UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the
quarterly period ended March 31, 2006

OR

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

For the
transition period from _______ to _______

Commission
File Number 0-19635

GENTA
  INCORPORATED
  (Exact name of Registrant as specified in its charter)

|Delaware                                                                   |  | 33-0326866                                          
|-------------------------------------------------------------------------- |  | ----------------------------------------------------
|(State or other
      jurisdiction of
      incorporation or organization) |  | (I.R.S. Employer
      
      Identification Number)
|                                                                           |  |                                                     
|Two Connell Drive
      
      Berkeley Heights, NJ                        |  | 07922                                               
|(Address of principal
      executive offices)                             |  | (Zip Code)                                          

(908)
  286-9800 (Registrant's telephone number, including area code)

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

|Yes þ | No o
|----- | ----

Indicate by check mark  whether the  registrant  is a
large   accelerated   filer,   an  accelerated   filer,  or  a
non-accelerated  filer.  See definition of accelerated  filer
and large  accelerated  filer in  Rule 12b-2  of the Exchange
Act. (Check one):

Large
accelerated filer o Accelerated filer þ Non-accelerated filer o

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

|Yes
      o | No þ
|----------- | ----

As  of   April   30,   2006,   the   registrant   had
133,669,156 shares of common stock outstanding.

---



---

Genta
IncorporatedINDEX TO FORM 10-Q

|PART
      I.  | FINANCIAL
      INFORMATION                                                |  | Page
|-------------- | -------------------------------------------------------------------------- |  | ----
|               |                                                                            |  |     
|Item
      1.  | Consolidated     Financial
         Statements (unaudited):                |  |     
|               |                                                                            |  |     
|               | Consolidated   Balance
         Sheets at March 31, 2006                   |  |     
|               | and   December  31,
         2005                                          |  |     
|               |                                                                            |  |     
|               | Consolidated
         Statements  of  Operations   for  the
         Three |  |     
|               | Months  Ended March
         31, 2006 and 2005                             |  |     
|               |                                                                            |  |     
|               | Consolidated
         Statements  of  Cash  Flows  for  the
         Three |  |     
|               | Months  Ended March
         31, 2006 and 2005                             |  |     
|               |                                                                            |  |     
|               | Notes to  Consolidated
         Financial Statements                       |  |     
|               |                                                                            |  |     
|Item
      2.  | Managements
      Discussion and Analysis of Financial Condition          |  |     
|               | and
      Results of Operations                                            |  |     
|               |                                                                            |  |     
|Item
      3.  | Quantitative
      and Qualitative Disclosures about Market Risk           |  |     
|               |                                                                            |  |     
|Item
      4.  | Controls
      and Procedures                                              |  |     
|               |                                                                            |  |     
|PART
      II. | OTHER
      INFORMATION                                                    |  |     
|               |                                                                            |  |     
|Item
      1.  | Legal
      Proceedings                                                    |  |     
|               |                                                                            |  |     
|Item 1A.       | Risk Factors                                                               |  |     
|               |                                                                            |  |     
|Item 2.        | Unregistered Sales of
Equity Securities and Use of
Proceeds                |  |     
|               |                                                                            |  |     
|Item 3.        | Defaults Upon Senior
Securities                                            |  |     
|               |                                                                            |  |     
|Item 4.        | Submission of Matters to
a Vote of Security Holders                        |  |     
|               |                                                                            |  |     
|Item 5.        | Other Information                                                          |  |     
|               |                                                                            |  |     
|Item
      6.  | Exhibits                                                                   |  |     
|               |                                                                            |  |     
|SIGNATURES     |                                                                            |  |     
|               |                                                                            |  |     
|CERTIFICATIONS |                                                                            |  |     



---

GENTA
INCORPORATED  
CONSOLIDATED BALANCE  SHEETS  
(Unaudited)

|(In thousands, except par value data)                               |  |  | March 31, 
      2006 |          | December 31, 
  2005 |  
|------------------------------------------------------------------- |  |  | --------------------- | -------- | -------------------- | -
|                                                                    |  |  |                       |          |                      |  
|ASSETS                                                              |  |  |                       |          |                      |  
|                                                                    |  |  |                       |          |                      |  
|Current assets:                                                     |  |  |                       |          |                      |  
|Cash and cash equivalents                                           |  |  | $                     | 21,229   |                      | $
|Marketable securities (Note 3)                                      |  |  |                       | 25,931   |                      |  
|Accounts receivable - net                                           |  |  |                       | 18       |                      |  
|Inventory (Note 4)                                                  |  |  |                       | 380      |                      |  
|Prepaid expenses and other current assets                           |  |  |                       | 1,251    |                      |  
|                                                                    |  |  |                       |          |                      |  
|Total current assets                                                |  |  |                       | 48,809   |                      |  
|                                                                    |  |  |                       |          |                      |  
|Property and equipment, net (Note 5)                                |  |  |                       | 752      |                      |  
|Prepaid royalties (Note 6)                                          |  |  |                       | 1,268    |                      |  
|Other assets                                                        |  |  |                       | 1,656    |                      |  
|                                                                    |  |  |                       |          |                      |  
|Total assets                                                        |  |  | $                     | 52,485   |                      | $
|                                                                    |  |  |                       |          |                      |  
|LIABILITIES AND
  STOCKHOLDERS' EQUITY                              |  |  |                       |          |                      |  
|Current liabilities:                                                |  | 
|Accounts payable and accrued expenses                               |  |  | $                     | 8,034    |                      | $
|Notes payable                                                       |  |  |                       | 278      |                      |  
|                                                                    |  |  |                       |          |                      |  
|Total current liabilities                                           |  |  |                       | 8,312    |                      |  
|                                                                    |  |  |                       |          |                      |  
|                                                                    |  |  |                       |          |                      |  
|Commitments and contingencies (Note 12)                             |  |  |                       |          |                      |  
|                                                                    |  |  |                       |          |                      |  
|Stockholders' equity (Note 7):                                      |  |  |                       |          |                      |  
|Preferred stock, 5,000 shares authorized                            |  |  |                       | --       |                      |  
|Series A convertible preferred stock, $.001 par value;              |  |  |                       |          |                      |  
|10 shares issued and outstanding, liquidation value of $485         |  |  |                       |          |                      |  
|at March 31, 2006 and December 31, 2005, respectively               |  |  |                       | --       |                      |  
|Series G participating cumulative preferred stock, $.001 par value; |  |  |                       |          |                      |  
|0 shares issued and outstanding at March 31, 2006 and               |  |  |                       |          |                      |  
|December 31, 2005, respectively                                     |  |  |                       | --       |                      |  
|Common stock, $.001 par value; 150,000 shares authorized,           |  |  |                       |          |                      |  
|133,650 and 114,500 shares issued and outstanding                   |  |  |                       |          |                      |  
|at March 31, 2006 and December 31, 2005                             |  |  |                       | 134      |                      |  
|Additional paid-in capital                                          |  |  |                       | 412,121  |                      |  
|Accumulated deficit                                                 |  |  |                       | (368,082 | )                    |  
|Accumulated other comprehensive income                              |  |  |                       | --       |                      |  
|                                                                    |  |  |                       |          |                      |  
|Total stockholders' equity                                          |  |  |                       | 44,173   |                      |  
|                                                                    |  |  |                       |          |                      |  
|Total liabilities and stockholders' equity                          |  |  | $                     | 52,485   |                      | $
|                                                                    |  |  |                       |          |                      |  

See
accompanying notes to  consolidated financial statements.

3



---

GENTA
INCORPORATED  
CONSOLIDATED STATEMENTS OF OPERATIONS  
(Unaudited)

|                                                             |  |  | Three Months Ended March 31, |        
|------------------------------------------------------------ |  |  | ---------------------------- | -------
|(In thousands, except per share data)                        |  |  | 2006                         |        
|                                                             |  |  |                              |        
|Revenues:                                                    |  |  |                              |        
|License fees and royalties                                   |  |  | $                            | -      
|Development funding                                          |  |  |                              | --     
|Product sales - net                                          |  |  |                              | 67     
|                                                             |  |  |                              |        
|Total revenues                                               |  |  |                              | 67     
|                                                             |  |  |                              |        
|Cost of goods sold                                           |  |  |                              | 16     
|                                                             |  |  |                              |        
|Operating expenses:                                          |  |  |                              |        
|Research and development                                     |  |  |                              | 4,750  
|Selling, general and administrative                          |  |  |                              | 5,456  
|                                                             |  |  |                              |        
|Total operating expenses - gross                             |  |  |                              | 10,206 
|Aventis reimbursement                                        |  |  |                              | --     
|                                                             |  |  |                              |        
|Total operating expenses - net                               |  |  |                              | 10,206 
|                                                             |  |  |                              |        
|Other income                                                 |  |  |                              | 260    
|                                                             |  |  |                              |        
|Net (loss)/income                                            |  |  |                              | (9,895 
|                                                             |  |  |                              |        
|Net (loss)/income per basic and diluted share (Note 10)      |  |  | $                            | (0.08  
|                                                             |  |  |                              |        
|Shares used in computing net (loss)/income per basic share   |  |  |                              | 118,186
|                                                             |  |  |                              |        
|Shares used in computing net (loss)/income per diluted share |  |  |                              | 118,186
|                                                             |  |  |                              |        

See
accompanying notes to consolidated financial  statements

4



---

GENTA
INCORPORATED  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)

|                                                                              |  |  | Three Months Ended March 31, |        
|----------------------------------------------------------------------------- |  |  | ---------------------------- | -------
|(In thousands)                                                                |  |  | 2006                         |        
|                                                                              |  |  |                              |        
|Operating activities:                                                         |  |  |                              |        
|Net (loss)/income                                                             |  |  | $                            | (9,895 
|Items reflected in net (loss)/income not requiring cash:                      |  |  |                              |        
|Depreciation and amortization                                                 |  |  |                              | 334    
|Stock-based compensation (Note 8)                                             |  |  |                              | 597    
|Realized gain on maturity of marketable securities                            |  |  |                              | (92    
|Compensation expense related to certain stock options issued in 1999 and 2000 |  |  |                              | --     
|Non-cash reimbursement of research & development expense                      |  |  |                              | --     
|Amortization of deferred revenues                                             |  |  |                              | --     
|Changes in operating assets and liabilities:                                  |  |  |                              |        
|Accounts receivable                                                           |  |  |                              | 41     
|Inventory (Note 4)                                                            |  |  |                              | 16     
|Prepaid expenses and other current assets                                     |  |  |                              | 404    
|Accounts payable and accrued expenses                                         |  |  |                              | (2,926 
|Other assets                                                                  |  |  |                              | (7     
|                                                                              |  |  |                              |        
|Net cash used in operating activities                                         |  |  |                              | (11,528
|                                                                              |  |  |                              |        
|Investing activities:                                                         |  |  |                              |        
|Purchase of marketable securities (Note 3)                                    |  |  |                              | (25,931
|Maturities and sales of marketable securities (Note 3)                        |  |  |                              | 12,000 
|Purchase of property and equipment                                            |  |  |                              | (9     
|                                                                              |  |  |                              |        
|Net cash used in investing activities                                         |  |  |                              | (13,940
|                                                                              |  |  |                              |        
|Financing activities:                                                         |  |  |                              |        
|Repayments of note payable                                                    |  |  |                              | (451   
|Issuance of common stock, net (Note 7)                                        |  |  |                              | 37,736 
|Issuance of common stock upon exercise of stock options                       |  |  |                              | 98     
|                                                                              |  |  |                              |        
|Net cash provided by/(used in) financing activities                           |  |  |                              | 37,383 
|                                                                              |  |  |                              |        
|Increase/(decrease) in cash and cash equivalents                              |  |  |                              | 11,915 
|Cash and cash equivalents at beginning of period                              |  |  |                              | 9,314  
|                                                                              |  |  |                              |        
|Cash and cash equivalents at end of period                                    |  |  | $                            | 21,229 
|                                                                              |  |  |                              |        

See
accompanying notes to consolidated  financial statements

5



---

GENTA
INCORPORATED  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
March 31, 2006  
(Unaudited)

1.
Organization and Business

Genta
Incorporated  (Genta or  the  Company)  is  a  biopharmaceutical
company  engaged  in  drug  research  and  development,  its sole  reportable  segment.
The  Company  is  dedicated  to  the  identification,  development  and
commercialization  of novel drugs for the  treatment of cancer  and related diseases.

The
Company has had  recurring  annual  operating  losses  since its  inception.  Management
expects  that  such  losses  will  continue  at least  until its lead  product,  Genasense® (oblimersen
sodium)  Injection,  receives  approval  for  commercial  sale in one or more
indications.  Achievement  of  profitability  for the Company is  dependent  on the
timing of  Genasense® regulatory  approvals  in the U.S. and outside the  U.S.  Any
adverse  events  with  respect to  approvals  by the  U.S.  Food and Drug  Administration
(FDA)  and/or  European  Medicines  Agency  (EMEA)  could
negatively  impact  our  ability to obtain  additional  funding or  identify  potential
partners.

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

The
Company had $47.2  million of cash,  cash  equivalents  and  marketable  securities  on
hand at  March  31,  2006.  On  March 13, 2006,  the Company  sold 19.0 million  shares
of its  common  stock  at  a  price  of  $2.15  per  share  for  gross  proceeds of $40.8
million,  before fees and  expenses.  After  deducting  fees  and  expenses  the  Company
received  net  proceeds of $37.7  million.  During the first three  months of  2006, cash
used in operating activities was $11.5 million.

Management
plans to  increase  its  spending  from  April  through  September  to an  average  rate
of  approximately  $5  million per month.  The Company  anticipates that it will have
sufficient  cash  funds to  maintain  its  present  operations  into the first quarter of
2007.

If
the  NDA  for  Genasense® is  approved,  the  Company  anticipates  that  it  will
require  additional  cash  if  it  undertakes  to launch the  product  in the U.S.  in
the fourth  quarter  of  2006  in  order  to  maximize  the  commercial  opportunity.
The  Company  has  commenced  discussions  with  several  companies  regarding
partnerships  for  the  further  development  and  global  commercialization  of
Genasense®.  Those  discussions  are  currently  ongoing.  Additional  alternatives
available  to  the  Company  to  subsequently  sustain its operations  include  financing
arrangements  with  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  or other sources of
funding will be  available on favorable terms, if at all.

6



---

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

| | o |  | delay,
scale back or eliminate some or all of our  research and product development programs and
sales  and marketing activity;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

| | o |  | license
third parties to develop and commercialize  products or technologies that we would
otherwise  seek to develop and commercialize ourselves;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | attempt
to sell the Company;
| | - |  | ----------------------------

| | o |  | cease
operations; or
| | - |  | --------------------

| | o |  | declare
bankruptcy.
| | - |  | -------------------

2.  Summary
of Significant Accounting Policies

Basis of
Presentation

The
consolidated  financial  statements  are presented on  the basis of accounting
principles  generally accepted in the  United  States  of  America.  All  professional
accounting  standards  that are  effective  as of March 31, 2006 have been  considered
in  preparing  the  consolidated  financial  statements.  The  preparation  of  financial
statements  in  conformity  with  generally  accepted  accounting  principles  requires
management  to  make  certain  estimates  and  assumptions  that  affect  reported
earnings,  financial  position and various disclosures.  The unaudited  consolidated
financial  statements  and  related  disclosures  have  been  prepared  with  the
presumption  that  users  of the  interim  financial  information  have  read  or  have
access  to  the  audited  financial  statements for the preceding  fiscal year.
Accordingly,  these  financial  statements  should  be read in  conjunction  with  the
audited  consolidated  financial  statements  and the  related  notes  thereto  included
in the  Company's  Annual  Report  on Form  10-K for the  fiscal  year  ended December
31, 2005.  Results for interim  periods are not  necessarily  indicative  of  results
for the full  year.  The  Company has  experienced  significant  quarterly  fluctuations
in operating  results and it expects those  fluctuations  will  continue.

Revenue
Recognition

Genta
recognizes  revenue from  product  sales when title  to  product  and  associated  risk
of loss has  passed  to the  customer and the Company is  reasonably  assured of
collecting  payment  for the sale.  All  revenue  from  product  sales are  recorded net
of  applicable  allowances  for returns,  rebates  and other  applicable  discounts and
allowances.  The Company  allows  return of its  product for up to twelve  months  after
product expiration.  In December 2004, a wholesaler  contacted  the Company to return a
significant  portion of its inventory  of Ganite®.  The Company  agreed to the return
of this product  and  recorded  a  provision  for  sales  returns,  as  well as  provided
for  potential  returns from other  wholesalers.  In  January  2005,  the  wholesaler
returned  $0.5  million  of  Ganite®.  At March 31, 2006, the Companys
remaining provision  for sales returns was $0.8 million.

In
April 2002, the Company  entered into a development and  commercialization  agreement (Collaborative
Agreement) with  Aventis.  On  November  8, 2004  Aventis  gave notice to Genta
that it was terminating its  Collaborative  Agreement with the  Company.  Under the terms
of the agreement,  Aventis continued  to  fund  ongoing  development  activities  for  a
six-month  period.  The Company  follows the provisions of the Securities  and Exchange
Commissions  Staff Accounting  Bulletin (SAB)  No. 104,  Revenue
Recognition  and Emerging Issues Task Force  (EITF) No. 00-21,  Accounting
for Revenue  Arrangements with  Multiple Deliverables.

7



---

In  accordance  with EITF No.  00-21 the Company  analyzes  its multiple  element
arrangements  to determine  whether the  elements can be separated and accounted  for
individually  as  separate units of accounting.  The Company  recognizes license
payments as revenue if the license has  stand-alone  value and  the fair  value of the
undelivered  items can be  determined.  If the license is  considered  to have
stand-alone  value but  the  fair  value on any of the  undelivered  items  cannot  be
determined,  the license  payments are  recognized  as revenue  over the period of
performance for such  undelivered  items or  services.  The  Companys  estimate  of
the  period  of  performance  involves  management  judgment.  Amounts received  for
milestones  are  recognized  upon  achievement  of  the  milestone,  as  long  as  the
milestone  is  deemed  to  be  substantive  and  the  Company  has  no  other
performance  obligations.

The
Company  determined  that,  due to the  nature of the  ongoing  development  work
related  to  its  Collaborative  Agreement with Aventis,  the end of the development
phase and  the  fair  value  of  the  undelivered  elements  were  not  determinable.
Accordingly,  the Company deferred  recognition  of  the  initial  licensing  fee  and
up-front  development  funding  received from Aventis and  recognized  these payments  on
a straight-line  basis over the original  estimated  useful  life of the related
first-to-expire  patent of 115 months. As  a result of the notice of  termination  of the
agreement  with  Aventis,  the Company  determined that the remaining  deferred  revenue
should be recognized  over the six-month  termination  notice period from November 2004
to May 2005.

Research and
Development

Research
and  development  costs are expensed as incurred,  including  raw  material  costs
required  to  manufacture  products for clinical  trials.  Reimbursements  for applicable
Genasense®-related  costs under the  Collaborative  Agreement,  which  terminated  in
May  2005,  have  been  recorded  as  a  reduction  to  expenses  in  the  Consolidated
Statements  of  Operations.

On
March  23,  2006,  the  Company  entered  into  an  exclusive,  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  milestones
during the course  of product development and royalties based upon sales.

Cash, Cash
Equivalents and Marketable Securities

The
carrying  amounts  of  cash,  cash  equivalents  and  marketable  securities  approximate
fair  value  due  to  the  short-term  nature  of  these  instruments.  Marketable
securities  primarily  consist of government  securities,  all  of  which  are
classified  as  available-for-sale  marketable  securities.  Management  determines  the
appropriate  classification  of  securities  at the  time of  purchase  and  reassesses
the classification at each reporting date.

Property and
Equipment

Property
and  equipment is stated at cost and  depreciated  using  the  straight-line  method
over the  estimated  useful  lives  of the  assets,  ranging  from  three  to  five
years.  Leasehold  improvements  incurred  in  the  renovation  of the  Companys
current  offices  are  being  amortized  over  the  remaining  life of the  leases.  The
Companys  policy  is to  evaluate  the  appropriateness  of the  carrying  value of
the  undepreciated  value of long-lived  assets. If such evaluation  were to  indicate an
impairment  of assets,  such  impairment  would  be  recognized  by  a  write-down  of
the  applicable  assets.

Inventories

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

8



---

Income Taxes

The
Company uses the liability  method of accounting  for  income taxes.  Deferred  income
taxes are determined  based on  the estimated  future tax effects of  differences
between the  financial  statement  and tax bases of assets and  liabilities  given the
provisions  of the  enacted  tax  laws.  Management  records  valuation  allowances
against  net  deferred  tax  assets,  if based  upon  the  available  evidence,  it is
more  likely  than not that some or all of the  deferred  tax assets  will not be
realized.

Stock Options

Effective
January 1,  2006,  Genta adopted the fair value  recognition  provisions  of
Statement of Financial  Accounting  Standards  No. 123  (revised  2004),
Share-Based  Payment,  (SFAS  123R),  using  the  modified  prospective
transition  method  and  therefore  has not  restated  results  for  prior  periods.
Under the new  standard,  all  share-based  payments  including  grants of employee
stock options are recognized in  the  Consolidated  Statement of Operations based on
their fair  values,  as pro-forma  disclosure is no longer an alternative.  The  amount
of  compensation  cost is  measured  based on the  grant-date  fair value of the equity
instrument  issued.  The  Company  utilizes  a  Black-Scholes  option-pricing  model  to
measure  the  fair  value  of  stock  options  granted  to  employees.  See  Note  8  to
our  Consolidated  Financial  Statements  for  a  further  discussion  on  stock-based
compensation.

3.
Marketable Securities

The
carrying  amounts  of  the  Companys  marketable  securities,  which  are
primarily  government  securities,  approximate  fair value due to the short-term  nature
of these  instruments.  The fair value of available-for-sale  marketable  securities is
as follows ($ thousands):

|                        |  |  | March 31, 
  2006 |        | December 31, 
  2005 |  
|----------------------- |  |  | ----------------- | ------ | -------------------- | -
|                        |  |  |                   |        |                      |  
|Cost                    |  |  | $                 | 25,931 |                      | $
|Gross unrealized gains  |  |  |                   | 5      |                      |  
|Gross unrealized losses |  |  |                   | (5     | )                    |  
|                        |  |  |                   |        |                      |  
|Fair value              |  |  | $                 | 25,931 |                      | $
|                        |  |  |                   |        |                      |  

During
the three months ended March 31, 2006,  the Company  realized  $92  thousand on realized
gains on the  maturity of  marketable securities.

The
estimated fair value of each  marketable  security has  been  compared  with its cost,
and  therefore,  an unrealized  gain  of $60  thousand  has  been  recognized  in
Accumulated  other comprehensive income at December 31, 2005.

9



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4. Inventory

Inventory
is stated  at the lower of cost or market  with  cost being  determined  using the
first-in,  first-out  (FIFO)  method. Inventory consisted of the following ($ thousands):

|                |  |  | March 31, 
  2006 |     | December 31, 
  2005 |  
|--------------- |  |  | ----------------- | --- | -------------------- | -
|                |  |  |                   |     |                      |  
|Raw materials   |  |  | $                 | 191 |                      | $
|Work in process |  |  |                   | --  |                      |  
|Finished goods  |  |  |                   | 189 |                      |  
|                |  |  |                   |     |                      |  
|                |  |  | $                 | 380 |                      | $
|                |  |  |                   |     |                      |  

On
May 10,  2005,  the  Company  announced  that Genta and  Aventis had signed an agreement
to finalize  the  termination  of their development and  commercialization  collaboration
for  Genasense®.  The termination  agreement provided for no future  financial
obligations  by either  party and Aventis  returned  its  current  inventory  of
Genasense® drug supply to Genta.  With this  returned drug supply,  the Company has
substantial  quantities  of  Genasense® which are  recorded  at zero cost.  Such
inventory  would be available for the  commercial  launch  of this product, should
Genasense® be approved.

5.  Property
and Equipment

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

|                                               |  |  |  | Estimated 
      Useful Lives |  | March 31, 
  2006 |        | December 31, 
  2005 |  
|---------------------------------------------- |  |  |  | ----------------------------- |  | ----------------- | ------ | -------------------- | -
|                                               |  |  |  |                               |  |                   |        |                      |  
|Computer equipment                             |  |  |  | 3                             |  | $                 | 2,880  |                      | $
|Software                                       |  |  |  | 3                             |  |                   | 3,349  |                      |  
|Furniture and fixtures                         |  |  |  | 5                             |  |                   | 936    |                      |  
|Leasehold improvements                         |  |  |  | Life of lease                 |  |                   | 410    |                      |  
|Equipment                                      |  |  |  | 5                             |  |                   | 182    |                      |  
|                                               |  |  |  |                               |  |                   |        |                      |  
|                                               |  |  |  |                               |  |                   | 7,757  |                      |  
|                                               |  |  |  |                               |  |                   |        |                      |  
|Less accumulated depreciation and amortization |  |  |  |                               |  |                   | (7,005 | )                    |  
|                                               |  |  |  |                               |  |                   |        |                      |  
|                                               |  |  |  |                               |  | $                 | 752    |                      | $
|                                               |  |  |  |                               |  |                   |        |                      |  

6.  Prepaid
Royalties

In
December  2000,  the Company  recorded  $1.3 million as  the fair value for its
commitment to issue 162,338  shares of  common stock to a major  university  as
consideration  for an  amendment  to  a  license  agreement  initially  executed  on
August 1, 1991 related to antisense  technology  licensed from  the  university.  The
amendment  provided  for a reduction in  the  royalty  percentage  rate to be  paid  to
the  university  based  on  the  volume  of  sales  of the  Companys  products
containing  the  antisense  technology  licensed  from  such  university.  These shares
were issued in the first  quarter of  2001.  The Company will  amortize the prepaid
royalties  upon  the  commercialization  of Genasense® through the term of the
arrangement,  which  expires  twelve  years  from  the date of  first commercial sale.

7.
Stockholders Equity

Common
Stock

In
March  2006,  the  Board  of  Directors  approved  an  amendment  to  increase  the
number of  shares of  authorized  common  stock to  250.0  million  shares  from  150.0
million  shares.  This  amendment  has been  submitted to the Companys
stockholders  for approval at the Companys  Annual Meeting of  Stockholders in June
2006.

10



---

In
March 2006,  the Company issued 19.0 million shares of  its  common  stock  at a price
of $2.15  per  share,  raising  approximately  $37.7  million,  net  of  estimated  fees
and  expenses.

In
September  2005,  the  Board of  Directors  adopted  a  Stockholder  Rights  Plan  and
declared  a  dividend  of  one  preferred  stock  purchase  right  (a  Right)
for  each  outstanding  share of common stock of the Company,  payable to  holders  of
record as of the close of  business  on  September  27, 2005.  Generally,  the rights
become  exercisable upon the  earlier of the close of  business  on the tenth  business
day  following  the first  public  announcement  that any person or  group  has  become
a  beneficial  owner of 15% or more of the  Companys  common  stock  and the  close
of  business  on the  tenth  business  day after the date of the  commencement  of a
tender  or  exchange  offer  by any  person  which  would,  if  consummated,  result  in
such  person  becoming  a  beneficial  owner  of 15% or  more of the  Companys
common  stock.  Each  Right shall be  exercisable to purchase,  for $25.00,  subject  to
adjustment,  one  one-hundredth of a newly registered share  of Series G  Participating
Cumulative  Preferred  Stock,  par  value $0.001 per share of the Company.

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

Series
A Preferred Stock

Each
share of  Series A  Preferred  Stock is  immediately  convertible  into shares of the
Companys  common stock,  at a  rate  determined  by  dividing  the  aggregate
liquidation  preference of the Series A Preferred  Stock by the  conversion  price.  The
conversion  price is  subject to  adjustment  for  antidilution.  As of March 31,  2006
and  December  31,  2005,  each share of Series A Preferred  Stock was  convertible  into
10.6853 and 9.8067  shares of common stock,  respectively.  At  March 31, 2006 and
December  31,  2005,  the Company had 9,700  shares of Series A  Convertible  Preferred
Stock  issued  and  outstanding.

Series
G Preferred Stock

The
Company  has  authorized  5.0  million  shares  of  preferred  stock  of  which  2.0
million  shares  has  been  designated  Series G Participating  Cumulative  Preferred.
At  March  31,  2006 the  Company  had no  issued  or  outstanding  shares of Series G
Participating Cumulative Preferred Stock.

Common
Stock Reserved

At
March 31, 2006,  the Company had 133.7  million  shares  of common stock  outstanding,
12.7 million  additional shares  reserved for the  conversion of  convertible  preferred
stock  and the exercise of  outstanding  options and warrants and 3.3  million
additional  shares of  common  stock  authorized  for  issuance  and  remaining  to be
granted  under the  Companys  stock option plans.

8.
Stock-Based Compensation

Effective
January  1,  2006,  the  Company  adopted  SFAS  123R,  which  requires  the  Company  to
measure  the cost of  employee  services  received in exchange for all equity awards
granted  based on the fair  value of the award as of the grant  date. SFAS 123R
supersedes  Statement of Financial  Accounting  Standards  No. 123,  Accounting for
Stock-Based  Compensation  (SFAS 123), and Accounting  Principles Board
Opinion No. 25,  Accounting  for Stock  Issued to  Employees  (APB  25).
The  Company  adopted  SFAS  123R  using the  modified  prospective  transition  method,
which  requires  the  Company  to  record  compensation  cost  related  to  unvested
stock  awards as of  December 31,  2005 by recognizing the  unamortized  grant date
fair  value  of these  awards  over  the  remaining  requisite  service  periods  of
those  awards,  with  no  change  in  historical  reported  earnings.  Awards  granted
after  December 31,  2005 are valued at fair value in accordance with  the
provisions  of  SFAS  123R  and  are  recognized  on  a  straight-line  basis  over the
requisite  service  periods of  each award.  The new  standard  also  requires  the
Company to  estimate  forfeiture rates for all unvested  awards,  which it  has done for
2006 based on its historical experience.

11



---

The
Company  estimates  the  fair  value  of each  option  award  on  the  date  of the
grant  using  the  Black-Scholes  option  valuation  model.  Expected  volatilities are
based on  the historical  volatility of the Companys  common stock over  a period
commensurate  with the options expected  term. The  expected  term  represents  the
period of time  that  options  granted are expected to be  outstanding  and is
calculated in  accordance  with  the  Securities  and  Exchange  Commission  (SEC)
guidance  provided  in  the  SECs  Staff  Accounting  Bulletin 107, (SAB 107),
using a simplified method.  The  risk-free  interest  rate  assumption  is
based upon  observed  interest  rates  appropriate  for  the  expected  term  of the
Companys stock options.  The following  table  summarizes the  weighted-average
assumptions used in the Black-Scholes  model  for  options  granted  during the first
three  months of 2006  and 2005.

|                         |  |  | Three Months Ended March 31, |     
|------------------------ |  |  | ---------------------------- | ----
|                         |  |  | 2006                         |     
|                         |  |  |                              |     
|Expected volatility      |  |  |                              | 98% 
|Expected dividends       |  |  |                              | --  
|Expected term (in years) |  |  |                              | 6.25
|Risk-free rate           |  |  |                              | 4.6%

Prior
to  2006,  the  Company  accounted  for  stock-based  compensation  in  accordance  with
APB 25 using the  intrinsic  value  method,  which did not require that  compensation
cost  be recognized for the Companys  stock  options,  provided the  option
exercise  price was not less than the  common  stocks  fair  market  value  on the
date of the  grant.  The  Company  provided  pro-forma  disclosure  amounts  in
accordance  with  SFAS  No.  148,  Accounting  for  Stock-Based  Compensation   Transition
and  Disclosure,  as  if  the  fair  value  method  defined  by SFAS No. 123 had been
applied to its  stock-based  compensation.  The  Companys  net  income  and net
income per  share for the three  months  ended  March 31,  2005 would have  been
reduced if  compensation  cost  related to stock  options  had been  recorded in the
financial  statements  based on fair  value at the grant dates.

The
following  table sets forth the  pro-forma net income  as if the fair value method had
been applied to all awards:

|($ thousands, except per share data)                             |  |  | Three months ended 
  March 31, 2005 |       
|---------------------------------------------------------------- |  |  | ------------------------------------ | ------
|                                                                 |  |  |                                      |       
|Net (loss)/income applicable to common shares, as reported       |  |  | $                                    | 14,025
|Add: Equity related employee compensation expense included in    |  |  |                                      |       
|reported net (loss)/income, net of related tax effects           |  |  |                                      | 11    
|Deduct: Total stock-based employee compensation expense          |  |  |                                      |       
|determined under fair values based method for all awards, net    |  |  |                                      |       
|of related tax effects                                           |  |  |                                      | (1,547
|                                                                 |  |  |                                      |       
|Pro forma net (loss)/income                                      |  |  | $                                    | 12,489
|                                                                 |  |  |                                      |       
|Net (loss)/income per share attributable to common shareholders: |  | 
|As reported: Basic and diluted                                   |  |  | $                                    | 0.15  
|Pro forma: Basic and diluted                                     |  |  | $                                    | 0.13  

12



---

As a result  of  adopting  SFAS  123R,  the  impact to the  Consolidated  Statement  of
Operations  was  to  increase  expenses  and net loss by  approximately  $0.6 million for
the  three months  ended March 31,  2006.  The impact on both basic  and  diluted
earnings  per share for the three  months  ended  March  31,  2006  was  $0.01  per
share.  The  estimated  share-based  compensation  expense,  related  to  all  of  the
Companys  share-based  awards,  recognized  for  the  three  months ended March 31,
2006 was comprised as follows:

|($ thousands, except per share data)                    |  |  | Three Months Ended 
  March 31, 2006 |     
|------------------------------------------------------- |  |  | ------------------------------------ | ----
|                                                        |  |  |                                      |     
|Research and development expenses                       |  |  | $                                    | 207 
|Selling, general and administrative expenses            |  |  |                                      | 390 
|                                                        |  |  |                                      |     
|Total share-based compensation expense                  |  |  | $                                    | 597 
|                                                        |  |  |                                      |     
|Net share-based compensation expense, per common share: |  | 
|Basic                                                   |  |  | $                                    | 0.01
|Diluted                                                 |  |  | $                                    | 0.01

For
the  three  months  ended  March  31,  2005,  selling,  general and  administrative
expenses  include $11 thousand of  non-cash  compensation  expense  related  to  certain
stock  options issued in 1999 and 2000.

As
of March 31,  2006,  the  Company  has two  share-based  compensation plans, which are
described below.

1998
Stock Incentive Plan

Pursuant
to the  Companys  1998 Stock  Incentive  Plan as  amended  (the 1998  Plan),
18.5  million  shares  have been  provided  for  the  grant  of  stock  options  to
employees,  directors,  consultants and advisors of the Company.  In March  2006,  the
Board  of  Directors  approved  an  amendment  to  increase  the  total  number  of
shares  of  common  stock  authorized  for  issuance  under the 1998 Plan to 20.5 million
shares  from 18.5  million  shares.  This  amendment  has been  submitted to the  Companys
stockholders  for approval at the  Companys  Annual  Meeting  of  Stockholders  in
June  2006.  Option  awards must be granted  with an exercise  price at not  less  than
the fair  market  price  of the  Companys  common  stock  on  the  date  of  the
grant;  those  option  awards  generally  vest over a  four-year  period in equal
increments  of 25%,  beginning  on the  first  anniversary  of the date of  the grant.
All options granted have  contractual  terms of ten  years from the date of the grant.

The
following  table  summarizes the option activity under  the 1998  Plan as of March 31,
2006 and  changes  during  the  quarter then ended:

|Stock Options                  |  |  | Number of 
  Shares 
  (in thousands) |        | Weighted 
  Average 
  Exercise 
  Price |   |      | Weighted 
  Average 
  Remaining 
  Contractual 
  Term 
  (in years) |  | Aggregate 
  Intrinsic Value 
  (in thousands) | 
|------------------------------ |  |  | ------------------------------------- | ------ | ---------------------------------------- | - | ---- | --------------------------------------------------------------------- |  | ---------------------------------------------- | 
|                               |  |  |                                       |        |                                          |   |      |                                                                       |  |                                                | 
|Outstanding at January 1, 2006 |  |  |                                       | 9,418  |                                          | $ | 5.04 |                                                                       |  |                                                | 
|Granted                        |  |  |                                       | 1,851  |                                          | $ | 2.10 |                                                                       |  |                                                | 
|Exercised                      |  |  |                                       | --     |                                          |   | --   |                                                                       |  |                                                | 
|Forfeited or expired           |  |  |                                       | 31     |                                          | $ | 8.36 |                                                                       |  |                                                | 
|                               |  |  |                                       |        |                                          |   |      |                                                                       |  |                                                | 
|Outstanding at March 31, 2006  |  |  |                                       | 11,238 |                                          | $ | 4.55 |                                                                       |  | 6.1                                            | 
|Exercisable at March 31, 2006  |  |  |                                       | 6,727  |                                          | $ | 4.29 |                                                                       |  | 4.4                                            | 

13



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The  weighted-average  grant-date  fair  value of  options  granted  during the  quarter
ended  March 31, 2006 was $1.69.  The aggregate  intrinsic  value in the table above
represents  the total  pretax  intrinsic  value  (the  difference  between  Gentas
closing  stock  price on the last  trading day of the  first  quarter of 2006 and the
exercise  price,  multiplied by  the  number of in-the  money  options)  that  would
have been  received  by  the  option  holders  had  all  option  holders  exercised
their  options  on March 31,  2006.  The  amount of  aggregate  intrinsic  value  will
change  based  on the  fair  market value of the Companys stock.

As
of  March  31,  2006,  there  was  approximately  $4.1  million of total  unrecognized
compensation  cost  related to  non-vested  share-based  compensation  granted  under the
1998  Plan,  which  is  expected  to  be  recognized  over  a  weighted-average period of
1.7 years.

1998
Non-Employee Directors Plan

Pursuant
to the  Companys  1998  Non-Employee  Directors  Plan as amended (the  Directors Plan),
3.8 million shares  have  been  provided  for the  grant  of  non-qualified  stock
options  to the  Companys  non-employee  members of the Board  of  Directors.
Option awards must be granted with an exercise  price  at  not  less  than  the  fair
market  price  of  the  Companys  common  stock  on the  date of the  grant.
Initial  option  grants  vest  over  a  three-year  period  in  equal  increments,
beginning  on the first  anniversary  of the date  of the grant.  Subsequent  grants,
generally vest on the date  of the grant.  All options granted have  contractual  terms
of  ten years from the date of the grant.

The
fair value of each option  award is  estimated  on the  date using the same valuation
model used for options  granted  under the 1998 Plan.

The
following  table  summarizes the option activity under  the  Directors Plan as of
March 31, 2006 and changes  during  the quarter then ended:

|Stock Options                  |  |  | Number of 
  Shares 
  (in thousands) |       | Weighted 
  Average 
  Exercise 
  Price |   |      | Weighted 
  Average 
  Remaining 
  Contractual 
  Term 
  (in years) |  | Aggregate 
  Intrinsic Value 
  (in thousands) | 
|------------------------------ |  |  | ------------------------------------- | ----- | ---------------------------------------- | - | ---- | --------------------------------------------------------------------- |  | ---------------------------------------------- | 
|                               |  |  |                                       |       |                                          |   |      |                                                                       |  |                                                | 
|Outstanding at January 1, 2006 |  |  |                                       | 1,158 |                                          | $ | 6.26 |                                                                       |  |                                                | 
|Granted                        |  |  |                                       | --    |                                          |   | --   |                                                                       |  |                                                | 
|Exercised                      |  |  |                                       | 100   |                                          | $ | 0.98 |                                                                       |  |                                                | 
|Forfeited or expired           |  |  |                                       | --    |                                          |   | --   |                                                                       |  |                                                | 
|                               |  |  |                                       |       |                                          |   |      |                                                                       |  |                                                | 
|Outstanding at March 31, 2006  |  |  |                                       | 1,058 |                                          | $ | 6.76 |                                                                       |  | 5.9                                            | 
|Exercisable at March 31, 2006  |  |  |                                       | 1,010 |                                          | $ | 7.02 |                                                                       |  | 5.7                                            | 

The
aggregate  intrinsic  value  in  the  table  above  represents the total pretax
intrinsic  value (the  difference  between  Gentas  closing  stock price on the
last trading day  of  the  first  quarter  of  2006  and  the  exercise  price,
multiplied  by the number of in-the money  options) that would  have  been  received  by
the  option  holders  had all  option  holders  exercised  their  options  on  March  31,
2006.  The  amount of aggregate  intrinsic  value will change based on the  fair  market
value  of the  Companys  stock.  The  intrinsic  value of stock  options  exercised
during  the  three  months  ended March 31, 2006 was $.2 million.

14



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9.
Comprehensive Income

An
analysis of comprehensive income is presented below:

|                                                        |  |  | Three Months Ended 
  March 31, |       
|------------------------------------------------------- |  |  | ------------------------------- | ------
|                                                        |  |  |                                 |       
|($ in thousands)                                        |  |  | 2006                            |       
|                                                        |  |  |                                 |       
|Net (loss)/income                                       |  |  | $                               | (9,895
|Change in market value on available-for-sale marketable |  | 
|Securities                                              |  |  |                                 | --    
|                                                        |  |  |                                 |       
|Total comprehensive (loss)/income                       |  |  | $                               | (9,895
|                                                        |  |  |                                 |       

10.  Net
(Loss)/Income per Share

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

|                                                           |  |  | Three Months Ended
  March 31, |        
|---------------------------------------------------------- |  |  | ------------------------------ | -------
|                                                           |  |  |                                |        
|($ in thousands, except share and per share amounts)       |  |  | 2006                           |        
|                                                           |  |  |                                |        
|Numerator:                                                 |  |  |                                |        
|Net (loss)/income                                          |  |  | $                              | (9,895 
|                                                           |  |  |                                |        
|Denominator:                                               |  |  |                                |        
|Weighted average shares outstanding:                       |  |  |                                |        
|Basic                                                      |  |  |                                | 118,186
|Effect of dilutive stock options, warrants and convertible |  |  |                                |        
|preferred stock                                            |  |  |                                | --     
|                                                           |  |  |                                |        
|Diluted                                                    |  |  |                                | 118,186
|                                                           |  |  |                                |        
|                                                           |  |  |                                |        
|Net (loss)/income per share:                               |  |  |                                |        
|Basic                                                      |  |  | $                              | (0.08  
|Diluted                                                    |  |  | $                              | (0.08  

For
the three months  ended March 31, 2006 and 2005,  12.3  million and 11.3 million,
respectively,  of equivalent common  shares  issuable  under the Companys  stock
incentive  plans  were excluded from the  computation  of diluted  (loss)/income  per
share  because  the effect  would have been  antidilutive.  Also,  for the three  months
ended  March 31,  2006 and 2005,  0.4  million  and 0.2  million,  respectively,  of
equivalent  common  shares  obtainable  upon  conversion  of the Companys  Series
A  preferred  stock  and  exercise  of  warrants  were  excluded from the  computation
of diluted  (loss)/income  per  share because the effect would have been antidilutive.

11.
Supplemental Disclosure of Cash Flows Information  and Non-cash Investing and Financing
Activities

No
interest  or  income  taxes  were  paid for the  three  months ended March 31, 2006 and
2005, respectively.

15



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12.
Commitments and Contingencies

Litigation
and Potential Claims

In
2004,  numerous  complaints  were  filed in the  United  States  District  Court for the
District of New Jersey against  Genta  and  certain  of its  principal  officers  on
behalf of  purported  classes  of  the  Companys  shareholders  who  purchased its
securities  during  several class  periods.  The  complaints  have been  consolidated
into a single  action and  allege  that  the  Company  and  certain  of  its  principal
officers  violated  the  federal  securities  laws by  issuing  materially  false  and
misleading  statements  regarding  Genasense® for the  treatment of malignant
melanoma that had  the effect of  artificially  inflating the market price of our
securities.  The  shareholder  class  action  complaint in the  various  actions  seeks
monetary  damages  in an  unspecified  amount  and  recovery  of  plaintiffs costs
and  attorneys fees.  On September  30, 2005,  the court  granted in part and
denied  in  part  the  Companys  motion  to  dismiss  the  plaintiffs complaint.
The court dismissed plaintiffs claim  that  the  defendants  engaged  in a  scheme
or  artifice  to  defraud  plaintiffs,  but  allowed  plaintiffs claims  to
proceed  with  respect to their  allegations  that  defendants  issued  false  and
misleading  public  statements  about  Genasense®.  As of March 2006,  nonbinding
mediation  has not  produced  a  settlement  and  the  case  is  proceeding  to
discovery.

In
addition,  two separate shareholder  derivative actions  have been filed  against the
directors  and certain  officers  of Genta in New Jersey State and Federal  courts.  The
Federal  shareholder  derivative  action  was  consolidated  with  the  securities
action.  The Federal  derivative  plaintiffs  have  not  yet  filed a  consolidated
amended  complaint  asserting  their  claims.  Instead,  the Federal  shareholder
derivative  action has been stayed,  pending  developments  in the Federal  securities
action.

Based
on facts  substantially  similar  to those  asserted  in  the  shareholder  class
actions,  the  State  derivative  plaintiffs  claim  that  defendants  have  breached
their  fiduciary  duties  to the  shareholders  and  committed  other  violations  of New
Jersey  law.  On  February  9,  2006,  the  Superior  Court  of  New  Jersey  dismissed
the  plaintiffs derivative  complaint  in the New  Jersey  State case
based in  part  on  plaintiffs failure  to  make  a  pre-suit  demand  on Genta's
Board  of  Directors  and  in  part  based  on  plaintiffs failure  to state a
cause of  action.  Plaintiffs  served a motion for reconsideration on February 27, 2006.

The
Company believes these litigations are without merit  and will continue to vigorously
defend against these suits.

16



---

Item 2.
        Managements Discussion and Analysis of Financial  Condition and Results of
Operations

Certain
Factors  Affecting  Forward-Looking  Statements  Safe  Harbor Statement

The
statements  contained in this Quarterly Report on Form  10-Q that are not  historical are
forward-looking  statements  within the  meaning of Section  27A of the  Securities  Act
of  1933, as amended,  and Section 21E of the Securities  Exchange  Act of 1934, as
amended,  including  statements  regarding the  expectations,  beliefs,  intentions  or
strategies  regarding  the  future.  The  Company  intends  that all  forward-looking
statements  be subject to the safe  harbor  provisions  of the  Private  Securities
Litigation  Reform  Act  of  1995.  These  forward-looking  statements  reflect the
Companys views as of  the date  they are made with  respect  to  future  events
and  financial  performance,  but are  subject  to many  risks  and  uncertainties,
which  could  cause  actual  results to differ  materially  from any future  results
expressed  or implied by  such forward-looking  statements.  Forward-looking  statements
include, without limitation, statements about:

|o |  | the
Companys financial projections;
|- |  | ------------------------------------

|o |  | the
Companys  projected cash flow  requirements  and  estimated timing of sufficient
cash flow;
|- |  | ------------------------------------------------------------------------------------------------

|o |  | the
Companys  current  and  future  license  agreements,  collaboration  agreements,
and  other  strategic alliances;
|- |  | ----------------------------------------------------------------------------------------------------------------------

|o |  | the
Companys  ability  to  obtain  necessary  regulatory  approval for Genasense® (oblimersen
sodium)  Injection  from  the U.S.  Food  and Drug  Administration  (FDA) or
European Medicines Agency (EMEA);
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | the
safety and efficacy of the Companys products;
|- |  | --------------------------------------------------

|o |  | the
commencement and completion of clinical trials;
|- |  | ---------------------------------------------------

|o |  | the
Companys  ability to develop,  manufacture  and  sell its products;
|- |  | ------------------------------------------------------------------------

|o |  | the
adequacy of the Companys  capital  resources and  the Companys ability to
obtain  sufficient  financing to  maintain the Companys planned operations;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | the
adequacy  of  the  Companys  patents  and  proprietary rights;
|- |  | -------------------------------------------------------------------

|o |  | the
impact  of  litigation  that  has  been  brought  against the Company and its officers
and directors;
|- |  | ---------------------------------------------------------------------------------------------------------

|o |  | the
other risks  described  under Risk Factors in the  Companys  Annual Report on Form
10-K for the fiscal year  ended December 31, 2005 and in this Form 10-Q.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Company  does  not  undertake  to  update  any  forward-looking statements.

We
make available  free of charge on our Internet  website  (http://www.genta.com)  our
Annual  Report  on  Form  10-K,  Quarterly  Reports on Form 10-Q,  current  reports on
Form 8-K  and  amendments to these  reports filed or furnished  pursuant  to Section
13(a) or 15(d) of the  Securities  Exchange Act of  1934  as  soon  as  reasonably
practicable  after  we  electronically  file such  material  with,  or  furnish it to,
the  Securities  and Exchange  Commission.  The content on the  Companys  website
is  available  for  informational  purposes  only.  It should not be relied upon for
investment  purposes,  nor is it incorporated by reference into this Form 10-Q.

Overview

Genta
Incorporated is a biopharmaceutical  company engaged  in  pharmaceutical  research and
development.  The Company is  dedicated  to  the  identification,  development  and
commercialization  of novel drugs for the  treatment of cancer  and related  diseases.
The Company has had  recurring  annual  operating  losses since its  inception  and we
expect to incur  substantial  operating  losses due to  continued  requirements  for
ongoing and planned  research and development  activities,  pre-clinical and clinical
testing,  manufacturing  activities,  regulatory  activities  and  establishment  of  a
sales  and  marketing  organization.  From  our  inception  to  March  31,  2006,  we
have  incurred  a  cumulative  net  loss  of  $368.1  million.  Management  expects  that
such losses will  continue  at  least  until  our  lead  product,  Genasense® receives
approval  from  the  FDA  for  commercial  sale in one or more  indications.  Achievement
of  profitability  is  dependent on  the  timing of  Genasense® regulatory  approvals
in the U.S.  and  outside  the  U.S.  We  have  experienced  significant  quarterly
fluctuations  in  operating  results  and we expect  that  these  fluctuations  in
revenues,  expenses  and losses  will continue.

17



---

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

The
Company  has  $47.2  million  of  cash  and  cash  equivalents  and  marketable
securities  on hand at March 31,  2006.  On March  13,  2006,  the  Company  sold  19.0
million  shares  of our  common  stock at a price of  $2.15  per  share  raising
approximately  $37.7  million,  net of estimated fees  and  expenses.  During the first
three  months of 2006,  cash  used in operating activities was $11.5 million.

Management
plans to  increase  its  spending  from  April  through  September  to an  average  rate
of  approximately  $5  million per month.  Management  anticipates  that it will have
sufficient  cash  funds to  maintain  its  present  operations  into the first quarter of
2007.

If
the  NDA  for  Genasense® is  approved,  management  anticipates  that  it  will
require  additional  cash  if  it  undertakes  to launch the  product  in the U.S.  in
the fourth  quarter  of  2006  in  order  to  maximize  the  commercial  opportunity.  We
have  commenced  discussions  with  several  companies  regarding  partnerships for the
further development  and  global  commercialization  of  Genasense®.  Those
discussions  are currently  ongoing.  Additional  alternatives  available  to  the
Company  to  subsequently  sustain  its  operations  include  financing  arrangements
with  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  or other sources of funding
will be  available on favorable terms, if at all.

We
have  completed  and  announced  the results of Phase 3  trials of Genasense® in
combination  with  chemotherapy in the  treatment  of  malignant  melanoma,  chronic
lymphocytic  leukemia (CLL) and multiple myeloma.

In
late  2003,  we filed our  first  New Drug  Application  (NDA) with the FDA
for  Genasense® as a treatment  combined  with  chemotherapy  for  patients  with
advanced  malignant  melanoma.  In May  2004,  the  application  failed  to  gain a
majority  vote for  marketing  approval  from  FDAs  Oncology  Drug  Advisory
Committee  (ODAC).  As  a  consequence,  we  withdrew  the NDA,  which
allows the  Company to  potentially  resubmit the  application.  However,  we  continued
long-term  follow-up  of  patients  who  were  enrolled  in the  advanced  malignant
melanoma  trial.  On May  16,  2005,  we  announced  updated data from this trial.  The
updated  data  continued to  show statistical  significance for overall response,
complete  response  and  progression  free  survival.  Statistical  significance  was
also  achieved  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  high  concordance.  Overall  survival by
intent-to-treat  analysis  had  improved  from  the  time  of  the  FDA  filing  but  did
not  yield  a  statistically  significant  improvement  at  a  significance  level
(i.e.,  P less than  0.05).  The P value at the time of the FDA
 filing  was 0.18,  whereas  the
P value  with the most  recent  analysis  was  0.077.  Our  analysis  also  identified  a
statistically  significant  treatment  interaction  effect for  blood  levels  of  an
enzyme  known  as  LDH,  which  was  a  prospectively  specified  stratification  factor.
When  this  effect  was  analyzed  by  treatment  arm,  survival  (and all  other
efficacy  endpoints)  was  significantly  superior  for  patients who had  received
Genasense® (P=0.018)  who did not  have an elevation in LDH at study entry (n=508).

On
January  3, 2006,  the  Company  announced  that it had  completed a  Marketing
Authorization  Application  (MAA) to  the EMEA,  which seeks  approval  for
use of  Genasense® plus  dacarbazine  for  the  treatment  of  patients  with
advanced  melanoma who have not  previously  received  chemotherapy.  On  February 1,
2006,  the Company  announced that it had received  notice  from the EMEA  that  its MAA
had  been  validated  for  review  by the  Agency,  which  signals  the  start of  formal
scientific  assessment.  As  part  of  this  process,  we  anticipate  receiving
scientific  questions from EMEA in June  2006 and then expect to make a formal response
thereafter.

18



---

In
December  2004,  we  presented  results  from  its  randomized  trial  which  was
conducted  in  patients  with  relapsed or  refractory  CLL. In this trial,  241 patients
who  had  relapsed  or had not  responded  to  prior  therapy  were  treated  with
standard  chemotherapy  using  fludarabine  and  cyclophosphamide  (Flu/Cy).
After  stratifying  patients  using  conventional  criteria,  they were randomly assigned
to  receive  Genasense® or  no  additional  treatment.  Initial  results showed that
the trial  achieved its primary  endpoint:  the  proportion  of  patients  who  achieved
a  complete  or  nodular  partial  response  (CR/nPR)  was  significantly
improved  with  the  addition  of  Genasense® to  Flu/Cy  chemotherapy  (17% vs. 7%;
P=0.025).  The  response  required  independent  confirmation  by an  external  clinical
reviewer  who was  blinded  to  treatment  assignment  and who  reviewed  clinical,
laboratory  and  radiologic  data.  A  second  independent  reviewer  evaluated  bone
marrow  biopsies.  Agreement  between the  clinical  and bone marrow  reviews was
required in order to determine response in this study.

Extended
patient  follow-up  in the CLL trial also showed  that the  duration of CR/nPR was
significantly  superior  for  patients  treated with  Genasense® plus  chemotherapy.
As of  June  2005,  six of the  eight  patients  (75%)  who  achieved  CR/nPR with
chemotherapy  alone have  relapsed  compared with  five of  twenty  patients  (25%) in
the  Genasense® treatment  group.  The  median  duration  of CR/nPR  was 22 months in
the  chemotherapy-alone  group;  the median had not been reached in  the  Genasense® group
(P=0.03).  All CR/nPR  responses  were  durable (i.e.,  exceeding six months
duration).  Additional  analysis  showed  that  patients  who  achieved  CR/nPR  also
experienced  substantial  clinical  benefit,  especially  with  respect to improvement of
disease-related  symptoms.  Several  secondary  endpoints  were not  improved  by the
addition  of  Genasense®.  For  example,  no  difference  was  observed  in  overall
response rate (i.e.,  the  percentage of patients who  achieved  CR/nPR  plus  partial
response  (PR),  or  in  time-to-disease  progression.  Overall  survival
will  be  formally  evaluated  in  mid-2006  after  all  patients  have  completed  a
minimum  of  two  years  of  follow-up.  Adverse  events  (irrespective  of  relation  to
study  drugs)  during  treatment or within 30 days from last dose of  treatment  that
resulted  in death  occurred  in nine  patients  treated  with  Genasense® plus
chemotherapy  compared  with  five  patients  treated with  chemotherapy  alone.  The
percentage of patients  who  experienced  serious  adverse events was increased in the
Genasense® arm;  however,  the  percentages  of patients  who  discontinued
treatment  due to adverse  events  were equal in  the treatment  arms. The incidence of
certain  serious adverse  reactions,  including  but not  limited to  nausea,  fever and
catheter-related  complications,  was  increased  in  patients  treated with Genasense®.

On
December 28, 2005, the Company completed  submission of  an NDA to the FDA  that  seeks
accelerated  approval  for the  use  of  Genasense® in  combination  with
fludarabine  plus  cyclophosphamide  for the  treatment of patients with relapsed  or
refractory CLL who have  previously  received  fludarabine.  Genasense® had received
Fast Track  designation by the FDA in  CLL,  meaning that the indication  represents an
unmet medical  need.  Genasense® has been granted  designation  as an Orphan  Drug by
the FDA.  On  March 1,  2006,  the  Company  announced  that the NDA had been  accepted
for review by the FDA and set  a  target  Prescription  Drug  User Fee Act  (PDUFA)
action  date of October  28,  2006.  However,  acceptance  of this NDA  does  not
necessarily  lead to FDA  approval.  Following  its  review  of  all  the  Companys
information  concerning  Genasense® the FDA may refuse to approve  altogether,  or
the  Agency may ask for more data to be  obtained  before  approval  can be
reconsidered.  Either  of these two  decisions  by the  FDA would  have a  material
adverse  effect on our  business.  One of the requirements  for Accelerated  Approval is
that the  Company  will be  required  to conduct a  confirmatory  trial.  The Company has
formulated  a design for such a trial and has  submitted  a  proposal  to the FDA  for
review  as a  Special  Protocol  Assessment  (SPA).  The  submitted  proposal
incorporated  initial  comments  received from the FDA.  Final  comments  on the SPA
request  are  expected  during the first  half of 2006.  Formal  initiation  of the
trial  will  depend  upon  resolution  of trial design  issues with the FDA,  among
other factors.  Although Fast Track  designation,  Orphan Drug  designation  and
Accelerated  Approval  provisions  are  beneficial,  we  cannot  assure  you  that  the
NDA  will  be  approved.  In  particular,  the FDA may not be satisfied  that
achievement  of the  primary  endpoint  used in the  Company's  recent  clinical  trial
being  an  increased  proportion  of  CR/nPRs  compared  to  patients  treated  with
standard  chemotherapy is sufficient basis for approval.

19



---

In
November  2004,  the  Company  reported  that  its  randomized  Phase 3 clinical  trial
of  Genasense® in patients  with multiple myeloma did not meet its primary  endpoint.
The  trial had been  designed to evaluate  whether the  addition of  Genasense® to
standard  therapy with  high-dose  dexamethasone  could  increase  the  time  to
development  of  progressive  disease in patients  who  previously  had  received
extensive  therapy.  Based on the  results of the Phase 3 trial,  we have  no plans to
submit an NDA in this  indication  at the  current  time.  We have not yet  determined
what  additional  clinical  trials,  if any, may be  undertaken  in patients with
multiple  myeloma.

In
addition,  we are conducting (under our own sponsorship  or  in  conjunction  with
various  cooperative  groups)  randomized  trials in  non-small  cell lung cancer  (NSCLC),
small  cell  lung  cancer  (SCLC),  acute  myeloid  leukemia  (AML)
and hormone  refractory  prostate cancer (HRPC).  We  are  also  conducting
a  number  of  non-randomized  clinical  trials  in  patients  with  various  types of
cancer,  either  under  our  own  sponsorship  or  in  collaboration  with  the  National
Cancer Institute (NCI).

On
March 23, 2006, the Company  entered into an exclusive,  worldwide  licensing  agreement
with  Emisphere  Technologies,  Inc. to develop an oral  formulation  of a
gallium-containing  compound.  Ganite® (gallium nitrate  injection),  Gentas
only  commercialized  product,  is  derived  from  this  class  of  compounds.  Under the
terms of the new agreement,  we will pay  Emisphere  up to $24  million  only  upon the
achievement  of  certain  milestones  during the course of product  development  and
royalties  based upon sales.  Emisphere  will utilize its  proprietary  oral delivery
technology,  eligen®,  to supply a  finished  oral  dosage  form  to  Genta.  We
will  reimburse  Emisphere  for time and expenses,  as incurred,  to create the  oral
dosage  formulation.  We  will  be  responsible  for  toxicology,  clinical  development,
regulatory  submissions,  and  worldwide  commercialization.  The agreement is in effect
until  the  later  of  (a)  receipt  of  initial  regulatory  approval  or  (b)
expiration  of  all  royalty  and  payment  obligations.

In
April  2002,  we  entered  into a series of  agreements  with Aventis  regarding the
development and  commercialization  of  Genasense®.  On  November 8, 2004,  the
Company  received  from Aventis notice of  termination of the agreements  between  Genta
and  Aventis.  On May 10,  2005,  the Company  announced  that Genta and  Aventis  had
signed an  agreement  to finalize  the  termination of their  development  and
commercialization  collaboration  for  Genasense®.  Among other  provisions,  the
Standstill  and  Voting  Agreement  and  Registration  Rights  Agreement  that  were
established  pursuant  to  the  Aventis  investment  in Genta common stock in 2002 were
not  terminated  at that time.

Results of
Operations  for the Three  Months  Ended March 31,  2006 and 2005

|                                    |  |  | Summary Operating Results 
      For the three months ended March 31, |       
|----------------------------------- |  |  | --------------------------------------------------------------------- | ------
|                                    |  |  |                                                                       |       
|                                    |  |  | Increase (Decrease)                                                   |       
|($ in thousands)                    |  |  | 2006                                                                  |       
|                                    |  |  |                                                                       |       
|Revenues:                           |  |  |                                                                       |       
|License fees and royalties          |  |  | $                                                                     | -     
|Development funding                 |  |  |                                                                       | --    
|Product sales - net                 |  |  |                                                                       | 67    
|                                    |  |  |                                                                       |       
|Total revenues                      |  |  |                                                                       | 67    
|                                    |  |  |                                                                       |       
|Cost of goods sold                  |  |  |                                                                       | 16    
|                                    |  |  |                                                                       |       
|Operating expenses:                 |  |  |                                                                       |       
|Research and development            |  |  |                                                                       | 4,750 
|Selling, general and administrative |  |  |                                                                       | 5,456 
|                                    |  |  |                                                                       |       
|Total operating expenses - gross    |  |  |                                                                       | 10,206
|Less: Aventis reimbursement         |  |  |                                                                       | --    
|                                    |  |  |                                                                       |       
|Total operating expenses - net      |  |  |                                                                       | 10,206
|                                    |  |  |                                                                       |       
|Other income                        |  |  |                                                                       | 260   
|                                    |  |  |                                                                       |       
|Net (loss)/income                   |  |  |                                                                       | (9,895
|                                    |  |  |                                                                       |       

20



---

Total revenues

Total
revenues  were $0.1  million  for the three  months  ended  March 31,  2006  compared
with $18.5  million  for the  three  months  ended  March  31,  2005.  License  fees  and
development  funding  revenues of $18.4  million for the three  months  ended  March  31,
2005  were  generated  by  the  recognition  of the initial  $10.0  million  licensing
fee and  $40.0  million  development  funding  received from Aventis in  2002 under the
Collaborative  Agreement.  On November 8, 2004,  Aventis  gave  six-months  notice  to
Genta  that  it  was  terminating  its  Collaborative  Agreement  with  the  Company
regarding  the  development  and  commercialization  of  Genasense®.  We had
previously  determined  that,  due to the  nature  of  the  ongoing  development  work
related  to  the  Collaborative  Agreement,  the  end of the  development  phase  and
the  fair-value  of the  undelivered  elements  were  not  determinable.  Accordingly,
we  deferred  recognition  of the  initial  licensing  fee  and  up-front  development
funding  received  from  Aventis  and  recognized  these  payments on a  straight-line
basis over the original  estimated  useful life  of the  related  first-to-expire  patent
of 115  months.  As a  result  of the  notice  of  termination  of the  Collaborative
Agreement,  we determined that the remaining  deferred revenue  should  be  recognized
over  the  termination  period.  On  November  9,  2004,  we  began  to  recognize  the
remaining  deferred  revenue  over the  six-month  period,  ended  May 8,  2005.

Product
sales-net  are  generated  from sales of Ganite®,  the  Companys  commercial
product  for  the  treatment  of  cancer-related  hypercalcemia.  Product  sales-net  for
the  three months  ended March 31, 2006 were $67 thousand  compared  to $76 thousand in
the prior-year period.

Research and
development expenses

Research
and  development  expenses  before  reimbursement  were $4.8  million for the three
months  ended March 31, 2006  compared  with $3.9  million for the three  months ended
March  31,  2005.  Expenses in 2006 include the  recognition  of $0.2  million of stock
option  expense,  resulting from the adoption  of  SFAS  123R.  In  addition,  during
2006,  we  increased  spending on manufacturing,  including  expenses to prepare for  the
production of  Genasense®.  During the three months ended  March  31,  2006,
approximately  $4.3  million  or  93%  of  research  and  development  expenses  were
incurred  on  the  Genasense® project.

Due
to the significant  risks and  uncertainties  inherent  in  the  clinical  development
and  regulatory  approval  processes,  the  nature,  timing  and  costs  of  the  efforts
necessary to complete  projects in development  are subject to  wide  variability.
Results  from  clinical  trials may not be  favorable.  Data from  clinical  trials are
subject to varying  interpretation  and  may  be  deemed  insufficient  by  the
regulatory  bodies  that  review  applications  for  marketing  approvals.  As  such,
clinical  development  and  regulatory  programs  are  subject  to  risks  and  changes
that  may  significantly impact cost projections and timelines.

Selling,
general and administrative expenses

Selling,
general and  administrative  expenses  were $5.5  million for the three  months  ended
March 31, 2006  compared  with $4.0  million for the three  months ended March 31, 2005.
Expenses in 2006  include the  recognition  of $0.4 million of  stock  option  expense,
resulting  from the  adoption of SFAS  123R.  In  addition,  during  2006,  we  increased
sales  and  marketing  expenses  in  preparation  for  the  anticipated  product launch
of Genasense®.

Aventis
reimbursement

On
May 10,  2005,  the Company  announced  that Genta and  Aventis had finalized a
termination  agreement,  providing for  no  future  financial  obligations  by  either
party.  Consequently,  none of the research and  development  expenses  incurred by us
during the  three-month  period ended March 31,  2006 were reimbursable.

21



---

Other income

Net
other  income  of $0.3  million  for the three  months  ended March 31, 2006  increased
from net other income of $0.1  million  for  the  three  months  ended  March  31,  2005
as a  result  of  realized  gains  on  the  maturity  of  marketable  securities  in the
first  quarter  of 2006 and lower  interest  expense, due to the Company having no debt
since May 2005.

Net
(loss)/income

We
recorded  a net loss of $9.9  million,  or  $0.08  per  share,  for the three months
ended March 31,  2006,  compared  with net  income of $14.0  million,  or $0.15 per
share,  for  the  three  months  ended  March 31,  2005.  The  decrease  is  primarily
due  to  the  fact  that  the  prior-year  period  included  revenues  of  $18.4  million
from  the  continued  recognition  of the  license fee and  development  funding and
$3.3  million  from  the  reimbursement  for  research  and  development expenses, as
described above.

Liquidity and
capital resources

At
March 31, 2006, the Company had cash, cash  equivalents  and  marketable  securities
totaling  $47.2 million  compared  with  $21.3  million  at  December  31,  2005.  Cash
used  in  operating  activities  was $11.5  million for the three months  ended  March
31,  2006,  which  represents  a small  increase  compared  with $10.5  million for the
three months ended March  31, 2005.

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

On
March 13, 2006,  the Company  sold 19.0 million  shares  of its  common  stock at a price
of $2.15  per share for gross  proceeds of $40.9  million,  before fees and  expenses.
After  deducting  fees  and  expenses,  the  Company  received  net  proceeds of $37.7
million.

Management
plans to  increase  its  spending  from  April  through  September  to an  average  rate
of  approximately  $5  million per month.  Management  anticipates  that it will have
sufficient  cash  funds to  maintain  its  present  operations  into the first quarter of
2007.

If
the  NDA  for  Genasense® is  approved,  management  anticipates  that  it  will
require  additional  cash  if  we  undertake  to launch  the  product  in the U.S.  in
the fourth  quarter  of  2006  in  order  to  maximize  the  commercial  opportunity.  We
have  commenced  discussions  with  several  companies  regarding  partnerships for the
further development  and  commercialization  of Genasense®.  Those  discussions are
currently ongoing.  Additional  alternatives  available to the  Company  to  subsequently
sustain  its  operations  include  financing  arrangements  with  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  or other  sources of funding will be available  on favorable
terms,  if  at all.

Our
principal  expenditures  relate to our  research  and  development  activities,
primarily  focused  on  Genasense®,  which  include  our  ongoing and future
clinical  trials.  We  expect these expenditures to continue.

22



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

Recent
Accounting Pronouncements

Effective
January 1,  2006,  we  adopted  the fair  value  recognition  provisions  of  SFAS 123R,
Share-Based  Payment,  using  the  modified  prospective  transition  method  and
therefore  did not restate  results for prior  periods.  Prior  to January 1, 2006 we
accounted for  share-based  compensation  arrangements  in  accordance  with  APB
Opinion  No.  25,  Accounting  for Stock  Issued to Employees  and complied  with  the
disclosure  provisions  of  SFAS  123,  Accounting  for  Stock-Based  Compensation.  SFAS
123R  requires  all  public  entities  that  used  the  fair-value  method  for  either
recognition  or  disclosure  under  SFAS  123  to  apply  the  modified  prospective
transition  method  as of the  required  effective  date.  As a result,  we adopted the
provisions  of  SFAS 123R  using  this  method,  effective  January  1,  2006.  Under the
modified  prospective  method, new awards are valued  and accounted for  prospectively
upon  adoption.  Outstanding  prior  awards  that are  unvested  as of  January  1, 2006
are  recognized as compensation  cost over the remaining  requisite  service  periods,
as prior  periods may not be restated.  The  adoption of SFAS 123R  increased  our
expenses  and  reported  net loss for the three  months  ended  March 31,  2006 by $0.6
million.

Management
forecasts  that the  impact of  adopting  SFAS  123R for the twelve  months  ending
December 31, 2006 will be  between  $2.0  million and $3.0  million,  taking into account
options  granted in January  2006.  This  forecast is based on  the  Black-Scholes
option-pricing  model  and  includes  estimates  on the  additional  number of options to
be granted  during  2006,  the price of our  stock at the time of  grants,  the
volatility of our stock price and the expected  forfeiture  rates.  As such,  our actual
stock  option  expense may differ  from this estimate.

23



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Item 3.
Quantitative and Qualitative Disclosures about  Market Risk

Our
carrying  values  of  cash,  marketable  securities,  accounts  payable  and  accrued
expenses  are  a  reasonable  approximation  of their fair value.  The estimated fair
values  of  financial  instruments  have been  determined  by us using  available  market
information  and  appropriate  valuation  methodologies  (see  Note  2  to  our
Consolidated  Financial  Statements).  We have not  entered  into and do not  expect to
enter  into,  financial  instruments  for  trading  or hedging  purposes.  We  do  not
currently  anticipate  entering  into  interest rate swaps and/or similar instruments.

Gentas
primary  market  risk  exposure  with  regard  to  financial  instruments is to changes
in interest rates,  which  would impact  interest income earned on such  instruments.  We
have no  material  currency  exchange  or  interest  rate risk  exposure as of March 31,
2006.

Item 4.
Controls and Procedures

Conclusion
Regarding  the  Effectiveness  of  Disclosure  Controls and Procedures

As
required by Rule  13a-15(b),  Gentas  Chief  Executive  Officer and Chief
Financial  Officer  conducted an evaluation  as of the end of the  period  covered  by
this  report  of the  effectiveness  of  the  Companys  disclosure  controls
and  procedures (as  defined  in  Exchange  Act Rule  13a-15(e)).  Based on that
evaluation,  the Chief  Executive  Officer  and  Chief  Financial  Officer  concluded
that  the  Companys  disclosure  controls  and  procedures  were  operating
effectively  as of the  end  of the  period  covered  by  this  report.

Changes in
Internal Control Over Financial Reporting

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

24



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PART
II..OTHER INFORMATION

Item 1.
Legal Proceedings

In
2004,  numerous  complaints  were  filed in the  United  States  District  Court for the
District of New Jersey against  Genta  and  certain  of its  principal  officers  on
behalf of  purported  classes  of  the  Companys  shareholders  who  purchased its
securities  during  several class  periods.  The  complaints  have been  consolidated
into a single  action and  allege  that  the  Company  and  certain  of  its  principal
officers  violated  the  federal  securities  laws by  issuing  materially  false  and
misleading  statements  regarding  Genasense® for the  treatment of malignant
melanoma that had  the effect of  artificially  inflating the market price of our
securities.  The  shareholder  class  action  complaint in the  various  actions  seeks
monetary  damages  in an  unspecified  amount  and  recovery  of  plaintiffs costs
and  attorneys fees.  On September  30, 2005,  the court  granted in part and
denied  in  part  the  Companys  motion  to  dismiss  the  plaintiffs complaint.
The court dismissed plaintiffs claim  that  the  defendants  engaged  in a  scheme
or  artifice  to  defraud  plaintiffs,  but  allowed  plaintiffs claims  to
proceed  with  respect to their  allegations  that  defendants  issued  false  and
misleading  public  statements  about  Genasense®.  As of March 2006,  nonbinding
mediation  has not  produced  a  settlement  and  the  case  is  proceeding  to
discovery.

In
addition,  two separate shareholder  derivative actions  have been filed  against the
directors  and certain  officers  of Genta in New Jersey State and Federal  courts.  The
Federal  shareholder  derivative  action  was  consolidated  with  the  securities
action.  The Federal  derivative  plaintiffs  have  not  yet  filed a  consolidated
amended  complaint  asserting  their  claims.  Instead,  the Federal  shareholder
derivative  action has been stayed,  pending  developments  in the Federal  securities
action.

Based
on facts  substantially  similar  to those  asserted  in  the  shareholder  class
actions,  the  State  derivative  plaintiffs  claim  that  defendants  have  breached
their  fiduciary  duties  to the  shareholders  and  committed  other  violations  of New
Jersey  law.  On  February  9,  2006,  the  Superior  Court  of  New  Jersey  dismissed
the  plaintiffs derivative  complaint  in the New  Jersey  State case
based in  part  on  plaintiffs failure  to  make  a  pre-suit  demand  on Genta's
Board  of  Directors  and  in  part  based  on  plaintiffs failure  to state a
cause of  action.  Plaintiffs  served a motion for reconsideration on February 27, 2006.

The
Company  believes these  litigations are without merit  and will continue to vigorously
defend against these suits.

25



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Item 1A.
Risk Factors

You
should  carefully  consider  the  following  risks and  all of the  other  information
set forth in this Form 10Q and  Form  10-K  for  the  year  ended  December  31,  2005
before  deciding  to invest in shares of our common  stock.  The risks  described  below
are not the only  ones  facing  our  Company.  Additional  risks  not  presently  known
to  us  or  that  we  currently  deem  immaterial  may  also  impair  our  business
operations.

Risk
Related to Our Business

| | We may be unsuccessful in our efforts to obtain approval from the FDA or EMEA and commercialize Genasense® or our other pharmaceutical products.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

The
commercialization  of  our  pharmaceutical  products  involves a number of  significant
challenges.  In particular,  our  ability to  commercialize  products,  such as Ganite® and
Genasense®,  depends,  in large  part,  on the  success of our  clinical  development
programs,  our  efforts  to  obtain  regulatory  approvals  and our  sales  and
marketing  efforts  directed at physicians,  patients and  third-party  payors.  A
number of factors could affect these efforts, including:

| | · |  | our
ability to demonstrate clinically that our  products are useful and safe in particular
indications;
| | - |  | -------------------------------------------------------------------------------------------------------

| | · |  | delays
or refusals by regulatory authorities in  granting marketing approvals;
| | - |  | ------------------------------------------------------------------------------

| | · |  | our
limited financial resources and sales and  marketing experience relative to our
competitors;
| | - |  | ------------------------------------------------------------------------------------------------

| | · |  | actual
and perceived differences between our  products and those of our competitors;
| | - |  | ------------------------------------------------------------------------------------

| | · |  | the
availability and level of reimbursement for our  products by third-party payors;
| | - |  | ------------------------------------------------------------------------------------

| | · |  | incidents
of adverse reactions to our products;
| | - |  | -----------------------------------------------

| | · |  | side
effects or misuse of our products and the  unfavorable publicity that could result; and
| | - |  | --------------------------------------------------------------------------------------------

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

We
cannot assure you that  Genasense® will receive FDA or  EMEA  approval.  Our
financial  condition  and  results  of  operations  have been and will  continue  to be
significantly  affected by FDA and EMEA action  with  respect to  Genasense®.  Any
adverse  events with respect to FDA and/or EMEA  approvals  could  negatively  impact
our  ability  to obtain  additional  funding or identify potential partners.

For
example,  on January 3, 2006,  we  announced  that we  had completed a Marketing
Authorization  Application,  or MAA,  to the EMEA that seeks  approval  for use of
Genasense® plus  dacarbazine  for  the  treatment  of  patients  with  advanced
melanoma who have not  previously  received  chemotherapy.  On  February 1, 2006,  we
announced  that we had  received  notice  from the EMEA  that our MAA was  validated  for
review by the  EMEA.  We anticipate  receiving  consolidated  questions  from  the EMEA
approximately  120 days  from the date of the  MAAs  validation.  The centralized
licensing  procedure  provides a  single  marketing  authorization  that  is  valid  in
all  25-member  states  of the  European  Community.  Review of the  application  is
coordinated by the EMEA, and Spain and France  have  been  appointed  as  rapporteur  and
co-rapporteur  countries, respectively.

26



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On
December 28, 2005,  we completed  submission  of an NDA  to the FDA that  sought
accelerated  approval  for the use of  Genasense® in  combination  with  fludarabine
plus  cyclophosphamide  for the  treatment of patients with relapsed  or refractory CLL
who have  previously  received  fludarabine.  Genasense® has received Fast Track
designation by the FDA in  CLL,  meaning that the indication  represents an unmet medical
need.  Genasense® has also  been  granted  designation  as an  Orphan Drug by the
FDA. On March 1, 2006,  we  announced  that  the  NDA had  been  accepted  for  review
by the  FDA  with a  target  action date of October 28, 2006.  However,  acceptance  of
this NDA does not necessarily  lead to FDA approval.  After  reviewing  in May 2005 a
summary of our  preliminary  clinical  data that were  released in November  2004 from
our CLL trial,  the FDA expressed  concern that simply  achieving  statistical
significance  in the primary  endpoint  (complete plus nodular  partial  responses
[CR/nPR])  may not be  likely to convey or  predict clinical benefit,  particularly
absent improvement in  time-to-progression.  Subsequent  to  preparation  of  the
preliminary  data  summary,  the Company  compiled  additional  information  to  support
its  claims  of  clinical  benefit.  First,  the  proportion  of patients who relapsed
from CR/nPR  increased  substantially  over  time  from  25%  to 75% in the  patient
group treated with  chemotherapy  alone.  By contrast,  the  comparable  increase  in the
Genasense  group was 16% to  25%,  which  indicated  lower  risk of  relapse.  Second,
the  preliminary  clinical data indicated that the median  duration  of CR/nPR  had not
been  reached  in either  treatment  group.  Further  follow-up  showed  that  CR/nPRs
achieved  with  the  addition of  Genasense® to  chemotherapy  were  significantly
longer  when  compared  with  those  responses  achieved  with  chemotherapy  alone.  For
example,  the median CR/nPR duration  in the  chemotherapy  alone  group was  reached  at
22 months,  whereas  the  median  has  still  not  been  reached  in  the  Genasense
group  [P=0.03].  Third,  the  Company  had  prospectively  collected  data regarding
specific  parameters  of  disease-related  morbidity,  including  but not limited to
symptoms.  Subsequent  analysis  of  these  data  showed  that  patients  in  the
Genasense  treatment  group  who  achieved  CR/nPR  also  attained  substantial
improvement  in  these  disease  parameters.  The  NDA  that  was  submitted  by  the
Company in December  2005,  which  includes  these  data,  was  subsequently accepted for
review by the FDA in February 2006.

Following
its review of all our  information  concerning  Genasense®,  the FDA may refuse to
approve altogether,  or may  ask for more  data to be  obtained,  so that  approval  can
be  reconsidered.  Any of these  decisions by the FDA would have a  material  adverse
effect on our business.  One requirement for  Accelerated  Approval  is that we will be
required to conduct  a confirmatory  trial.  We have formulated a design for such a
trial and have  submitted  a proposal to the FDA for review as  a  Special  Protocol
Assessment,  or  SPA.  The  submitted  proposal  incorporated  initial  comments
received  from  the  FDA.  Final  comments on the  submission  are expected  during  the
first half of 2006.  Formal  initiation  of the trial will  depend upon  resolution  of
trial design  issues with the FDA,  among other factors.  Although Fast Track
designation,  Orphan  Drug  designation  and  Accelerated  Approval  provisions  are
beneficial,  we  cannot  assure  you  that  the  NDA  will  be  approved.  In
particular,  the FDA may not be satisfied  that  achievement  of  the  primary  endpoint
used  in  our  recent  clinical  trial,  which  was  an  increased  proportion  of
complete  responses/nodular  partial  responses  compared  to  patients treated with
standard  chemotherapy,  is a sufficient  basis for approval.  Further,  increased
symptom-free time may  not be considered to be sufficient  demonstration  of clinical
benefit.

Ultimately,
our efforts may not prove to be as  effective  as  those  of  our  competitors.  In  the
United  States  and  elsewhere,  our products  will face  significant  competition.  The
principal  conditions  on which our  product  development  efforts  are  focused  and
some of the  other  disorders  for  which we are  conducting  additional  studies,  are
currently  treated  with  several  drugs,  many  of  which  have  been  available  for  a
number  of  years  or  are  available  in  inexpensive  generic  forms.  Thus,  even  if
we  obtain  regulatory  approvals,  we  will  need  to  demonstrate  to  physicians,
patients and third-party  payors that the cost of  our products is reasonable  and
appropriate in light of their  safety and efficacy,  the price of competing  products and
the  relative  health  care  benefits  to  the  patient.  If we are  unable  to
demonstrate  that the  costs of our  products  are  reasonable  and  appropriate  in
light of  these  factors,  we  will likely be unsuccessful in commercializing our
products.

27



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| | Recurring  losses and negative cash flows from  operations  raise  substantial  doubt
about our ability to continue as  a going concern.
| | ----------------------------------------------------------------------------------------------------------------------------------------

Our
recurring  losses from  operations  and negative cash  flows  from  operations  raise
substantial  doubt  about  our  ability to  continue as a going  concern and as a result,
our  independent  registered  public  accounting  firm  included an  explanatory
paragraph  in  its  report  on  our  consolidated  financial  statements  for the year
ended  December  31,  2005  with  respect to this  uncertainty.  Substantial  doubt
about  our  ability  to  continue  as  a  going  concern  may  create  negative
reactions  to the price of the common  shares of our  stock  and  we  may  have  a  more
difficult  time  obtaining  financing.

We
have  prepared  our  financial  statements  on a going  concern basis,  which
contemplates  the realization of assets  and the  satisfaction  of liabilities  and
commitments in the  normal  course of business.  The  financial  statements do not
include any  adjustments  relating to the  recoverability  and  classification  of
recorded  asset  amounts  or  amounts  of  liabilities  that  might be  necessary  should
we be unable to  continue in existence.

| | Our
business will suffer if we fail to obtain timely  funding. We may be unable to raise
additional capital  when needed and may not continue as a going concern.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
operations  to date have  required  significant  cash  expenditures.  As a  result  of
Aventis termination  of the  Collaborative  Agreement,  after May 8, 2005, we
became solely  responsible  for all  Genasense® related  costs.  Our  future  capital
requirements  will  depend  on  the  results  of  our  research and development
activities,  preclinical studies and  clinical trials,  competitive and technological
advances, and  regulatory  activities  of  the  FDA  and  other  regulatory  authorities.
In order to commercialize our products,  we will  need to raise  additional  funds.  On
March 13, 2006,  we sold  19.0  million  shares of our common  stock at a price of $2.15
per  share  raising  approximately  $37.7  million,  net  of  estimated  fees and
expenses.  During the first three  months  of  2006,  cash  used  in  operating
activities  was  $11.5  million.

Management
plans to  increase  its  spending  from  April  through  September  to an  average  rate
of  approximately  $5  million  per  month.  We  anticipate  that  we  will  have
sufficient  cash  funds to  maintain  our  present  operations  into the first quarter of
2007.

We
will  need  to  obtain  more  funding  in  the  future  through  collaborations  or other
arrangements  with research  institutions  and  corporate  partners  or public and
private  offerings  of  our  securities,  including  debt  or  equity  financing.  We may
not be able to  obtain  adequate  funds for  our  operations  from  these  sources  when
needed  or  on  acceptable  terms.  Future  collaborations  or  similar  arrangements may
require us to license  valuable  intellectual  property to, or to share  substantial
economic benefits with,  our  collaborators.  If we raise additional capital by issuing
additional equity or securities  convertible into equity,  our  stockholders  may
experience  dilution and our share price may  decline.  Any debt  financing  may result
in  restrictions  on  our spending.

If
we are unable to raise additional funds, we will need  to do one or more of the following:

| | o |  | delay,
scale back or eliminate some or all of our  research and product development programs and
sales  and marketing activity;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

| | o |  | license
third parties to develop and commercialize  products or technologies that we would
otherwise  seek to develop and commercialize ourselves;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | attempt
to sell our company;
| | - |  | ----------------------------

| | o |  | cease
operations; or
| | - |  | --------------------

| | o |  | declare
bankruptcy.
| | - |  | -------------------

28



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| | We  intend to be a direct  marketer  of some  products  in  the  United  States.  This
effort  will  consume  large  amounts of our  resources and  management  time and we may
not be successful in our efforts.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Currently
we do not have a sales  force.  Our sales force  was  eliminated  in 2004  following  our
decision to withdraw  the  NDA  for  Genasense® for  the  treatment  of  advanced
melanoma.  We  intend  to  begin  the  recruitment  of a sales  force  in the  second
half  of  2006.  In  January  2006,  we  announced  that  we  had  appointed  W.  Lloyd
Sanders  as  Vice-President  of Sales and  Marketing.  Most  recently,  Mr.  Sanders  was
Vice  President,  Oncology  Sales,  at  sanofi-aventis  Group.  If we are  unable  to
recruit a sales  force  capable of marketing  our  products,  our sales will be
adversely  affected,  and  the  commercial  success  of  our  products will be limited.

| | On
May  10,  2005,  we  announced  that  we  and  Aventis  Pharmaceuticals  Inc.,  part of
sanofi-aventis  Group, or  Aventis,  had  signed  an  agreement  to  terminate  their
development  and  commercialization  collaboration  for  Genasense®.  We lost a
significant  source of funding for  Genasense® as a result of this termination.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
April  2002,  we  entered  into a series of  agreements  relating  to  the  development
and  commercialization  of  Genasense®,  to  which  we  refer  collectively  as  the
Collaborative Agreement,  with Aventis and its affiliates.  On  November  8,  2004,  we
received  from  Aventis  a notice  of  termination of the Collaborative  Agreement.  On
May 10, 2005,  we announced  that we had signed an agreement  with Aventis to  terminate
our  development  and  commercialization  collaboration  for  Genasense®.  The
termination  agreement  provided  for  no  future  financial  obligations  by  either
party.  Aventis also  returned  its then current  inventory of  Genasense® drug
supply  to  us.  In  addition,  we  assumed  responsibility  for  the  randomized
clinical  trial  of  Genasense® in  combination  with  docetaxel  (Taxotere®;
sanofi-aventis) in patients with  hormone-refractory  prostate  cancer,  which  recently
completed  accrual.  Among  other  provisions,  the  Standstill  and  Voting  Agreement
and  Registration  Rights Agreement that were established  pursuant  to the  Aventis
investment  in our  common  stock in 2002 did  not terminate at this time.

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

If
we are  unable  to  identify  a  partner,  we  will  be  solely  responsible for the
development and  commercialization  of Genasense®,  including the costs associated
therewith.  We  may not have  sufficient  resources  to do so.  Even if we are  able to
identify a partner,  we may not be able to enter into  an agreement on acceptable terms
or at all.

| | We
have  relied  on  and  continue  to  rely  on  our  contractual  collaborative
arrangements  with  research  institutions  and corporate  partners for  development and
commercialization  of our  products.  Our  business  could  suffer  if  we  are  not
able  to  enter  into  suitable  arrangements,  maintain existing relationships,  or if
our  collaborative  arrangements  are  not  successful  in  developing and
commercializing products.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
have  entered  into  collaborative  relationships  relating  to  the  conduct  of
clinical  research  and  other  research  activities  in  order  to  augment  our
internal  research  capabilities  and to obtain  access  to  specialized  knowledge  and
expertise.  Our business  strategy  depends in  part  on  our  continued  ability  to
develop  and  maintain  relationships  with  leading  academic  and  research
institutions  and  with  independent  researchers.  The  competition  for these
relationships  is intense,  and we can  give no  assurances  that we  will  be  able  to
develop  and  maintain these relationships on acceptable terms.

29



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We  also  seek  strategic  alliances  with  corporate  partners,  primarily
pharmaceutical  and  biotechnology  companies,  to  help  us  develop  and  commercialize
drugs.  Various problems can arise in strategic  alliances.  A partner  responsible  for
conducting  clinical  trials  and  obtaining  regulatory  approval may fail to develop a
marketable  drug. A  partner  may  decide  to  pursue an  alternative  strategy  or
focus its  efforts on  alliances  or other  arrangements  with  third  parties.  A
partner  that has been  granted  marketing  rights for a certain  drug within a
geographic  area may fail  to  market  the  drug  successfully.  Consequently,  strategic
alliances  that we may  enter  into may not be  scientifically  or  commercially
successful.  In this regard,  in April 2002,  we  entered  into  a  series  of
agreements  relating  to the  development and  commercialization  of Genasense® with
Aventis  and its  affiliates.  On  November 8, 2004,  we received  from  Aventis  a
notice  of  termination  of  the  Collaborative  Agreement.  On May 10, 2005, we
announced  that we and Aventis  had signed an  agreement  to  terminate  our  development
and  commercialization  collaboration  for  Genasense® as described  above.

We
cannot  control  the  resources  that any  collaborator  may  devote  to our  products.
Any of our  present  or future  collaborators  may not perform their  obligations as
expected.  These  collaborators  may breach or terminate their agreements  with us, for
instance  upon  changes in control or  management  of the  collaborator,  or they may
otherwise  fail to conduct  their  collaborative  activities  successfully and in a
timely  manner.

In
addition,  our  collaborators  may elect not to develop  products arising out of our
collaborative  arrangements or to  devote  sufficient  resources to the  development,
regulatory  approval,  manufacture,  marketing or sale of these  products.  If any of
these  events  occur,  we may not be able to develop  our products or commercialize our
products.

An
important  part of our  strategy  involves  conducting  multiple  product  development
programs.  We  may  pursue  opportunities  in  fields  that  conflict  with  those  of
our  collaborators.  In  addition,  disagreements  with  our  collaborators  could
develop over rights to our  intellectual  property.  The resolution of such conflicts and
disagreements  may  require  us to  relinquish  rights  to  our  intellectual  property
that we believe  we are  entitled  to. In  addition,  any  disagreement  or conflict
with our  collaborators  could  reduce our ability to obtain future  collaboration
agreements  and  negatively  impact  our  relationship  with  existing  collaborators.
Such a  conflict  or  disagreement  could also  lead  to  delays  in  collaborative
research,  development,  regulatory approval or  commercialization  of various products
or could  require  or result  in  litigation  or  arbitration,  which  would  be time
consuming  and  expensive,  divert  the  attention  of our  management  and  could  have
a  significant  negative  impact  on our  business,  financial  condition  and  results
of operations.

| | We
anticipate  that we will incur  additional  losses and  we may never be profitable.
| | --------------------------------------------------------------------------------------

We
have  never  been  profitable.  We  have  incurred  substantial  annual operating  losses
associated with ongoing  research  and  development  activities,  preclinical  testing,
clinical  trials,  regulatory  submissions  and  manufacturing  activities.  From the
period since our  inception to March 31,  2006,  we have  incurred  a  cumulative  net
loss  of  $368.1  million.  We may never achieve  revenue  sufficient  for us to  attain
profitability.  Achieving  profitability  is  unlikely  unless  Genasense® receives
approval  from  the  FDA  for  commercial sale in one or more indications.

| | Our
business  depends  heavily  on  a  small  number  of  products.
| | -------------------------------------------------------------------

We
currently  market and sell one  product,  Ganite® and  the  principal  patent
covering  its  use  for  the  approved  indication  expired in April 2005.  We do not
expect to expand  our  marketed  product  portfolio  significantly  in the short  term
unless  Genasense® receives  marketing  approval.  If  Genasense® is not
approved,  if  approval  is  significantly  delayed,  or if in the  event  of  approval,
the  product  is  commercially  unsuccessful,  we  do  not  expect  significant  sales of
other  products  to  offset  this  loss of  potential  revenue.

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

30



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| | We
may be  unable  to obtain  or  enforce  patents,  other  proprietary  rights and licenses
to protect our  business;  we could  become  involved in  litigation  relating to our
patents  or  licenses  that  could  cause  us  to  incur  additional  costs and delay or
prevent  our  introduction  of new drugs to market.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
success  will depend to a large  extent on our ability  to:

| | · |  | obtain
U.S. and foreign patent or other  proprietary protection for our technologies,  products
and processes;
| | - |  | --------------------------------------------------------------------------------------------------------------

| | · |  | preserve
trade secrets; and
| | - |  | ---------------------------

| | · |  | operate
without infringing the patent and other  proprietary rights of third parties.
| | - |  | -------------------------------------------------------------------------------------

Legal
standards  relating  to  the  validity  of  patents  covering  pharmaceutical and
biotechnological  inventions and  the scope of claims  made under  these  types of
patents  are  still  developing,  and they involve complex legal and factual  questions.
As a result,  our  ability to obtain  and  enforce  patents  that  protect  our drugs is
highly  uncertain.  If we  are unable to obtain  and  enforce  patents  and  licenses  to
protect our drugs,  our business,  results of  operations  and  financial condition could
be adversely affected.

We
hold numerous U.S.,  foreign and international  patents  covering  various  aspects of
our  technology,  which  include  novel  compositions  of  matter,  methods  of
large-scale  synthesis  and  methods of  controlling  gene  expression  and  methods of
treating disease.  In the future,  however,  we may  not be  successful  in obtaining
additional  patents  despite  pending or future  applications.  Moreover,  our  current
and  future  patents  may not be  sufficient  to protect us against  competitors  who use
similar  technology.  Additionally,  our  patents,  the  patents  of  our  business
partners  and  the  patents  for which we have  obtained  licensing  rights may be
challenged,  narrowed,  invalidated  or  circumvented.  Furthermore,  rights  granted
under  our  patents  may not be  broad  enough  to  cover  commercially  valuable  drugs
or  processes  and  therefore  may not provide us with  sufficient  competitive advantage
with respect thereto.

The
pharmaceutical  and  biotechnology  industries  have  been  greatly  affected  by
time-consuming  and  expensive  litigation  regarding patents and other intellectual
property  rights.  We may be  required  to  commence,  or may be  made a  party to,
litigation  relating  to the scope and  validity of  our  intellectual  property  rights
or  the  intellectual  property  rights of others.  Such  litigation  could result in
adverse  decisions  regarding  the  patentability  of  our  inventions  and  products,
the  enforceability,  validity  or  scope  of  protection  offered  by  our  patents  or
our  infringement  of patents held by others.  Such decisions could  make us liable for
substantial  money  damages,  or could bar  us from  the  manufacture,  sale or use of
certain  products.  Moreover,  an adverse  decision  may also  compel us to seek a
license  from a third  party.  The costs of any license may be  prohibitive  and  we  may
not  be  able  to  enter  into  any  required licensing arrangement on terms acceptable
to us.

The
cost to us of any  litigation or  proceeding  relating  to patent or license  rights,
even if  resolved in our favor,  could be  substantial.  Some of our competitors may be
able to  sustain the costs of complex  patent or  licensing  litigation  more
effectively  than we can because of their  substantially  greater  resources.
Uncertainties  resulting  from  the  initiation  and  continuation  of  any  patent  or
related  litigation  could  have  a  material  adverse  effect  on  our  ability to
compete in the marketplace.

We
also may be required  to  participate  in  interference  proceedings  declared by the
U.S. Patent and Trademark  Office  in opposition or similar  proceedings  before  foreign
patent  offices  and in  International  Trade  Commission  proceedings  aimed  at
preventing  the  importation  of drugs  that  would  compete  unfairly with our drugs.
These types of  proceedings  could cause us to incur considerable costs.

The
principal  patent  covering the use of Ganite® for its  approved  indication
expired,  including  Hatch-Waxman  extensions, in April 2005.

31



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We  have  licensed  a  portfolio  of  U.S.  patents  and  applications  from the
University of Pennsylvania  and the NIH  relating  to  Genasense® and  its  backbone
chemistry  that  expire  between  2008  and  2015.  Corresponding  patent  applications
have been  filed in  Canada,  Europe  and Japan.  The claims of these  patents cover our
proprietary  antisense  oligonucleotide  molecules  which  target  the Bcl-2  mRNA and
methods  employing  them.  We also hold  several  U.S.  patent  applications  relating
to  methods of using  Genasense® that  expire in 2020, with  approximately 45
corresponding  foreign  patent applications.

| | Most
of  our  products  are  in  an  early  stage  of  development,  and  we  may  never
receive  regulatory  approval for these products.
| | ------------------------------------------------------------------------------------------------------------------------------------------

Most
of  our  resources  have  been  dedicated  to  the  research  and  development  of
potential  antisense  pharmaceutical  products  such  as  Genasense®,  based  upon
oligonucleotide  technology.  While we have  demonstrated  the  activity  of  antisense
oligonucleotide  technology  in model  systems  in  vitro  and in  animals,  Genasense® is
our  only  antisense  product to have been  tested in humans.  Several of  our other
technologies  that  serve as a  possible  basis for  pharmaceutical  products  are  only
in  preclinical  testing.  Results  obtained  in  preclinical  studies or early  clinical
investigations  are  not  necessarily  indicative  of  results  that will be obtained in
extended human clinical  trials.  Our  products may prove to have  undesirable  and
unintended  side  effects  or  other  characteristics  that  may  prevent  our  obtaining
FDA  or  foreign  regulatory  approval  for  any  indication.  In  addition,  it is
possible  that  research and  discoveries  by  others  will  render  our  oligonucleotide
technology obsolete or noncompetitive.

| | We
will  not  be  able  to  commercialize  our  product  candidates  if our  preclinical
studies  do  not  produce  successful  results  or if  our  clinical  trials  do  not
demonstrate safety and efficacy in humans.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
success  will  depend on the success of our  currently  ongoing  clinical  trials and
subsequent  clinical trials that  have not yet  begun.  It may take  several  years to
complete  the  clinical  trials of a  product,  and a failure  of one or  more  of  our
clinical  trials  can  occur  at any  stage  of  testing.  We  believe  that  the
development  of  each of our  product  candidates  involves  significant risks at each
stage  of  testing.  If  clinical  trial  difficulties  and  failures  arise,  our
product  candidates may never be approved for sale  or become  commercially  viable. We
do not believe that any of  our product  candidates have  alternative  uses if our
current  development activities are unsuccessful.

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

| | · |  | we
may  discover  that a  product  candidate  does not  exhibit the  expected  therapeutic
results in humans,  may  cause  harmful  side  effects  or  have  other  unexpected
characteristics that may delay or preclude  regulatory  approval  or  limit  commercial
use  if  approved;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · |  | the
results  from  early  clinical  trials may not be  statistically  significant  or
predictive  of results  that  will  be  obtained  from  expanded,  advanced  clinical
trials;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · |  | institutional
review boards or regulators,  including  the FDA, may hold,  suspend or terminate  our
clinical  research  or  the  clinical  trials  of  our  product  candidates  for  various
reasons,  including  noncompliance  with regulatory  requirements or if, in  their
opinion,  the  participating  subjects are being  exposed to unacceptable health risks;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · |  | subjects
may drop out of our clinical trials;
| | - |  | ---------------------------------------------

| | · |  | our
preclinical  studies  or  clinical  trials  may  produce  negative,  inconsistent  or
inconclusive  results,  and we may decide, or regulators may require  us,  to  conduct
additional  preclinical  studies  or  clinical trials; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · |  | the
cost of our  clinical  trials may be greater  than  we currently anticipate.
| | - |  | --------------------------------------------------------------------------------

32



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For  example,  in  November  2004,  we  reported  that our  randomized  Phase 3 clinical
trial of  Genasense® in patients  with multiple myeloma did not meet its primary
endpoint.  The  trial had been  designed to evaluate  whether the  addition of  Genasense® to
standard  therapy with  high-dose  dexamethasone  could  increase  the  time  to
development  of  progressive  disease in patients  who  previously  had  received
extensive  therapy.  Based on the  results of the Phase 3 trial,  we have  no plans to
submit  an NDA in this  indication  to the FDA at  the current time. We have not yet
determined  what  additional  clinical  trials,  if any, may be  undertaken in patients
with  multiple myeloma.

We
cannot  assure  you  that  our  ongoing  preclinical  studies and clinical  trials will
produce  successful  results  in order to support  regulatory  approval of Genasense® in
any  territory or for any indication.  Failure to obtain  approval,  or a  substantial
delay in approval of  Genasense® for these  or  any  other  indications  would  have
a  material  adverse  effect on our results of operations and financial condition.

| | Clinical
trials  are costly  and time  consuming  and are  subject  to  delays;  our  business
would  suffer  if the  development  process  relating  to  our  products  were  subject
to meaningful delays.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Clinical
trials are very costly and  time-consuming.  The  length of time  required to complete a
clinical  study depends  upon many  factors,  including  but not limited to the size of
the  patient  population,  the  ability of  patients to get to  the site of the clinical
study,  the criteria for determining  which  patients  are  eligible  to join the  study
and  other  issues.  Delays in  patient  enrollment  and other  unforeseen  developments
could delay  completion of a clinical  study and  increase  its  costs,  which  could
also  delay any  eventual  commercial  sale  of  the  drug  that  is the  subject  of the
clinical trial.

Our
commencement  and  rate  of  completion  of  clinical  trials  also may be delayed by
many other  factors,  including  the following:

| | · |  | inability
to  obtain  sufficient  quantities  of  materials for use in clinical trials;
| | - |  | ---------------------------------------------------------------------------------------

| | · |  | inability
to  adequately  monitor  patient  progress  after treatment;
| | - |  | ----------------------------------------------------------------------

| | · |  | unforeseen
safety issues;
| | - |  | -------------------------

| | · |  | the
failure of the  products  to perform  well during  clinical trials and
| | - |  | --------------------------------------------------------------------------

| | · |  | government
or regulatory delays.
| | - |  | --------------------------------

| | If
we fail to obtain the necessary  regulatory  approvals,  we  cannot  market  and sell our
products  in the  United  States or in other countries.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

The
FDA and  comparable  regulatory  agencies  in  foreign  countries  (such as the EMEA)
impose  substantial  pre-market  approval  requirements on the  introduction of
pharmaceutical  products.  These  requirements  involve  lengthy and  detailed
preclinical  and  clinical  testing  and  other  costly  and  time-consuming  procedures.
Satisfaction  of  these  requirements  typically  takes several years or more depending
upon the type,  complexity  and  novelty  of the  product.  We  cannot  apply for FDA
approval to market any of our  products  under  development  until  preclinical  and
clinical trials on  the  product  are  successfully  completed.  Several  factors  could
prevent  successful  completion  or  cause  significant  delays of these  trials,
including an inability to enroll the  required  number  of  patients  or  failure  to
demonstrate  adequately  that the product is safe and  effective for use in  humans.  If
safety  concerns  develop,  the FDA could stop our  trials  before  completion.  We may
not  market  or  sell  any  product for which we have not  obtained  regulatory
approval.  In May 2004,  the  application  failed to gain a majority vote  for  marketing
approval  from  ODAC.  As  a  consequence,  we  withdrew  the NDA,  which  allows us to
potentially  resubmit  the application.

We
cannot  assure  you that  the  FDA,  the EMEA or other  regulatory  agencies  will  ever
approve  the  use  of  our  products  that  are  under  development.  If  the  patient
populations  for  which  our  products  are  approved  are not  sufficiently  broad,  or
if  approval  is  accompanied  by  unanticipated  labeling  restrictions,  the commercial
success  of our  products  could be limited and our  business,  results  of operations
and financial  condition  could  consequently be  materially adversely affected.

33



---

| | If the third party  manufacturers  upon which we rely fail  to produce our  products  in
the  volumes  that we require  on  a  timely  basis,  or  to  comply  with  stringent
regulations  applicable  to  pharmaceutical  drug  manufacturers,  we  may  face  delays
in  the  commercialization  of, or be unable  to meet  demand  for,  our products and may
lose potential revenues.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
do  not  manufacture  any of our  products  or  product  candidates  and we do not plan
to develop  any  capacity to do  so.  We have  contracted  with  third-party
manufacturers  to  manufacture  Ganite® and  Genasense®.  The  manufacture  of
pharmaceutical  products  requires  significant  expertise and  capital  investment,
including  the  development  of advanced  manufacturing  techniques and process controls.
Manufacturers  of  pharmaceutical  products often  encounter  difficulties in
production,  especially  in  scaling  up  initial  production.  These problems  include
difficulties  with  production  costs  and yields,  quality  control and  assurance  and
shortages of  qualified  personnel,  as well  as  compliance  with  strictly  enforced
federal,  state  and  foreign  regulations.  Our  third-party  manufacturers  may not
perform  as agreed or may  terminate their agreements with us.

In
addition  to product  approval,  any  facility in which  Genasense® is  manufactured
or tested for its ability to meet  required  specifications  must be  approved  by the
FDA and/or  the EMEA  before it can  manufacture  Genasense®.  Failure  of  the
facility  to be  approved  could  delay the  approval  of  Genasense®.

We
do not currently  have  alternate  manufacturing  plans  in place.  The number of
third-party  manufacturers  with the  expertise,  required  regulatory  approvals and
facilities to  manufacture  bulk  drug  substance  on a  commercial  scale is  limited,
and it would  take a  significant  amount of time to  arrange for  alternative
manufacturers.  If we need to change  to  other  commercial  manufacturers,  the FDA and
comparable  foreign  regulators  must  approve  these  manufacturers facilities
and  processes  prior  to  our  use,  which  would  require new testing and  compliance
inspections,  and the new  manufacturers  would have to be educated  in or  independently
develop the  processes  necessary  for the  production  of our  products.

Any
of these  factors  could  cause us to delay or suspend  clinical trials,  regulatory
submissions,  required approvals  or  commercialization  of our products or product
candidates,  entail  higher  costs  and  result  in  our  being  unable  to  effectively
commercialize our products.  Furthermore,  if our  third-party  manufacturers  fail  to
deliver  the  required  commercial  quantities  of bulk  drug  substance  or  finished
product  on a  timely  basis  and at  commercially  reasonable  prices,  and we  were
unable  to  promptly  find  one or more  replacement  manufacturers  capable  of
production  at  a  substantially  equivalent  cost, in  substantially  equivalent  volume
and on a timely  basis,  we would  likely be unable to  meet  demand  for our  products
and we would  lose  potential  revenues.

34



---

| | Even  if  we  obtain  regulatory  approval,  we  will  be  subject to ongoing
regulation,  and any  failure by us or  our  manufacturers  to comply with such
regulation  could  suspend or eliminate our ability to sell our products.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Ganite®,
Genasense®,  if it obtains regulatory  approval,  and any  other  product  we may
develop  will be  subject  to  ongoing  regulatory  oversight,  primarily by the FDA.
Failure  to  comply  with  post-marketing  requirements,  such  as  maintenance by us or
by the  manufacturers  of our products of  current Good  Manufacturing  Practices as
required by the FDA,  or  safety  surveillance  of  such  products  or  lack  of
compliance with other  regulations  could result in suspension  or  limitation  of
approvals  or other  enforcement  actions.  Current  Good  Manufacturing  Practices  are
FDA  regulations  that  define  the  minimum  standards  that  must  be  met  by
companies that  manufacture  pharmaceuticals  and apply to all  drugs  for human use
including  those to be used in  clinical  trials  as well as  those  produced  for
general  sale  after  approval  of an  application  by the  FDA.  These  regulations
define  requirements for personnel,  buildings and facilities,  equipment,  control  of
raw  materials  and  packaging  components,  production  and process  controls,
packaging and  label  controls,  handling  and  distribution,  laboratory  controls  and
recordkeeping.  Furthermore,  the  terms of any  product  candidate  approval,  including
the labeling  content  and  advertising  restrictions,  may  be so  restrictive  that
they could adversely  affect the  marketability of our product  candidates.  Any such
failure to comply or the  application of  such  restrictions  could  limit our  ability
to  market  our  product  candidates and may have a material  adverse effect on  our
business,  results of operations and financial  condition.  Such  failures  or
restrictions  may also  prompt  regulatory  recalls  of one or  more of our  products,
which  could  have  material and adverse effects on our business.

| | The
raw  materials  for our  products  are  produced  by a  limited  number  of  suppliers,
and  our  business  could  suffer  if  we  cannot  obtain  needed  quantities  at
acceptable prices and qualities.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
raw  materials  that we  require  to  manufacture  our  drugs,  particularly
oligonucleotides,  are  available  from  only a few suppliers.  If these  suppliers cease
to provide us  with the  necessary  raw  materials or fail to provide us with  an
adequate  supply of  materials at an  acceptable  price and  quality, we could be
materially adversely affected.

| | If
third-party  payors  do  not  provide  coverage  and  reimbursement  for  use of  our
products,  we may  not be  able to successfully commercialize our products.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
ability  to  commercialize  drugs  successfully  will  depend  in part on the  extent  to
which  various  third-party  payors are  willing  to  reimburse  patients  for the costs
of  our drugs and related  treatments.  These  third-party  payors  include  government
authorities,  private health insurers and  other  organizations,  such  as  health
maintenance  organizations.  Third-party  payors often challenge the prices  charged for
medical  products and  services.  Accordingly,  if  less costly drugs are  available,
third-party  payors may not  authorize or may limit  reimbursement  for our drugs,  even
if  they are safer or more  effective  than the  alternatives.  In  addition,  the
federal  government  and private  insurers have  changed and  continue  to  consider
ways to change the manner  in which  health care  products  and services are provided and
paid  for  in  the  United  States.  In  particular,  these  third-party  payors  are
increasingly  attempting  to contain  health care costs by limiting  both  coverage and
the level of  reimbursement  for new  therapeutic  products.  In the future,  it  is
possible  that  the  government  may  institute  price  controls  and  further  limits
on  Medicare  and  Medicaid  spending.  These  controls  and  limits  could  affect  the
payments  we  collect  from  sales  of  our  products.  Internationally,  medical
reimbursement  systems  vary  significantly,  with  some  countries  requiring
application  for,  and  approval  of,  government  or  third-party  reimbursement.  In
addition,  some medical  centers in foreign  countries  have  fixed  budgets,  regardless
of  levels  of  patient  care.  Even if we  succeed  in  bringing  therapeutic  products
to market,  uncertainties  regarding  future  health  care policy,  legislation and
regulation,  as well as private  market  practices,  could  affect  our  ability  to
sell  our  products in quantities,  or at prices,  that will enable us to  achieve
profitability.

35



---

| | Our  business  exposes us to potential  product  liability  that  may  have  a  negative
effect  on  our  financial  performance and our business generally.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

The
administration  of  drugs  to  humans,  whether  in  clinical  trials  or  commercially,
exposes  us to  potential  product and professional  liability risks,  which are inherent
in the  testing,  production,  marketing  and  sale  of  human  therapeutic  products.
Product  liability  claims  can  be  expensive  to  defend  and may  result in large
judgments  or  settlements  against us,  which  could have a negative  effect  on our
financial  performance  and  materially  and adversely  affect our business.  We maintain
product liability  insurance  (subject to various  deductibles),  but our insurance
coverage  may  not  be  sufficient  to  cover  claims.  Furthermore,  we  cannot be
certain  that we will  always be able to maintain or  increase our insurance  coverage at
an affordable  price. Even  if a product  liability claim is not  successful,  the
adverse  publicity  and time and expense of defending  such a claim may  interfere  with
or  adversely  affect  our  business  and  financial performance.

| | We
may  incur a  variety  of costs  to  engage  in  future  acquisitions of companies,
products or technologies,  and  the anticipated  benefits of those  acquisitions may
never  be realized.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As
a  part  of  our  business  strategy,  we  may  make  acquisitions  of,  or  significant
investments  in,  complementary  companies,  products or technologies,  although  no
significant  acquisition  or  investments  are  currently  pending.  Any  future
acquisitions  would be  accompanied  by  risks such as:

| | · |  | difficulties
in  assimilating  the  operations  and  personnel of acquired companies;
| | - |  | -------------------------------------------------------------------------------------

| | · |  | diversion
of our  managements  attention from ongoing  business concerns;
| | - |  | --------------------------------------------------------------------------

| | · |  | our
potential  inability to maximize our financial and  strategic  position  through  the
successful  incorporation  of acquired  technology and rights into  our products and
services;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · |  | additional
expense  associated  with  amortization of  acquired assets;
| | - |  | -----------------------------------------------------------------------

| | · |  | maintenance
of  uniform  standards,  controls,  procedures and policies; and
| | - |  | ----------------------------------------------------------------------------

| | · |  | impairment
of existing  relationships  with employees,  suppliers  and  customers  as  a  result  of
the  integration of new management personnel.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------

We
cannot  guarantee that we will be able to  successfully  integrate any business,
products,  technologies  or personnel  that we might  acquire in the  future,  and our
failure to do  so could harm our business.

| | We
face  substantial  competition from other companies and  research  institutions  that
are  developing  similar  products, and we may not be able to compete successfully.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
many cases,  our  products  under  development  will be  competing  with  existing
therapies  for  market  share.  In  addition,  a number of companies are pursuing the
development  of antisense  technology  and  controlled-release  formulation  technology
and the  development of  pharmaceuticals  utilizing  such  technologies.  We  compete
with  fully  integrated  pharmaceutical  companies  that  have  more  substantial
experience,  financial  and  other  resources  and  superior  expertise  in  research
and  development,  manufacturing,  testing,  obtaining  regulatory  approvals,  marketing
and  distribution.  Smaller  companies  may  also  prove  to  be  significant
competitors,  particularly  through  their  collaborative  arrangements  with  large
pharmaceutical  companies  or  academic  institutions.  Furthermore,  academic
institutions,  governmental  agencies  and  other  public  and  private  research
organizations  have  conducted  and  will  continue  to conduct  research,  seek  patent
protection  and  establish  arrangements  for  commercializing  products.  Such  products
may compete  directly  with any products  that may be  offered by us.

Our
competition  will  be  determined  in  part  by  the  potential  indications  for which
our products  are  developed  and  ultimately  approved  by  regulatory  authorities.
For  certain of our  potential  products,  an  important  factor in  competition  may be
the timing of market  introduction  of our  or  our  competitors products.
Accordingly,  the  relative  speed  with  which  we  can  develop  products,  complete
the  clinical trials and approval  processes and supply  commercial  quantities  of the
products to the market are  expected to be  important  competitive  factors.  We expect
that  competition  among  products  approved for sale will be based,  among other
things,  on  product  efficacy,  safety,  reliability,  availability,  price,  patent
position  and sales,  marketing  and  distribution  capabilities.  The development by
others of  new  treatment  methods  could  render  our  products  under  development
non-competitive or obsolete.

36



---

Our
competitive  position  also  depends upon our ability  to  attract  and retain  qualified
personnel,  obtain  patent  protection  or  otherwise  develop  proprietary  products  or
processes  and secure  sufficient  capital  resources  for the  often-substantial  period
between  technological  conception  and  commercial  sales.  We cannot  assure you that
we will be  successful in this regard.

| | We
are  dependent on our key  executives  and  scientists,  and the loss of key  personnel
or the  failure to attract  additional qualified personnel could harm our business.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
business is highly  dependent  on our key  executives  and  scientific  staff.  The  loss
of  key  personnel  or the  failure  to  recruit  necessary  additional  or  replacement
personnel  will  likely  impede  the  achievement  of  our  development  objectives.
There  is  intense  competition  for  qualified  personnel in the  pharmaceutical  and
biotechnology  industries,  and  there can be no  assurances  that we will be  able to
attract and retain the qualified  personnel  necessary  for the development of our
business.

Risks
Related to Outstanding Litigation

| | The
outcome of and costs  relating to pending  shareholder  class  action  and  shareholder
derivative  actions  are  uncertain.
| | --------------------------------------------------------------------------------------------------------------------------------

In
2004,  numerous  complaints  were  filed in the  United  States  District  Court for the
District of New Jersey against  Genta  and  certain  of its  principal  officers  on
behalf of  purported  classes  of  the  Companys  shareholders  who  purchased its
securities  during  several class  periods.  The  complaints  have been  consolidated
into a single  action and  allege  that  the  Company  and  certain  of  its  principal
officers  violated  the  federal  securities  laws by  issuing  materially  false  and
misleading  statements  regarding  Genasense® for the  treatment of malignant
melanoma that had  the effect of  artificially  inflating the market price of our
securities.  The  shareholder  class  action  complaint in the  various  actions  seeks
monetary  damages  in an  unspecified  amount  and  recovery  of  plaintiffs costs
and  attorneys fees.  On September  30, 2005,  the court  granted in part and
denied  in  part  the  Companys  motion  to  dismiss  the  plaintiffs complaint.
The court dismissed plaintiffs claim  that  the  defendants  engaged  in a  scheme
or  artifice  to  defraud  plaintiffs,  but  allowed  plaintiffs claims  to
proceed  with  respect to their  allegations  that  defendants  issued  false  and
misleading  public  statements  about  Genasense®.  As of March 2006,  nonbinding
mediation  has not  produced  a  settlement  and  the  case  is  proceeding  to
discovery.

In
addition,  two separate shareholder  derivative actions  have been filed  against the
directors  and certain  officers  of Genta in New Jersey State and Federal  courts.  The
Federal  shareholder  derivative  action  was  consolidated  with  the  securities
action.  The Federal  derivative  plaintiffs  have  not  yet  filed a  consolidated
amended  complaint  asserting  their  claims.  Instead,  the Federal  shareholder
derivative  action has been stayed,  pending  developments  in the Federal  securities
action.

Based
on facts  substantially  similar  to those  asserted  in  the  shareholder  class
actions,  the  State  derivative  plaintiffs  claim  that  defendants  have  breached
their  fiduciary  duties  to the  shareholders  and  committed  other  violations  of New
Jersey  law.  On  February  9,  2006,  the  Superior  Court  of  New  Jersey  dismissed
the  plaintiffs derivative  complaint  in the New  Jersey  State case
based in  part  on  plaintiffs failure  to  make  a  pre-suit  demand  on Genta's
Board  of  Directors  and  in  part  based  on  plaintiffs failure  to state a
cause of  action.  Plaintiffs  served a motion for reconsideration on February 27, 2006.

We
believe  these  litigations  are without merit and will  continue to vigorously defend
against these suits.

37



---

Risks Related to Our Common Stock

| | Provisions
in our restated  certificate  of  incorporation  and  bylaws and  Delaware  law may
discourage  a takeover  and  prevent  our  stockholders  from  receiving a premium  for
their shares.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Provisions
in our restated  certificate  of  incorporation  and  bylaws  may  discourage  third
parties  from  seeking to  obtain  control  of  us  and,  therefore,  could  prevent  our
stockholders  from  receiving a premium for their shares.  Our  restated  certificate  of
incorporation  gives  our  board of  directors  the  power  to  issue  shares  of
preferred  stock  without  approval  of  the  holders  of  common  stock.  Any  preferred
stock  that is  issued  in the  future  could  have  voting  rights,  including  voting
rights  that  could  be  superior to that of our common  stock.  The  affirmative  vote
of  66-2/3%  of  our  voting  stock  is  required  to  approve  certain  transactions
and  to  take  certain  stockholder  actions,  including  the  amendment of certain
provisions  of  our  certificate  of  incorporation.  Our  bylaws  contain  provisions
that  regulate  how  stockholders  may  present  proposals  or  nominate  directors  for
election  at  annual  meetings of stockholders.

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

On
September  16, 2005,  we  announced  that our Board of  Directors  approved a
Stockholder  Rights Plan and declared a  dividend of one preferred  stock purchase right
(Right) for  each  share  of our  common  stock  held of  record  as of the
close of business on September 27, 2005.  In addition,  Rights  shall be  issued in
respect  of all  shares  of common  stock  issued  after  such  date,  including  the
shares  issued  hereunder,  pursuant  to  the  Plan.  The  Rights  contain  provisions
to  protect  stockholders  in  the  event  of  an  unsolicited  attempt to acquire us,
including an accumulation  of shares in the open  market,  a partial or  two-tier  tender
offer that does not treat all  stockholders  equally and other  activities  that  the
Board  believes  are  not in  the  best  interests  of  shareholders.  The  Rights  may
discourage  a  takeover  and  prevent  our  stockholders  from  receiving  a  premium for
their shares.

| | We
have  not  paid,  and  do  not  expect  to  pay in the  future, cash dividends on our
common stock.
| | ------------------------------------------------------------------------------------------------------

We
have never  paid cash  dividends  on our  common  stock  and  do  not  anticipate  paying
any  such  dividends  in the  foreseeable  future.  We  currently  intend  to  retain
our  earnings, if any, for the development of our business.

| | Our
stock price is volatile.
| | ----------------------------

The
market  price of our common  stock,  like that of the  common stock of many other
biopharmaceutical  companies,  has  been and likely will continue to be highly  volatile.
Factors  that could have a  significant  impact on the future  price of  our common stock
include but are not limited to:

| | · |  | the
results  of  preclinical  studies  and  clinical  trials by us or our competitors;
| | - |  | --------------------------------------------------------------------------------------

| | · |  | announcements
of  technological  innovations  or  new  therapeutic products by us or our competitors;
| | - |  | -----------------------------------------------------------------------------------------------------

| | · |  | government
regulation;
| | - |  | ----------------------

| | · |  | developments
in patent or other proprietary  rights by  us  or  our  respective  competitors,
including  litigation;
| | - |  | --------------------------------------------------------------------------------------------------------------------

| | · |  | fluctuations
in our operating results; and
| | - |  | ------------------------------------------

| | · |  | market
conditions  for  biopharmaceutical  stocks  in  general.
| | - |  | ---------------------------------------------------------------

At
March 31, 2006, we had 133.6  million  shares of common  stock  outstanding,  12.7
million  additional  shares reserved  for the  conversion  of  convertible  preferred
stock and the  exercise of  outstanding  options and warrants and 3.3 million  additional
shares of common  stock  authorized  for  issuance  and  remaining  to be granted  under
our stock  option  plans.  Future  sales  of  shares  of our  common  stock  by  existing
stockholders,  holders of  preferred  stock who might  convert  such  preferred  stock
into  common  stock  and  option  and  warrant  holders who may exercise  their  options
and warrants  to  purchase  common  stock  also could  adversely  affect the  market
price of our common  stock.  Moreover,  the  perception  that sales of  substantial
amounts of our common  stock might  occur could  adversely  affect the market  price of
our common  stock.

38



---

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

None.

Item 3.
Defaults Upon Senior Securities

None.

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

None.

Item 5.
Other Information

None.

39



---

Item 6.
Exhibits.

(a)
Exhibits

|ExhibitNumber | Description
of Document
|------------- | -----------------------

| | 10.1 |  | Form
of Placement  Agent  Agreement,  dated March 6, 2006 by and among the Company,  Cowen & Co.,
LLC and Rodman & Renshaw,  LLC  (incorporated  by reference  to Exhibit 10.2 to the
Companys  Current Report on Form 8-K filed on March 7, 2006, Commission File No.
0-19635)
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 |  | Form
of  Confirmation  of  Purchase,  dated March 10, 2006 by and between the Company and
certain  Investors  (incorporated by reference to Exhibit 10.34 to the Companys
Current Report on Form  10-K for year ended December 31, 2005 filed on March 10, 2006,
Commission File No. 0-19635)
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 |  | Form
of Amendment  No. 1 to Placement  Agent  Agreement,  dated as of March 10, 2006 by and
among  the Company,  Cowen & Co., LLC and Rodman & Renshaw, LLC (incorporated by
reference to Exhibit  10.35 to the Companys  Current  Report on on Form 10-K for
year ended December 31, 2005 filed  on March 10, 2006, Commission File No. 0-19635)
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4 |  | Employment
Agreement,  dated as of January 1, 2006,  between the Company and Raymond P. Warrell,
Jr., M.D.
| | ---- |  | ----------------------------------------------------------------------------------------------------------

| | 10.5 |  | Development
and License  Agreement,  dated March 22, 2006, by and between Genta  Incorporated and
Emisphere Technologies, Inc*.
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------

| | 10.6 |  | 1998
Stock Incentive  Plan, as amended and restated,  effective  April 5, 2006  (incorporated
by  reference  to the  Companys  Definitive  Proxy  Statement  on Schedule 14A
filed on April 28,  2006, Commission File No. 0-19635)
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 31.1 |  | Certification
by Chief Executive  Officer pursuant to Section 302 of the  Sarbanes-Oxley  Act of  2002
| | ---- |  | ------------------------------------------------------------------------------------------------------

| | 31.2 |  | Certification
by Chief Financial  Officer pursuant to Section 302 of the  Sarbanes-Oxley  Act of  2002
| | ---- |  | ------------------------------------------------------------------------------------------------------

| | 32.1 |  | Certification
by Chief Executive Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant  to
Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 |  | Certification
by Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant  to
Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

*
(Confidential treatment has been requested)

40



---

SIGNATURES

Pursuant
to the  requirements  of the Securities  Exchange  Act of 1934,  the  registrant  has
duly  caused this report to  be signed  on its  behalf by the  undersigned  thereunto
duly  authorized

|                  | Genta
  Incorporated                                                  
|----------------- | ----------------------------------------------------------------------
|Date: May 9, 2006 |                                                                       
|                  | /s/
RAYMOND
P.
WARRELL,
JR.,
M.D.                                     
|                  |                                                                       
|                  | Raymond
P.
Warrell,
Jr.,
M.D.                                         
|                  | Chairman
and
Chief
Executive
Officer                                  
|Date: May 9, 2006 |                                                                       
|                  | /s/
RICHARD
J. MORAN                                                  
|                  |                                                                       
|                  | Richard
J. Moran                                                      
|                  | Senior
Vice
President,
Chief
Financial
Officer
and
Corporate
Secretary

41



---

Exhibit Index

|ExhibitNumber | Description
of Document
|------------- | -----------------------

| | 10.1 |  | Form
of Placement  Agent  Agreement,  dated March 6, 2006 by and among the Company,  Cowen & Co.,
LLC and Rodman & Renshaw,  LLC  (incorporated  by reference  to Exhibit 10.2 to the
Companys  Current Report on Form 8-K filed on March 7, 2006, Commission File No.
0-19635)
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 |  | Form
of  Confirmation  of  Purchase,  dated March 10, 2006 by and between the Company and
certain  Investors  (incorporated by reference to Exhibit 10.34 to the Companys
Current Report on Form  10-K for year ended December 31, 2005 filed on March 10, 2006,
Commission File No. 0-19635)
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 |  | Form
of Amendment  No. 1 to Placement  Agent  Agreement,  dated as of March 10, 2006 by and
among  the Company,  Cowen & Co., LLC and Rodman & Renshaw, LLC (incorporated by
reference to Exhibit  10.35 to the Companys  Current  Report on on Form 10-K for
year ended December 31, 2005 filed  on March 10, 2006, Commission File No. 0-19635)
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4 |  | Employment
Agreement,  dated as of January 1, 2006,  between the Company and Raymond P. Warrell,
Jr., M.D.
| | ---- |  | ----------------------------------------------------------------------------------------------------------

| | 10.5 |  | Development
and License  Agreement,  dated March 22, 2006, by and between Genta Incorporated and
Emisphere Technologies, Inc*.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------

| | 10.6 |  | 1998
Stock Incentive  Plan, as amended and restated,  effective  April 5, 2006  (incorporated
by  reference  to the  Companys  Definitive  Proxy  Statement  on Schedule 14A
filed on April 28,  2006, Commission File No. 0-19635)
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 31.1 |  | Certification
by Chief Executive  Officer pursuant to Section 302 of the  Sarbanes-Oxley  Act of  2002
| | ---- |  | ------------------------------------------------------------------------------------------------------

| | 31.2 |  | Certification
by Chief Financial  Officer pursuant to Section 302 of the  Sarbanes-Oxley  Act of  2002
| | ---- |  | ------------------------------------------------------------------------------------------------------

| | 32.1 |  | Certification
by Chief Executive Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant  to
Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 |  | Certification
by Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant  to
Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

*
(Confidential treatment has been requested)

42