UNITED
  STATES
  SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM
  10-KFOR
ANNUAL AND TRANSITIONAL REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934

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

For the Fiscal
Year Ended December 31, 2005

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

Commission File
Number 0-19635GENTA
  INCORPORATED(Exact name of Registrant as specified in its
certificate of  incorporation)

|Delaware                                                       |  | 33-0326866                                
|-------------------------------------------------------------- |  | ------------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (IRS
      Employer Identification Number)
|                                                               |  |                                           
|Two
      Connell Drive
      Berkeley Heights, New Jersey     |  | 07922                                     
|(Address
      of principal executive offices)                 |  | (Zip
      Code)                          

(908)
  286-9800(Registrants telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: NONE

Securities
  registered pursuant to Section 12(g) of the Act:
  Common Stock, $.001 par value
Series G Participating Cumulative Preferred Stock Purchase Rights(Title of Class)

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

Indicate by
check mark if the  registrant  is not required  to file  reports  pursuant  to Section 13
or Section  15(d) of  the Act.
  Yeso
  No ý

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

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

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

Large
  accelerated filer  o   Accelerated
  filer   ý  Non-accelerated
  filer  o

Indicate
  by check mark whether the registrant is a shell company (as defined in Rule
  12b-2 of the Securities Exchange Act of 1934).Yes
  o No ý

The
approximate  aggregate  market value of the voting and  non-voting  common  equity  held
by  non-affiliates  of  the  registrant  was  $111,605,441  as of June 30,  2005  (the
last  business  day  of the  registrants  most  recently  completed  second  fiscal
quarter).  For  purposes of  determining  this  number,  777,333  shares of common stock
held by affiliates as  of June 30,  2005 are  excluded.  For  purposes of making this
calculation,  the  registrant  has  defined  affiliates  as  including all  directors,
executive  officers and  beneficial  owners of more than ten  percent  of the  common
stock of the  Company.

As
  of March 10, 2006, the registrant had 114,549,543 shares of Common Stock outstanding.

Documents
Incorporated by Reference

Certain
provisions  of  the  registrants  definitive  proxy  statement  to be filed not
later  than  April 30,  2006  pursuant to Regulation  14A are  incorporated  by reference
in  Items 10  through  13 of Part  III of this  Annual  Report  on  Form 10-K.







1



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Genta
  Incorporated
  Table of Contents

|Part
      I   |                |    |                                                                                                                   
|-------------- | -------------- | -- | ------------------------------------------------------------------------------------------------------------------
|               | Item
      1.  |    | Business                                                                                                          
|               | Item
      1A. |    | Risk Factors                                                                                                      
|               | Item
      1B. |    | Unresolved
      Staff Comments                                                                                   
|               | Item
      2.  |    | Properties                                                                                                        
|               | Item
      3.  |    | Legal
      Proceedings                                                                                           
|               | Item
      4.  |    | Submission
      of Matters to a Vote of Security Holders                                                         
|Part
      II 
|               | Item
      5.  |    | Market
      For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|               | Item
      6.  |    | Selected
      Consolidated Financial Data                                                                        
|               | Item
      7.  |    | Managements
      Discussion and Analysis of Financial Condition and Results of Operations                       
|               | Item
      7A. |    | Quantitative
      and Qualitative Disclosure about Market Risk                                                   
|               | Item
      8.  |    | Financial
      Statements and Supplemental Data                                                                  
|               | Item
      9.  |    | Changes
      in and Disagreements with Accountants on Accounting and Financial Disclosure                        
|               | Item
      9A. |    | Controls
      and Procedures                                                                                     
|               | Item
      9B. |    | Other
      Information                                                                                           
|Part
      III
|               | Item
      10. |    | Directors
      and Executive Officers of the Registrant (1)                                                      
|               | Item
      11. |    | Executive
      Compensation (1)                                                                                  
|               | Item
      12. |    | Security
      Ownership of Certain Beneficial Owners and Management and Related Stockholder
      Matters (1)    
|               | Item
      13. |    | Certain
      Relationships and Related Transactions (1)                                                          
|               | Item
      14. |    | Principal
      Accounting Fees and Services (1)                                                                  
|Part
      IV 
|               | Item
      15. |    | Exhibits
      and Financial Statement Schedules                                                                  
|Signatures     |                | 70 |                                                                                                                   
|Certifications |                | 77 |                                                                                                                   
|               |                |    |                                                                                                                   

|(1) |  | The
information  required  in  these  items  is  incorporated  by  reference  from  the
Companys  definitive  proxy  statement to  be filed not  later  than  April 30,
2006  pursuant to Regulation  14A of the General  Rules  and  Regulations  under  the
Securities  Exchange  Act  of  1934,  as  amended.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2



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

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

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

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

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

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

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

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

| | o |  | the
other risks  described  under Certain Risks and  Uncertainties Related to the Companys
Business.
| | - |  | -----------------------------------------------------------------------------------------------------

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

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

3



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PART I

Item 1.Business

Overview

Genta
Incorporated  (Genta or  the  Company)  was  incorporated  in
Delaware  on  February  4, 1988.  Genta is a  biopharmaceutical  company  engaged in
pharmaceutical  (drug)  research and  development,  its sole reportable  segment.  The
Company is dedicated to the  identification,  development  and  commercialization  of
novel drugs for the  treatment of cancer  and  related  diseases.  The  Companys
research  portfolio  consists  of  two  major  programs:  DNA/RNA  Medicines and
Small Molecules.

The
DNA/RNA  Medicines  program  includes  drugs that are  based on using  modifications  of
either  DNA or RNA as drugs  that  can be used to  treat  disease.  This  program
includes  technologies  such as  antisense,  decoys,  aptamers and small  interfering  or
micro RNA. The  Companys  lead drug from this  program  is an  investigational
antisense  compound  known as  Genasense® (oblimersen  sodium  injection).  Genasense® is
designed  to  block  the  production  of a  protein  known  as  Bcl-2.  Current  science
suggests that Bcl-2 is a fundamental  (although  not  sole)  cause  of the  inherent
resistance  of  cancer  cells  to  current  anticancer  treatments,  such  as
chemotherapy,  radiation,  or  monoclonal  antibodies.  While  Genasense® has
displayed some  anticancer  activity when used  by itself,  the Company is developing
the drug primarily as a  means  of  amplifying  the  cytotoxic  effects  of  other
anticancer treatments.

Genasense® has
been  studied in  combination  with a wide  variety of  anticancer  drugs in a number of
different  cancer  indications.  Genta  has  reported  results  from  three  randomized
Phase  3  trials  of  Genasense® in  malignant  melanoma,  chronic lymphocytic
leukemia (CLL), and multiple  myeloma.  Under its own sponsorship or in
collaboration  with  the  U.S.  National  Cancer  Institute  (NCI),  Genta
is  currently conducting a number of additional clinical trials.

In
September  2003,  Genta  announced  results  of  its  randomized  trial in patients with
advanced  melanoma and the  Company  initiated  submission  of  a  New  Drug  Application
(NDA) to the U.S. Food and Drug  Administration  (FDA) for  the
use of  Genasense® plus  chemotherapy  in  patients  with  this disease.  In May
2004, the  application  failed to gain a  majority  vote for  marketing  approval  from
FDAs  Oncology  Drug Advisory  Committee  (ODAC).  As a  consequence,
Genta  withdrew  the NDA,  which  allows the  Company to  potentially  resubmit  the
application.  In  February  2005,  the  Company  completed 24 months of minimum
follow-up  for  patients  that  had  been  specified  in  the  clinical  protocol.  The
data  collected  during  this  extended  follow-up  period  were  sufficiently
encouraging  that  the  Company  elected  to  re-evaluate  submission  of  the
application  for  regulatory  approval.  On  January 3, 2006,  Genta  announced  that it
had  completed a  Marketing  Authorization  Application  (MAA) to  the
European  Medicines  Agency  (EMEA) that seeks  approval  for use of Genasense® plus
dacarbazine  for the treatment of  patients  with  advanced  melanoma  who  have  not
previously  received  chemotherapy.  This centralized  licensing procedure  provides  a
single  marketing  authorization  that is valid in  all 25 member-states of the European
Community.  While review  of the  application  is  coordinated  by the  EMEA,  Spain and
France have been  appointed as  rapporteur  and  co-rapporteur  countries,  respectively.
On  February  1, 2006,  the Company  announced  that it had received  notice from the
EMEA that its  MAA had been  validated for review,  which  signaled the start  of  formal
scientific  assessment.  While  the  timeline  is  subject to  considerable  imprecision,
the Company  currently  expects to receive an opinion  regarding  approvability of its
application  by  the  EMEAs  Committee  on  Human  Medicinal  Products (CHMP)
in the second half of 2006.

In
  November 2004, the Company announced that its second randomized trial, which
  was conducted in patients with advanced multiple myeloma, failed to meet endpoints
  that would be sufficient for regulatory approval.

4



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In
  December 2004, the Company presented results from its third randomized trial,
  which was conducted in patients with relapsed or refractory CLL. In this trial,
  241 patients who had relapsed or had not responded to prior therapy were treated
  with standard chemotherapy using fludarabine and cyclophosphamide (Flu/Cy)
  and were randomly assigned to receive Genasense® or no additional treatment.
  Initial results showed that the trial achieved its primary endpoint: the proportion
  of patients who achieved a complete or nodular partial response (CR/nPR)
  was improved with the addition of Genasense® to Flu/Cy chemotherapy (17%
  vs. 7%; P=0.025). The response required independent confirmation by an external
  clinical reviewer who was blinded to treatment assignment and who reviewed clinical,
  laboratory and radiologic data. A second independent reviewer evaluated bone
  marrow biopsies. Agreement between the clinical and bone marrow reviews was
  required in order to determine response in this study. A clinical trial result is statistically significant if it is unlikely to have occurred by chance. The statistical significance of clinical trial results is determined by a widely used statistical method that establishes the P-value of the results. A P-value of 0.05 or less for clinical trial results is generally considered by regulatory authorities as indicating statistically significant results for evidence of effectiveness.

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

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

In
  December 2005, the Company also announced preliminary clinical results regarding
  the use of Genasense® in combination with fludarabine plus rituximab (Rituxan®;
  Genentech/IDEC) in patients with CLL. Two clinical studies have explored the
  use of Genasense® plus rituximab, with and without cytotoxic chemotherapy,
  in patients with non-Hodgkin's lymphoma (NHL). The goals of these
  Phase 1 and 2 studies have primarily been to evaluate safety and tolerability
  of Genasense® when used in combination with rituximab, along with obtaining
  preliminary evidence of activity.

The
Company  has  commenced  discussions  with  several  companies  regarding  partnership
for the further  development  and  global  commercialization  of  Genasense®.  Those
discussions are currently ongoing.

The
Company  has two  additional  programs in its DNA/RNA  Medicines  program.  The first is
an  antisense  drug  (G4460,  previously  known as  LR3001),  which is  directed  against
an  oncogene  called  c-myb.  G4460  was  briefly  tested  in  a  preliminary  clinical
trial  several  years ago.  The Company  licensed  rights  to  G4460  and  associated
technology  from  Temple  University and

5



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we
currently  anticipate that a Phase 1  clinical  trial  of the  compound  will  be
initiated  at the  University of  Pennsylvania  during 2006. The Company also has
licensed  rights to a drug called the CRE-BP  Decoy,  from the  National  Institutes of
Health (NIH).  This compound remains  in  the  laboratory  testing  stage
and  the  Company  cannot  currently  project when,  if ever,  the CRE-BP decoy may enter
clinical testing.

The
Small  Molecules  program  currently  includes  drugs  that  are  based  on
gallium-containing  compounds.  The lead  drug  from  this  program  is  Ganite® (gallium
nitrate  injection),  which was  approved  by the FDA in  October  2003  for  the
treatment  of  patients  with  symptomatic  cancer-related  hypercalcemia  that is
resistant to hydration.  In  Phase  2  studies,  Ganite® has  demonstrated  direct
anticancer  activity  at somewhat  higher  doses than are used  for  hypercalcemia
treatment,  particularly  in patients with  malignant  lymphoma and bladder cancer.
Following the adverse  outcome  of the ODAC  meeting  in May 2004 for the  Genasense® NDA
in  melanoma,  the Company  markedly  reduced  spending on  the  development,  sale and
marketing  of Ganite®,  which has  resulted in  significantly  lower  sales of Ganite®.
A number  of side effects have been reported  related to treatment  with  Ganite®.
These side  effects  are  described  in the  product  insert  for  the  drug.  Genta  has
also  been  engaged  in  developing new  formulations of  gallium-containing  compounds
that may be orally absorbed;  to date, however,  these efforts  have not  yielded a
compound  that the  Company  has  advanced  into late-stage preclinical testing.

The
Company seeks to acquire additional drugs in these  two programs and possibly other areas
that will enhance the  value of its pipeline to shareholders.

Summary
  of Business and Research and Development Programs

Our
goal is to establish Genta as a biopharmaceutical  leader and preferred partner in the
oncology market and as  direct marketers of our products in the United States. Our  key
strategies in this regard are:

| | Build
on our core competitive strength of oncology development expertise to establish a
leadership position in providing biopharmaceutical products for the treatment of cancer.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Expand
our pipeline of products in two therapeutic categories, DNA/RNA Medicines and Small
Molecules, through internal development, licensing and acquisitions.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Establish
our lead antisense compound, Genasense®, as the preferred chemosensitizing drug for
use in combination with other cancer therapies in a variety of human cancer types; and
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Establish
a sales and marketing presence in the U.S. oncology market.
| | ---------------------------------------------------------------------

Research
and Development Programs

DNA/RNA
Medicines

A
number  of  technologies  have  been  developed  using  modifications  of DNA or RNA.
These  agents have been used as  scientific  tools  for  laboratory  use  to  identify
gene  function,  as diagnostic  probes to evaluate  diseases,  and  more  recently
 as potential  drugs to treat human  diseases.  Collectively,  these  technologies
include  methods  known as  antisense,  RNA  interference,  decoys  and  gene  therapy.
Founded  in  1988,  Genta  was  one  of  the  first  companies  established  to  exploit
these  new  technologies  for use as  potential  drugs and we remain  broadly  committed
to research  and  development  of these  compounds with a specific focus on  cancer
medicine  (oncology).  Our most advanced  drugs in our  DNA/RNA  Medicines  program
involve  the  use  of  antisense  technology.

6



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Antisense
Technology

Most
cellular  functions,  including whether cells live or  die,  are carried  out by
proteins.  The  genetic  code for a  protein is contained  in DNA,  which is made up of
bases known  as nucleotides that are arranged in a specific  sequence.  The  specificity
of the sequence  accounts for the production of a  specific  protein.  In order for DNA
to produce a protein,  an  intermediate  step  is  required.  In  this  step,  DNA  is
transcribed  into  messenger  RNA  (mRNA).  The  sequence of  mRNA  that
encodes  a  protein  is  oriented  in  only  one  direction, which is known as the sense orientation.

Antisense
drugs  are  short  sequences  of  chemically  modified  DNA  bases  that  are  called
oligonucleotides,  or  oligos.  The  oligos  are  engineered  in a  sequence  that is
exactly  opposite  (hence  anti)  to  the  sense coding
orientation of mRNA.  Because  antisense drugs bind only short  regions of the mRNA
(rather than the whole  message  itself),  they  contain  far  fewer  nucleotides  than
the  whole  gene.  Moreover,  since  they  are  engineered  to  bind  only to the
matching  sequence on a specific  mRNA,  antisense  drugs have  both high  selectivity
and  specificity,  which can be used to  attack  production  of  a  single,
disease-causing  protein.  Gentas lead antisense compound,  Genasense®,  is an
antisense  oligo that is designed to block the production of Bcl-2.

We
have  devoted  significant  resources  towards  the  development  of  antisense  oligos
that  contain  a  phosphorothioate  backbone,  which  is  the  nucleotide  chain
comprised of ribose and  phosphate  groups.  However,  we also  have  patents  and
technologies  covering  later  generation  technologies that involve mixed backbone
structures,  as well  as sterically  fixed chemical bonds,  that may further enhance  the
molecules  ability  to  bind  to  the  intended  target.  Moreover,  we have
developed certain  formulations that can be  used to more  efficiently  increase  the
uptake of oligos into  cells.  Some  of  these  advanced  technologies  may  be
incorporated  into future products from our DNA/RNA  Medicines  program.

Genasense® as
a Regulator of Apoptosis (Programmed Cell Death)

The
programmed  death of cells,  also known as apoptosis,  is  necessary  to  accommodate
the billions of new cells that  are  produced  daily  and also to  eliminate  aged or
damaged  cells.  However,  abnormal regulation of the apoptotic process  can result in
disease.

Cancer
is  commonly  associated  with  the  over-  or  under-production  of many types of
proteins.  These  proteins  may be directly  cancer-causing  (i.e.,  oncogenic)
or they  may  contribute  to  the  malignant  nature  of  cancer  (for  instance,  by
increasing  the  longevity  of cancer  cells or  making them more likely to spread
throughout  the body).  The  ability  to  selectively  halt  the  production  of  certain
proteins  may make the  treatment  of  certain  diseases  more  effective.  Apoptosis  is
regulated  by  a  large  number  of  proteins,  particularly  members of the Bcl-2
protein  family.  In an effort to make existing  cancer therapy more  effective,  Genta
is  developing  Genasense® to  target  and  block  the  production  of  Bcl-2,  a
protein  that  is  central  to  the  process of apoptosis.

Bcl-2
  as an Inhibitor of Programmed Cell Death

Normally,
when a cancer  cell is  exposed  to  treatment,  such as  with  chemotherapy,  radiation
or  immunotherapy,  a  death signal is sent to an organelle  within the cell
called  the  mitochondrion.  The mitochondrion  then releases a factor  known as
cytochrome  C that  activates  a series  of  enzymes  called  caspases.  These  enzymes
cause  widespread  fragmentation  of cellular  proteins and DNA, which ultimately  causes
cell death.

Bcl-2
is  normally  found in the  mitochondrial  membrane  where it regulates  the release of
cytochrome  C. High levels  of Bcl-2  are  associated  with  most  types of human
cancer,  including  major  hematologic  cancers  such  as  lymphomas,  myeloma,  and
leukemia,  and solid tumors such as melanoma and  cancers  of the lung,  colon,  breast
and  prostate.  In these  diseases,  Bcl-2  inhibits  the release of  cytochrome  C that
would  ordinarily be triggered by cancer therapy.  Thus, Bcl-2  appears  to  be a  major
contributor  to  both  inherent  and  acquired  resistance  to  cancer  treatments.
Overcoming  resistance  to  chemotherapy  poses  a  major  challenge  for  cancer
treatment.

In
cancer  cells,  Bcl-2  inhibits  the  process  of  programmed cell death,  thereby
allowing cells to survive for  much longer than normal cells.  Genasense® has been
developed  as a  chemosensitizing  drug to  block  production  of  Bcl-2,  thereby
dramatically  increasing  the  sensitivity  of cancer  cells to standard cancer treatment.

7



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Genasense®

Genasense® has
been  designed to block the  production of  Bcl-2.  Current  science  suggests that Bcl-2
is a fundamental   although  not sole - cause of the  inherent  resistance  of
cancer  cells  to  most  types  of  existing  anticancer  treatments,  such as
chemotherapy,  radiation  or  monoclonal  antibodies.  Blocking  Bcl-2,  therefore,  may
enable  cancer  treatments  to  be  more  effective.  While  Genasense® has
displayed  some  anticancer  activity when used by itself,  we  believe  the  drug  can
be  optimally  used  as  a  means  of  amplifying the effectiveness of other cancer
therapies,  most  of which function by triggering  apoptosis,  which as noted is
relatively  blocked in cancer cells due to  over-production of  Bcl-2.

Overview of
Preclinical and Clinical studies of Genasense®

Preclinical
Studies

A
number  of  preclinical  studies  in cell  lines  and in  animals  have shown
enhancement  of tumor cell  killing  when  Bcl-2  antisense was used in combination  with
standard cancer  therapies,  including  anti-metabolites,  alkylating  agents,
corticosteroids,  other cytotoxic chemotherapy,  radiation and  monoclonal  antibodies.
Several  studies  have  demonstrated  enhanced  antitumor  activity and durable tumor
regression in  animals  engrafted  with human  cancers that were treated with  Bcl-2
antisense  followed  by  antitumor  agents  that induce  programmed  cell death.  These
studies include human lymphoma,  melanoma,  breast  cancer  and  prostate  cancers,
which were  treated  with  Genasense® in  combination  with  cyclophosphamide,
dacarbazine,  docetaxel  and  paclitaxel,  respectively.

Clinical
Studies

Genasense® has
been in clinical  trials  since  1995.  We  currently  have  efficacy  and  safety  data
on  over  1,500  patients  in  Phase 1,  Phase 2 and  Phase 3  clinical  trials  that
have been  conducted in the U.S.,  Europe,  South America  and  Australia.  These studies
have  included  patients with a  wide  variety of tumor  types,  including  advanced
melanoma,  several  types of acute and  chronic  leukemia,  non-Hodgkins  lymphoma
(NHL),  multiple  myeloma  and  cancers  of  the  prostate,  colon,  lung,
breast and other tumor types.  Since  2001,  Genta and the NCI have jointly  approved the
initiation  of  approximately  twenty  clinical  trials.  In  addition  to  making
Genasense® available to more physicians and patients,  these trials  enable the
evaluation  of Genasense® in certain  diseases (and in combination  with other
chemotherapy  drugs)  that  would  otherwise  be  outside  our  initial  development
priorities.  The overall results of clinical trials  performed  to  date  suggest  that
Genasense® can  be  administered  to  cancer  patients with  acceptable  side-effects
and that such  treatment  may  reduce  the level of Bcl-2  protein  in cancer  cells.
The Company  believes the clinical safety and efficacy  results in patients  with
advanced  melanoma  and relapsed or  refractory  CLL have been  sufficiently  promising
to warrant  marketing  approval  in these  indications.  Accordingly,  the  Company
currently  has  marketing  applications  pending  in  Europe (for melanoma) and the U.S.
(for CLL).

8



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The
following chart sets forth the progress of our  clinical trials with respect to various
potential  indications for Genasense®:

|Indication                                 | Status                                                                                                                                               
|------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------
|Malignant Melanoma                         | Phase 3 completed; a Marketing
     Authorization Application (MAA) to the EMEA completed                                                            
|Chronic Lymphocytic Leukemia               | Phase 3 completed; results of trial met primary
                                                                   endpoint; NDA submitted to the FDA
|Multiple Myeloma                           | Phase 3 completed; trial did not meet primary
                  endpoint                                                                             
|Acute Myelocytic Leukemia                  | Phase 3 (randomized)                                                                                                                                 
|Non-Small-Cell Lung Cancer                 | Phase 2 (randomized), fully enrolled                                                                                                                 
|Prostate Cancer                            | Phase 2 (randomized), fully enrolled                                                                                                                 
|Small-Cell Lung Cancer                     | Phase 2 (randomized), fully enrolled                                                                                                                 
|Breast Cancer                              | Phase 1-2                                                                                                                                            
|Colorectal Cancer                          | Phase 1-2                                                                                                                                            
|Non-Hodgkins lymphoma                     | Phase 1-2 and
   Phase 2                                                                                                                             
|Kidney Cancer                              | Phase 2                                                                                                                                              
|Pancreatic Cancer (and other solid tumors) | Phase 1-2                                                                                                                                            
|Waldenstroms
macroglobulinemia            | Phase 1-2                                                                                                                                            
|Hepatocellular Carcinoma                   | Phase 1-2                                                                                                                                            
|Childhood Solid Tumors                     | Phase 1                                                                                                                                              

Highlights
of the randomized trials sponsored  directly by  the Company are as follows:

Phase
3 Trial of Genasense® Plus Chemotherapy in Patients with Malignant Melanoma

In
  late 2003, we filed an NDA for Genasense® to be used in combination with
  dacarbazine for the treatment of patients with advanced melanoma who had not
  previously received chemotherapy. On May 3, 2004, a majority of the ODAC members
  voted that while the increased number of clinical responses were indicative
  of clinical activity, the evidence presented did not provide substantial evidence
  of effectiveness to outweigh the increased toxicity of administering Genasense®.
  On May 13, 2004, the Company announced that it was withdrawing its NDA. Subsequent
  to the withdrawal in the U.S., Genta continued to track data from patients enrolled
  in its Phase 3 trial and to analyze its results.

Data
  that emerged from extended follow-up of patients who entered into this trial
  were analyzed in 2005 and were informally reviewed with certain regulatory authorities.
  Encouraged by the study results, on January 3, 2006, the Company announced that
  it had completed an MAA to the EMEA for use of Genasense® plus dacarbazine
  for the treatment of patients with advanced melanoma who have not previously
  received chemotherapy. On February 1, 2006, the Company announced that it had
  received notice from the EMEA that its MAA had been validated for review by
  the Agency, which signals the start of formal scientific assessment.

Phase
3 Trial of Genasense® Plus Chemotherapy in Patients with Chronic Lymphocytic
Leukemia

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

9



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

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

In
December 2005,  the Company also announced  preliminary  clinical  results  regarding
the  use  of  Genasense® in  combination  with  fludarabine  plus  rituximab  (Rituxan®;
Genentech/IDEC)  in patients  with CLL. Two  clinical  studies  have explored the use of
Genasense® plus  rituximab,  with and  without  cytotoxic  chemotherapy,  in patients
with NHL.  The  goals  of these  Phase  1-2  studies  have  primarily  been to  evaluate
safety and  tolerability  of Genasense® when used in  combination with rituximab,
along with obtaining  preliminary  evidence of activity.

Phase
3 Trial of Genasense® Plus Chemotherapy in Patients with Multiple Myeloma

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

10



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Other
Trials

Other
randomized  trials are being conducted by either the  Company  or  by  oncology
cooperative  groups.  These  trials  materially  differ from  previous  studies noted
above in that  they  were  not  prospectively  reviewed  by  the  FDA  for  registration
suitability  prior  to  initiation.  Details  of  these trials are as follows:

A
large U.S.  cooperative  oncology group,  the Cancer and  Leukemia  Group B  (CALGB)
is  running  a Phase 3 trial  in  patients with acute  myelocytic  leukemia (AML)
over the age  of 60 who  have  not  previously  received  chemotherapy.  All  patients
in this trial  receive  standard  chemotherapy  with  daunorubicin  and  cytarabine  and
they are randomly  assigned  to receive  additional  treatment with  Genasense® or no
other  treatment.  This trial is currently  projected to enroll up to  approximately  500
patients.  In  January  2006,  the  CALGB  informed  our  collaborators  in  NCI  that
it  expected  to  complete  enrollment  in this  trial  during  2006.  While the  primary
endpoint  of the AML  trial is  overall  survival,  a  variety of  secondary  endpoints
(such as complete  remission  (CR)  rate  and  remission  duration)  will be
sequentially  examined  during  the  analysis  of this  trial.  The  Company  believes
that if the CR results  are  significantly  superior  for  patients  treated  with
Genasense®,  results  from  this  trial may prove sufficient for filing  marketing
applications  in this  indication  on a global  basis.  The  initial CR data  may become
available as early as 2007.  However,  the Company  has no  control  over the  conduct or
analysis  of this trial  and thus no  reliance  can be placed upon these  timelines  at
this time.

During
June  2004,  Genta  completed  enrollment  in  a  randomized  Phase 2 trial  of  Genasense® plus
docetaxel  in  patients with non-small  cell lung cancer.  Patients who met a  variety
of  eligibility  criteria  and  who  had  failed  front-line  platinum-containing
chemotherapy  were  eligible.  Patients  were  randomly  assigned to receive a standard
dose  of  docetaxel  with or  without  Genasense®.  A  total  of 298  patients were
enrolled into this study.  The primary  endpoint  of the study was to  increase  overall
survival  in  patients  treated  with  Genasense® plus  chemotherapy  compared  with
patients  treated  with  chemotherapy  alone.  Key  secondary  endpoints  include
comparisons of  progression-free  survival  and objective  response.  A minimum
follow-up period prior to  analysis  was  specified  in this trial,  which  concluded  in
December  2005.  Depending  upon our  ability  to  defend  the  global marketing
applications  that are already pending,  the  Company  currently  projects  that it will
be able to  analyze  and  release  initial  results  from this trial  during  2006.
However,  since this trial will not,  by itself,  suffice  for  regulatory  approval,
the priority for analysis of this trial  will  be  subordinate  to  other  logistical
considerations  within the Company.

Two
oncology  cooperative  groups,  including the European  Organization  for  Research and
Treatment  of Cancer  (EORTC)  and the CALGB, are conducting  exploratory  randomized
trials,  as follows:

During
the fourth  quarter  of 2004,  the CALGB  completed  enrollment  in a randomized  trial
of  Genasense® in patients  with  small cell lung  cancer.  The trial  evaluated
patients  with  extensive  disease  who  had  not  previously  received  chemotherapy.
The trial  included  approximately  65 patients  who  were  randomly  assigned  to
receive  Genasense® plus  chemotherapy  with  carboplatin  and etoposide or
chemotherapy  alone.  The  primary  endpoint  of the trial was to  determine  the
proportion  of  patients  who  survived  at least  twelve  months from the date of
randomization.  The minimum follow-up  period  concluded in October 2005.  While data
from this trial  may be  available  in 2006,  the Company  has no control  over  the
conduct or  analysis  of this trial,  and thus no reliance  can be placed upon these
timelines at this time.

In
January 2006,  the EORTC  completed  enrollment  into a  randomized  study  of  Genasense® in
patients  with  hormone-refractory  prostate  cancer  who had  not  previously  received
chemotherapy.  In this study, all patients  received  standard  chemotherapy  with
docetaxel  and  were  randomly  assigned  to receive  Genasense® or no other
treatment.  The  Company  was  recently  informed  that  enrollment  into  this  trial
was  completed  with the  accrual of 118  patients.  The  primary  endpoint  of  this
study  was  to  compare  response  rates,  as  measured  by  a  decrease  of  prostate
specific  antigen  (PSA).  While data from this trial may be available  in
2006,  the  Company  has no  control  over the  conduct  or  analysis  of this trial,
and thus no  reliance  can be placed  upon these timelines at this time.

In
addition  to these  randomized  trials,  the  Company,  either  under its own
sponsorship  or in  collaboration  with  the  NCI  is  also  conducting  a  number  of
non-randomized  clinical trials in patients with various types of cancer.

For
additional  background  information  on  the  drug  application  process  and  clinical
trials,  see  Government  Regulation.

11



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Ganite®

Ganite® as
a Treatment for Cancer-Related Hypercalcemia

On
October 6, 2003,  we began  marketing  Ganite® for the  treatment  of  cancer-related
hypercalcemia.  Ganite® is our  first drug to receive marketing approval. The
principal  patent  covering the use of Ganite® for its  approved  indication,
including  potential  extensions  under  Hatch-Waxman provisions in the U.S., expired in
April 2005.

Hypercalcemia
is a  life-threatening  condition caused by  excessive  buildup of calcium  in the
bloodstream,  which may  occur in up to 20% of cancer  patients.  Gallium  nitrate  was
originally  studied  by  the  NCI  as a  new  type  of  cancer  chemotherapy.  More than
1,000  patients were treated in Phase  1  and  Phase  2  trials,  and  the  drug  showed
promising  antitumor  activity  against  NHL,  bladder  cancer  and other  diseases.  In
the  course of these  studies,  gallium  nitrate  was also shown to strongly  inhibit
bone  resorption.  Gallium  nitrate  underwent  additional  clinical  testing  and  was
approved  by  the  FDA  in  1991  as  a  treatment  for  cancer-related  hypercalcemia.
Lower  doses of  Ganite® were  also  tested  in  patients  with  less  severe  bone
loss,  including bone  metastases,  a cancer that has spread to bone,  Pagets
disease,  an affliction of older patients that causes  pain and disability, and
osteoporosis.

Side
  effects of Ganite® include nausea, diarrhea and kidney damage. (A complete
  listing of Ganite®s side effects is contained in the products
  Package Insert that has been reviewed and approved by the FDA.)

In
May 2004,  the Company  eliminated its sales force and  significantly  reduced  its
marketing  support  for  Ganite®.  Since then, the Company has continued  only
minimal  marketing  support of the product.

Ganite® as
a Treatment for Non-Hodgkins Lymphoma and Other Cancer Types

Based
on  previously  published  data,  we  believe  that  Ganite® may  also be a useful
treatment  for  patients  with  certain  types  of  cancer,  particularly  NHL.
Approximately  54,000 new cases of NHL are  diagnosed  in the  United  States  each year.
We have been granted an  investigational  new drug  exemption,  or IND, and we have
commenced  clinical  trials of  Ganite® for the  treatment of patients  with
relapsed NHL. In  December  2004,  we  announced  the  results  of  a  Phase  2  clinical
trial in patients with NHL. The results  showed that  Ganite® displayed  antitumor
activity  in  patients  with  various  types of  advanced  NHL who had  failed to respond
or  had relapsed from other types of treatment.  However,  the use  of Ganite® for
these  indications  entailed  the use of higher  doses  than were  used in the
hypercalcemia  trials  and as a  result,  an increased  number of serious  adverse
events were  recorded  in  this  trial.  In  particular,  several  patients  experienced
optic neuritis and optic atrophy  associated with  visual  loss,  along with other side
effects.  As a result of  the cost savings  actions  announced in May 2004,  spending on
the clinical  development of Ganite® as a  chemotherapy  agent  was  also  reduced.
When  sufficient  resources  become  available,  we may resume  clinical  development of
Ganite® in  NHL and other  indications by initiating new clinical  trials.  Previous
clinical  trials of Ganite® showed that the drug has  not  been  associated  with
significant  myelosuppression,  a  decrease  of  bone  marrow  activity  often
associated  with  cancer therapy,  which can cause increased  susceptibility  to
bleeding  and  infection.  We believe  this  feature may allow  Ganite® to  be
incorporated  into  combination  chemotherapy  regimens  that  employ  other  drugs  that
cause  myelosuppression,  thereby potentially  increasing the utility  of such therapy
for patients.

Other
Pipeline Products and Technology Platforms

Oral
Gallium

For
  several years, we have been attempting to develop novel formulations of gallium-containing
  compounds that can be taken orally. Such formulations might be useful for diseases
  in which long-term low-dose therapy is deemed desirable, such as bone metastases,
  Pagets disease and osteoporosis. Such patients are commonly afflicted
  by bone pain and susceptibility to fractures. To date, a suitable oral formulation
  available for clinical development has not yet been identified.

12



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Decoys

In
addition  to  antisense  compounds  from  the  DNA/RNA  Medicines  program,  we  have
explored  the  development  of  compounds  known as decoys that are short
strands of DNA or  RNA  which  bind  proteins  known  as  transcription  factors.
Normally,  transcription  factors bind to specific portions of  DNA known as response
elements and regulate the  functions of  genes in a positive or negative  fashion (i.e.,
they can turn  genes  on or off).  When a cell is flooded  with
an excess  of decoys,  these  decoys  compete  with  normal DNA  response  elements to
bind  transcription  factors and inactivate  them.  By selectively  inactivating  the
transcription  factor,  the  function  of  the  gene  can be  regulated  in a  positive
or  negative  manner.  This type of control could  potentially  be  used to  regulate
genes that are  critically  involved in the  cause, metastasis, or progression of cancer.

In
December 2000,  Genta  licensed  patents and technology  relating to decoys  from the
NIH.  This  technology  targets a  transcription  factor  known  as  the  cyclic
adenosine  monophosphate  response  element binding  protein,  or CRE-BP.  Preclinical
studies  conducted  at the NIH have  shown  broad  anticancer  activity  for  this
compound,  with  very  low  toxicity to normal cells.  Due to financial  constraints,
the  Company  has  sharply  reduced  current  spending on the Decoy  program and is
currently  reviewing  whether or not to retain  this compound within its research
portfolio.

c-myb
Antisense

In
  December 2004, Genta acquired worldwide rights from Temple University to intellectual
  property and technology and a novel antisense compound (G4460, previously known
  as LR3001) that targets c-myb, a central gene that regulates the growth of cancer
  cells. G4460 has been tested in two Phase 1 clinical trials at the University
  of Pennsylvania in patients with drug-resistant myeloid leukemia. To date, clinical
  investigations have been supported by grants from the NIH, including the Rapid
  Access to Investigational Drugs (RAID) program. Genta has submitted
  a request for designation of G4460 as an Orphan Drug for the treatment of chronic
  myelocytic leukemia (CML) to the FDA and notice of this designation was received
  in February 2005. The Company currently anticipates that a Phase 1 clinical
  trial of G4460 will be initiated during 2006 at the University of Pennsylvania
  and that sufficient inventory currently exists to complete the Phase 1 program.
  Following completion of Phase 1, the Company will decide whether or not to take
  G4460 into Phase 2 clinical trials. Based on the biology of c-myb, potential
  target diseases for G4460 include CML, neuroblastoma and cancer of the breast
  and colon, among other conditions.

Antisense
and RNAi Research and Discovery

We
have had several other oligonucleotide-based  discovery  programs and  collaborations
devoted to the identification of  both  antisense-  and  RNAi-based  inhibitors of
oncology gene  targets.  However,  spending on these  research  programs  was  sharply
reduced  due to  financial  constraints.  The Company  has no  current  agents  that it
considers  lead  compounds that  would  justify  their  being  advanced  into
late-stage  preclinical testing.

We
intend to  continue  to  evaluate  novel  nucleic  acid  chemistries,  through  sponsored
research  and  collaborative  agreements, depending upon the availability of resources.

Patents and
Proprietary Technology

It
is our  policy  to  protect  our  technology  by filing  patent  applications  with
respect to  technologies  important  to our  business  development.  To  maintain  our
competitive  position,  we  also  rely  upon  trade  secrets,  unpatented  know-how,
continuing  technological  innovation,  licensing  opportunities  and  certain
regulatory  approvals  (such  as  orphan drug designations).

We
own or have licensed  several patents and  applications  to numerous aspects of
oligonucleotide  technology,  including  novel  compositions  of  matter,  methods  of
large-scale  synthesis,  methods  of  controlling  gene  expression  and  methods  of
treating  disease.  Gentas  patent  portfolio  includes  approximately  90 granted
patents  and 105  pending  applications  in  the  U.S.  and  foreign  countries.  Genta
endeavors  to  seek  appropriate  U.S.  and  foreign  patent  protection on its
oligonucleotide technology.

13



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Genta
has  licensed  eight  U.S.  patents  relating  to  Genasense® and its  backbone
chemistry  that expire  between  2008 and 2015 and two pending U.S.  patent  applications
that  relate to Genasense®.  Corresponding  patent applications have  been filed in
three foreign  countries.  Genta also owns three  U.S.  patent  applications  relating
to  methods  of  using  Genasense® that  expire  in  2020,  with  approximately  45
corresponding foreign patent applications.

Included
among Gentas  intellectual  property  rights are  certain  rights  licensed  from
the  NIH  covering  phosphorothioate  oligonucleotides.  We also acquired from the
University  of  Pennsylvania  exclusive  rights  to  antisense  oligonucleotides
directed  against the Bcl-2 mRNA, as well as  methods of their use for the  treatment of
cancer.  The claims  of  the  University  of  Pennsylvania  patents  cover  our
proprietary  antisense  oligonucleotide  molecules,  which  target  the  Bcl-2  mRNA,
including  Genasense® and  methods  employing them. Other related U.S. and
corresponding  foreign  patent applications are still pending.

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

The
patent  positions  of  biopharmaceutical  and  biotechnology  firms,  including  Genta,
can be uncertain and  can  involve  complex  legal  and  factual  questions.
Consequently,  even  though  we  are  currently  pursuing  our  patent  applications
with  the  United  States  and  foreign  patent  offices,  we  do  not  know  whether
any  of  our  applications  will result in the issuance of any  patents,  or  if any
issued  patents  will provide  significant  proprietary  protection,  or even if
successful  that these  patents  will  not be circumvented or  invalidated.  Even if
issued,  patents  may be  circumvented  or  challenged  and  invalidated  in the  courts.
Because some  applications  in the United  States are  kept in secrecy  until an actual
patent  issues,  we cannot be  certain  that  others  have  not  filed  patent
applications  directed  at  inventions  covered  by  our  pending  patent  applications,
or that  we  were  the  first  to  file  patent  applications  for  such  inventions.
Thus,  we  may  become  involved  in  interference  proceedings  declared  by the U.S.
Patent and Trademark  Office (or comparable  foreign office or  process)  in  connection
with one or more of our  patents  or  patent  applications  to  determine  priority  of
invention,  which could result in  substantial  costs to us, as well as an  adverse
decision as to priority  of  invention  of the patent  or patent application involved.

Competitors
or  potential  competitors  may  have  filed  applications  for,  or have  received
patents  and may obtain  additional  patents  and  proprietary  rights  relating  to,
compounds  or  processes  competitive  with  those  of  ours.  Accordingly,  there  can
be no  assurances  that  our  patent  applications  will  result  in  issued  patents  or
that,  if  issued,  the  patents  will  afford  protection  against  competitors  with
similar  technology.  We  cannot  provide  assurance  that  any  patents  issued  to
Genta  will  not be  infringed  or  circumvented  by  others,  nor can there be any
assurance  that  we  will  obtain  necessary  patents  or  technologies or the rights to
use such technologies. In addition, there may be patents which are unknown to us and which may block our ability to make, use or sell our product. We may be forced to defend ourselves against charges of infringement or we may need to obtain expensive licenses to continue our business. See the Risk Factor entitled We may be unable to obtain or enforce patents, other proprietary rights and licenses to protect our business; we could become involved in litigation relating to our patents or licenses that could cause us to incur additional costs and delay or prevent our introduction of new drugs to market, on page 22.

We
also  rely  upon  unpatented  trade  secrets.  No  assurances  can be  given as to
whether  third  parties  will  independently  develop  substantially  equivalent
proprietary  information  and  techniques,  or  gain  access  to our  trade  secrets,  or
disclose  such  technologies  to the  public,  or  that  we can  meaningfully  maintain
and  protect  unpatented  trade secrets.

We
require our employees,  consultants, outside scientific  collaborators,  sponsored
researchers  and other  advisors to  execute  confidentiality  agreements with us. These
agreements  generally  provide  that  all  confidential  information  developed  or made
known to an  individual  during the course  of the  individuals  relationship  with
Genta  shall be kept  confidential  and  shall  not be  disclosed  to third  parties
except in specific  circumstances.  In the case of  employees,  the  agreement  generally
provides  that  all  inventions  conceived  by the  individual  shall be assigned  to,
and made  the  exclusive  property of Genta.  There can be no assurance,  however,  that
these  agreements  will  provide  meaningful  protection  to  our  trade  secrets,  or
guarantee  adequate  remedies in the event of  unauthorized  use or  disclosure  of
confidential  proprietary  information,  or in the event of an  employees  refusal
to assign  any  patents to Genta in spite  of his/her contractual obligation.

Research and
Development

In
addition to our  current  focus in the areas  described  above,  we  continually
evaluate our programs in light of the  latest market  information  and conditions,  the
availability  of third  party  funding,  technological  advances,  financial  liquidity
and  other  factors.  As  a  result  of  such  evaluations,  we change  our  product
development  plans from  time to time and  anticipate  that we will  continue to do so.
We  recorded  research  and  development  expenses  of  $20.9  million,  $71.5  million
and $83.1  million  during the years  ended December 31, 2005, 2004 and 2003,
respectively.

14



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Sales and
Marketing

Either
alone or in partnerships  with other companies,  we  intend  to  be  a  direct  marketer
or  co-marketer  of  our  pharmaceutical  products  by  building  a sales and  marketing
infrastructure  in the  United  States  to  launch  and  fully  realize the  commercial
potential of our products if approved  by the FDA. In January  2006,  the Company
announced  that it  had  appointed  W. Lloyd  Sanders as  Vice-President  of Sales  and
Marketing.  Most  recently,  Mr.  Sanders  was  Vice  President,  Oncology  Sales,  at
sanofi-aventis  Group.  For  international  product  sales,  we  intend to  distribute
our  products through collaborations with third parties.

Manufacturing
and Raw Materials

Our
ability  to  conduct  clinical  trials  on  a  timely  basis,  to obtain  regulatory
approvals and to  commercialize  our  products  will  depend  in  part  upon  our
ability  to  manufacture  our  products,  either  directly or through third  parties,  at
a  competitive  cost  and  in  accordance  with  applicable FDA and other  regulatory
requirements,  including  current Good Manufacturing Practice regulations.

We
currently  rely on third  parties to  manufacture  our  products.  In  December  2002,
we  signed  a  five-year  manufacturing  and  supply  agreement  with  Avecia
Biotechnology,  Inc.,  or  Avecia,  a  leading  multinational  manufacturer  of
pharmaceutical  products,  to  supply  quantities of  Genasense®.  This  agreement is
also  renewable  beyond the initial  five-year  period. We are not obligated to  purchase
further  drug  substance  from  Avecia  prior  to  approval  of  Genasense®.  We
believe  this  agreement  is  sufficient  for  our  production  needs  with  respect  to
Genasense®.

We
have a three-year  manufacturing  and supply  agreement  with Johnson Matthey Inc.
expiring in December 2006,  whereby  Genta will purchase a minimum of 80% of our
requirements  for  quantities  of  Ganite®.  There  are  no  minimum  purchase
requirements under the agreement.

The
raw  materials  that we  require  to  manufacture  our  drugs  are  available  only  from
a few  suppliers.  Under the  terms of our  manufacturing  and supply  agreement,  Avecia
is  responsible  for  procuring  the  raw  materials  needed  to  manufacture  Genasense®.
We believe  that we have  adequately  addressed  our  needs  for  suppliers  of  raw
materials  to  manufacture  Genasense® and Ganite® and meet future  customer
demand.

Human
Resources

As
of December 31,  2005,  Genta had 59  employees,  15 of  whom hold  doctoral  degrees.
As of that date,  there were 43  employees  engaged  in  research,  development  and
other  technical  activities  and  16  in  administration.  None  of  Gentas
employees  are  represented  by a union.  Most of the  management  and  professional
employees  of  Genta  have  had  prior  experience  and  positions  with  pharmaceutical
and  biotechnology  companies.  Genta  believes  it  maintains  satisfactory  relations
with  its  employees  and  has  not  experienced  interruptions  of  operations  due  to
labor  disagreements.

Government
Regulation

Regulation
by  governmental  authorities  in  the  United  States and foreign  countries is a
significant  factor in our  ongoing  research and product  development  activities  and
in  the  manufacture and marketing of our proposed  products.  All  of our therapeutic
products will require regulatory  approval  by  governmental  agencies  prior  to
commercialization.  In  particular,  human  therapeutic  products  are  subject  to
rigorous  preclinical  and  clinical  testing  and  pre-market  approval  procedures  by
the FDA and  similar  authorities  in  foreign countries.  Various federal,  and in some
cases, state  statutes  and  regulations  also  govern  or  affect  the  development,
testing,  manufacturing,  safety,  labeling,  storage,  recordkeeping  and marketing of
such  products.  The  lengthy  process  of  seeking  these  approvals,  and  the
subsequent  compliance  with  applicable  federal and, in some  cases,  state statutes
and  regulations,  require  substantial  expenditures.  Any failure by Genta, our
collaborators or our  licensees  to obtain,  or any delay in  obtaining,  regulatory
approvals  could  adversely  affect  the  marketing  of  our  products  and our  ability
to  receive  products  or  royalty  revenue.

15



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The
activities  required  before  a  new  pharmaceutical  agent  may  be  marketed  in  the
United  States  begin  with  preclinical  testing.  Preclinical  tests  include
laboratory  evaluation of product  chemistry and animal  studies to assess  the
potential  safety and  efficacy  of the  product  and its  formulations.  The results of
these  studies must be submitted  to the  FDA as  part  of an  IND.  An  IND  becomes
effective  within 30 days of filing  with the FDA unless the FDA  imposes  a clinical
hold on the IND. In addition,  the FDA may, at any  time,  impose a clinical hold on
ongoing clinical  trials.  If  the FDA  imposes  a  clinical  hold,  clinical  trials
cannot  commence  or  recommence,  as the case may be,  without  prior  FDA
authorization  and then only under  terms  authorized  by  the FDA.

Clinical
trials  are  generally  categorized  into  four  phases.

Phase
1  trials  are  initial  safety  trials  on  a  new  medicine  in which  investigators
attempt  to  establish  the  dose  range  tolerated  by a small  group  of  patients
using  single or  multiple  doses,  and to  determine  the pattern of  drug distribution
and metabolism.

Phase
2 trials are  clinical  trials to evaluate  efficacy  and safety in  patients  afflicted
with a  specific  disease.  Typically,  Phase  2  trials  in  oncology  comprise  14 to
50  patients.  Objectives  may  focus  on  dose-response,  type of  patient,  frequency
of  dosing  or any of a  number  of other  issues involved in safety and efficacy.

In
the case of  products  for  life-threatening  diseases,  the  initial  human  testing  is
generally  done in  patients  rather than in healthy  volunteers.  Since these  patients
are  already  afflicted  with the target  disease,  it is  possible  that such studies
may provide results  traditionally  obtained  in Phase 2 trials.

Phase
  3 trials are usually multi-center, comparative studies that involve larger populations.
  These trials are generally intended to be pivotal in importance for the approval
  of a new drug. In oncology, Phase 3 trials typically involve 100 to 1,000 patients
  for whom the medicine is eventually intended. Trials are also conducted in special
  groups of patients or under special conditions dictated by the nature of the
  particular medicine and/or disease. Phase 3 trials often provide much of the
  information needed for the package insert and labeling of the medicine. A trial
  is fully enrolled when it has a sufficient number of patients to provide enough
  data for the statistical proof of efficacy and safety required by the FDA and
  others. After a sufficient period of follow-up has elapsed to satisfactorily
  evaluate safety and efficacy, the trials results can then be analyzed.
  Those results are then commonly reported at a scientific meeting, in a medical
  journal and to the public.

Depending
upon  the  nature  of  the  trial  results,  a  company  may  then  elect  to  discuss
the  results  with  regulatory  authorities  such  as  the  FDA.  If  the  company
believes  the data may  warrant  consideration  for  marketing  approval  of the drug,
the  results  of the  preclinical  and  clinical testing,  together with chemistry,
manufacturing and  control  information,  are  then  submitted  to the  FDA for a
pharmaceutical  product in the form of an NDA.  In  responding  to  an  NDA,  biologics
license  application  or  premarket  approval  application,  the FDA may grant marketing
approval,  request  additional  information or deny the application if it  determines
that  the  application  does  not  satisfy  its  regulatory  approval criteria.  There
can be no assurance that  the  approvals  that are  being  sought  or may be  sought  by
Genta in the future will be granted on a timely  basis,  if at  all,  or if granted  will
cover all the  clinical  indications  for  which  we  are  seeking  approval  or  will
not  contain  significant  limitations in the form of warnings,  precautions  or
contraindications  with  respect  to  conditions  of  use.  Phase 3b trials are conducted
after  submission of a NDA, but  before the  product's  approval  for market  launch.
Phase 3b  trials may  supplement  or complete  earlier  trials,  or they  may seek
different  kinds of  information,  such as quality of  life or marketing.  Phase 3b is
the period between  submission  for approval and receipt of marketing authorization.

After
a  medicine  is  marketed,  Phase 4  trials  provide  additional details about the
product's safety and efficacy.

In
circumstances  where a company  intends to develop and  introduce a novel  formulation
of an active  drug  ingredient  already  approved  by  the  FDA,  clinical  and
preclinical  testing  requirements  may  not  be  as  extensive.  Limited  additional
data about the safety and/or  effectiveness  of the  proposed  new  drug  formulation,
along  with  chemistry  and  manufacturing  information  and public  information  about
the  active  ingredient,  may be satisfactory for product approval.  Consequently,  the
new  product  formulation  may  receive  marketing  approval more rapidly than a
traditional  full new  drug  application,  although no assurance  can be given that a
product will be granted such treatment by the FDA.

16



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Under
European  Union  regulatory  systems,  we may submit requests for marketing  authorizations  either
under  a  centralized  or  decentralized  procedure.  The centralized  procedure provides
for the  grant of a  single  marketing  authorization  that is  valid  for  all  European
Union  member  states.  The  decentralized  procedure  provides for mutual  recognition
of  national  approval  decisions.  Under  this  procedure,  the  holder of a  national
marketing  authorization  may submit an  application  to the remaining  member  states.
Within 90 days  of receiving the  applications  and  assessment  report,  each  member
state must decide whether to recognize approval.

We
and our third-party  manufacturers  are also subject to  various  foreign,  federal,
state  and  local  laws  and  regulations  relating  to health and  safety,  laboratory
and  manufacturing  practices,  the experimental use of animals and  the  use,
manufacture,  storage,  handling  and  disposal  of  hazardous  or  potentially
hazardous  substances,  including  radioactive  compounds and infectious disease agents,
used in  connection  with  our  research  and  development  work  and  manufacturing
processes.  We currently  incur costs to comply  with laws and  regulations  and these
costs may  become  more  significant.

Competition

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

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

Our
competitive  position  also  depends upon our ability  to  attract  and retain  qualified
personnel,  obtain  patent  protection  or  otherwise  develop  proprietary  products  or
processes  and secure  sufficient  capital  resources  for the  often-substantial  period
between  technological  conception  and commercial sales.

Item 1A.
Risk Factors

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

If
any of the following risks actually occurs, our business, financial condition
or results of operations would likely suffer. In such case, the market price of our
common stock would likely decline due to the occurrence of any of these risks, and
you may lose all or part of your investment.

17



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| | Risks
Related to Our Business
| | -----------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

18



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

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

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

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

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

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

Our
operations  to date have  required  significant  cash  expenditures.  As a  result  of
Aventis termination  of the  Collaborative  Agreement,  after May 8, 2005, we
became solely  responsible  for all  Genasense® related  costs.  Our  future  capital
requirements  will  depend  on  the  results  of  our  research and development
activities,  preclinical studies and  clinical trials,  competitive and technological
advances, and  regulatory  activities  of  the  FDA  and  other  regulatory  authorities.
In order to commercialize our products,  we will  need to raise  additional  funds.  On
August 11, 2005, we sold  19.1  million  shares of common  stock at a price of $0.92 per
share,  raising $16.0  million,  net of fees and expenses.  In  addition,  on  March  6,
2006,  we  executed  definitive  subscription  agreements with institutional  investors
to sell  19  million  shares  of our  common  stock at a price of $2.15  per  share
raising  approximately  $37.8  million,  net  of  estimated  fees and expenses.  Assuming
the completion of this  financing,  management  believes that at the projected rate of
spending,  including  building  our sales and  marketing  team  and  capabilities,  we
should  have  sufficient  cash funds to  maintain our present  operations  into the first quarter of 2007.
We will need  to obtain more  funding in the future  through  collaborations  or  other
arrangements  with  research  institutions  and  corporate  partners  or public and
private  offerings  of our  securities,  including  debt or equity  financing.  We may
not  be able to  obtain  adequate  funds  for our  operations  from  these  sources  when
needed or on  acceptable  terms.  Future  collaborations  or  similar  arrangements  may
require  us to  license  valuable  intellectual  property  to,  or  to  share
substantial  economic benefits with, our collaborators.  If we  raise  additional
capital  by  issuing  additional  equity or  securities  convertible  into  equity,  our
stockholders  may  experience  dilution  and our  share  price may  decline.  Any  debt
financing may result in restrictions on our spending.

19



---

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

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

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

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

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

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

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

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

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

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

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

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

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

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

20



---

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

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

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

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

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

We
have  never  been  profitable.  We  have  incurred  substantial  annual operating  losses
associated with ongoing  research  and  development  activities,  preclinical  testing,
clinical  trials,  regulatory  submissions  and  manufacturing  activities.  From the
period  since our  inception to December  31, 2005,  we have  incurred a  cumulative  net
loss of $358.2  million.  We may never achieve  revenue  sufficient  for us to  attain
profitability.  Achieving  profitability  is  unlikely  unless  Genasense® receives
approval  from  the  FDA  for  commercial sale in one or more indications.

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

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

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

21



---

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

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

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

| | o |  | preserve
trade secrets; and
| | - |  | ---------------------------

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

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

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

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

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

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

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

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

22



---

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

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

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

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

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

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

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

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

· subjects
may drop out of our clinical trials;

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

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

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

23



---

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

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

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

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

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

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

| | o |  | unforeseen
safety issues;
| | - |  | -------------------------

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

| | o |  | government
or regulatory delays.
| | - |  | --------------------------------

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

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

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

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

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

24



---

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

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

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

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

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

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

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

25



---

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

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

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

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

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

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

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

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

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

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

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

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

26



---

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

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

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

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

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

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

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

| | Risks
Related to Outstanding Litigation
| | ---------------------------------------

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

In
  2004, numerous complaints were filed in the United States District Court for
  the District of New Jersey against us and certain of our principal officers
  on behalf of purported classes of our shareholders who purchased our securities
  during several class periods. The complaints have been consolidated into a single
  action and allege that we and certain of our principal officers violated the
  federal securities laws by issuing materially false and misleading statements
  regarding Genasense® for the treatment of malignant melanoma that had the
  effect of artificially inflating the market price of our securities. The shareholder
  class action complaint in the various actions seeks monetary damages in an unspecified
  amount and recovery of plaintiffs costs and attorneys fees. On September
  30, 2005, the court granted in part and denied in part our motion to dismiss
  the plaintiffs complaint. The court dismissed plaintiffs claim that
  the defendants engaged in a scheme or artifice to defraud plaintiffs, but allowed
  plaintiffs claims to proceed with respect to their allegations that defendants
  issued false and misleading public statements about Genasense®. The parties
  commenced nonbinding mediation in March 2006. If mediation is unsuccessful,
  the case is expected to proceed to discovery.

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

27



---

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

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

| | Risks
Related to Our Common Stock
| | ---------------------------------

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

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

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

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

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

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

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

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

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

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

| | o |  | government
regulation;
| | - |  | ----------------------

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

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

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

28



---

At
December  31,  2005,  we had 114.5  million  shares of  common  stock  outstanding,  11.0
million  additional  shares  reserved for the  conversion of  convertible  preferred
stock  and the exercise of  outstanding  options and warrants and 5.1  million
additional  shares of  common  stock  authorized  for  issuance  and  remaining  to be
granted under our stock  option  plans.  Future  sales of  shares of
our common stock  by  existing  stockholders,  holders  of  preferred  stock who  might
convert  such  preferred  stock into  common  stock and  option and warrant  holders  who
may  exercise  their  options  and  warrants to purchase  common  stock also could
adversely  affect the market  price of our common  stock.  Moreover,  the  perception
that  sales of  substantial  amounts of our common  stock might occur could  adversely
affect the market price of  our common stock.

Item
  1B.Unresolved Staff Comments

None

Item
  2.Properties

We
lease  approximately  93 thousand square feet of office  space in  Berkeley  Heights,
New  Jersey.  Our annual  rental  costs  for this  space are  approximately  $2.4
million.  Our  lease on this space terminates in 2010.

Item
  3. Legal Proceedings

In
2004,  numerous  complaints  were  filed in the  United  States  District  Court for the
District of New Jersey against  Genta  and  certain  of its  principal  officers  on
behalf of  purported  classes  of  the  Companys  shareholders  who  purchased its
securities  during  several class  periods.  The  complaints  have been  consolidated
into a single  action and  allege  that  the  Company  and  certain  of  its  principal
officers  violated  the  federal  securities  laws by  issuing  materially  false  and
misleading  statements  regarding  Genasense® for the  treatment of malignant
melanoma that had  the effect of  artificially  inflating the market price of our
securities.  The  shareholder  class  action  complaint in the  various  actions  seeks
monetary  damages  in an  unspecified  amount  and  recovery  of  plaintiffs costs
and  attorneys fees.  On September  30, 2005,  the court  granted in part and
denied  in  part  the  Companys  motion  to  dismiss  the  plaintiffs complaint.
The court dismissed plaintiffs claim  that  the  defendants  engaged  in a  scheme
or  artifice  to  defraud  plaintiffs,  but  allowed  plaintiffs claims  to
proceed  with  respect to their  allegations  that  defendants  issued  false  and
misleading  public  statements  about  Genasense®.  The parties have commenced
nonbinding  mediation  in March 2006.  If  meditation  is  unsuccessful,  the case is
expected to proceed to discovery.

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

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

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

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

No
matters were  submitted  to a vote of security  holders  in the quarter ended December
31, 2005.

29



---

PART II

Item
  5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)
Market Information

The
Companys  common  stock  is  traded  on  the  Nasdaq  National  Market under the
symbol GNTA. The following  table  sets  forth,  for the  periods  indicated,
the  high  and low  sales prices for the common stock as reported by Nasdaq.

|                     |  |  |   | High  |  |   | Low  | 
|-------------------- |  |  | - | ----- |  | - | ---- | 
|2005                 |  |  |   |       |  |   |      | 
|First
      Quarter  |  |  | $ | 1.83  |  | $ | 1.10 | 
|Second
      Quarter |  |  |   | 1.50  |  |   | 0.75 | 
|Third
      Quarter  |  |  |   | 1.98  |  |   | 1.00 | 
|Fourth
      Quarter |  |  |   | 1.75  |  |   | 1.18 | 
|                     |  |  |   |       |  |   |      | 
|2004                 |  |  |   |       |  |   |      | 
|First
      Quarter  |  |  | $ | 14.25 |  | $ | 9.25 | 
|Second
      Quarter |  |  |   | 16.65 |  |   | 2.06 | 
|Third
      Quarter  |  |  |   | 3.20  |  |   | 1.35 | 
|Fourth
      Quarter |  |  |   | 3.03  |  |   | 1.18 | 

In
August 2005, the Company  raised $16.0 million,  net of  issuance  costs,  from the
issuance of common  stock  pursuant  to our shelf  registration  statement.  The net
proceeds  from  the  sale  of the  common  stock  will  be  used  for  general  corporate
purposes.

(b)
Holders

There
were 609 holders of record of the Companys common  stock as of  March 9, 2006. We
estimate that there are  approximately 40,000 beneficial owners of our common stock.

(c)
Dividends

The
Company has never paid cash  dividends  on its common  stock and does not  anticipate
paying any such  dividends  in  the  foreseeable  future.  The  Company  currently
intends to  retain  its  earnings,  if  any,  for the  development  of its  business.

30



---

Item
  6.Selected Consolidated Financial Data

|                                                                    |  |  |      |         | Years
      Ended December 31, |   |         |  
|------------------------------------------------------------------- |  |  | ---- | ------- | ------------------------------ | - | ------- | -
|(In
      thousands, except share data)                             |  |  | 2005 |         | 2004                           |   | 2003    |  
|                                                                    |  |  |      |         |                                |   |         |  
|Consolidated
      Statements of Operations Data:                   |  |  |      |         |                                |   |         |  
|Revenues:                                                           |  |  |      |         |                                |   |         |  
|License
      fees and royalties                                    |  |  | $    | 5,241   |                                | $ | 3,022   |  
|Development
      funding                                           |  |  |      | 20,988  |                                |   | 12,105  |  
|Product
      sales - net                                           |  |  |      | 356     |                                |   | (512    | )
|                                                                    |  |  |      |         |                                |   |         |  
|Total
      revenues                                                |  |  |      | 26,585  |                                |   | 14,615  |  
|                                                                    |  |  |      |         |                                |   |         |  
|Cost
      of goods sold                                            |  |  |      | 73      |                                |   | 170     |  
|Provision
      for excess inventory                                |  |  |      | (21     | )                              |   | 1,350   |  
|                                                                    |  |  |      |         |                                |   |         |  
|Total
      cost of goods sold                                      |  |  |      | 52      |                                |   | 1,520   |  
|                                                                    |  |  |      |         |                                |   |         |  
|Operating
      expenses:                                           |  | 
|Research
      and development                                      |  |  |      | 20,902  |                                |   | 71,494  |  
|Selling,
      general and administrative                           |  |  |      | 16,100  |                                |   | 28,576  |  
|Loss
      on disposition of property and equipment                 |  |  |      | 4       |                                |   | 1,254   |  
|                                                                    |  |  |      |         |                                |   |         |  
|Total
      operating expenses - gross                              |  |  |      | 37,006  |                                |   | 101,324 |  
|Aventis
      reimbursement                                         |  |  |      | (6,090  | )                              |   | (43,292 | )
|                                                                    |  |  |      |         |                                |   |         |  
|Total
      operating expenses - net                                |  |  |      | 30,916  |                                |   | 58,032  |  
|                                                                    |  |  |      |         |                                |   |         |  
|Gain
      on forgiveness of debt                                   |  |  |      | 1,297   |                                |   | 11,495  |  
|Other
      income/(expense)                                        |  |  |      | 502     |                                |   | (147    | )
|                                                                    |  |  |      |         |                                |   |         |  
|Loss
      before income taxes                                      |  |  |      | (2,584  | )                              |   | (33,589 | )
|                                                                    |  |  |      |         |                                |   |         |  
|Income
      tax benefit/(expense)                                  |  |  |      | 381     |                                |   | 904     |  
|                                                                    |  |  |      |         |                                |   |         |  
|Net loss
      applicable to common shares                          |  |  | $    | (2,203  | )                              | $ | (32,685 | )
|                                                                    |  |  |      |         |                                |   |         |  
|Net loss
      per basic and diluted share                          |  |  | $    | (0.02   | )                              | $ | (0.41   | )
|                                                                    |  |  |      |         |                                |   |         |  
|Shares
      used in computing net loss per basic and diluted share |  |  |      | 102,883 |                                |   | 79,798  |  
|                                                                    |  |  |      |         |                                |   |         |  

|                                                       |  |  |      |        | As
      of December 31, |   |        |  
|------------------------------------------------------ |  |  | ---- | ------ | ------------------------ | - | ------ | -
|                                                       |  |  | 2005 |        | 2004                     |   | 2003   |  
|                                                       |  |  |      |        |                          |   |        |  
|Consolidated
      Balance Sheet Data:                 |  |  |      |        |                          |   |        |  
|Cash,
      cash equivalents and marketable securities |  |  | $    | 21,282 |                          | $ | 42,247 |  
|Working
      capital                                  |  |  |      | 11,703 |                          |   | (4,269 | )
|Total
      assets                                     |  |  |      | 27,386 |                          |   | 50,532 |  
|Total
      stockholders' equity                       |  |  |      | 15,697 |                          |   | 1,752  |  

31



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

Overview

Since
its  inception in February  1988,  Genta has devoted  its principal  efforts  toward drug
discovery and research and  development.  Gentas  strategy  is to  build  a
product  and  technology  portfolio  primarily focused on its cancer-related  products.
Genta has been  unprofitable to date and expects to  incur  substantial  operating
losses  due  to  continued  requirements  for  ongoing  and  planned  research  and
development  activities,  preclinical  and  clinical  testing,  manufacturing
activities,  regulatory  activities  and  establishment  of a sales  and  marketing
organization.  From  our  inception  to  December  31,  2005,  we have  incurred  a
cumulative  net loss of  $358.2  million.  Management  expects  that  such  losses  will
continue  at  least  until  its lead  product,  Genasense® (oblimersen sodium)
Injection,  receives  approval  from the U.S. Food and Drug  Administration  (FDA)
for commercial  sale in one or more  indications.  Achievement  of  profitability  for
the Company is  dependent on the timing  of  Genasense® regulatory  approvals  in the
U.S. and outside  the U.S.

The
  Company had $21.3 million of cash and cash equivalents and marketable securities
  on hand at December 31, 2005. The Companys recurring losses from operations
  and negative cash flows from operations raise substantial doubt about Gentas
  ability to continue as a going concern and as a result, Gentas independent
  registered public accounting firm included an explanatory paragraph in its report
  on Gentas consolidated financial statements for the year ended December
  31, 2005 with respect to this uncertainty.

In
addition,  on  March 6,  2006,  the  Company  executed  definitive  subscription
agreements  with  institutional  investors  to issue and sell 19 million  shares of our common
stock at a  price  of  $2.15  per  share  raising  approximately  $37.8  million,  net of
estimated  fees and  expenses.  The closing of this financing is expected to close on or about March 13, 2006, subject to the satisfaction of customary closing condition. Assuming the  completion  of this  financing,  management
believes  that at  the projected rate of spending,  including  building our sales  and
marketing  team  and  capabilities,  we  should  have  sufficient  cash  funds to
maintain  our  present  operations  into the first quarter of 2007.

The
Company  has  commenced  discussions  with  several  companies  regarding  partnership
for the further  development  and  global  commercialization  of  Genasense®.  Those
discussions are currently ongoing.

Additional
alternatives  available  to  the  Company  to  subsequently  sustain  its  operations
include  other  collaborative  agreements,  equity  financing  and  other  financing
arrangements with potential  corporate partners and  other  sources.  However,  there can
be no assurance  that any  such  collaborative  agreements  or other  sources  of funding
will be available on favorable  terms,  if at all. The Company  will need  substantial
additional  funds before it can expect  to realize significant product revenue.

Our
financial  results  in  2005  have  been  and  will  continue  to be  significantly
affected  by FDA  action  with  respect to  Genasense®.  In late 2003,  we filed our
first NDA  with  the FDA for  Genasense® as a  treatment  combined  with
chemotherapy  for patients with advanced  malignant  melanoma.  In May 2004,  the
application  failed to gain a majority vote  for  marketing  approval from ODAC.  As a
consequence,  Genta  withdrew  the NDA,  which  allows the  Company to  potentially
resubmit the  application.  However,  we  continued  long-term  follow-up  of  patients
who  were  enrolled  in the  advanced  malignant  melanoma  trial.  On May  16,  2005,
we  announced  updated  data  from  our  Phase  3  trial  of  Genasense® in  patients
with  advance  malignant  melanoma  at the  American  Society  of  Clinical  Oncology
meeting.  The  updated  data  continued  to  show  statistical  significance  for
overall  response,  complete  response and  progression  free survival.  Statistical
significance  was  also  achieved  for  durable  response (P=0.02).  We commissioned a
new,  independent review  of the  X-rays  that  documented  the major  responses,  which
confirmed  the  originally  reported  responses  with  high  concordance.  Overall
survival  by intent  to treat  analysis  had  improved  from  the  time of the FDA
filing  but did not  yield  a  statistically  significant  improvement  at  a
significance  level (i.e., P less than 0.05).  The P value at the time
 of the FDA  filing  was
0.18,  whereas  the P value  with the  most recent  analysis was 0.077.  Our analysis
also identified  a statistically  significant  treatment interaction effect for  blood
levels  of an  enzyme  known as LDH,  which  was one of  three prospectively  specified
stratification factors in this  trial.  When  this  effect  was  analyzed  by  treatment
arm,  survival  (and  all  other  efficacy  endpoints)  was  significantly  superior  for
patients  who  had  received  Genasense® (P=0.018)  who did not have an elevation in
LDH at  study entry (n=508).

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

32



---

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

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

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

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

33



---

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

In
April  2002,  we  entered  into a series of  agreements  with Aventis  regarding the
development and  commercialization  of  Genasense®.  On  November 8, 2004,  the
Company  received  from Aventis notice of  termination of the agreements  between  Genta
and  Aventis.  On May 10,  2005,  the Company  announced  that Genta and  Aventis  had
signed an  agreement  to finalize  the  termination of their  development  and
commercialization  collaboration  for  Genasense®.  The  termination  agreement
provided for no future  financial  obligations by either party  and the  retirement  of
the  Line  of  Credit  established  by  Aventis to Genta.  Aventis  returned its current
inventory of  Genasense® drug supply to Genta.  In addition,  Genta assumed
responsibility  for  the  randomized  clinical  trial  of  Genasense® in  combination
with  docetaxel  (Taxotere®;  sanofi-aventis) in patients with  hormone-refractory
prostate  cancer,  which is  currently  ongoing in Europe.  Among  other  provisions,
the  Standstill  and  Voting  Agreement  and  Registration  Rights Agreement that were
established  pursuant  to the Aventis  investment  in Genta common stock in 2002 were
not terminated at that time.

Results
of Operations

|                                                     |  |  |      |        | Summary Operating Results 
      For the years ended December 31, |   |         |  
|---------------------------------------------------- |  |  | ---- | ------ | ----------------------------------------------------------------- | - | ------- | -
|($
      thousands)                                  |  |  | 2005 |        | Increase
      (Decrease)                                         |   | 2004    |  
|                                                     |  |  |      |        |                                                                   |   |         |  
|                                                     |  |  |      |        |                                                                   |   |         |  
|Revenues:                                            |  |  |      |        |                                                                   |   |         |  
|License
      fees and royalties                     |  |  | $    | 5,241  |                                                                   | $ | 2,219   |  
|Development
      funding                            |  |  |      | 20,988 |                                                                   |   | 8,883   |  
|Product
      sales - net                            |  |  |      | 356    |                                                                   |   | 868     |  
|                                                     |  |  |      |        |                                                                   |   |         |  
|Total
      revenues                                 |  |  |      | 26,585 |                                                                   |   | 11,970  |  
|                                                     |  |  |      |        |                                                                   |   |         |  
|Cost
      of goods sold                             |  |  |      | 73     |                                                                   |   | (97     | )
|Provision
      for excess inventory                 |  |  |      | (21    | )                                                                 |   | (1,371  | )
|                                                     |  |  |      |        |                                                                   |   |         |  
|Total
      cost of goods sold                       |  |  |      | 52     |                                                                   |   | (1,468  | )
|                                                     |  |  |      |        |                                                                   |   |         |  
|Operating
      expenses:                            |  | 
|Research
      and development (including            |  | 
|non-cash
      compensation expense related to       |  | 
|certain
      stock options issued in 1999 and       |  | 
|2000
      of $0, $158 and $209 for the twelve       |  | 
|months
      ended December 31, 2005, 2004 and 2003, |  | 
|respectively
      )                                 |  |  |      | 20,902 |                                                                   |   | (50,592 | )
|                                                     |  |  |      |        |                                                                   |   |         |  
|Selling,
      general and administrative            |  | 
|(including
      non-cash compensation expense       |  | 
|related
      to certain stock options issued in     |  | 
|1999
      and 2000 of $41, $62 and $227 for         |  | 
|the
      twelve months ended December 31, 2005,     |  | 
|2004
      and 2003, respectively)                   |  |  |      | 16,100 |                                                                   |   | (12,476 | )
|                                                     |  |  |      |        |                                                                   |   |         |  
|Loss
      on disposition of equipment               |  |  |      | 4      |                                                                   |   | (1,250  | )
|                                                     |  |  |      |        |                                                                   |   |         |  
|Total
      operating expenses - gross               |  |  |      | 37,006 |                                                                   |   | (64,318 | )
|Less:
      Aventis reimbursement                    |  |  |      | (6,090 | )                                                                 |   | 37,202  |  
|                                                     |  |  |      |        |                                                                   |   |         |  
|Total
      operating expenses - net                 |  |  |      | 30,916 |                                                                   |   | (27,116 | )
|Gain
      on forgiveness of debt                    |  |  |      | 1,297  |                                                                   |   | (10,198 | )
|Other
      income/(expense)                         |  |  |      | 502    |                                                                   |   | 649     |  
|                                                     |  |  |      |        |                                                                   |   |         |  
|Loss
      before income taxes                       |  |  |      | (2,584 | )                                                                 |   | 31,005  |  
|                                                     |  |  |      |        |                                                                   |   |         |  
|Income
      tax benefit/(expense)                   |  |  |      | 381    |                                                                   |   | (523    | )
|                                                     |  |  |      |        |                                                                   |   |         |  
|Net loss                                             |  |  | $    | (2,203 | )                                                                 | $ | 30,482  |  
|                                                     |  |  |      |        |                                                                   |   |         |  

34



---

Total revenues

Total
revenues,  consisting of license fees,  development  funding  and  product  sales  were
$26.6  million  in  2005  compared  to $14.6  million in 2004 and $6.7  million in 2003.
License fees and  development  funding  revenues are generated  by the initial $10.0
million  licensing fee and $40.0 million  development  funding  received  from Aventis in
2002 under the  Collaborative  Agreement  (see  Note  4  to  our  financial  statements).
On  November  8,  2004,  Aventis  gave  notice to  Genta  that it was  terminating  its
Collaborative  Agreement  with  the  Company  regarding  the  development  and
commercialization  of  Genasense®.  Under  the  terms  of  the  Collaborative
Agreement,  Aventis  continued  to fund ongoing  development  activities  through May 8,
2005.  The Company had  previously  determined  that, due to the nature of the ongoing
development work related to the Collaborative  Agreement,  the  end  of  the  development
phase  and  the  fair-value  of the  undelivered  elements were not determinable.
Accordingly,  we  deferred  recognition  of  the  initial  licensing  fee  and  up-front
development  funding  received  from  Aventis  and  recognized  these payments on a
straight-line  basis over the  original  estimated  useful  life  of  the  related
first-to-expire  patent  of 115  months.  As a  result  of the  notice of  termination
of the  Collaborative  Agreement,  the  Company  determined  that the period over which
the  remaining  deferred  revenue  should be  recognized  was  through  May 8,  2005.  On
November  9,  2004,  we  began  to  recognize  the  remaining  deferred  revenue  over  a
six-month  period,  resulting in increased  revenue of $11.1  million  during 2005  and
$9.9 million during 2004.

In
2003,  the  Company  launched  the  commercial  product  Ganite® for the  treatment
of  cancer-related  hypercalcemia  that is resistant  to  hydration,  generating  $1.4
million in  product  sales.  In 2004,  the  Company  eliminated  its sales  force and
significantly  reduced  its  marketing  support for  Ganite®.  In  December  2004,  a
wholesaler  contacted  the  Company to return a  significant  portion of its  inventory
of  Ganite®.  The  Company  agreed to the  return of this  product  and  recorded  a
provision  for  sales  returns,  as  well as  provided for  potential  returns from other
wholesalers.  Our  provision  for sales  returns  increased  by $1.2  million  in  2004,
resulting  in net  sales of  ($0.5)  million  for 2004.  Sales of Ganite® during 2005
were $0.4 million.

Cost of goods
sold

During
2004,  we recorded  provisions  for excess  Ganite® inventory  of  $1.4  million.
Excluding  the  provision  for  excess  inventory,  cost of goods sold for 2005 decreased
from  the  prior-year  period,  consistent  with  the  decline  in  product sales.

Research and
development expenses

Research
and  development  expenses  before  reimbursement  were $20.9  million in 2005  compared
to $71.5 million in 2004  and $83.1 million in 2003.

Approximately
$19.5  million  or  93%  of  research  and  development  expenses  before  reimbursement
were incurred on  the  Genasense® project for the twelve months ended  December  31,
2005.  In  the  prior-year  period,  approximately  $66.8  million or 93% of research
and  development  expenses  before  reimbursement  were  incurred  on  the  Genasense® project.
Included  in the $66.8  million was $33.0  million  related to  the  expensing  of vialed
Genasense® product and  Genasense® bulk  drug  substance,  much  of  which  had
been  originally  produced and  acquired to be  commercial  inventory  and other
expenses  related  to  the  manufacturing  and  purchase  of  Genasense® bulk  drug
substance.  Research  and  development  expenses  in 2005 also  declined  due to our
decision  in May  2004 to reduce  staff and reduce most  non-Genasense® related
programs  as well as a lower  level of  activity  on  clinical  trials.  Of the $20.9
million  in  research  and  development  expenses for the year ended  December  31, 2005,
$6.1 million  were  reimbursable  pursuant  to our  Collaborative  Agreement  with
Aventis.  With  the  Aventis  notice  of  termination,  payments  otherwise  due to Genta
were  applied  against  the  balance  of the  Line of  Credit  until it was  repaid  in
May  2005 (see Note 10 to our Financial Statements).

Research
and development  expenses in 2003 include a $13.5  million  write-off  of  acquired
in-process  research  and  development  resulting  from the August  2003  acquisition  of
Salus  Therapeutics,  Inc. In August 2004, Genta completed the  closure of its  research
facility  in Salt Lake  City,  which  had originated  from the  acquisition  of Salus
Therapeutics,  Inc.  Excluding  these  items,  research  and  development  expenses
declined $31.1 million in 2004,  primarily  resulting  from our  decision  in May 2004 to
reduce  staff  and  reduce  most  non-Genasense® related  programs,  as well as from
the  comparison  to  a  prior-year  period  where  expenses  were  significantly  higher
resulting  from  Genasense® Phase  3  clinical trials and NDA preparation activities.

Research
and  development  expenses  incurred  on  the  Genasense® project in 2003 were
approximately  $63.5 million,  representing  91% of research and  development  expenses
after  excluding  the write-off of acquired  in-process  research and  development
expenses.

35



---

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

Selling,
general and administrative expenses

Selling,
general and administrative  expenses were $16.1  million in 2005  compared  to $28.6
million in 2004 and $29.8  million in 2003.  Lower  expenses  in 2005  reflect the impact
of the May 2004  elimination of the sales force,  reduction of  other  administrative
positions and substantial  reduction of  marketing  support for Ganite®.  In
addition,  during 2004, we  recorded  $1.0  million of legal  expenses  related to
certain  class  action  lawsuits  (see  Note  16  to  our  Financial  Statements).

In
2004,  selling,  general and  administrative  expenses  decreased  by $1.2  million
compared to 2003 as a higher rate  of  spending  in the first half of the year,  in
anticipation  of  approval  and launch of  Genasense®,  was more than offset  by the
impact  of the  elimination  of the  sales  force  and  other cost-cutting measures.

Loss on
disposition of property and equipment

In
August 2004,  we completed  the closure of our research  facility  in Salt Lake City,
sold all related  equipment  and  assigned  our  lease  on  the  facility  to  another
company.  Additionally,  we disposed of excess  equipment  at  corporate  headquarters.
As a result of these  actions,  we  recorded  a  loss  on  disposition  of  property  and
equipment  of  approximately $1.3 million.

Aventis
reimbursement

A
breakdown  of the  various  third-party,  drug  supply  costs  and  internal  costs  of
scientific  and  technical  personnel,  (Full-Time  Equivalents or FTEs)
that Aventis  was required to reimburse  under our  Collaborative  agreement  with
Aventis, follows:

|Reimbursement
      to Genta     |  |  | 2005 |       | 2004 |   | 2003   | 
|-------------------------------- |  |  | ---- | ----- | ---- | - | ------ | 
|Third-party
      costs          |  |  | $    | 2,917 |      | $ | 19,284 | 
|Drug
      supply costs          |  |  |      | 1,807 |      |   | 20,061 | 
|FTEs                            |  |  |      | 1,513 |      |   | 5,833  | 
|                                 |  |  |      |       |      |   |        | 
|Amount
      due to Genta        |  |  | $    | 6,237 |      | $ | 45,178 | 
|                                 |  |  |      |       |      |   |        | 
|Reimbursement
      to Aventis   |  |  |      | 147   |      |   | 1,886  | 
|                                 |  |  |      |       |      |   |        | 
|Net reimbursement
      to Genta |  |  | $    | 6,090 |      | $ | 43,292 | 
|                                 |  |  |      |       |      |   |        | 

Net
expense  reimbursement  from  Aventis of $6.1  million  for  2005  declined  from  $43.3
million  for 2004 due to the  termination  of the  Collaborative  Agreement  in May 2005
and  lower  expenses  incurred  on  the  Genasense® project.  In  addition,  in
September  2004, the Company  transferred  $15.5  million  of vialed  Genasense® drug
product  and  Genasense® bulk drug  substance  to  Aventis.  This amount is included
in  Drug supply costs in the above table.

Once
Aventis  provided  notice  of  termination  of  the  Collaborative  Agreement,  all
payments  otherwise  due  from  Aventis  were  applied  against  the  balance  on the
Line of  Credit until the Line of Credit was repaid in May 2005.

36



---

Net
expense  reimbursement  from Aventis of $43.3  million  for 2004  decreased  from $55.9
million for 2003 primarily due  to the greater  activity and expenses in 2003  resulting
from  the NDA  filing for  Genasense®.  Purchases  of drug  material  were expensed
as incurred and were not  reimbursable  pursuant  to our  Collaborative  Agreement  with
Aventis until they were  used in clinical trials.

Reimbursement
to  Aventis  consisted  of our 25% share of  third party costs  incurred by Aventis and
internal  costs of  Aventis scientific and technical personnel.

Gain on
forgiveness of debt

Gain
on  forgiveness  of debt of $1.3  million in 2005 and  $11.5  million  in 2004 is the
result of the  termination  of  the  Collaborative  Agreement  with  sanofi-aventis.  In
2005,  pursuant  to the terms of the  Collaborative  Agreement,  $2.8  million  of
reimbursable  costs  accrued  and  owed  to  the  Company by Aventis  were  applied
against  the Line of Credit  with  Aventis and the  remaining  balance of $1.3  million
was  forgiven.  In  2004,  under  the  terms  of the  Collaborative  Agreement,  Aventis
forgave the $10.0 million of  convertible  debt  issued  to them in  connection  with the
collaboration,  along with $1.5  million in accrued  interest,  resulting in a  gain on
extinguishment of debt of $11.5 million.

Other
income/(expense)

Net
other  income  of  $0.5  million  in  2005  favorably  compared  to net other  expense of
$0.1  million for the prior  year.  This was the result of lower interest  expense,  due
to  the Company  having no debt since May 2005,  partially  offset  by lower  interest
income,  resulting  from lower  investment  balances.  Net  other  expense  of  $0.1
million  in  2004  unfavorably  compared to net other  income of $0.7  million in  2003,
primarily  due to  lower  average  investment  balances  throughout 2004 as compared to
2003.

Income tax
benefit/(expense)

New
Jersey has  enacted  legislation  permitting  certain  corporations  located  in the
state  to sell  state  tax loss  carryforwards  and state  research  and  development
credits.  The  Company  sold  portions  of its New Jersey net  operating  losses in both
2005 and 2004 and  received  a payment  of $0.9  million  in  each  year  that  is
recognized  as  income  tax  benefit.  In 2005,  the benefit was offset by $0.5  million
of  an accrued  income tax  expense  that has arisen  from a State  of New Jersey tax
audit for the years 2000 through  2004.  The  State has taken the position  that amounts
reimbursed  to the  Company  by Aventis  for  co-development  expenditures  during  the
audit  period  are  subject  to New  Jerseys  Alternative  Minimum  Assessment.
Although the Company and its outside tax  accountants  believe  the  States
position  is  unjustified,  there is  little  case law on the  matter  and it is
probable  that the  Company  will be required  to pay the  liability  in  2006.

If
still  available  under New  Jersey  law,  the  Company  will attempt to sell its tax
loss  carryforwards  in 2006.  We  cannot be assured that the New Jersey  program  will
continue  in 2006,  nor can we estimate what  percentage of our saleable  tax  benefits
New  Jersey  will  permit us to sell,  how much  money will be  received  in  connection
with the sale,  or if  the  Company  will  be  able  to  find a  buyer  for  its  tax
benefits.

Net loss

Genta
incurred a net loss of $2.2  million,  or $0.02 per  share, for 2005,  $32.7 million,  or
$0.41 per share, for 2004  and $50.1 million, or $0.67 per share, for 2003.

In
2005,  the  improvement  in net loss and per  share net  loss to common  shareholders
was primarily due to accelerated  recognition  through  May 2005 of the  initial
licensing  fee  and up-front  development  funding  previously  received  from  Aventis,
lower  research  and  development  expenses,  lower  selling,  general and
administrative  expenses,  along with a  gain on forgiveness of debt.

In
2004,  the  improvement  in net loss and per  share net  loss to common  shareholders
was primarily due to accelerated  recognition  of  the  initial  licensing  fee  and
up-front  development  funding  previously  received  from  Aventis  starting  in the
month of November  and a gain on  forgiveness  of debt.

37



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Recent
Accounting Pronouncements

In
December 2004,  the  FASB  issued  SFAS  No. 123(R),  Share-Based  Payment.
SFAS  No. 123(R)  is a revision of SFAS  No.123,  Accounting for Stock-Based
Compensation,  supersedes  Accounting  Principles  Board  (APB)  Opinion  No. 25,
Accounting  for Stock  Issued to  Employees  and  amends  SFAS  No. 95,  Statement
of  Cash  Flows.  In  April  2005,  the  Securities  and  Exchange  Commission  approved
a ruling  that  delayed the  effective  date of SFAS 123(R) for annual  rather  than
interim  periods  that begin after June 15,  2005.  Under  the new  standard,  all
share-based  payments  to  employees,  including  grants  of  employee  stock  options
will  now  be  recognized  in  the  income  statement  based  on  their  fair  values,
as pro-forma  disclosure is no longer an alternative.  The  amount of  compensation  cost
will be  measured  based on  the  grant-date  fair value of the equity  instrument
issued.  The  Company  currently  utilizes  a standard  option  pricing  model  (i.e.,
Black-Scholes)  to  measure  the fair  value of  stock  options  granted  to  employees.
While  SFAS  123(R)  permits  entities  to  continue  to  use  such  a  model;  the
standard also permits the use of a more complex  binomial,  or  lattice  model.  Based
upon  research  done by the  Company on  the alternative  models available to value
option grants,  and  in  conjunction  with  the type and  number  of stock  options
expected  to  be  issued  in  the  future,  the  Company  has  determined  that it  will
continue  to use the  Black-Scholes  model for option valuation as of the current time.

For
the years ended  December 31, 2005,  2004 and 2003, we  accounted  for  share-based
compensation  arrangements  in  accordance  with APB No. 25, and complied with the
disclosure  provisions  of SFAS  123.  SFAS  123(R)  requires  all  public  entities
that  used  the  fair-value  method  for  either  recognition  or  disclosure  under
SFAS  123  to  apply  the  modified  prospective  transition  method as of
the required  effective  date.  As a result,  we adopted the  provisions  of  SFAS
123(R)  using this  method,  effective  January 1, 2006.  Under the  modified
prospective  method,  new awards  will be  valued  and  accounted  for  prospectively
upon  adoption.  Outstanding  prior  awards that are  unvested as of January 1,  2006
will  be  recognized  as  compensation  cost  over  the  remaining  requisite  service
period.  Prior periods will not  be  restated.  The adoption of SFAS 123(R) is
anticipated  to  increase our reported net loss and loss per share.

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

Critical
Accounting Policies

Our
significant  accounting  policies  are  more  fully  described  in  Note  2  to  our
consolidated  financial  statements.  In  preparing  our  financial  statements  in
accordance with accounting  principles  generally  accepted in  the United  States of
America,  management is required to make  estimates and  assumptions  that,  among other
things,  affect  the reported  amounts of assets and  liabilities  and reported  amounts
of revenues and  expenses.  These  estimates  are most  significant  in  connection  with
our  critical  accounting  policies,  namely those of our  accounting  policies  that are
most  important to the  portrayal of our  financial  condition  and  results  and
require  managements  most  difficult,  subjective  or  complex  judgments.  These
judgments  often  result  from the need to make  estimates  about the effects of  matters
that are  inherently  uncertain.  Actual  results may  differ from those  estimates
under  different  assumptions or  conditions.  The  Company  believes  that  the
following  represent its critical accounting policies:

| | o |  | Revenue
recognition. Our policy is to recognize revenues under license arrangements
when delivery has occurred or services have been rendered, persuasive evidence
of an arrangement exists, the fee is fixed and determinable and collectibility is
reasonably assured. Royalties are recognized when earned. Consistent with Staff
Accounting Bulletin No. 104 Revenue Recognition, initial funding of ongoing
development received from Aventis, after the achievement of certain research and
development milestones were being recognized on a straight-line basis over the
original estimated useful life of the related first-to-expire patent of 115
months. On November 8, 2004 we received from Aventis notice of termination of the
agreements between Genta and Aventis, with an effective termination date of May 8,
2005. Accordingly, we started recognizing the remaining balance of the initial
funding on a straight-line basis over the time period from November 9, 2004
through May 8, 2005 (see Note 9 to our financial statements).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

38



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| | Genta
recognizes  revenue from product sales when  title  to  product  and  associated  risk of
loss has  passed  to  the  customer  and  we  are  reasonably  assured  of  collecting
payment  for the  sale.  All  revenue  from  product  sales  are  recorded  net  of
applicable  allowances  for  returns,  rebates  and  other applicable  discounts and
allowances.  We allow  return of our product for up to twelve  months  after  product
expiration.  In December  2004, a wholesaler  contacted  the  Company  to  return  a
significant  portion of its  inventory  of  Ganite®.  The  Company  agreed to the
return of this  product and  recorded a  provision  for  sales  returns,  as well as
provided  for  potential  returns from other  wholesalers.  Our  provision  for  sales
returns  increased  by  $1.2  million in 2004.  In  January  2005,  the  wholesaler
returned  $0.5  million of Ganite®.  At December  31,  2005,  the  Companys
remaining  provision for sales  returns was $0.8 million.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | Research
and  development  costs.  All such costs are  expensed as incurred,  including  raw
material  costs  required to  manufacture  drugs for clinical  trials.  Reimbursements
for  applicable  Genasense® related  costs under the  Collaborative  Agreement,  have
been  recorded  as  a  reduction  to  expense  in  the  Consolidated  Statements  of
Operations  (see Note 4  to our financial statements).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity
and Capital Resources

At
December 31, 2005, we had cash,  cash  equivalents  and  marketable  securities  totaling
$21.3  million,  a decline of  $20.9  million  from  $42.2  million  at  December  31,
2004.  During  2005,  cash  flow  used in  operating  activities  was  $37.0  million
compared  with  $61.0  million  in 2004.  This  decline  reflects  our  smaller
organization,  focus  on  Genasense® and lower level of activity on clinical trials.

At
December  31,  2005,  Genta  had  no  outstanding  short-term  debt  compared  with the
outstanding  balance  of  $7.3  million  on  the  Line  of  Credit  with  Aventis  as of
December 31, 2004.

The
Companys  recurring  losses  from  operations  and  negative cash flows from operations
raise  substantial  doubt about Gentas  ability  to  continue  as a  going  concern
and as a  result,  Gentas  independent  registered  public  accounting  firm
included  an  explanatory  paragraph  in its report on Gentas  consolidated
financial  statements  for  the  year  ended  December 31, 2005 with respect to this
uncertainty.

In
addition,  on  March 6,  2006,  the  Company  executed  definitive  subscription
agreements  with  institutional  investors  to issue and sell 19 million  shares of our common
stock at a  price  of  $2.15  per  share  raising  approximately  $37.8  million,  net of
estimated  fees and  expenses.  Assuming the  completion  of this  financing,  management
believes  that at  the projected rate of spending,  including  building our sales  and
marketing  team  and  capabilities,  we  should  have  sufficient  cash  funds to
maintain  our  present  operations  into the first quarter of 2007. The closing of this financing is expected to close on or about March 13, 2006, subject to the satisfaction of customary closing conditions.

The
Company  commenced  discussions with several companies  regarding  partnership for the
further  development and global  commercialization  of  Genasense®.  Those
discussions  are  currently ongoing.

Additional
alternatives  available  to  the  Company  to  subsequently  sustain  its  operations
include  other  collaborative  agreements,  equity  financing  and  other  financing
arrangements with potential  corporate partners and  other  sources.  However,  there can
be no assurance  that any  such  collaborative  agreements  or other  sources  of funding
will be available on favorable  terms,  if at all. The Company  will need  substantial
additional  funds before it can expect  to realize significant product revenue.

At
December 31, 2004, we had cash,  cash  equivalents  and  marketable  securities  totaling
$42.2  million,  a decline of  $40.7  million  from  $82.9  million  at  December  31,
2003.  During  2004,  cash  flow  used in  operating  activities  was  $61.2  million,
primarily  resulting from a net loss of $32.7  million  and  non-cash  reimbursements  of
research  and  development  expenses of $27.3 million.  Partially  offsetting  this
outflow,  in December 2004, we raised $21.6 million,  net  of issuance costs, from the
issuance of common stock.

39



---

At
December  31,  2004,  the  Company  had  $7.3  million  outstanding  (compared  to $35.0
million as of  December  31,  2003) on the Line of Credit from  Aventis.  During 2004,
as a  result of certain non-cash  transactions,  the Company reduced  amounts owed under
the Line of Credit by $27.7  million.  As a  result  of  Aventis purchase
commitments  to  Genta,  in  September  we  supplied  $15.5  million  of vialed  Genasense® drug
product and  Genasense® bulk drug  substance to Aventis.  This  amount  is  included
in  the  Companys  Consolidated  Statement  of  Operations  as  Aventis
reimbursement.  The  companies  agreed to  offset  amounts  owed  under the Line of
Credit by $14.8  million and  accrued  interest on the Line of  Credit  by  $0.7
million.  With  the  Aventis  notice  of  termination,  Genta could not borrow
additional funds and the  Line of Credit  had to be repaid  no later  than May 8,  2005.
All payments  otherwise due to Genta were applied  against the  balance  on the Line of
Credit  until  the Line of Credit  was  repaid.  In 2004, $12.9 million of reimbursement
due to Genta  was applied to the balance of the Line of Credit.

At
December  31,  2003,  cash,  cash  equivalents  and  marketable  securities  totaling
$82.9 million  declined $30.8  million  from $113.7  million at  December  31,  2002.
During  2003,  cash  flow  used  in  operating  activities  was  $64.4  million,
primarily  resulting  from  a  net  loss  of  $50.1  million and lower  accounts  payable
and accrued  expenses of  $17.4  million.  Partially  offsetting  this  outflow  were
borrowings  under the Line of  Credit  from  Aventis  of $35.0  million.

Our
principal  expenditures  relate to our  research  and  development  activities,
primarily  focused  on  Genasense®,  which  include  our  ongoing and future
clinical  trials.  We  expect these  expenditures  to continue.  The Company may seek
collaborative  agreements  and  other  financing  arrangements  with  potential
corporate  partners  and  other  sources.  However,  there  can  be  no  assurance  that
any  such  collaborative  agreements  or other sources of funding will be  available  on
favorable  terms,  if at all.  The Company will  need  substantial  additional  funds
before it can  expect to  realize significant product revenue.

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

Contractual
Obligations

Future
contractual  obligations  at December 31, 2005 are  as follows ($ thousands):

|                                  |  |  | Total |        | Less
      than
      1 year |   | 1
      - 3 years |  | 3
      - 5 years |       | More
      than 5
      years |  
|--------------------------------- |  |  | ----- | ------ | ---------------------------- | - | ----------------- |  | ----------------- | ----- | ----------------------------- | -
|                                  |  |  |       |        |                              |   |                   |  |                   |       |                               |  
|Operating
      lease obligations |  |  | $     | 11,056 |                              | $ | 2,711             |  | $                 | 5,339 |                               | $
|                                  |  |  |       |        |                              |   |                   |  |                   |       |                               |  
|Total                             |  |  | $     | 11,056 |                              | $ | 2,711             |  | $                 | 5,339 |                               | $
|                                  |  |  |       |        |                              |   |                   |  |                   |       |                               |  

Not
included in the above table are any  Genasense® bulk  drug  purchase  obligations  to
Avecia  per the  terms of the  Manufacturing  and  Supply  Agreement  entered  into
between  Avecia and Genta in December  2002.  The  agreement  calls for  Genta to
purchase a percentage of our global  Genasense® bulk  drug  requirements  from
Avecia  during  the  term  of  the  agreement.  Due to the  uncertainties  regarding the
timing of  any  Genasense® approval  and  sales/volume  projections,  specific
obligation  amounts  cannot  be  estimated  at  this  time.  Due  to  past  purchases  of
Genasense® bulk  drug  substance,  the Company has access to sufficient  drug for its
current needs.

Off-Balance
Sheet Arrangements

The
Company has no off-balance sheet arrangements.

40



---

Item
  7A. Quantitative and Qualitative Disclosures about Market Risk

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

Gentas
  primary market risk exposure with regard to financial instruments is to changes
  in interest rates, which would impact interest income earned on such instruments.
  We have no material currency exchange or interest rate risk exposure as of December
  31, 2005. Therefore there will be no ongoing exposure to material adverse effect
  on our business, financial condition or results of operation for sensitivity
  to changes in interest rates or to changes in currency exchange rates.

41



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Item 8. Financial Statements and Supplemental Data

Genta
  Incorporated 
  Index to Financial Statements

|Report
      of Independent Registered Public Accounting Firm                                                    | 43
|---------------------------------------------------------------------------------------------------------------- | --
|Consolidated Balance
      Sheets at December 31, 2005 and 2004                                                  | 44
|Consolidated Statements
      of Operations for the years ended December 31, 2005, 2004 and 2003                 | 45
|Consolidated Statements
      of Stockholders Equity for the years ended December 31, 2005, 2004
      and 2003 | 46
|Consolidated Statements
      of Cash Flows for the years ended December 31, 2005, 2004 and 2003                 | 48
|Notes to Consolidated
      Financial Statements                                                                 | 49

42



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REPORT
  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the
  Board of Directors and Stockholders of 
  Genta Incorporated:

We
  have audited the accompanying consolidated balance sheets of Genta Incorporated
  and subsidiaries (the Company) as of December 31, 2005 and 2004,
  and the related consolidated statements of operations, stockholders equity,
  and cash flows for each of the three years in the period ended December 31,
  2005.  These financial statements are the responsibility of the Companys
  management.  Our responsibility is to express an opinion on these financial
  statements based on our audits.

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

In
  our opinion, such consolidated financial statements present fairly, in all material
  respects, the financial position of Genta Incorporated and subsidiaries as of
  December 31, 2005 and 2004, and the results of their operations and their cash
  flows for each of the three years in the period ended December 31, 2005, in
  conformity with accounting principles generally accepted in the United States
  of America.

The
  accompanying consolidated financial statements have been prepared assuming that
  the Company will continue as a going concern. As discussed in Note 1 to the
  consolidated financial statements, the Companys recurring losses from
  operations and negative cash flows from operations raise substantial doubt about its
  ability to continue as a going concern. Managements plans concerning these
  matters are also described in Note 1. The consolidated financial statements
  do not include any adjustments that might result from the outcome of this uncertainty.

We
  have also audited, in accordance with the standards of the Public Company Accounting
  Oversight Board (United States), the effectiveness of the Companys internal
  control over financial reporting as of December 31, 2005, based on the criteria
  established in Internal ControlIntegrated Framework issued by the Committee
  of Sponsoring Organizations of the Treadway Commission and our report dated
  March 10, 2006 expressed an unqualified opinion on managements assessment
  of the effectiveness of the Companys internal control over financial reporting
  and an unqualified opinion on the effectiveness of the Companys internal
  control over financial reporting.

/s/
  DELOITTE & TOUCHE LLP

Parsippany,
  New Jersey 
  March 10, 2006

43



---

GENTA
INCORPORATED   CONSOLIDATED BALANCE SHEETS

|(In thousands,
      except par value data)                                 |  |  |                      |          |      |  
|--------------------------------------------------------------------------- |  |  | -------------------- | -------- | ---- | -
|                                                                            |  |  | December
        31, |         
|ASSETS                                                                      |  |  | 2005                 |          | 2004 |  
|                                                                            |  |  |                      |          |      |  
|Current
      assets:                                                       |  |  |                      |          |      |  
|Cash
      and cash equivalents                                             |  |  | $                    | 9,314    |      | $
|Marketable
      securities (Note 3)                                        |  |  |                      | 11,968   |      |  
|Accounts
      receivable - net                                             |  |  |                      | 59       |      |  
|Inventory
      (Note 5)                                                    |  |  |                      | 396      |      |  
|Prepaid
      expenses and other current assets                             |  |  |                      | 1,655    |      |  
|                                                                            |  |  |                      |          |      |  
|Total
      current assets                                                  |  |  |                      | 23,392   |      |  
|Property
      and equipment, net (Note 6)                                  |  |  |                      | 1,077    |      |  
|Intangibles,
      net                                                      |  |  |                      | --       |      |  
|Prepaid
      royalties (Note 7)                                            |  |  |                      | 1,268    |      |  
|Other
      assets                                                          |  |  |                      | 1,649    |      |  
|                                                                            |  |  |                      |          |      |  
|Total
      assets                                                          |  |  | $                    | 27,386   |      | $
|                                                                            |  |  |                      |          |      |  
|LIABILITIES
        AND STOCKHOLDERS' EQUITY                                |  |  |                      |          |      |  
|Current
      liabilities:                                                  |  | 
|Accounts
      payable and accrued expenses (Note 8)                        |  |  | $                    | 10,960   |      | $
|Deferred
      revenues (Note 9)                                            |  |  |                      | --       |      |  
|Notes
      payable                                                         |  |  |                      | 729      |      |  
|Short
      term debt (Note 10)                                             |  |  |                      | --       |      |  
|                                                                            |  |  |                      |          |      |  
|Total
      current liabilities                                             |  |  |                      | 11,689   |      |  
|                                                                            |  |  |                      |          |      |  
|Commitments
      and contingencies (Note 16)                               |  |  |                      |          |      |  
|                                                                            |  |  |                      |          |      |  
|Stockholders'
      equity (Note 13):                                       |  | 
|Preferred
      stock, 5,000 shares authorized                              |  |  |                      | --       |      |  
|Series
      A convertible preferred stock, $.001 par value;                |  | 
|10
      shares issued and outstanding, liquidation value of $485           |  | 
|at
      December 31, 2005 and December 31, 2004, respectively              |  |  |                      | --       |      |  
|Series
      G participating cumulative preferred stock, $.001 par value;   |  | 
|0
      shares issued and outstanding at December 31, 2005                  |  | 
|and
      December 31, 2004, respectively                                   |  |  |                      | --       |      |  
|Common
      stock, $.001 par value; 150,000 shares authorized,             |  | 
|114,550
      and 95,358 shares issued and outstanding at December 31, 2005 |  | 
|and
      December 31, 2004, respectively                                   |  |  |                      | 115      |      |  
|Additional
      paid-in capital                                            |  |  |                      | 373,709  |      |  
|Accumulated
      deficit                                                   |  |  |                      | (358,187 | )    |  
|Deferred
      compensation                                                 |  |  |                      | --       |      |  
|Accumulated
      other comprehensive income/(loss)                         |  |  |                      | 60       |      |  
|                                                                            |  |  |                      |          |      |  
|Total
      stockholders' equity                                            |  |  |                      | 15,697   |      |  
|                                                                            |  |  |                      |          |      |  
|Total
      liabilities and stockholders' equity                            |  |  | $                    | 27,386   |      | $
|                                                                            |  |  |                      |          |      |  

See
accompanying notes to consolidated financial statements.

44



---

GENTA
INCORPORATED  CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                   |  |  | Years
        Ended December 31, |        
|---------------------------------------------------------------------------------- |  |  | -------------------------------- | -------
|(In thousands,
      except per share data)                                        |  |  | 2005                             |        
|                                                                                   |  |  |                                  |        
|Revenues:                                                                          |  |  |                                  |        
|License
      fees and royalties (Note 9)                                          |  |  | $                                | 5,241  
|Development
      funding (Note 9)                                                 |  |  |                                  | 20,988 
|Product
      sales - net                                                          |  |  |                                  | 356    
|                                                                                   |  |  |                                  |        
|Total
      revenues                                                               |  |  |                                  | 26,585 
|                                                                                   |  |  |                                  |        
|Cost
      of goods sold                                                           |  |  |                                  | 73     
|Provision
      for excess inventory                                               |  |  |                                  | (21    
|                                                                                   |  |  |                                  |        
|Total
      cost of goods sold                                                     |  |  |                                  | 52     
|                                                                                   |  |  |                                  |        
|Operating
      expenses:                                                          |  | 
|Research
      and development (including non-cash compensation expense            |  | 
|related
      to certain stock options issued in 1999 and 2000                     |  | 
|of
      $158 and $209 for the years ended December 31, 2004 and                   |  | 
|2003,
      respectively)                                                          |  |  |                                  | 20,902 
|Selling,
      general and administrative (including non-cash compensation expense |  | 
|related
      to certain stock options issued in 1999 and 2000                     |  | 
|of
      $41, $62 and $227 for the years ended December 31, 2005,                  |  | 
|2004
      and 2003, respectively)                                                 |  |  |                                  | 16,100 
|Loss
      on disposition of property and equipment                                |  |  |                                  | 4      
|                                                                                   |  |  |                                  |        
|Total
      operating expenses - gross                                             |  |  |                                  | 37,006 
|Aventis
      reimbursement (Note 4)                                               |  |  |                                  | (6,090 
|                                                                                   |  |  |                                  |        
|Total
      operating expenses - net                                               |  |  |                                  | 30,916 
|                                                                                   |  |  |                                  |        
|Gain
      on forgiveness of debt (Note 10)                                        |  |  |                                  | 1,297  
|Other
      income/(expense)                                                       |  |  |                                  | 502    
|                                                                                   |  |  |                                  |        
|Loss
      before income taxes                                                     |  |  |                                  | (2,584 
|Income
      tax benefit/(expense) (Note 11)                                       |  |  |                                  | 381    
|                                                                                   |  |  |                                  |        
|Net loss                                                                           |  |  | $                                | (2,203 
|                                                                                   |  |  |                                  |        
|Net loss
      per basic and diluted share                                         |  |  | $                                | (0.02  
|                                                                                   |  |  |                                  |        
|Shares
      used in computing net loss per                                        |  | 
|basic
      and diluted share                                                      |  |  |                                  | 102,883
|                                                                                   |  |  |                                  |        

See
accompanying notes to consolidated financial statements.

45



---

GENTA
INCORPORATED  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  For the Years Ended
December 31, 2005, 2004 and 2003

|                                               |  |  | Convertible             |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   | Accumulated  |   |                       |        
|---------------------------------------------- |  |  | ----------------------- | ---- | -------------------- | - | ---------------------- |  | ---------- | ------ | ----------- | - | -------- |  | ------------- | ---- | ------------- | - | ------------ | - | --------------------- | -------
|                                               |  |  | Preferred
        Stock |      | Common
        Stock |   | Treasury
        Stock |  | Additional |        |             |   |          |  | Other         |      | Total         |  
|                                               |  |  |                         |      |                      |   |                        |  | Paid-in    |        | Accumulated |   | Deferred |  | Comprehensive |      | Stockholders' |  
|(In
      thousands)                           |  |  | Shares                  |      | Amount               |   | Shares                 |  | Amount     |        | Shares      |   | Amount   |  | Capital       |      | Deficit       |   | Compensation |   | Income
        (Loss) |        
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|Balance
      at January 1, 2003               |  |  |                         | 261  |                      |   | --                     |  |            | 74,168 |             | $ | 74       |  |               | (393 | )             | $ | (2,506       | ) | $                     | 322,997
|Comprehensive
      loss:                      |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|                                               |  | 
|Net
      Loss                                 |  |  |                         | --   |                      |   | --                     |  |            | --     |             |   | --       |  |               | --   |               |   | --           |   |                       | --     
|Unrealized
      investment loss               |  |  |                         | --   |                      |   | --                     |  |            | --     |             |   | --       |  |               | --   |               |   | --           |   |                       | --     
|Total
      comprehensive loss                 |  |  |                         | --   |                      |   | --                     |  |            | --     |             |   | --       |  |               | --   |               |   | --           |   |                       | --     
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|Issuance
      of common stock                 |  | 
|in
      connection with exercise              |  | 
|of
      warrants and stock options            |  |  |                         | --   |                      |   | --                     |  |            | 1,172  |             |   | 1        |  |               | --   |               |   | --           |   |                       | 2,542  
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|Purchase
      of treasury stock               |  |  |                         | --   |                      |   | --                     |  |            | --     |             |   | --       |  |               | (51  | )             |   | (303         | ) |                       | --     
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|Retirement
      of treasury stock             |  |  |                         | --   |                      |   | --                     |  |            | (444   | )           |   | --       |  |               | 444  |               |   | 2,809        |   |                       | (2,809 
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|Issuance
      of common stock                 |  | 
|in
      connection with                       |  | 
|acquisition
      of                           |  | 
|Salus
      Therapeutics, Inc                  |  |  |                         | --   |                      |   | --                     |  |            | 1,031  |             |   | 1        |  |               | --   |               |   | --           |   |                       | 12,983 
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|Compensation
      expense related to certain  |  | 
|stock
      options issued in 1999 and 2000    |  |  |                         | --   |                      |   | --                     |  |            | --     |             |   | --       |  |               | --   |               |   | --           |   |                       | --     
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|Balance
      at December 31, 2003             |  |  |                         | 261  |                      | $ | --                     |  |            | 75,927 |             | $ | 76       |  |               | --   |               | $ | --           |   | $                     | 335,713
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|Comprehensive
      loss:                      |  | 
|Net
      Loss                                 |  |  |                         | --   |                      |   | --                     |  |            | --     |             |   | --       |  |               | --   |               |   | --           |   |                       | --     
|Unrealized
      investment loss               |  |  |                         | --   |                      |   | --                     |  |            | --     |             |   | --       |  |               | --   |               |   | --           |   |                       | --     
|Total
      comprehensive loss                 |  |  |                         | --   |                      |   | --                     |  |            | --     |             |   | --       |  |               | --   |               |   | --           |   |                       | --     
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|Issuance
      of common stock                 |  | 
|in
      connection with Series A conversion   |  |  |                         | (251 | )                    |   | --                     |  |            | 1,855  |             |   | 2        |  |               | --   |               |   | --           |   |                       | (2     
|                                               |  | 
|Issuance
      of common stock                 |  | 
|in
      connection with exercise              |  | 
|of
      warrants and stock options            |  |  |                         | --   |                      |   | --                     |  |            | 2,576  |             |   | 2        |  |               | --   |               |   | --           |   |                       | 478    
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|Issuance
      of common stock                 |  | 
|in
      connection with direct placement, net |  | 
|of
      issuance costs of $960                |  |  |                         | --   |                      |   | --                     |  |            | 15,000 |             |   | 15       |  |               | --   |               |   | --           |   |                       | 21,525 
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|Compensation
      expense related to certain  |  | 
|stock
      options issued in 1999 and 2000    |  |  |                         | --   |                      |   | --                     |  |            | --     |             |   | --       |  |               | --   |               |   | --           |   |                       | --     
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        
|Balance
      at December 31, 2004             |  |  |                         | 10   |                      | $ | --                     |  |            | 95,358 |             | $ | 95       |  |               | --   |               | $ | --           |   | $                     | 357,714
|                                               |  |  |                         |      |                      |   |                        |  |            |        |             |   |          |  |               |      |               |   |              |   |                       |        

46



---

GENTA
INCORPORATED  CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY  For the Years Ended
December 31, 2005, 2004 and 2003

|                                              |  |  | Convertible             |    |                      |   |                        |  |            |         |             |   |          |  |               |    |               |   | Accumulated  |  |                       |        
|--------------------------------------------- |  |  | ----------------------- | -- | -------------------- | - | ---------------------- |  | ---------- | ------- | ----------- | - | -------- |  | ------------- | -- | ------------- | - | ------------ |  | --------------------- | -------
|                                              |  |  | Preferred
        Stock |    | Common
        Stock |   | Treasury
        Stock |  | Additional |         |             |   |          |  | Other         |    | Total         |  
|                                              |  |  |                         |    |                      |   |                        |  | Paid-in    |         | Accumulated |   | Deferred |  | Comprehensive |    | Stockholders |  
|(In
      thousands)                          |  |  | Shares                  |    | Amount               |   | Shares                 |  | Amount     |         | Shares      |   | Amount   |  | Capital       |    | Deficit       |   | Compensation |  | Income
        (Loss) |        
|                                              |  |  |                         |    |                      |   |                        |  |            |         |             |   |          |  |               |    |               |   |              |  |                       |        
|Comprehensive
      loss:                     |  |  |                         |    |                      |   |                        |  |            |         |             |   |          |  |               |    |               |   |              |  |                       |        
|Net
      Loss                                |  |  |                         | -- |                      |   | --                     |  |            | --      |             |   | --       |  |               | -- |               |   | --           |  |                       | --     
|Unrealized
      investment income (loss)     |  |  |                         | -- |                      |   | --                     |  |            | --      |             |   | --       |  |               | -- |               |   | --           |  |                       | --     
|                                              |  |  |                         |    |                      |   |                        |  |            |         |             |   |          |  |               |    |               |   |              |  |                       |        
|Total
      comprehensive loss                |  |  |                         | -- |                      |   | --                     |  |            | --      |             |   | --       |  |               | -- |               |   | --           |  |                       | --     
|                                              |  |  |                         |    |                      |   |                        |  |            |         |             |   |          |  |               |    |               |   |              |  |                       |        
|Issuance
      of common stock , net of       |  | 
|issuance
      costs of $1,521                |  |  |                         | -- |                      |   | --                     |  |            | 19,060  |             |   | 20       |  |               | -- |               |   | --           |  |                       | 15,995 
|                                              |  |  |                         |    |                      |   |                        |  |            |         |             |   |          |  |               |    |               |   |              |  |                       |        
|Other
      conversions                       |  |  |                         | -- |                      |   | --                     |  |            | 132     |             |   | --       |  |               | -- |               |   | --           |  |                       | --     
|                                              |  |  |                         |    |                      |   |                        |  |            |         |             |   |          |  |               |    |               |   |              |  |                       |        
|Compensation
      expense related to certain |  | 
|stock
      options issued in 1999 and 2000   |  |  |                         | -- |                      |   | --                     |  |            | --      |             |   | --       |  |               | -- |               |   | --           |  |                       | --     
|                                              |  |  |                         |    |                      |   |                        |  |            |         |             |   |          |  |               |    |               |   |              |  |                       |        
|Balance
      at December 31, 2005            |  |  |                         | 10 |                      | $ | --                     |  |            | 114,550 |             | $ | 115      |  |               | -- |               | $ | --           |  | $                     | 373,709
|                                              |  |  |                         |    |                      |   |                        |  |            |         |             |   |          |  |               |    |               |   |              |  |                       |        

47



---

GENTA
INCORPORATED  CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                              |  |  | Years
        Ended December 31, |        
|--------------------------------------------------------------------------------------------- |  |  | -------------------------------- | -------
|(In thousands)                                                                                |  |  | 2005                             |        
|Operating
      activities:                                                                   |  |  |                                  |        
|Net
      loss                                                                                |  |  | $                                | (2,203 
|Items
      reflected in net loss not requiring cash:                                         |  | 
|Depreciation
      and amortization                                                           |  |  |                                  | 2,074  
|Loss
      on disposition of property and equipment                                           |  |  |                                  | 4      
|Non-cash
      reimbursement of research & development expense (Note 4 and Note 10)           |  |  |                                  | (6,090 
|Amortization
      of deferred revenues (Note 9)                                              |  |  |                                  | (26,228
|Provision
      for sales returns                                                             |  |  |                                  | --     
|Provision
      for excess inventory                                                          |  |  |                                  | (21    
|Gain
      on forgiveness of debt (Note 10)                                                   |  |  |                                  | (1,297 
|Write-off
      of acquired in-process research and development (Note 2)                      |  |  |                                  | --     
|Compensation
      expense related to certain stock options issued in 1999 and 2000 (Note 14) |  |  |                                  | 41     
|Changes
      in operating assets and liabilities, net of effects of                          |  | 
|acquisition
      of Salus Therapeutics, Inc in 2003:                                         |  | 
|Accounts
      receivable                                                                     |  |  |                                  | (59    
|Inventory
      (Note 5)                                                                      |  |  |                                  | (21    
|Notes
      receivable                                                                        |  |  |                                  | --     
|Prepaid
      expenses and other current assets                                               |  |  |                                  | 255    
|Accounts
      payable and accrued expenses                                                   |  |  |                                  | (3,389 
|Other
      assets                                                                            |  |  |                                  | (29    
|                                                                                              |  |  |                                  |        
|Net cash
      used in operating activities                                                   |  |  |                                  | (36,963
|                                                                                              |  |  |                                  |        
|Investing
      activities:                                                                   |  | 
|Purchase
      of marketable securities (Note 3)                                              |  |  |                                  | (21,839
|Maturities
      and sales of marketable securities (Note 3)                                  |  |  |                                  | 15,721 
|Deposits
      to restricted cash account                                                     |  |  |                                  | --     
|Redemptions
      of restricted cash account                                                  |  |  |                                  | --     
|Purchase
      of property and equipment                                                      |  |  |                                  | (56    
|Proceeds
      from sale of equipment                                                         |  |  |                                  | 34     
|Cash
      paid for acquisition of Salus, net of cash acquired (Note 2)                       |  |  |                                  | --     
|                                                                                              |  |  |                                  |        
|Net cash
      (used in) provided by investing activities                                     |  |  |                                  | (6,140 
|                                                                                              |  |  |                                  |        
|Financing
      activities:                                                                   |  | 
|Issuance
      of common stock, net (Note 13)                                                 |  |  |                                  | 16,015 
|Borrowings
      under long term debt                                                         |  |  |                                  | --     
|Borrowings
      under note payable                                                           |  |  |                                  | 1,233  
|Repayments
      of note payable                                                              |  |  |                                  | (1,320 
|Purchase
      of treasury stock                                                              |  |  |                                  | --     
|Issuance
      of common stock upon exercise of warrants and options (Note 13 & 14)           |  |  |                                  | --     
|                                                                                              |  |  |                                  |        
|Net cash
      provided by financing activities                                               |  |  |                                  | 15,928 
|                                                                                              |  |  |                                  |        
|Decrease
      (increase) in cash and cash equivalents                                        |  |  |                                  | (27,175
|Cash
      and cash equivalents at beginning of year                                          |  |  |                                  | 36,489 
|                                                                                              |  |  |                                  |        
|Cash
      and cash equivalents at end of year                                                |  |  | $                                | 9,314  
|                                                                                              |  |  |                                  |        

See
accompanying notes to consolidated financial statements

48



---

GENTA
  INCORPORATED 
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For
  the years ended December 31, 2005, 2004 and 2003

1.
  Organization and Business

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

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

The
  Company had $21.3 million of cash,  cash equivalents and marketable securities
  on hand at December 31, 2005.

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

On
  March 6, 2006, the Company executed definitive subscription agreements with
  institutional investors to issue and sell 19 million shares of the Companys common
  stock at a price of $2.15 per share, raising approximately $37.8 million, net
  of estimated fees and expenses. The closing of this financing is expected to close on or about March 13, 2006, subject to the satisfaction of customary closing condition.

The
  Company commenced discussions with several companies regarding partnership for
  the further development and global commercialization of Genasense®. Those
  discussions are currently ongoing.

Additional
  alternatives available to the Company to subsequently sustain its operations
  include other collaborative agreements, equity financing and other financing
  arrangements with potential corporate partners and other sources. However, there
  can be no assurance that any such collaborative agreements or other sources
  of funding will be available on favorable terms, if at all. The Company will
  need substantial additional funds before it can expect to realize significant
  product revenue.

A
  significant source of funds during the last several years has been from the
  Companys collaboration with Aventis, a member of the sanofi-aventis Group
  (Aventis), regarding the development and commercialization of Genasense®.
  On November 8, 2004, the Company received from Aventis notice of termination
  of the agreements between Genta and Aventis. Pursuant to those agreements, Aventis
  continued to support the development of Genasense® for a six-month period.
  On May 10, 2005, the Company announced that Genta and Aventis had signed an
  agreement to finalize the termination of their development and commercialization
  collaboration for Genasense®. The termination agreement provided for no
  future financial obligations by either party.

The
  Company may also seek other collaborative agreements, equity financing and other
  financing arrangements with potential corporate partners and other sources.
  However, there can be no assurance that any such collaborative agreements or
  other sources of funding will be available on favorable terms, if at all. The
  Company will need substantial additional funds before it can expect to realize
  significant product revenue.

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

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

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

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

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

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

49



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2.
  Summary of Significant Accounting Policies

Basis
  of Presentation

The
  consolidated financial statements are presented on the basis of accounting principles
  generally accepted in the United States of America. All professional accounting
  standards that are effective as of December 31, 2005 have been considered in
  preparing the consolidated financial statements. Such financial statements include
  the accounts of the Company and all majority-owned subsidiaries. The preparation
  of financial statements in conformity with generally accepted accounting principles
  requires management to make certain estimates and assumptions that affect reported
  earnings, financial position and various disclosures. Actual results could differ
  from those estimates. Certain reclassifications have been made to prior-year
  amounts to conform to current-year presentation.

Revenue
  Recognition

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

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

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

Genta
  recognizes revenue from product sales when title to product and associated risk
  of loss has passed to the customer and the Company is reasonably assured of
  collecting payment for the sale. All revenue from product sales are recorded
  net of applicable allowances for returns, rebates and other applicable discounts
  and allowances. The Company allows return of its product for up to twelve months
  after product expiration. In December 2004, a wholesaler contacted the Company
  to return a significant portion of its inventory of Ganite®. The Company
  agreed to the return of this product and recorded a provision for sales returns,
  as well as provided for potential returns from other wholesalers. Our provision
  for sales returns increased by $1.2 million in 2004. In January 2005, the wholesaler
  returned $0.5 million of Ganite®. At December 31, 2005, the Companys
  remaining provision for sales returns was $0.8 million.

Research
  and Development

Research
  and development costs are expensed as incurred, including raw material costs
  required to manufacture products for clinical trials. Reimbursements for applicable
  Genasense®-related costs, under the Collaborative Agreement, have been recorded
  as a reduction to expenses in the Consolidated Statements of Operations. Research
  and development expenses in 2003 include $13.5 million from the write-off of
  acquired in-process research and development related to the acquisition of Salus
  Therapeutics, Inc. in August 2003.

50



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Cash, Cash Equivalents and Marketable Securities

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

Property
  and Equipment

Property
  and equipment is stated at cost and depreciated using the straight-line method
  over the estimated useful lives of the assets, ranging from three to five years.
  Leasehold improvements incurred in the renovation of the Companys current
  offices are being amortized over the remaining life of the leases. The Companys
  policy is to evaluate the appropriateness of the carrying value of the undepreciated
  value of long-lived assets. If such evaluation were to indicate an impairment
  of assets, such impairment would be recognized by a write-down of the applicable
  assets. Based on the evaluation, no impairment was indicated in accordance with
  Statement of Financial Accounting Standards ("SFAS") No. 144,Accounting
  for the Impairment or Disposal of Long-Lived Assets.

Inventories

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

Income
  Taxes

The
  Company uses the liability method of accounting for income taxes. Deferred income
  taxes are determined based on the estimated future tax effects of differences
  between the financial statement and tax bases of assets and liabilities given
  the provisions of the enacted tax laws.

Management
  records valuation allowances against net deferred tax assets, if based upon
  the available evidence, it is more likely than not that some or all of the deferred
  tax assets will not be realized. The ultimate realization of deferred tax assets
  is dependent upon the generation of future taxable income and when temporary
  differences become deductible. The Company considers, among other available
  information, uncertainties surrounding the recoverability of deferred tax assets,
  scheduled reversals of deferred tax liabilities, projected future taxable income
  and other matters in making this assessment. The Company reviewed its deferred
  tax assets and at both December 31, 2005 and December 31, 2004, recorded a valuation
  allowance to reduce these assets to zero to reflect that, more likely than not,
  they will not be realized.

Stock
  Options

The
  Company has two stock-based compensation plans (Note 14). The Company accounts
  for stock-based compensation arrangements in accordance with provisions of Accounting
  Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
  to Employees and complies with the disclosure provisions of SFAS No. 123,
  Accounting for Stock-Based Compensation. Under APB Opinion No. 25, compensation
  expense is based on the difference, if any, on the date of grant, between the
  fair value of the Company's stock and the exercise price of the option. The
  Company accounts for stock options issued to non-employees in accordance with
  the provisions of SFAS No. 123 and EITF Issue No. 96-18, Accounting for Equity
  Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction
  with Selling, Goods or Services. The Company is amortizing deferred stock
  compensation using the graded vesting method, in accordance with Financial Accounting
  Standards Board Interpretation (FIN) No. 28, over the vesting period
  of each respective option, which is generally four years.

51



---

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
  Compensation - Transition and Disclosure - Amendment of FASB SFAS No. 123,
  to provide alternative methods of transition for a voluntary change to the fair
  value based method of accounting for stock-based employee compensation and amends
  the disclosure requirements of SFAS No. 123. The following table illustrates
  the effect on net loss and loss per share if the Company had applied the fair
  value recognition provisions of SFAS No. 123 to stock-based employee compensation:

|                                                                   |  |  | Years
        Ended December 31, |       
|------------------------------------------------------------------ |  |  | -------------------------------- | ------
|($
      thousands, except per share data)                         |  |  | 2005                             |       
|                                                                   |  |  |                                  |       
|Net
      loss applicable to common shares, as reported            |  |  | $                                | (2,203
|Add:
      Equity related employee compensation expense related to |  |  |                                  |       
|certain
      stock options issued in 1999 and 2000 included in    |  |  |                                  |       
|reported
      net income, net of related tax effects              |  |  |                                  | 41    
|Deduct:
      Total stock-based employee compensation expense      |  |  |                                  |       
|determined
      under fair value based method for all awards, net |  |  |                                  |       
|of
      related tax effects                                       |  |  |                                  | (6,206
|                                                                   |  |  |                                  |       
|Pro forma
      net loss                                           |  |  | $                                | (8,368
|                                                                   |  |  |                                  |       
|                                                                   |  |  |                                  |       
|Net loss
      per share attributable to common shareholders:      |  |  |                                  |       
|As reported:
      Basic and diluted                               |  |  | $                                | (0.02 
|Pro forma:
      Basic and diluted                                 |  |  | $                                | (0.08 

The
  fair value of options was estimated at the date of the grant using the Black-Scholes
  option-valuation model with the following weighted average assumptions:

|                              |  |  |  | Years Ended December 31, | 
|----------------------------- |  |  |  | ------------------------ | 
|                              |  |  |  | 2005                     | 
|                              |  |  |  |                          | 
|Risk-free
      interest rate |  |  |  | 4.4
        %            | 
|Dividend
      yield          |  |  |  | --                       | 
|Expected
      life (years)   |  |  |  | 6.3                      | 
|Volatility                    |  |  |  | 116
        %            | 
|                              |  |  |  |                          | 

In
  December 2004, the FASB issued SFAS No. 123(R),Share-Based Payment.
  SFAS No. 123(R) is a revision of SFAS No.123, Accounting for Stock-Based
  Compensation, supersedes Accounting Principles Board (APB) Opinion
  No. 25, Accounting for Stock Issued to Employees and amends SFAS No.
  95. In April 2005, the Securities Exchange Commission approved a ruling that
  delayed the effective date of SFAS 123(R) for annual rather than interim periods
  that begin after June 15, 2005. Under the new standard, all share-based payments
  to employees, including grants of employee stock options will now be recognized
  in the income statement based on their fair values, as pro-forma disclosure
  is no longer an alternative. The amount of compensation cost will be measured
  based on the grant-date fair value of the equity instrument issued. The Company
  currently utilizes a standard option-pricing model (i.e., Black-Scholes) to
  measure the fair value of stock options granted to employees. While SFAS 123(R)
  permits entities to continue to use such a model, the standard also permits
  the use of a more complex binomial, or lattice model. Based upon research done
  by the Company on the alternative models available to value option grants, and
  in conjunction with the type and number of stock options expected to be issued
  in the future, the Company has determined that it will continue to use the Black-Scholes
  model for option valuation as of the current time.

52



---

For the years ended December 31, 2005, 2004 and 2003, the Company accounted
  for share-based compensation arrangements in accordance with APB No. 25, and
  complied with the disclosure provisions of SFAS 123. SFAS 123(R) requires all
  public entities that used the fair-value method for either recognition or disclosure
  under SFAS 123 to apply the modified prospective transition method
  as of the required effective date. As a result, the Company adopted the provisions
  of SFAS 123(R) using this method, effective January 1, 2006. Under the modified
  prospective method, new awards will be valued and accounted for prospectively
  upon adoption. Outstanding prior awards that are unvested as of January 1, 2006
  will be recognized as compensation cost over the remaining requisite service
  period. Prior periods will not be restated. The adoption of SFAS 123(R) is anticipated
  to increase the Companys reported net loss and loss per share.

Net
  Loss Per Common Share

Net
  loss per common share for the twelve months ended December 31, 2005, 2004 and
  2003, respectively, are based on the weighted average number of shares of common
  stock outstanding during the periods. Basic and diluted loss per share are identical
  for all periods presented as potentially dilutive securities, including options,
  warrants and convertible preferred stock, aggregating 11.0 million, 11.4 million
  and 18.0 million in 2005, 2004 and 2003, respectively, have been excluded from
  the calculation of the diluted net loss per common share because the inclusion
  of such securities would be antidilutive.

3.
  Marketable Securities

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

|                              |  |  | December
        31, |       
|----------------------------- |  |  | -------------------- | ------
|                              |  |  | 2005                 |       
|                              |  |  |                      |       
|Cost                          |  |  | $                    | 11,908
|Gross
      unrealized gains  |  |  |                      | 60    
|Gross
      unrealized losses |  |  |                      | --    
|                              |  |  |                      |       
|Fair
      value              |  |  | $                    | 11,968
|                              |  |  |                      |       

The
  fair value of each marketable security has been compared to its cost and therefore,
  an unrealized gain of approximately $60 thousand and a net unrealized loss of
  approximately $32 thousand has been recognized in Accumulated other comprehensive
  income/(loss) at December 31, 2005 and December 31, 2004, respectively.

4.
  Collaborative Agreement

In
  April 2002, we entered into a series of agreements with Aventis regarding the
  development and commercialization of Genasense®. On November 8, 2004, the
  Company received from Aventis notice of termination of the agreements between
  Genta and Aventis. On May 10, 2005, the Company announced that Genta and Aventis
  had signed an agreement to finalize the termination of their development and
  commercialization collaboration for Genasense®. The termination agreement
  provided for no future financial obligations by either party and the retirement
  of the Line of Credit established by Aventis to Genta. Aventis returned its
  current inventory of Genasense® drug supply to Genta. In addition, Genta
  assumed responsibility for the randomized clinical trial of Genasense® in
  combination with docetaxel (Taxotere®; sanofi-aventis) in patients with
  hormone-refractory prostate cancer, which is currently ongoing in Europe. Among
  other provisions, the Standstill and Voting Agreement and Registration Rights
  Agreement that were established pursuant to the Aventis investment in Genta
  common stock in 2002 did not terminate at that time.

53



---

Under
  the Collaborative Agreement Aventis paid 75% of the U.S. NDA-directed development
  costs incurred by either Genta or Aventis and 100% of all other development,
  marketing, and sales costs incurred within the U.S. and elsewhere through May
  10, 2005. An analysis of expenses reimbursed under the Collaborative Agreement
  follows ($ thousands):

|                                               |  |  | Twelve
        Months Ended
        December 31, |       
|---------------------------------------------- |  |  | ------------------------------------------------ | ------
|                                               |  |  |                                                  |       
|                                               |  |  | 2005                                             |       
|                                               |  |  |                                                  |       
|Research
      and development expenses, gross |  |  | $                                                | 20,902
|Less
      expense reimbursement               |  |  |                                                  | (6,090
|                                               |  |  |                                                  |       
|Research
      and development expenses, net   |  |  | $                                                | 14,812
|                                               |  |  |                                                  |       

5.
  Inventory

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

|                      |  |  | December 31, |    
|--------------------- |  |  | ------------ | ---
|                      |  |  | 2005         |    
|                      |  |  |              |    
|Raw
      materials   |  |  | $            | 191
|Work
      in process |  |  |              | -- 
|Finished
      goods  |  |  |              | 205
|                      |  |  |              |    
|                      |  |  | $            | 396
|                      |  |  |              |    

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

6.
  Property and Equipment, Net

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

|                                                     |  |  | Estimated            |                       | December
        31, |  
|---------------------------------------------------- |  |  | -------------------- | --------------------- | -------------------- | -
|                                                     |  |  | Useful
        Lives |                       | 2005                 |  
|                                                     |  |  |                      |                       |                      |  
|Computer
      equipment                             |  |  |                      | 3                     |                      | $
|Software                                             |  |  |                      | 3                     |                      |  
|Furniture
      and fixtures                         |  |  |                      | 5                     |                      |  
|Leasehold
      improvements                         |  |  |                      | Life
        of lease |                      |  
|Equipment                                            |  |  |                      | 5                     |                      |  
|                                                     |  |  |                      |                       |                      |  
|                                                     |  |  |                      |                       |                      |  
|Less
      accumulated depreciation and amortization |  |  |                      |                       |                      |  
|                                                     |  |  |                      |                       |                      |  
|                                                     |  |  |                      |                       |                      | $
|                                                     |  |  |                      |                       |                      |  

54



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7.
  Prepaid Royalties

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

8.
  Accounts Payable and Accrued Expenses

Accounts
  payable and accrued expenses is comprised of the following ($ thousands):

|                                |  |  | December
        31, |       
|------------------------------- |  |  | -------------------- | ------
|                                |  |  | 2005                 |       
|                                |  |  |                      |       
|Accounts
      payable          |  |  | $                    | 4,665 
|Accrued
      compensation      |  |  |                      | 1,467 
|Reserve
      for sales returns |  |  |                      | 765   
|Other
      accrued expenses    |  |  |                      | 4,063 
|                                |  |  |                      |       
|                                |  |  | $                    | 10,960
|                                |  |  |                      |       

9.
  Deferred Revenues

As
  of December 31, 2004, the Company had recorded $26.2 million, net of amortization
  in deferred revenues relating to the initial $10.0 million licensing fee and
  $40.0 million development funding received from Aventis under the Collaborative
  Agreement. On November 8, 2004, Aventis gave notice to Genta that it was terminating
  the Collaborative Agreement. Under the terms of the agreement, Aventis continued
  to fund ongoing development activities through May 8, 2005. As a result of the
  notice of termination of the agreements with Aventis, the Company determined
  that the period over which the remaining deferred revenue should be recognized
  was through May 8, 2005.

10.
  Short Term Debt

Revolving
  debt was issued in connection with an amendment, dated March 14, 2003, to the
  Aventis Collaboration Agreement that established a Line of Credit related to
  the development, manufacturing and commercialization of Genasense® (Line
  of Credit). The Line of Credit was considered an advance against both
  past and future costs and the borrowing base was adjusted on a monthly basis.
  With the Aventis notice of termination, Genta could not borrow additional funds
  and the Line of Credit had to be repaid at the end of the termination period.
  All payments otherwise due to Genta were applied against the balance on the
  Line of Credit until the Line of Credit was repaid. On May 10, 2005, the Company
  announced that Genta and Aventis had finalized a termination agreement, providing
  for no future financial obligations by either party and the remaining balance
  on the Line of Credit was forgiven, resulting in a gain on forgiveness of debt
  of $1.3 million.

55



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11.
  Income Taxes

Significant
  components of the Companys deferred tax assets as of December 31, 2005
  and 2004 and related valuation reserves are presented below ($ thousands):

|                                                                           |  |  | December 31, |         
|-------------------------------------------------------------------------- |  |  | ------------ | --------
|                                                                           |  |  | 2005         |         
|                                                                           |  |  |              |         
|Deferred
      tax assets:                                                 |  |  |              |         
|Deferred
      compensation                                                |  |  | $            | 772     
|Net
      operating loss carryforwards                                     |  |  |              | 106,898 
|Research
      and development credit and Orphan Drug credit carryforwards |  |  |              | 34,384  
|Purchased
      technology and license fees                                |  |  |              | 4,850   
|Depreciation,
      net                                                    |  |  |              | 304     
|Deferred
      revenue - current                                           |  |  |              | --      
|New
      Jersey Alternative Minimum Assessment (AMA) Tax                  |  |  |              | 738     
|New
      Jersey research and development credits                          |  |  |              | 4,707   
|Provision
      for excess inventory                                       |  |  |              | 717     
|Reserve
      for product returns                                          |  |  |              | 337     
|Accrued
      liabilities                                                  |  |  |              | 1,465   
|Other,
      net                                                           |  |  |              | 231     
|                                                                           |  |  |              |         
|Total
      deferred tax assets                                            |  |  |              | 155,403 
|Valuation
      allowance for deferred tax assets                          |  |  |              | (155,403
|                                                                           |  |  |              |         
|Net
      deferred tax assets                                              |  |  |              | --      
|                                                                           |  |  |              |         
|Deferred
      tax liabilities:                                            |  |  |              |         
|Depreciation,
      net                                                    |  |  |              | --      
|                                                                           |  |  |              |         
|Net
      deferred tax liabilities                                         |  |  | $            | --      
|                                                                           |  |  |              |         

A
  full valuation allowance has been provided at December 31, 2005 and 2004, respectively,
  to reserve for deferred tax assets, as it appears more likely than not that
  net deferred tax assets will not be realized. During 2005, the Company reviewed
  its historical calculation for its Orphan Drug credit. Due to ambiguities in
  the tax regulations relating to items included in the calculation, the Company
  has revised the amount of Orphan Drug credit, resulting in a reduction of $61.0
  million in the amount of Orphan Drug credit available for carryforward and also
  resulting in an increase of $21.3 million in the amount of deferred tax assets
  generated by available net operating loss carryforwards.

New
  Jersey has enacted legislation permitting certain corporations located in the
  state to sell state tax loss carryforwards and state research and development
  credits. The Company sold portions of its New Jersey net operating losses in
  both 2005 and 2004 and received a payment of $0.9 million in each year that
  is recognized as income tax benefit. In 2005 the benefit was offset by $0.5
  million of an accrued income tax expense that has arisen from a State of New
  Jersey tax audit for the years 2000 thru 2004. The State has taken the position
  that amounts reimbursed to the Company by Aventis for co-development expenditures
  during the audit period are subject to New Jerseys Alternative Minimum
  Assessment. Although the Company and its outside tax accountants believe the
  States position is unjustified, there is little case law on the matter
  and it is probable that the Company will be required to pay the liability in
  2006.

If
  still available under New Jersey law, the Company will attempt to sell its tax
  loss carryforwards in 2006. We cannot be assured that the New Jersey program
  will continue in 2006, nor can we estimate what percentage of our saleable tax
  benefits New Jersey will permit us to sell, how much money will be received
  in connection with the sale, or if the Company will be able to find a buyer
  for its tax benefits.

56



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At
  December 31, 2005, the Company has federal and state net operating loss carryforwards
  of approximately $256.9 million and $188.8 million, respectively. The federal
  tax loss carryforward began expiring in 2003. The Company also has Research
  and development credits and Orphan Drug credits totaling $34.4 million, which
  began expiring in 2003.

12.
  Operating Leases

At
  December 31, 2005 and December 31, 2004, the Company maintained $1.6 million
  in restricted cash balances, included in Other assets, with financial institutions
  related to lease obligations on its corporate facilities. Such restricted cash
  balances collateralize letters of credit issued by the financial institutions
  in favor of the Companys landlord with respect to corporate facilities.

Future
  minimum obligations under operating leases at December 31, 2005 are as follows
  ($ thousands):

|           |  |  | Operating
        Leases |       
|---------- |  |  | ------------------------ | ------
|           |  |  |                          |       
|2006       |  |  | $                        | 2,711 
|2007       |  |  |                          | 2,724 
|2008       |  |  |                          | 2,615 
|2009       |  |  |                          | 2,576 
|2010       |  |  |                          | 429   
|Thereafter |  |  |                          | --    
|           |  |  |                          |       
|           |  |  | $                        | 11,055
|           |  |  |                          |       

Annual
  rent expense incurred by the Company in 2005, 2004 and 2003 was $2.4 million,
  $2.5 million and $2.2 million, respectively.

13.
  Stockholders Equity

Common
  Stock

In
  March 2004, the Board of Directors approved an amendment to increase the number
  of shares of authorized common stock to 150.0 million shares from 120.0 million
  shares. In June 2004, shareholders approved this amendment at the Annual Meeting
  of Stockholders.

In
  December 2004, the Company issued 15.0 million shares of its common stock through
  a direct placement with two institutions and received net proceeds of approximately
  $21.6 million.

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

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

57



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Series A Preferred Stock

Each
  share of Series A Preferred Stock is immediately convertible into shares of
  the Companys common stock, at a rate determined by dividing the aggregate
  liquidation preference of the Series A Preferred Stock by the conversion price.
  The conversion price is subject to adjustment for antidilution. As of December
  31, 2005 and 2004, each share of Series A Preferred Stock was convertible into
  9.8067 and 8.4274 shares of common stock, respectively. At December 31, 2005
  and December 31, 2004, the Company had 9,700 shares of Series A Convertible
  Preferred Stock issued and outstanding.

In
  the event of a liquidation of the Company, the holders of the Series A Preferred
  Stock are entitled to a liquidation preference equal to $50 per share, or $0.5
  million at December 31, 2005.

Series
  G Preferred Stock

The
  Company has authorized 5.0 million shares of preferred stock of which 2.0 million
  shares has been designated Series G Participating Cumulative Preferred.

Warrants

Summary
  information with respect to outstanding common stock
  warrants at December 31, 2005 is presented below:

|Outstanding
        Warrants  |  |  | Exercise 
        Price |  | Potential
        
        Warrant 
        Exercise 
        Proceeds |         | Common 
        Equivalents |  | Expiration Date | 
|----------------------------- |  |  | ----------------------- |  | ---------------------------------------------------------------------- | ------- | --------------------------- |  | --------------- | 
|                              |  |  |                         |  |                                                                        |         |                             |  |                 | 
|June
      1997               |  |  | $ 0.86                  |  | $                                                                      | 22,320  |                             |  | 25,954          | 
|August
      1999 Androgenics |  |  | $ 1.25                  |  |                                                                        | 100,000 |                             |  | 80,000          | 
|December
      1999           |  |  | $2.67-$4.08             |  |                                                                        | 602,724 |                             |  | 190,306         | 
|                              |  |  |                         |  |                                                                        |         |                             |  |                 | 
|                              |  |  |                         |  | $                                                                      | 725,044 |                             |  | 296,260         | 
|                              |  |  |                         |  |                                                                        |         |                             |  |                 | 



In
  June 1997, in connection with a private equity placement, a series of warrants
  were issued. The remaining outstanding warrants are exercisable and can be converted
  into approximately 26 thousand common shares.

In
  August 1999, the Company acquired Androgenics Technologies, Inc. (Androgenics)
  and as part of that acquisition, issued a series of warrants. The outstanding
  warrants that are exercisable can be converted into 80 thousand common shares.

In
  December 1999, in connection with a private equity placement, a series of warrants
  were issued. The remaining outstanding warrants are exercisable and can be converted
  into a total of approximately 190 thousand common shares.

Common
  Stock Reserved

At
  December 31, 2005, the Company had 114.5 million shares of common stock outstanding,
  11.0 million additional shares reserved for the conversion of convertible preferred
  stock and the exercise of outstanding options and warrants and 5.1 million additional
  shares of common stock authorized for issuance and remaining to be granted under
  the Companys stock option plans.

58



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14.
  Employee Benefit Plans

1998
  Plan

Pursuant
  to the Companys 1998 Stock Incentive Plan as amended (the 1998 Plan),
  18.5 million shares have been provided for the grant of stock options to employees,
  directors, consultants and advisors of the Company. In March 2004, the Board
  of Directors approved an amendment to increase the total number of shares of
  common stock authorized for issuance under the 1998 Plan to 18.5 million shares
  from 17.0 million. In June 2004, the stockholders approved this amendment at
  the Annual Meeting of Stockholders. Options may be designated as incentive stock
  options or non-statutory stock options; however, incentive stock options may
  be granted only to employees of the Company. Options under the 1998 Plan have
  a term of up to ten years and must be granted at not less than the fair market
  value, or 85% of fair market value for non-statutory options, on the date of
  the grant. Options granted pursuant to the 1998 Plan generally vest over a period
  of four years.

During
  1999 and 2000, the Company granted to certain key employees, 6,188,250 and 325,000
  options, respectively. Such options were granted with exercise prices below
  the market value of the Companys common stock on the date of the grant.
  Accordingly, the Company recorded deferred compensation of $2.0 million and
  $0.1 million in 1999 and 2000 attributable to the intrinsic value of these options
  and amortized $0.2 million as non-cash equity related compensation expense in
  2004 and 2003.

In
  2001, the Company granted options to purchase common stock to members of Gentas
  Scientific Advisory Board, for which the Company recorded a total of $0.7 million
  in deferred compensation, of which $0.2 million was amortized as non-cash equity
  related compensation expense in 2003.

The
  Companys employees were granted 1,484,300, 1,442,000 and 2,468,300 stock
  options with exercise prices equal to the fair value on the date of grant in
  2005, 2004 and 2003, respectively. Summary information with respect to the Companys
  1998 Stock Plan is as follows:

|1998
      Plan                    |  |  | Shares
        
        Under
        Option |            | Weighted 
        Average 
        Exercise 
        Price 
        Per Share |  
|---------------------------------- |  |  | -------------------------------------------- | ---------- | ----------------------------------------------------------------------------- | -
|                                   |  |  |                                              |            |                                                                               |  
|Balance
      at December 31, 2002 |  |  |                                              | 8,499,612  |                                                                               | $
|Granted                            |  |  |                                              | 2,468,300  |                                                                               |  
|Exercised                          |  |  |                                              | (834,400   | )                                                                             |  
|Canceled                           |  |  |                                              | (262,425   | )                                                                             |  
|                                   |  |  |                                              |            |                                                                               |  
|Balance
      at December 31, 2003 |  |  |                                              | 9,871,087  |                                                                               | $
|Granted                            |  |  |                                              | 1,442,000  |                                                                               |  
|Exercised                          |  |  |                                              | (79,775    | )                                                                             |  
|Canceled                           |  |  |                                              | (1,239,492 | )                                                                             |  
|                                   |  |  |                                              |            |                                                                               |  
|Balance
      at December 31, 2004 |  |  |                                              | 9,993,820  |                                                                               | $
|Granted                            |  |  |                                              | 1,484,300  |                                                                               |  
|Exercised                          |  |  |                                              | --         |                                                                               |  
|Canceled                           |  |  |                                              | (2,059,808 | )                                                                             |  
|                                   |  |  |                                              |            |                                                                               |  
|Balance
      at December 31, 2005 |  |  |                                              | 9,418,312  |                                                                               | $
|                                   |  |  |                                              |            |                                                                               |  

At
  December 31, 2005, options to purchase 6,366,798 shares of common stock were
  exercisable at a weighted average exercise price of approximately $4.23 per
  share and 4,446,831 shares of common stock were available for grant or sale
  under the Plan.

59



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1998 Non-Employee Directors Plan

Pursuant
  to the Companys Non-Employee Directors 1998 Stock Plan as amended,
  (the Directors Plan) 3.8 million shares have been provided
  for the grant of stock options to non-employee members of the Board of Directors.
  Options under the Directors Plan have a term of up to ten years and must
  be granted at not less than the fair market value on the date of grant. As amended
  and approved, each director is granted 24,000 options upon election to the Board
  of Directors. Each option granted shall become exercisable over a three-year
  period. In addition, annually, each director receives 20,000 options at the
  first Board of Directors meeting they attend. Each option granted shall become
  exercisable in full on the date of grant.

In
  June 2004, the stockholders approved an amendment to the 1998 Directors
  Plan at the Annual Meeting of Stockholders, whereby the Lead Director and Non-Employee
  Chairperson of a Committee of the Board of Directors are granted an annual option
  to purchase 5,000 shares of common stock. Each option granted is exercisable
  in full on the date of grant.

The
  Companys directors were granted stock options to purchase a total of 193,000,
  160,000 and 184,000 shares of common stock in 2005, 2004 and 2003, respectively,
  with an exercise price equal to the fair market value of the common stock on
  the date of grant.

Summary
  information with respect to the Companys 1998 Directors Plan is
  as follows:

|1998
      Directors Plan         |  |  | Shares Under 
        Option |           | Weighted 
        Average 
        Exercise Price 
        Per Share |  
|---------------------------------- |  |  | ---------------------------- | --------- | -------------------------------------------------------------------- | -
|                                   |  |  |                              |           |                                                                      |  
|Balance
      at December 31, 2002 |  |  |                              | 864,336   |                                                                      | $
|Granted                            |  |  |                              | 184,000   |                                                                      |  
|Exercised                          |  |  |                              | (100,000  | )                                                                    |  
|Canceled                           |  |  |                              | (20,000   | )                                                                    |  
|                                   |  |  |                              |           |                                                                      |  
|Balance
      at December 31, 2003 |  |  |                              | 928,336   |                                                                      | $
|Granted                            |  |  |                              | 160,000   |                                                                      |  
|Exercised                          |  |  |                              | (4,500    | )                                                                    |  
|Canceled                           |  |  |                              | (59,500   | )                                                                    |  
|                                   |  |  |                              |           |                                                                      |  
|Balance
      at December 31, 2004 |  |  |                              | 1,024,336 |                                                                      | $
|Granted                            |  |  |                              | 193,000   |                                                                      |  
|Exercised                          |  |  |                              | --        |                                                                      |  
|Canceled                           |  |  |                              | (59,000   | )                                                                    |  
|                                   |  |  |                              |           |                                                                      |  
|Balance
      at December 31, 2005 |  |  |                              | 1,158,336 |                                                                      | $
|                                   |  |  |                              |           |                                                                      |  

At
  December 31, 2005, options granted under the Directors Plan to purchase
  1,110,335 shares of common stock were exercisable at a weighted average exercise
  price of approximately $6.48 per share and 688,877 shares of common stock were
  available for grant or sale under the Directors Plan.

In
  2005, a combined total of 1,677,300 options were granted pursuant to the 1998
  Plan and the 1998 Directors Plan at fair market value with a weighted average
  grant date fair value of $1.33 per share. In 2004, a combined total of 1,602,000
  options were granted pursuant to the 1998 Plan and 1998 Directors Plan at fair
  market value with a weighted average grant date fair value of $7.62 per share.
  In 2003, a combined total of 2,656,300 options were granted pursuant to the
  1998 Plan and 1998 Directors Plan at fair market value with a weighted average
  grant date fair value of $9.72 per share. No options were granted below fair
  market value in 2005, 2004 or 2003.

60



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An
  analysis of all options outstanding as of December 31, 2005 is presented below:

|Range
      of Prices |  | Options 
        Outstanding |  | Weighted 
        Average 
        Remaining 
        Life in Years |  | Weighted
        
        Average 
        Exercise 
        Price |       |  | Options 
        Exercisable |           | Weighted
        
        Average 
        Exercise 
        Price of 
        Options 
        Exercisable |  
|--------------------- |  | ---------------------------- |  | ------------------------------------------------------------------- |  | ------------------------------------------------------------------ | ----- |  | ---------------------------- | --------- | ----------------------------------------------------------------------------------------------------------- | -
|                      |  |                              |  |                                                                     |  |                                                                    |       |  |                              |           |                                                                                                             |  
|$0.90
      - $2.88   |  | 6,490,362                    |  | 5.0                                                                 |  | $                                                                  | 2.37  |  |                              | 5,288,112 |                                                                                                             | $
|$5.63
      - $7.97   |  | 1,452,332                    |  | 5.9                                                                 |  | $                                                                  | 7.17  |  |                              | 1,156,857 |                                                                                                             | $
|$8.02
      - $9.92   |  | 1,182,351                    |  | 7.0                                                                 |  | $                                                                  | 9.67  |  |                              | 170,175   |                                                                                                             | $
|$10.00
      - $12.78 |  | 928,400                      |  | 7.6                                                                 |  | $                                                                  | 11.00 |  |                              | 368,525   |                                                                                                             | $
|$13.02
      - $18.25 |  | 523,203                      |  | 6.1                                                                 |  | $                                                                  | 13.92 |  |                              | 493,464   |                                                                                                             | $
|                      |  |                              |  |                                                                     |  |                                                                    |       |  |                              |           |                                                                                                             |  
|                      |  | 10,576,648                   |  | 5.6                                                                 |  | $                                                                  | 5.17  |  |                              | 7,477,133 |                                                                                                             | $
|                      |  |                              |  |                                                                     |  |                                                                    |       |  |                              |           |                                                                                                             |  

Employee
  Savings Plan

In
  January 2001, the Company initiated sponsorship of the Genta Incorporated Savings
  and Retirement Plan, a defined contribution plan under Section 401(k) of the
  Internal Revenue Code. The Companys matching contribution to the Plan
  was $0.4 million, $0.7 million and $0.6 million for 2005, 2004 and 2003, respectively.

15.
  Comprehensive Loss

An
  analysis of comprehensive loss is presented below:

|                                                   |  |  | Years Ended 
        December 31, |       
|-------------------------------------------------- |  |  | --------------------------------- | ------
|                                                   |  |  |                                   |       
|($
      in thousands)                             |  |  | 2005                              |       
|                                                   |  |  |                                   |       
|Net
      loss                                     |  |  | $                                 | (2,203
|Change
      in market value on available-for-sale |  |  |                                   |       
|marketable
      securities                        |  |  |                                   | 60    
|                                                   |  |  |                                   |       
|Total
      comprehensive loss                     |  |  | $                                 | (2,143
|                                                   |  |  |                                   |       

16.
  Commitments and Contingencies

Litigation
  and Potential Claims

In
  2004, numerous complaints were filed in the United States District Court for
  the District of New Jersey against Genta and certain of its principal officers
  on behalf of purported classes of the Companys shareholders who purchased
  its securities during several class periods. The complaints have been consolidated
  into a single action and allege that the Company and certain of its principal
  officers violated the federal securities laws by issuing materially false and
  misleading statements regarding Genasense® for the treatment of malignant
  melanoma that had the effect of artificially inflating the market price of our
  securities. The shareholder class action complaint in the various actions seeks
  monetary damages in an unspecified amount and recovery of plaintiffs costs
  and attorneys fees. On September 30, 2005, the court granted in part and
  denied in part the Companys motion to dismiss the plaintiffs complaint.
  The court dismissed plaintiffs claim that the defendants engaged in a
  scheme or artifice to defraud plaintiffs, but allowed plaintiffs claims
  to proceed with respect to their allegations that defendants issued false and
  misleading public statements about Genasense®. The parties have agreed to
  nonbinding mediation, which is expected to begin in March 2006.

61



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

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

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

Contractual
  Obligations

Future
  contractual obligations at December 31, 2005 are as follows ($ thousands):

|                                  |  |  | Total |        | Less
        than 
        1 year |   | 1 - 3 years |  | 3 - 5 years |       | More
        than 
        5 years |  
|--------------------------------- |  |  | ----- | ------ | --------------------------------- | - | ----------- |  | ----------- | ----- | ---------------------------------- | -
|                                  |  |  |       |        |                                   |   |             |  |             |       |                                    |  
|Operating
      lease obligations |  |  | $     | 11,055 |                                   | $ | 2,711       |  | $           | 5,339 |                                    | $
|                                  |  |  |       |        |                                   |   |             |  |             |       |                                    |  
|Total                             |  |  | $     | 11,055 |                                   | $ | 2,711       |  | $           | 5,339 |                                    | $
|                                  |  |  |       |        |                                   |   |             |  |             |       |                                    |  

Not
  included in the above table are any Genasense® bulk drug purchase obligations
  to Avecia per the terms of the Manufacturing and Supply Agreement entered into
  between Avecia and Genta in December 2002. The agreement calls for Genta to
  purchase a percentage of our global Genasense® bulk drug requirements from
  Avecia during the term of the agreement. Due to the uncertainties regarding
  the timing of any Genasense® approval and sales/volume projections, specific
  obligation amounts cannot be estimated at this time. Due to past purchases of
  Genasense® bulk drug substance, the Company has access to sufficient drug
  for its current needs.

17.
  Supplemental Disclosure of Cash Flows Information and Non-cash Investing and
  Financing Activities

As
  a result of the Aventis notice of termination, all payments otherwise due to
  Genta were contractually applied against the balance of the Line of Credit until
  the Line of Credit was repaid. During 2005 and 2004, $6.0 million and $12.9
  million of reimbursement due to Genta respectively was applied to the balance
  of the Line of Credit. In addition, the Company recorded a gain on the forgiveness
  of debt of $1.3 million.

During
  2004, as a result of certain non-cash transactions, the Company reduced amounts
  owed under the Line of Credit by $27.7 million. In September 2004, the Company
  supplied $15.5 million of vialed Genasense® drug product and Genasense®
  bulk drug substance to Aventis. This amount is included in the Companys
  2004 Consolidated Statement of Operations as Aventis reimbursement. The companies
  agreed to offset amounts owed under the Line of Credit by $14.8 million and
  accrued interest on the Line of Credit by $0.7 million.

During
  2004, based on negotiations between the Company and Avecia, amounts owed to
  Genta under a Note receivable from Avecia were offset against amounts payable
  to Avecia, resulting in a non-cash reduction to Note receivable and Accounts
  payable and accrued expenses of approximately $4.2 million.

No
  interest was paid for the twelve months ended December 31, 2005, 2004, and 2003,
  respectively.

62



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18.
  Selected Quarterly Financial Data (Unaudited)

The
  Company has experienced significant quarterly fluctuations in operating results
  and it expects that these fluctuations will continue.

|                                           |  |  |                 |        | Quarter
        Ended |   |                 | 
|------------------------------------------ |  |  | --------------- | ------ | --------------------- | - | --------------- | 
|                                           |  |  |                 |        |                       |   |                 | 
|2005                                       |  |  | Mar.
        31 |        | Jun.
        30       |   | Sep.
        30 | 
|                                           |  |  |                 |        |                       |   |                 | 
|($ thousands,
      except per share data) |  |  |                 |        |                       |   |                 | 
|Revenues                                   |  |  | $               | 18,514 |                       | $ | 7,887           | 
|Operating
      expenses-net               |  |  |                 | 4,604  |                       |   | 7,348           | 
|Net income
      (loss)                    |  |  |                 | 14,025 |                       |   | 1,919           | 
|Net income
      (loss) per common share:  |  |  |                 |        |                       |   |                 | 
|Basic
      and diluted *                  |  |  | $               | 0.15   |                       | $ | 0.02            | 

| | *
        Net (loss) income per common share is calculated independently for each
        quarter and the full year based upon respective average shares outstanding.
        Therefore, the sum of the quarterly amounts may not equal the annual amounts
        reported.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For
  the quarters ended March 31, 2005 and June 30, 2005, the Company reported income
  of $14.0 million or $0.15 per share and $1.9 million or $0.02 per share, respectively.
  The Aventis notice of termination, resulted in the acceleration of the recognition
  of previously deferred revenue over a six-month period beginning November 9,
  2004. As a result, revenue and income recognized in the quarter ended March
  31, 2005 and June 30, 2005 increased $17.1 million and $6.5 million, respectively,
  over their prior-year comparison periods.

|                                           |  |  |         |         | Quarter
        Ended |   |         |  
|------------------------------------------ |  |  | ------- | ------- | --------------------- | - | ------- | -
|                                           |  |  |         |         |                       |   |         |  
|2004                                       |  |  | Mar. 31 |         | Jun. 30               |   | Sep. 30 |  
|                                           |  |  |         |         |                       |   |         |  
|($ thousands,
      except per share data) |  |  |         |         |                       |   |         |  
|Revenues                                   |  |  | $       | 1,682   |                       | $ | 1,561   |  
|Operating
      expenses-net               |  |  |         | 14,144  |                       |   | 30,698  |  
|Net (loss)
      income                    |  |  |         | (12,532 | )                     |   | (29,155 | )
|Net (loss)
      income per common share:  |  | 
|Basic
      and diluted                    |  |  | $       | (0.16   | )                     | $ | (0.37   | )

For
  the quarter ended December 31, 2004 the Company reported income of $14.6 million
  or $.18 per share. With the Aventis notice of termination, Aventis has forgiven
  the $10.0 million of convertible debt issued to them in connection with the
  collaboration, resulting in a gain on extinguishment of debt of $11.5 million.
  In addition, the Aventis notice of termination resulted in the acceleration
  of the recognition of previously deferred revenue over a six-month period beginning
  November 9, 2004. As a result, revenue and income recognized in the quarter
  ended December 31, 2004 increased $9.9 million.

19.
Subsequent Event

On
March 6, 2006, the Company executed definitive agreements with institutional investors to
sell 19 million shares of the Companys common stock at a price of $2.15 per share,
raising approximately $37.8 million, net of estimated fees and expenses.

63



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

None.

Item
  9A. Controls and Procedures

Conclusion
  Regarding the Effectiveness of Disclosure Controls and Procedures

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

Managements
  Report on Internal Control Over Financial Reporting

Our
  management is responsible for establishing and maintaining adequate internal
  control over financial reporting, as such term is defined in Exchange Act Rules
  13a-15(f). Under the supervision and with the participation of our management,
  including our principal executive officer and principal financial officer, we
  conducted an evaluation of the effectiveness of our internal control over financial
  reporting based on the framework in Internal Control - Integrated Framework
  issued by the Committee of Sponsoring Organizations of the Treadway Commission.
  Based on our evaluation under the framework in Internal Control  Integrated
  Framework, our management concluded that our internal control over financial
  reporting was effective as of December 31, 2005. Our managements assessment
  of the effectiveness of our internal control over financial reporting as of
  December 31, 2005 has been audited by Deloitte & Touche LLP, an independent
  registered public accounting firm, as stated in their report which is included
  herein.

Changes
  in Internal Control Over Financial Reporting

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

64



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REPORT
  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the Board of Directors and Stockholders of 
  Genta Incorporated:

We have audited managements assessment, included in Item
  9A Controls and Procedures  Managements Report on Internal Control
  Over Financial Reporting, that Genta Incorporated and subsidiaries (the Company)
  maintained effective internal control over financial reporting as of December
  31, 2005 based on criteria established in Internal ControlIntegrated Framework
  issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
  Companys management is responsible for maintaining effective internal
  control over financial reporting and for its assessment of the effectiveness
  of internal control over financial reporting. Our responsibility is to
  express an opinion on managements assessment and an opinion on the effectiveness
  of the Companys internal control over financial reporting based on our
  audit.

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

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

Because of the inherent limitations of internal control over financial
  reporting, including the possibility of collusion or improper management override
  of controls, material misstatements due to error or fraud may not be prevented
  or detected on a timely basis. Also, projections of any evaluation of the
  effectiveness of the internal control over financial reporting to future periods
  are subject to the risk that the controls may become inadequate because of changes
  in conditions, or that the degree of compliance with the policies or procedures
  may deteriorate.

In our opinion, managements assessment that the Company maintained
  effective internal control over financial reporting as of December 31, 2005,
  is fairly stated, in all material respects, based on the criteria established
  in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
  Organizations of the Treadway Commission. Also in our opinion, the Company
  maintained, in all material respects, effective internal control over financial
  reporting as of December 31, 2005, based on the criteria established in Internal
  ControlIntegrated Framework issued by the Committee of Sponsoring Organizations
  of the Treadway Commission.

We have also audited, in accordance with the standards of the Public
  Company Accounting Oversight Board (United States), the consolidated financial
  statements as of and for the year ended December 31, 2005 of the Company and
  our report dated March 10, 2006 expressed an unqualified opinion on those financial
  statements and included an explanatory paragraph relating to the Companys ability to continue as a going concern.

/s/
  DELOITTE & TOUCHE LLP

Parsippany,
  New Jersey 
  March 10, 2006

65



---

Item
  9B. Other Information

On
March 6, 2006, the Company entered into definitive  subscription agreements (the Subscription
Agreements) with  certain institutional investors pursuant to which the  Company
agreed to issue and sell an aggregate of 19,000,000  shares of its common stock at $2.15
per share, through a  registered direct offering, for aggregate gross proceeds of
approximately $40,850,000, before deducting estimated fees  and expenses associated with
the offering (the Offering).  In conjunction with such Subscription
Agreements, on March  10, 2006, the Company entered into a Confirmation to  Purchase (the
Confirmation) with those certain  institutional investors, whereby such
investors acknowledged  the opportunity to review the Companys Annual Report on
Form 10-K and indicated their willingness to proceed with  the Offering, which was
scheduled to close on or about  Friday, March 10, 2006 and is currently anticipated to
close  on or about Monday, March 13, 2006.

On
March 6, 2006, in connection with the Offering,  the Company executed a placement agent
agreement (the  Placement Agent Agreement) by and among the Company, Cowen
& Co., LLC and Rodman & Renshaw, LLC.  In conjunction with  the Placement Agent
Agreement, on March 10, 2006, the  Company entered into an amendment to the Placement
Agent  Agreement (the Amendment) whereby the parties agreed to  postpone the
closing of the Offering until Monday, March 13,  2006, subject to the satisfaction of
certain customary  closing conditions.

PART
  III

Item
  10. Directors and Executive Officers of the Registrant

The
  information required in this item is incorporated by reference from the Companys
  definitive proxy statement to be filed not later than April 30, 2006 pursuant
  to Regulation 14A of the General Rules and Regulations under the Securities
  Exchange Act of 1934, as amended (Regulation 14A).

Item
  11. Executive Compensation

The
  information required in this item is incorporated by reference from the Companys
  definitive proxy statement to be filed not later than April 30, 2006 pursuant
  to Regulation 14A.

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

The
  information required in this item is incorporated by reference from the Companys
  definitive proxy statement to be filed not later than April 30, 2006 pursuant
  to Regulation 14A.

Item
  13. Certain Relationships and Related Transactions

The
  information required in this item is incorporated by reference from the Companys
  definitive proxy statement to be filed not later than April 30, 2006 pursuant
  to Regulation 14A.

Item
  14. Principal Accounting Fees and Services

The
  information required in this item is incorporated by reference from the Companys
  definitive proxy statement to be filed not later than April 30, 2006 pursuant
  to Regulation 14A.

66



---

PART
  IV

Item
  15. Exhibits and Financial Statement Schedules.

|Exhibit
        
        Number |  | Description
      of Document                                                                                                                                                                                                                                                   
|------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                |  |                                                                                                                                                                                                                                                                                 
|1.1                             |  | Engagement Letter,
      dated December 6, 2004 between the Company and Rodman & Renshaw, LLC
      (incorporated by reference to the Companys Current Report on 8-K filed December
      16, 2004, Commission File No. 0-19635)                                               
|3.1.a                           |  | Restated Certificate
      of Incorporation of the Company (incorporated by reference to Exhibit 3(i).1
      to the Companys Annual Report on Form 10-K for the year ended December
      31, 1995, Commission File No. 0-19635)                                              
|3.1.b                           |  | Certificate of Designations
      of Series D Convertible Preferred Stock of the Company (incorporated by
      reference to Exhibit 3(i) to the Companys Current Report on Form 8-K
      filed on February 28, 1997, Commission File No. 0-19635)                            
|3.1.c                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3(i).3 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1999, Commission File No. 0-19635)                  
|3.1.d                           |  | Amended Certificate
      of Designations of Series D Convertible Preferred Stock of the Company (incorporated
      by reference to Exhibit 3(i).4 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1999, Commission File No. 0-19635)        
|3.1.e                           |  | Certificate of Increase
      of Series D Convertible Preferred Stock of the Company (incorporated by
      reference to Exhibit 3(i).5 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1999, Commission File No. 0-19635)                    
|3.1.f                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3(i).4 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1998, Commission File No. 0-19635)                  
|3.1.g                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3(i).3 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1998, Commission File No. 0-19635)                  
|3.1.h                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3(i).8 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1999, Commission File No. 0-19635)                  
|3.1.i                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3.1.i to the Companys Registration Statement
      on Form S-1, Commission File No. 333-110238)                                             
|3.1.j                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3.1.j to the Companys Registration Statement
      on Form S-1, Commission File No. 333-110238)                                             
|3.1.k                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3.1.k to the Companys Quarterly Report on Form
      10-Q for the quarter ended June 30, 2004, Commission File No. 0-19635                  
|3.1.l                           |  | Certificated of Designation
      of Series G Participating Cumulative Preferred Stock of the Company (incorporated
      by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K
      filed on September 21, 2005, Commission File No. 0-19635)               
|3.2                             |  | Amended and Restated
      Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Companys
      Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, Commission
      File No. 0-19635)                                                         
|4.1                             |  | Specimen Common Stock
      Certificate (incorporated by reference to Exhibit 4.1 to the Companys
      Registration Statement on Form S-1, Commission File No. 333-110238)                                                                                                    
|4.2                             |  | Rights Agreement,
      dated September 20, 2005, between the Company and Mellion Investor Services
      LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 of the Companys
      Current Report on Form 8-K filed on September 21, 2005, Commission No. 01-19635)
|10.1                            |  | Amended and Restated
      1991 Stock Plan of Genta Incorporated (incorporated by reference to Exhibit
      10.1 to the Companys Registration Statement on Form S-8, Reg. No.
      333-101022)                                                                               
|10.2                            |  | Non-Employee Directors
      1998 Stock Option Plan, as amended and restated (incorporated by reference
      to Exhibit 99.B to the Companys Definitive Proxy Statement on Schedule
      14A filed on April 30, 2004, Commission File No. 0-19635)                          
|10.3                            |  | 1998 Stock Incentive
      Plan, as amended and restated, effective March 19, 2004 (incorporated by
      reference to Exhibit 99.A to the Companys Definitive Proxy Statement
      on Schedule 14A filed on April 30, 2004, Commission File No. 0-19635)                     
|10.4                            |  | Form of Indemnification
      Agreement entered into between the Company and its directors and officers
      (incorporated by reference to Exhibit 10.7 to the Companys Registration
      Statement on Form S-1, Commission File No. 0-19635)                                

67



---

|Exhibit
        
        Number |  | Description
      of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.5*                           |  | Development, License
      and Supply Agreement dated February 2, 1989 between the Company and Gen-Probe
      Incorporated (incorporated by reference to Exhibit 10.10 to the Companys
      Registration Statement on Form S-1, Commission File No. 0-19635)                                                                                                                                                                                                                    
|10.6                            |  | Asset Purchase Agreement,
      dated as of March 19, 1999, among JBL Acquisition Corp., JBL Scientific
      Incorporated and the Company (incorporated by reference to Exhibit 10.2
      to the Companys Quarterly Report filed on Form 10-Q for the quarter
      ended March 31, 1999,
      Commission File No. 0-19635)                                                                                                                                                    
|10.7                            |  | Warrant Agreement,
      dated as of December 23, 1999, among the Company, ChaseMellon Shareholder
      Services, L.L.C., as warrant agent, and Paramount Capital, Inc. (incorporated
      by reference to Exhibit 10.67 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1999, Commission File No. 0-19635)                                                                                                                                    
|10.8                            |  | Employment Letter
      Agreement, dated as of October 28, 1999, from the Company to Raymond P.
      Warrell, Jr., M.D. (incorporated by reference to Exhibit 10.70 to the Companys
      Annual Report on Form 10-K for the year ended December 31, 1999, Commission
      File No. 0-19635)                                                                                                                                                                                    
|10.9                            |  | Stock Option Agreement,
      dated as of October 28, 1999, between the Company and Raymond P. Warrell,
      Jr., M.D. (incorporated by reference to Exhibit 10.71 to the Companys
      Annual Report on Form 10-K for the year ended December 31, 1999, Commission
      File No. 0-19635)                                                                                                                                                                                     
|10.10                           |  | Letter Agreement,
      dated March 4, 1999, from SkyePharma Plc to the Company (incorporated by
      reference to Exhibit 10.72 to the Companys Annual Report on Form 10-K
      for the year ended December 31, 1999, Commission File No. 0-19635)                                                                                                                                                                                                                             
|10.11                           |  | Subscription Agreement
      executed in connection with the November 26, 2001 sale of common stock to
      Franklin Small-Mid Cap Growth Fund, Franklin Biotechnology Discovery Fund,
      and SF Capital Partners Ltd., and the November 30, 2001 sale of common stock
      to SF Capital Partners Ltd. (incorporated by reference to Exhibit 10.73
      to the Companys Annual Report on Form 10-K for the year ended December
      31, 2001, Commission File No. 0-19635)
|10.12                           |  | Employment Letter
      Agreement, dated as of March 27, 2001, from the Company to Loretta M. Itri,
      M.D. (incorporated by reference to Exhibit 10.74 to the Companys Annual
      Report on Form 10-K for the year ended December 31, 2001, Commission File
      No. 0-19635)                                                                                                                                                                                              
|10.13                           |  | Agreement of Lease
      dated June 28, 2000 between The Connell Company and the Company (incorporated
      by reference to Exhibit 10.76 to the Companys Annual Report on Form
      10-K for the year ended December 31, 2001, Commission File No. 0-19635)                                                                                                                                                                                                                    
|10.13A                          |  | Amendment of Lease,
      dated June 19, 2002 between The Connell Company and the Company (incorporated
      by reference to Exhibit 10.10 to the Companys Quarterly Report on
      Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)                                                                                                                                                                                                                 
|10.14                           |  | Agreement of Sublease
      dated August 13, 2001 between Expanets, Inc. and the Company (incorporated
      by reference to Exhibit 10.77 to the Companys Annual Report on Form
      10-K for the year ended December 31, 2001, Commission File No. 0-19635)                                                                                                                                                                                                                    
|10.15*                          |  | U.S. Commercialization
      Agreement dated April 26, 2002, by and between Genta Incorporated and Aventis
      Pharmaceuticals Inc.                                                                                                                                                                                                                                                                                                                                              
|10.15A*                         |  | Amendment No. 1 dated
      March 14, 2003 to the U.S. Commercialization Agreement between Genta Incorporated
      and Aventis Pharmaceuticals Inc. (incorporated by reference to Exhibit 10.1
      to the Companys Quarterly Report on Form 10-Q for the quarter ended
      March 31, 2003).                                                                                                                                                                                  
|10.16*                          |  | Ex-U.S. Commercialization
      Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston
      Limited                                                                                                                                                                                                                                                                                                                                                     
|10.17*                          |  | Global Supply Agreement,
      dated April 26, 2002, by and among Genta Incorporated, Aventis Pharmaceuticals
      Inc. and Garliston Limited (incorporated by reference to Exhibit 10.3 to
      the Companys Quarterly Report on Form 10-Q for the quarter ended June
      30, 2002, Commission File No. 0-19635)                                                                                                                                                             
|10.18*                          |  | Securities Purchase
      Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston
      Limited (incorporated by reference to Exhibit 10.4 to the Companys
      Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission
      File No. 0-19635)                                                                                                                                                                                   
|10.19                           |  | Standstill and Voting
      Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston
      Limited (incorporated by reference to Exhibit 10.5 to the Companys
      Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission
      File No. 0-19635)                                                                                                                                                                                 

68



---

|Exhibit
        
        Number                                                                              |  | Description
      of Document                                                                                                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                             |  |                                                                                                                                                                                                                                                                                                                    
|10.20                                                                                                        |  | Registration Rights
      Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston
      Limited (incorporated by reference to Exhibit 10.6 to the Companys
      Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission
      File No. 0-19635)                   
|10.21                                                                                                        |  | Convertible Note
      Purchase Agreement, dated April 26, 2002, by and between Genta Incorporated
      and Garliston Limited (incorporated by reference to Exhibit 10.7 to the
      Companys Quarterly Report on Form 10-Q for the quarter ended June
      30, 2002, Commission File No. 0-19635)             
|10.22*                                                                                                       |  | 5.63% Convertible
      Promissory Note, due April 26, 2009 (incorporated by reference to Exhibit
      10.8 to the Companys Quarterly Report on Form 10-Q for the quarter
      ended June 30, 2002, Commission File No. 0-19635)                                                                                
|10.23*                                                                                                       |  | Subordination Agreement,
      dated April 26, 2002, by and between Genta Incorporated and Garliston Limited
      (incorporated by reference to Exhibit 10.9 to the Companys Quarterly
      Report on Form 10-Q for the quarter ended June 30, 2002, Commission File
      No. 0-19635)                         
|10.24*                                                                                                       |  | Manufacture and Supply
      Agreement, dated December 20, 2002, between Genta Incorporated and Avecia
      Biotechnology Inc. (incorporated by reference to Exhibit 10.88 to the Companys
      Annual Report on Form 10-K for the year ended December 31, 2002, Commission
      File No. 0-19635)             
|10.25                                                                                                        |  | Employment Agreement,
      dated as of December 1, 2002, between the Company and Raymond P. Warrell,
      Jr., M.D. (incorporated by reference to Exhibit 10.89 to the Companys
      Annual Report on Form 10-K/A for the year ended December 31, 2001, Commission
      File No. 0-19635)                     
|10.26                                                                                                        |  | Employment Agreement,
      dated as of August 5, 2003, between the Company and Loretta M. Itri, M.D.
      (incorporated by reference to Exhibit 10.1 to the Companys Quarterly
      Report on Form 10-Q for the quarter ended June 30, 2003, Commission File
      No. 0-19635)                                
|10.27*                                                                                                       |  | License Agreement
      dated August 1, 1991, between Genta Incorporated and the Trustees of the
      University of Pennsylvania (incorporated by reference to Exhibit 99.1 to
      the Companys Current Report on Form 8-K filed on October 28, 2003,
      Commission File No. 0-19635)                       
|10.27A*                                                                                                      |  | Amendment to License
      Agreement, dated December 19, 2000, between Genta Incorporated and the Trustees
      of the University of Pennsylvania (incorporated by reference to Exhibit
      99.2 to the Companys Current Report on Form 8-K filed on October 28,
      2003, Commission File No. 0-19635)      
|10.27AA*                                                                                                     |  | Second Amendment
      to License Agreement, dated October 22, 2003, between Genta Incorporated
      and the Trustees of the University of Pennsylvania (incorporated by reference
      to Exhibit 99.3 to the Companys Current Report on Form 8-K filed on
      October 28, 2003, Commission File No. 0-19635)
|10.28                                                                                                        |  | Settlement Agreement
      and Release, dated October 22, 2003, between Genta Incorporated and the
      Trustees of the University of Pennsylvania (incorporated by reference to
      Exhibit 99.4 to the Companys Current Report on Form 8-K filed on October
      28, 2003, Commission File No. 0-19635)     
|10.29                                                                                                        |  | Securities Purchase
      Agreement, dated December 14, 2004, among the Company, Riverview Group,
      LLC and Smithfield Fiduciary LLC (incorporated by reference to Exhibit 10.1
      to the Company's Current Report on Form 8-K filed on December 16, 2004,
      Commission File No. 0-19635)               
|10.30                                                                                                        |  | Form of Subscription
      Agreement, dated August 5, 2005 among the Company and the purchasers of
      the Shares (incorporated by reference to Exhibit 10.1 to the Company's Current
      Report on Form 8-K filed on August 8, 2005, Commission File No. 0-19635)                                             
|10.31                                                                                                        |  | Placement Agency Agreement,
      dated August 5, 2005 between the Company and Piper Jaffray & Co. (incorporated
      by reference to Exhibit 10.2 to the Companys Current Report on Form
      8-K filed on August 8, 2005, Commission File No. 0-19635)                                                        
|10.32                                                                                                        |  | Form of Subscription
      Agreement, dated March 6, 2006 by and among the Company and the Purchasers
      (incorporated by reference to Exhibit 10.1 to the Companys Current
      Report on Form 8-K filed on March 7, 2006, Commission File No. 0-19635)                                                      
|10.33                                                                                                        |  | Form of Placement
      Agent Agreement, dated March 6, 2006 by and among the Company, Cowen &
      Co., LLC and Rodman & Renshaw, LLC (incorporated by reference to Exhibit
      10.2 to the Companys Current Report on Form 8-K filed on March 7,
      2006, Commission File No. 0-19635)                    
|10.34                                                                                                        |  | Form of Confirmation
      of Purchase, dated March 10, 2006 by and between the Company and certain
      Investors                                                                                                                                                                                                
|10.35                                                                                                        |  | Form of Amendment
      No.1 to Placement Agent Agreement, dated March 10, 2006 by and among the
      Company, Cowen & Co., LLC and Rodman & Renshaw, LLC                                                                                                                                                         
|21                                                                                                           |  | Subsidiaries of the
      Registrant                                                                                                                                                                                                                                                                               
|23.1                                                                                                         |  | Consent of Deloitte
      & Touche LLP                                                                                                                                                                                                                                                                             
|31.1                                                                                                         |  | Certification by
      Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002                                                                                                                                                                                                     
|31.2                                                                                                         |  | Certification by
      Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002                                                                                                                                                                                                     
|32.1                                                                                                         |  | Certification by
      Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                      
|32.2                                                                                                         |  | Certification by
      Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                      
|                                                                                                             | 
|*      
      The Company has been granted confidential treatment of certain portions
      of this exhibit.

69



---

SIGNATURES

Pursuant
  to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
  1934, as amended, the Registrant has duly caused this report to be signed on
  its behalf by the undersigned, thereunto duly authorized, on this 10th day of
  March 2006.

| | Genta Incorporated                        
| | ------------------------------------------
| |                                           
| | /s/
      RAYMOND P. WARRELL, JR., M.D.   
| | Raymond
      P. Warrell, Jr., M.D.       
| | Chairman
      and Chief Executive Officer

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

|Signature                               | Capacity                                                                                                                                | Date                  
|--------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ----------------------
|                                        |                                                                                                                                         |                       
|/s/
      RAYMOND P. WARRELL, JR., M.D. | Chairman
      and Chief Executive Officer  and Director (principal executive officer)                                                  | March
        10, 2006
|Raymond P. Warrell,
      Jr., M.D.     |                                                                                                                                        
|                                        |                                                                                                                                         |                       
|/s/
      RICHARD J. MORAN              | Senior
      Vice President, Chief Financial 
      Officer and Corporate Secretary 
      (principal financial and accounting officer) | March
        10, 2006
|Richard J. Moran                        |                                                                                                                                        
|                                        |                                                                                                                                         |                       
|/s/
      MARTIN J. DRISCOLL            | Director                                                                                                                                | March
        10, 2006
|Martin J. Driscoll                      |                                                                                                                                        
|                                        |                                                                                                                                         |                       
|/s/
      JEROME E. GROOPMAN, M.D.      | Director                                                                                                                                | March
        10, 2006
|Jerome E. Groopman,
      M.D.          |                                                                                                                                        
|                                        |                                                                                                                                         |                       
|/s/
      BETSY MCCAUGHEY               | Director                                                                                                                                | March
        10, 2006
|Betsy McCaughey, Ph.D.                  |                                                                                                                                        
|                                        |                                                                                                                                         |                       
|/s/
      CHRISTOPHER P. PARIOS         | Director                                                                                                                                | March
        10, 2006
|Christopher P. Parios                   |                                                                                                                                        
|                                        |                                                                                                                                         |                       
|/s/
      DANIEL D. VON HOFF, M.D.      | Director                                                                                                                                | March
        10, 2006
|Daniel D. Von Hoff,
      M.D.          |                                                                                                                                        
|                                        |                                                                                                                                         |                       
|/s/
      HARLAN J. WAKOFF              | Director                                                                                                                                | March
        10, 2006
|Harlan J. Wakoff                        |                                                                                                                                        
|                                        |                                                                                                                                         |                       
|/s/
      DOUGLAS G. WATSON             | Director                                                                                                                                | March
        10, 2006
|Douglas G. Watson                       |                                                                                                                                        

70



---

|Exhibit
        
        Number |  | Description
      of Document                                                                                                                                                                                                                                                    |  | Sequentially 
        Numbered Pages
|------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------
|                                |  |                                                                                                                                                                                                                                                                                  |  |                                     
|1.1                             |  | Engagement Letter,
      dated December 6, 2004 between the Company and Rodman & Renshaw, LLC
      (incorporated by reference to the Companys Current Report on 8-K filed December
      16, 2004, Commission File No. 0-19635)                                                |  |                                     
|3.1.a                           |  | Restated Certificate
      of Incorporation of the Company (incorporated by reference to Exhibit 3(i).1
      to the Companys Annual Report on Form 10-K for the year ended December
      31, 1995, Commission File No. 0-19635)                                               |  |                                     
|3.1.b                           |  | Certificate of Designations
      of Series D Convertible Preferred Stock of the Company (incorporated by
      reference to Exhibit 3(i) to the Companys Current Report on Form 8-K
      filed on February 28, 1997, Commission File No. 0-19635)                             |  |                                     
|3.1.c                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3(i).3 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1999, 
      Commission File No. 0-19635)            |  |                                     
|3.1.d                           |  | Amended Certificate
      of Designations of Series D Convertible Preferred Stock of the Company (incorporated
      by reference to Exhibit 3(i).4 to the Companys Annual Report on Form
      10-K for the year ended December 
      31, 1999, Commission File No. 0-19635)  |  |                                     
|3.1.e                           |  | Certificate of Increase
      of Series D Convertible Preferred Stock of the Company (incorporated by
      reference to Exhibit 3(i).5 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1999, Commission File No. 0-19635)                     |  |                                     
|3.1.f                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3(i).4 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1998, Commission File No. 0-19635)                   |  |                                     
|3.1.g                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3(i).3 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1998, Commission File No. 0-19635)                   |  |                                     
|3.1.h                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3(i).8 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1999, Commission File No. 0-19635)                   |  |                                     
|3.1.i                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3.1.i to the Companys Registration Statement
      on Form S-1, Commission File No. 333-110238)                                              |  |                                     
|3.1.j                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3.1.j to the Companys Registration Statement
      on Form S-1, Commission File No. 333-110238)                                              |  |                                     
|3.1.k                           |  | Certificate of Amendment
      of Restated Certificate of Incorporation of the Company (incorporated by
      reference to Exhibit 3.1.k to the Companys Quarterly Report on Form
      10-Q for the quarter ended June 30, 2004, Commission File No. 0-19635                   |  |                                     
|3.1.l                           |  | Certificated of Designation
      of Series G Participating Cumulative Preferred Stock of the Company (incorporated
      by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K
      filed on September 21, 2005, Commission File No. 0-19635)                |  |                                     
|3.2                             |  | Amended and Restated
      Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Companys
      Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, Commission
      File No. 0-19635)                                                          |  |                                     
|4.1                             |  | Specimen Common Stock
      Certificate (incorporated by reference to Exhibit 4.1 to the Companys
      Registration Statement on Form S-1, Commission File No. 333-110238)                                                                                                     |  |                                     
|4.2                             |  | Rights Agreement, dated September 20, 2005, between the
      Company and Mellion Investor Services LLC, as Rights Agent (incorporated
      by reference to Exhibit 4.1 of the Companys Current Report on Form
      8-K filed on September 21, 2005, Commission No. 01-19635) |  |                                     
|10.1                            |  | Amended and Restated
      1991 Stock Plan of Genta Incorporated (incorporated by reference to Exhibit
      10.1 to the Companys Registration Statement on Form S-8, Reg. No.
      333-101022)                                                                                |  |                                     
|10.2                            |  | Non-Employee Directors
      1998 Stock Option Plan, as amended and restated (incorporated by reference
      to Exhibit 99.B to the Companys Definitive Proxy Statement on Schedule
      14A filed on April 30, 2004, Commission File No. 0-19635)                           |  |                                     

71



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|Exhibit
        
        Number |  | Description
      of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Sequentially 
        Numbered Pages
|------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------
|                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                     
|10.3                            |  | 1998 Stock Incentive
      Plan, as amended and restated, effective March 19, 2004 (incorporated by
      reference to Exhibit 99.A to the Companys Definitive Proxy Statement
      on Schedule 14A filed on April 30, 2004, Commission File No. 0-19635)                                                                                                                                                                                                                         |  |                                     
|10.4                            |  | Form of Indemnification
      Agreement entered into between the Company and its directors and officers
      (incorporated by reference to Exhibit 10.7 to the Companys Registration
      Statement on Form S-1, Commission File No. 0-19635)                                                                                                                                                                                                                                    |  |                                     
|10.5*                           |  | Development, License
      and Supply Agreement dated February 2, 1989 between the Company and Gen-Probe
      Incorporated (incorporated by reference to Exhibit 10.10 to the Companys
      Registration Statement on Form S-1, Commission File No. 0-19635)                                                                                                                                                                                                                     |  |                                     
|10.6                            |  | Asset Purchase Agreement,
      dated as of March 19, 1999, among JBL Acquisition Corp., JBL Scientific
      Incorporated and the Company (incorporated by reference to Exhibit 10.2
      to the Companys Quarterly Report filed on Form 10-Q for the quarter
      ended March 31, 1999, Commission File No. 0-19635)                                                                                                                                                           |  |                                     
|10.7                            |  | Warrant Agreement,
      dated as of December 23, 1999, among the Company, ChaseMellon Shareholder
      Services, L.L.C., as warrant agent, and Paramount Capital, Inc. (incorporated
      by reference to Exhibit 10.67 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1999, Commission File No. 0-19635)                                                                                                                                     |  |                                     
|10.8                            |  | Employment Letter
      Agreement, dated as of October 28, 1999, from the Company to Raymond P.
      Warrell, Jr., M.D. (incorporated by reference to Exhibit 10.70 to the Companys
      Annual Report on Form 10-K for the year ended December 31, 1999, Commission
      File No. 0-19635)                                                                                                                                                                                     |  |                                     
|10.9                            |  | Stock Option Agreement,
      dated as of October 28, 1999, between the Company and Raymond P. Warrell,
      Jr., M.D. (incorporated by reference to Exhibit 10.71 to the Companys
      Annual Report on Form 10-K for the year ended 
      December 31, 1999, Commission File No. 0-19635)                                                                                                                                                                                     |  |                                     
|10.10                           |  | Letter Agreement,
      dated March 4, 1999, from SkyePharma Plc to the Company (incorporated by
      reference to Exhibit 10.72 to the Companys Annual Report on Form
      10-K for the year ended December 31, 1999, Commission File No. 0-19635)                                                                                                                                                                                                                              |  |                                     
|10.11                           |  | Subscription Agreement
      executed in connection with the November 26, 2001 sale of common stock to
      Franklin Small-Mid Cap Growth Fund, Franklin Biotechnology Discovery Fund,
      and SF Capital Partners Ltd., and the November 30, 2001 sale of common stock
      to SF Capital Partners Ltd. (incorporated by reference to Exhibit 10.73
      to the Companys Annual Report on Form 10-K for the year ended December
      31, 2001, Commission File No. 0-19635) |  |                                     
|10.12                           |  | Employment Letter
      Agreement, dated as of March 27, 2001, from the Company to Loretta M. Itri,
      M.D. (incorporated by reference to Exhibit 10.74 to the Companys
      Annual Report on Form 10-K for the year ended December 31, 2001, Commission
      File No. 0-19635)                                                                                                                                                                                               |  |                                     
|10.13                           |  | Agreement of Lease
      dated June 28, 2000 between The Connell Company and the Company (incorporated
      by reference to Exhibit 10.76 to the Companys Annual Report on Form
      10-K for the year ended December 31, 2001, Commission File No. 0-19635)                                                                                                                                                                                                                     |  |                                     
|10.13A                          |  | Amendment of Lease,
      dated June 19, 2002 between The Connell Company and the Company (incorporated
      by reference to Exhibit 10.10 to the Companys Quarterly Report on
      Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)                                                                                                                                                                                                                  |  |                                     

72



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|Exhibit
        
        Number |  | Description
      of Document                                                                                                                                                                                                                                                                                          |  | Sequentially 
        Numbered Pages
|------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------
|                                |  |                                                                                                                                                                                                                                                                                                                        |  |                                     
|10.14                           |  | Agreement of Sublease
      dated August 13, 2001 between Expanets, Inc. and the Company (incorporated
      by reference to Exhibit 10.77 to the Companys Annual Report on Form
      10-K for the year ended December 31, 2001, Commission File No. 0-19635)                                                        |  |                                     
|10.15*                          |  | U.S. Commercialization
      Agreement dated April 26, 2002, by and between Genta Incorporated and Aventis
      Pharmaceuticals Inc.                                                                                                                                                                                  |  |                                     
|10.15A*                         |  | Amendment No. 1 dated
      March 14, 2003 to the U.S. Commercialization Agreement between Genta Incorporated
      and Aventis Pharmaceuticals Inc. (incorporated by reference to Exhibit 10.1
      to the Companys Quarterly Report on Form 10-Q for the quarter ended
      March 31, 2003).                      |  |                                     
|10.16*                          |  | Ex-U.S. Commercialization
      Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston
      Limited (incorporated by reference to Exhibit 10.2 to the Companys
      Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission
      File No. 0-19635)                 |  |                                     
|10.17*                          |  | Global Supply Agreement,
      dated April 26, 2002, by and among Genta Incorporated, Aventis Pharmaceuticals
      Inc. and Garliston Limited (incorporated by reference to Exhibit 10.3 to
      the Companys Quarterly Report on Form 10-Q for the quarter ended
      June 30, 2002, Commission File No. 0-19635) |  |                                     
|10.18*                          |  | Securities Purchase
      Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston
      Limited (incorporated by reference to Exhibit 10.4 to the Companys
      Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission
      File No. 0-19635)                       |  |                                     
|10.19                           |  | Standstill and Voting
      Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston
      Limited (incorporated by reference to Exhibit 10.5 to the Companys
      Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission
      File No. 0-19635)                     |  |                                     
|10.20                           |  | Registration Rights
      Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston
      Limited (incorporated by reference to Exhibit 10.6 to the Companys
      Quarterly Report on Form 10-Q for the 
      quarter ended June 30, 2002, Commission File No. 0-19635)                      |  |                                     
|10.21                           |  | Convertible Note
      Purchase Agreement, dated April 26, 2002, by and between Genta Incorporated
      and Garliston Limited (incorporated by reference to Exhibit 10.7 to the
      Companys Quarterly Report on Form 10-Q for the 
      quarter ended June 30, 2002, Commission File No. 0-19635)                |  |                                     
|10.22*                          |  | 5.63% Convertible
      Promissory Note, due April 26, 2009 (incorporated by reference to Exhibit
      10.8 to the Companys Quarterly Report on Form 10-Q for the quarter
      ended June 30, 2002, Commission File No. 0-19635)                                                                                    |  |                                     
|10.23*                          |  | Subordination Agreement,
      dated April 26, 2002, by and between Genta Incorporated and Garliston Limited
      (incorporated by reference to Exhibit 10.9 to the Companys Quarterly
      Report on Form 10-Q for the quarter ended June 30, 2002, Commission File
      No. 0-19635)                             |  |                                     
|10.24*                          |  | Manufacture and Supply
      Agreement, dated December 20, 2002, between Genta Incorporated and Avecia
      Biotechnology Inc. (incorporated by reference to Exhibit 10.88 to the Companys
      Annual Report on Form 10-K for the 
      year ended December 31, 2002, Commission File No. 0-19635)                |  |                                     
|10.25                           |  | Employment Agreement,
      dated as of December 1, 2002, between the Company and Raymond P. Warrell,
      Jr., M.D. (incorporated by reference to Exhibit 10.89 to the Companys
      Annual Report on Form 10-K/A for the year ended 
      December 31, 2001, Commission File No. 0-19635)                        |  |                                     
|10.26                           |  | Employment Agreement,
      dated as of August 5, 2003, between the Company and Loretta M. Itri, M.D.
      (incorporated by reference to Exhibit 10.1 to the Companys Quarterly
      Report on Form 10-Q for the quarter ended June 30, 2003, Commission File
      No. 0-19635)                                    |  |                                     

73



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|Exhibit
        
        Number |  | Description
      of Document                                                                                                                                                                                                                                                                                       |  | Sequentially 
        Numbered Pages
|------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------
|                                |  |                                                                                                                                                                                                                                                                                                                     |  |                                     
|10.27*                          |  | License Agreement
      dated August 1, 1991, between Genta Incorporated and the Trustees of the
      University of Pennsylvania (incorporated by reference to Exhibit 99.1 to
      the Companys Current Report on Form 8-K filed on October 28, 2003,
      Commission File No. 0-19635)                        |  |                                     
|10.27A*                         |  | Amendment to License
      Agreement, dated December 19, 2000, between Genta Incorporated and the Trustees
      of the University of Pennsylvania (incorporated by reference to Exhibit
      99.2 to the Companys Current Report on Form 8-K filed on October 28,
      2003, Commission File No. 0-19635)       |  |                                     
|10.27AA*                        |  | Second Amendment
      to License Agreement, dated October 22, 2003, between Genta Incorporated
      and the Trustees of the University of Pennsylvania (incorporated by reference
      to Exhibit 99.3 to the Companys Current Report on Form 8-K filed on
      October 28, 2003, Commission File No. 0-19635) |  |                                     
|10.28                           |  | Settlement Agreement
      and Release, dated October 22, 2003, between Genta Incorporated and the
      Trustees of the University of Pennsylvania (incorporated by reference to
      Exhibit 99.4 to the Companys Current Report on Form 8-K filed on October
      28, 2003, Commission File No. 0-19635)      |  |                                     
|10.29                           |  | Securities Purchase
      Agreement, dated December 14, 2004, among the Company. Riverview Group,
      LLC and Smithfield Fiduciary LLC (incorporated by reference to Exhibit 10.1
      to the Company's Current Report on Form 8-K filed on December 16, 2004,
      Commission File No. 0-19635)                |  |                                     
|10.30                           |  | Form of Subscription
      Agreement, dated August 5, 2005 among the Company and the purchasers of
      the Shares (incorporated by reference to Exhibit 10.1 to the Company's Current
      Report on Form 8-K filed on August 8, 2005, Commission File No. 0-19635)                                              |  |                                     
|10.31                           |  | Placement Agency Agreement,
      dated August 5, 2005 between the Company and Piper Jaffray & Co. (incorporated
      by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K
      filed on August 8, 2005, Commission File No. 0-19635)                                                         |  |                                     
|10.32                           |  | Form of Subscription
      Agreement, dated March 6, 2006 by and among the Company and the Purchasers
      (incorporated by reference to Exhibit 10.1 to the Company's Current Report
      on Form 8-K filed on March 7, 2006, Commission File No. 0-19635)                                                       |  |                                     
|10.33                           |  | Form of Placement
      Agent Agreement, dated March 6, 2006 by and among the Company, Cowen &
      Co., LLC and Rodman & Renshaw, LLC (incorporated by reference to Exhibit
      10.2 to the Companys Current Report on Form 8-K filed on March 7,
      2006, Commission File No. 0-19635)                     |  |                                     
|10.34                           |  | Form of Confirmation
      of Purchase, dated March 10, 2006 by and between the Company and certain
      Investors                                                                                                                                                                                                 |  |                                     
|10.35                           |  | Form of Amendment
      No. 1 to Placement Agent Agreement, dated March 10, 2006 by and among the
      Company, Cowen & Co., LLC and Rodman & Renshaw, LLC                                                                                                                                                         |  |                                     
|21                              |  | Subsidiaries of the
      Registrant                                                                                                                                                                                                                                                                                |  |                                     
|23.1                            |  | Consent of Deloitte
      & Touche LLP                                                                                                                                                                                                                                                                              |  |                                     
|31.1                            |  | Certification by
      Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002                                                                                                                                                                                                      |  |                                     
|31.2                            |  | Certification by
      Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002                                                                                                                                                                                                      |  |                                     
|32.1                            |  | Certification by
      Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                       |  |                                     
|32.2                            |  | Certification by
      Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                       |  |                                     

74

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