|  |
|--|
|  |
|  |
|  |
|  |

UNITEDSTATESSECURITIES AND EXCHANGECOMMISSION

Washington, D.C. 20549

FORM10-Q

(Mark One)

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

For the quarterly period ended September30,  2006

OR

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

For the transition period from                 to            

Commission File Number 0-19635

GENTAINCORPORATED

(Exact name of Registrant as specifiedin itscharter)

|                                                             |  |  |                                       |
|-------------------------------------------------------------|--|--|---------------------------------------|
| Delaware                                                    |  |  | 33-0326866                            |
| (Stateor other jurisdiction ofincorporation ororganization) |  |  | (I.R.S. EmployerIdentificationNumber) |
| 200 ConnellDriveBerkeley Heights,NJ                         |  |  | 07922                                 |
| (Address of principal executiveoffices)                     |  |  | (ZipCode)                             |
|                                                             |

(908)286-9800

(Registrant's telephone number,including area code)

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

Yes                    No    

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

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

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

Yes                    No    

Asof October  31,  2006, the registrant had 153,724,815shares of common stockoutstanding.

|  |
|--|
|  |
|  |
|  |
|  |

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GentaIncorporated INDEX TO FORM10-Q

|                             |  |  |                                                                                                    |  |        |        |  |        |        |
|-----------------------------|--|--|----------------------------------------------------------------------------------------------------|--|--------|--------|--|--------|--------|
|                        |  |  |                                                                                               |  |        | Page   |
| PARTI. FINANCIALINFORMATION |  |  |                                                                                                    |  |   |   |
| Item1.                      |  |  | ConsolidatedFinancial Statements(unaudited):                                                       |  |        |        |  |   |   |
|                        |  |  | ConsolidatedBalance Sheets at September 30, 2006 and December31,2005                               |  |        |        |  | 3      |   |
|                        |  |  | ConsolidatedStatements of Operations for the Three and Nine Months EndedSeptember 30, 2006 and2005 |  |        |        |  | 4      |   |
|                        |  |  | ConsolidatedStatements of Cash Flows for the Nine Months EndedSeptember 30, 2006 and2005           |  |        |        |  | 5      |   |
|                        |  |  | Notes toConsolidated FinancialStatements                                                           |  |        |        |  | 6      |   |
| Item2.                      |  |  | Management's Discussion and Analysis of FinancialCondition and Results ofOperations                |  |        |        |  | 17     |   |
| Item3.                      |  |  | Quantitative and Qualitative Disclosures about MarketRisk                                          |  |        |        |  | 25     |   |
| Item 4.                     |  |  | Controlsand Procedures                                                                             |  |        |        |  | 25     |   |
| PARTII. OTHER INFORMATION   |  |  |                                                                                                    |  |   |   |
| Item1.                      |  |  | LegalProceedings                                                                                   |  |        |        |  | 26     |   |
| Item1A.                     |  |  | Risk Factors                                                                                       |  |        |        |  | 27     |   |
| Item2.                      |  |  | Unregistered Sales of Equity Securities and Use ofProceeds                                         |  |        |        |  | 40     |   |
| Item3.                      |  |  | Defaults Upon SeniorSecurities                                                                     |  |        |        |  | 40     |   |
| Item4.                      |  |  | Submission of Matters to a Vote of SecurityHolders                                                 |  |        |        |  | 40     |   |
| Item 5.                     |  |  | OtherInformation                                                                                   |  |        |        |  | 41     |   |
| Item6.                      |  |  | Exhibits                                                                                           |  |        |        |  | 41     |   |
| SIGNATURES                  |  |  |                                                                                                    |  | 42     |   |
| CERTIFICATIONS              |  |  |                                                                                                    |  |   |   |
|                             |

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Table of Contents

GENTAINCORPORATEDCONSOLIDATED BALANCESHEETS(Unaudited)

|                                                                                                                                                                                              |  |  |                    |   |          |                 |  |  |  |   |          |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--------------------|---|----------|-----------------|--|--|--|---|----------|---|
| (Inthousands, except par valuedata)                                                                                                                                                          |  |  | September  30,2006 |   |          | December31,2005 |
| ASSETS                                                                                                                                                                                       |  |  |                    |   |     |                 |  |  |  |   |     |   |
| Currentassets:                                                                                                                                                                               |  |  |                    |   |     |                 |  |  |  |   |     |   |
| Cash andcash equivalents                                                                                                                                                                     |  |  |                    | $ | 28,754   |                 |  |  |  | $ | 9,314    |   |
| Marketablesecurities (Note3).                                                                                                                                                                |  |  |                    |   | 11,363   |                 |  |  |  |   | 11,968   |   |
| Accountsreceivable – net of allowances of $44 at September  30,2006 and $40 at December  31,  2005, respectively                                                                       |  |  |                    |   | 37       |                 |  |  |  |   | 59       |   |
| Inventory (Note4)                                                                                                                                                                            |  |  |                    |   | 317      |                 |  |  |  |   | 396      |   |
| Prepaid expenses andother current assets                                                                                                                                                     |  |  |                    |   | 835      |                 |  |  |  |   | 1,655    |   |
| Totalcurrentassets                                                                                                                                                                           |  |  |                    |   | 41,306   |                 |  |  |  |   | 23,392   |   |
| Propertyand equipment, net (Note5)                                                                                                                                                           |  |  |                    |   | 316      |                 |  |  |  |   | 1,077    |   |
| Prepaidroyalties (Note6)                                                                                                                                                                     |  |  |                    |   | 1,268    |                 |  |  |  |   | 1,268    |   |
| Other assets                                                                                                                                                                                 |  |  |                    |   | 1,670    |                 |  |  |  |   | 1,649    |   |
| Totalassets                                                                                                                                                                                  |  |  |                    | $ | 44,560   |                 |  |  |  | $ | 27,386   |   |
| LIABILITIESAND STOCKHOLDERS'EQUITY                                                                                                                                                           |  |  |                    |   |     |                 |  |  |  |   |     |   |
| Currentliabilities:                                                                                                                                                                          |  |  |                    |   |     |                 |  |  |  |   |     |   |
| Accounts payable andaccruedexpenses                                                                                                                                                          |  |  |                    | $ | 13,183   |                 |  |  |  | $ | 10,960   |   |
| Notespayable                                                                                                                                                                                 |  |  |                    |   | 118      |                 |  |  |  |   | 729      |   |
| Totalcurrentliabilities                                                                                                                                                                      |  |  |                    |   | 13,301   |                 |  |  |  |   | 11,689   |   |
| Commitmentsand contingencies (Note11)                                                                                                                                                        |  |  |                    |   |     |                 |  |  |  |   |     |   |
| Stockholders'equity (Note 7):                                                                                                                                                                |  |  |                    |   |     |                 |  |  |  |   |     |   |
| Preferred stock,5,000 sharesauthorized                                                                                                                                                       |  |  |                    |   | —  |                 |  |  |  |   | —  |   |
| Series Aconvertible preferred stock, $.001 par value; 8 and 10 sharesissued and outstanding, liquidation value of $385 and $485 atSeptember  30,  2006 and December  31,  2005,respectively. |  |  |                    |   | —  |                 |  |  |  |   | —  |   |
| SeriesG participating cumulative preferred stock, $.001 par value; 0 sharesissued and outstanding at September  30,  2006 andDecember  31,2005                                               |  |  |                    |   | —  |                 |  |  |  |   | —  |   |
| Common stock,$.001 par value; 250,000 and 150,000 shares authorized, 153,725 and114,550 shares issued and outstanding at September  30,2006 and December  31,  2005,respectively             |  |  |                    |   | 154      |                 |  |  |  |   | 115      |   |
| Additionalpaid-incapital                                                                                                                                                                     |  |  |                    |   | 428,723  |                 |  |  |  |   | 373,709  |   |
| Accumulateddeficit                                                                                                                                                                           |  |  |                    |   | (397,664 | )               |  |  |  |   | (358,187 | ) |
| Accumulatedother comprehensiveincome                                                                                                                                                         |  |  |                    |   | 46       |                 |  |  |  |   | 60       |   |
| Totalstockholders'equity                                                                                                                                                                     |  |  |                    |   | 31,259   |                 |  |  |  |   | 15,697   |   |
| Totalliabilities and stockholders'equity                                                                                                                                                     |  |  |                    | $ | 44,560   |                 |  |  |  | $ | 27,386   |   |
|                                                                                                                                                                                              |

Seeaccompanying notes to consolidated financialstatements

3

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GENTA INCORPORATEDCONSOLIDATEDSTATEMENTS OFOPERATIONS(Unaudited)

|                                                            |  |  |                                 |   |         |                                |  |  |      |   |         |      |  |  |  |   |         |   |  |  |  |   |         |   |
|------------------------------------------------------------|--|--|---------------------------------|---|---------|--------------------------------|--|--|------|---|---------|------|--|--|--|---|---------|---|--|--|--|---|---------|---|
|                                                       |  |  | ThreeMonths Ended September 30, |   |         | Nine Months Ended September30, |
| (Inthousands, except per sharedata)                        |  |  | 2006                            |   |         | 2005                           |  |  | 2006 |   |         | 2005 |
| Revenues:                                                  |  |  |                                 |   |    |                                |  |  |      |   |    |      |  |  |  |   |    |   |  |  |  |   |    |   |
| Licensefees and royalties                                  |  |  |                                 | $ | — |                                |  |  |      | $ | — |      |  |  |  | $ | — |   |  |  |  | $ | 5,241   |   |
| Developmentfunding                                         |  |  |                                 |   | — |                                |  |  |      |   | — |      |  |  |  |   | — |   |  |  |  |   | 20,988  |   |
| Productsales – net (Note2)                           |  |  |                                 |   | 145     |                                |  |  |      |   | 86      |      |  |  |  |   | 591     |   |  |  |  |   | 259     |   |
| Totalrevenues                                              |  |  |                                 |   | 145     |                                |  |  |      |   | 86      |      |  |  |  |   | 591     |   |  |  |  |   | 26,488  |   |
| Costof goods sold                                          |  |  |                                 |   | 41      |                                |  |  |      |   | 22      |      |  |  |  |   | 79      |   |  |  |  |   | 35      |   |
| Operatingexpenses:                                         |  |  |                                 |   |    |                                |  |  |      |   |    |      |  |  |  |   |    |   |  |  |  |   |    |   |
| Researchanddevelopment                                     |  |  |                                 |   | 8,514   |                                |  |  |      |   | 4,619   |      |  |  |  |   | 21,900  |   |  |  |  |   | 14,040  |   |
| Selling,general andadministrative                          |  |  |                                 |   | 6,939   |                                |  |  |      |   | 3,495   |      |  |  |  |   | 19,112  |   |  |  |  |   | 12,116  |   |
| Losson disposition of property andequipment                |  |  |                                 |   | — |                                |  |  |      |   | 1       |      |  |  |  |   | — |   |  |  |  |   | 4       |   |
| Totaloperating expenses –gross                       |  |  |                                 |   | 15,453  |                                |  |  |      |   | 8,115   |      |  |  |  |   | 41,012  |   |  |  |  |   | 26,160  |   |
| sanofi-aventisreimbursement                                |  |  |                                 |   | — |                                |  |  |      |   | — |      |  |  |  |   | — |   |  |  |  |   | (6,090  | ) |
| Totaloperating expenses –net                         |  |  |                                 |   | 15,453  |                                |  |  |      |   | 8,115   |      |  |  |  |   | 41,012  |   |  |  |  |   | 20,070  |   |
| Otherincome/(expense):                                     |  |  |                                 |   |    |                                |  |  |      |   |    |      |  |  |  |   |    |   |  |  |  |   |    |   |
| Gainon forgiveness ofdebt                                  |  |  |                                 |   | — |                                |  |  |      |   | — |      |  |  |  |   | — |   |  |  |  |   | 1,297   |   |
| Gainon maturity of marketablesecurities                    |  |  |                                 |   | 124     |                                |  |  |      |   | — |      |  |  |  |   | 245     |   |  |  |  |   | — |   |
| Interestincome and other income,net                        |  |  |                                 |   | 303     |                                |  |  |      |   | 147     |      |  |  |  |   | 829     |   |  |  |  |   | 436     |   |
| Interestexpense                                            |  |  |                                 |   | (18     | )                              |  |  |      |   | — |      |  |  |  |   | (51     | ) |  |  |  |   | (75     | ) |
| Totalother income,net                                      |  |  |                                 |   | 409     |                                |  |  |      |   | 147     |      |  |  |  |   | 1,023   |   |  |  |  |   | 1,658   |   |
| Net(loss)/income                                           |  |  |                                 | $ | (14,940 | )                              |  |  |      | $ | (7,904  | )    |  |  |  | $ | (39,477 | ) |  |  |  | $ | 8,041   |   |
| Net(loss)/income per basic and diluted share (Note10)      |  |  |                                 | $ | (0.11   | )                              |  |  |      | $ | (0.07   | )    |  |  |  | $ | (0.31   | ) |  |  |  | $ | 0.08    |   |
| Sharesused in computing net (loss)/income per basicshare   |  |  |                                 |   | 135,587 |                                |  |  |      |   | 105,629 |      |  |  |  |   | 129,116 |   |  |  |  |   | 98,820  |   |
| Sharesused in computing net (loss)/income per dilutedshare |  |  |                                 |   | 135,587 |                                |  |  |      |   | 105,629 |      |  |  |  |   | 129,116 |   |  |  |  |   | 99,015  |   |
|                                                            |

Seeaccompanying notes to consolidated financialstatements

4

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GENTA INCORPORATEDCONSOLIDATEDSTATEMENTS OF CASHFLOWS(Unaudited)

|                                                                                    |  |  |                               |   |         |      |  |  |  |   |         |   |
|------------------------------------------------------------------------------------|--|--|-------------------------------|---|---------|------|--|--|--|---|---------|---|
|                                                                               |  |  | NineMonths Ended September30, |
| (Inthousands)                                                                      |  |  | 2006                          |   |         | 2005 |
| Operatingactivities:                                                               |  |  |                               |   |    |      |  |  |  |   |    |   |
| Net(loss)/income                                                                   |  |  |                               | $ | (39,477 | )    |  |  |  | $ | 8,041   |   |
| Adjustmentsto reconcile net (loss)/income to net cash used in operatingactivities: |  |  |                               |   |    |      |  |  |  |   |    |   |
| Depreciationand amortization                                                       |  |  |                               |   | 843     |      |  |  |  |   | 1,723   |   |
| Stock-basedcompensation (Note8)                                                    |  |  |                               |   | 2,298   |      |  |  |  |   | — |   |
| Provisionfor salesreturns                                                          |  |  |                               |   | (300    | )    |  |  |  |   | — |   |
| Gainon maturity of marketablesecurities                                            |  |  |                               |   | (245    | )    |  |  |  |   | — |   |
| Losson disposition of property andequipment                                        |  |  |                               |   | — |      |  |  |  |   | 4       |   |
| Compensationexpense related to certain stock options issued in 1999 and2000        |  |  |                               |   | — |      |  |  |  |   | 34      |   |
| Non-cashreimbursement of research and developmentexpense                           |  |  |                               |   | — |      |  |  |  |   | (6,090  | ) |
| Provisionfor excess inventory                                                      |  |  |                               |   | — |      |  |  |  |   | (21     | ) |
| Gain onforgiveness ofdebt                                                          |  |  |                               |   | — |      |  |  |  |   | (1,297  | ) |
| Amortizationof deferred revenues                                                   |  |  |                               |   | — |      |  |  |  |   | (26,228 | ) |
| Changesin operating assets andliabilities:                                         |  |  |                               |   |    |      |  |  |  |   |    |   |
| Accountsreceivable                                                                 |  |  |                               |   | 22      |      |  |  |  |   | (44     | ) |
| Inventory(Note 4)                                                                  |  |  |                               |   | 79      |      |  |  |  |   | 55      |   |
| Prepaidexpenses and other currentassets                                            |  |  |                               |   | 820     |      |  |  |  |   | 1,280   |   |
| Accountspayable and accrued expenses                                               |  |  |                               |   | 2,433   |      |  |  |  |   | (6,538  | ) |
| Otherassets                                                                        |  |  |                               |   | (21     | )    |  |  |  |   | (15     | ) |
| Netcash used in operatingactivities                                                |  |  |                               |   | (33,548 | )    |  |  |  |   | (29,096 | ) |
| Investingactivities:                                                               |  |  |                               |   |    |      |  |  |  |   |    |   |
| Purchase ofmarketable securities (Note3)                                           |  |  |                               |   | (34,880 | )    |  |  |  |   | (21,839 | ) |
| Maturitiesof marketable securities (Note3)                                         |  |  |                               |   | 35,716  |      |  |  |  |   | 11,763  |   |
| Purchase ofproperty andequipment                                                   |  |  |                               |   | (83     | )    |  |  |  |   | (56     | ) |
| Proceedsfrom sale of property andequipment                                         |  |  |                               |   | — |      |  |  |  |   | 34      |   |
| Net cashprovided by/(used in) investingactivities                                  |  |  |                               |   | 753     |      |  |  |  |   | (10,098 | ) |
| Financingactivities:                                                               |  |  |                               |   |    |      |  |  |  |   |    |   |
| Repaymentsof notepayable                                                           |  |  |                               |   | (611    | )    |  |  |  |   | (687    | ) |
| Issuanceof common stock, net (Note7)                                               |  |  |                               |   | 52,691  |      |  |  |  |   | 16,297  |   |
| Issuance ofcommon stock upon exercise of stockoptions                              |  |  |                               |   | 155     |      |  |  |  |   | — |   |
| Netcash provided by financingactivities                                            |  |  |                               |   | 52,235  |      |  |  |  |   | 15,610  |   |
| Increase/(decrease)in cash and cashequivalents                                     |  |  |                               |   | 19,440  |      |  |  |  |   | (23,584 | ) |
| Cash andcash equivalents at beginning ofperiod                                     |  |  |                               |   | 9,314   |      |  |  |  |   | 36,489  |   |
| Cashand cash equivalents at end ofperiod                                           |  |  |                               | $ | 28,754  |      |  |  |  | $ | 12,905  |   |
|                                                                                    |

Seeaccompanying notes to consolidated financialstatements.

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GENTAINCORPORATEDNOTES TO CONSOLIDATED FINANCIALSTATEMENTSSeptember  30,2006(Unaudited)

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

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

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

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

TheCompany had $40.1  million of cash, cash equivalents andmarketable securities on hand at September  30,  2006. OnSeptember  25,  2006, the Company sold 20.0  millionshares of its common stock at a price of $0.79 per share for grossproceeds of $15.8  million, before fees and expenses. Afterdeducting fees and expenses the Company received net proceeds of$14.9  million. Net cash used in operating activities during thenine months ended September  30,  2006 was $33.5million, which represents an average monthly outflow of $3.7million. The Company should have sufficient cash funds to maintain itsoperations for the next twelve months.

On September6,  2006, the Oncologic Drugs Advisory Committee(‘‘ODAC’’) voted seven to three not torecommend approval of Genasense® (oblimersen sodium)Injection for the treatment of patients with relapsed or refractorychronic lymphocytic leukemia (‘‘CLL’’).While ODAC’s recommendation is not binding, the FDA willconsider this opinion during completion of its ongoing review of theGenasense® New Drug Application(‘‘NDA’’), which had a target action datefor a marketing approval decision by October  29,  2006.The Company requested a meeting with the FDA and submitted additionaldata analyses in support of the NDA. On October  30,  2006,the Company announced that the FDA determined that the new informationconstituted a major amendment to the NDA and extended the review periodfor ninety days to January  29,  2007.

The Companyalso has a pending Marketing Authorization Application(‘‘MAA’’) before the European MedicinesAgency (‘‘EMEA’’) for the use ofGenasense® plus chemotherapy for treatment ofpatients with advanced melanoma. The Company currently anticipates thata regulatory opinion on the MAA will be issued during the first quarterof 2007.

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Irrespective of whether the co-pending NDAand MAA for Genasense® are approved, the Companyanticipates that it will require additional cash in order to maximizethis commercial opportunity and continue its clinical developmentopportunities. The Company has had discussions with other companiesregarding partnerships for the further development and globalcommercialization of Genasense®. Additionalalternatives available to the Company to subsequently sustain itsoperations include financing arrangements with potential corporatepartners, debt financing, asset-based loans, royalty-based financings,equity financing and other sources. However, there can be no assurancethat any such collaborative agreements or other sources of funding willbe available on favorable terms, if at all.

If the Company isunable to raise additional funds, management will need to do one ormore of the following:

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

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

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

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

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

|          |                                           |
|----------|-------------------------------------------|
| 2.  | Summary of Significant AccountingPolicies |

Basis of Presentation

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

RevenueRecognition

Genta recognizes revenue from product sales whentitle to product and associated risk of loss has passed to the customerand the Company is reasonably assured of collecting payment for thesale. All revenue from product sales are recorded net of applicableallowances for returns, rebates and other applicable discounts andallowances. The Company allows return of its product for up to twelvemonths after product expiration. In December  2004, a wholesalercontacted the Company to return a significant portion of its inventoryof Ganite®. The Company agreed to the return of thisproduct and recorded a provision for sales returns, as well as providedfor potential returns from other wholesalers. In January  2005,the wholesaler returned $0.5  million ofGanite®. In the second quarter of 2006, the Companyrevised its forecast of expected Ganite® returnsbased on actual experience to date, product expiration dates and dataobtained from wholesalers. As a result, the Company reduced its salesreturn provision by $0.3  million, to reflect this change inestimate. At September  30,  2006, the Company’sremaining provision for sales returns was $0.3  million.

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

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

The Company determined that, due to the nature ofthe ongoing development work related to its Collaborative Agreementwith Aventis, the end of the development phase and the fair value ofthe undelivered elements were not determinable. Accordingly, theCompany deferred recognition of the initial licensing fee and up-frontdevelopment funding received from Aventis and recognized these paymentson a straight-line basis over the original estimated useful life of therelated first-to-expire patent of 115 months. As a result of the noticeof termination of the agreement with Aventis, the remaining deferredrevenue was recognized over the six-month termination notice periodfrom November  2004 to May  2005.

Research andDevelopment

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

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

Cash, CashEquivalents and Marketable Securities

The carrying amounts ofcash, cash equivalents and marketable securities approximate fair valuedue to the short-term nature of these instruments. Marketablesecurities primarily consist of government securities, all of which areclassified as available-for-sale. Management determines the appropriateclassification of securities at the time of purchase and reassesses theclassification at each reporting date.

Property andEquipment

Property and equipment is stated at cost anddepreciated using the straight-line method over the estimated usefullives of the assets, ranging from three to five years. Leaseholdimprovements incurred in the renovation of the Company’scorporate offices are being amortized over the remaining life of theleases. The Company’s policy is to evaluate the appropriatenessof the carrying value of the undepreciated value of long-lived assets.If such evaluation were to indicate an impairment of assets, suchimpairment would be recognized by a write-down of the applicableassets.

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Inventories

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

Income Taxes

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

Stock Options

Effective January 1, 2006,Genta adopted the fair value recognition provisions of Statement ofFinancial Accounting Standards No. 123 (revised 2004),Share-Based Payment, (‘‘SFAS123R’’), using the modified prospective transition methodand therefore has not restated results for prior periods. Under the newstandard, all share-based payments including grants of employee stockoptions are recognized in the Consolidated Statement of Operationsbased on their fair values, as pro-forma disclosure is no longer analternative. The amount of compensation cost is measured based on thegrant-date fair value of the equity instrument issued. The Companyutilizes a Black-Scholes option-pricing model to measure the fair valueof stock options granted to employees. See Note 8 to our ConsolidatedFinancial Statements for a further discussion on stock-basedcompensation.

Recent Accounting Pronouncements

InSeptember  2006, the Securities and Exchange Commission(‘‘SEC’’) issued Staff Accounting Bulletin(‘‘SAB’’) No. 108, Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatementsin Current Year Financial Statements. SAB No. 108 providesinterpretive guidance on the consideration of the effects of prior yearmisstatements in quantifying current year misstatements for the purposeof a materiality assessment. The cumulative effect, if any, of applyingthe provisions of SAB No. 108 will be reported as anadjustment to beginning-of-year retained earnings. We are required toadopt SAB No. 108 for our fiscal year endingDecember  31,  2007. The Company does not expect theadoption of SAB No. 108 to have a material effect on itsfinancial statements.

In September  2006, the FinancialAccounting Standards Board (‘‘FASB’’)issued SFAS No. 157, Fair Value Measurements.SFAS No. 157 defines fair value, establishes a frameworkfor measuring fair value in accounting principles generally accepted inthe United States of America and expands disclosures about fair valuemeasurements. SFAS No. 157 applies under other accountingpronouncements that require or permit fair value measurements.Accordingly, this pronouncement does not require any new fair valuemeasurements. The Company is required to adoptSFAS No. 157 beginning January  1,  2008. TheCompany is currently evaluating the impact, if any, the adoption ofSFAS No. 157 may have on its financialstatements.

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In September  2006, the FASB issuedSFAS No. 158, Employers’ Accounting for DefinedBenefit Pension and Other Postretirement Plans, an amendment ofFASB Statements No. 87, 88, 106, and 132(R). SFAS 158requires an employer to recognize the over-funded or under-fundedstatus of a defined benefit postretirement plan (other than amultiemployer plan) as an asset or liability in its statement offinancial position and to recognize changes in that funded status inthe year in which the changes occur through comprehensive income. Inaddition, with limited exceptions, this pronouncement requires anemployer to measure the funded status of a plan as of the date of itsyear-end statement of financial position. SFAS No. 158 is effective forfiscal years ending after December  15,  2006. As theCompany does not have any defined benefit pension plans or otherpostretirement plans, it does not expect the adoption of this standardto have any impact on its financial statements.

In July2006, the FASB issued FASB Interpretation No. 48 (FIN 48),Accounting for Uncertainty in Income Taxes. FIN 48 prescribesdetailed guidance for the financial statement recognition, measurementand disclosure of uncertain tax positions recognized in anenterprise’s financial statements in accordance with FASBStatement No. 109, Accounting for Income Taxes. Tax positionsmust meet a more-likely-than-not recognition threshold at the effectivedate to be recognized upon the adoption of FIN 48 and in subsequentperiods. FIN 48 will be effective for fiscal years beginning afterDecember  15,  2006 and the provisions of FIN 48 will beapplied to all tax positions upon initial adoption of theInterpretation. The cumulative effect of applying the provisions ofthis Interpretation will be reported as an adjustment to the openingbalance of retained earnings for that fiscal year. The Company iscurrently evaluating the potential impact of FIN 48 on its financialstatements.

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

The carryingamounts of the Company’s marketable securities, which areprimarily securities of government-backed agencies, approximate fairvalue due to the short-term nature of these instruments. The fair valueof available-for-sale marketable securities is as follows ($thousands):

|                       |  |  |                  |   |        |                 |  |  |  |   |         |        |
|-----------------------|--|--|------------------|---|--------|-----------------|--|--|--|---|---------|--------|
|                  |  |  | September30,2006 |   |        | December31,2005 |
| Cost                  |  |  |                  | $ | 11,317 |            |  |  |  | $ | 11,908  |   |
| Grossunrealized gains |  |  |                  |   | 49     |            |  |  |  |   | 60      |   |
| Grossunrealizedlosses |  |  |                  |   | (3     | )          |  |  |  |   | — |   |
| Fairvalue             |  |  |                  | $ | 11,363 |            |  |  |  | $ | 11,968  |   |
|                       |

Duringthe three and nine months ended September  30,  2006, theCompany recorded $124  thousand and $245  thousand,respectively, in realized gains on the maturity of marketablesecurities.

The estimated fair value of each marketable securityhas been compared with its cost, and therefore, a net unrealized gainof $46  thousand and $60  thousand has been recognized inAccumulated other comprehensive income at September  30,2006 and December  31,  2005,respectively.

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

Inventoryconsisted of the following ($thousands):

|                |  |  |                  |   |         |                   |  |  |  |   |         |        |
|----------------|--|--|------------------|---|---------|-------------------|--|--|--|---|---------|--------|
|           |  |  | September30,2006 |   |         | December 31, 2005 |
| Rawmaterials   |  |  |                  | $ | 191     |              |  |  |  | $ | 191     |   |
| Work inprocess |  |  |                  |   | — |              |  |  |  |   | — |   |
| Finishedgoods  |  |  |                  |   | 126     |              |  |  |  |   | 205     |   |
|           |  |  |                  | $ | 317     |              |  |  |  | $ | 396     |   |
|                |

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

|          |                        |
|----------|------------------------|
| 5.  | Property and Equipment |

Property and equipment iscomprised of the following ($ thousands):

|                                              |  |  |                      |  |   |                  |   |        |                 |   |       |        |   |        |         |   |       |        |
|----------------------------------------------|--|--|----------------------|--|---|------------------|---|--------|-----------------|---|-------|--------|---|--------|---------|---|-------|--------|
|                                         |  |  | EstimatedUsefulLives |  |   | September30,2006 |   |        | December31,2005 |
| Computerequipment                            |  |  |                      |  | 3 |             |   |        |                 | $ | 2,950 |   |   |        |         | $ | 2,871 |   |
| Software                                     |  |  |                      |  | 3 |             |   |        |                 |   | 3,352 |   |   |        |         |   | 3,349 |   |
| Furniture andfixtures                        |  |  |                      |  | 5 |             |   |        |                 |   | 936   |   |   |        |         |   | 936   |   |
| Leaseholdimprovements                        |  |  | Lifeoflease          |  |   |                  |   | 410    |            |   |       |        |   | 410    |    |
| Equipment                                    |  |  |                      |  | 5 |             |   |        |                 |   | 183   |   |   |        |         |   | 82    |   |
|                                         |  |  |                 |  |   |                  |   | 7,831  |            |   |       |        |   | 7,748  |    |
| Lessaccumulated depreciation andamortization |  |  |                 |  |   |                  |   | (7,515 | )          |   |       |        |   | (6,671 | )  |
|                                         |  |  |                 |  |   |                  | $ | 316    |            |   |       |        | $ | 1,077  |    |
|                                              |

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

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

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

CommonStock

In September  2006, the Company issued 20.0million shares of its common stock at a price of $0.79 per share,raising $14.9  million, net of fees and expenses.

InMarch  2006, the Company issued 19.0  million shares of itscommon stock at a price of $2.15 per share, raising$37.7  million, net of fees and expenses.

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In March  2006, the Board ofDirectors approved an amendment to increase the number of shares ofauthorized common stock to 250.0  million shares from150.0  million shares. In June  2006, the Company’sstockholders approved this amendment at the Company’s AnnualMeeting of Stockholders.

Series A Preferred Stock

Eachshare of Series A Preferred Stock is immediately convertible intoshares of the Company’s common stock, at a rate determined bydividing the aggregate liquidation preference of the Series A PreferredStock by the conversion price. The conversion price is subject toadjustment for antidilution. As of September  30,  2006 andDecember  31,  2005, each share of Series A Preferred Stockwas convertible into 11.9813 and 9.8067 shares of common stock,respectively. At September  30,  2006 and December31,  2005, the Company had 7,700 and 9,700 shares, respectively,of Series A Convertible Preferred Stock issued and outstanding.

Common Stock Reserved

At September  30,  2006,the Company had 153.7  million shares of common stockoutstanding, 13.0  million additional shares reserved for theconversion of convertible preferred stock and the exercise ofoutstanding options and warrants and 4.9  million additionalshares of common stock authorized for issuance and remaining to begranted under the Company’s stock optionplans.

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

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

The Company estimates the fair value ofeach option award on the date of the grant using the Black-Scholesoption valuation model. Expected volatilities are based on thehistorical volatility of the Company’s common stock over aperiod commensurate with the options’ expected term. Theexpected term represents the period of time that options granted areexpected to be outstanding and is calculated in accordance with theSecurities and Exchange Commission(‘‘SEC’’) guidance provided in theSEC’s Staff Accounting Bulletin 107, (‘‘SAB107’’), using a‘‘simplified’’ method. The risk-freeinterest rate assumption is based upon observed interest ratesappropriate for the expected term of the Company’s stockoptions. The following table summarizes the weighted-averageassumptions used in the Black-Scholes model for options granted duringthe nine months ended September  30,  2006 and2005:

|                         |  |  |      |  |         |         |  |  |  |  |         |         |
|-------------------------|--|--|------|--|---------|---------|--|--|--|--|---------|---------|
|                    |  |  | 2006 |  |         | 2005    |
| Expectedvolatility      |  |  |      |  | 97      | %  |  |  |  |  | 118     | %  |
| Expecteddividends       |  |  |      |  | — |    |  |  |  |  | — |    |
| Expectedterm (in years) |  |  |      |  | 6.25    |    |  |  |  |  | 6.25    |    |
| Risk-freerate           |  |  |      |  | 4.6     | %  |  |  |  |  | 4.3     | %  |
|                         |

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

The following table sets forth the pro-forma net(loss)/income as if the fair value method had been applied to allawards:

|                                                                                                                                           |  |  |                                     |   |        |                                    |  |  |  |   |        |         |
|-------------------------------------------------------------------------------------------------------------------------------------------|--|--|-------------------------------------|---|--------|------------------------------------|--|--|--|---|--------|---------|
| ($thousands, except per share data)                                                                                                       |  |  | ThreeMonths EndedSeptember 30, 2005 |   |        | Nine MonthsEndedSeptember 30, 2005 |
| Net income/(loss)applicable to common shares, asreported                                                                                  |  |  |                                     | $ | (7,904 | )                             |  |  |  | $ | 8,041  |    |
| Add: Equityrelated employee compensation expense included in reported net income,net of related taxeffects                                |  |  |                                     |   | 11     |                               |  |  |  |   | 34     |    |
| Deduct: Totalstock-based employee compensation expense determined under fair valuesbased method for all awards, net of related taxeffects |  |  |                                     |   | (1,291 | )                             |  |  |  |   | (4,248 | )  |
| Proforma netincome/(loss)                                                                                                                 |  |  |                                     | $ | (9,184 | )                             |  |  |  | $ | 3,827  |    |
| Netincome/(loss) per share attributable to commonshareholders:                                                                            |  |  |                                     |   |   |                               |  |  |  |   |   |    |
| As reported: Basicand diluted                                                                                                             |  |  |                                     | $ | (0.07  | )                             |  |  |  | $ | 0.08   |    |
| Pro forma:Basic anddiluted                                                                                                                |  |  |                                     | $ | (0.09  | )                             |  |  |  | $ | 0.04   |    |
|                                                                                                                                           |

For thethree and nine months ended September  30,  2005, selling,general and administrative expenses include $11  thousand and$34  thousand, respectively, of non-cash compensation expenserelated to certain stock options issued in 1999 and 2000.

TheCompany recorded a SFAS 123R adjustment in the amount of approximately$0.9  million and $2.3  million for the three and ninemonths ended September  30,  2006, respectively. The impacton both basic and diluted earnings per share for the three and ninemonths ended September  30,  2006 was $0.01 per share and$0.02 per share, respectively. The estimated share-based compensationexpense, related to all of the Company’s share-based awards,recognized for the three months and nine months ended September30,  2006 was comprised asfollows:

|                                                       |  |  |                                     |   |        |                                    |  |  |  |   |        |        |
|-------------------------------------------------------|--|--|-------------------------------------|---|--------|------------------------------------|--|--|--|---|--------|--------|
| ($thousands, except per share data)                   |  |  | ThreeMonths EndedSeptember 30, 2006 |   |        | Nine MonthsEndedSeptember 30, 2006 |
| Research anddevelopment expenses                      |  |  |                                     | $ | 342    |                               |  |  |  | $ | 740    |   |
| Selling, general andadministrativeexpenses            |  |  |                                     |   | 513    |                               |  |  |  |   | 1,558  |   |
| Totalshare-based compensation expense                 |  |  |                                     | $ | 855    |                               |  |  |  | $ | 2,298  |   |
| Netshare-based compensation expense, per commonshare: |  |  |                                     |   |   |                               |  |  |  |   |   |   |
| Basic and diluted                                     |  |  |                                     | $ | 0.01   |                               |  |  |  | $ | 0.02   |   |
|                                                       |

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As of September  30,  2006,the Company has two share-based compensation plans, which are describedbelow.

1998 Stock Incentive Plan

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

The following tablesummarizes the option activity under the 1998 Plan as ofSeptember  30,  2006 and changes during the nine monthsthenended:

|                                    |  |  |                                |  |         |                              |  |  |                                                   |   |         |                                       |  |  |  |  |        |        |  |  |  |   |         |        |
|------------------------------------|--|--|--------------------------------|--|---------|------------------------------|--|--|---------------------------------------------------|---|---------|---------------------------------------|--|--|--|--|--------|--------|--|--|--|---|---------|--------|
| StockOptions                       |  |  | Number of Shares (inthousands) |  |         | WeightedAverageExercisePrice |  |  | WeightedAverageRemainingContractualTerm(in years) |   |         | AggregateIntrinsic Value(inthousands) |
| Outstanding at January  1,2006     |  |  |                                |  | 9,418   |                         |  |  |                                                   | $ | 5.04    |                                  |  |  |  |  |   |   |  |  |  |   |    |   |
| Granted                            |  |  |                                |  | 2,590   |                         |  |  |                                                   | $ | 1.94    |                                  |  |  |  |  |   |   |  |  |  |   |    |   |
| Exercised                          |  |  |                                |  | — |                         |  |  |                                                   |   | — |                                  |  |  |  |  |   |   |  |  |  |   |    |   |
| Forfeitedor expired                |  |  |                                |  | 173     |                         |  |  |                                                   | $ | 7.12    |                                  |  |  |  |  |   |   |  |  |  |   |    |   |
| Outstandingat September  30,2006   |  |  |                                |  | 11,835  |                         |  |  |                                                   | $ | 4.33    |                                  |  |  |  |  | 5.3    |   |  |  |  | $ | — |   |
| Exercisableat September  30,  2006 |  |  |                                |  | 7,031   |                         |  |  |                                                   | $ | 4.17    |                                  |  |  |  |  | 4.1    |   |  |  |  | $ | — |   |
|                                    |

Thereis no intrinsic value to outstanding stock options as the exerciseprices of all outstanding options are above the market price of theCompany’s stock at September  30,  2006. Theweighted-average grant-date fair value of options granted during thethree and nine months ended September  30,  2006 was $1.23and $1.56, respectively.

As of September  30,  2006,there was approximately $3.0  million of total unrecognizedcompensation cost related to non-vested share-based compensationgranted under the 1998 Plan, which is expected to be recognized over aweighted-average period of 1.4 years.

1998 Non-EmployeeDirectors’ Plan

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

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

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The following table summarizes the optionactivity under the Directors’ Plan as of September30,  2006 and changes during the nine months thenended:

|                                    |  |  |                                |  |       |                              |  |  |                                                   |   |      |                                       |  |  |  |  |        |        |  |  |  |   |         |        |
|------------------------------------|--|--|--------------------------------|--|-------|------------------------------|--|--|---------------------------------------------------|---|------|---------------------------------------|--|--|--|--|--------|--------|--|--|--|---|---------|--------|
| StockOptions                       |  |  | Number of Shares (inthousands) |  |       | WeightedAverageExercisePrice |  |  | WeightedAverageRemainingContractualTerm(in years) |   |      | AggregateIntrinsic Value(inthousands) |
| Outstanding at January  1,2006     |  |  |                                |  | 1,158 |                         |  |  |                                                   | $ | 6.26 |                                  |  |  |  |  |   |   |  |  |  |   |    |   |
| Granted                            |  |  |                                |  | 135   |                         |  |  |                                                   | $ | 2.07 |                                  |  |  |  |  |   |   |  |  |  |   |    |   |
| Exercised                          |  |  |                                |  | 155   |                         |  |  |                                                   | $ | 1.00 |                                  |  |  |  |  |   |   |  |  |  |   |    |   |
| Forfeitedor expired                |  |  |                                |  | 302   |                         |  |  |                                                   | $ | 7.20 |                                  |  |  |  |  |   |   |  |  |  |   |    |   |
| Outstandingat September  30,  2006 |  |  |                                |  | 836   |                         |  |  |                                                   | $ | 6.22 |                                  |  |  |  |  | 6.0    |   |  |  |  | $ | — |   |
| Exercisableat September  30,2006   |  |  |                                |  | 804   |                         |  |  |                                                   | $ | 6.42 |                                  |  |  |  |  | 5.9    |   |  |  |  | $ | — |   |
|                                    |

Thereis no intrinsic value to outstanding stock options as the exerciseprices of all outstanding options are above the market price of theCompany’s stock at September  30,  2006. Theweighted-average grant-date fair value of options granted during thenine months ended September  30,  2006 was $1.67. Theintrinsic value of stock options exercised during the nine months endedSeptember  30,  2006 was $0.2million.

|          |                      |
|----------|----------------------|
| 9.  | Comprehensive Income |

An analysis ofcomprehensive income is presentedbelow:

|                                                                      |  |  |                                 |   |         |                               |  |  |      |   |        |         |  |  |  |   |         |         |  |  |  |   |       |        |
|----------------------------------------------------------------------|--|--|---------------------------------|---|---------|-------------------------------|--|--|------|---|--------|---------|--|--|--|---|---------|---------|--|--|--|---|-------|--------|
| ($in thousands)                                                      |  |  | Three MonthsEndedSeptember  30, |   |         | Nine MonthsEnded September30, |
|                                                                 |  |  | 2006                            |   |         | 2005                          |  |  | 2006 |   |        | 2005    |
| Net(loss)/income                                                     |  |  |                                 | $ | (14,940 | )                        |  |  |      | $ | (7,904 | )  |  |  |  | $ | (39,477 | )  |  |  |  | $ | 8,041 |   |
| Netchange in market value on available-for-sale marketablesecurities |  |  |                                 |   | (42     | )                        |  |  |      |   | 38     |    |  |  |  |   | (14     | )  |  |  |  |   | 74    |   |
| Totalcomprehensive(loss)/income                                      |  |  |                                 | $ | (14,982 | )                        |  |  |      | $ | (7,866 | )  |  |  |  | $ | (39,491 | )  |  |  |  | $ | 8,115 |   |
|                                                                      |

|           |                            |
|-----------|----------------------------|
| 10.  | Net(Loss)/Income per Share |

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

|                                                                          |  |  |                                |   |         |                               |  |  |      |   |         |         |  |  |  |   |         |         |  |  |  |   |        |        |
|--------------------------------------------------------------------------|--|--|--------------------------------|---|---------|-------------------------------|--|--|------|---|---------|---------|--|--|--|---|---------|---------|--|--|--|---|--------|--------|
| (amountsin thousands, except per shareamounts)                           |  |  | Three MonthsEndedSeptember 30, |   |         | Nine Months EndedSeptember30, |
|                                                                     |  |  | 2006                           |   |         | 2005                          |  |  | 2006 |   |         | 2005    |
| Numerator:                                                               |  |  |                                |   |    |                          |  |  |      |   |    |    |  |  |  |   |    |    |  |  |  |   |   |   |
| Net(loss)/income                                                         |  |  |                                | $ | (14,940 | )                        |  |  |      | $ | (7,904  | )  |  |  |  | $ | (39,477 | )  |  |  |  | $ | 8,041  |   |
| Denominator:                                                             |  |  |                                |   |    |                          |  |  |      |   |    |    |  |  |  |   |    |    |  |  |  |   |   |   |
| Weightedaverage sharesoutstanding:                                       |  |  |                                |   |    |                          |  |  |      |   |    |    |  |  |  |   |    |    |  |  |  |   |   |   |
| Basic                                                                    |  |  |                                |   | 135,587 |                          |  |  |      |   | 105,629 |    |  |  |  |   | 129,116 |    |  |  |  |   | 98,820 |   |
| Effectof dilutive stock options, warrants and convertible preferredstock |  |  |                                |   | — |                          |  |  |      |   | — |    |  |  |  |   | — |    |  |  |  |   | 195    |   |
| Diluted                                                                  |  |  |                                |   | 135,587 |                          |  |  |      |   | 105,629 |    |  |  |  |   | 129,116 |    |  |  |  |   | 99,015 |   |
| Net(loss)/income pershare:                                               |  |  |                                |   |    |                          |  |  |      |   |    |    |  |  |  |   |    |    |  |  |  |   |   |   |
| Basicanddiluted                                                          |  |  |                                | $ | (0.11   | )                        |  |  |      | $ | (0.07   | )  |  |  |  | $ | (0.31   | )  |  |  |  | $ | 0.08   |   |
|                                                                          |

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For the three months endedSeptember  30,  2006 and 2005, 12.7  million and10.8  million, respectively, of common shares issuable under theCompany’s stock incentive plans and 0.3  million and0.4  million, respectively, of common shares obtainable uponconversion of the Company’s Series A preferred stock andexercise of warrants were excluded from the computation of diluted(loss)/income per share because the effect of including them would havebeen antidilutive. Similarly, for the nine months endedSeptember  30,  2006 and 2005, 12.7  million and10.0  million, respectively, of common shares issuable under theCompany’s stock incentive plans and 0.3  million for bothperiods, of common shares obtainable upon conversion of theCompany’s Series A preferred stock and exercise of warrants wereexcluded from the computation of diluted (loss)/income per sharebecause the effect of including them would have been antidilutive.

|           |                               |
|-----------|-------------------------------|
| 11.  | Commitments and Contingencies |

Litigation andPotential Claims

In 2004, numerous complaints were filed inthe United States District Court for the District of New Jersey againstGenta and certain of its principal officers on behalf of purportedclasses of the Company’s shareholders who purchased itssecurities during several class periods. The complaints have beenconsolidated into a single action and allege that the Company andcertain of its principal officers violated the federal securities lawsby issuing materially false and misleading statements regardingGenasense® for the treatment of malignant melanomathat had the effect of artificially inflating the market price of theCompany’s securities. The shareholder class action complaint inthe various actions seeks monetary damages in an unspecified amount andrecovery of plaintiffs’ costs and attorneys’ fees. OnSeptember  30,  2005, the court granted in part and deniedin part the Company’s motion to dismiss the plaintiffs’complaint. The court dismissed plaintiffs’ claim that thedefendants engaged in a scheme or artifice to defraud plaintiffs, butallowed plaintiffs’ claims to proceed with respect to theirallegations that defendants issued false and misleading publicstatements about Genasense®. Non-binding mediation inMarch  2006 did not produce a settlement and the case proceededto discovery.

In addition, two separate shareholder derivativeactions have been filed against the directors and certain officers ofGenta in New Jersey State and Federal courts. The Federal shareholderderivative action was consolidated with the securities action.

Genta has reached an agreement in principle with the Federalshareholder derivative plaintiffs to settle the Federal shareholderderivative action. On October  10,  2006, the United StatesDistrict Court for the District of New Jersey gave preliminary approvalto the parties’ settlement agreement. The final settlementhearing is scheduled for May  7,  2007 to determine whetherthe proposed settlement is fair and reasonable, whether the finaljudgment should be entered and whether attorneys’ fees andexpenses should be awarded to plaintiffs’ counsel. OnOctober  31,  2006, the Company and the defendants enteredinto a Release and Settlement Agreement with the Company’sinsurance carrier, pursuant to which the Company’s insurancewill cover the settlement fee, the costs of notice to shareholdersrequired by the court’s preliminary approval order and defensecosts incurred in connection with the action.

Based on factssubstantially similar to those asserted in the securities actions, theState derivative plaintiffs claim that defendants have breached theirfiduciary duties to the shareholders and committed other violations ofNew Jersey law. On February  9,  2006, the Superior Courtof New Jersey dismissed the plaintiffs’ derivative complaintin the New Jersey State case based in part onplaintiffs’ failure to make a pre-suit demandon Genta's Board of Directors and in part based onplaintiffs’ failure to state a cause of action.Plaintiffs’ motion for reconsideration was denied. An appeal ofthe dismissal of the complaint is pending and a briefing schedule forthe appeal has been set. 

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

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

Certain FactorsAffecting Forward-Looking Statements — Safe HarborStatement

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

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

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

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

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

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

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

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

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

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

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

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

We do not undertake to update anyforward-looking statements.

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

Overview

Genta Incorporated is abiopharmaceutical company engaged in pharmaceutical research anddevelopment. We are dedicated to the identification, development andcommercialization of novel drugs for the treatment of cancer andrelated diseases. The Company has had recurring annual operating lossessince its inception and we expect to incur substantial operating lossesdue to continued requirements for ongoing and planned research anddevelopment activities, pre-clinical and clinical testing,manufacturing activities, regulatory activities and establishment of asales and marketing organization. From our inception toSeptember  30,  2006, we have incurred a cumulative netloss of $397.7  million. Management expects that such losses willcontinue at least until our lead product, Genasense®,receives approval from the FDA or EMEA for commercial sale in one ormore indications. Achievement of profitability is currently dependenton the timing of Genasense® regulatory approvals. Wehave experienced significant quarterly fluctuations in operatingresults and we expect that these fluctuations in revenues, expenses andlosses will continue.

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

TheCompany had $40.1  million of cash and cash equivalents andmarketable securities on hand at September  30,  2006. OnSeptember  25,  2006, we sold 20.0  million shares ofthe Company’s common stock at a price of $0.79 per share,raising $14.9  million, net of fees and expenses. On March13,  2006, we sold 19.0  million shares of theCompany’s common stock at a price of $2.15 per share, raising$37.7  million, net of fees and expenses. During the nine monthsended September  30,  2006, cash used in operatingactivities was $33.5  million. The Company should have sufficientcash funds to maintain its operations for the next twelvemonths.

Irrespective of whether the co-pending New DrugApplication, or NDA, and Marketing Authorization Approval, or MAA, forGenasense® are approved, we anticipate that we willrequire additional cash in order to maximize the commercial opportunityand continue its clinical development opportunities. We have haddiscussions with other companies regarding partnerships for the furtherdevelopment and global commercialization ofGenasense®. Additional alternatives available to theCompany to subsequently sustain its operations include financingarrangements with potential corporate partners, debt financing,asset-based loans, royalty-based financings, equity financing and othersources. However, there can be no assurance that any such collaborativeagreements or other sources of funding will be available on favorableterms, if at all.

We have completed and announced the results ofPhase 3 trials of Genasense® in combination withchemotherapy in the treatment of advanced melanoma, chronic lymphocyticleukemia (CLL) and multiple myeloma.

Our Phase 3 trial in CLLwas conducted in patients with relapsed or refractory disease. In thistrial, 241 patients who had relapsed or had not responded to priortherapy were treated with standard chemotherapy using fludarabine andcyclophosphamide (Flu/Cy). After stratifying patients usingconventional criteria, they were randomly assigned to receiveGenasense® or no additional treatment. Initialresults showed that the trial achieved its primary endpoint: theproportion of patients who achieved a complete or nodular partialresponse (CR/nPR) was significantly increased with the addition ofGenasense® to Flu/Cy chemotherapy (17% vs.7%; P=0.025).

Extended patient follow-up in theCLL trial also showed that the duration of CR/nPR was significantlysuperior for patients treated with Genasense® pluschemotherapy. The median duration of CR/nPR was 22 months in thechemotherapy-alone group; the median had not been reached in theGenasense® group (P=0.03). Additional analysis showedthat patients who achieved CR/nPR experienced substantial clinicalbenefit, especially with respect to improvement of disease-relatedsigns and symptoms. Several secondary endpoints were not improved bythe addition of Genasense®. For example, nodifference was observed in overall response rate (i.e., the percentageof patients who achieved CR/nPR plus partial response), or intime-to-disease progression, or overall survival. Adverse events(irrespective of relation to study drugs) during treatment or within 30days from last dose of treatment that resulted in death occurred innine patients treated with Genasense® pluschemotherapy compared with five patients treated with chemotherapyalone. The percentage of patients who experienced serious adverseevents was increased in the Genasense® arm; however,the percentages of patients who discontinued treatment due to adverseevents were equal in the treatment arms. The incidence of certainserious adverse reactions, including but not limited to nausea, feverand catheter-related complications, was increased in patients treatedwith Genasense®.

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On December  28,2005, we completed submission of an NDA to the FDA that seeksaccelerated approval for the use of Genasense® incombination with fludarabine plus cyclophosphamide for the treatment ofpatients with relapsed or refractory CLL who have previously receivedfludarabine. Genasense® received Fast Trackdesignation by the FDA in CLL, meaning that the indication representsan unmet medical need. Genasense® also was granteddesignation as an Orphan Drug by the FDA. On March  1,2006, we announced that the NDA had been accepted for review by the FDAand set a target action date for a marketing approval decision byOctober  29,  2006 under the Prescription Drug User Fee Act(PDUFA).

One requirement for Accelerated Approval is that theCompany would be required to conduct a confirmatory trial. We haveformulated a design for such a trial, which has completed a SpecialProtocol Assessment (SPA) by the FDA. The SPA reflects agreements bythe FDA regarding aspects of design and analysis.

OnSeptember  6,  2006, the Oncologic Drugs Advisory Committee(ODAC) voted seven to three not to recommend approval ofGenasense® for the treatment of patients withrelapsed or refractory CLL. While ODAC’s recommendation is notbinding, the FDA will consider this opinion during completion of itsongoing review of the Genasense® NDA, which had atarget action date for a marketing approval decision by October29,  2006. We requested a meeting with the FDA and submittedadditional data analyses in support of the NDA. On October30,  2006, we announced that the FDA determined that the newinformation constituted a major amendment to the NDA and extended thereview period for ninety days to January  29,  2007. Wewill continue working with the FDA regarding their review of thisapplication.

In May  2004, a majority of the ODAC failedto recommend approval of our NDA for Genasense® pluschemotherapy as a treatment for patients with advanced melanoma. As aconsequence, we withdrew the NDA, which allows us to potentiallyresubmit the application. We continued long-term follow-up of patientswho were enrolled in the melanoma trial and we announced updated datafrom this trial in 2005, which were published in a scientific journalin October  2006. The updated data showed statisticallysignificant increases in overall response, complete response, durableresponse and progression-free survival. An independent review of theX-rays confirmed the previously reported major responses with highconcordance. Overall survival by intent-to-treat analysis, which wasthe study’s primary endpoint, approached but did not reachstatistically significant improvement (P=0.077). Our analysis alsoidentified a statistically significant treatment interaction effect forblood levels of an enzyme known as LDH, which was a prospectivelyspecified stratification factor. When this effect was analyzed bytreatment arm, survival was significantly superior for patients whoreceived Genasense® (P=0.018) and who did not have anelevation in LDH at study entry (n=508).

On January3,  2006, we announced that we had completed a MAA to the EMEA,which seeks approval for use of Genasense® plusdacarbazine for the treatment of patients with advanced melanoma whohave not previously received chemotherapy. On February  1,2006, we announced that we had received notice from the EMEA that ourMAA had been validated for review by the EMEA, which signals the startof formal scientific assessment. As part of this process, we receivedscientific questions from EMEA in June  2006 and the formalresponse to these questions was made in October  2006. Wecurrently anticipate that a regulatory opinion on the MAA will beissued in the first quarter of 2007.

In November  2004, wereported that our randomized Phase 3 clinical trial ofGenasense® in patients with multiple myeloma did notmeet our primary endpoint. The trial had been designed to evaluatewhether the addition of Genasense® to standardtherapy with high-dose dexamethasone could increase the time todevelopment of progressive disease in patients who previously hadreceived extensive therapy. Based on the results of the Phase 3 trial,we have no plans to submit an NDA in this indication at the currenttime. We have not yet determined what additional clinical trials, ifany, may be undertaken in patients with multiplemyeloma.

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In addition, we are conducting (under ourown sponsorship or in conjunction with various cooperative groups)randomized trials in non-small cell lung cancer, small cell lung cancerand hormone refractory prostate cancer, as well as a randomized Phase 3trial in acute myeloid leukemia. We expect that data from several ofthese trials will be available in 2007. We are also conducting a numberof non-randomized clinical trials in patients with various types ofcancer, either under our own sponsorship or in collaboration with theNational Cancer Institute.

On October  13,  2006, weannounced the initiation of a Phase 1 clinical trial using a newanticancer drug derived from our DNA/RNA Medicines program. The newcompound (G4460) uses antisense technology to target a proto-oncogeneknown as c-myb that regulates key functions in cancer cells. Using anaccelerated dosing schedule, this study will evaluate dosing regimens,safety, biologic activity, and down-regulation of c-myb in patientswith advanced hematologic cancers. The clinical trial will be conductedusing the General Clinical Research Center at the University ofPennsylvania. G4460 has been granted Orphan Drug Designation by the FDAfor treatment of patients with chronic myelocytic leukemia(CML).

Results of Operations for the Three Months EndedSeptember  30,  2006 and2005

|                                             |  |  |                                                                 |   |         |                    |  |  |        |   |        |         |  |  |  |   |        |         |  |  |  |  |        |          |
|---------------------------------------------|--|--|-----------------------------------------------------------------|---|---------|--------------------|--|--|--------|---|--------|---------|--|--|--|---|--------|---------|--|--|--|--|--------|----------|
|                                        |  |  | SummaryOperating ResultsFor the three months ended September30, |
| ($in thousands)                             |  |  |                                                            |   |         | Increase(Decrease) |  |  |   |
|                                        |  |  | 2006                                                            |   |         | 2005               |  |  | $      |   |        | %       |
| Revenues:                                   |  |  |                                                                 |   |    |               |  |  |        |   |   |    |  |  |  |   |   |    |  |  |  |  |   |     |
| Productsales –net                     |  |  |                                                                 | $ | 145     |               |  |  |        | $ | 86     |    |  |  |  | $ | 59     |    |  |  |  |  | 69     | %   |
| Totalrevenues                               |  |  |                                                                 |   | 145     |               |  |  |        |   | 86     |    |  |  |  |   | 59     |    |  |  |  |  | 69     | %   |
| Costof goodssold                            |  |  |                                                                 |   | 41      |               |  |  |        |   | 22     |    |  |  |  |   | 19     |    |  |  |  |  | 86     | %   |
| Operatingexpenses:                          |  |  |                                                                 |   |    |               |  |  |        |   |   |    |  |  |  |   |   |    |  |  |  |  |   |     |
| Researchanddevelopment                      |  |  |                                                                 |   | 8,514   |               |  |  |        |   | 4,619  |    |  |  |  |   | 3,895  |    |  |  |  |  | 85     | %   |
| Selling,general andadministrative           |  |  |                                                                 |   | 6,939   |               |  |  |        |   | 3,495  |    |  |  |  |   | 3,444  |    |  |  |  |  | 99     | %   |
| Losson disposition of property andequipment |  |  |                                                                 |   | — |               |  |  |        |   | 1      |    |  |  |  |   | (1     | )  |  |  |  |  | (100   | %)  |
| Totaloperatingexpenses                      |  |  |                                                                 |   | 15,453  |               |  |  |        |   | 8,115  |    |  |  |  |   | 7,338  |    |  |  |  |  | 91     | %   |
| Otherincome,net                             |  |  |                                                                 |   | 409     |               |  |  |        |   | 147    |    |  |  |  |   | 262    |    |  |  |  |  | 179    | %   |
| Netloss                                     |  |  |                                                                 | $ | (14,940 | )             |  |  |        | $ | (7,904 | )  |  |  |  | $ | (7,299 | )  |  |  |  |  | (92    | %)  |
|                                             |

Totalrevenues

Total revenues were $0.1  million for thethree months ended September  30,  2006 as well as for theprior-year period. Product sales-net are generated from sales ofGanite®, the Company’s commercial product forthe treatment of cancer-related hypercalcemia.

Research and development expenses

Research anddevelopment expenses were $8.5  million for the three monthsended September  30,  2006 compared with $4.6million for the three months ended September  30,  2005.The increase is primarily due to expenses incurred in preparation forthe production of Genasense® and expenses related toregulatory review. Research and development expenses in 2006 alsoinclude the recognition of $0.3  million of stock option expense,resulting from the adoption of SFAS 123R. During the three months endedSeptember  30,  2006, approximately $7.8  million or92% of research and development expenses were incurred on theGenasense® project.

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

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Selling, general andadministrative expenses

Selling, general and administrativeexpenses were $6.9  million for the three months endedSeptember  30,  2006 compared with $3.5  million forthe three months ended September  30,  2005. The increasewas primarily due to sales and marketing expenses incurred inpreparation for the anticipated commercial launch ofGenasense®. In addition, higher payroll expenseresulted from the hiring of an experienced sales and marketingmanagement team throughout 2006. Selling, general and administrativeexpenses in 2006 include the recognition of $0.5  million ofstock option expense, resulting from the adoption of SFAS123R.

Other income, net

Other income, netof $0.4  million for the three months ended September30,  2006 increased from $0.1  million for the three monthsended September  30,  2005, primarily due to higherinterest income resulting from higher investment balances and realizedgains on the maturity of marketable securities.

Netloss

We recorded a net loss of $14.9  million, or$0.11 per share, for the three months ended September  30,2006, compared with a net loss of $7.9  million, or $0.07 pershare, for the three months ended September  30,  2005. Thedecrease is due to the significantly higher operating expenses in 2006,as described above.

Results of Operations for the Nine MonthsEnded September  30,  2006 and 2005

|                                             |  |  |                                                                |   |          |                    |  |  |        |   |        |         |  |  |  |  |          |         |  |  |  |  |        |          |
|---------------------------------------------|--|--|----------------------------------------------------------------|---|----------|--------------------|--|--|--------|---|--------|---------|--|--|--|--|----------|---------|--|--|--|--|--------|----------|
|                                        |  |  | SummaryOperating ResultsFor the nine months ended September30, |
| ($in thousands)                             |  |  |                                                           |   |          | Increase(Decrease) |  |  |   |
|                                        |  |  | 2006                                                           |   |          | 2005               |  |  | $      |   |        | %       |
| Revenues:                                   |  |  |                                                                |   |     |               |  |  |        |   |   |    |  |  |  |  |     |    |  |  |  |  |   |     |
| Licensefees androyalties                    |  |  |                                                                | $ | —  |               |  |  |        | $ | 5,241  |    |  |  |  |  | ($5,241  | )  |  |  |  |  | (100   | %)  |
| Developmentfunding                          |  |  |                                                                |   | —  |               |  |  |        |   | 20,988 |    |  |  |  |  | (20,988  | )  |  |  |  |  | (100   | %)  |
| Productsales –net                     |  |  |                                                                |   | 591      |               |  |  |        |   | 259    |    |  |  |  |  | 332      |    |  |  |  |  | 129    | %   |
| Totalrevenues                               |  |  |                                                                |   | 591      |               |  |  |        |   | 26,488 |    |  |  |  |  | (25,897  | )  |  |  |  |  | (98    | %)  |
| Totalcost of goodssold                      |  |  |                                                                |   | 79       |               |  |  |        |   | 35     |    |  |  |  |  | 44       |    |  |  |  |  | 126    | %   |
| Operatingexpenses:                          |  |  |                                                                |   |     |               |  |  |        |   |   |    |  |  |  |  |     |    |  |  |  |  |   |     |
| Researchanddevelopment                      |  |  |                                                                |   | 21,900   |               |  |  |        |   | 14,040 |    |  |  |  |  | 7,860    |    |  |  |  |  | 56     | %   |
| Selling,general andadministrative           |  |  |                                                                |   | 19,112   |               |  |  |        |   | 12,116 |    |  |  |  |  | 6,996    |    |  |  |  |  | 58     | %   |
| Losson disposition of property andequipment |  |  |                                                                |   | —  |               |  |  |        |   | 4      |    |  |  |  |  | (4       | )  |  |  |  |  | (100   | %)  |
| Totaloperating expenses –gross        |  |  |                                                                |   | 41,012   |               |  |  |        |   | 26,160 |    |  |  |  |  | 14,825   |    |  |  |  |  | 57     | %   |
| Less:sanofi-aventisreimbursement            |  |  |                                                                |   | —  |               |  |  |        |   | (6,090 | )  |  |  |  |  | 6,090    |    |  |  |  |  | 100    | %   |
| Totaloperating expenses –net          |  |  |                                                                |   | 41,012   |               |  |  |        |   | 20,070 |    |  |  |  |  | 20,942   |    |  |  |  |  | 105    | %   |
| Gainon forgiveness ofdebt                   |  |  |                                                                |   | —  |               |  |  |        |   | 1,297  |    |  |  |  |  | (1,297   | )  |  |  |  |  | (100   | %)  |
| Otherincome,net                             |  |  |                                                                |   | 1,023    |               |  |  |        |   | 361    |    |  |  |  |  | 662      |    |  |  |  |  | 184    | %   |
| Net(loss)/income                            |  |  |                                                                |   | ($39,477 | )             |  |  |        | $ | 8,041  |    |  |  |  |  | ($47,518 | )  |  |  |  |  | (591   | %)  |
|                                             |

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Total revenues

Totalrevenues were $0.6  million for the nine months endedSeptember  30,  2006 compared with $26.5  million forthe nine months ended September  30,  2005. License feesand development funding revenues of $26.2  million for the ninemonths ended September  30,  2005 were generated by therecognition of the initial $10.0  million licensing fee and$40.0  million development funding received from Aventis, amember of the sanofi-aventis Group (Aventis), in 2002 under theCollaborative Agreement between Aventis and us regarding thedevelopment and commercialization of Genasense®. OnNovember  8,  2004, we received from Aventis a notice oftermination of the Collaborative Agreement. On May  10,2005, we announced that Aventis and us had signed an agreement tofinalize the termination of our development and commercializationcollaboration for Genasense®.

Product sales-netof Ganite® for the nine months ended September30,  2006 were $0.6  million, primarily impacted by a$0.3  million favorable adjustment to a provision for returns ofGanite®. In the second quarter of 2006, the Companyrevised its forecast of expected Ganite® returnsbased on actual experience to date, product expiration dates and dataobtained from wholesalers. As a result, we reduced our sales returnprovision by $0.3  million, to reflect this change in estimate.Product sales-net in the prior-year period were $0.3million.

Research and developmentexpenses

Research and development expenses beforereimbursement were $21.9  million for the nine months endedSeptember  30,  2006 compared with $14.0  million forthe nine months ended September  30,  2005. The increase isprimarily due to expenses incurred in preparation for the production ofGenasense® and expenses related to regulatory review.In addition, expenses in 2006 include the recognition of $0.7million of stock option expense, resulting from the adoption ofSFAS 123R. During the nine months ended September30,  2006, approximately $20.0  million or 91% ofresearch and development expenses were incurred on theGenasense® project.

Selling,general and administrative expenses

Selling, general andadministrative expenses were $19.1  million for the nine monthsended September  30,  2006 compared with $12.1million for the nine months ended September  30,  2005. Theincrease in expenses is primarily due to sales and marketing expensesincurred in preparation for the anticipated commercial launch ofGenasense®. In addition, higher payroll expenseresulted from the hiring of an experienced sales and marketingmanagement team throughout 2006. Selling, general and administrativeexpenses in 2006 include the recognition of $1.6  million ofstock option expense, resulting from the adoption of SFAS 123R.

sanofi-aventis reimbursement

On May10,  2005, we announced that Genta and Aventis had finalized atermination agreement, providing for no future financial obligations byeither party. Consequently, none of the research and developmentexpenses incurred by us during the nine-month period endedSeptember  30,  2006 werereimbursable.

Gain on Forgiveness ofDebt

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

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Other income,net

Other income, net of $1.0  million for the ninemonths ended September  30,  2006 increased from$0.4  million for the nine months ended September30,  2005, primarily due to higher interest income resulting fromhigher investment balances and realized gains on the maturity ofmarketable securities.

Net (loss)/income

Werecorded a net loss of $39.5  million, or $0.31 per share, forthe nine months ended September  30,  2006, compared withnet income of $8.0  million, or $0.08 per share, for the ninemonths ended September  30,  2005. The decrease isprimarily due to the fact that the prior-year period included revenuesof $26.2  million from the recognition of the license fee anddevelopment funding and $6.1  million from the reimbursement forresearch and development expenses, along with higher operating expensesin 2006, as described above.

Liquidity and capitalresources

At September  30,  2006, we had cash,cash equivalents and marketable securities totaling $40.1million compared with $21.3  million at December31,  2005. Cash used in operating activities was $33.5million for the nine months ended September  30,  2006,compared with $29.1  million for the nine months endedSeptember  30,  2005, reflecting additional spending inanticipation of potential commercial approval and product launch ofGenasense®. The Company should have sufficient cashfunds to maintain its operations for the next twelve months.

Wehave prepared our financial statements under the assumption that theCompany is a going concern. The Company’s recurring losses andnegative cash flows from operations raise substantial doubt about itsability to continue as a going concern. The financial statements do notinclude any adjustments that might result from the outcome of thisuncertainty, (see Item 1A, Risk Factors).

On September25,  2006, we sold 20.0  million shares of theCompany’s common stock at a price of $0.79 per share for grossproceeds of $15.8  million, before fees and expenses. Afterdeducting fees and expenses, we received net proceeds of $14.9million.

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

Irrespective of whether the co-pendingNDA and MAA for Genasense® are approved, weanticipate that we will require additional cash in order to maximizethis commercial opportunity and continue its clinical developmentopportunities. We have had discussions with other companies regardingpartnerships for the further development and global commercializationof Genasense®. Additional alternatives available tothe Company to subsequently sustain its operations include financingarrangements with potential corporate partners, debt financing,asset-based loans, royalty-based financing, equity financing and othersources. However, there can be no assurance that any such collaborativeagreements or other sources of funding will be available on favorableterms, if at all.

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If we obtain NDA approval ofGenasense® for one or more applications, weanticipate seeking additional product development opportunities throughpotential acquisitions or investments. Such acquisitions or investmentsmay consume cash reserves or require additional cash or equity. Ourworking capital and additional funding requirements will depend uponnumerous factors, including: (i) the progress of ourresearch and development programs; (ii) the timing and results ofpre-clinical testing and clinical trials; (iii) the level of resourcesthat we devote to sales and marketing capabilities; (iv) technologicaladvances; (v) the activities of competitors; (vi) our ability toestablish and maintain collaborative arrangements with others to fundcertain research and development efforts, to conduct clinical trials,to obtain regulatory approvals and, if such approvals are obtained, tomanufacture and market products and (vii) legal costs and the outcomeof outstanding legal proceedings.

Recent AccountingPronouncements

In September  2006, the Securities andExchange Commission (SEC) issued Staff Accounting Bulletin (SAB)No. 108, Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements.SAB No. 108 provides interpretive guidance on the consideration ofthe effects of prior year misstatements in quantifying current yearmisstatements for the purpose of a materiality assessment. Thecumulative effect, if any, of applying the provisions ofSAB No. 108 will be reported as an adjustment tobeginning-of-year retained earnings. We are required to adoptSAB No. 108 for our fiscal year ending December31,  2007. We do not expect the adoption ofSAB No. 108 to have a material effect on our financialstatements.

In September  2006, the Financial AccountingStandards Board (FASB) issued SFAS No. 157, Fair ValueMeasurements. SFAS No. 157 defines fair value,establishes a framework for measuring fair value in accordance withaccounting principles generally accepted in the United States ofAmerica and expands disclosures about fair value measurements. SFAS No.157 applies under other accounting pronouncements that require orpermit fair value measurements. Accordingly, this pronouncement doesnot require any new fair value measurements. We are required to adoptSFAS No. 157 beginning January  1,  2008. Weare currently evaluating the impact, if any, the adoption ofSFAS No. 157 may have on our financial statements.

In September  2006, the FASB issuedSFAS No. 158, Employers’ Accounting for DefinedBenefit Pension and Other Postretirement Plans, an amendment ofFASB Statements No. 87, 88, 106, and 132(R). SFAS No. 158requires an employer to recognize the over-funded or under-fundedstatus of a defined benefit postretirement plan (other than amultiemployer plan) as an asset or liability in its statement offinancial position and to recognize changes in that funded status inthe year in which the changes occur through comprehensive income. Inaddition, with limited exceptions, this pronouncement requires anemployer to measure the funded status of a plan as of the date of itsyear-end statement of financial position. SFAS No. 158 is effective forfiscal years ending after December  15,  2006. As theCompany does not have any defined benefit pension plans or otherpostretirement plans, we do not expect the adoption of this standard tohave any impact on our financial statements.

EffectiveJanuary 1, 2006, we adopted the fair value recognitionprovisions of SFAS 123R, Share-Based Payment, using themodified prospective transition method and therefore did not restateresults for prior periods. Prior to January  1,  2006 weaccounted for share-based compensation arrangements in accordance withAPB Opinion No. 25, Accounting for Stock Issued to Employees andcomplied with the disclosure provisions of SFAS 123, Accounting forStock-Based Compensation. SFAS 123R requires all public entitiesthat used the fair-value method for either recognition or disclosureunder SFAS 123 to apply the modified prospective transition method asof the required effective date. As a result, we adopted the provisionsof SFAS 123R using this method, effective January  1,2006. Under the modified prospective method, new awards are valued andaccounted for prospectively upon adoption. Outstanding prior awardsthat are unvested as of January  1,  2006 are recognized ascompensation cost over the remaining requisite service periods, asprior periods may not be restated. The adoption of SFAS 123R increasedour expenses and reported net loss by $0.9  million and$2.3  million for the three and nine months endedSeptember  30,  2006, respectively.

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In July  2006, the FASB issued FASBInterpretation No. 48 (FIN 48), Accounting for Uncertainty in IncomeTaxes. FIN 48 prescribes detailed guidance for the financialstatement recognition, measurement and disclosure of uncertain taxpositions recognized in an enterprise’s financial statements inaccordance with FASB Statement No. 109, Accounting for IncomeTaxes. Tax positions must meet a more-likely-than-not recognitionthreshold at the effective date to be recognized upon the adoption ofFIN 48 and in subsequent periods. FIN 48 will be effective for fiscalyears beginning after December  15,  2006 and theprovisions of FIN 48 will be applied to all tax positions upon initialadoption of the Interpretation. The cumulative effect of applying theprovisions of this Interpretation will be reported as an adjustment tothe opening balance of retained earnings for that fiscal year. We arecurrently evaluating the potential impact of FIN 48 on its financialstatements.

Item 3.    Quantitative and QualitativeDisclosures about Market Risk

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

Our primary market risk exposure with regard tofinancial instruments is to changes in interest rates, which wouldimpact interest income earned on such instruments. We have no materialcurrency exchange or interest rate risk exposure as of September30,  2006.

Item 4.    Controls andProcedures

Conclusion Regarding the Effectiveness ofDisclosure Controls and Procedures

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

Changes inInternal Control Over Financial Reporting

There were no changesin our internal control over financial reporting identified inconnection with the evaluation required by paragraph (d) of ExchangeAct Rule 13a-15 that occurred during the period covered by this reportthat have materially affected, or are reasonably likely to materiallyaffect, our internal control over financialreporting.

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PARTII    OTHER INFORMATION

Item 1.    LegalProceedings

In 2004, numerous complaints were filed in theUnited States District Court for the District of New Jersey againstGenta and certain of its principal officers on behalf of purportedclasses of the Company’s shareholders who purchased itssecurities during several class periods. The complaints have beenconsolidated into a single action and allege that the Company andcertain of its principal officers violated the federal securities lawsby issuing materially false and misleading statements regardingGenasense® for the treatment of malignant melanomathat had the effect of artificially inflating the market price of oursecurities. The shareholder class action complaint in the variousactions seeks monetary damages in an unspecified amount and recovery ofplaintiffs’ costs and attorneys’ fees. OnSeptember  30,  2005, the court granted in part and deniedin part the Company’s motion to dismiss the plaintiffs’complaint. The court dismissed plaintiffs’ claim that thedefendants engaged in a scheme or artifice to defraud plaintiffs, butallowed plaintiffs’ claims to proceed with respect to theirallegations that defendants issued false and misleading publicstatements about Genasense®. Non-binding mediation inMarch  2006 did not produce a settlement and the case proceededto discovery.

In addition, two separate shareholder derivativeactions have been filed against the directors and certain officers ofGenta in New Jersey State and Federal courts. The Federal shareholderderivative action was consolidated with the securities action.

Genta has reached an agreement in principle with the Federalshareholder derivative plaintiffs to settle the Federal shareholderderivative action. On October  10,  2006, the United StatesDistrict Court for the District of New Jersey gave preliminary approvalto the parties’ settlement agreement. The final settlementhearing is scheduled for May  7,  2007 to determine whetherthe proposed settlement is fair and reasonable, whether the finaljudgment should be entered and whether attorneys’ fees andexpenses should be awarded to plaintiffs’ counsel. OnOctober  31,  2006, we and the defendants entered into aRelease and Settlement Agreement with the Company’s insurancecarrier, pursuant to which the Company’s insurance will coverthe settlement fee, the costs of notice to shareholders required by thecourt’s preliminary approval order and defense costs incurred inconnection with the action.

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

The Companybelieves these litigations are without merit and will continue tovigorously defend against these suits.

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Item 1A.    RiskFactors

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

        Risks Relatedto Our Business

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

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

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

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

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

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

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

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

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

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

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

For example, on January  3,  2006, weannounced that we had completed a MAA to the EMEA that seeks approvalfor use of Genasense® plus dacarbazine for thetreatment of patients with advanced melanoma who have not previouslyreceived chemotherapy. The centralized licensing procedure provides asingle marketing authorization that is valid in all 25-member states ofthe European Community. Review of the application is coordinated by theEMEA, and Spain and France have been appointed as rapporteur andco-rapporteur countries, respectively. On February  1,2006, we announced that we had received notice from the EMEA that itsMAA had been validated for review by the EMEA, which signals the startof formal scientific assessment. As part of this process, we receivedscientific questions from EMEA in June  2006 and the formalresponse to these questions was made in October  2006. Wecurrently anticipate that a regulatory opinion on the MAA will beissued in the first quarter of 2007.

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On September  6,  2006, theOncologic Drugs Advisory Committee (ODAC) voted seven to three not torecommend approval of Genasense® for the treatment ofpatients with relapsed or refractory CLL. While ODAC’srecommendation is not binding, the FDA will consider this opinionduring completion of its ongoing review of theGenasense® NDA, which had a target action date for amarketing approval decision by October  29,  2006. Werequested a meeting with the FDA and submitted additional data analysesin support of the NDA. On October  30,  2006, we announcedthat the FDA determined that the new information constituted a majoramendment to the NDA and extended the review period for ninety days toJanuary  29,  2007. We strongly believe in the potential ofGenasense® and what it may offer patients withadvanced cancer and remains committed to the development of this agent.We will continue working with FDA regarding their review of thisapplication. We cannot assure you that the FDA will approve our amendedNDA, or that such approval will not be furtherdelayed.

Ultimately, our efforts may not prove to be as effectiveas those of our competitors. In the United States and elsewhere, ourproducts will face significant competition. The principal conditions onwhich our product development efforts are focused and some of the otherdisorders for which we are conducting additional studies, are currentlytreated with several drugs, many of which have been available for anumber of years or are available in inexpensive generic forms. Thus,even if we obtain regulatory approvals, we will need to demonstrate tophysicians, patients and third-party payors that the cost of ourproducts is reasonable and appropriate in light of their safety andefficacy, the price of competing products and the relative health carebenefits to the patient. If we are unable to demonstrate that the costsof our products are reasonable and appropriate in light of thesefactors, we will likely be unsuccessful in commercializing ourproducts.

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

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

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

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

Our operations to date have required significantcash expenditures. As a result of Aventis’ termination of theCollaborative Agreement, after May  8,  2005, we becamesolely responsible for all Genasense® related costs.Our future capital requirements will depend on the results of ourresearch and development activities, preclinical studies and clinicaltrials, competitive and technological advances, and regulatoryactivities of the FDA and other regulatory authorities. In order tocommercialize our products, we will need to raise additional funds. OnSeptember  25,  2006, we sold 20.0  million shares ofthe Company’s common stock at a price of $0.79 per share,raising $14.9  million, net of fees and expenses. On March13,  2006, we sold 19.0  million shares of theCompany’s common stock at a price of $2.15 per share, raising$37.7  million, net of fees and expenses. During the nine monthperiod ended September  30,  2006, cash used in operatingactivities was $33.5  million. The Company should have sufficientcash funds to maintain its operations for the next twelvemonths.

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

If we are unable to raiseadditional funds, we will need to do one or more of thefollowing:

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

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

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

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

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

We intend to be a directmarketer of some products in the United States. This effort willconsume large amounts of our resources and management time and we maynot be successful in our efforts. 

Currently we do not havea sales force. Our sales force was eliminated in 2004 following ourdecision to withdraw the NDA for Genasense® for thetreatment of advanced melanoma. We intend to recruit a sales force ifGenasense® is approved. In January  2006, weannounced that we had appointed W. Lloyd Sanders as Vice-President ofSales and Marketing. Most recently, Mr.  Sanders was VicePresident, Oncology Sales, at sanofi-aventis Group. We have hired acore team of seasoned managers in sales and marketing. If we are unableto recruit a sales force capable of marketing our products, our saleswill be adversely affected, and the commercial success of our productswill be limited.

On May  10,  2005, weannounced that we and Aventis Pharmaceuticals Inc., part ofsanofi-aventis Group, or Aventis, had signed an agreement to terminatetheir development and commercialization collaboration forGenasense®. We lost a significantsource of funding for Genasense® as aresult of this termination.

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

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

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

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

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

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

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

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

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

We anticipate that we will incuradditional losses and we may never be profitable.

We havenever been profitable. We have incurred substantial annual operatinglosses associated with ongoing research and development activities,preclinical testing, clinical trials, regulatory submissions andmanufacturing activities. From the period since our inception toSeptember  30,  2006, we have incurred a cumulative netloss of $397.7  million. We may never achieve revenue sufficientfor us to attain profitability. Achieving profitability is unlikelyunless Genasense® receives approval from the FDA forcommercial sale in one or more indications.

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Our business depends heavilyon a small number of products.

We currently market and sellone product, Ganite® and the principal patentcovering its use for the approved indication expired in April2005. If Genasense® is not approved, if approval issignificantly delayed, or if in the event of approval the product iscommercially unsuccessful, we do not expect significant sales of otherproducts to offset this loss of potential revenue.

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

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

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

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

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

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

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

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

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

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The cost to us of any litigation orproceeding relating to patent or license rights, even if resolved inour favor, could be substantial. Some of our competitors may be able tosustain the costs of complex patent or licensing litigation moreeffectively than we can because of their substantially greaterresources. Uncertainties resulting from the initiation and continuationof any patent or related litigation could have a material adverseeffect on our ability to compete in the marketplace.

We also maybe required to participate in interference proceedings declared by theU.S. Patent and Trademark Office in opposition or similar proceedingsbefore foreign patent offices and in International Trade Commissionproceedings aimed at preventing the importation of drugs that wouldcompete unfairly with our drugs. These types of proceedings could causeus to incur considerable costs.

The principal patent covering theuse of Ganite® for its approved indication, includingHatch-Waxman extensions, expired in April  2005.

We havelicensed a portfolio of U.S. patents and applications from theUniversity of Pennsylvania and the National Institutes of Healthrelating to Genasense® and its backbone chemistrythat expire between 2008 and 2015. Corresponding patent applicationshave been filed in Canada, Europe and Japan. The claims of thesepatents cover our proprietary antisense oligonucleotide molecules whichtarget the Bcl-2 mRNA and methods employing them. We also hold severalU.S. patent applications relating to methods of usingGenasense® that expire in 2020, with approximately 45corresponding foreign patentapplications.

Most of our products are inan early stage of development, and we may never receive regulatoryapproval for these products. 

Most of our resources havebeen dedicated to the research and development of potential antisensepharmaceutical products such as Genasense®, basedupon oligonucleotide technology. While we have demonstrated theactivity of antisense oligonucleotide technology in model systems invitro and in animals, Genasense® is our onlyantisense product to have been tested in humans. Several of our othertechnologies that serve as a possible basis for pharmaceutical productsare only in preclinical testing. Results obtained in preclinicalstudies or early clinical investigations are not necessarily indicativeof results that will be obtained in extended human clinical trials. Ourproducts may prove to have undesirable and unintended side effects orother characteristics that may prevent our obtaining FDA or foreignregulatory approval for any indication. In addition, it is possiblethat research and discoveries by others will render our oligonucleotidetechnology obsolete or noncompetitive.

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

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

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

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

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

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

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

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

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

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

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

Clinical trials are costly andtime consuming and are subject to delays; our business would suffer ifthe development process relating to our products were subject tomeaningful delays.

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

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

|  |              |                                                                                  |
|--|--------------|----------------------------------------------------------------------------------|
|  | •  | inability to obtainsufficient quantities of materials for use in clinicaltrials; |

|  |              |                                                                 |
|--|--------------|-----------------------------------------------------------------|
|  | •  | inability to adequately monitorpatient progress aftertreatment; |

|  |              |                          |
|--|--------------|--------------------------|
|  | •  | unforeseen safetyissues; |

|  |              |                                                                       |
|--|--------------|-----------------------------------------------------------------------|
|  | •  | the failure of the products toperform well during clinical trials and |

|  |              |                                 |
|--|--------------|---------------------------------|
|  | •  | government or regulatorydelays. |

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

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

OnSeptember  6,  2006, the Oncologic Drugs Advisory Committee(ODAC) voted seven to three not to recommend approval ofGenasense® for the treatment of patients withrelapsed or refractory CLL. While the ODAC’s recommendation isnot binding, the FDA will consider this opinion during completion ofits ongoing review of the Genasense® NDA, which had atarget action date for a marketing approval decision by October29,  2006. We requested a meeting with the FDA and submittedadditional data analyses in support of the NDA. On October30,  2006 we announced that the FDA determined that the newinformation constituted a major amendment to the NDA and extended thereview period ninety days to January  29,  2007. Westrongly believe in the potential of Genasense® andwhat it may offer patients with advanced cancer and remains committedto the development of this agent. We will continue working with FDAregarding their review of this application.

We cannot assure youthat the FDA, the EMEA or other regulatory agencies will ever approvethe use of our products that are under development. If the patientpopulations for which our products are approved are not sufficientlybroad, or if approval is accompanied by unanticipated labelingrestrictions, the commercial success of our products could be limitedand our business, results of operations and financial condition couldconsequently be materially adversely affected.

Ifthe third party manufacturers upon which we rely fail to produce ourproducts in the volumes that we require on a timely basis, or to complywith stringent regulations applicable to pharmaceutical drugmanufacturers, we may face delays in the commercialization of, or beunable to meet demand for, our products and may lose potentialrevenues. 

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

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

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We do not currently have alternatemanufacturing plans in place. The number of third-party manufacturerswith the expertise, required regulatory approvals and facilities tomanufacture bulk drug substance on a commercial scale is limited, andit would take a significant amount of time to arrange for alternativemanufacturers. If we need to change to other commercial manufacturers,the FDA and comparable foreign regulators must approve thesemanufacturers’ facilities and processes prior to our use, whichwould require new testing and compliance inspections, and the newmanufacturers would have to be educated in or independently develop theprocesses necessary for the production of our products.

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

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

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

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

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

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If third-party payors donot provide coverage and reimbursement for use of our products, we maynot be able to successfully commercialize our products.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Risks Related to OutstandingLitigation

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

In 2004, numerouscomplaints were filed in the United States District Court for theDistrict of New Jersey against Genta and certain of its principalofficers on behalf of purported classes of the Company’sshareholders who purchased its securities during several class periods.The complaints have been consolidated into a single action and allegethat the Company and certain of its principal officers violated thefederal securities laws by issuing materially false and misleadingstatements regarding Genasense® for the treatment ofmalignant melanoma that had the effect of artificially inflating themarket price of our securities. The shareholder class action complaintin the various actions seeks monetary damages in an unspecified amountand recovery of plaintiffs’ costs and attorneys’ fees. OnSeptember  30,  2005, the court granted in part and deniedin part the Company’s motion to dismiss the plaintiffs’complaint. The court dismissed plaintiffs’ claim that thedefendants engaged in a scheme or artifice to defraud plaintiffs, butallowed plaintiffs’ claims to proceed with respect to theirallegations that defendants issued false and misleading publicstatements about Genasense®. Non-binding mediation inMarch  2006 did not produce a settlement and the case proceededto discovery.

In addition, two separate shareholderderivative actions have been filed against the directors and certainofficers of Genta in New Jersey State and Federal courts. The Federalshareholder derivative action was consolidated with the securitiesaction.

Genta has reached an agreement in principlewith the Federal shareholder derivative plaintiffs to settle theFederal Shareholder derivative action. On October  10,2006, the United States District Court for the District of New Jerseygave preliminary approval to the parties’ settlement agreement.The final settlement hearing is scheduled for May  2007 todetermine whether the proposed settlement is fair and reasonable,whether the final judgment should be entered and whetherattorneys’ fees and expenses should be awarded toplaintiffs’ counsel. On October  31,  2006, we andthe defendants entered into a Release and Settlement Agreement with theCompany’s insurance carrier, pursuant to which theCompany’s insurance will cover the settlement fee, the costs ofnotice to shareholders required by the court’s preliminaryapproval order and defense costs incurred in connection with theaction.

Based on facts substantially similar to thoseasserted in the shareholder class actions, the State derivativeplaintiffs claim that defendants have breached their fiduciary dutiesto the shareholders and committed other violations of New Jersey law.On February  9,  2006, the Superior Court of New Jerseydismissed the plaintiffs' derivative complaintin the New Jersey State case based in part onplaintiffs failure to make a pre-suit demand on Genta'sBoard of Directors and in part based on plaintiffs' failure tostate a cause of action. Plaintiffs’ motion for reconsiderationwas denied and they have filed a notice of appeal.

TheCompany believes these litigations are without merit and will continueto vigorously defend against these suits.

RisksRelated to Our CommonStock

Provisions in our restatedcertificate of incorporation and bylaws and Delaware law may discouragea takeover and prevent our stockholders from receiving a premium fortheir shares.

Provisions in our restatedcertificate of incorporation and bylaws may discourage third partiesfrom seeking to obtain control of us and, therefore, could prevent ourstockholders from receiving a premium for their shares. Our restatedcertificate of incorporation gives our board of directors the power toissue shares of preferred stock without approval of the holders ofcommon stock. Any preferred stock that is issued in the future couldhave voting rights, including voting rights that could be superior tothat of our common stock. The affirmative vote of66 2/3% of our voting stock is required toapprove certain transactions and to take certain stockholder actions,including the amendment of certain provisions of our certificate ofincorporation. Our bylaws contain provisions that regulate howstockholders may present proposals or nominate directors for electionat annual meetings of stockholders.

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In addition, we are subject to Section203 of the Delaware General Corporation Law, which containsrestrictions on stockholder action to acquire control of us.

OnSeptember  16,  2005, we announced that our Board ofDirectors approved a Stockholder Rights Plan and declared a dividend ofone preferred stock purchase right, which we refer to as a Right, foreach share of our common stock held of record as of the close ofbusiness on September  27,  2005. In addition, Rights shallbe issued in respect of all shares of common stock issued after suchdate, including the shares issued hereunder, pursuant to the Plan. TheRights contain provisions to protect stockholders in the event of anunsolicited attempt to acquire us, including an accumulation of sharesin the open market, a partial or two-tier tender offer that does nottreat all stockholders equally and other activities that the Boardbelieves are not in the best interests of shareholders. The Rights maydiscourage a takeover and prevent our stockholders from receiving apremium for their shares.

We have not paid, and donot expect to pay in the future, cash dividends on our commonstock.

We have never paid cash dividends on our common stockand do not anticipate paying any such dividends in the foreseeablefuture. We currently intend to retain our earnings, if any, for thedevelopment of our business.

Our stock price isvolatile.

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

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

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

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

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

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

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

AtSeptember  30,  2006, we had 153.7  million shares ofcommon stock outstanding, 13.0  million additional sharesreserved for the conversion of convertible preferred stock and theexercise of outstanding options and warrants and 4.9  millionadditional shares of common stock authorized for issuance and remainingto be granted under our stock option plans. Future sales of shares ofour common stock by existing stockholders, holders of preferred stockwho might convert such preferred stock into common stock and option andwarrant holders who may exercise their options and warrants to purchasecommon stock also could adversely affect the market price of our commonstock. Moreover, the perception that sales of substantial amounts ofour common stock might occur could adversely affect the market price ofour common stock.

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Our common stock may bedelisted from the NASDAQ Global Market, or NASDAQ.

If thebid price of our common stock falls below $1.00 for an extended period,or we are unable to continue to meet NASDAQ's listing maintenancestandards for any other reason, our common stock could be delisted fromNASDAQ. In recent months, the bid price on our common stock has beenbelow $1.00.

On November  2,  2006, we received anotification from the NASDAQ Listing Qualifications Departmentproviding notification that, for the last thirty consecutive businessdays, the bid price of our common stock has closed below the minimum$1.00 per share requirement for continued inclusion under NASDAQMarketplace Rule 4450(a)(5), or the Rule. We, in accordance with NASDAQMarketplace Rule 4450(e)(2), have been provided 180 calendar days, oruntil May  1,  2007, to regain compliance. To regaincompliance, the bid price of our common stock must close at $1.00 pershare or more for a minimum of ten consecutive business days at anytime before May  1,  2007.

If we do not regaincompliance with the Rule by May  1,  2007, we will benotified that our securities will be delisted. At that time, we mayappeal NASDAQ’s determination to delist our securities to aListing Qualifications Panel. Alternatively, we also may considerapplying to transfer our securities to The NASDAQ Capital Market if wesatisfy the requirements for initial inclusion set forth in NASDAQMarketplace Rule 4310(c). If our application is approved, we will beafforded the remainder of The NASDAQ Capital Market’s second180-calendar day grace period in order to regain compliance while onThe NASDAQ Capital Market.

If our stock is not accepted forlisting on NASDAQ, we will make every possible effort to have it listedon the Over the Counter Bulletin Board, or the OTC Bulletin Board. Ifour common stock were to be traded on the OTC Bulletin Board, theSecurities Exchange Act of 1934, as amended, and related Securities andExchange Commission (SEC) rules would impose additional sales practicerequirements on broker-dealers that sell our securities. These rulesmay adversely affect the ability of stockholders to sell our commonstock and otherwise negatively affect the liquidity, trading market andprice of our common stock.

We believe that the listing of ourstock on a recognized national trading market, such as NASDAQ, is animportant part of our business and strategy. Such a listing helps ourstockholders by providing a readily available trading market withcurrent quotations. Without that, stockholders may have a difficulttime getting a quote for the sale or purchase of our stock, the sale orpurchase of our stock would likely be made more difficult and thetrading volume and liquidity of our stock would likely decline. Theabsence of such a listing may adversely affect the acceptance of ourcommon stock as currency or the value accorded it by other parties. Inthat regard, listing on a recognized national trading market will alsoaffect our ability to benefit from the use of our operations andexpansion plans, including for use in licensing agreements, jointventures, the development of strategic relationships and acquisitions,which are critical to our business and strategy and none of which iscurrently the subject of any agreement, arrangement or understanding,with respect to any future financing or strategic relationship it mayundertake. The delisting from NASDAQ would result in negative publicityand would negatively impact our ability to raise capital in thefuture.

Item 2.    Unregistered Sales of Equity Securitiesand Use of Proceeds

None.

Item3.    Defaults Upon SeniorSecurities

None.

Item4.    Submission of Matters to a Vote of SecurityHolders

None.

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Item 5.    OtherInformation

On November  2,  2006, we receiveda notification from the NASDAQ Listing Qualifications Departmentproviding notification that, for the last thirty consecutive businessdays, the bid price of the Company’s common stock has closedbelow the minimum $1.00 per share requirement for continued inclusionunder NASDAQ Marketplace Rule 4450(a)(5) or Rule. In accordance withNASDAQ Marketplace Rule 4450(e)(2), we have been provided 180 calendardays, or until May  1,  2007, to regain compliance. Toregain compliance, the bid price of the Company’s common stockmust close at $1.00 per share or more for a minimum of ten consecutivebusiness days at any time before May  1,  2007.

If wedo not regain compliance with the Rule by May  1,  2007, wewill be notified that our securities will be delisted. At that time, wemay appeal NASDAQ’s determination to delist our securities to aListing Qualifications Panel. Alternatively, we also may considerapplying to transfer our securities to The NASDAQ Capital Market if wesatisfy the requirements for initial inclusion set forth in NASDAQMarketplace Rule 4310(c). If our application is approved, we will beafforded the remainder of The NASDAQ Capital Market’s second180-calendar day grace period in order to regain compliance while onThe NASDAQ Capital Market.

We have not yet determined whataction, if any, we will take in response to this notice, although weintend to monitor the closing bid price of our common stock between nowand May  1,  2007 and to consider available options if ourcommon stock does not trade at a level likely to result in the Companyregaining compliance with the NASDAQ minimum closing bid pricerequirement.

Item6.    Exhibits.

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

|               |  |  |                                                                                                                                                                                                                                                                 |
|---------------|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNumber |  |  | Description ofDocument                                                                                                                                                                                                                                          |
| 10.1          |  |  | EmploymentAgreement, dated as of March  28,  2006, between theCompany and Loretta M.  Itri,  M.D. (filed as Exhibit 10.1to the Company’s Quarterly Report on Form 10-Q, filed onAugust  8,  2006, and incorporated by referenceherein)                    |
| 10.2          |  |  | Form of Securities PurchaseAgreement, dated September  19,  2006, between the Companyand each Purchaser (filed as Exhibit 10.1 to the Company’sCurrent Report on Form 8-K, filed on September  20,  2006,and incorporated by referenceherein)             |
| 10.3          |  |  | Form of Placement AgentAgreement, dated September  19,  2006, by and between theCompany and Rodman & Renshaw LLC (filed as Exhibit 10.2 to theCompany’s Current Report on Form 8-K, filed on September20,  2006, and incorporated by referenceherein) |
| 31.1          |  |  | Certification by ChiefExecutive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002 (filed herewith)                                                                                                                                               |
| 31.2          |  |  | Certification byChief Financial Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 (filedherewith)                                                                                                                                                |
| 32.1          |  |  | Certification by ChiefExecutive Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnishedherewith)                                                                                             |
| 32.2          |  |  | Certification by ChiefFinancial Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnishedherewith)                                                                                             |
|               |

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Table of Contents

SIGNATURES

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

|                         |  |  |                                                                      |
|-------------------------|--|--|----------------------------------------------------------------------|
|                    |  |  | GentaIncorporated                                                    |
| Date:November  7,  2006 |  |  |                                                                 |
|                    |  |  | /s/RAYMOND P. WARRELL, JR., M.D.                                     |
|                    |  |  | Raymond P.Warrell, Jr., M.D.                                         |
|                    |  |  | Chairman and ChiefExecutive Officer                                  |
|                    |  |  | (principal executiveofficer)                                         |
| Date:November  7,  2006 |  |  |                                                                 |
|                    |  |  | /s/RICHARD J. MORAN                                                  |
|                    |  |  | Richard J.Moran                                                      |
|                    |  |  | Senior Vice President, Chief FinancialOfficer and CorporateSecretary |
|                    |  |  | (principal financial and accountingofficer)                          |
|                         |

42

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ExhibitIndex

|               |  |  |                                                                                                                                                                                                                                                                 |
|---------------|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNumber |  |  | Description ofDocument                                                                                                                                                                                                                                          |
| 10.1          |  |  | EmploymentAgreement, dated as of March  28,  2006, between theCompany and Loretta M.  Itri,  M.D. (filed as Exhibit 10.1to the Company’s Quarterly Report on Form 10-Q, filed onAugust  8,  2006, and incorporated by referenceherein)                    |
| 10.2          |  |  | Form of Securities PurchaseAgreement, dated September  19,  2006, between the Companyand each Purchaser (filed as Exhibit 10.1 to the Company’sCurrent Report on Form 8-K, filed on September  20,  2006,and incorporated by referenceherein)             |
| 10.3          |  |  | Form of Placement AgentAgreement, dated September  19,  2006, by and between theCompany and Rodman & Renshaw LLC (filed as Exhibit 10.2 to theCompany’s Current Report on Form 8-K, filed on September20,  2006, and incorporated by referenceherein) |
| 31.1          |  |  | Certification by ChiefExecutive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002 (filed herewith)                                                                                                                                               |
| 31.2          |  |  | Certification byChief Financial Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 (filedherewith)                                                                                                                                                |
| 32.1          |  |  | Certification by ChiefExecutive Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnishedherewith)                                                                                             |
| 32.2          |  |  | Certification by ChiefFinancial Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnishedherewith)                                                                                             |
|               |

43

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