 123R’’), using the modifiedprospective transition method and therefore has not restated resultsfor prior periods. Under the new standard, all share-based paymentsincluding grants of employee stock options are recognized in theConsolidated Statement of Operations based on their fair values, aspro-forma disclosure is no longer an alternative. The amount ofcompensation cost is measured based on the grant-date fair value of theequity instrument issued. The Company utilizes a Black-Scholesoption-pricing model to measure the fair value of stock options grantedto employees. See Note 8 to our Consolidated Financial Statements for afurther discussion on stock-basedcompensation.

|          |                       |
|----------|-----------------------|
| 3.  | Marketable Securities |

Thecarrying amounts of the Company’s marketable securities, whichare primarily securities of government-backed agencies, approximatefair value due to the short-term nature of these instruments. The fairvalue of available-for-sale marketable securities is as follows ($thousands):

|                       |  |  |              |   |        |                 |  |  |  |   |         |  |
|-----------------------|--|--|--------------|---|--------|-----------------|--|--|--|---|---------|--|
|                  |  |  | June30, 2006 |   |        | December31,2005 |
| Cost                  |  |  |              | $ | 26,508 |                 |  |  |  | $ | 11,908  |  |
| Grossunrealized gains |  |  |              |   | 101    |                 |  |  |  |   | 60      |  |
| Grossunrealizedlosses |  |  |              |   | (12    | )               |  |  |  |   | — |  |
| Fairvalue             |  |  |              | $ | 26,597 |                 |  |  |  | $ | 11,968  |  |
|                       |

Duringthe six months ended June  30,  2006, the Company recorded$121  thousand in realized gains on the maturity of marketablesecurities.

The estimated fair value of each marketable securityhas been compared with its cost, and therefore, a net unrealized gainof $89  thousand and $60  thousand has been recognized inAccumulated other comprehensive income at June  30,  2006and December  31,  2005,respectively.

|          |           |
|----------|-----------|
| 4.  | Inventory |

Inventory consisted ofthe following ($thousands):

|                |  |  |              |   |         |                   |  |  |  |   |         |  |
|----------------|--|--|--------------|---|---------|-------------------|--|--|--|---|---------|--|
|           |  |  | June30, 2006 |   |         | December 31, 2005 |
| Rawmaterials   |  |  |              | $ | 191     |                   |  |  |  | $ | 191     |  |
| Work inprocess |  |  |              |   | — |                   |  |  |  |   | — |  |
| Finishedgoods  |  |  |              |   | 167     |                   |  |  |  |   | 205     |  |
|           |  |  |              | $ | 358     |                   |  |  |  | $ | 396     |  |
|                |

OnMay  10,  2005, the Company announced that Genta andAventis had signed an agreement to finalize the termination of theirdevelopment and commercialization collaboration forGenasense®. The termination agreement provided for nofuture financial obligations by either party and Aventis returned itscurrent inventory of Genasense® drug supply to Genta.With this returned drug supply, the Company has substantial quantitiesof Genasense® which are recorded at zero cost. Suchinventory would be available for the commercial launch of this product,should Genasense® be approved.

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|          |                       |
|----------|-----------------------|
| 5.  | Property andEquipment |

Property and equipment is comprised of the following($ thousands):

|                                              |  |  |                       |  |   |              |   |        |                  |   |       |  |   |        |   |   |       |  |
|----------------------------------------------|--|--|-----------------------|--|---|--------------|---|--------|------------------|---|-------|--|---|--------|---|---|-------|--|
|                                         |  |  | EstimatedUseful Lives |  |   | June 30,2006 |   |        | December 31,2005 |
| Computerequipment                            |  |  |                       |  | 3 |              |   |        |                  | $ | 2,893 |  |   |        |   | $ | 2,871 |  |
| Software                                     |  |  |                       |  | 3 |              |   |        |                  |   | 3,349 |  |   |        |   |   | 3,349 |  |
| Furniture andfixtures                        |  |  |                       |  | 5 |              |   |        |                  |   | 936   |  |   |        |   |   | 936   |  |
| Leaseholdimprovements                        |  |  | Lifeof lease          |  |   |              |   | 410    |                  |   |       |  |   | 410    |   |
| Equipment                                    |  |  |                       |  | 5 |              |   |        |                  |   | 82    |  |   |        |   |   | 82    |  |
|                                         |  |  |                  |  |   |              |   | 7,770  |                  |   |       |  |   | 7,748  |   |
| Lessaccumulated depreciation andamortization |  |  |                  |  |   |              |   | (7,365 | )                |   |       |  |   | (6,671 | ) |
|                                         |  |  |                  |  |   |              | $ | 405    |                  |   |       |  | $ | 1,077  |   |
|                                              |

|          |                  |
|----------|------------------|
| 6.  | PrepaidRoyalties |

In December  2000, the Company recorded$1.3  million as the fair value for its commitment to issue162,338 shares of common stock to a major university as considerationfor an amendment to a license agreement initially executed onAugust  1,  1991 related to antisense technology licensedfrom the university. The amendment provided for a reduction in theroyalty percentage rate to be paid to the university based on thevolume of sales of the Company’s products containing theantisense technology licensed from such university. These shares wereissued in the first quarter of 2001. The Company will amortize theprepaid royalties upon the commercialization ofGenasense® through the term of the arrangement, whichexpires twelve years from the date of first commercialsale.

|          |                            |
|----------|----------------------------|
| 7.  | Stockholders’ Equity |

CommonStock

In March  2006, the Board of Directors approved anamendment to increase the number of shares of authorized common stockto 250.0  million shares from 150.0  million shares. InJune  2006, the Company’s stockholders approved thisamendment at the Company’s Annual Meeting ofStockholders.

In March  2006, the Company issued19.0  million shares of its common stock at a price of $2.15 pershare, raising $37.7  million, net of fees and expenses.

InSeptember  2005, the Board of Directors adopted a StockholderRights Plan and declared a dividend of one preferred stock purchaseright (a ‘‘Right’’) for each outstandingshare of common stock of the Company, payable to holders of record asof the close of business on September  27,  2005.Generally, the rights become exercisable upon the earlier of the closeof business on the tenth business day following the first publicannouncement that any person or group has become a beneficial owner of15% or more of the Company’s common stock and the closeof business on the tenth business day after the date of thecommencement of a tender or exchange offer by any person which would,if consummated, result in such person becoming a beneficial owner of15% or more of the Company’s common stock. Each Rightshall be exercisable to purchase, for $25.00, subject to adjustment,one one-hundredth of a newly registered share of Series G ParticipatingCumulative Preferred Stock, par value $0.001 per share of theCompany.

In August  2005, the Company issued 19.1million shares of its common stock and received net proceeds ofapproximately $16.0million.

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Series A Preferred Stock

Eachshare of Series A Preferred Stock is immediately convertible intoshares of the Company’s common stock, at a rate determined bydividing the aggregate liquidation preference of the Series A PreferredStock by the conversion price. The conversion price is subject toadjustment for antidilution. As of June  30,  2006 andDecember  31,  2005, each share of Series A Preferred Stockwas convertible into 10.6853 and 9.8067 shares of common stock,respectively. At June  30,  2006 and December31,  2005, the Company had 7,700 and 9,700 shares, respectively,of Series A Convertible Preferred Stock issued and outstanding. InApril  2006, a holder of 2,000 shares of Series A ConvertiblePreferred Stock converted these shares into the Company’s commonstock in a non-cash transaction.

Series G PreferredStock

The Company has authorized 5.0  million shares ofpreferred stock of which 2.0  million shares has been designatedSeries G Participating Cumulative Preferred. At June  30,2006, the Company had no issued or outstanding shares of Series GParticipating Cumulative Preferred Stock.

Common StockReserved

At June  30,  2006, the Company had133.7  million shares of common stock outstanding, 12.8million additional shares reserved for the conversion of convertiblepreferred stock and the exercise of outstanding options and warrantsand 5.2  million additional shares of common stock authorized forissuance and remaining to be granted under the Company’s stockoption plans.

|          |                          |
|----------|--------------------------|
| 8.  | Stock-Based Compensation |

Effective January  1,  2006, the Company adopted SFAS123R, which requires the Company to measure the cost of employeeservices received in exchange for all equity awards granted based onthe fair value of the award as of the grant date. SFAS 123R supersedesStatement of Financial Accounting Standards No. 123,Accounting for Stock-Based Compensation (‘‘SFAS123’’), and Accounting Principles Board OpinionNo. 25, Accounting for Stock Issued to Employees(‘‘APB 25’’). The Company adopted SFAS 123Rusing the modified prospective transition method, which requires theCompany to record compensation cost related to unvested stock awards asof December 31, 2005 by recognizing the unamortized grant datefair value of these awards over the remaining requisite service periodsof those awards, with no change in historical reported earnings. Awardsgranted after December 31, 2005 are valued at fair value inaccordance with the provisions of SFAS 123R and are recognized on astraight-line basis over the requisite service periods of each award.The new standard also requires the Company to estimate forfeiture ratesfor all unvested awards, which it has done for 2006 based on itshistorical experience.

The Company estimates the fair value ofeach option award on the date of the grant using a Black-Scholes optionvaluation model. Expected volatilities are based on the historicalvolatility of the Company’s common stock over a periodcommensurate with the options’ expected term. The expected termrepresents the period of time that options granted are expected to beoutstanding and is calculated in accordance with the Securities andExchange Commission (‘‘SEC’’) guidanceprovided in the SEC’s Staff Accounting Bulletin 107,(‘‘SAB 107’’), using a‘‘simplified’’ method. The risk-freeinterest rate assumption is based upon observed interest ratesappropriate for the expected term of the Company’s stockoptions. The following table summarizes the weighted-averageassumptions used in the Black-Scholes model for options granted duringthe six months ended June  30,  2006 and2005:

|                         |  |  |      |  |         |      |  |  |  |  |         |   |
|-------------------------|--|--|------|--|---------|------|--|--|--|--|---------|---|
|                    |  |  | 2006 |  |         | 2005 |
| Expectedvolatility      |  |  |      |  | 97      | %    |  |  |  |  | 119     | % |
| Expecteddividends       |  |  |      |  | — |      |  |  |  |  | — |   |
| Expectedterm (in years) |  |  |      |  | 6.25    |      |  |  |  |  | 6.25    |   |
| Risk-freerate           |  |  |      |  | 4.6     | %    |  |  |  |  | 4.3     | % |
|                         |

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Prior to 2006, the Company accounted forstock-based compensation in accordance with APB 25 using the intrinsicvalue method, which did not require that compensation cost berecognized for the Company’s stock options, provided the optionexercise price was not less than the common stock’s fair marketvalue on the date of the grant. The Company provided pro-formadisclosure amounts in accordance with SFAS No. 148, Accounting forStock-Based Compensation — Transition and Disclosure, as ifthe fair value method defined by SFAS No. 123 had been applied to itsstock-based compensation. The Company’s net income and netincome per share for the three months and six months endedJune 30, 2005 would have been reduced if compensation costrelated to stock options had been recorded in the financial statementsbased on fair value at the grant dates.

The following table setsforth the pro-forma net income as if the fair value method had beenapplied to allawards:

|                                                                                                                                           |  |  |                                 |   |        |                               |  |  |  |   |        |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--|--|---------------------------------|---|--------|-------------------------------|--|--|--|---|--------|---|
| ($thousands, except per share data)                                                                                                       |  |  | ThreeMonths Ended June 30, 2005 |   |        | Six Months Ended June 30,2005 |
| Net income applicable to common shares, asreported                                                                                        |  |  |                                 | $ | 1,919  |                               |  |  |  | $ | 15,944 |   |
| Add: Equityrelated employee compensation expense included in reported net income,net of related taxeffects                                |  |  |                                 |   | 11     |                               |  |  |  |   | 22     |   |
| Deduct: Totalstock-based employee compensation expense determined under fair valuesbased method for all awards, net of related taxeffects |  |  |                                 |   | (1,408 | )                             |  |  |  |   | (2,954 | ) |
| Proforma netincome                                                                                                                        |  |  |                                 | $ | 522    |                               |  |  |  | $ | 13,012 |   |
| Netincome per share attributable to commonshareholders:                                                                                   |  |  |                                 |   |   |                               |  |  |  |   |   |   |
| As reported: Basicand diluted                                                                                                             |  |  |                                 | $ | 0.02   |                               |  |  |  | $ | 0.17   |   |
| Pro forma:Basic and diluted                                                                                                               |  |  |                                 | $ | 0.01   |                               |  |  |  | $ | 0.14   |   |
|                                                                                                                                           |

Forthe three and six months ended June  30,  2005, selling,general and administrative expenses include $11  thousand and$22  thousand, respectively, of non-cash compensation expenserelated to certain stock options issued in 1999 and 2000.

As aresult of adopting SFAS 123R, the impact to the Consolidated Statementof Operations was to increase expenses and net loss by approximately$0.8  million and $1.4  million for the three and sixmonths ended June  30,  2006, respectively. The impact onboth basic and diluted earnings per share for the three and six monthsended June  30,  2006 was $0.01 per share. The estimatedshare-based compensation expense, related to all of theCompany’s share-based awards, recognized for the three monthsand six months ended June  30,  2006 was comprised asfollows:

|                                                       |  |  |                                 |   |        |                              |  |  |  |   |        |  |
|-------------------------------------------------------|--|--|---------------------------------|---|--------|------------------------------|--|--|--|---|--------|--|
| ($thousands, except per share data)                   |  |  | ThreeMonths Ended June 30, 2006 |   |        | Six Months EndedJune 30,2006 |
| Research and developmentexpenses                      |  |  |                                 | $ | 191    |                              |  |  |  | $ | 398    |  |
| Selling, generaland administrativeexpenses            |  |  |                                 |   | 655    |                              |  |  |  |   | 1,045  |  |
| Totalshare-based compensationexpense                  |  |  |                                 | $ | 846    |                              |  |  |  | $ | 1,443  |  |
| Netshare-based compensation expense, per commonshare: |  |  |                                 |   |   |                              |  |  |  |   |   |  |
| Basic                                                 |  |  |                                 | $ | 0.01   |                              |  |  |  | $ | 0.01   |  |
| Diluted                                               |  |  |                                 | $ | 0.01   |                              |  |  |  | $ | 0.01   |  |
|                                                       |

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As of June  30,  2006, theCompany has two share-based compensation plans, which are describedbelow.

1998 Stock Incentive Plan

In June  2006, theCompany’s stockholders approved an amendment to increase thetotal number of shares of common stock authorized for issuance underthe Company’s 1998 Stock Incentive Plan, as amended, (the‘‘1998 Plan’’), from 18.5  million to20.5  million shares. Pursuant to the 1998 Plan, 20.5million shares have been provided for the grant of stock options toemployees, directors, consultants and advisors of the Company. Optionawards must be granted with an exercise price at not less than the fairmarket price of the Company’s common stock on the date of thegrant; those option awards generally vest over a four-year period inequal increments of 25%, beginning on the first anniversary ofthe date of the grant. All options granted have contractual terms often years from the date of the grant.

The following tablesummarizes the option activity under the 1998 Plan as of June30,  2006 and changes during the six months thenended:

|                                |  |  |                                |  |         |                              |  |  |                                                   |   |         |                                       |  |  |  |  |        |  |  |  |  |   |        |  |
|--------------------------------|--|--|--------------------------------|--|---------|------------------------------|--|--|---------------------------------------------------|---|---------|---------------------------------------|--|--|--|--|--------|--|--|--|--|---|--------|--|
| StockOptions                   |  |  | Number of Shares (inthousands) |  |         | WeightedAverageExercisePrice |  |  | WeightedAverageRemainingContractualTerm(in years) |   |         | AggregateIntrinsic Value(inthousands) |
| Outstanding at January  1,2006 |  |  |                                |  | 9,418   |                              |  |  |                                                   | $ | 5.04    |                                       |  |  |  |  |   |  |  |  |  |   |   |  |
| Granted                        |  |  |                                |  | 1,928   |                              |  |  |                                                   | $ | 2.08    |                                       |  |  |  |  |   |  |  |  |  |   |   |  |
| Exercised                      |  |  |                                |  | — |                              |  |  |                                                   |   | — |                                       |  |  |  |  |   |  |  |  |  |   |   |  |
| Forfeitedorexpired             |  |  |                                |  | 123     |                              |  |  |                                                   | $ | 6.98    |                                       |  |  |  |  |   |  |  |  |  |   |   |  |
| Outstandingat June  30,2006    |  |  |                                |  | 11,223  |                              |  |  |                                                   | $ | 4.51    |                                       |  |  |  |  | 5.9    |  |  |  |  | $ | 317    |  |
| Exercisableat June  30,2006    |  |  |                                |  | 6,969   |                              |  |  |                                                   | $ | 4.21    |                                       |  |  |  |  | 4.3    |  |  |  |  | $ | 76     |  |
|                                |

Theweighted-average grant date fair value of options granted during thethree months and six months ended June  30,  2006 was $1.32and $1.68, respectively. The aggregate intrinsic value in the tableabove represents the total pre-tax intrinsic value (the differencebetween Genta’s closing stock price on the last trading day ofthe second quarter of 2006 and the exercise price, multiplied by thenumber of in-the money options) that would have been received by theoption holders had all option holders exercised their options onJune  30,  2006. The amount of aggregate intrinsic valuewill change based on the fair market value of the Company’sstock.

As of June  30,  2006, there wasapproximately $3.4  million of total unrecognized compensationcost related to non-vested share-based compensation granted under the1998 Plan, which is expected to be recognized over a weighted-averageperiod of 1.5 years.

1998 Non-Employee Directors’Plan

Pursuant to the Company’s 1998 Non-EmployeeDirectors’ Plan as amended (the‘‘Directors’ Plan’’), 3.8million shares have been provided for the grant of non-qualified stockoptions to the Company’s non-employee members of the Board ofDirectors. Option awards must be granted with an exercise price at notless than the fair market price of the Company’s common stock onthe date of the grant. Initial option grants vest over a three-yearperiod in equal increments, beginning on the first anniversary of thedate of the grant. Subsequent grants, generally vest on the date of thegrant. All options granted have contractual terms of ten years from thedate of the grant.

The fair value of each option award isestimated on the date using the same valuation model used for optionsgranted under the 1998 Plan.

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The following table summarizes the optionactivity under the Directors’ Plan as of June  30,2006 and changes during the six months thenended:

|                                |  |  |                                |  |         |                              |  |  |                                                   |   |         |                                       |  |  |  |  |        |  |  |  |  |   |        |  |
|--------------------------------|--|--|--------------------------------|--|---------|------------------------------|--|--|---------------------------------------------------|---|---------|---------------------------------------|--|--|--|--|--------|--|--|--|--|---|--------|--|
| StockOptions                   |  |  | Number of Shares (inthousands) |  |         | WeightedAverageExercisePrice |  |  | WeightedAverageRemainingContractualTerm(in years) |   |         | AggregateIntrinsic Value(inthousands) |
| Outstanding at January  1,2006 |  |  |                                |  | 1,158   |                              |  |  |                                                   | $ | 6.26    |                                       |  |  |  |  |   |  |  |  |  |   |   |  |
| Granted                        |  |  |                                |  | 135     |                              |  |  |                                                   | $ | 2.07    |                                       |  |  |  |  |   |  |  |  |  |   |   |  |
| Exercised                      |  |  |                                |  | 100     |                              |  |  |                                                   | $ | 0.98    |                                       |  |  |  |  |   |  |  |  |  |   |   |  |
| Forfeitedorexpired             |  |  |                                |  | — |                              |  |  |                                                   |   | — |                                       |  |  |  |  |   |  |  |  |  |   |   |  |
| Outstandingat June  30,2006    |  |  |                                |  | 1,193   |                              |  |  |                                                   | $ | 6.23    |                                       |  |  |  |  | 6.1    |  |  |  |  | $ | 129    |  |
| Exercisableat June  30,2006    |  |  |                                |  | 1,145   |                              |  |  |                                                   | $ | 6.44    |                                       |  |  |  |  | 6.0    |  |  |  |  | $ | 108    |  |
|                                |

Theweighted-average grant date fair value of options granted during thethree and six months ended June  30,  2006 was $1.67. Theaggregate intrinsic value in the table above represents the totalpre-tax intrinsic value (the difference between Genta’s closingstock price on the last trading day of the first quarter of 2006 andthe exercise price, multiplied by the number of in-the money options)that would have been received by the option holders had all optionholders exercised their options on June  30,  2006. Theamount of aggregate intrinsic value will change based on the fairmarket value of the Company’s stock. The intrinsic value ofstock options exercised during the six months ended June30,  2006 was $0.2  million.

|          |                     |
|----------|---------------------|
| 9.  | ComprehensiveIncome |

An analysis of comprehensive income is presentedbelow:

|                                                                  |  |  |                             |   |         |                         |  |  |      |   |       |      |  |  |  |   |         |   |  |  |  |   |        |  |
|------------------------------------------------------------------|--|--|-----------------------------|---|---------|-------------------------|--|--|------|---|-------|------|--|--|--|---|---------|---|--|--|--|---|--------|--|
| ($in thousands)                                                  |  |  | Three MonthsEnded June  30, |   |         | Six Months EndedJune30, |
|                                                             |  |  | 2006                        |   |         | 2005                    |  |  | 2006 |   |       | 2005 |
| Net(loss)/income                                                 |  |  |                             | $ | (14,642 | )                       |  |  |      | $ | 1,919 |      |  |  |  | $ | (24,538 | ) |  |  |  | $ | 15,944 |  |
| Changein market value on available-for-sale marketablesecurities |  |  |                             |   | 89      |                         |  |  |      |   | 44    |      |  |  |  |   | 29      |   |  |  |  |   | 46     |  |
| Totalcomprehensive(loss)/income                                  |  |  |                             | $ | (14,553 | )                       |  |  |      | $ | 1,963 |      |  |  |  | $ | (24,509 | ) |  |  |  | $ | 15,990 |  |
|                                                                  |

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|           |                            |
|-----------|----------------------------|
| 10.  | Net (Loss)/Income perShare |

The information required to compute basic and diluted net(loss)/income per share is asfollows:

|                                                                          |  |  |                            |   |         |                          |  |  |      |   |        |      |  |  |  |   |         |   |  |  |  |   |        |  |
|--------------------------------------------------------------------------|--|--|----------------------------|---|---------|--------------------------|--|--|------|---|--------|------|--|--|--|---|---------|---|--|--|--|---|--------|--|
| (amountsin thousands, except per shareamounts)                           |  |  | Three Months EndedJune 30, |   |         | Six Months Ended June30, |
|                                                                     |  |  | 2006                       |   |         | 2005                     |  |  | 2006 |   |        | 2005 |
| Numerator:                                                               |  |  |                            |   |    |                          |  |  |      |   |   |      |  |  |  |   |    |   |  |  |  |   |   |  |
| Net(loss)/income                                                         |  |  |                            | $ | (14,642 | )                        |  |  |      | $ | 1,919  |      |  |  |  | $ | (24,538 | ) |  |  |  | $ | 15,944 |  |
| Denominator:                                                             |  |  |                            |   |    |                          |  |  |      |   |   |      |  |  |  |   |    |   |  |  |  |   |   |  |
| Weightedaverage sharesoutstanding:                                       |  |  |                            |   |    |                          |  |  |      |   |   |      |  |  |  |   |    |   |  |  |  |   |   |  |
| Basic                                                                    |  |  |                            |   | 133,667 |                          |  |  |      |   | 95,358 |      |  |  |  |   | 125,969 |   |  |  |  |   | 95,358 |  |
| Effectof dilutive stock options, warrants and convertible preferredstock |  |  |                            |   | — |                          |  |  |      |   | 173    |      |  |  |  |   | — |   |  |  |  |   | 177    |  |
| Diluted                                                                  |  |  |                            |   | 133,667 |                          |  |  |      | $ | 95,531 |      |  |  |  |   | 125,969 |   |  |  |  |   | 95,535 |  |
| Net(loss)/income pershare:                                               |  |  |                            |   |    |                          |  |  |      |   |   |      |  |  |  |   |    |   |  |  |  |   |   |  |
| Basic                                                                    |  |  |                            | $ | (0.11   | )                        |  |  |      | $ | 0.02   |      |  |  |  | $ | (0.19   | ) |  |  |  | $ | 0.17   |  |
| Diluted                                                                  |  |  |                            | $ | (0.11   | )                        |  |  |      | $ | 0.02   |      |  |  |  | $ | (0.19   | ) |  |  |  | $ | 0.17   |  |
|                                                                          |

Forthe three months ended June  30,  2006 and 2005,12.4  million and 10.6  million, respectively, of commonshares issuable under the Company’s stock incentive plans and0.4  million and 0.3  million, respectively, of commonshares obtainable upon conversion of the Company’s Series Apreferred stock and exercise of warrants were excluded from thecomputation of diluted (loss)/income per share because the effect ofincluding them would have been antidilutive. Similarly, for the sixmonths ended June  30,  2006 and 2005, 12.8  millionand 10.7  million, respectively, of common shares issuable underthe Company’s stock incentive plans and 0.4  million and0.2  million, respectively, of common shares obtainable uponconversion of the Company’s Series A preferred stock andexercise of warrants were excluded from the computation of diluted(loss)/income per share because the effect of including them would havebeen antidilutive.

|           |                              |
|-----------|------------------------------|
| 11.  | Commitments andContingencies |

Litigation and Potential Claims

In2004, numerous complaints were filed in the United States DistrictCourt for the District of New Jersey against Genta and certain of itsprincipal officers on behalf of purported classes of theCompany’s shareholders who purchased its securities duringseveral class periods. The complaints have been consolidated into asingle action and allege that the Company and certain of its principalofficers violated the federal securities laws by issuing materiallyfalse and misleading statements regarding Genasense®for the treatment of malignant melanoma that had the effect ofartificially inflating the market price of the Company’ssecurities. The shareholder class action complaint in the variousactions seeks monetary damages in an unspecified amount and recovery ofplaintiffs’ costs and attorneys’ fees. OnSeptember  30,  2005, the court granted in part and deniedin part the Company’s motion to dismiss the plaintiffs’complaint. The court dismissed plaintiffs’ claim that thedefendants engaged in a scheme or artifice to defraud plaintiffs, butallowed plaintiffs’ claims to proceed with respect to theirallegations that defendants issued false and misleading publicstatements about Genasense®. The case has proceededto discovery.

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In addition, two separate shareholderderivative actions have been filed against the directors and certainofficers of Genta in New Jersey State and Federal courts. The Federalshareholder derivative action was consolidated with the securitiesaction. Genta has reached an agreement in principle with the Federalshareholder derivative plaintiffs to settle the Federal Shareholderderivative action. The settlement has been submitted to the court forapproval and we are waiting for a determination.

Based on factssubstantially similar to those asserted in the shareholder classactions, the State derivative plaintiffs claim that defendants havebreached their fiduciary duties to the shareholders and committed otherviolations of New Jersey law. On February  9,  2006, theSuperior Court of New Jersey dismissed the plaintiffs’derivative complaint in the New Jersey State casebased in part on plaintiffs’ failure to make a pre-suit demandon Genta's Board of Directors and in part based onplaintiffs’ failure to state a cause of action.Plaintiffs’ motion for reconsideration was denied and they havefiled a notice of appeal. 

The Company believes theselitigations are without merit and will continue to vigorously defendagainst these suits.

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Item2.    Management’s Discussion and Analysis of FinancialCondition and Results of Operations

Certain FactorsAffecting Forward-Looking Statements — Safe HarborStatement

The statements contained in this QuarterlyReport on Form 10-Q that are not historical are forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of1934, as amended, including statements regarding the expectations,beliefs, intentions or strategies regarding the future. We intend thatall forward-looking statements be subject to the safe harbor provisionsof the Private Securities Litigation Reform Act of 1995. Theseforward-looking statements reflect our views as of the date they aremade with respect to future events and financial performance, but aresubject to many risks and uncertainties, which could cause actualresults to differ materially from any future results expressed orimplied by such forward-looking statements. Forward-looking statementsinclude, without limitation, statementsabout:

|  |              |                                           |
|--|--------------|-------------------------------------------|
|  | •  | the Company’sfinancial projections; |

|  |              |                                                                                                  |
|--|--------------|--------------------------------------------------------------------------------------------------|
|  | •  | theCompany’s projected cash flow requirements and estimated timingof sufficient cash flow; |

|  |              |                                                                                                                  |
|--|--------------|------------------------------------------------------------------------------------------------------------------|
|  | •  | theCompany’s current and future license agreements, collaborationagreements, and other strategicalliances; |

|  |              |                                                                                                                                                                                                        |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | the Company’sability to obtain necessary regulatory approval forGenasense® (oblimersen sodium) Injection from theU.S. Food and Drug Administration (FDA) or European Medicines Agency(EMEA); |

|  |              |                                                        |
|--|--------------|--------------------------------------------------------|
|  | •  | the safety and efficacyof the Company’sproducts; |

|  |              |                                                   |
|--|--------------|---------------------------------------------------|
|  | •  | the commencement andcompletion of clinicaltrials; |

|  |              |                                                                          |
|--|--------------|--------------------------------------------------------------------------|
|  | •  | the Company’sability to develop, manufacture and sell itsproducts; |

|  |              |                                                                                                                                                                       |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | the adequacy of theCompany’s capital resources and the Company’s ability toobtain sufficient financing to maintain the Company’s plannedoperations; |

|  |              |                                                                   |
|--|--------------|-------------------------------------------------------------------|
|  | •  | the adequacy of theCompany’s patents and proprietaryrights; |

|  |              |                                                                                                  |
|--|--------------|--------------------------------------------------------------------------------------------------|
|  | •  | the impact of litigationthat has been brought against the Company and its officers anddirectors; |

|  |              |                                                                                                                                                                  |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | the other risksdescribed under Risk Factors in the Company’s Annual Report onForm 10-K for the fiscal year ended December  31,  2005 andin this Form 10-Q. |

We do not undertake to update anyforward-looking statements.

We make available free ofcharge on our Internet website (http://www.genta.com) ourAnnual Report on Form 10-K, Quarterly Reports on Form 10-Q, currentreports on Form 8-K and amendments to these reports filed or furnishedpursuant to Section 13(a) or 15(d) of the Securities Exchange Act of1934 as soon as reasonably practicable after we electronically filesuch material with, or furnish it to, the Securities and ExchangeCommission. The content on the Company’s website is availablefor informational purposes only. It should not be relied upon forinvestment purposes, nor is it incorporated by reference into this Form10-Q.

Overview

Genta Incorporated is abiopharmaceutical company engaged in pharmaceutical research anddevelopment. We are dedicated to the identification, development andcommercialization of novel drugs for the treatment of cancer andrelated diseases. The Company has had recurring annual operating lossessince its inception and we expect to incur substantial operating lossesdue to continued requirements for ongoing and planned research anddevelopment activities, pre-clinical and clinical testing,manufacturing activities, regulatory activities and establishment of asales and marketing organization. From our inception to June30,  2006, we have incurred a cumulative net loss of$382.7  million. Management expects that such losses willcontinue at least until our lead product, Genasense®,receives approval from the FDA for commercial sale in one or moreindications. Achievement of profitability is dependent on the timing ofGenasense® regulatory approvals in the U.S. andoutside the U.S. We have experienced significant quarterly fluctuationsin operating results and we expect that these fluctuations in revenues,expenses and losses will continue.

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We have prepared our financial statementsunder the assumption that the Company is a going concern. TheCompany’s recurring losses and negative cash flows fromoperations raise substantial doubt about its ability to continue as agoing concern. The financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty.

TheCompany has $35.8  million of cash and cash equivalents andmarketable securities on hand at June  30,  2006. OnMarch  13,  2006, we sold 19.0  million shares of theCompany’s common stock at a price of $2.15 per share, raising$37.7  million, net of fees and expenses. During the six monthsended June  30,  2006, cash used in operating activitieswas $23.0  million. Management anticipates that cash outflow willincrease in the upcoming months to prepare for the potential commercialapproval and product launch of Genasense®. TheCompany should have sufficient cash funds to maintain its presentoperations into the first quarter of 2007.

If the New DrugApplication (NDA) for Genasense® is approved,management anticipates that it will require additional cash if itundertakes to launch the product in the U.S. in the fourth quarter of2006 in order to maximize the commercial opportunity. We have commenceddiscussions with several companies regarding partnerships for thefurther development and global commercialization ofGenasense®. Those discussions are currently ongoing.Additional alternatives available to us to subsequently sustain ouroperations include financing arrangements with potential corporatepartners, debt financing, asset-based loans, royalty-based financings,equity financing and other sources. However, there can be no assurancethat any such collaborative agreements or other sources of funding willbe available on favorable terms, if at all.

We have completed andannounced the results of Phase 3 trials of Genasense®in combination with chemotherapy in the treatment of malignantmelanoma, chronic lymphocytic leukemia (CLL) and multiple myeloma.

In December  2004, we presented results from a randomizedtrial that was conducted in patients with relapsed or refractory CLL.In this trial, 241 patients who had relapsed or had not responded toprior therapy were treated with standard chemotherapy using fludarabineand cyclophosphamide (Flu/Cy). After stratifying patients usingconventional criteria, they were randomly assigned to receiveGenasense® or no additional treatment. Initialresults showed that the trial achieved its primary endpoint: theproportion of patients who achieved a complete or nodular partialresponse (CR/nPR) was significantly improved with the addition ofGenasense® to Flu/Cy chemotherapy (17% vs.7%; P=0.025). The response required independent confirmation byan external clinical reviewer who was blinded to treatment assignmentand who reviewed clinical, laboratory and radiologic data. A secondindependent reviewer evaluated bone marrow biopsies. Agreement betweenthe clinical and bone marrow reviews was required in order to determineresponse in this study.

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Extended patient follow-up in theCLL trial also showed that the duration of CR/nPR was significantlysuperior for patients treated with Genasense® pluschemotherapy. As of June  2005, six of the eight patients(75%) who achieved CR/nPR with chemotherapy alone have relapsedcompared with five of twenty patients (25%) in theGenasense® treatment group. The median duration ofCR/nPR was 22 months in the chemotherapy-alone group; the median hadnot been reached in the Genasense® group (P=0.03).All CR/nPR responses were ‘‘durable’’(i.e., exceeding six months duration). Additional analysis showed thatpatients who achieved CR/nPR also experienced substantial clinicalbenefit, especially with respect to improvement of disease-relatedsymptoms. Several secondary endpoints were not improved by the additionof Genasense®. For example, no difference wasobserved in overall response rate i.e., the percentage of patients whoachieved CR/nPR plus partial response, or in time-to-diseaseprogression. Overall survival will be formally evaluated in mid-2006after all patients have completed a minimum of three years offollow-up. Adverse events (irrespective of relation to study drugs)during treatment or within 30 days from last dose of treatment thatresulted in death occurred in nine patients treated withGenasense® plus chemotherapy compared with fivepatients treated with chemotherapy alone. The percentage of patientswho experienced serious adverse events was increased in theGenasense® arm; however, the percentages of patientswho discontinued treatment due to adverse events were equal in thetreatment arms. The incidence of certain serious adverse reactions,including but not limited to nausea, fever and catheter-relatedcomplications, was increased in patients treated withGenasense®.

On December28,  2005, we completed submission of an NDA to the FDA thatseeks accelerated approval for the use of Genasense®in combination with fludarabine plus cyclophosphamide for the treatmentof patients with relapsed or refractory CLL who have previouslyreceived fludarabine. Genasense® had received FastTrack designation by the FDA in CLL, meaning that the indicationrepresents an unmet medical need. Genasense® had alsobeen granted designation as an Orphan Drug by the FDA. On March1,  2006, we announced that the NDA had been accepted for reviewby the FDA and set a target Prescription Drug User Fee Act (PDUFA)action date of October  29,  2006. However, acceptance ofthis NDA does not necessarily lead to FDA approval. We were notified bythe FDA that we are scheduled to present our application in CLL toFDA’s Oncology Drug Advisory Committee (ODAC) onSeptember  6,  2006. The advisory committee’srecommendations are not binding upon the FDA. Following its review ofall our information concerning Genasense®, the FDAmay refuse to approve altogether, or the FDA may ask for more data tobe obtained before approval can be reconsidered. Either of these twodecisions by the FDA would have a material adverse effect on ourbusiness.

One of the requirements for AcceleratedApproval is that the Company will be required to conduct a confirmatorytrial. We have formulated a design for such a trial, which hascompleted a Special Protocol Assessment (SPA) by the FDA. The SPAindicates an agreement by the FDA that the protocol fulfills certainregulatory requirements regarding design and analysis. We anticipatethat the trial will initiate patient enrollment during 2006. AlthoughFast Track designation, Orphan Drug designation and AcceleratedApproval provisions are beneficial, we cannot assure you that the NDAwill be approved.

In late 2003, we filed an NDA with theFDA for Genasense® as a treatment combined withchemotherapy for patients with advanced malignant melanoma. InMay  2004, the application failed to gain a majority vote formarketing approval from ODAC. As a consequence, we withdrew the NDA,which allows us to potentially resubmit the application. However, wecontinued long-term follow-up of patients who were enrolled in theadvanced malignant melanoma trial. On May  16,  2005, weannounced updated data from this trial. The updated data continued toshow statistical significance for overall response, complete responseand progression free survival. Statistical significance was alsoachieved for durable response (P=0.02). We commissioned a new,independent review of the X-rays that documented the major responses,which confirmed the originally reported responses with highconcordance. Overall survival by intent-to-treat analysis did not yielda statistically significant improvement (P=0.077). Our analysis alsoidentified a statistically significant treatment interaction effect forblood levels of an enzyme known as LDH, which was a prospectivelyspecified stratification factor. When this effect was analyzed bytreatment arm, survival was significantly superior for patients whoreceived Genasense® (P=0.018) and who did not have anelevation in LDH at study entry (n=508).

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On January  3,  2006, weannounced that we had completed a Marketing Authorization Application(MAA) to the EMEA, which seeks approval for use ofGenasense® plus dacarbazine for the treatment ofpatients with advanced melanoma who have not previously receivedchemotherapy. On February  1,  2006, we announced that wehad received notice from the EMEA that our MAA had been validated forreview by the EMEA, which signals the start of formal scientificassessment. As part of this process, we received scientific questionsfrom EMEA in June  2006 and expect to make a formal response tothese questions in the third quarter of 2006.

In November2004, we reported that our randomized Phase 3 clinical trial ofGenasense® in patients with multiple myeloma did notmeet our primary endpoint. The trial had been designed to evaluatewhether the addition of Genasense® to standardtherapy with high-dose dexamethasone could increase the time todevelopment of progressive disease in patients who previously hadreceived extensive therapy. Based on the results of the Phase 3 trial,we have no plans to submit an NDA in this indication at the currenttime. We have not yet determined what additional clinical trials, ifany, may be undertaken in patients with multiple myeloma.

Inaddition, we are conducting (under our own sponsorship or inconjunction with various cooperative groups) randomized trials innon-small cell lung cancer, small cell lung cancer, acute myeloidleukemia and hormone refractory prostate cancer. We are also conductinga number of non-randomized clinical trials in patients with varioustypes of cancer, either under our own sponsorship or in collaborationwith the National Cancer Institute.

On March  23,2006, we entered into an exclusive, worldwide licensing agreement withEmisphere Technologies, Inc. to develop an oral formulation of agallium-containing compound. Ganite® (gallium nitrateinjection), Genta’s only commercialized product, is derived fromthis class of compounds. Under the terms of the new agreement, we willpay Emisphere up to $24  million only upon the achievement ofcertain milestones during the course of product development androyalties based upon sales. Emisphere will utilize its proprietary oraldelivery technology, eligen®, to supply a finishedoral dosage form to Genta. We will reimburse Emisphere for time andexpenses, as incurred, to create the oral dosage formulation. We willbe responsible for toxicology, clinical development, regulatorysubmissions, and worldwide commercialization. The agreement is ineffect until the later of (a) receipt of initial regulatory approval or(b) expiration of all royalty and payment obligations.

InApril  2002, we entered into a series of agreements with Aventisregarding the development and commercialization ofGenasense®. On November  8,  2004, wereceived from Aventis notice of termination of the agreements betweenGenta and Aventis. On May  10,  2005, we announced thatGenta and Aventis had signed an agreement to finalize the terminationof their development and commercialization collaboration forGenasense®. Among other provisions, the Standstilland Voting Agreement and Registration Rights Agreement that wereestablished pursuant to the Aventis investment in Genta common stock in2002 were not terminated at that time.

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Results of Operations for the ThreeMonths Ended June  30,  2006 and2005

|                                      |  |  |                                                            |   |         |                    |  |  |        |   |          |      |  |  |  |  |        |    |  |  |  |   |        |   |
|--------------------------------------|--|--|------------------------------------------------------------|---|---------|--------------------|--|--|--------|---|----------|------|--|--|--|--|--------|----|--|--|--|---|--------|---|
|                                 |  |  | SummaryOperating ResultsFor the three months ended June30, |
| ($in thousands)                      |  |  |                                                       |   |         | Increase(Decrease) |  |  |   |
|                                 |  |  | 2006                                                       |   |         | $                  |  |  | %      |   |          | 2005 |
| Revenues:                            |  |  |                                                            |   |    |                    |  |  |        |   |     |      |  |  |  |  |   |    |  |  |  |   |   |   |
| Licensefees androyalties             |  |  |                                                            | $ | — |                    |  |  |        | $ | (1,556   | )    |  |  |  |  | (100   | %) |  |  |  | $ | 1,556  |   |
| Developmentfunding                   |  |  |                                                            |   | — |                    |  |  |        |   | (6,234   | )    |  |  |  |  | (100   | %) |  |  |  |   | 6,234  |   |
| Productsales −net              |  |  |                                                            |   | 379     |                    |  |  |        |   | 282      |      |  |  |  |  | 291    | %  |  |  |  |   | 97     |   |
| Totalrevenues                        |  |  |                                                            |   | 379     |                    |  |  |        |   | (7,508   | )    |  |  |  |  | (95    | %) |  |  |  |   | 7,887  |   |
| Costof goodssold                     |  |  |                                                            |   | 22      |                    |  |  |        |   | 25       |      |  |  |  |  | 833    | %  |  |  |  |   | (3     | ) |
| Operatingexpenses:                   |  |  |                                                            |   |    |                    |  |  |        |   |     |      |  |  |  |  |   |    |  |  |  |   |   |   |
| Researchanddevelopment               |  |  |                                                            |   | 8,637   |                    |  |  |        |   | 3,086    |      |  |  |  |  | 56     | %  |  |  |  |   | 5,551  |   |
| Selling,general andadministrative    |  |  |                                                            |   | 6,716   |                    |  |  |        |   | 2,081    |      |  |  |  |  | 45     | %  |  |  |  |   | 4,635  |   |
| Totaloperating expenses −gross |  |  |                                                            |   | 15,353  |                    |  |  |        |   | 5,167    |      |  |  |  |  | 51     | %  |  |  |  |   | 10,186 |   |
| Less:Aventisreimbursement            |  |  |                                                            |   | — |                    |  |  |        |   | 2,838    |      |  |  |  |  | 100    | %  |  |  |  |   | (2,838 | ) |
| Totaloperating expenses −net   |  |  |                                                            |   | 15,353  |                    |  |  |        |   | 8,005    |      |  |  |  |  | 109    | %  |  |  |  |   | 7,348  |   |
| Gainon forgiveness ofdebt            |  |  |                                                            |   | — |                    |  |  |        |   | (1,297   | )    |  |  |  |  | (100   | %) |  |  |  |   | 1,297  |   |
| Otherincome,net                      |  |  |                                                            |   | 354     |                    |  |  |        |   | 274      |      |  |  |  |  | 343    | %  |  |  |  |   | 80     |   |
| Net(loss)/income                     |  |  |                                                            | $ | (14,642 | )                  |  |  |        |   | ($16,561 | )    |  |  |  |  | (863   | %) |  |  |  | $ | 1,919  |   |
|                                      |

Totalrevenues

Total revenues were $0.4  million for thethree months ended June  30,  2006 compared with$7.9  million for the three months ended June  30,2005. License fees and development funding revenues of $7.8million for the three months ended June  30,  2005 weregenerated by the recognition of the initial $10.0  millionlicensing fee and $40.0  million development funding receivedfrom Aventis in 2002 under the Collaborative Agreement. OnNovember  8,  2004, Aventis gave six-months notice to Gentathat it was terminating its Collaborative Agreement with us regardingthe development and commercialization of Genasense®.We had previously determined that, due to the nature of the ongoingdevelopment work related to the Collaborative Agreement, the end of thedevelopment phase and the fair-value of the undelivered elements werenot determinable. Accordingly, we deferred recognition of the initiallicensing fee and up-front development funding received from Aventisand recognized these payments on a straight-line basis over theoriginal estimated useful life of the related first-to-expire patent of115 months. As a result of the notice of termination of theCollaborative Agreement, we determined that the remaining deferredrevenue should be recognized over the termination period. OnNovember  9,  2004, we began to recognize the remainingdeferred revenue over the six-month period ended May  8,2005.

Product sales-net are generated from sales ofGanite®, the Company’s commercial product forthe treatment of cancer-related hypercalcemia. Product sales-net forthe three months ended June  30,  2006 were $0.4million, primarily impacted by a $0.3  million favorableadjustment to provision for returns of Ganite®. Inthe second quarter of 2006, the Company revised its forecast ofexpected Ganite® returns based on actual experienceto date, product expiration dates and data obtained from wholesalers.As a result, the Company reduced its sales provision by $0.3million, to reflect this change in estimate. Product sales-net in theprior-year period were $0.1million.

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Research and developmentexpenses

Research and development expenses beforereimbursement were $8.6  million for the three months endedJune  30,  2006 compared with $5.6  million for thethree months ended June  30,  2005. The increase isprimarily due to manufacturing expenses to prepare for the productionof Genasense® and expenses to prepare for regulatoryreview. Research and development expenses in 2006 also include therecognition of $0.2  million of stock option expense, resultingfrom the adoption of SFAS 123R. During the three months endedJune  30,  2006, approximately $7.8  million or91% of research and development expenses were incurred on theGenasense® project.

Due to the significantrisks and uncertainties inherent in the clinical development andregulatory approval processes, the nature, timing and costs of theefforts necessary to complete projects in development are subject towide variability. Results from clinical trials may not be favorable.Data from clinical trials are subject to varying interpretation and maybe deemed insufficient by the regulatory bodies that reviewapplications for marketing approvals. As such, clinical development andregulatory programs are subject to risks and changes that maysignificantly impact cost projections andtimelines.

Selling, general and administrativeexpenses

Selling, general and administrative expenses were$6.7  million for the three months ended June  30,2006 compared with $4.6  million for the three months endedJune  30,  2005. The increase was primarily due to salesand marketing expenses incurred in preparation for the anticipatedproduct launch of Genasense®. We expect theseexpenses to continue to increase substantially in anticipation ofpossible approval and product launch of Genasense®.Selling, general and administrative expenses in 2006 also include therecognition of $0.7  million of stock option expense, resultingfrom the adoption of SFAS 123R.

Aventisreimbursement

On May  10,  2005, we announcedthat Genta and Aventis had finalized a termination agreement, providingfor no future financial obligations by either party. Consequently, noneof the research and development expenses incurred by us during thethree-month period ended June  30,  2006 werereimbursable.

Gain on Forgiveness ofDebt

In May  2005, pursuant to the terms of theCollaborative Agreement with Aventis, $2.8  million ofreimbursable costs accrued and owed to us by Aventis were appliedagainst the line of credit with Aventis and the remaining balance of$1.3  million was forgiven.

Other income,net

Net other income of $0.4  million for the threemonths ended June  30,  2006 increased from $0.1million for the three months ended June  30,  2005,primarily due to higher interest income resulting from higherinvestment balances.

Net (loss)/income

Werecorded a net loss of $14.6  million, or $0.11 per share, forthe three months ended June  30,  2006, compared with netincome of $1.9  million, or $0.02 per share, for the three monthsended June  30,  2005. The decrease is primarily due to thefact that the prior-year period included revenues of $7.8million from the recognition of the license fee and development fundingand $2.8  million from the reimbursement for research anddevelopment expenses, along with higher operating expenses in 2006, asdescribed above.

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Results of Operations for the Six MonthsEnded June  30,  2006 and2005

|                                      |  |  |                                                           |   |         |                    |  |  |        |   |         |      |  |  |  |  |        |    |  |  |  |   |        |   |
|--------------------------------------|--|--|-----------------------------------------------------------|---|---------|--------------------|--|--|--------|---|---------|------|--|--|--|--|--------|----|--|--|--|---|--------|---|
|                                 |  |  | SummaryOperating Results For the six months ended June30, |
| ($in thousands)                      |  |  |                                                      |   |         | Increase(Decrease) |  |  |   |
|                                 |  |  | 2006                                                      |   |         | $                  |  |  | %      |   |         | 2005 |
| Revenues:                            |  |  |                                                           |   |    |                    |  |  |        |   |    |      |  |  |  |  |   |    |  |  |  |   |   |   |
| Licensefees androyalties             |  |  |                                                           | $ | — |                    |  |  |        | $ | (5,241  | )    |  |  |  |  | (100   | %) |  |  |  | $ | 5,241  |   |
| Developmentfunding                   |  |  |                                                           |   | — |                    |  |  |        |   | (20,988 | )    |  |  |  |  | (100   | %) |  |  |  |   | 20,988 |   |
| Productsales −net              |  |  |                                                           |   | 446     |                    |  |  |        |   | 274     |      |  |  |  |  | 160    | %  |  |  |  |   | 172    |   |
| Totalrevenues                        |  |  |                                                           |   | 446     |                    |  |  |        |   | (25,955 | )    |  |  |  |  | (99    | %) |  |  |  |   | 26,401 |   |
| Costof goodssold                     |  |  |                                                           |   | 38      |                    |  |  |        |   | 26      |      |  |  |  |  | 217    | %  |  |  |  |   | 12     |   |
| Operatingexpenses:                   |  |  |                                                           |   |    |                    |  |  |        |   |    |      |  |  |  |  |   |    |  |  |  |   |   |   |
| Researchanddevelopment               |  |  |                                                           |   | 13,387  |                    |  |  |        |   | 3,966   |      |  |  |  |  | 42     | %  |  |  |  |   | 9,421  |   |
| Selling,general andadministrative    |  |  |                                                           |   | 12,173  |                    |  |  |        |   | 3,552   |      |  |  |  |  | 42     | %  |  |  |  |   | 8,621  |   |
| Totaloperating expenses −gross |  |  |                                                           |   | 25,560  |                    |  |  |        |   | 7,518   |      |  |  |  |  | 42     | %  |  |  |  |   | 18,042 |   |
| Less:Aventisreimbursement            |  |  |                                                           |   | — |                    |  |  |        |   | 6,090   |      |  |  |  |  | 100    | %  |  |  |  |   | (6,090 | ) |
| Totaloperating expenses −net   |  |  |                                                           |   | 25,560  |                    |  |  |        |   | 13,608  |      |  |  |  |  | 114    | %  |  |  |  |   | 11,952 |   |
| Gainon forgiveness ofdebt            |  |  |                                                           |   | — |                    |  |  |        |   | (1,297  | )    |  |  |  |  | (100   | %) |  |  |  |   | 1,297  |   |
| Otherincome,net                      |  |  |                                                           |   | 614     |                    |  |  |        |   | 404     |      |  |  |  |  | 193    | %  |  |  |  |   | 210    |   |
| Net(loss)/income                     |  |  |                                                           | $ | (24,538 | )                  |  |  |        | $ | (40,482 | )    |  |  |  |  | (254   | %) |  |  |  | $ | 15,944 |   |
|                                      |

Totalrevenues

Total revenues were $0.4  million for the sixmonths ended June  30,  2006 compared with $26.4million for the six months ended June  30,  2005. Licensefees and development funding revenues of $26.2  million for thesix months ended June  30,  2005 were generated by therecognition of the initial $10.0  million licensing fee and$40.0  million development funding received from Aventis in 2002under the Collaborative Agreement.

Product sales-net ofGanite® for the six months ended June30,  2006 were $0.4  million, primarily impacted by a$0.3  million favorable adjustment to provision for returns ofGanite®. In the second quarter of 2006, the Companyrevised its forecast of expected Ganite® returnsbased on actual experience to date, product expiration dates and dataobtained from wholesalers. As a result, the Company reduced its salesprovision by $0.3  million, to reflect this change in estimate.Product sales-net in the prior-year period were $0.2million.

Research and developmentexpenses

Research and development expenses beforereimbursement were $13.4  million for the six months endedJune  30,  2006 compared with $9.4  million for thesix months ended June  30,  2005. The increase in expensesis primarily due to manufacturing expenses to prepare for theproduction of Genasense® and expenses to prepare forregulatory review. In addition, expenses in 2006 include therecognition of $0.4  million of stock option expense, resultingfrom the adoption of SFAS 123R. During the six months ended June30,  2006, approximately $12.2  million or 91% ofresearch and development expenses were incurred on theGenasense® project.

Selling,general and administrative expenses

Selling, general andadministrative expenses were $12.2  million for the six monthsended June  30,  2006 compared with $8.6  million forthe six months ended June  30,  2005. The increase inexpenses is primarily due to sales and marketing expenses incurred inpreparation for the anticipated product launch ofGenasense®. In addition, expenses in 2006 include therecognition of $1.0  million of stock option expense, resultingfrom the adoption of SFAS 123R.

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Other income,net

Net other income of $0.6  million for the sixmonths ended June  30,  2006 increased from $0.2million for the six months ended June  30,  2005, primarilydue to higher interest income and realized gains on the maturity ofmarketable securities resulting from higher investmentbalances.

Net (loss)/income

We recorded anet loss of $24.5  million, or $0.19 per share, for the sixmonths ended June  30,  2006, compared with net income of$15.9  million, or $0.17 per share, for the six months endedJune  30,  2005. The decrease is primarily due to the factthat the prior-year period included revenues of $26.2  millionfrom the recognition of the license fee and development funding and$6.1  million from the reimbursement for research and developmentexpenses, along with higher operating expenses in 2006, as describedabove.

Liquidity and capital resources

AtJune  30,  2006, we had cash, cash equivalents andmarketable securities totaling $35.8  million compared with$21.3  million at December  31,  2005. Cash used inoperating activities was $23.0  million for the six months endedJune  30,  2006, compared with $21.6  million for thesix months ended June  30,  2005, reflecting additionalspending in anticipation of potential commercial approval and productlaunch of Genasense®.

Management anticipatesan increase in spending in upcoming months up to an average rate ofapproximately $5  million per month. The Company should havesufficient cash funds to maintain its present operations into the firstquarter of 2007.

We have prepared our financial statements underthe assumption that the Company is a going concern. TheCompany’s recurring losses and negative cash flows fromoperations raise substantial doubt about its ability to continue as agoing concern. The financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty, (see Item 1A,Risk Factors).

On March  13,  2006, we sold19.0  million shares of the Company’s common stock at aprice of $2.15 per share for gross proceeds of $40.9  million,before fees and expenses. After deducting fees and expenses, wereceived net proceeds of $37.7  million.

If the NDA forGenasense® is approved, management anticipates thatit will require additional cash if we undertake to launch the productin the U.S. in the fourth quarter of 2006 in order to maximize thecommercial opportunity. We have commenced discussions with severalcompanies regarding partnerships for the further development andcommercialization of Genasense®. Those discussionsare currently ongoing. Additional alternatives available to the Companyto subsequently sustain its operations include financing arrangementswith potential corporate partners, debt financing, asset-based loans,royalty-based financing, equity financing and other sources. However,there can be no assurance that any such collaborative agreements orother sources of funding will be available on favorable terms, if atall.

If we obtain NDA approval of Genasense®for one or more applications, we anticipate seeking additionalproduct development opportunities through potential acquisitions orinvestments. Such acquisitions or investments may consume cash reservesor require additional cash or equity. Our working capital andadditional funding requirements will depend upon numerous factors,including: (i) the progress of our research and developmentprograms; (ii) the timing and results of pre-clinical testing andclinical trials; (iii) the level of resources that we devote to salesand marketing capabilities; (iv) technological advances; (v) theactivities of competitors; (vi) our ability to establish and maintaincollaborative arrangements with others to fund certain research anddevelopment efforts, to conduct clinical trials, to obtain regulatoryapprovals and, if such approvals are obtained, to manufacture andmarket products and (vii) legal costs and the outcome of outstandinglegal proceedings.

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Recent AccountingPronouncements

Effective January 1, 2006, we adopted thefair value recognition provisions of SFAS 123R, Share-BasedPayment, using the modified prospective transition method andtherefore did not restate results for prior periods. Prior toJanuary  1,  2006 we accounted for share-based compensationarrangements in accordance with APB Opinion No. 25, Accounting forStock Issued to Employees and complied with the disclosureprovisions of SFAS 123, Accounting for Stock-Based Compensation.SFAS 123R requires all public entities that used the fair-value methodfor either recognition or disclosure under SFAS 123 to apply themodified prospective transition method as of the required effectivedate. As a result, we adopted the provisions of SFAS 123R using thismethod, effective January  1,  2006. Under the modifiedprospective method, new awards are valued and accounted forprospectively upon adoption. Outstanding prior awards that are unvestedas of January  1,  2006 are recognized as compensation costover the remaining requisite service periods, as prior periods may notbe restated. The adoption of SFAS 123R increased our expenses andreported net loss by $0.8  million and $1.4  million forthe three and six months ended June  30,  2006,respectively.

In July  2006, the Financial AccountingStandards Board (FASB) issued FASB Interpretation No. 48 (FIN 48),‘‘Accounting for Uncertainty in IncomeTaxes.’’ FIN 48 prescribes detailed guidance for thefinancial statement recognition, measurement and disclosure ofuncertain tax positions recognized in an enterprise’s financialstatements in accordance with FASB Statement No. 109,‘‘Accounting for Income Taxes.’’ Taxpositions must meet a more-likely-than-not recognition threshold at theeffective date to be recognized upon the adoption of FIN 48 and insubsequent periods.

FIN 48 will be effective for fiscal yearsbeginning after December  15,  2006 and the provisions ofFIN 48 will be applied to all tax positions upon initial adoption ofthe Interpretation. The cumulative effect of applying the provisions ofthis Interpretation will be reported as an adjustment to the openingbalance of retained earnings for that fiscal year. The company iscurrently evaluating the potential impact of FIN 48 on its financialstatements.

Item 3.    Quantitative and QualitativeDisclosures about Market Risk

Our carrying values of cashand cash equivalents, marketable securities, accounts payable andaccrued expenses are a reasonable approximation of their fair value.The estimated fair values of financial instruments have been determinedby us using available market information and appropriate valuationmethodologies (see Note 2 to our Consolidated Financial Statements). Wehave not entered into and do not expect to enter into, financialinstruments for trading or hedging purposes. We do not currentlyanticipate entering into interest rate swaps and/or similarinstruments.

Our primary market risk exposure with regard tofinancial instruments is to changes in interest rates, which wouldimpact interest income earned on such instruments. We have no materialcurrency exchange or interest rate risk exposure as of June30,  2006.

Item 4.    Controls andProcedures

Conclusion Regarding the Effectiveness ofDisclosure Controls and Procedures

As required by Rule13a-15(b), Genta’s Chief Executive Officer and Chief FinancialOfficer conducted an evaluation as of the end of the period covered bythis report of the effectiveness of the Company’s‘‘disclosure controls and procedures’’ (asdefined in Exchange Act Rule 13a-15(e)). Based on that evaluation, theChief Executive Officer and Chief Financial Officer concluded that theCompany’s disclosure controls and procedures were operatingeffectively as of the end of the period covered by thisreport.

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Changes in Internal Control OverFinancial Reporting

There were no changes in our internalcontrol over financial reporting identified in connection with theevaluation required by paragraph (d) of Exchange Act Rule 13a-15 thatoccurred during the period covered by this report that have materiallyaffected, or are reasonably likely to materially affect, our internalcontrol over financial reporting.

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PARTII    OTHER INFORMATION

Item 1.    LegalProceedings

In 2004, numerous complaints were filed in theUnited States District Court for the District of New Jersey againstGenta and certain of its principal officers on behalf of purportedclasses of the Company’s shareholders who purchased itssecurities during several class periods. The complaints have beenconsolidated into a single action and allege that the Company andcertain of its principal officers violated the federal securities lawsby issuing materially false and misleading statements regardingGenasense® for the treatment of malignant melanomathat had the effect of artificially inflating the market price of oursecurities. The shareholder class action complaint in the variousactions seeks monetary damages in an unspecified amount and recovery ofplaintiffs’ costs and attorneys’ fees. OnSeptember  30,  2005, the court granted in part and deniedin part the Company’s motion to dismiss the plaintiffs’complaint. The court dismissed plaintiffs’ claim that thedefendants engaged in a scheme or artifice to defraud plaintiffs, butallowed plaintiffs’ claims to proceed with respect to theirallegations that defendants issued false and misleading publicstatements about Genasense®. The case has proceededto discovery.

In addition, two separate shareholder derivativeactions have been filed against the directors and certain officers ofGenta in New Jersey State and Federal courts. The Federal shareholderderivative action was consolidated with the securities action. Gentahas reached an agreement in principle with the Federal shareholderderivative plaintiffs to settle the Federal Shareholder derivativeaction. The settlement has been submitted to the court for approval andwe are waiting for a determination.

Based on facts substantiallysimilar to those asserted in the shareholder class actions, the Statederivative plaintiffs claim that defendants have breached theirfiduciary duties to the shareholders and committed other violations ofNew Jersey law. On February  9,  2006, the Superior Courtof New Jersey dismissed the plaintiffs’ derivative complaintin the New Jersey State case based in part onplaintiffs’ failure to make a pre-suit demandon Genta's Board of Directors and in part based onplaintiffs’ failure to state a cause of action.Plaintiffs’ motion for reconsideration was denied and they havefiled a notice of appeal. 

The Company believes theselitigations are without merit and will continue to vigorously defendagainst these suits.

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Item 1A.    RiskFactors

You should carefully consider the followingrisks and all of the other information set forth in this Form 10-Q andthe Form 10-K for the year ended December  31,  2005 beforedeciding to invest in shares of our common stock. The risks describedbelow are not the only ones facing our Company. Additional risks notpresently known to us or that we currently deem immaterial may alsoimpair our business operations.

        Risks Relatedto Our Business

We may be unsuccessful in ourefforts to obtain approval from the FDA or EMEA and commercializeGenasense® or our otherpharmaceutical products.

The commercialization of ourpharmaceutical products involves a number of significant challenges. Inparticular, our ability to commercialize products, such asGanite® and Genasense®, depends, inlarge part, on the success of our clinical development programs, ourefforts to obtain regulatory approvals and our sales and marketingefforts directed at physicians, patients and third-party payors. Anumber of factors could affect these efforts,including:

|  |              |                                                                                                      |
|--|--------------|------------------------------------------------------------------------------------------------------|
|  | •  | our ability to demonstrateclinically that our products are useful and safe in particularindications; |

|  |              |                                                                             |
|--|--------------|-----------------------------------------------------------------------------|
|  | •  | delays or refusals byregulatory authorities in granting marketingapprovals; |

|  |              |                                                                                               |
|--|--------------|-----------------------------------------------------------------------------------------------|
|  | •  | our limited financialresources and sales and marketing experience relative to ourcompetitors; |

|  |              |                                                                                   |
|--|--------------|-----------------------------------------------------------------------------------|
|  | •  | actual and perceiveddifferences between our products and those of ourcompetitors; |

|  |              |                                                                                   |
|--|--------------|-----------------------------------------------------------------------------------|
|  | •  | the availability and levelof reimbursement for our products by third-partypayors; |

|  |              |                                                |
|--|--------------|------------------------------------------------|
|  | •  | incidents of adverse reactionsto our products; |

|  |              |                                                                                           |
|--|--------------|-------------------------------------------------------------------------------------------|
|  | •  | side effects or misuseof our products and the unfavorable publicity that could result;and |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | the occurrence of manufacturing,supply or distribution disruptions. |

We cannot assure you thatGenasense® will receive FDA or EMEA approval. Ourfinancial condition and results of operations have been and willcontinue to be significantly affected by FDA and EMEA action withrespect to Genasense®. Any adverse events withrespect to FDA and/or EMEA approvals could negatively impact ourability to obtain additional funding or identify potentialpartners.

For example, on January  3,  2006, weannounced that we had completed a Marketing Authorization Application,or MAA, to the EMEA that seeks approval for use ofGenasense® plus dacarbazine for the treatment ofpatients with advanced melanoma who have not previously receivedchemotherapy. The centralized licensing procedure provides a singlemarketing authorization that is valid in all 25-member states of theEuropean Community. Review of the application is coordinated by theEMEA, and Spain and France have been appointed as rapporteur andco-rapporteur countries, respectively. On February  1,2006, we announced that we had received notice from the EMEA that itsMAA had been validated for review by the EMEA, which signals the startof formal scientific assessment. As part of this process, we receivedscientific questions from EMEA in June  2006 and expect to make aformal response to these questions in the third quarter of2006.

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On December  28,  2005, wecompleted submission of an NDA to the FDA that sought acceleratedapproval for the use of Genasense® in combinationwith fludarabine plus cyclophosphamide for the treatment of patientswith relapsed or refractory CLL who have previously receivedfludarabine. Genasense® has received Fast Trackdesignation by the FDA in CLL, meaning that the indication representsan unmet medical need. Genasense® has also beengranted designation as an Orphan Drug by the FDA. On March1,  2006, we announced that the NDA had been accepted for reviewby the FDA with a target action date of October  29,  2006.However, acceptance of this NDA does not necessarily lead to FDAapproval. After reviewing in May  2005 a summary of ourpreliminary clinical data that were released in November  2004from our CLL trial, the FDA expressed concern that simply achievingstatistical significance in the primary endpoint (complete plus nodularpartial responses [CR/nPR]) may not be likely to convey orpredict clinical benefit, particularly absent improvement intime-to-progression. Subsequent to preparation of the preliminary datasummary, we compiled additional information to support our claims ofclinical benefit. First, the proportion of patients who relapsed fromCR/nPR increased substantially over time from 25% to 75%in the patient group treated with chemotherapy alone. By contrast, thecomparable increase in the Genasense® group was16% to 25%, which indicated lower risk of relapse.Second, the preliminary clinical data indicated that the medianduration of CR/nPR had not been reached in either treatment group.Further follow-up showed that CR/nPRs achieved with the addition ofGenasense® to chemotherapy were significantly longerwhen compared with those responses achieved with chemotherapy alone.For example, the median CR/nPR duration in the chemotherapy alone groupwas reached at 22 months, whereas the median has still not been reachedin the Genasense® group [P=0.03]. Third, wehad prospectively collected data regarding specific parameters ofdisease-related morbidity, including but not limited to symptoms.Subsequent analysis of these data showed that patients in theGenasense® treatment group who achieved CR/nPR alsoattained substantial improvement in these disease parameters. The NDAthat was submitted by us in December  2005, which includes thesedata, was subsequently accepted for review by the FDA inFebruary  2006.

We were notified by the FDA that we arescheduled to present our application in CLL to FDA’s ODAC onSeptember  6,  2006. The advisory committee’srecommendations are not binding upon the FDA. Following its review ofall our information concerning Genasense®, the FDAmay refuse to approve altogether, or may ask for more data to beobtained, so that approval can be reconsidered. Any of these decisionsby the FDA would have a material adverse effect on our business. Onerequirement for Accelerated Approval is that we will be required toconduct a confirmatory trial. We have formulated a design for such atrial, which has completed a SPA by FDA. The SPA indicates an agreementby FDA that the protocol fulfills certain regulatory requirementsregarding design and analysis. We anticipate that the trial willinitiate patient enrollment during 2006. Although Fast Trackdesignation, Orphan Drug designation and Accelerated Approvalprovisions are beneficial, we cannot assure you that the NDA will beapproved. In particular, the FDA may not be satisfied that achievementof the primary endpoint used in our recent clinical trial, which was anincreased proportion of complete responses/nodular partial responsescompared to patients treated with standard chemotherapy, is asufficient basis for approval. Further, increased symptom-free time maynot be considered to be sufficient demonstration of clinicalbenefit.

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Ultimately, our efforts may not prove tobe as effective as those of our competitors. In the United States andelsewhere, our products will face significant competition. Theprincipal conditions on which our product development efforts arefocused and some of the other disorders for which we are conductingadditional studies, are currently treated with several drugs, many ofwhich have been available for a number of years or are available ininexpensive generic forms. Thus, even if we obtain regulatoryapprovals, we will need to demonstrate to physicians, patients andthird-party payors that the cost of our products is reasonable andappropriate in light of their safety and efficacy, the price ofcompeting products and the relative health care benefits to thepatient. If we are unable to demonstrate that the costs of our productsare reasonable and appropriate in light of these factors, we willlikely be unsuccessful in commercializing ourproducts.

Recurring losses and negative cash flowsfrom operations raise substantial doubt about our ability to continueas a going concern.

Our recurring losses from operationsand negative cash flows from operations raise substantial doubt aboutour ability to continue as a going concern and as a result, ourindependent registered public accounting firm included an explanatoryparagraph in its report on our consolidated financial statements forthe year ended December  31,  2005 with respect to thisuncertainty. Substantial doubt about our ability to continue as a goingconcern may create negative reactions to the price of the common sharesof our stock and we may have a more difficult time obtainingfinancing.

We have prepared our financial statements on a goingconcern basis, which contemplates the realization of assets and thesatisfaction of liabilities and commitments in the normal course ofbusiness. The financial statements do not include any adjustmentsrelating to the recoverability and classification of recorded assetamounts or amounts of liabilities that might be necessary should we beunable to continue in existence.

Our business willsuffer if we fail to obtain timely funding. We may be unable to raiseadditional capital when needed and may not continue as a goingconcern.

Our operations to date have required significantcash expenditures. As a result of Aventis’ termination of theCollaborative Agreement, after May  8,  2005, we becamesolely responsible for all Genasense® related costs.Our future capital requirements will depend on the results of ourresearch and development activities, preclinical studies and clinicaltrials, competitive and technological advances, and regulatoryactivities of the FDA and other regulatory authorities. In order tocommercialize our products, we will need to raise additional funds. OnMarch  13,  2006, we sold 19.0  million shares of theCompany’s common stock at a price of $2.15 per share, raising$37.7  million, net of fees and expenses. During the six monthperiod ended June  30,  2006, cash used in operatingactivities was $23.0  million.

Management anticipates anincrease in spending in upcoming months up to an average rate ofapproximately $5  million per month. The Company should havesufficient cash funds to maintain its present operations into the firstquarter of 2007.

We will need to obtain more funding in thefuture through collaborations or other arrangements with researchinstitutions and corporate partners or public and private offerings ofour securities, including debt or equity financing. We may not be ableto obtain adequate funds for our operations from these sources whenneeded or on acceptable terms. Future collaborations or similararrangements may require us to license valuable intellectual propertyto, or to share substantial economic benefits with, our collaborators.If we raise additional capital by issuing additional equity orsecurities convertible into equity, our stockholders may experiencedilution and our share price may decline. Any debt financing may resultin restrictions on our spending.

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If we are unable to raise additionalfunds, we will need to do one or more of thefollowing:

|  |              |                                                                                                                            |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------|
|  | •  | delay, scale back oreliminate some or all of our research and product development programsand sales and marketingactivity; |

|  |              |                                                                                                                                               |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | license third parties todevelop and commercialize products or technologies that we wouldotherwise seek to develop and commercializeourselves; |

|  |              |                             |
|--|--------------|-----------------------------|
|  | •  | attempt to sell ourcompany; |

|  |              |                      |
|--|--------------|----------------------|
|  | •  | cease operations; or |

|  |              |                     |
|--|--------------|---------------------|
|  | •  | declare bankruptcy. |

Weintend to be a direct marketer of some products in the United States.This effort will consume large amounts of our resources and managementtime and we may not be successful in our efforts.

Currently we do not have a sales force. Our sales forcewas eliminated in 2004 following our decision to withdraw the NDA forGenasense® for the treatment of advanced melanoma. Weintend to recruit a sales force in the second half of 2006. InJanuary  2006, we announced that we had appointed W. LloydSanders as Vice-President of Sales and Marketing. Most recently,Mr.  Sanders was Vice President, Oncology Sales, atsanofi-aventis Group. We have hired a core team of seasoned managers insales and marketing. If we are unable to recruit a sales force capableof marketing our products, our sales will be adversely affected, andthe commercial success of our products will be limited.

On May  10,  2005, we announced that we andAventis Pharmaceuticals Inc., part of sanofi-aventis Group, or Aventis,had signed an agreement to terminate their development andcommercialization collaboration forGenasense®. We lost a significantsource of funding for Genasense® as aresult of this termination.

In April  2002, weentered into a series of agreements relating to the development andcommercialization of Genasense®, to which we refercollectively as the Collaborative Agreement, with Aventis and itsaffiliates. On November  8,  2004, we received from Aventisa notice of termination of the Collaborative Agreement. On May10,  2005, we announced that we had signed an agreement withAventis to terminate our development and commercializationcollaboration for Genasense®. The terminationagreement provided for no future financial obligations by either party.Aventis also returned its then current inventory ofGenasense® drug supply to us. In addition, we assumedresponsibility for the randomized clinical trial ofGenasense® in combination with docetaxel(Taxotere®; sanofi-aventis) in patients withhormone-refractory prostate cancer, which recently completed accrual.Among other provisions, the Standstill and Voting Agreement andRegistration Rights Agreement that were established pursuant to theAventis investment in our common stock in 2002 did not terminate atthis time.

We are seeking a new partner for the development andcommercialization of Genasense®, and if we are unableto do so, we may not have sufficient resources to fully develop andcommercialize Genasense®.

If we are unable toidentify a partner, we will be solely responsible for the developmentand commercialization of Genasense®, including thecosts associated therewith. We may not have sufficient resources to doso. Even if we are able to identify a partner, we may not be able toenter into an agreement on acceptable terms or atall.

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We have relied on andcontinue to rely on our contractual collaborative arrangements withresearch institutions and corporate partners for development andcommercialization of our products. Our business could suffer if we arenot able to enter into suitable arrangements, maintain existingrelationships, or if our collaborative arrangements are not successfulin developing and commercializing products.

We have enteredinto collaborative relationships relating to the conduct of clinicalresearch and other research activities in order to augment our internalresearch capabilities and to obtain access to specialized knowledge andexpertise. Our business strategy depends in part on our continuedability to develop and maintain relationships with leading academic andresearch institutions and with independent researchers. The competitionfor these relationships is intense, and we can give no assurances thatwe will be able to develop and maintain these relationships onacceptable terms.

We also seek strategic alliances with corporatepartners, primarily pharmaceutical and biotechnology companies, to helpus develop and commercialize drugs. Various problems can arise instrategic alliances. A partner responsible for conducting clinicaltrials and obtaining regulatory approval may fail to develop amarketable drug. A partner may decide to pursue an alternative strategyor focus its efforts on alliances or other arrangements with thirdparties. A partner that has been granted marketing rights for a certaindrug within a geographic area may fail to market the drug successfully.Consequently, strategic alliances that we may enter into may not bescientifically or commercially successful. In this regard, inApril  2002, we entered into a series of agreements relating tothe development and commercialization of Genasense®with Aventis and its affiliates. On November  8,  2004, wereceived from Aventis a notice of termination of the CollaborativeAgreement. On May  10,  2005, we announced that we andAventis had signed an agreement to terminate our development andcommercialization collaboration for Genasense® asdescribed above.

We cannot control the resources that anycollaborator may devote to our products. Any of our present or futurecollaborators may not perform their obligations as expected. Thesecollaborators may breach or terminate their agreements with us, forinstance upon changes in control or management of the collaborator, orthey may otherwise fail to conduct their collaborative activitiessuccessfully and in a timely manner.

In addition, ourcollaborators may elect not to develop products arising out of ourcollaborative arrangements or to devote sufficient resources to thedevelopment, regulatory approval, manufacture, marketing or sale ofthese products. If any of these events occur, we may not be able todevelop our products or commercialize our products.

An importantpart of our strategy involves conducting multiple product developmentprograms. We may pursue opportunities in fields that conflict withthose of our collaborators. In addition, disagreements with ourcollaborators could develop over rights to our intellectual property.The resolution of such conflicts and disagreements may require us torelinquish rights to our intellectual property that we believe we areentitled to. In addition, any disagreement or conflict with ourcollaborators could reduce our ability to obtain future collaborationagreements and negatively impact our relationship with existingcollaborators. Such a conflict or disagreement could also lead todelays in collaborative research, development, regulatory approval orcommercialization of various products or could require or result inlitigation or arbitration, which would be time consuming and expensive,divert the attention of our management and could have a significantnegative impact on our business, financial condition and results ofoperations.

        We anticipate that we willincur additional losses and we may never be profitable.

Wehave never been profitable. We have incurred substantial annualoperating losses associated with ongoing research and developmentactivities, preclinical testing, clinical trials, regulatorysubmissions and manufacturing activities. From the period since ourinception to June  30,  2006, we have incurred a cumulativenet loss of $382.7  million. We may never achieve revenuesufficient for us to attain profitability. Achieving profitability isunlikely unless Genasense® receives approval from theFDA for commercial sale in one or more indications.

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        Our business dependsheavily on a small number of products.

We currently marketand sell one product, Ganite® and the principalpatent covering its use for the approved indication expired inApril  2005. We do not expect to expand our marketed productportfolio significantly in the short term unlessGenasense® receives marketing approval. IfGenasense® is not approved, if approval issignificantly delayed, or if in the event of approval the product iscommercially unsuccessful, we do not expect significant sales of otherproducts to offset this loss of potential revenue.

To diversifyour product line in the long term, it will be important for us toidentify suitable technologies and products for acquisition orlicensing and development. If we are unable to identify suitabletechnologies and products, or if we are unable to acquire or licenseproducts we identify, we may be unable to diversify our product lineand to generate long-term growth.

We may be unableto obtain or enforce patents, other proprietary rights and licenses toprotect our business; we could become involved in litigation relatingto our patents or licenses that could cause us to incur additionalcosts and delay or prevent our introduction of new drugs tomarket.

Our success will depend to a large extent on ourability to:

|  |              |                                                                                                            |
|--|--------------|------------------------------------------------------------------------------------------------------------|
|  | •  | obtain U.S. and foreignpatent or other proprietary protection for our technologies, productsand processes; |

|  |              |                            |
|--|--------------|----------------------------|
|  | •  | preserve trade secrets;and |

|  |              |                                                                                     |
|--|--------------|-------------------------------------------------------------------------------------|
|  | •  | operate without infringing thepatent and other proprietary rights of third parties. |

Legalstandards relating to the validity of patents covering pharmaceuticaland biotechnological inventions and the scope of claims made underthese types of patents are still developing, and they involve complexlegal and factual questions. As a result, our ability to obtain andenforce patents that protect our drugs is highly uncertain. If we areunable to obtain and enforce patents and licenses to protect our drugs,our business, results of operations and financial condition could beadversely affected.

We hold numerous U.S., foreign andinternational patents covering various aspects of our technology, whichinclude novel compositions of matter, methods of large-scale synthesisand methods of controlling gene expression and methods of treatingdisease. In the future, however, we may not be successful in obtainingadditional patents despite pending or future applications. Moreover,our current and future patents may not be sufficient to protect usagainst competitors who use similar technology. Additionally, ourpatents, the patents of our business partners and the patents for whichwe have obtained licensing rights may be challenged, narrowed,invalidated or circumvented. Furthermore, rights granted under ourpatents may not be broad enough to cover commercially valuable drugs orprocesses and therefore may not provide us with sufficient competitiveadvantage with respect thereto.

The pharmaceutical andbiotechnology industries have been greatly affected by time-consumingand expensive litigation regarding patents and other intellectualproperty rights. We may be required to commence, or may be made a partyto, litigation relating to the scope and validity of our intellectualproperty rights or the intellectual property rights of others. Suchlitigation could result in adverse decisions regarding thepatentability of our inventions and products, the enforceability,validity or scope of protection offered by our patents or ourinfringement of patents held by others. Such decisions could make usliable for substantial money damages, or could bar us from themanufacture, sale or use of certain products. Moreover, an adversedecision may also compel us to seek a license from a third party. Thecosts of any license may be prohibitive and we may not be able to enterinto any required licensing arrangement on terms acceptable tous.

The cost to us of any litigation or proceeding relating topatent or license rights, even if resolved in our favor, could besubstantial. Some of our competitors may be able to sustain the costsof complex patent or licensing litigation more effectively than we canbecause of their substantially greater resources. Uncertaintiesresulting from the initiation and continuation of any patent or relatedlitigation could have a material adverse effect on our ability tocompete in the marketplace.

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We also may be required to participate ininterference proceedings declared by the U.S. Patent and TrademarkOffice in opposition or similar proceedings before foreign patentoffices and in International Trade Commission proceedings aimed atpreventing the importation of drugs that would compete unfairly withour drugs. These types of proceedings could cause us to incurconsiderable costs.

The principal patent covering the use ofGanite® for its approved indication, includingHatch-Waxman extensions, expired in April  2005.

We havelicensed a portfolio of U.S. patents and applications from theUniversity of Pennsylvania and the NIH relating toGenasense® and its backbone chemistry that expirebetween 2008 and 2015. Corresponding patent applications have beenfiled in Canada, Europe and Japan. The claims of these patents coverour proprietary antisense oligonucleotide molecules which target theBcl-2 mRNA and methods employing them. We also hold several U.S. patentapplications relating to methods of using Genasense®that expire in 2020, with approximately 45 corresponding foreign patentapplications.

Most of our products are in an earlystage of development, and we may never receive regulatory approval forthese products. 

Most of our resources have been dedicatedto the research and development of potential antisense pharmaceuticalproducts such as Genasense®, based uponoligonucleotide technology. While we have demonstrated the activity ofantisense oligonucleotide technology in model systems in vitro and inanimals, Genasense® is our only antisense product tohave been tested in humans. Several of our other technologies thatserve as a possible basis for pharmaceutical products are only inpreclinical testing. Results obtained in preclinical studies or earlyclinical investigations are not necessarily indicative of results thatwill be obtained in extended human clinical trials. Our products mayprove to have undesirable and unintended side effects or othercharacteristics that may prevent our obtaining FDA or foreignregulatory approval for any indication. In addition, it is possiblethat research and discoveries by others will render our oligonucleotidetechnology obsolete or noncompetitive.

We will notbe able to commercialize our product candidates if our preclinicalstudies do not produce successful results or if our clinical trials donot demonstrate safety and efficacy in humans.

Our successwill depend on the success of our currently ongoing clinical trials andsubsequent clinical trials that have not yet begun. It may take severalyears to complete the clinical trials of a product, and a failure ofone or more of our clinical trials can occur at any stage of testing.We believe that the development of each of our product candidatesinvolves significant risks at each stage of testing. If clinical trialdifficulties and failures arise, our product candidates may never beapproved for sale or become commercially viable. We do not believe thatany of our product candidates have alternative uses if our currentdevelopment activities are unsuccessful.

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There are a number of difficulties andrisks associated with clinical trials. These difficulties and risks mayresult in the failure to receive regulatory approval to sell ourproduct candidates or the inability to commercialize any of our productcandidates. The possibility exists that:

|  |              |                                                                                                                                                                                                                                                               |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | we may discover that a product candidatedoes not exhibit the expected therapeutic results in humans, may causeharmful side effects or have other unexpected characteristics that maydelay or preclude regulatory approval or limit commercial use ifapproved; |

|  |              |                                                                                                                                                                  |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | the results from earlyclinical trials may not be statistically significant or predictive ofresults that will be obtained from expanded, advanced clinicaltrials; |

|  |              |                                                                                                                                                                                                                                                                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | institutional review boards orregulators, including the FDA, may hold, suspend or terminate ourclinical research or the clinical trials of our product candidates forvarious reasons, including noncompliance with regulatory requirementsor if, in their opinion, the participating subjects are being exposedto unacceptable health risks; |

|  |              |                                              |
|--|--------------|----------------------------------------------|
|  | •  | subjectsmay drop out of our clinical trials; |

|  |              |                                                                                                                                                                                                                       |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | ourpreclinical studies or clinical trials may produce negative,inconsistent or inconclusive results, and we may decide, or regulatorsmay require us, to conduct additional preclinical studies or clinicaltrials; and |

|  |              |                                                                             |
|--|--------------|-----------------------------------------------------------------------------|
|  | •  | the cost of our clinicaltrials may be greater than we currently anticipate. |

For example,in November  2004, we reported that our randomized Phase 3clinical trial of Genasense® in patients withmultiple myeloma did not meet its primary endpoint. The trial had beendesigned to evaluate whether the addition ofGenasense® to standard therapy with high-dosedexamethasone could increase the time to development of progressivedisease in patients who previously had received extensive therapy.Based on the results of the Phase 3 trial, we have no plans to submitan NDA in this indication to the FDA at the current time. We have notyet determined what additional clinical trials, if any, may beundertaken in patients with multiple myeloma.

We cannot assureyou that our ongoing preclinical studies and clinical trials willproduce successful results in order to support regulatory approval ofGenasense® in any territory or for any indication.Failure to obtain approval, or a substantial delay in approval ofGenasense® for these or any other indications wouldhave a material adverse effect on our results of operations andfinancial condition.

Clinical trials arecostly and time consuming and are subject to delays; our business wouldsuffer if the development process relating to our products were subjectto meaningful delays.

Clinical trials are very costly andtime-consuming. The length of time required to complete a clinicalstudy depends upon many factors, including but not limited to the sizeof the patient population, the ability of patients to get to the siteof the clinical study, the criteria for determining which patients areeligible to join the study and other issues. Delays in patientenrollment and other unforeseen developments could delay completion ofa clinical study and increase its costs, which could also delay anyeventual commercial sale of the drug that is the subject of theclinical trial.

Our commencement and rate of completion ofclinical trials also may be delayed by many other factors, includingthe following:

•    inability to obtain sufficientquantities of materials for use in clinicaltrials;

•    inability to adequately monitor patientprogress after treatment;

•    unforeseen safetyissues;

•    the failure of the products to performwell during clinical trials and

•    government orregulatory delays.

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If we fail to obtain thenecessary regulatory approvals, we cannot market and sell our productsin the United States or in other countries.

The FDA andcomparable regulatory agencies in foreign countries (such as the EMEA)impose substantial pre-market approval requirements on the introductionof pharmaceutical products. These requirements involve lengthy anddetailed preclinical and clinical testing and other costly andtime-consuming procedures. Satisfaction of these requirements typicallytakes several years or more depending upon the type, complexity andnovelty of the product. We cannot apply for FDA approval to market anyof our products under development until preclinical and clinical trialson the product are successfully completed. Several factors couldprevent successful completion or cause significant delays of thesetrials, including an inability to enroll the required number ofpatients or failure to demonstrate adequately that the product is safeand effective for use in humans. If safety concerns develop, the FDAcould stop our trials before completion. We may not market or sell anyproduct for which we have not obtained regulatory approval. InMay  2004, the application failed to gain a majority vote formarketing approval from ODAC. As a consequence, we withdrew the NDA,which allows us to potentially resubmit the application.

Wecannot assure you that the FDA, the EMEA or other regulatory agencieswill ever approve the use of our products that are under development.If the patient populations for which our products are approved are notsufficiently broad, or if approval is accompanied by unanticipatedlabeling restrictions, the commercial success of our products could belimited and our business, results of operations and financial conditioncould consequently be materially adverselyaffected.

If the third party manufacturers uponwhich we rely fail to produce our products in the volumes that werequire on a timely basis, or to comply with stringent regulationsapplicable to pharmaceutical drug manufacturers, we may face delays inthe commercialization of, or be unable to meet demand for, our productsand may lose potential revenues. 

We do not manufacture anyof our products or product candidates and we do not plan to develop anycapacity to do so. We have contracted with third-party manufacturers tomanufacture Ganite® and Genasense®.The manufacture of pharmaceutical products requires significantexpertise and capital investment, including the development of advancedmanufacturing techniques and process controls. Manufacturers ofpharmaceutical products often encounter difficulties in production,especially in scaling up initial production. These problems includedifficulties with production costs and yields, quality control andassurance and shortages of qualified personnel, as well as compliancewith strictly enforced federal, state and foreign regulations. Ourthird-party manufacturers may not perform as agreed or may terminatetheir agreements with us.

In addition to product approval, anyfacility in which Genasense® is manufactured ortested for its ability to meet required specifications must be approvedby the FDA and/or the EMEA before it can manufactureGenasense®. Failure of the facility to be approvedcould delay the approval of Genasense®.

We donot currently have alternate manufacturing plans in place. The numberof third-party manufacturers with the expertise, required regulatoryapprovals and facilities to manufacture bulk drug substance on acommercial scale is limited, and it would take a significant amount oftime to arrange for alternative manufacturers. If we need to change toother commercial manufacturers, the FDA and comparable foreignregulators must approve these manufacturers’ facilities andprocesses prior to our use, which would require new testing andcompliance inspections, and the new manufacturers would have to beeducated in or independently develop the processes necessary for theproduction of our products.

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Any of these factors could cause us todelay or suspend clinical trials, regulatory submissions, requiredapprovals or commercialization of our products or product candidates,entail higher costs and result in us being unable to effectivelycommercialize our products. Furthermore, if our third-partymanufacturers fail to deliver the required commercial quantities ofbulk drug substance or finished product on a timely basis and atcommercially reasonable prices, and we were unable to promptly find oneor more replacement manufacturers capable of production at asubstantially equivalent cost, in substantially equivalent volume andon a timely basis, we would likely be unable to meet demand for ourproducts and we would lose potential revenues.

Evenif we obtain regulatory approval, we will be subject to ongoingregulation, and any failure by us or our manufacturers to comply withsuch regulation could suspend or eliminate our ability to sell ourproducts.

Ganite®,Genasense®, if it obtains regulatory approval, andany other product we may develop will be subject to ongoing regulatoryoversight, primarily by the FDA. Failure to comply with post-marketingrequirements, such as maintenance by us or by the manufacturers of ourproducts of current Good Manufacturing Practices as required by theFDA, or safety surveillance of such products or lack of compliance withother regulations could result in suspension or limitation of approvalsor other enforcement actions. Current Good Manufacturing Practices areFDA regulations that define the minimum standards that must be met bycompanies that manufacture pharmaceuticals and apply to all drugs forhuman use including those to be used in clinical trials as well asthose produced for general sale after approval of an application by theFDA. These regulations define requirements for personnel, buildings andfacilities, equipment, control of raw materials and packagingcomponents, production and process controls, packaging and labelcontrols, handling and distribution, laboratory controls andrecordkeeping. Furthermore, the terms of any product candidateapproval, including the labeling content and advertising restrictions,may be so restrictive that they could adversely affect themarketability of our product candidates. Any such failure to comply orthe application of such restrictions could limit our ability to marketour product candidates and may have a material adverse effect on ourbusiness, results of operations and financial condition. Such failuresor restrictions may also prompt regulatory recalls of one or more ofour products, which could have material and adverse effects on ourbusiness.

The raw materials for our products areproduced by a limited number of suppliers, and our business couldsuffer if we cannot obtain needed quantities at acceptable prices andqualities.

The raw materials that we require to manufactureour drugs, particularly oligonucleotides, are available from only a fewsuppliers. If these suppliers cease to provide us with the necessaryraw materials or fail to provide us with an adequate supply ofmaterials at an acceptable price and quality, we could be materiallyadversely affected.

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If third-party payors do notprovide coverage and reimbursement for use of our products, we may notbe able to successfully commercialize our products.

Ourability to commercialize drugs successfully will depend in part on theextent to which various third-party payors are willing to reimbursepatients for the costs of our drugs and related treatments. Thesethird-party payors include government authorities, private healthinsurers and other organizations, such as health maintenanceorganizations. Third-party payors often challenge the prices chargedfor medical products and services. Accordingly, if less costly drugsare available, third-party payors may not authorize or may limitreimbursement for our drugs, even if they are safer or more effectivethan the alternatives. In addition, the federal government and privateinsurers have changed and continue to consider ways to change themanner in which health care products and services are provided and paidfor in the United States. In particular, these third-party payors areincreasingly attempting to contain health care costs by limiting bothcoverage and the level of reimbursement for new therapeutic products.In the future, it is possible that the government may institute pricecontrols and further limits on Medicare and Medicaid spending. Thesecontrols and limits could affect the payments we collect from sales ofour products. Internationally, medical reimbursement systems varysignificantly, with some countries requiring application for, andapproval of, government or third-party reimbursement. In addition, somemedical centers in foreign countries have fixed budgets, regardless oflevels of patient care. Even if we succeed in bringing therapeuticproducts to market, uncertainties regarding future health care policy,legislation and regulation, as well as private market practices, couldaffect our ability to sell our products in quantities, or at prices,that will enable us to achieve profitability.

Ourbusiness exposes us to potential product liability that may have anegative effect on our financial performance and our businessgenerally.

The administration of drugs to humans, whetherin clinical trials or commercially, exposes us to potential product andprofessional liability risks, which are inherent in the testing,production, marketing and sale of human therapeutic products. Productliability claims can be expensive to defend and may result in largejudgments or settlements against us, which could have a negative effecton our financial performance and materially and adversely affect ourbusiness. We maintain product liability insurance (subject to variousdeductibles), but our insurance coverage may not be sufficient to coverclaims. Furthermore, we cannot be certain that we will always be ableto maintain or increase our insurance coverage at an affordable price.Even if a product liability claim is not successful, the adversepublicity and time and expense of defending such a claim may interferewith or adversely affect our business and financialperformance.

We may incur a variety of costs toengage in future acquisitions of companies, products or technologies,and the anticipated benefits of those acquisitions may never berealized.

As a part of our business strategy, we may makeacquisitions of, or significant investments in, complementarycompanies, products or technologies, although no significantacquisition or investments are currently pending. Any futureacquisitions would be accompanied by risks such as:

|  |              |                                                                                |
|--|--------------|--------------------------------------------------------------------------------|
|  | •  | difficulties in assimilating the operationsand personnel of acquiredcompanies; |

|  |              |                                                                             |
|--|--------------|-----------------------------------------------------------------------------|
|  | •  | diversion of ourmanagement’s attention from ongoing businessconcerns; |

|  |              |                                                                                                                                                                              |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | our potential inability tomaximize our financial and strategic position through the successfulincorporation of acquired technology and rights into our products andservices; |

|  |              |                                                                   |
|--|--------------|-------------------------------------------------------------------|
|  | •  | additional expense associatedwith amortization of acquiredassets; |

|  |              |                                                                        |
|--|--------------|------------------------------------------------------------------------|
|  | •  | maintenance of uniformstandards, controls, procedures and policies;and |

|  |              |                                                                                                                                        |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | impairment of existing relationshipswith employees, suppliers and customers as a result of the integrationof new management personnel. |

We cannot guarantee that we will beable to successfully integrate any business, products, technologies orpersonnel that we might acquire in the future, and our failure to do socould harm our business.

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We face substantialcompetition from other companies and research institutions that aredeveloping similar products, and we may not be able to competesuccessfully.

In many cases, our products under developmentwill be competing with existing therapies for market share. Inaddition, a number of companies are pursuing the development ofantisense technology and controlled-release formulation technology andthe development of pharmaceuticals utilizing such technologies. Wecompete with fully integrated pharmaceutical companies that have moresubstantial experience, financial and other resources and superiorexpertise in research and development, manufacturing, testing,obtaining regulatory approvals, marketing and distribution. Smallercompanies may also prove to be significant competitors, particularlythrough their collaborative arrangements with large pharmaceuticalcompanies or academic institutions. Furthermore, academic institutions,governmental agencies and other public and private researchorganizations have conducted and will continue to conduct research,seek patent protection and establish arrangements for commercializingproducts. Such products may compete directly with any products that maybe offered by us.

Our competition will be determined in part bythe potential indications for which our products are developed andultimately approved by regulatory authorities. For certain of ourpotential products, an important factor in competition may be thetiming of market introduction of our or our competitors’products. Accordingly, the relative speed with which we can developproducts, complete the clinical trials and approval processes andsupply commercial quantities of the products to the market are expectedto be important competitive factors. We expect that competition amongproducts approved for sale will be based, among other things, onproduct efficacy, safety, reliability, availability, price, patentposition and sales, marketing and distribution capabilities. Thedevelopment by others of new treatment methods could render ourproducts under development non-competitive or obsolete.

Ourcompetitive position also depends upon our ability to attract andretain qualified personnel, obtain patent protection or otherwisedevelop proprietary products or processes and secure sufficient capitalresources for the often-substantial period between technologicalconception and commercial sales. We cannot assure you that we will besuccessful in this regard.

We are dependent on ourkey executives and scientists, and the loss of key personnel or thefailure to attract additional qualified personnel could harm ourbusiness.

Our business is highly dependent on our keyexecutives and scientific staff. The loss of key personnel or thefailure to recruit necessary additional or replacement personnel willlikely impede the achievement of our development objectives. There isintense competition for qualified personnel in the pharmaceutical andbiotechnology industries, and there can be no assurances that we willbe able to attract and retain the qualified personnel necessary for thedevelopment of our business.

        Risks Related toOutstanding Litigation

The outcome of and costsrelating to pending shareholder class action and shareholder derivativeactions are uncertain.

In 2004, numerous complaints werefiled in the United States District Court for the District of NewJersey against Genta and certain of its principal officers on behalf ofpurported classes of the Company’s shareholders who purchasedits securities during several class periods. The complaints have beenconsolidated into a single action and allege that the Company andcertain of its principal officers violated the federal securities lawsby issuing materially false and misleading statements regardingGenasense® for the treatment of malignant melanomathat had the effect of artificially inflating the market price of oursecurities. The shareholder class action complaint in the variousactions seeks monetary damages in an unspecified amount and recovery ofplaintiffs’ costs and attorneys’ fees. OnSeptember  30,  2005, the court granted in part and deniedin part the Company’s motion to dismiss the plaintiffs’complaint. The court dismissed plaintiffs’ claim that thedefendants engaged in a scheme or artifice to defraud plaintiffs, butallowed plaintiffs’ claims to proceed with respect to theirallegations that defendants issued false and misleading publicstatements about Genasense®. The case has proceededto discovery.

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In addition, two separate shareholderderivative actions have been filed against the directors and certainofficers of Genta in New Jersey State and Federal courts. The Federalshareholder derivative action was consolidated with the securitiesaction. Genta has reached an agreement in principle with the Federalshareholder derivative plaintiffs to settle the Federal Shareholderderivative action. The settlement has been submitted to the court forapproval and we are waiting for a determination.

Based on factssubstantially similar to those asserted in the shareholder classactions, the State derivative plaintiffs claim that defendants havebreached their fiduciary duties to the shareholders and committed otherviolations of New Jersey law. On February  9,  2006, theSuperior Court of New Jersey dismissed the plaintiffs’derivative complaint in the New Jersey State casebased in part on plaintiffs’ failure to make a pre-suit demandon Genta's Board of Directors and in part based onplaintiffs’ failure to state a cause of action.Plaintiffs’ motion for reconsideration was denied and they havefiled a notice of appeal. 

The Company believes theselitigations are without merit and will continue to vigorously defendagainst these suits.

        Risks Related to Our CommonStock

Provisions in our restated certificate ofincorporation and bylaws and Delaware law may discourage a takeover andprevent our stockholders from receiving a premium for theirshares.

Provisions in our restated certificate ofincorporation and bylaws may discourage third parties from seeking toobtain control of us and, therefore, could prevent our stockholdersfrom receiving a premium for their shares. Our restated certificate ofincorporation gives our board of directors the power to issue shares ofpreferred stock without approval of the holders of common stock. Anypreferred stock that is issued in the future could have voting rights,including voting rights that could be superior to that of our commonstock. The affirmative vote of 66 2/3% of ourvoting stock is required to approve certain transactions and to takecertain stockholder actions, including the amendment of certainprovisions of our certificate of incorporation. Our bylaws containprovisions that regulate how stockholders may present proposals ornominate directors for election at annual meetings of stockholders.

In addition, we are subject to Section 203 of the Delaware GeneralCorporation Law, which contains restrictions on stockholder action toacquire control of us.

On September  16,  2005, weannounced that our Board of Directors approved a Stockholder RightsPlan and declared a dividend of one preferred stock purchase right,which we refer to as a Right, for each share of our common stock heldof record as of the close of business on September  27,2005. In addition, Rights shall be issued in respect of all shares ofcommon stock issued after such date, including the shares issuedhereunder, pursuant to the Plan. The Rights contain provisions toprotect stockholders in the event of an unsolicited attempt to acquireus, including an accumulation of shares in the open market, a partialor two-tier tender offer that does not treat all stockholders equallyand other activities that the Board believes are not in the bestinterests of shareholders. The Rights may discourage a takeover andprevent our stockholders from receiving a premium for theirshares.

We have not paid, and do not expect to payin the future, cash dividends on our common stock.

We havenever paid cash dividends on our common stock and do not anticipatepaying any such dividends in the foreseeable future. We currentlyintend to retain our earnings, if any, for the development of ourbusiness.

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        Our stock price isvolatile.

The market price of our common stock, like thatof the common stock of many other biopharmaceutical companies, has beenand likely will continue to be highly volatile. Factors that could havea significant impact on the future price of our common stock includebut are not limited to:

|  |              |                                                                                |
|--|--------------|--------------------------------------------------------------------------------|
|  | •  | the results ofpreclinical studies and clinical trials by us or ourcompetitors; |

|  |              |                                                                                                |
|--|--------------|------------------------------------------------------------------------------------------------|
|  | •  | announcements oftechnological innovations or new therapeutic products by us or ourcompetitors; |

|  |              |                       |
|--|--------------|-----------------------|
|  | •  | governmentregulation; |

|  |              |                                                                                                             |
|--|--------------|-------------------------------------------------------------------------------------------------------------|
|  | •  | developments in patent orother proprietary rights by us or our respective competitors, includinglitigation; |

|  |              |                                           |
|--|--------------|-------------------------------------------|
|  | •  | fluctuations in ouroperating results; and |

|  |              |                                                           |
|--|--------------|-----------------------------------------------------------|
|  | •  | marketconditions for biopharmaceutical stocks in general. |

AtJune  30,  2006, we had 133.7  million shares ofcommon stock outstanding, 12.8  million additional sharesreserved for the conversion of convertible preferred stock and theexercise of outstanding options and warrants and 5.2  millionadditional shares of common stock authorized for issuance and remainingto be granted under our stock option plans. Future sales of shares ofour common stock by existing stockholders, holders of preferred stockwho might convert such preferred stock into common stock and option andwarrant holders who may exercise their options and warrants to purchasecommon stock also could adversely affect the market price of our commonstock. Moreover, the perception that sales of substantial amounts ofour common stock might occur could adversely affect the market price ofour common stock.

Item 2.    Unregistered Sales of EquitySecurities and Use of Proceeds

None.

Item3.    Defaults Upon SeniorSecurities

None.

Item4.    Submission of Matters to a Vote of SecurityHolders

(a) The Company held its Annual Meeting ofStockholders, herein after referred to as the Annual Meeting, onJune  16,  2006.

(b) Proxies for the meeting weresolicited pursuant to Regulation 14A of the Exchange Act. There was nosolicitation in opposition to the Board of Directors' nomineesfor directors listed in the definitive proxy statement of the Companydated as of April  28,  2006. All of the Board ofDirectors' nominees wereelected.

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(c) At the Annual Meeting, Stockholdersvoted to approve all resolutions that were proposed in the proxystatement. Briefly described below is each resolution voted upon at theAnnual Meeting and the corresponding results.

(i)Election of seven directors. The result of the voting was asfollows:

|                              |  |  |          |  |             |          |  |  |  |  |            |  |
|------------------------------|--|--|----------|--|-------------|----------|--|--|--|--|------------|--|
| Directors                    |  |  | VotesFor |  |             | Withheld |
| Raymond P. Warrell, Jr.,M.D. |  |  |          |  | 114,798,206 |          |  |  |  |  | 5,924,100  |  |
| Martin J.Driscoll            |  |  |          |  | 114,943,350 |          |  |  |  |  | 5,778,956  |  |
| JeromeE. Groopman,M.D.       |  |  |          |  | 114,864,563 |          |  |  |  |  | 5,857,743  |  |
| BetsyMcCaughey,Ph.D.         |  |  |          |  | 114,860,737 |          |  |  |  |  | 5,861,569  |  |
| ChristopherP.Parios          |  |  |          |  | 114,975,000 |          |  |  |  |  | 5,747,306  |  |
| DanielD. Von Hoff,M.D.       |  |  |          |  | 110,371,960 |          |  |  |  |  | 10,350,346 |  |
| DouglasG.Watson              |  |  |          |  | 113,129,263 |          |  |  |  |  | 7,593,043  |  |
|                              |

(ii)Approval of an amendment to the Company’s Restated Certificateof Incorporation, as amended, to increase the authorized number ofshares of capital stock available for issuance. The result of thevoting was asfollows:

|          |  |  |                  |
|----------|--|--|------------------|
| For:     |  |  | 104,340,544votes |
| Against: |  |  | 9,199,915votes   |
| Abstain: |  |  | 7,181,844votes   |
|          |

(iii) Approval of an amendment tothe Company’s 1998 Stock Incentive Plan to increase the numberof shares authorized under the Plan. The result of the voting was asfollows:

|          |  |  |                 |
|----------|--|--|-----------------|
| For:     |  |  | 19,695,573votes |
| Against: |  |  | 7,997,683votes  |
| Abstain: |  |  | 6,956,129votes  |
|          |

(iv) Ratification of the selectionof Deloitte & Touche LLP as the Company's independentregistered public accounting firm for the fiscal year endingDecember  31,  2006. The result of the voting was asfollows:

|          |  |  |                  |
|----------|--|--|------------------|
| For:     |  |  | 112,667,883votes |
| Against: |  |  | 810,272votes     |
| Abstain: |  |  | 7,244,151votes   |
|          |

Item 5.    OtherInformation

On July  21,  2006, JeromeGroopman, M.D. announced his resignation from the Board of Directors ofthe Company for personal health reasons. The resignation did not resultfrom a disagreement with the Company on any matter relating to theCompany's operations, policies or practices.

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Item6.    Exhibits.

|  |           |          |
|--|-----------|----------|
|  | (a)  | Exhibits |

|                 |  |  |                                                                                                                                                                     |
|-----------------|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNumber   |  |  | Description ofDocument                                                                                                                                              |
|   3.1 |  |  | Certificateof Amendment of Restated Certificate of Incorporation of GentaIncorporated, dated June  16,  2006 (filedherewith)                                        |
|   4.1 |  |  | Genta Incorporated 1998Incentive Stock Plan (Amended and Restated effective April  5,2006) (filed herewith)                                                         |
| 10.1            |  |  | EmploymentAgreement, dated as of March  28,  2006, between theCompany and Loretta M.  Itri.,  M.D. (filedherewith)                                                  |
| 31.1            |  |  | Certification by ChiefExecutive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002 (filed herewith)                                                   |
| 31.2            |  |  | Certification byChief Financial Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 (filedherewith)                                                    |
| 32.1            |  |  | Certification by ChiefExecutive Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnishedherewith) |
| 32.2            |  |  | Certification by ChiefFinancial Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnishedherewith) |
|                 |

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SIGNATURES

Pursuantto the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf bythe undersigned thereunto dulyauthorized

|                       |  |  |                                                                      |
|-----------------------|--|--|----------------------------------------------------------------------|
|                  |  |  | GentaIncorporated                                                    |
| Date:August  8,  2006 |  |  |                                                                 |
|                  |  |  | /s/RAYMOND P. WARRELL, JR., M.D.                                     |
|                  |  |  | Raymond P.Warrell, Jr., M.D.                                         |
|                  |  |  | Chairman and ChiefExecutive Officer                                  |
|                  |  |  | (principal executiveofficer)                                         |
| Date: August8,  2006  |  |  |                                                                 |
|                  |  |  | /s/ RICHARD J.MORAN                                                  |
|                  |  |  | Richard J.Moran                                                      |
|                  |  |  | Senior Vice President, Chief FinancialOfficer and CorporateSecretary |
|                  |  |  | (principal financial and accountingofficer)                          |
|                       |

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ExhibitIndex

|                 |  |  |                                                                                                                                                                     |
|-----------------|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNumber   |  |  | Description ofDocument                                                                                                                                              |
|   3.1 |  |  | Certificateof Amendment of Restated Certificate of Incorporation of GentaIncorporated, dated June  16,  2006 (filedherewith)                                        |
|   4.1 |  |  | Genta Incorporated 1998Incentive Stock Plan (Amended and Restated effective April  5,2006) (filed herewith)                                                         |
| 10.1            |  |  | EmploymentAgreement, dated as of March  28,  2006, between theCompany and Loretta M.  Itri.,  M.D. (filedherewith)                                                  |
| 31.1            |  |  | Certification by ChiefExecutive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002 (filed herewith)                                                   |
| 31.2            |  |  | Certification byChief Financial Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 (filedherewith)                                                    |
| 32.1            |  |  | Certification by ChiefExecutive Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnishedherewith) |
| 32.2            |  |  | Certification by ChiefFinancial Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnishedherewith) |
|                 |

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