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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

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

For the Quarterly Period Ended September 30, 2003

or

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

For the transition period
from                             to

Commission file number 0-27628

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SUPERGEN, INC.(Exact name of registrant as specified in its charter)

|Delaware                                                       |  | 91-1841574                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction
of incorporation or organization) |  | (IRS Employer
Identification Number)
|4140 Dublin Blvd, Suite 200, Dublin, California                |  | 94568                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(925) 560-0100(Registrant's telephone number, including area code)

Not applicable(Former name, former address and former fiscal year, if changed since last report)

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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 checkmark whether Registrant is an accelerated filer (as defined in Rule 12B-2 of the
Act). Yes ý    No o

The
number of shares of the registrant's Common Stock, $.001 par value, outstanding as of November 10, 2003 was 35,489,448.

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TABLE OF CONTENTS

|           |  |                                                                                              |                                                                                                                        |    | Page No.
|---------- |  | -------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | -- | --------
|PART I     |  | FINANCIAL INFORMATION                                                                        |                                                                                                                        |   
|           |  | Item 1Financial Statements (Unaudited)                                                      |                                                                                                                        |   
|           |  |                                                                                              | Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002                                   |    | 3       
|           |  |                                                                                              | Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2003 and 2002 |    | 4       
|           |  |                                                                                              | Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2003 and 2002           |    | 5       
|           |  |                                                                                              | Notes to Condensed Consolidated Financial Statements                                                                   |    | 6       
|           |  | Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                        | 14
|           |  | Item 3Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                        | 41
|           |  | Item 4Controls and Procedures                                                               |                                                                                                                        | 42
|PART II    |  | OTHER INFORMATION                                                                            |                                                                                                                        |   
|           |  | Item 6Exhibits and Reports on Form 8-K                                                      |                                                                                                                        | 43
|SIGNATURES |  | 44                                                                                          

2

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SUPERGEN, INC.        CONDENSED CONSOLIDATED BALANCE SHEETS        (in thousands, except share and per share amounts)

|                                             |                                                                                                                                                                                 | September 30,
2003                         |        | December 31,
2002 |       
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ----------------- | ------
|
|ASSETS                                       |                                                                                                                                                                                
|Current assets:                              |                                                                                                                                                                                 |                                            |        |                   |       
|                                             | Cash and cash equivalents                                                                                                                                                       |                                            | $      | 10,076            |       
|                                             | Marketable securities                                                                                                                                                           |                                            |        | 11,091            |       
|                                             | Restricted cash and investments                                                                                                                                                 |                                            |        | 10,652            |       
|                                             | Accounts receivable, net                                                                                                                                                        |                                            |        | 3,813             |       
|                                             | Due from related parties                                                                                                                                                        |                                            |        | 263               |       
|                                             | Inventories                                                                                                                                                                     |                                            |        | 3,546             |       
|                                             | Prepaid financing costs                                                                                                                                                         |                                            |        | 2,680             |       
|                                             | Prepaid expenses and other current assets                                                                                                                                       |                                            |        | 3,382             |       
|                                             |                                                                                                                                                                                 |                                            |        |                   |       
|                                             |                                                                                                                                                                                 | Total current assets                       |        |                   | 45,503
|Marketable securities, non-current           |                                                                                                                                                                                 |                                            | 2,152  |                   |       
|Investment in stock of related parties       |                                                                                                                                                                                 |                                            | 939    |                   |       
|Due from related parties, non-current        |                                                                                                                                                                                 |                                            | 162    |                   |       
|Property, plant and equipment, net           |                                                                                                                                                                                 |                                            | 4,670  |                   |       
|Developed technology at cost, net            |                                                                                                                                                                                 |                                            | 485    |                   |       
|Goodwill, net                                |                                                                                                                                                                                 |                                            | 731    |                   |       
|Other intangibles, net                       |                                                                                                                                                                                 |                                            | 151    |                   |       
|Restricted cash and investments, non-current |                                                                                                                                                                                 |                                            | 16,816 |                   |       
|Other assets                                 |                                                                                                                                                                                 |                                            | 30     |                   |       
|                                             |                                                                                                                                                                                 |                                            |        |                   |       
|                                             |                                                                                                                                                                                 | Total assets                               |        | $                 | 71,639
|                                             |                                                                                                                                                                                 |                                            |        |                   |       
|LIABILITIES AND STOCKHOLDERS' EQUITY         |                                                                                                                                                                                
|Current liabilities:                         |                                                                                                                                                                                 |                                            |        |                   |       
|                                             | Accounts payable and accrued liabilities                                                                                                                                        |                                            | $      | 2,969             |       
|                                             | Convertible debt, current portion, net                                                                                                                                          |                                            |        | 12,196            |       
|                                             | Derivative liability                                                                                                                                                            |                                            |        | 8,429             |       
|                                             | Payable to AVI BioPharma, Inc                                                                                                                                                   |                                            |        | 565               |       
|                                             | Deferred revenue                                                                                                                                                                |                                            |        | 1,667             |       
|                                             | Accrued payroll and employee benefits                                                                                                                                           |                                            |        | 2,728             |       
|                                             |                                                                                                                                                                                 |                                            |        |                   |       
|                                             |                                                                                                                                                                                 | Total current liabilities                  |        |                   | 28,554
|Deferred rent                                |                                                                                                                                                                                 |                                            | 764    |                   |       
|Convertible debt, non-current portion, net   |                                                                                                                                                                                 |                                            | 2,433  |                   |       
|Deferred revenue, non-current                |                                                                                                                                                                                 |                                            |       |                   |       
|                                             |                                                                                                                                                                                 |                                            |        |                   |       
|                                             |                                                                                                                                                                                 | Total liabilities                          |        |                   | 31,751
|                                             |                                                                                                                                                                                 |                                            |        |                   |       
|Commitments and contingencies                |                                                                                                                                                                                 |                                            |        |                   |       
|Stockholders' equity:                        |                                                                                                                                                                                 |                                            |        |                   |       
|                                             | Preferred stock, $.001 par value; 2,000,000 shares authorized; none outstanding                                                                                                 |                                            |        |                  |       
|                                             | Common stock, $.001 par value; 150,000,000 shares authorized; 35,284,319 and 32,892,674 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively |                                            |        | 35                |       
|                                             | Additional paid in capital                                                                                                                                                      |                                            |        | 307,834           |       
|                                             | Deferred compensation                                                                                                                                                           |                                            |        |                  |       
|                                             | Accumulated other comprehensive loss                                                                                                                                            |                                            |        | (147              | )     
|                                             | Accumulated deficit                                                                                                                                                             |                                            |        | (267,834          | )     
|                                             |                                                                                                                                                                                 |                                            |        |                   |       
|                                             |                                                                                                                                                                                 | Total stockholders' equity                 |        |                   | 39,888
|                                             |                                                                                                                                                                                 |                                            |        |                   |       
|                                             |                                                                                                                                                                                 | Total liabilities and stockholders' equity |        | $                 | 71,639
|                                             |                                                                                                                                                                                 |                                            |        |                   |       

See accompanying notes to condensed consolidated financial statements

3

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SUPERGEN, INC.        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share amounts)        (unaudited)

|                                                                                        |                                      | Three months ended
September 30, |         | Nine months ended
September 30, |       
|--------------------------------------------------------------------------------------- | ------------------------------------ | -------------------------------- | ------- | ------------------------------- | ------
|
|Revenues:                                                                               |                                      |                                  |         |                                 |       
|                                                                                        | Net sales revenue                    |                                  | $       | 4,419                           |       
|                                                                                        | Other revenue                        |                                  |         |                                |       
|                                                                                        |                                      |                                  |         |                                 |       
|                                                                                        |                                      | Total revenue                    |         |                                 | 4,419 
|Operating expenses:                                                                     |                                      |                                  |         |                                 |       
|                                                                                        | Cost of sales                        |                                  |         | 1,023                           |       
|                                                                                        | Research and development             |                                  |         | 5,349                           |       
|                                                                                        | Selling, general, and administrative |                                  |         | 5,088                           |       
|                                                                                        |                                      |                                  |         |                                 |       
|                                                                                        |                                      | Total operating expenses         |         |                                 | 11,460
|                                                                                        |                                      |                                  |         |                                 |       
|Loss from operations                                                                    |                                      |                                  | (7,041  | )                               |       
|Interest income                                                                         |                                      |                                  | 116     |                                 |       
|Interest expense                                                                        |                                      |                                  | (1,202  | )                               |       
|Amortization of deemed discount on convertible debt                                     |                                      |                                  | (4,589  | )                               |       
|Other than temporary decline in value of investments                                    |                                      |                                  |        |                                 |       
|Change in valuation of derivatives                                                      |                                      |                                  | 2,213   |                                 |       
|                                                                                        |                                      |                                  |         |                                 |       
|Net loss                                                                                |                                      | $                                | (10,503 | )                               | $     
|                                                                                        |                                      |                                  |         |                                 |       
|Basic and diluted net loss per common share                                             |                                      | $                                | (0.30   | )                               | $     
|                                                                                        |                                      |                                  |         |                                 |       
|Weighted average shares used in basic and diluted net loss per common share calculation |                                      |                                  | 35,281  |                                 |       
|                                                                                        |                                      |                                  |         |                                 |       

See
accompanying notes to condensed consolidated financial statements

4

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SUPERGEN, INC.        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)        (unaudited)

|                                                           |                                                                               | Nine months ended
September 30,                                                                  |                                       
|---------------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | --------------------------------------
|
|Operating activities:                                      |                                                                               |                                                                                                  |                                       
|                                                           | Net loss                                                                      |                                                                                                  | $                                     
|                                                           | Adjustments to reconcile net loss to net cash used in operating activities:   |                                                                                                  |                                       
|                                                           |                                                                               | Depreciation                                                                                     |                                       
|                                                           |                                                                               | Amortization of prepaid financing costs                                                          |                                       
|                                                           |                                                                               | Amortization of intangible assets                                                                |                                       
|                                                           |                                                                               | Amortization of deferred compensation                                                            |                                       
|                                                           |                                                                               | Amortization of deferred revenue                                                                 |                                       
|                                                           |                                                                               | Amortization of deemed discount on convertible debt                                              |                                       
|                                                           |                                                                               | Interest on convertible debt paid in common stock                                                |                                       
|                                                           |                                                                               | Change in valuation of derivatives                                                               |                                       
|                                                           |                                                                               | Expense related to stock options and warrants granted to non-employees                           |                                       
|                                                           |                                                                               | Non-cash charge related to research or license agreements                                        |                                       
|                                                           |                                                                               | Cash option paid in modification of distribution agreement                                       |                                       
|                                                           |                                                                               | Changes in operating assets and liabilities:                                                     |                                       
|                                                           |                                                                               |                                                                                                  | Accounts receivable                   
|                                                           |                                                                               |                                                                                                  | Inventories                           
|                                                           |                                                                               |                                                                                                  | Prepaid expenses and other assets     
|                                                           |                                                                               |                                                                                                  | Due from related parties              
|                                                           |                                                                               |                                                                                                  | Restricted cash and investments       
|                                                           |                                                                               |                                                                                                  | Accounts payable and other liabilities
|                                                           |                                                                               |                                                                                                  |                                       
|Net cash used in operating activities                      |                                                                               |                                                                                                  | (26,868                               
|                                                           |                                                                               |                                                                                                  |                                       
|Investing activities:                                      |                                                                               |                                                                                                  |                                       
|                                                           | Purchases of marketable securities                                            |                                                                                                  |                                       
|                                                           | Sales or maturities of marketable securities                                  |                                                                                                  |                                       
|                                                           | Proceeds from convertible debt transferred to restricted cash and investments |                                                                                                  |                                       
|                                                           | Purchases of property and equipment                                           |                                                                                                  |                                       
|                                                           |                                                                               |                                                                                                  |                                       
|Net cash provided by (used in) investing activities        |                                                                               |                                                                                                  | (9,655                                
|                                                           |                                                                               |                                                                                                  |                                       
|Financing activities:                                      |                                                                               |                                                                                                  |                                       
|                                                           | Proceeds from issuance of common stock, net of issuance costs                 |                                                                                                  |                                       
|                                                           | Prepaid financing costs                                                       |                                                                                                  |                                       
|                                                           | Proceeds from issuance of convertible debt                                    |                                                                                                  |                                       
|                                                           | Repurchases of common stock                                                   |                                                                                                  |                                       
|                                                           |                                                                               |                                                                                                  |                                       
|Net cash provided by (used in) financing activities        |                                                                               |                                                                                                  | 38,358                                
|                                                           |                                                                               |                                                                                                  |                                       
|Net increase (decrease) in cash and cash equivalents       |                                                                               |                                                                                                  | 1,835                                 
|Cash and cash equivalents at beginning of period           |                                                                               |                                                                                                  | 8,241                                 
|                                                           |                                                                               |                                                                                                  |                                       
|Cash and cash equivalents at end of period                 |                                                                               | $                                                                                                | 10,076                                
|                                                           |                                                                               |                                                                                                  |                                       
|Supplemental Disclosures of Non-Cash Financing Activities: |                                                                               |                                                                                                  |                                       
|                                                           |                                                                               | Valuation of warrants issued to placement agent in connection with convertible debt transactions |                                       
|                                                           |                                                                               | Beneficial conversion and deemed discount in connection with convertible debt                    |                                       
|                                                           |                                                                               | Conversion of convertible notes into common stock                                                |                                       

See accompanying notes to condensed consolidated financial statements

5

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SUPERGEN, INC.        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        SEPTEMBER 30, 2003        (Unaudited)

NOTE 1. BASIS OF PRESENTATION

The accompanying condensed unaudited consolidated financial statements of SuperGen, Inc. ("we," "SuperGen" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine month period ended
September 30, 2003 are not necessarily indicative of results that may be expected for the year ended December 31, 2003.

The
balance sheet at December 31, 2002 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.

For
further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended
December 31, 2002.

NOTE 2. STOCK-BASED COMPENSATION

We account for stock issued to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and comply with the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and Statement
of Financial Accounting Standards No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure" ("SFAS 148"). Under APB 25, compensation expense of
fixed stock options is based on the intrinsic value on the date of the grant, which represents the difference, if any, between the fair value of the stock and the exercise price of the option. We
account for stock issued to non-employees in accordance with the provisions of SFAS 123 and EITF No. 96-18, "Accounting for Equity Instruments That are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

Under
the intrinsic value method, when the exercise price of our employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is
recognized. The following table illustrates the pro forma effect on net loss and loss per share for the three and

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nine
month periods ended September 30, 2003 and 2002 had we applied the fair value method to account for stock-based awards to employees (in thousands, except per share amounts):

|                                                                                                                                                                         |             | Three months ended
September 30, |         | Nine months ended
September 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------- | -------------------------------- | ------- | ------------------------------- | -
|
|Net loss, as reported                                                                                                                                                    |             | $                                | (10,503 | )                               | $
|Add: Stock-based employee compensation expense included in the determination of net loss, as reported                                                                    |             |                                  |        |                                 |  
|Deduct: Stock-based employee compensation expense that would have been included in the determination of net loss if the fair value method had been applied to all awards |             |                                  | (952    | )                               |  
|                                                                                                                                                                         |             |                                  |         |                                 |  
|Pro forma net loss                                                                                                                                                       |             | $                                | (11,455 | )                               | $
|                                                                                                                                                                         |             |                                  |         |                                 |  
|Basic and diluted net loss per common share:                                                                                                                             |             |                                  |         |                                 |  
|                                                                                                                                                                         | As reported |                                  | $       | (0.30                           | )
|                                                                                                                                                                         | Pro forma   |                                  | $       | (0.32                           | )

NOTE 3. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

Cash and cash equivalents include bank demand deposits, certificates of deposit, investments in debt securities with maturities of three months or less when
purchased, and an interest in money market funds which invest primarily in U.S. government obligations and commercial paper. These instruments are highly liquid and are subject to insignificant risk.

Investments
in marketable securities consist of equity securities and corporate or government debt securities that have a readily ascertainable market value and are readily marketable.
We report these investments at fair value. We designate all marketable securities as available-for-sale, with unrealized gains and losses included as a component of equity.

The
following is a summary of available-for-sale securities as of September 30, 2003 (in thousands):

|                                |       | Amortized
Cost |        | Gross
Unrealized
Gains |   | Gross
Unrealized
Losses |     | Fair
Value
|------------------------------- | ----- | -------------- | ------ | ---------------------- | - | ----------------------- | --- | ----------
|U.S. corporate debt securities  |       | $              | 10,578 |                        | $ | 27                      |     | $         
|U.S. government debt securities |       |                | 15,787 |                        |   | 9                       |     |           
|Marketable equity securities    |       |                | 14,678 |                        |   | 234                     |     |           
|                                |       |                |        |                        |   |                         |     |           
|                                | Total |                | $      | 41,043                 |   | $                       | 270 |           
|                                |       |                |        |                        |   |                         |     |           

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The
available-for-sale securities are classified on the balance sheet as of September 30, 2003, as follows (in thousands):

|                                                           |       | Amortized
Cost |        | Gross
Unrealized
Gains |   | Gross
Unrealized
Losses |     | Fair
Value
|---------------------------------------------------------- | ----- | -------------- | ------ | ---------------------- | - | ----------------------- | --- | ----------
|Amounts included in cash and cash equivalents              |       | $              | 3,120  |                        | $ |                        |     | $         
|Marketable securities, current                             |       |                | 11,070 |                        |   | 22                      |     |           
|Amounts included in investment in stock of related parties |       |                | 266    |                        |   |                        |     |           
|Amounts included in restricted cash and investments        |       |                | 24,681 |                        |   | 2                       |     |           
|Marketable securities, non-current                         |       |                | 1,906  |                        |   | 246                     |     |           
|                                                           |       |                |        |                        |   |                         |     |           
|                                                           | Total |                | $      | 41,043                 |   | $                       | 270 |           
|                                                           |       |                |        |                        |   |                         |     |           

Available-for-sale
securities by contractual maturity, are shown below (in thousands):

Fair ValueSeptember 30,
2003

December 31,
2002Debt securities:Due in one year or less

$
24,866

$
17,611Due after one year through three years


1,534


1,70626,400


19,317Marketable equity securities


14,496


13,815Total

$
40,896

$
33,132


NOTE 4. INVENTORIES

Inventories consist of the following (in thousands):

September 30,
2003

December 31,
2002Raw materials

$
114

$
126Work in process


2,625


1,196Finished goods


807


844$
3,546

$
2,166


NOTE 5. STOCKHOLDERS' EQUITY

Stock Repurchase Plan

In September 2000, the SuperGen Board of Directors authorized a stock repurchase plan to acquire, in the open market, an aggregate of up to
one million shares of our common stock, at prices not to exceed $22.00 per share or $20,000,000 in total. In March 2001 and September 2002, the Board

8

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authorized
increases in the number of shares to be acquired under the repurchase plan, but maintained the $20,000,000 repurchase total.

During
the nine months ended September 30, 2003, we repurchased 266,000 shares of our common stock at a cost, net of commissions, of $891,000. Since inception of the stock
repurchase plan, we have repurchased 3,299,000 shares of our common stock at a cost, net of commissions, of $19,579,000. All shares repurchased have been retired.

NOTE 6. CONVERTIBLE DEBT FINANCING TRANSACTIONS

February Convertible Debt Transaction

On February 26, 2003 we entered into a Securities Purchase Agreement for the private placement of Senior Exchangeable Convertible Notes ("February Notes")
in the principal amount of $21.25 million and related warrants.

The
February Notes accrue interest at a rate of 4% per year. The principal amount of the February Notes was repayable in four equal quarterly installments beginning nine months after the
closing of the transactions. The February Notes were, at the option of the investors, in whole or in part, (a) convertible into shares of our common stock at a fixed conversion price of $4.25
per share, and (b) exchangeable for up to 2,634,211 shares of common stock of AVI BioPharma, Inc. ("AVI") that we own (the "AVI Shares") at a fixed exchange price of $5.00 per share. We
may pay interest due under the February Notes in shares of our common stock at a price tied to the then market price, and subject to certain conditions, we could have also elected to pay principal due
under the February Notes in shares of our common stock and AVI Shares at prices tied to the then market price of our common stock and AVI common stock, respectively. Subject to certain conditions, at
any time after the first anniversary of the effectiveness of the registration statement covering the resale of our shares of common stock, all of the outstanding February Notes would have been
redeemable by us for a cash redemption price at 120% of par plus accrued and unpaid interest. Upon a Change of Control (as defined under the February Notes), the holders will have certain redemption
rights, and we could have also redeemed the February Notes, in each case subject to certain conditions and provided that, in the event of our redemption, we would have issued to the holders of the
February Notes certain warrants exercisable for the securities of the acquiring entity and the AVI Shares. Our exchange obligations under the February Notes were secured by a pledge of the AVI Shares.

In
accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments" ("SFAS 133"), we were required to separate and account for,
as an embedded derivative, the option feature that allowed holders of the February Notes to receive a portion of the principal and interest in the AVI Shares at $5.00 per share. As an embedded
derivative instrument, the exchangeable feature was measured at fair value and reflected as a liability. Changes in the fair value of the derivative have been recognized in earnings. We determined the
fair value of the exchange feature with respect to the AVI Shares to be $2,337,000 at February 26, 2003, which was calculated as an American style written put option on 2,634,211 AVI shares,
with a strike of $5.00, expiring on the related principal and interest payment dates through August 2004. This amount was allocated from the proceeds of the February Notes to the derivative
liability at February 26, 2003. The exchangeable

9

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feature
was embedded in the February Notes to increase the appeal of our private placement to institutional investors and to reduce the related interest and principal payments. The convertible feature
on our own SuperGen shares associated with the February Notes does not qualify as embedded derivatives under SFAS 133.

In
connection with the issuance of the February Notes, we issued warrants to the note holders for the purchase of an aggregate of 1,997,500 shares of SuperGen common stock. These
warrants will be exercisable for a term of five years at an exercise price of $5.00 per share. We valued these warrants using the Black-Scholes method with the following assumptions: a
risk-free interest rate of 4%, volatility of 0.85, and a dividend yield of 0%. This resulted in an assigned value of $4,614,000. The proceeds from the February Notes of $21,250,000, less
the embedded derivative, were allocated between the convertible instrument and the warrants on a relative fair value basis, which resulted in a fair value of $3,783,000 allocated to the warrants as a
deemed discount on the convertible debt. In connection with the issuance of the February Notes and related warrants, we also recorded $3,000,000
related to the beneficial conversion feature on the February Notes, because the effective conversion price of the convertible debt was less than the fair value of the common stock on the date of
issuance. The total amount of the deemed discount on the February Notes as a result of the warrant issuance, the embedded derivative, and the beneficial conversion feature amounted to $9,120,000. The
debt discount was being amortized over 21 months, the term of the February Notes.

Also
in connection with the issuance of the February Notes, we paid legal fees of approximately $370,000. In addition, as compensation to the placement agent, we paid the placement agent
$1,477,500 in cash and issued a four-year warrant to an affiliate of the placement agent for the purchase of 363,125 shares of our common stock at an exercise price of $4.00 per share. The
warrant issued to the placement agent was assigned a value of $813,400, using the Black-Scholes method with the following assumptions: a risk-free interest rate of 4%; volatility of 0.85;
and a dividend yield of 0%. The total of the legal fees, placement agent cash fee, and placement agent warrant valuation was $2,661,000, which we recorded as prepaid financing costs. This amount was
being amortized over 21 months, the term of the February Notes, to interest expense.

June Convertible Debt Transaction and February Notes Restructuring

On June 24, 2003, we closed a private placement transaction in which we issued Senior Convertible Notes ("June Notes") in the aggregate principal amount of
$21.25 million, to the same holders of our outstanding February Notes. The June Notes are payable in four equal quarterly installments beginning March 31, 2004, and accrue interest at a
rate of 4% per year. Pursuant to the terms of the June Notes, the note holders may elect to convert, at any time prior to maturity, their June Notes into shares of our common stock at a fixed price
$6.36, which was calculated based on the trading prices of our common stock for the twenty trading days after issuance of the June Notes. We may also elect to pay the principal and interest then due
under the June Notes, subject to certain conditions, through the issuance of shares of our common stock at a conversion price equal to: (i) with respect to the interest payment, 95% of the
arithmetic average of the weighted average price of our common stock on each of the five consecutive trading days immediately preceding payment, and (ii) with respect to the principal payment,
as of any date of determination, at 90% of the arithmetic average of the weighted average

10

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price
of our common stock on any fifteen trading days designated by the note holders during the twenty trading days immediately preceding such date.

While
the full amount of the $21,250,000 proceeds from the June Notes was transferred to SuperGen, $10,625,000 of such funds were placed into an interest bearing collateral account, and
not available for our use until release. Absent certain defaults by us, $5,312,500 (one-half of the $10,625,000) will be available to us on March 24, 2004, and the remaining
$5,312,500 will be available on June 24, 2004.

Concurrent
with the issuance of the June Notes, we restructured our outstanding February Notes. Pursuant to the restructuring, the holders of the February Notes converted half of the
principal amount ($10,625,000) plus accrued and unpaid interest thereon into 2,508,000 shares of our common stock at the fixed conversion price of $4.25, thereby causing the remaining $10,625,000
principal amount of the outstanding February Notes to have a final maturity date of February 26, 2004. The remaining February Notes have been amended to remove the feature permitting the
holders to exchange such notes into the AVI Shares at an exchange price of $5.00, and to remove our ability to use the AVI Shares valued at market at the time of repayment to repay the outstanding
principal amount.

In
addition, in connection with the issuance of the June Notes and the restructuring of the February Notes, we issued to the note holders warrants to purchase the 2,634,211 AVI Shares at
an exercise price of $5.00 per share. The warrants represent a derivative under SFAS 133 that must be recorded at fair value. Changes in the fair value of the derivative are recognized in
earnings. We determined the fair value of the warrants at June 24, 2003, using the Black-Scholes method with the following assumptions: a risk-free interest rate of 2.26%,
volatility of 0.92, and a dividend yield of 0%. This resulted in an assigned value of $10,063,000. At September 30, 2003, the fair value of the derivative had declined to $8,429,000, and is
recorded as a current liability on the balance sheet. Changes in the valuation of this derivative have been charged to income or expense under the caption "Change in valuation of derivatives." The
embedded derivative associated with the February Notes had a value $2,504,000 on June 24, 2003. Since the ability to exchange the notes into shares of AVI was eliminated in our June 2003
convertible debt transaction, the entire derivative value of $2,504,000 was taken to income in the second quarter 2003, and is also included in "Change in valuation of derivatives."

The
proceeds from the June Notes of $21,250,000 were allocated between the convertible instrument and the embedded derivative on a relative fair value basis, which resulted in a fair
value of $11,187,000 allocated to the convertible debt. In connection with the issuance of the June Notes, we also recorded $7,213,000 related to the beneficial conversion feature on the June Notes,
because the effective conversion price of the convertible debt was less than the fair value of the common stock on the date of issuance. The total amount of the deemed discount on the June Notes as a
result of the warrant issuance and the beneficial conversion feature amounted to $17,275,000. The debt discount is being amortized over 18 months, the term of the June Notes. Since half of the
principal amount of the debt related to the February Notes had been converted into our common stock, half of the debt discount of $9,120,000 relating to the February Notes was charged to expense in
the second quarter

11

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2003.
At September 30, 2003, the remaining unamortized balance of the deemed discount on the convertible debt relating to both the February Notes and June Notes was $17,246,000.

Also
in connection with the issuance of the June Notes, we paid legal fees of approximately $74,000. In addition, as compensation to the placement agent, we paid the placement agent
$1,452,500 in cash and issued a four-year warrant to an affiliate of the placement agent for the purchase of 188,294 shares of our common stock at an exercise price of $6.00 per share. The
warrant issued to the placement agent was assigned a value of $627,000, using the Black-Scholes method with the following assumptions: a risk-free interest rate of 2%; volatility of 0.85;
and a dividend yield of
0%. The total of the legal fees, placement agent cash fee, and placement agent warrant valuation was $2,154,000, which we recorded as prepaid financing costs. This amount is being amortized over
18 months, the term of the June Notes, to interest expense. Since half of the principal amount of the debt related to the February Notes had been converted into our common stock, half of the
prepaid financing costs of $2,661,000 relating to the February Notes was charged to interest expense in the second quarter 2003. At September 30, 2003, the unamortized balance of prepaid
financing costs relating to both the February Notes and June Notes was $2,680,000.

In
connection with the issuance of the warrants to acquire the 2,634,211 AVI Shares, we pledged the AVI Shares into a collateral account. The fair value of the AVI Shares of $13,619,000
is included in the accompanying consolidated September 30, 2003 balance sheet under Restricted cash and investments. We continue to hold all of the pledged AVI Shares and continue to reflect
changes in those share values in accumulated other comprehensive loss.

NOTE 7. COMPREHENSIVE LOSS

For the three months ended September 30, 2003 and 2002, total comprehensive losses amounted to $12,872,000 and $13,954,000, respectively. For the nine
months ended September 30, 2003 and 2002, total comprehensive losses amounted to $33,988,000 and $59,186,000, respectively. Comprehensive losses consisted primarily of the net losses and
changes in unrealized gains or losses on investments. Changes in unrealized gains (losses) on investments were $(2,369,000) and $6,157,000 for the three month periods ended September 30, 2003
and 2002, respectively. For the nine month periods ended September 30, 2003 and 2002, changes in unrealized gains (losses) on investments were $(649,000) and $(16,048,000), respectively.

NOTE 8. BASIC NET LOSS PER SHARE

Basic and diluted net loss per common share is computed by dividing net loss by the weighted average number of shares outstanding during the quarter.

As
we have reported operating losses each period since our inception, the effect of assuming the exercise of options and warrants would be anti-dilutive and, therefore, basic
and diluted net loss per share are the same.

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NOTE 9. DEFERRED REVENUE

In March 2003, we entered into an agreement with Abbott Laboratories that allows us to terminate the Nipent Distribution agreement, entered into in
December 1999, for a stated fee that decreases over time to $1.5 million at March 2004. As part of the agreement, we paid Abbott $500,000 for the right to terminate the Nipent
Distribution agreement at our option. The $500,000 has been recorded as a reduction of the deferred revenue we initially received from Abbott for the distribution rights, and we have stopped
amortizing the remaining deferred revenue, which was $1,667,000 at September 30, 2003, to account for the termination fee we may pay to Abbott.

NOTE 10. LEGAL PROCEEDINGS

On April 14, 2003, John R. Blum filed a class action complaint entitledJohn R. Blum v. SuperGen, Inc.,
et al., No. C 03-1576 in the U.S. District Court for the Northern District of California, against us and our current President and Chief
Executive Officer alleging violations of the Securities Exchange Act of 1934 ("Exchange Act") and seeking unspecified damages. Subsequently, six similar actions were filed in the same court. Each of
the complaints purported to be a class action lawsuit brought on behalf of persons who purchased or otherwise acquired our common stock during the period of April 18, 2000 through
March 13, 2003, inclusive (except that one complaint specified the period as between April 18, 2000 through March 14, 2003). The complaints alleged that during such period, we
issued materially false and misleading statements and failed to disclose certain key information regarding Mitozytrex (mitomycin for injection). The complaints did not specify the amount
of damages sought.

In
July 2003, each of the plaintiffs elected to voluntarily dismiss their respective complaints without prejudice. Each of the dismissals has been approved and entered by the
Court.

We
have not made any monetary payments and have no obligation to make any monetary payments whatsoever or any other obligations to any of the plaintiffs or their counsel in connection
with the dismissals.

NOTE 11. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities,"
("FIN 46") an interpretation of Accounting Research Bulleting No. 51, "Consolidated Financial Statements." FIN 46 applies to any business enterprise that has a controlling
interest, contractual relationship or other business relationship with a variable interest entity ("VIE") and establishes guidance for the consolidation of VIE's that function to support the
activities of the primary beneficiary. FIN 46 was effective immediately for enterprises with VIE's created after
January 31, 2003, and will be effective December 31, 2003 for enterprises with VIE's created before February 1, 2003. We do not believe that we have any investments in, or
contractual or other business relationships with, VIE's. Therefore, the adoption of FIN 46 had no effect on our consolidated financial position as of September 30, 2003 or the results of
our operations for the three and nine months ended September 30, 2003.

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Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with our condensed consolidated financial statements and related notes included
elsewhere in this report. The results discussed below are not necessarily indicative of the results to be expected in any future periods. Our disclosure and analysis in this section of the report also
contains forward-looking statements. When we use the words "anticipate," "estimate," "project," "intend," "expect," "plan," "believe," "should," "likely," and similar expressions, we are making
forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. In particular, these statements include statements such as: the timing of filing
of a new drug application for Orathecin and Dacogen; our estimates about becoming profitable; our forecasts regarding our research and development expenses; the impact of our outstanding indebtedness;
and our statements regarding the sufficiency of our cash to meet our operating needs. Our actual results could differ materially from those predicted in the forward-looking statements as a result of
risks and uncertainties including, but not limited to, delays and risks associated with conducting clinical trials, product development and obtaining regulatory approval; ability to establish and
maintain collaboration relationships; competition; ability to raise funding; ability to protect our intellectual property; our dependence on third party suppliers; adverse changes in the specific
markets for our products; ability to manage our clinical trials; risks associated with loss of key personnel; and ability to launch and commercialize our products. Certain unknown or immaterial risks
and uncertainties can also affect our forward-looking statements. Consequently, no forward-looking statement can be guaranteed and you should not rely on these forward-looking statements. We undertake
no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. However, readers should carefully review the risk factors set forth in this
10-Q and other reports or documents we file from time to time with the Securities and Exchange Commission.

Overview

We are an emerging pharmaceutical company dedicated to the acquisition, rapid development and commercialization of oncology therapies for solid tumors,
hematological malignancies, and blood disorders. Our strategy is to minimize the time, expense and technical risk associated with drug commercialization by identifying and acquiring pharmaceutical
compounds in the later stages of
development, rather than committing significant resources to the research phase of drug discovery. Instead of engaging in pure discovery research to obtain lead compounds, we license or acquire rights
to compounds typically at the pre-clinical or early clinical stage of development that have shown efficacy in humans or in a model relevant to a particular clinical disease. We intend to
retain significant participation in the clinical development of our proprietary products by funding and conducting human clinical trials and obtaining regulatory approval ourselves. We believe this
will allow us to maximize the commercial value of our products by either directly marketing our products or licensing them on more favorable terms than would be available if licensed earlier in the
development cycle.

Currently
we have three key compounds, Nipent®, Orathecin (rubitecan) and Dacogen (decitabine), which are the focus of our efforts. Nipent is
approved by the United States Food and Drug Administration ("FDA") and marketed by us for the treatment of hairy cell leukemia. Nipent has also shown promise in other diseases and we are conducting a
series of clinical trials, including post-marketing Phase IV trials for chronic lymphocytic leukemia, low grade non-Hodgkin's lymphoma, cutaneous and peripheral
T-cell lymphomas, and Phase II/III studies for graft-versus-host disease. We are close to completing three randomized Phase III studies for Orathecin and have
submitted the first two (out of three total) sections of a "rolling" New Drug Application ("NDA") with the FDA. We expect to complete our NDA submission in December 2003. We have been granted
"fast track" designation for Orathecin for the treatment of patients with pancreatic cancer who have failed or are resistant to two or more chemotherapy agents, which means that the FDA will
facilitate and expedite

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the
development and review of the application. We are also conducting Phase III clinical studies of Dacogen in myelodysplastic syndrome ("MDS"), and in March 2003 completed enrollment of
patients in this trial. In May 2003, we were also granted "fast track" designation for Dacogen for MDS. Moreover, we hold U.S. sales and marketing rights to the cancer vaccine Avicine. In
addition, our portfolio of products includes Partaject delivered busulfan, and inhaled versions of Orathecin and paclitaxel. We received regulatory approval to market our generic
daunorubicin for a variety of acute leukemias in November 2001, and in November 2002 received regulatory approval to market Mitozytrex (mitomycin for injection), for use in
the therapy of disseminated adenocarcinoma of the stomach or pancreas in proven combinations with other approved chemotherapeutic agents and as palliative treatment when other modalities have failed.

Our
success will depend upon our competitive strengths and strategies. However, our business operations are subject to uncertainties and complexities present in any emerging
pharmaceutical company. We have incurred cumulative losses of $267.8 million through September 30, 2003, and have never generated enough funds through our operations to support our
business. Most of our products are still in the development stage, and we will require substantial additional investments in research and development, clinical trials, and in regulatory and sales and
marketing activities to commercialize current and future product candidates. Conducting clinical trials is a lengthy, time-consuming, and expensive process involving inherent uncertainties
and risks, and our studies may be insufficient to demonstrate safety and efficacy to support FDA approval of any of our product candidates in development. If our clinical trials, especially the trials
for Orathecin and Dacogen, are not successful, we may not be able to get sufficient funding to continue our trials or conduct new trials, and we would be forced to scale down or cease our business
operations. We rely on
third party collaborators for research, development, manufacturing, storage and distribution activities, and the failure to maintain or develop such relationships may impair our product development
and business operations. In addition, the trading prices for our common stock are highly volatile and will continue to fluctuate in the future because of various factors, some of which are beyond our
control. If the trading price of our common stock continues to fluctuate, we may not be able to obtain additional capital that we will need through public or private financing activities.

We
expect to continue to incur operating losses at least through 2004. This is due primarily to projected spending for the ongoing clinical trials and related development of our product
candidates, as well as marketing launch expenditures for Orathecin and Dacogen. Our ability to become profitable will depend upon a variety of factors, including regulatory approvals of our products,
the timing of the introduction and market acceptance of our products and competing products, increases in sales and marketing expenses related to the launch of Orathecin and Dacogen, if approved, and
our ability to control our costs. If Orathecin or Dacogen are not approved or commercially accepted we may remain unprofitable for longer than we currently anticipate.

Results of Operations



Revenues were $4.4 million in the third quarter of 2003 compared to $0.9 million in the third quarter of 2002. The increase was related to higher
sales of Nipent, our drug currently approved for the treatment of hairy cell leukemia. The increase in Nipent sales was due to manufacturing/supply issues carried over from the second quarter of 2003,
as well as a shift in the timing of our annual price increase. During the second quarter of 2003, we experienced lower inventory levels of Nipent because of a failed production batch. A successful
batch was completed in mid-June and inventories were replenished, but some of the sales that would have occurred in the second quarter of 2003 were shifted to the third quarter. In
addition, our annual price increase for Nipent for 2002 occurred on July 1. However, the annual price increase for 2003 occurred on October 1, which stimulated higher sales volume in the
third quarter of 2003. Sales in the third quarters of both 2003 and 2002 did not include

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any
sales to Europe. Unlike our Nipent sales efforts in the U.S. market where we call on clinicians directly, our role in Europe is currently limited to that of a supplier. As such, we do not have a
direct influence on Nipent sales at the clinical level, making their timing and magnitude difficult to predict and dependent on the efforts of our European distributor.

Cost
of sales as a percentage of net sales revenue was 23% in the third quarter of 2003 compared to 25% during the same period in 2002. The improved cost of sales percentage in 2003 was
due to higher manufacturing yield, and resulting lower per vial unit cost, of Nipent produced in 2003 compared to 2002. Current margins may not be indicative of future margins due to possible
variations in product mix, average selling prices, and manufacturing costs.

Research
and development expenses were $5.3 million in the third quarter of 2003 compared to $7.8 million in 2002. The decline was due primarily to lower expenditures
relating to our Phase III clinical trials of Orathecin for pancreatic cancer. We completed enrollment of over 1,800 patients into the three Phase III Orathecin trials in 2001, and the
expenditures for these trials continue to decline as patients complete the studies. We completed our enrollment of new patients into our Phase III trials for Dacogen, and we do not expect these
trials to be as costly as the Orathecin trials. However, conducting clinical trials is a lengthy, expensive, and uncertain process. Completion of clinical trials may take several years or more. The
length of time generally varies substantially according to the type, complexity, novelty, and intended use of the product candidate. Our clinical trials may be suspended at any time if we or the FDA
believe the patients participating in our studies are exposed to unacceptable health risks. We may encounter problems in our studies which will cause us or the FDA to delay or suspend the studies.
Because of these uncertainties, we cannot predict when or whether we will successfully complete the development of our product candidates or the ultimate product development cost.

Selling,
general, and administrative expenses were $5.1 million in the third quarter of 2003 compared to $5.0 million in the third quarter of 2002. This slight increase was
due primarily to higher legal expenses and property taxes, offset by lower sales and marketing expenditures, primarily in trade shows and promotional materials.

Interest
income was $116,000 in the third quarter of 2003 compared to $259,000 in 2002. This decrease was due to lower available cash and marketable securities balances and a decline in
interest rates.

Interest
expense was $1.2 million, which included $865,000 of amortization of prepaid financing costs, and non-cash amortization of deemed discount on convertible debt
was $4.6 million in the third quarter of 2003. No such amounts were recorded in 2002 as the debt was issued in February and June 2003.

Income
related to the change in derivative valuation of $2.2 million was recorded in the third quarter of 2003. As part of our June 2003 convertible debt transaction and
the February Notes restructuring, we issued to the note holders warrants to purchase the 2,634,211 AVI Shares at $5.00 per share. These warrants represent a derivative instrument and were valued using
the Black-Scholes method on June 24, 2003. The value of the derivative was re-measured at September 30, 2003, the balance sheet date. During the third quarter of 2003, the
value of the derivative had decreased by $2.2 million and this change in value was recorded as income. As the fair value of the common stock of AVI has fluctuated significantly in the past two
years, the valuation of the derivative may have a significant impact on our results of operations.

During
the third quarter of 2002, we recorded $8.4 million in expense related to an other than temporary decline in the value of our investments in the stocks of AVI
BioPharma, Inc. and Inflazyme, Inc. We did not incur such an expense in 2003.

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Revenues were $10.7 million in the first nine months of 2003 compared to $8.4 million in 2002. The increase was due primarily to higher sales of
Nipent, our drug currently approved for the treatment of hairy cell leukemia. There has been increased demand for Nipent for use in clinical development programs and off-label uses in the
treatment of graft-versus-host disease, chronic lymphocytic leukemia, and non-Hodgkin's lymphoma. Sales in the first nine months of 2003 included approximately $315,000 in
sales to Europe, compared to $400,000 in the first nine months of 2002. Unlike our Nipent sales efforts in the U.S. market where we call on clinicians directly, our role in Europe is currently limited
to that of a supplier. As such, we do not have a direct influence on Nipent sales at the clinical level, making their timing and magnitude difficult to predict and dependent on the efforts of our
European distributor.

Cost
of sales as a percentage of net sales revenue was 31% in the first nine months of 2003 compared to 35% during the same period in 2002. The improved cost of sales percentage in 2003
was due to higher manufacturing yields, and resulted in a lower per vial unit cost, of Nipent produced in 2003 as compared to 2002. Current margins may not be indicative of future margins due to
possible variations in product mix, average selling prices, and manufacturing costs.

Research
and development expenses were $17.4 million in the first nine months of 2003 compared to $23.8 million in 2002. The decrease was due primarily to lower
expenditures relating to our research and development and Phase I/II and Phase III clinical trials of Orathecin. Most of our Phase I/II studies of Orathecin in various indications
were completed in late 2002. In addition, we completed enrollment of over 1,800 patients into the three Phase III Orathecin trials for pancreatic cancer in 2001, and the expenditures for these
trials continue to decline as patients complete the studies. We have completed the enrollment of new patients into our Phase III trials for Dacogen, and we do not expect these trials to be as
costly as the Orathecin trials. However, conducting clinical trials is a lengthy, expensive, and uncertain process. Completion of clinical trials may take several years or more. Generally, the length
of time varies substantially according to the type, complexity, novelty, and intended use of the product candidate. Our clinical trials may be suspended at any time if we or the FDA believe the
patients participating in our studies are exposed to unacceptable health risks. We may encounter problems in our studies which will cause us or the FDA to delay or suspend the studies. Because of
these uncertainties, we cannot predict when or whether we will successfully complete the development of our product candidates or the ultimate product development cost.

Selling,
general, and administrative expenses were $17.0 million in the first nine months of 2003 compared to $18.2 million in 2002. This decrease was due primarily to
lower sales and marketing expenditures, including sales salaries and trade shows, as well as lower administrative bonuses.

Interest
income was $369,000 in the first nine months of 2003 compared to $1.4 million in 2002. This decrease was due to lower available cash and marketable securities balances
and a decline in interest rates.

Interest
expense was $2.8 million, which included $2.2 million of amortization of prepaid financing costs, and non-cash amortization of deemed discount on
convertible debt was $9.1 million in the first nine months of 2003. No such amounts were recorded in 2002 as the debt was issued in February and June 2003.

Income
related to the change in derivative valuation of $4.0 million was recorded in the first nine months of 2003, which represents the change in the valuation of two separate
derivatives. In our February 2003 exchangeable convertible debt transaction, the February Notes contained a feature that allowed holders of the notes to receive a portion of the principal and
interest in the 2,634,211 AVI Shares at $5.00 per share. The initial value ascribed to this derivative was $2.3 million. In the first quarter of 2003, the value of this derivative had increased
by $167,000, which was recorded to expense. The ability to exchange the notes into AVI Shares was eliminated in our June 2003 convertible debt

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transaction,
so the entire derivative value of $2.5 million was taken to income. As part of the June 2003 convertible debt transaction and the February Notes restructuring, we issued to
the note holders warrants to purchase the 2,634,211 AVI Shares at $5.00 per share. These warrants represent a derivative instrument and were valued at $10.1 million using the Black-Scholes
method on June 24, 2003. Through September 30, 2003, the value of this derivative had decreased by $1.6 million. This change in value has been recorded as other income. As the
fair value of the common stock of AVI has fluctuated significantly in the past two years, the valuation of the derivative may have a significant impact on our results of operations.

During
the first nine months of 2002, we recorded $8.4 million in expense related to an other than temporary decline in the value of our investments in the stocks of AVI
BioPharma, Inc. and Inflazyme, Inc. We did not incur such an expense in 2003.

Liquidity and Capital Resources

Our cash, cash equivalents, and both short and long-term marketable securities totaled $23.3 million at September 30, 2003, compared to
$22.4 million at December 31, 2002. In addition, at September 30, 2003 we held an additional $10.7 million in an interest bearing collateral account securing a portion of
our convertible debt, as well as approximately 2.7 million shares of registered stock of AVI BioPharma, Inc. ("AVI"), most of which are held as security for the warrants we issued to
purchase the 2,634,211 AVI Shares at $5.00 per share. The AVI Shares had a market value of $13.6 million at September 30, 2003, and are classified on the balance sheet under "Restricted
cash and investments."

The
net cash used in operating activities in the first nine months of 2003 was $26.9 million, which consisted primarily of the net loss of $34.6 million, less
$9.1 million non-cash amortization of deemed discount on our convertible debt and $2.2 million amortization of prepaid financing costs, plus $4.0 million
non-cash change in the valuation of derivatives. The net cash used in operating activities in the first nine months of 2002 was $46.9 million, which consisted primarily of the net
loss of $43.1 million, increases in prepaid expenses and other assets of $1.1 million, and the reduction of accounts payable and other liabilities totaling $4.8 million, offset by
a decrease in accounts receivable of $1.9 million.

Net
cash used in investing activities in the first nine months of 2003 was $9.7 million, which consisted primarily of $10.6 million raised in our June convertible
debt transaction that was transferred to a cash collateral account. Net cash provided by investing activities in the first nine months of 2002 was $42.2 million, and primarily related to the
sales and maturities of marketable securities, net of purchases.

Net
cash provided by financing activities was $38.4 million for the first nine months of 2003, due primarily to the issuance of a total of $42.5 million in convertible
notes in separate transactions in February and June 2003, offset by the payment of $3.4 million in prepaid financing costs. Net cash used in financing activities was $1.7 million
in the first nine months of 2002, and related primarily to issuances and repurchases of the Company's common stock.

February Notes Financing.On February 26, 2003 we entered into a Securities Purchase Agreement with a number of
purchasers for the private placement of Senior Exchangeable Convertible Notes ("February Notes") in the principal amount of $21.25 million and related warrants. The February Notes accrue
interest at a rate of 4% per year, and were, at the option of the investors, in whole or in part, (a) convertible into shares of our common stock at a fixed conversion price of $4.25 per share,
and (b) exchangeable for up to 2,634,211 of our AVI Shares at a fixed exchange price of $5.00 per share. We may pay interest due under the February Notes in shares of our common stock at a
price tied to the then market price, and subject to certain conditions, we could have also elected to pay principal due under the February Notes in shares of our common stock and our AVI Shares at
prices tied to the

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then
market price of our common stock and AVI common stock, respectively. Subject to certain conditions, at any time after the first anniversary of the effectiveness of a registration statement we
filed to cover the resale of the securities, all of the outstanding February Notes would have been redeemable by SuperGen for a cash redemption price at 120% of par plus accrued and unpaid interest.
Upon a change of control, the holders will have certain redemption rights, and we could have also redeemed the February Notes, in each case subject to certain conditions and provided that, in the
event of our redemption, we would have issued to the holders of the February Notes certain warrants exercisable for the securities of the acquiring entity and the AVI Shares. Our exchange obligations
under the February Notes were secured by a pledge of the AVI Shares. In connection with the issuance of the February Notes, we also issued warrants to the note holders for the purchase of an aggregate
of 1,997,500 shares of SuperGen common stock. These warrants will be exercisable for a term of five years at an exercise price of $5.00 per share.

June Notes Financing and February Notes Restructuring.On June 24, 2003, we closed a private placement transaction in
which we issued Senior Convertible Notes ("June Notes") in the aggregate principal amount of $21.25 million, to the same holders of our outstanding February Notes. The June Notes are payable in
four equal quarterly installments beginning March 31, 2004, and accrue interest at a rate of 4% per annum. Pursuant to the terms of the June Notes, the note holders may elect to convert, at any
time prior to maturity, their June Notes into shares of our common stock at a fixed price of $6.36. We may also elect to pay the principal and interest then due under the June Notes, subject to
certain conditions, through the issuance of shares of our common stock at a conversion price equal to: (i) with respect to the interest payment, 95% of the arithmetic average of the weighted
average price of our common stock on each of the five consecutive trading days immediately preceding payment, and (ii) with respect to the principal payment, as of any date of determination, at
90% of the arithmetic average of the weighted average price of our common stock on any fifteen trading days designated by the note holders during the twenty trading days immediately preceding such
date.

Concurrent
with the issuance of the June Notes, we restructured our outstanding February Notes. Pursuant to the restructuring, the holders of the February Notes converted half of the
principal amount ($10,625,000) plus accrued and unpaid interest thereon into shares of our common stock at the fixed conversion price of $4.25, thereby causing the remaining $10,625,000 principal
amount of the outstanding February Notes to have a final maturity date of February 26, 2004. The remaining February Notes have been amended to remove the feature permitting the holders to
exchange such notes into the AVI Shares at an exchange price of $5.00, and to remove our ability to use the AVI Shares valued at market at the time of repayment to repay the outstanding principal
amount.

In
addition, in connection with the issuance of the June Notes and the restructuring of the February Notes, we issued to the note holders warrants to purchase the 2,634,211 AVI Shares at
an exercise price of $5.00 per share.

While
the full amount of the $21,250,000 proceeds from the June Notes was transferred to SuperGen, $10,625,000 of such funds were placed into an interest bearing collateral account, and
not available for our use until release. Absent certain defaults by us, $5,312,500 (one-half of the $10,625,000) will be available to us on March 24, 2003, and the remaining
$5,312,500 will be available on June 24, 2004.

See
Factors Affecting Future Operating Results"We substantially increased our outstanding indebtedness with the issuance of certain senior
convertible notes and we may not be able to pay our debt and other obligations;" and "The conversion of the notes will have a dilutive effect upon the
stockholders."

We
have financed our operations primarily through the issuance of equity and debt securities and milestone payments in connection with collaborative agreements. We believe that our
current cash, cash equivalents, marketable securities, and other investments will satisfy our cash requirements for at least the next twelve months. However, it is our intention to pursue additional
financing options, which

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include
selling additional shares of stock and/or exploring marketing partnership opportunities for Orathecin and Dacogen.

Our
primary planned uses of cash are as follows:



We
believe that our need for additional funding will increase in the future, especially if we receive regulatory approval for Orathecin and Dacogen, and that our continued ability to
raise additional funds from external sources will be critical to our success. In addition, we may use cash to fund acquisitions of complementary businesses or technologies. We continue to actively
consider future contractual arrangements that would require significant financial commitments. If we experience currently unanticipated cash requirements, we could require additional capital much
sooner than presently anticipated. We may seek such additional funding through public or private financings or collaborative or other arrangements with third parties. We may not be able to obtain
additional funds on acceptable terms, if at all.

Factors Affecting Future Operating Results

The following section lists some, but not all, of the risks and uncertainties that may have a material adverse effect on our business,
financial condition and results of operations. You should carefully consider these risks in evaluating our company and business. Our business operations may be impaired if any of the following risks
actually occur, and by additional risks and uncertainties that we do not know of or that we currently consider immaterial. In such case, the trading price of our common stock could
decline.

This report also contains and incorporates by reference forward-looking statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this report.

Risks Related to Our Financial Condition and Common Stock

We have a history of operating losses and an accumulated deficit and we expect to continue to incur losses for the foreseeable future.

W have incurred cumulative losses of $267.8 million from inception through September 30, 2003, and have never generated enough funds through our
operations to support our business. These losses include non-cash charges of $20.0 million for the acquisition of in-process
research and development. Our product revenues to date have been limited and have been principally from sales of Nipent, which we are marketing in the United States for the treatment of hairy cell
leukemia. Our losses to date have resulted principally from:



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We
expect to continue to incur substantial operating losses at least through 2004.

We are currently unprofitable and may never become profitable.

Since inception, we have funded our research and development activities primarily from private placements and public offerings of our securities, milestone
payments and revenues generated primarily from sales of Nipent, which we are marketing in the United States for the treatment of hairy cell leukemia. As a result of our substantial research and
development expenditures and limited product revenues, we have incurred substantial net losses.

Our
ability to achieve profitability will depend primarily on our ability to obtain regulatory approval for and successfully commercialize Orathecin, on our ability to develop and obtain
regulatory approval of Nipent for indications other than hairy cell leukemia, to obtain regulatory approval for and successfully commercialize Dacogen and other product candidates, and to bring to
market our other proprietary products, i.e., products that are advancing through our internal clinical development infrastructure, including our Extra products. Our ability to become profitable will
also depend upon a variety of other factors, including the following:



Our
products and product candidates, even if successfully developed and approved, may not generate sufficient or sustainable revenues to enable us to be profitable, or to sustain
profitability.

We may require additional financing, and an inability to raise the necessary capital or to do so on acceptable terms would threaten the continued success of our business.

We will continue to expend substantial resources for conducting research and development, including costs associated with conducting clinical trials. While we
raised $21.25 million through the issuance of the senior convertible notes in June 2003 and previously raised $21.25 million through a senior exchangeable convertible notes
offering in February 2003, and anticipate that our capital resources will be adequate to fund operations and capital expenditures for at least the next twelve months, if we experience
unanticipated cash requirements during this period, we could require additional funds much sooner. We may raise money by the sale of our equity securities or debt, or the exercise of outstanding
warrants and stock options. However, given the uncertainties of market conditions, we may not be able to sell our securities in public offerings or private placements at prices and on terms that are
favorable to us, or if at all. Also, the dilutive effect of those fundings could adversely affect our results per share. We may also choose to obtain funding through licensing and other contractual
agreements. Such arrangements may require us to relinquish our rights to our technologies, products or marketing territories, or to grant licenses on terms that are not favorable to us. If we fail to
obtain adequate funding in a timely manner, or at all, we may be forced to scale back our product development activities, or forced to cease our operations.

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Our stock price is highly volatile, and if our price declines further, we may encounter difficulty in raising capital in the equity market.

The trading price of our common stock has fluctuated dramatically in the last two years, from the high of $15.70 in January 2001 to a historic low of $1.40
in October 2002. Our stock price is likely to remain volatile in the future, which is subject to the following factors, some of which are beyond our control:



If
the trading price of our common stock continues to significantly fluctuate, we may be unable to obtain additional capital that we may need through public or private financing
activities. Because outside financing is still critical to sustain our business operations, large fluctuations in our share price will harm our financing activities and may cause us to significantly
alter our business plans or cease operations altogether.

Our equity investment in AVI BioPharma, Inc. exposes us to equity price risk and any impairment charge would affect our results of operations.

We are exposed to equity price risk on our equity investment in AVI. Currently we own 2,684,211 shares of AVI. In the third quarter of 2002, we recorded an
other-than temporary loss of $8.2 million relating to our holding in AVI, resulting in a reduction of our cost basis in the AVI stock. Under our accounting policy, marketable equity
securities are presumed to be impaired if their fair value is less than their cost basis for more than six months, absent compelling evidence to the contrary. At September 30, 2002, AVI common
stock had been trading below our original cost basis for more than six months. As there was no compelling evidence to the contrary, we recorded the impairment charge of $8.2 million in our
results of operations. The amount of the charge was based on the difference between the market price of the securities as of September 30, 2002, and our original cost basis. The public trading
prices of the shares of AVI have fluctuated significantly since we purchased them and could continue to do so. If the public trading prices of these shares continue to trade below their new cost basis
in future periods, we may incur additional impairment charges relating to this investment, which in turn will affect our results of operations.

In
addition, in connection with the issuance of the June Notes and restructuring of our February Notes, we issued warrants to the June Note holders exercisable into up to 2,634,211 of
our AVI Shares at an exercise price of $5.00 per share, and we pledged the AVI Shares to secure our obligation under the June Notes. As a result, our ability to gain from the increases of AVI's stock
price is limited.

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We substantially increased our outstanding indebtedness with the issuance of certain senior convertible notes and we may not be able to pay our debt and other obligations.

On June 24, 2003, we privately placed the June Notes in the aggregate principal amount of $21.25 million with several institutional investors. The
notes are payable in four equal quarterly installments beginning March 31, 2004 and accrue interest at a rate of 4% per annum. In addition, in February 2003, we issued to the same June Note
holders the February Notes (our senior exchangeable convertible notes) in the aggregate principal amount of $21.25 million. In connection with the June Note issuances, we restructured the
February Notes whereby the holders converted half of the outstanding principal of the February Notes and accrued interest thereon into shares of our common stock, and the remaining $10,625,000
principal amount of the outstanding February Notes would have a final maturity date of February 26, 2004. Nevertheless, by issuing the June Notes we increased our indebtedness substantially. In
addition, the holders of the June Notes and February Notes have imposed on us certain restrictive covenants, including limits on our future indebtedness and limits on structuring equity financings
with variable pricing. As a result, the issuance of the June Notes and the February Notes may or will:



Currently,
our revenues from our operations will not generate sufficient cash flow to satisfy the principal payments under the notes when they become due. Under the terms of the June
Notes and the February Notes, we have the right to pay the principal and interest then due under such notes through the issuance of shares of common stock at a conversion price tied to the then market
price. Nevertheless, our principal payments through issuance of shares of our common stock is subject to certain conditions, including limitations based on trading volumes in our common stock at such
time. Therefore, we may be required to use cash to pay the principal amounts when they are due under the June Notes and February Notes. If we decide to make payments under the June Notes and February
Notes in cash, we may deplete our financial resources and adversely affect our product development. If we are unable to satisfy our payment obligations under the June Notes and February Notes, we will
default on such notes.

The conversion of the notes will have a dilutive effect upon the stockholders.

Pursuant to the terms of the June Notes and the February Notes, the holders of such notes may convert such notes at any time prior to their maturity at certain
fixed conversion prices (for the June Notes, $6.36, and for the February Notes, $4.25), and we have the right, subject to certain conditions, to pay the principal and interest then due under such
notes through the issuance of shares of common stock at a conversion price tied to the then market price. If we issue shares of our common stock upon the note holders' conversion of the notes or to
make payments, such issuances will be dilutive to our stockholders. In addition, if we decide to redeem the notes in connection with a change of control, we will be required to issue to the note
holders certain warrants for the securities of the acquiror, which will be dilutive and may negatively affect the deal consideration the stockholders would otherwise receive in absence of such
issuance.

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Risks Related to Our Industry

Before we can seek regulatory approval of any of our product candidates, we must successfully complete clinical trials, which are expensive and have uncertain outcomes.

Most of our products are in the development stage and, prior to their sale, will require regulatory approval and the commitment of substantial resources. Before
obtaining regulatory approvals for the commercial sale of any of our product candidates, we must demonstrate through pre-clinical testing and clinical trials that our product candidates
are safe and effective for use in humans. Conducting clinical trials is a lengthy, time-consuming and expensive process, and their results are inherently uncertain. We have incurred and
will continue to incur substantial expense for, and we have devoted and expect to continue to devote a significant amount of time to, pre-clinical testing and clinical trials. In addition,
we must overcome all kinds of difficulties and setbacks in our clinical trials, which are an inherent part of the drug development process.

We
are currently conducting late stage Phase III clinical trials for two of our product candidates: Orathecin for pancreatic cancer and Dacogen for treatment of MDS. In addition,
we have a broad portfolio of other cancer drugs in various stages of development, including Avicine in colorectal cancer (Phase II), Nipent (for indications other than hairy cell leukemia,
Phase IV), Partaject busulfan, inhaled Orathecin (Phase I), and we are conducting pre-clinical studies for Vascular Endothelial Growth Factor ("VEGF"), inhaled paclitaxel and
Cremophor-free paclitaxel. Clinical trials that we conduct or that third parties conduct on our behalf may not demonstrate sufficient safety
and efficacy to obtain the requisite regulatory approvals for any of our product candidates. We expect to commence new clinical trials from time to time in the course of our business as our product
development work continues. However, regulatory authorities may not permit us to undertake any additional clinical trials for our product candidates.

In
addition, we have ongoing research and pre-clinical projects that may lead to product candidates, but we have not begun clinical trials for these projects. Our
pre-clinical or clinical development efforts may not be successfully completed and we may not commence clinical trials as planned.

Our clinical trials may be delayed or terminated, which would prevent us from seeking necessary regulatory approvals.

Completion of necessary clinical trials may take several years or more. The length of time generally varies substantially according to the type, complexity,
novelty and intended use of the product candidate. For example, the design of our three Orathecin studies are complex, and we have been conducting clinical trials since 1998, which may make
statistical analysis difficult and regulatory approval hard to predict. Our commencement and rate of completion of clinical trials may be delayed by many factors, including:



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In
addition, we have limited experience in conducting and managing clinical trials. We rely on third parties, including contract research organizations ("CRO's"), to assist us in
managing and monitoring clinical trials. Our reliance on these third parties may result in delays in completing, or in failure to complete, these trials if the third parties fail to perform under our
agreements with them.

We may be required to suspend, repeat or terminate our clinical trials if they are not conducted in compliance with regulatory requirements, if the trial results are negative,
inconclusive or if they fail to demonstrate safety or efficacy.

Our clinical trials must be conducted in accordance with the FDA's regulations and are subject to oversight by the FDA and institutional review boards at the
medical institutions where the clinical trials are conducted. We outsource our research and development activities with respect to our primary product candidates. We have agreements with third-party
CRO's to provide monitors and to manage data for our clinical programs, including the Phase III Orathecin program in pancreatic cancer. We and our CRO's are required to comply with current Good
Clinical Practices ("GCP") regulations and guidelines enforced by the FDA for all of our products in clinical development. The FDA enforces GCP's through periodic inspections of study sponsors,
principal investigators, and study sites. We are not aware of any material GCP deficiencies with any of these research organizations that might impact regulatory approval of our products. If, however,
in the future we or our CRO's fail to comply with applicable GCP's, the clinical data generated in our studies may be deemed unreliable and the FDA may require us to perform additional studies before
approving our marketing applications. We cannot assure you that upon inspection the FDA will determine that any of our studies for products in clinical development comply with GCP's. In addition, our
clinical trials must be conducted with product candidates produced under current Good Manufacturing Practices (GMP's) regulations and may
require large numbers of test subjects. Our failure to comply with these regulations may require us to repeat clinical studies, which would delay the regulatory approval process.

Even
if we achieve positive interim results in clinical trials, these results do not necessarily predict final results, and acceptable results in early trials may not be repeated in
later trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. Negative or
inconclusive results or adverse medical events during a clinical trial could cause us to repeat or terminate a clinical trial. Our clinical trials may be suspended at any time if we or the FDA believe
the patients participating in our studies are exposed to unacceptable health risks or if the FDA finds deficiencies in the conduct of these trials.

We
may encounter other problems and failures in our studies that will cause us or the FDA to delay or suspend the studies. The potential failures will delay development of our product
candidates, hinder our ability to conduct related pre-clinical testing and clinical trials, and further delay the commencement of regulatory approval process. Moreover, we then may be
required to conduct other clinical trials for the product candidates, which will require substantial funding and time. We may be unable to obtain corporate funding or other financing to conduct such
clinical trials. The failures or perceived failures in our clinical trials will directly delay our product development and regulatory approval process, damage our business prospect, make it difficult
for us to establish collaboration and partnership relationships, and negatively affect our reputation and competitive position in the pharmaceutical community.

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If we fail to obtain regulatory marketing approvals of our product candidates in a timely manner, commercialization of our products will be delayed or prevented and we will not
be able to generate revenue and achieve profitability.

All new drugs, including our products under development, are subject to extensive and rigorous regulation by the FDA, and comparable agencies in foreign
countries. These regulations govern, among other things, the development, testing, manufacturing, labeling, storage, pre-market approval, advertising, promotion, sale and distribution of
our products. Prior to marketing in the United States, a drug must undergo rigorous testing and an extensive regulatory approval process implemented by the FDA under federal law, including the Federal
Food, Drug and Cosmetic Act. To receive approval, we or our collaborators must, among other things, demonstrate with substantial evidence from well-controlled clinical trials that the
product is both safe and effective for each indication where approval is sought. Satisfaction of these requirements typically takes several years and the time needed to satisfy them may vary
substantially, based on the type, complexity and novelty of the pharmaceutical product.

We
are currently selling Nipent (which we acquired from the Parke-Davis division of the Warner-Lambert Company in 1996) for the treatment of hairy cell leukemia, and sales of Nipent
constitute our principal source of product revenues. We received regulatory approval to market our generic daunorubicin for a variety of acute leukemias in November 2001, and in
November 2002 received regulatory approval to market Mitozytrex (mitomycin for injection) for use in the therapy of disseminated adenocarcinoma of the stomach or pancreas in proven combinations
with other approved chemotherapeutic agents and as palliative treatment when other modalities have failed. We have submitted the first two sections of a rolling NDA for Orathecin for the treatment of
patients with pancreatic cancer who have failed or are resistant to two or more chemotherapy agents. We have also filed an Abbreviated New Drug Application ("ANDA") for our generic paclitaxel. Our
other existing product candidates, including our proprietary drugs, i.e., drugs that are advancing through our internal clinical trials, such as Dacogen, and our generic drugs, i.e., drugs for which
there is no patent protection and are marketed by multiple sources, will require significant additional development, lengthy clinical trials, regulatory review and approvals, and additional investment
before they can be commercialized.

The
FDA has substantial discretion in the drug approval process. We generally cannot predict with certainty if or when we might submit for regulatory review of any of our product
candidates currently under development. Once we submit our product candidates for review, there cannot be any guarantee that the FDA or other regulatory agencies will grant approvals for any of our
products on a timely basis or at all. Any approvals we obtain may not cover all the clinical indications for which we are seeking approval. Also, an approval might contain significant limitations in
the form of narrow indications, warnings, precautions, or contraindications with respect to conditions of use.

Therefore,
our product development efforts may not lead to commercial drugs or other products for a number of reasons, including the failure of our product candidates to be safe and
effective in clinical trials or because we have inadequate financial or other resources to pursue the programs through the clinical trial process. Except the possibility for Orathecin, we do not
expect to be able to market any of our existing product candidates currently in development for a number of years, if at all. If we fail to obtain regulatory approval of our drug candidates in a
timely manner, we will not be able to generate revenues and achieve profitability.

Our failure to obtain separate regulatory approvals to market our product candidates in foreign countries could adversely affect our revenues.

Sales of our products outside the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval. We must
obtain separate regulatory approvals in order

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to
market our products in other jurisdictions. Approval in the U.S., or in any other jurisdiction, does not ensure approval in other jurisdictions. Obtaining foreign approvals could result in
significant delays, difficulties and costs for us, and require additional trials and additional expenses. So far, we have applied, through an affiliate, for regulatory approval to market mitomycin and
paclitaxel in the United Kingdom and in certain other countries within the European Union. While many of the regulations applicable to our products in these foreign countries are similar to those of
the FDA, these requirements may vary widely from country to country and could delay the introduction of our products in those countries. Failure to comply with these regulatory requirements or obtain
required approvals could impair our ability to commercialize our products in foreign markets.

Currently,
Nipent is being sold in Europe. However, our role in Europe is currently limited to that of a supplier, and as such, we do not have a direct influence on Nipent sales at the
clinical level, making their timing and magnitude difficult to predict and depend on the efforts of our European distributors. Our revenue from supplying Nipent for European sales is currently
insignificant. Our strategy is to obtain regulatory approvals to sell our products in Europe and other parts of the world, and we currently intend to contract with third party licensees or
distributors for sales outside the United States. Sales outside the United States in the future may constitute a material source of revenues. As a result, any delays in obtaining regulatory approval
from foreign jurisdictions will impair the commercialization of our products and our revenues.

Even if we obtain regulatory approval, we will continue to be subject to extensive government regulation that may cause us to delay the introduction of our products or withdraw
our products from the market.

Even if regulatory approval is obtained, later discovery of previously unknown problems may result in restrictions of the product, including withdrawal of the
product from the market. Further, governmental approval may subject us to ongoing requirements for post-marketing studies. Even if we obtain governmental approval, our manufacturing
facilities and those of our third-party manufacturers are subject to unannounced inspections by the FDA and must comply with the FDA's current GMP's and other regulations. These regulations govern all
areas of production, record keeping, personnel and quality control. If we or our third-party manufacturers fail to comply with any of the manufacturing regulations, we may be subject to, among other
things, product seizures, recalls, fines, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecution.

Physicians
may prescribe drugs for uses that are not described in a product's labeling for uses that differ from those tested by us and approved by the FDA. While such
"off-label" uses are common and the FDA does not regulate physicians' choice of treatments, the FDA does restrict a manufacturer's communications on the subject of off-label
use. Companies cannot actively promote FDA-approved drugs for off-label uses, but they may disseminate to physicians articles published in peer-reviewed journals.
To the extent allowed by law, we intend to disseminate peer-reviewed articles on our products to our physician customers. If, however, our promotional activities fail to comply with the
FDA's regulations or guidelines, we may be subject to warnings from, or enforcement action by, the FDA.

If
our promotional activities fail to comply with the FDA's regulations or guidelines, we may be subject to warnings from, or enforcement action by, the FDA. For example, in
November 2002 we issued a press release announcing our receipt of FDA approval to market Mitozytrex (mitomycin for injection). In March 2003, the FDA issued a "Talk Paper" regarding this
press release, taking the position that we made certain unsupported claims about the drug and did not disclose the serious side effects such as suppressing bone marrow activity. We are revising our
internal procedures to help ensure our promotional activities and public disclosure will meet regulatory requirements.

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The continuing efforts of government and third-party payers to contain or reduce the costs of healthcare may adversely affect our revenues.

Sales of our products depend in part upon the availability of reimbursement from third-party payers, such as government health administration authorities like
Medicare/Medicaid, managed care providers and private health insurers. While we have not been challenged by third-party payers with respect to reimbursement of prices for our marketed products, in
general third-party payers are increasingly challenging the price and examining the cost effectiveness of medical products and services, which may effectively limit physicians' ability to select
products and procedures.

In
addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. For example, currently Medicare does not reimburse
self-administered products, which could cover some of our product candidates. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to
realize an appropriate return on our investment in product development. In addition, we believe government agencies will continue to propose and pass legislation designed to reduce the cost of
healthcare, which could further limit reimbursement for pharmaceuticals, and we anticipate that there will continue to be proposals in the U.S. to implement government control over the pricing or
profitability of prescription pharmaceuticals, as is currently the case in many foreign markets. If our current and proposed products are not considered cost-effective, reimbursement to
the consumer may not be available or be sufficient to allow us to sell products on a competitive basis. The failure of the government and third-party payers to provide adequate coverage and
reimbursement rates for our product candidates could
adversely affect the market acceptance of our products, our competitive position and our financial performance.

If we are unable to comply with environmental laws and regulations, our business may be harmed.

We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste
products. We currently maintain a supply of several hazardous materials at our facilities. We believe our safety procedures for these materials comply with governmental standards, and we carry
insurance coverage we believe is adequate for the size of our business. We believe we are in compliance with all applicable environmental laws and regulations. However, we cannot entirely eliminate
the risk of accidental contamination or injury from these materials. If an accident or environmental discharge occurs, we could be held liable for any resulting damages, which could exceed our
insurance coverage and financial resources.

We
currently outsource our research and development programs involving the controlled use of biohazardous materials. We believe our collaborators have in place safety procedures for
these materials that comply with governmental standards. Nevertheless, if an accident does occur, our research and product development will be negatively affected.

Risks Associated with Our Business

We are dependent on the successful outcome of the clinical trials for our lead product candidate Orathecin. If our clinical data for Orathecin cannot support the submission of
an NDA with the FDA or if filing or approval of the NDA is delayed, our business will be substantially harmed.

Orathecin is our lead product candidate, which we are developing for the treatment of patients with pancreatic cancer who have failed or are resistant to two or
more chemotherapy agents. Pancreatic cancer is a highly lethal disease, with the poorest likelihood of survival among all of the major malignancies. Based on a study on cancer for
1988-1992 by the National Cancer Institute, pancreatic cancer accounts for only 2% of all newly diagnosed cancers in the United States each year, but 5% of all cancer deaths. We believe
that our Orathecin clinical program is the largest registration program ever undertaken in pancreatic cancer. To date, only two drugs have been approved by the FDA for the treatment of pancreatic
cancergemcitabine and 5-FU. Based on the FDA's summary basis of

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approval,
the program sizes for those two drugs were as follows: gemcitabine had 126 patients in front-line use and 63 patients in second-line use, and 5-FU was
approved on data from 20 pancreatic cancer patients. We have been conducting and are close to completing three randomized Phase III registrational studies in over 1,800 patients with pancreatic
cancer at over 200 study sites in North America and Europe. We commenced clinical trials in 1998, and more than 2,700 patients have been enrolled in the studies. Our ongoing Orathecin clinical trials
are large and complex and have required a significant amount of financial commitment and human resources. Over the years, we have expended substantial resources on developing Orathecin and preparing
an infrastructure to support its sales and marketing, if approved for sale by regulatory authorities.

While
we believe we have a portfolio of product candidates with promise, we have focused much of our attention and resources on developing Orathecin, and from 1998 to
December 2002 we have spent approximately 25% of our research and development expenses, or approximately $58 million, on the Orathecin program, and we expect to spend an additional
$5 million in 2003 to complete the clinical trials for Orathecin and assemble the NDA for regulatory approval for the product. In addition, we must establish sales and marketing capability to
support the worldwide sale of Orathecin, either by entering into a sales and marketing agreement with a collaborator or to build up our own sales force, which will involve substantial costs and
expenses. If we are successful in obtaining necessary regulatory approval and successfully commercialize the product, we believe sales of Orathecin could generate more than $100 million in
revenues annually, which could constitute more than 80% of our future revenues. These sales projections are based on the fact that, according to Eli Lilly's 2001 annual report, gemcitabine (the last
drug approved for pancreatic cancer) has sales of more than $500 million dollars annually, yet we believe that gemcitabine and 5-FU do not adequately serve the market of refractory
pancreatic cancer patients. In addition, administration of gemcitabine and 5-FU require intravenous injection, while Orathecin is taken orally. We believe that based on these factors, in
combination with our commercial experience, we can reasonably expect to achieve at least 20% of the sales of gemcitabine with Orathecin, although there can be no assurance in this regard even if we
receive the regulatory approval.

Given
the large scale, the complexity of the clinical trials, and the inherent uncertainties associated with clinical trials of such magnitude and complexity, there can be no assurance
that the data or statistical analysis from our trials will support regulatory approval or that we will not be required to perform additional studies before seeking regulatory approval. For example,
the trial design of these studies allows patients who initially were being treated with gemcitabine or other therapies to switch over to treatment with Orathecin. At the time the trials were designed,
based on results of cancer studies conducted by others, we believed that the percentage of patients that would cross over for treatment with Orathecin would be in the range of 10% to 20% of the
enrolled patients. Based on a preliminary review of the clinical trial information, we believe that the number of patients in our Orathecin studies that have actually crossed over to treatment with
Orathecin has significantly exceeded the number anticipated and was greater than 40% in two of our Phase III studies. The extent of this cross over will likely negatively affect the statistical
analysis of the study, making it difficult to determine if the product is effective. We cannot predict how this cross-over percentage will affect regulatory approval, but additional trials
may be required before we can obtain regulatory approval.

In
late May 2003, we announced data from one of our Phase III studies of Orathecin in patients with advanced pancreatic cancer, most of whom had previously failed two or
more chemotherapy treatments. The study randomized 409 patients to either Orathecin or "best medical therapy." The primary study end-point was overall survival with secondary
end-points of tumor response and time to disease progression. We did not meet the primary end-point, although we did meet both secondary end-points. The secondary
end-points were independent of a crossover effect whereas the primary end-point was not. We are still in the process of analyzing data from our other clinical trials. It
remains uncertain whether the released data, and the data from our other clinical trials, will be sufficient to

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support
an application for regulatory approval to the FDA for Orathecin. If our data fails to support the regulatory submission, our regulatory approval, if any, will be delayed, and we will be
required to conduct additional clinical trials, which we may be unable to fund.

We
have submitted the first two sections of a "rolling" NDA with the FDA, and anticipate completing our filing in December 2003. However, the approval process may take a
significant amount of time and we may not be approved. The FDA's approval of our application will be based on its review of Orathecin's safety and efficacy. Important factors to be taken into account
in the FDA's review will include, among other things, the overall survival of patients randomized to receive Orathecin, time to disease progression as well as toxicities seen in patients who were
treated with Orathecin. If our Orathecin development activities are unsuccessful for these or other reasons and if we fail to obtain the FDA approval in a timely fashion, if at all, we will not be
able to realize the projected revenues, have sufficient funds to support another program or continue our other clinical trials, and we may be forced to substantially scale down our operations.

The termination of our Orathecin related agreements with Abbott may negatively impact our business and collaborative relationships.

In December 1999, we entered into agreements with Abbott Laboratories pursuant to which Abbott would market and distribute our drug candidate Orathecin and
provide milestone payments and invest in our shares of stock. We would have co-promoted Orathecin with Abbott in the United States and Abbott would have exclusive rights to market
Orathecin outside of the United States. In the United States market, we would have shared profits from product sales equally with Abbott, while outside of the United States market, Abbott would have
paid us royalties and transfer fees based on product sales. Abbott was obligated to purchase up to $81.5 million in shares of our common stock over a period of time. In addition, Abbott had an
option to purchase up to 49% of the shares of our common stock outstanding at the time of the exercise at $85 per share. Abbott also had a right of first discussion with respect to our product
portfolio and a right of first refusal to acquire us.

The
Orathecin related agreements were terminated by the parties in March of 2002. While we believe that the termination was advantageous to us in a number of respects, the termination
also creates some challenges and uncertainties. By terminating our Orathecin related agreements we have eliminated restraints on our business activities and expanded some of our strategic alternatives
that we deem very beneficial. Specifically, we regained all marketing rights to Orathecin worldwide, are no longer obligated to share profits from product sales of Orathecin, and Abbott no longer has
the option to purchase up to 49% of our outstanding shares, the right of first discussion with respect to our product portfolio and the right of first refusal to acquire us. As a result, we are able
to market and sell Orathecin ourselves or to explore strategic partnerships with other pharmaceutical companies.

In
connection with these agreements, Abbott made a $26.5 million investment in our shares of common stock in January 2000, and a $2.5 million equity milestone
payment in July 2001. By terminating the agreement, we have foregone the opportunity to receive future milestone payments and equity investments from Abbott (in the aggregate amount of up to
$52.5 million), potential royalty payments and other benefits from a well established and respected pharmaceutical company, including our access to Abbott's worldwide sales capability. In
addition, the termination of the agreements may be perceived negatively by other potential partners, and unless we are successful with our regulatory approval of Orathecin, we may not be able to
establish collaboration relationships with established pharmaceutical companies for Orathecin, if we elected to pursue such relationships.

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Expanding indications for Nipent is important to our future revenues. If we are unable to receive regulatory approval for use of Nipent to treat additional diseases our
revenues will not expand as hoped.

Part of our strategy involves expanding the market opportunities for our approved drugs by seeking regulatory approval and/or their reimbursement support of their
use for treatment of additional diseases. We are currently marketing Nipent for hairy cell leukemia, and revenues from selling Nipent provided over 90% of our revenues in the past three years. We
believe Nipent has promise for treatment of a variety of diseases and are conducting a series of clinical trials with Nipent that are important to the expansion of our business. These trials include
Phase IV trials for chronic lymphocytic leukemia, low grade non-Hodgkin's lymphoma, cutaneous and peripheral T-cell lymphomas, and Phase II/III studies for
graft-versus-host disease. If these and our other Nipent clinical trials are not successful or require additional regulatory approvals, we will not be able to increase our revenue above
the current level.

If we cannot complete our clinical trials for Dacogen and cannot receive regulatory approval, we may not realize future revenues.

We have initiated Phase III clinical trials with Dacogen for treatment of advanced MDS, and we completed patient enrollment in March 2003. We have
also received orphan drug designation for Dacogen for the treatment of MDS in the United States and Europe, and for the treatment of sickle cell anemia in the United States. There is no assurance that
we will be able to complete our clinical trials, or that the clinical trial results will support submission of an NDA or regulatory approval. Even if we complete the clinical trials and submit an NDA,
the approval process may take a significant amount of time and we may not receive approval. Moreover, the future sales of Dacogen could constitute a material source of our product revenues. According
to a paper published in Nature Review in 2002, in vitro data suggests that Dacogen reverses the biological mechanism that has been implicated as a fundamental defect in cancer. We believe that
potential sales of this product may equal or exceed that of Orathecin and thus amount to $100 million annually, although there can be no assurance in this regard even if we seek and receive the
regulatory approval. As a result, if our Dacogen development activities are unsuccessful for any reason, future revenues will not be realized.

The fast track designations of Orathecin and Dacogen may not actually lead to a faster regulatory review or approval.

If a drug is intended for the treatment of a serious or life-threatening condition for which there is no effective treatment and the drug demonstrates
the potential to address unmet
medical needs for the condition, the drug sponsor may apply for FDA fast track designation. The fast track classification does not apply to the product alone, but applies to the combination of the
product and the specific indication for which it is being studied. Under fast track provisions, the FDA is committed to working with the sponsor for the purpose of expediting the clinical development
and evaluation of the drug safety and efficacy for the fast track indication. A fast track designation will allow the pharmaceutical company sponsor to submit a rolling NDA, which will allow the FDA
to initiate review of sections of the application before it is complete. In some cases, a fast track designated product may also qualify for priority review, or review within a six-month
time frame from the time an NDA is completed and filed, but this cannot be assured.

Although
we have obtained fast track designations from the FDA for (i) Orathecin for the treatment of patients with locally advanced or metastatic pancreatic cancer that is
resistant or refractory to two or more chemotherapies, and (ii) Dacogen for MDS, we cannot guarantee a faster development process, review or approval compared to the conventional FDA
procedures. Our drug candidates may not be granted priority review, or review within six months, and our fast track designation may be withdrawn by the FDA if the FDA believes that such designation is
no longer supported by emerging data from our clinical development program. Our fast track designation does not guarantee that we will

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qualify
for or be able to take advantage of the accelerated approval procedures, which are procedures that allow the FDA to approve a drug, intended to treat serious or life threatening illnesses,
based upon a surrogate end point that is reasonably likely to predict clinical benefit. Even if the accelerated approval procedures are available to us, we may elect to use the traditional approval
process for strategic and marketing reasons. If Orathecin and Dacogen are approved under the accelerated approval procedures, we will most likely be required to conduct Phase IV studies to
provide confirmatory evidence that these drugs are safe and effective and provide a clinically meaningful benefit to patients. If we fail to verify that our drugs are safe, effective and provide a
clinically meaningful benefit to patients, our FDA approval can be withdrawn on an expedited basis. Accelerated approval will also require that we submit all promotional labeling and advertising to
the FDA for pre-approval prior to dissemination of these materials. Furthermore, if serious adverse effects are identified at any time after marketing, our approval may be rapidly revoked
and we will not be allowed to continue to market the drug. If the regulatory approval for our drug candidates is delayed, or the approval is withdrawn or revoked for any reason, our business will be
substantially harmed.

We are transitioning new members of the management team into the Company and if the transition is not smooth, our business may be disrupted. Further, if we are unable to
attract and retain additional, highly skilled personnel required for the expansion of our activities, our business will suffer.

We are undergoing changes in our senior management. Our current President and Chief Executive Officer, Dr. Joseph Rubinfeld, will retire on
December 31, 2003. Dr. James Manuso, currently on our Board of Directors, has been appointed to the position of President and Chief Executive Officer, effective January 1, 2004.
In addition, Edward L. Jacobs was recently promoted to the position of Chief Operating Officer, and Michael Molkentin was appointed to the position of Chief Financial Officer.
Changes in our senior management may be disruptive to our business and may adversely affect our operations.

Further,
our success is dependent on key personnel, including members of our senior management and scientific staff. If any of our executive officers decides to leave the company and we
cannot locate qualified replacement in time to allow a smooth transition, our business operation may be adversely affected. To successfully expand our operations, we will need to attract and retain
additional, highly skilled individuals, particularly in the areas of sales, marketing, clinical administration, manufacturing, and finance. We compete with other companies for the services of existing
and potential employees. We believe our compensation and benefits packages are competitive for our geographical region and our industry group, and we have been successful in hiring, and retaining or
replacing our employees. However, we may be at a disadvantage to the extent that potential employees may favor larger, more established employers.

We depend on third parties for manufacturing and storage of our products and our business may be harmed if the manufacture of our products is interrupted or discontinued.

Even if we obtain governmental approval of our product candidates, our manufacturing facilities and those of our contract manufacturers are subject to unannounced
inspections by the FDA and must comply with the FDA's current GMP and other regulations. These regulations govern all areas of production, record keeping, personnel and quality control. If we or our
contract manufacturers fail to comply with any of the manufacturing regulations, we may be subject to, among other things, product seizures, recalls, fines, injunctions, suspensions or revocations of
marketing licenses, operating restrictions and criminal prosecution.

We
have no manufacturing facilities and we currently rely on third parties for manufacturing activities related to all of our products. As we develop new products and increase sales of
our existing products, we must establish and maintain relationships with manufacturers to produce and package

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sufficient
supplies of our finished pharmaceutical products, including Orathecin and Dacogen. Our manufacturing strategy presents the following risks:



Any
of these factors could delay clinical trials or commercialization of our product candidates under development, interfere with current sales and entail higher costs.

We
currently outsource manufacturing for all of our products to United States and foreign suppliers. We expect to continue to outsource manufacturing in the near term. We believe our
current suppliers are and will be able to efficiently manufacture our proprietary and generic compounds in sufficient quantities and on a timely basis, while maintaining product quality. We maintain
quality control over manufacturing through ongoing inspections, rigorous review, control over documented operating procedures, and thorough analytical testing by outside laboratories, and, to our
knowledge, none of our manufacturers have had material problems complying with regulatory requirements for our products. At this time we do not intend to replace our manufacturing or storage
contracts.

However,
we may be unable to maintain our current relationships. In the event we need to replace or seek new manufacturing arrangements, we may have difficulty locating and entering into
arrangements with qualified contract manufacturers on acceptable terms, if at all. We are aware of only a limited number of companies on a worldwide basis who operate manufacturing facilities in which
our products can be manufactured to our specifications and in compliance with current GMP's. It could take several months, or significantly longer for a new contract manufacturing facility to obtain
FDA approval and to develop substantially equivalent processes for the production of our products. We may not be able to contract with any of these companies on acceptable terms, if at all. For
example, the company that had been purifying our Nipent finished product filed for bankruptcy in mid 2001. We contracted with a new manufacturer for the purification of Nipent in mid 2001, and the
manufacturer was qualified by the FDA in May 2002. We experienced unusually low inventory levels during the first quarter of 2002, while we were waiting for the new company to be qualified by
the FDA. Nipent is currently being purified at Hauser Technical Services, Inc. ("Hauser"). Hauser, Inc., Hauser's parent company, and its wholly owned subsidiaries filed for
reorganization under Chapter 11 in April 2003. However, we do not believe that this filing will have any significant impact on our supply agreement and our ability to process Nipent,
although there can be no assurance in this regard.

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Currently
we store the majority of the unpurified, bulk form of Nipent at the manufacturer's location. Improper storage, fire, natural disaster, theft or other conditions at this
location may lead to the loss or destruction of the bulk concentrate. While the manufacturer carries adequate insurance consistent with industry standard and we also carry insurance for drug storage,
such event would inevitably cause delays in distribution and sales of our products and harm our operating results.

We
do not currently intend to manufacture any pharmaceutical products, although we continually evaluate our options for commercial production of our products, including the possibility
of establishing our own commercial scale manufacturing facility. If we decide to manufacture products, we would be subject to the regulatory risks and requirements described above. We will also be
subject to similar risks regarding delays or difficulties encountered in manufacturing these pharmaceutical products and we will require additional facilities and substantial additional capital. We
cannot assure you that we would be able to manufacture any of these products successfully in accordance with regulatory requirements and in a cost-effective manner.

If our suppliers cannot provide the product or components we require, our product sales and revenue could be harmed.

We rely on third party suppliers to provide us with certain components used in our products under development, including Orathecin and Dacogen. Relying on third
party suppliers makes us vulnerable to component part failures and to interruptions in supply, either of which could impair our ability to conduct clinical tests or to ship our products to our
customers on a timely basis. Using third party vendors makes it difficult and sometimes impossible for us to maintain quality control, manage inventory and production schedules and control production
costs. Vendor lead times to supply us with
ordered components vary significantly and can exceed six months or more. Both now and as we expand our need for manufacturing capacity, we cannot be sure that our suppliers will furnish us with
required components when we need them. These factors could make it more difficult for us to effectively and efficiently manufacture our products, and could adversely impact our clinical trials,
product development and sales of our products.

Some
suppliers are our only source for certain product or a particular component, which makes us vulnerable to cost increases and supply interruptions. We generally rely on one
manufacturer for each product. We have one manufacturer for the future production of our generic compounds required for both our Extra and generic dosage forms. We rely on one manufacturer for Nipent,
a sole source supplier for the purification and processing of pentostatin, which is used in the manufacturing of Nipent, and a sole source supplier for the ingredient used in the purification of
pentostatin. We also rely on sole source suppliers for mitomycin products and components used in the production of Mitozytrex (mitomycin for injection).

Vendors
may decide to limit or eliminate sales of certain products to the medical industry due to product liability or other concerns. For example, one component used in the purification
of pentostatin is no longer commercially available, although we believe our current inventory of this component will last four to five years during which time we believe we will be able to qualify a
substitute. Therefore, for products or components for which we rely on a sole source, in the event the supplier decides not to manufacture the product or go out of business, or decides to cut off our
supply, we may be unable to locate replacement supply sources, or the sources that we may locate may not provide us with similar reliability or pricing and our business could suffer. If we cannot
obtain a necessary component, we may need to find, test and obtain regulatory approval for a replacement component, produce the component or redesign the related product, which would cause significant
delay and could increase our manufacturing costs. Any of these events could adversely impact our sales and results of operations.

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We have limited sales and marketing capabilities and no distribution capabilities and may not be able to successfully commercialize our products.

We currently have limited sales and marketing resources and no distribution capability. Although we have approximately 34 sales and marketing personnel focusing
on the sale of our products to hospitals and hospital buying groups, we have contractual relationships with third parties and anticipate relying on third parties to distribute, sell and market some of
our primary products. We currently rely on third parties to distribute our products and expect to continue to do so in the future. For example, Abbott is our exclusive U.S. distributor of Nipent until
2005. Before the termination of our Orathecin agreements with Abbott we anticipated relying on Abbott to assist in the distribution and sale of Orathecin. Our current sales and marketing resources are
inadequate to effectively market and sell Orathecin and other products if we were to receive regulatory approval.

We
continue to evaluate our options and explore opportunities with respect to sales and marketing of Orathecin, if approved for sale. We may decide to enter into arrangements with a
strategic partner. However, we may not be able to negotiate such arrangement on acceptable terms, if at all. Moreover, such arrangements will involve sharing of sales profit, may require us to
relinquish certain rights to our products or marketing territories, and may impose other limitations on our business operations. Further, if we enter into a collaborative relationship with a large
pharmaceutical company with established distribution systems and direct sales forces to market Orathecin, we cannot assure you that we will be able to maintain such relationship on acceptable terms,
if at all.

If
we are unable to enter into third-party arrangements or if our arrangements with third parties are not successful, we will need to substantially expand our sales and marketing force
and build our sales and distribution capabilities, which will require significant expenses. We may not succeed in expanding and enhancing our sales and marketing capabilities or have sufficient
resources to do so. If we do develop such capabilities, we will compete with other companies that have experienced and well-funded sales and marketing operations. Our inability to upgrade
our sales expertise and in-house sales and distribution capabilities may limit our ability to gain market acceptance for Orathecin worldwide and generate revenues. If we fail to establish
successful sales and marketing capabilities or fail to enter into successful marketing arrangements with third parties, or if our third party distributors fail to perform their obligations, we will
not be able to market or sell our products effectively and our business, financial condition and results of operations will be materially and adversely affected.

Our collaborative relationships with AVI BioPharma, Inc. and other third party collaborators could cause us to expend significant money on development costs with no
assurance of financial return.

From time to time we enter into collaboration relationships with third parties to co-develop and market products. For example, we have collaborative
relationships with AVI whereby in exchange for marketing and other rights in the United States for Avicine, AVI's proprietary cancer vaccine currently in late-stage clinical testing
against a variety of solid tumors, we made significant equity investments in AVI, and agreed to make substantial milestone payments to fund AVI's clinical development and regulatory activities.

Specifically,
in consideration of past research and development performed by AVI, in 1999 and 2000 we made substantial equity investments in AVI in the aggregate amount of more than
$27 million (including $7.5 million cash and 447,826 shares of our common stock), in exchange for 2,684,211 shares of AVI common stock. Moreover, we are obligated to make additional
payments to AVI based on successful achievement of developmental, regulatory approval, and commercialization milestones over the next several years that could total $80 million. At the time the
transactions were entered, the chief executive officer of AVI, Dr. Denis Burger, was a member of our Board of Directors (Dr. Burger subsequently resigned from our Board in
May 2002). Our president and chief executive officer is a member of the Board of Directors of AVI. The transaction was approved by members of our Board

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who
had no interest in the transaction and evaluated the transaction with input from members of our financial and scientific staffs.

In
addition, we also entered into an arrangement with Peregrine Pharmaceuticals in February 2001, pursuant to which we licensed a drug-targeting technology known as
Vascular Targeting Agent, which is a proprietary platform designed to specifically target a tumor's blood supply and subsequently destroy the tumor with various attached therapeutic agents. The
licensed technology is specially related to VEGF. Under the agreement, we made an up-front equity investment in Peregrine of $600,000 and will be obligated to make subsequent milestone
payments that ultimately could total $8 million. In addition, we will pay royalties to Peregrine based on the net revenues of any drugs we commercialize using the VEGF technology.

The
above relationships require substantial financial commitments from us, and at the same time the product developments are subject to the same regulatory requirements, risks and
uncertainties associated with the development of our other product candidates. AVI's Avicine will require significant additional expenditures to complete the clinical development necessary to gain
marketing approval from the FDA and equivalent foreign regulatory agencies. In addition, Avicine and other compounds underlying these strategic relationships may prove to be ineffective, may fail to
receive regulatory approvals, may be unprotectable by patents or other intellectual property rights, or may otherwise not be commercially viable. If these collaborative relationships are not
successful, our product developments will be adversely affected, and our investments and efforts devoted to the product developments will be wasted.

If we are not able to maintain and successfully establish new collaborative and licensing arrangements with third parties, our product development and business will be harmed.

Our business model is based on establishing collaborative relationships with other parties both to license compounds upon which our products and technologies are
based and to manufacture, market and sell our or our collaborators' products. As a development company we must have access to compounds and technologies to license for further development. For
example, we licensed the exclusive worldwide royalty-bearing rights to Orathecin from the Stehlin Foundation for Cancer Research, and we also established relationships with suppliers and manufacturers
to manufacture our compounds and
products. Additionally, we have a collaborative relationship with AVI for the development, marketing and sales of Avicine. Due to the expense of the drug approval process it is critical for us to have
relationships with established pharmaceutical companies to offset some of our development costs in exchange for a combination of development, marketing and distribution rights. We formerly had a
significant relationship with Abbott for the sales and marketing of Orathecin. To facilitate the commercialization of Orathecin, we may decide to establish a new collaborative relationship with
another party.

We
from time to time also enter into discussions with various companies regarding the establishment of new collaborations. If we are not successful in establishing new collaborative
partners for our product candidates, we may not be able to pursue further development of such product candidates and/or may have to reduce or cease our current development programs, which would
materially harm our business. Even if we are successful in establishing new collaborations, they are subject to numerous risks and uncertainties including the following:



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In
addition, our collaborators may undergo business combinations, which could have the effect of making a collaboration with us less attractive to them for a number of reasons. For
example, if an existing collaborator purchases a company that is one of our competitors, that company could be less willing to continue its collaboration with us. In addition, a company that has a
strategy of purchasing companies with attractive technologies might have less incentive to enter into a collaboration agreement with us. Moreover, disputes may arise with respect to the ownership of
rights to any technology or products developed with any current or future collaborator. Lengthy negotiations with potential new collaborators or disagreements between us and our collaborators may lead
to delays or termination in the research, development or commercialization of product candidates or result in time-consuming and expensive litigation or arbitration.

Any
failure in maintaining relationships with our collaborators could materially affect our product development and commercialization.

If we fail to compete effectively, particularly against larger, more established pharmaceutical companies with greater resources, our business will suffer.

The pharmaceutical industry in general and oncology sector in particular is highly competitive and subject to significant and rapid technological change. Our
competitors and probable competitors include established companies such as Eli Lilly & Co., Ortho Biotech, Berlex, Bristol-Myers Squibb Company, Immunex Corp and others.

Many
of our competitors and research institutions are addressing the same diseases and disease indications and working on products to treat such diseases as we are, and have
substantially greater financial, research and development, manufacturing and marketing experience and resources than we do and represent substantial long-term competition for us. Some of
our competitors have received regulatory approval of or are developing or testing product candidates that compete directly with our product candidates. For example, while we received orphan drug
status for Orathecin and there is currently no competitor in the oral delivery market for the treatment of pancreatic cancer, there are approved drugs for the treatment of pancreatic cancer, including
gemcitabine by Eli Lilly. For another example, Berlex's fludarabine and Ortho Biotech's cladrabine compete with our Nipent in the leukemia market.

In
addition, many of these competitors, either alone or together with their customers, have significantly greater experience than we do in developing products, undertaking
pre-clinical testing and clinical trials, obtaining FDA and other regulatory approvals, and manufacturing and marketing products. Accordingly, our competitors may succeed in obtaining
patent protection, receiving FDA approval or commercializing products before we do. If we commence commercial product sales of our product candidates, we will be competing against companies with
greater marketing and manufacturing capabilities, areas in which we have limited or no experience.

Developments
by competitors may render our product candidates or technologies obsolete or non-competitive. These competitors, either alone or with their customers, may
succeed in developing technologies or products that are more effective than ours. We also face and will continue to face intense competition from other companies for collaborative relationships, for
establishing relationships with academic and research institutions, and for licenses to proprietary technology.

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Our products that are under patent protection face intense competition from competitors' proprietary products. This competition may increase as new products enter the market. We also
face increasing competition from lower-cost generic products after patents on our proprietary products expire. Loss of patent protection typically leads to a rapid loss of sales for that
product and could affect future results. As new products enter the market, our products may become obsolete or our competitors' products may be more effective or more effectively marketed and sold
than our products. If we fail to maintain our competitive position, this could have a material adverse effect on our business and results of operations.

Our
competitive positions in our generic drugs are uncertain and subject to risks. The market for generic drugs, including the pricing for generic drugs, is extremely competitive. As a
result, unless our generic drugs are the first or among the initial few to launch, there is a high risk that our products would not gain meaningful market share, or we would not be able to maintain
our price and continue the product line. Moreover, marketing of generic drugs is also subject to regulatory approval, and we may not be able to obtain such approval before our competitors to gain the
competitive advantage.

We are developing generic and Extra products based upon compounds which may be covered by patents held by third parties that are expected to expire or already expired. These
compounds may be also the subject of method, formulation, and manufacturing process patents held by third parties. If these patents do not expire as anticipated or are expanded in scope, we will not
be able to develop our generic and Extra products as planned.

We developed, or are in the process of developing, and are planning to market several generic and Extra products based on existing compounds. Specifically, with
respect to our generic products, we received an ANDA approval of our generic mitomycin for solid tumors, and daunorubicin for a variety of acute leukemias, and have filed an ANDA for our generic
paclitaxel. We are currently selling mitomycin and in the process of commercializing daunorubicin.

Our
proprietary Extra technology is a platform technology that employs the use of an inert chemical excipient, cyclodextrin, combined with a drug. Most anticancer drugs are cytotoxic,
and most must be administered intravenously. If a vein is missed on injection, the drug can leak to surrounding tissue, causing ulceration that sometimes requires plastic surgery to correct. Our
proprietary Extra technology is designed to "shield" the drug from the injection site, thus providing the patient protection from tissue ulceration. It may increase the relative solubility of
hard-to-dissolve anticancer drugs, hence increasing its stability or shelf life. However, each of these benefits must be supported by appropriate data and approved by the FDA
before we can make any claim in this regard. Our first product utilizing our Extra technology, Mitozytrex (mitomycin for injection), which is an Extra formulation of generic mitomycin, was approved by
the FDA in November 2002 for use in the therapy
of disseminated adenocarcinoma of the stomach or pancreas in proven combinations with other approved chemotherapeutic agents and as palliative treatment when other modalities have failed. Currently,
we cannot promote Mitozytrex (mitomycin for injection) as providing any injection site ulceration protection, nor can we promote any increased stability, solubility or shelf life extension, as
compared to generic mitomycin. We must develop and submit additional data to the FDA and receive FDA approval before we can make these claims. We are currently exploring marketing opportunities and/or
marketing partners for Mitozytrex (mitomycin for injection).

So
far we have spent approximately $6 million on developing and marketing our generic and Extra products. We have currently completed our pre-commercial investment in
developing Mitozytrex (mitomycin for injection), and as of now we have not committed to an internal budget for additional Extra development programs. In addition, we have no further generic drug
development commitments, as we are focusing on developing our proprietary drug candidates.

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We
do not hold any intellectual property rights as to the underlying compounds on which our generic or Extra products are based. We may in the future evaluate the generic drugs market
and develop additional generic or proprietary Extra products based on these compounds, which may also be the subject of method, formulation and manufacturing process patents held by third parties. Our
development of generic or Extra products may also take place prior to, but in anticipation of, the expected expiration of existing patent protection for drugs developed by third parties. However, if
existing patent protection on such products is otherwise maintained, extended or expanded, it is unlikely that we will be able to market our own generic or Extra products without obtaining a license
from the patent owner, which may not be available on commercially acceptable terms, if at all.

Our ability to protect our intellectual property rights will be critically important to the success of our business, and we may not be able to protect these rights in the
United States or abroad.

Our business operation and success depends in part on our ability to obtain patents, protect trade secrets, operate without infringing the proprietary rights of
others and prevent others from infringing our proprietary rights.

We
protect our proprietary technology from unauthorized use by third parties largely to the extent that our proprietary technology is are covered by valid and enforceable patents or are
effectively maintained as trade secrets. We attempt to protect our intellectual property position by filing U.S. and foreign patent applications related to our proprietary technology, inventions and
improvements that are important to the development of our business. Currently we have acquired licenses to or assignments of at least 37 U.S. patents covering various aspects of our proprietary drugs,
including 30 patents for Orathecin, 5 patents for Nipent, 6 patents for our paclitaxel related products and 2 patents for our 5-beta-steroid related compounds. These issued
U.S. patents will begin to
expire in October 2012. We have been granted patents and have received patent licenses relating to our Extra technology, Partaject, and Oral Prodrug technologies, among which at least 5 patents
are issued to us. In addition, we are prosecuting a number of patent applications for drug candidates that we are not actively developing at this time.

From
time to time we receive correspondence inviting us to license patents from third parties. Our proprietary products are dependent upon compliance with numerous licenses and
agreements. These licenses and agreements require us to make royalty and other payments, reasonably exploit the underlying technology of the applicable patents, and comply with regulatory filings. If
we fail to comply with these licenses and agreements, we could lose the underlying rights to one or more of these potential products, which would adversely affect our product development and harm our
business.

We
also have patents or licenses to patents issued outside of the United States, including Europe, Australia, Japan, Canada, Mexico and New Zealand. In addition, we have patent
applications pending in these regions and countries as well as in China, Hungary and Israel. Limitations on patent protection in these countries, and the differences in what constitutes patentable
subject matter in these countries outside the United States, may limit the protection we have on patents issued or licensed to us outside of the United States. In addition, laws of foreign countries
may not protect our intellectual property to the same extent as would laws in the United States. To minimize our costs and expenses and to maintain effective protection, we focus our patent and
licensing activities within the European Union, Canada and Japan. In determining whether or not to seek a patent or to license any patent in a certain foreign country, we weigh the relevant costs and
benefits, and consider, among other things, the market potential and profitability, the scope of patent protection afforded by the law of the jurisdiction and its enforceability, and the nature of
terms with any potential licensees. Failure to obtain adequate patent protection for our proprietary drugs and technology would impair our ability to be commercially competitive in these markets.

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The
pharmaceutical fields are characterized by a large number of patent filings involving complex legal and factual questions, and, therefore, we cannot predict with certainty whether
our patents will be enforced. A substantial number of patents have already been issued to other pharmaceutical companies, research or academic institutions or others. Competitors may have filed
applications for or have been issued patents and may obtain additional patents and proprietary rights related to products or processes that compete with or are similar to ours. We may not be aware of
all of the patents potentially adverse to our interests that may have been issued to others. In addition, third parties may challenge, invalidate or circumvent any of our patents, once they are
issued. Thus, any patents that we own or license from third parties may not provide adequate protection against competitors. Our pending patent applications and those we may file in the future, or
those we may license from third parties, may not result in patents being issued. Also, patent rights may not provide us with adequate proprietary protection or competitive advantages against
competitors with similar technologies. The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States.

Litigation
may be necessary to protect our patent position, and we cannot be certain that we will have the required resources to pursue the necessary litigation or otherwise to protect
our patent rights. Our efforts to protect our patents may fail. In addition to pursuing patent protection in appropriate cases, we also rely on trade secret protection for unpatented proprietary
technology. However, trade secrets are difficult to protect. Our trade secrets or those of our collaborators may become known or may be independently discovered by others.

Although
we know of no pending patent infringement suits, discussions regarding possible patent infringements or threats of patent infringement litigation either related to patents held
by us or our licensors or our products or product candidates, there has been, and we believe that there will continue to be, significant litigation in the pharmaceutical industry regarding patent and
other intellectual property rights. Claims may be brought against us in the future based on patents held by others. These persons could bring legal actions against us claiming damages and seeking to
enjoin clinical testing, manufacturing and marketing of the affected product. If we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the
outcome of the litigation. If any of these actions are successful, in addition to any potential liability for damages, we could be required to obtain a license to continue to manufacture or market the
affected product. We cannot assure you whether we would prevail in any of these actions or that we could obtain any licenses required under any of these patents on acceptable terms, if at all.

We may be subject to product liability lawsuits and our insurance may be inadequate to cover damages.

Clinical trials and commercial use of our current and potential products may expose us to liability claims from the use or sale of these products. Consumers,
healthcare providers, pharmaceutical companies or others selling such products might make claims of this kind. We may experience financial losses in the future due to product liability claims. We have
obtained limited product liability insurance coverage for our products and clinical trials, under which the coverage limits are $10 million per occurrence and $10 million in the
aggregate. While we believe that this insurance is reasonable and adequate, we cannot assure you that this coverage will be adequate to protect us in the event of a claim. We intend to expand our
insurance coverage to include the sale of commercial products if we obtain marketing approval for product candidates in development. We may not be able to obtain or maintain insurance coverage in the
future at a reasonable cost or in sufficient amounts to protect us against losses. If third parties bring a successful product liability claim or series of claims against us for uninsured liabilities
or in excess of insured liabilities, we may not have sufficient financial resources to complete development or commercialization of any of our product candidates and our business and results of
operations will be adversely affected.

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Earthquake or other natural or man-made disasters and business interruptions could adversely affect our business.

Our operations are vulnerable to interruption by fire, power loss, floods, telecommunications failure and other events beyond our control. In addition, our
business operation is susceptible to disruption as a result of natural disasters such as earthquakes. So far we have never experienced any significant disruption of business operation as a result of
earthquakes or other natural disasters. While we carry adequate business interruption insurance and have in place a contingency recovery plan, any significant business interruption could cause delays
in our drug development and sales and harm our business.

Provisions in our certificate of incorporation, bylaws and applicable Delaware law may prevent or discourage third parties or stockholders from attempting to replace our
management.

Anti-takeover provisions of our certificate of incorporation and bylaws make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders. These provisions include:



Our
bylaws establish procedures, including notice procedures, with regard to the nomination, other than by or at the direction of our board of directors, of candidates for election as
directors or for stockholder proposals to be submitted at stockholder meetings.

We
are also subject to Section 203 of the Delaware General Corporation Law, an anti-takeover provision. In general, Section 203 of the Delaware General
Corporation Law prevents a stockholder owning 15% or more of a corporation's outstanding voting stock from engaging in business combinations with a Delaware corporation for three years following the
date the stockholder acquired 15% or more of a corporation's outstanding voting stock. This restriction is subject to exceptions, including the approval of the board of directors and of the holders of
at least
two-thirds of the outstanding shares of voting stock not owned by the interested stockholder.

We
believe that the benefits of increased protection of our potential ability to negotiate with the proponents of unfriendly or unsolicited proposals to acquire or restructure us
outweigh the disadvantages of discouraging those proposals because, among other things, negotiation of those proposals could result in an improvement of their terms. Nevertheless, these provisions are
expected to discourage different types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate with us, and
may have the effect of preventing or discouraging third parties or stockholders from attempting to replace our management.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Due to the short-term nature of our interest bearing assets, which consist primarily of certificates of deposit, U.S. corporate obligations, and U.S.
government obligations, we believe that our exposure to interest rate market risk would not significantly affect our operations.

Our
investment policy is to manage our marketable securities portfolio to preserve principal and liquidity while maximizing the return on the investment portfolio. Our marketable
securities portfolio is primarily invested in corporate debt securities with an average maturity of under one year and a minimum investment grade rating of A or A-1 or better to minimize
credit risk. Although changes in interest rates may affect the fair value of the marketable securities portfolio and cause unrealized gains

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or
losses, such gains or losses would not be realized unless the investments were to be sold prior to maturity.

As
part of our June 2003 convertible debt transaction, we issued to the note holders warrants to purchase 2,634,211 shares of common stock of AVI BioPharma at $5.00 per share.
These warrants are considered a derivative and were valued on the balance sheet at $10.1 million using the Black-Scholes method on June 24, 2003. On September 30, 2003, the value
of the derivative had declined to $8.4 million. As the fair value of the common stock of AVI has fluctuated significantly in the past two years, the valuation of the derivative may have a
significant impact on our results of operations.

We
operate primarily in the United States and all product sales are denominated in U.S. dollars. Accordingly, we do not have any exposure to foreign currency rate fluctuations.

Item 4. Controls And Procedures

Our
management evaluated, with the participation of our Chief Executive Officer and our Chief Operating Officer, the effectiveness of our disclosure controls and procedures as of the end
of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Operating Officer have concluded that our disclosure
controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There
was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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SUPERGEN, INC.  PART IIOTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

|(a) |  | Exhibits
|--- |  | --------
|    |  | 31.1    
|    |  | 31.2    
|    |  | 32.1    



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SIGNATURES

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

|      |  |                   |  | SUPERGEN, INC.
|----- |  | ----------------- |  | --------------
|Date: |  | November 14, 2003 |  | By:           
|      |  |                   |  | By:           

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