10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2005

o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ___to___

Commission File Number  1-32626

Hana Biosciences, Inc.

(Exact name of issuer as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	32-0064979 (IRS Employer Identification No.)
400 Oyster Point Blvd., Suite 215 (Address of Principal Executive Offices)	94080 (Zip Code)

(650) 588-6404

(Issuer’s telephone number)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.001 par value	American Stock Exchange

Securities registered pursuant to Section 12(g) of the Exchange Act: None

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

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

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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

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

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

Large accelerated filer oAccelerated filer oNon-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). ྑ Yes x No

The aggregate market value of the common stock of the registrant held by non-affiliates, based on the closing sale price on June 30, 2005, the last business day of the registrant’s most recently completed second fiscal quarter was $32,660,770.

As of March 8, 2006, there were 22,525,734 shares of the registrant’s common stock issued outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our definitive Proxy Statement for our Annual Meeting of Shareholders to be held on May 9, 2006 (the “2006 Proxy Statement”) are incorporated by reference into Part III of this Form 10-K, to the extent described in Part III. The 2006 Proxy Statement will be filed within 120 days after the end of the fiscal year ended December 31, 2005.

TABLE OF CONTENTS

		Page
PART I
Item 1	Description of Business	1
Item 1A	Risk Factors	14
Item 1B	Unresolved Staff Comments	23
Item 2	Properties	23
Item 3	Legal Proceedings	23
Item 4	Submission of Matters to a Vote of Security Holders	23
PART II
Item 5	Market for Common Equity and Related Stockholder Matters	23
Item 6	Selected Financial Data	24
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations or Plan of Operations	25
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	33
Item 8	Financial Statements and Supplementary Data	33
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	33
Item 9A	Controls and Procedures	34
Item 9B	Other Information	34
PART III
Item 10	Directors and Executive Officers of the Registrant	34
Item 11	Compensation of Executive Officers	34
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	34
Item 13	Certain Relationships and Related Transactions	34
Item 14	Principal Accountant Fees and Services	34
PART IV
Item 15	Exhibits, Financial Statements Schedules	35
	Signatures	37
	Index to Financial Statements	F-1

References to the “Company,” the “Registrant,” “we,” “us,” or “our” or in this Annual Report on Form 10-K refer to Hana Biosciences, Inc., a Delaware corporation, unless the context indicates otherwise.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains statements that are not historical but are forward-looking in nature, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. In particular, the “Risk Factors” in Item 1A and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in Item 7 of this annual report include forward-looking statements that reflect our current views with respect to future events and financial performance. We use words such as “expect,” “anticipate,” “believe,” and “intend” and similar expressions to identify forward-looking statements. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties inherent in future events, particularly those risks identified in Item 1A in this Annual Report, and should not unduly rely on these forward looking statements.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

We are a development stage biopharmaceutical company focused on the acquisition, development and commercialization of innovative products to enhance cancer care. We aim to acquire proprietary rights to these products, by license or otherwise, fund their research and development and bring the products to market. We currently have three product candidates in early-stage development - Talotrexin (also known as PT-523), for the treatment of a variety of solid tumors and hematological malignancies, including NSCLC (non-small cell lung cancer), ALL (acute lymphocytic leukemia), cervical, and ovarian cancers; Zensana™ (ondansetron oral spray), which is being developed to alleviate chemotherapy-induced nausea and vomiting; and IPdR, being developed primarily for the treatment of colorectal, gastric, pancreatic, liver and brain cancers. To date, we have not received approval for the sale of any drug candidates in any market and, therefore, have not generated any revenues from our drug candidates.

Our executive offices are located at 400 Oyster Point Boulevard, Suite 215, South San Francisco, California 94080. Our telephone number is (650) 588-6404 and our Internet address is www.hanabiosciences.com.

Strategic Focus

We are committed to creating value by building a world-class team, accelerating the development of lead product candidates and expanding our pipeline by being the alliance partner of choice.

People:We are committed to building a world-class team with leading core competencies in clinical, regulatory, business development, and commercialization. Our management and advisors are comprised of experienced biotechnology and pharmaceutical industry entrepreneurs and respected experts in the field of oncology.

Products: We are also committed to accelerating the development of our three lead product candidates - Talotrexin, Zensana™ (ondansetron oral spray) and IPdR.

Pipeline:In addition to the development of our current products, we are focused on increasing value for our shareholders by expandingour product candidate pipeline. As a key component of our strategy, we seek to acquire global rights to additional product candidates and form alliances in oncology and immunology, while continuing to develop and commercialize new products. Our goal is to become the partner of choice for suppliers, researchers, and alliance partners.

Culture: We are committedto nurturing a unique company culture focused on patients, developing extraordinary team members, creating high performing teams, all with the highest standards of integrity.

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Historical Development; Merger Transaction

Hana Biosciences was originally incorporated under Delaware law in December 2002 under the name Hudson Health Sciences, Inc. In July 2004, we acquired publicly-held Email Real Estate.com, Inc. (“EMLR”) in a reverse merger transaction. In connection with the transaction, a wholly-owned subsidiary of EMLR merged into our company, with Hana remaining as a wholly-owned subsidiary of EMLR. In connection with the merger, EMLR issued to our stockholders approximately 87 percent of the outstanding equity of EMLR on a fully-diluted basis after giving effect to the transaction. In addition, our management replaced the management of EMLR and the combined company adopted our business plan. Accordingly, for accounting purposes, the transaction was treated as a reverse acquisition with Hana as the accounting acquirer (legal acquiree) and EMLR as the accounting acquiree (legal acquirer). In September 2004, EMLR was reincorporated under Delaware law by merging it with and into Hana, then its wholly-owned subsidiary, with Hana remaining as the surviving corporation. In connection with the reincorporation, each outstanding common share became automatically exchangeable into one-twelfth of a common share of the reincorporated company.

Cancer Overview

Cancer is a group of diseases characterized by either the runaway growth of cells or the failure of cells to die normally. Cancer is caused by a series of mutations, or alterations, in genes that control cells’ ability to grow and divide. Some mutations are inherited; others arise from environmental factors such as smoking or exposure to chemicals, radiation, or viruses that damage cells’ DNA. The mutations cause cells to divide relentlessly or lose their normal ability to die. Often, cancer cells spread to distant parts of the body, where they can form new tumors. Cancer can arise in any organ of the body and, according to the American Cancer Society, strikes one of every two American men and one of every three American women at some point in their lives.

There are more than 100 different varieties of cancer, which can be divided into six major categories. Carcinomas, the most common type of cancer, originate in tissues that cover a surface or line a cavity of the body. Sarcomas begin in tissue that connects, supports or surrounds other tissues and organs. Lymphomas are cancers of the lymph system, the circulatory system that bathes and cleanses the body’s cells. Leukemias involve blood-forming tissues and blood cells. As their name indicates, brain tumors are cancers that begin in the brain, and skin cancers, including dangerous melanomas, originate in the skin. Cancers are considered metastatic if they spread via the blood or system to other parts of the body to form secondary tumors.

The American Cancer Society estimates that nearly 1.4 million new cases of cancer are diagnosed in the United States, a figure that does not include the 1 million cases of skin cancer diagnosed annually. Cancer is the second leading cause of death (after heart disease) in the United States, expected to account for about 570,280 deaths in 2005. In 2005, one in four deaths in the U.S. is expected to be due to cancer. For all forms of cancer combined, the 5-year relative survival rate is 64%. Despite the fact that the cancer mortality rate in the U.S. has risen steadily for the past 50 years, scientific advances appear to have begun to turn the tide. The year 1997 was the first in the past half century in which fewer Americans died of cancer than the year before-the start of what researchers hope will be a long-term decline in cancer deaths.

The cost of cancer to the healthcare system is significant. The National Institute of Health estimates that the overall cost of cancer in 2004 was $189.8 billion. This cost includes $69.4 billion in direct medical expenses, $16.9 billion in indirect morbidity costs, and $103.5 billion in indirect mortality costs.

In addition, according to Business Insights, the cancer market expanded by 18.9% in 2004, with the highest growth rates occurring in the cytotoxics or antineoplastics class of drugs.  This class is forecast to become an even more important driving force behind the market, which is estimated to be valued at $43 billion in 2005 and $69 billion in 2010. Predominant classes of cytotoxic agents are antimetabolites, alkylating agents, cytotoxic antibiotics, vinca alkaloids, platinum compounds, and taxanes.

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Cancer Treatments

Major treatments for cancer include surgery, radiotherapy, and chemotherapy. There are many different drugs that are used to treat cancer, including cytotoxics or antineoplastics, hormones, and biologics. There are also many experimental treatments under investigation including radiation sensitizers, vaccines, gene therapy and immunotoxins.

Cytotoxics. Cytotoxics are anticancer drugs that destroy cancer cells by stopping them from multiplying. Healthy cells can also be harmed with the use of cytotoxics, especially those that divide quickly. Harm to healthy cells is what causes side effects. These cells usually repair themselves after chemotherapy. Chemotherapy can be used for different purposes which include curing cancer (when the patient remains free of evidence of cancer cells), controlling cancer (by preventing the cancer from spreading), and to relieving symptoms of cancer (such as pain, helping patients live more comfortably).

Cytotoxic agents act primarily on macromolecular synthesis, repair or activity, which affects the production or function of DNA, RNA or protein. For example, our drug candidate Talotrexin is a novel non-classical antifolate or antimetabolite that is a cytotoxic agent for the treatment of solid tumors. Although there are many cytotoxic agents, there is a considerable amount of overlap in their mechanisms of action. As such, the choice of a particular agent or group of agents is generally not a consequence of a prior prediction of antitumor activity by the drug, but instead the result of empirical clinical trials.

Radiotherapy. Also called radiation therapy, radiotherapy is the treatment of cancer and other diseases with ionizing radiation. Ionizing radiation deposits energy that injures or destroys cells in the area being treated - the target tissue - by damaging their genetic material, making it impossible for these cells to continue growing. Although radiation damages both cancer cells and normal cells, the latter are able to repair themselves and regain proper function. Radiotherapy may be used to treat localized solid tumors, such as cancers of the skin, tongue, larynx, brain, breast, or uterine cervix. It can also be used to treat leukemia and lymphoma (cancers of the blood-forming cells and lymphatic system, respectively).

Scientists are also looking for ways to increase the effectiveness of radiotherapy. Two types of investigational drugs are being studied for their effect on cells exposed to radiation. Radiosensitizers, such as IPdR being developed by us, increase the damage done to tumor cells by radiation; and radioprotectors protect normal tissues from the effects of radiation.

Supportive care. The treatment of a cancer may include the use of chemotherapy, radiation therapy, biologic response modifiers, surgery, or some combination of all of these or other therapeutic options. All of these treatment options are directed at killing or eradicating the cancer that exists in the patient’s body. Unfortunately, the delivery of many cancer therapies adversely affects the body’s normal organs. The undesired consequence of harming an organ not involved with cancer is referred to as a complication of treatment or a side effect. Side effects, or complications, of treatment cause inconvenience, discomfort, and occasionally, may even be fatal. Additionally and perhaps more importantly, side effects may also prevent doctors from delivering the prescribed dose of therapy at the specific time and schedule of the treatment plan. Therefore, side effects not only cause discomfort, but may also limit a patient’s ability to achieve the best outcome from treatment by preventing the delivery of therapy at its optimal dose and time.

In addition to anemia, fatigue, hair-loss, reduction in blood platelets and white and red blood cells, and bone pain, one of the most common side effects of chemotherapy is nausea and vomiting. Several drugs have been developed to help prevent and control chemotherapy-induced nausea and vomiting, which have led to improvements in the management of symptoms associated with this cancer treatment, allowing for greater accuracy and consistency concerning the administration of cancer treatment. Nausea and vomiting induced by chemotherapy is treated by drugs such as 5-HT3 receptor antagonists, like our product candidate Zensana™ (ondansetron oral spray), which are selective blocking agents of the hormone serotonin.

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Our Pipeline

Talotrexin (PT-523)

Overview

We hold an exclusive, worldwide license to develop and commercialize Talotrexin, our lead product candidate, pursuant to a December 2002 license agreement with the Dana-Farber Cancer Institute and Ash Stevens, Inc. Talotrexin is a cytotoxic agent that we are developing for the treatment of various solid and hematological cancers. We are currently studying Talotrexin in a Phase I solid tumor clinical trial being conducted at Dana-Farber, Massachusetts General Hospital and Beth-Israel Deaconess Hospital; a multicenter Phase I and II clinical trial in patients with relapsed or refractory non-small cell lung cancer (NSCLC) in several sites in the United States and across Eastern Europe; and an open-label, multicenter Phase I and II study in the treatment of refractory leukemias in the United States.

Product Description

Talotrexin is a novel, non-classical antifolate that was developed at Dana-Farber and the National Cancer Institute as part of a program to identify products with improved efficacy, tolerability and decreased resistance. Antifolates are an important class of cytotoxic or antineoplastic agents (substances that inhibit the growth of tumors) which are antimetabolites, or drugs that are structurally similar to naturally occurring metabolites, but differ enough to interfere with normal metabolic pathways. The drug known as methotrexate is the most commonly used antifolate currently on the market. Antifolates, and methotrexate specifically, have been used clinically for more than 30 years to treat both solid and hematological cancers (such as breast cancer and acute lymphocytic leukemia), as well as inflammatory diseases (such as rheumatoid arthritis). Antifolates in this product class, including methotrexate, are structurally related to folic acid and act as antagonists to this vitamin by inhibiting the enzyme that converts folic acid to its active form. Rapidly dividing cells, such as cancer cells, need folic acid to multiply. The decreased level of folic acid leads to depressed DNA, RNA, and protein synthesis, which in turn leads to cell death.

The combined results of several preclinical studies suggest that Talotrexin has the potential to significantly enhance the treatment of patients with cancer and other autoimmune diseases. Potential advantages of Talotrexin over existing therapies include increased potency, a superior resistance profileand better tolerability.

· Increased potency: Talotrexin is cytotoxic because it inhibits dihydrofolate reductase, or “DHFR,” an enzyme involved in the biosynthesis of folic acid coenzymes. Talotrexin is more tightly bound to DHFR and enters cells more efficiently through the reduced folate carrier transport system pathway than other antifolates, including methotrexate. These properties of Talotrexin result in its increased potency in the inhibition of tumor cell growth.

· Superior resistance profile: First generation antifolates, such as methotrexate and Alimta® (pemetrexed; Eli Lilly & Co.), need to be polyglutamated for intracellular retention and effective inhibition of targeted enzymes. Cancer cells are either intrinsically resistant, or develop resistance to treatment. Through rational drug design, Talotrexin does not require polyglutamation for its activity and therefore circumvents drug resistance. In preclinical studies, Talotrexin has demonstrated efficacy against tumor cells that were resistant to other antifolates.

· Better Tolerability: Classical compounds such as methotrexate are polyglutamated once they enter the cells. This polyglutamation allows the drug to stay in the cell and act on its target more effectively. However, while healthy cells maintain their ability to make polyglutamates, cancer cells lose their ability to form polyglutamates. Consequently, the drug stays in the healthy cells, causing toxicity, but it is not able to exert its effect on cancer cells to kill them. Talotrexin is believed to address this problem by blocking and altering the side chain of the compound. Based on preclinical studies conducted to date, we believe this alteration allows the drug to stay in the cancer cell with tighter binding and act on its target. Preclinical studies, however, often do not reflect subsequent human clinical trial success. Talotrexin may prove to be poorly tolerated or ineffective in human clinical trials.

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Clinical Development

In March 2003, we submitted an Investigational New Drug application, or “IND,” with the U.S. Food and Drug Administration to seek approval to commence Phase I clinical trials of Talotrexin for the treatment of cancer in humans. The FDA accepted the IND in May 2003, enabling us to initiate clinical trials in the U.S. In 2003, we received institutional review board approval to begin Phase I clinical studies at the Dana Farber Cancer Institute, Massachusetts General Hospital, and Beth-Israel Deaconess Hospital. Joseph Paul Eder, M.D., Assistant Professor of Medicine at Harvard Medical School and the Clinical Director of the Experimental Therapeutics Program, is the primary investigator for the Phase I clinical study, which commenced in March 2004.

The primary objectives of the study are to: (1) evaluate the safety of a short intravenous infusion of Talotrexin when administered on days 1, 8, and 15 of a 28-day cycle to patients with solid tumors who have failed curative or survival prolonging therapy or for whom no such therapies exist; and (2) establish the maximum tolerated dose and identify the dose limiting toxicities of Talotrexin. The secondary objectives of this study are to determine the pharmacokinetics and to evaluate preliminary efficacy of Talotrexin in patients receiving a short intravenous infusion of Talotrexin. A total of 20-40 patients are expected to be enrolled in this trial with 31 subjects already having received at least one dose of Talotrexin.

In February 2005, an open-label multicenter, multinational Phase I and II study of Talotrexin was commenced in the treatment of relapsed or refractory non-small cell lung cancer or “NSCLC.” The primary objectives of the Phase I portion of this study are to: (1) evaluate the safety of Talotrexin when administered on Days 1 and 8 of a 21-day cycle to NSCLC subjects who have failed curative or survival prolonging therapy or for whom no such therapies exist; and (2) establish the maximum tolerated dose and identify the dose limiting toxicities of Talotrexin. The primary objectives of the Phase II portion of this study are to evaluate the activity of Talotrexin as therapy in subjects with NSCLC who have progressed on or following standard first-line as well as second line therapies, as measured by overall survival. A total of 110 patients are expected to enroll in the Phase I and II clinical trial with 24 subjects receiving at least one dose of Talotrexin. While some treatment options are currently available, we believe that a significant opportunity exists to improve the therapeutic options for patients with the progressive form of this cancer. This study will evaluate the anti-tumor activity of Talotrexin among patients with previously treated non-small cell lung cancer.

In May 2005, we commenced an open-label, multicenter Phase I and II study of Talotrexin in the treatment of refractory leukemias including myelodysplastic syndromes.. The primary objectives of the Phase I portion of this study are to: (1) evaluate the safety of Talotrexin when administered on Days 1 through 5 of a 21-day cycle to refractory leukemia subjects who have failed curative or survival prolonging therapy or for whom no such therapies exist; and (2) establish the maximum tolerated dose and identify the dose limiting toxicities of Talotrexin. The primary objective of the Phase II portion of this study is to evaluate the activity of Talotrexin as therapy in adult lymphoblastic leukemia (“ALL”) patients who relapsed or refractory to frontline and/or salvage therapy as measured by overall response. The secondary objective is to assess the impact of Talotrexin as measured by duration of remission and survival. A total of 75 patients are expected to enroll in the Phase I and II clinical trial with fourteen subjects already having received at least one dose of Talotrexin. While some treatment options are currently available, we believe that a significant opportunity exists to improve the therapeutic options for patients with the progressive form of this cancer.

We also anticipate initiating a Phase II clinical trial in cervical cancer in early 2006. We expect that it will take at least an additional 4-5 years to complete development and obtain FDA approval of Talotrexin, if ever.

Additional Potential Indications for Talotrexin

While Talotrexin continues in clinical development for oncology, we also intend to evaluate its potential in non-oncology indications, such as rheumatoid arthritis, psoriasis, inflammatory bowel disease, and multiple sclerosis. After initial preclinical studies are evaluated in each of the indications, our scientific advisory board, consultants, and management team will evaluate its potential in these indications. We then intend to pursue further clinical testing of Talotrexin in the non-oncology indications that we believe show the most potential.

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Competition

Cytotoxic agents such as antifolates have been in use for many years. Originally used as a chemotherapy drug to treat certain kinds of cancer, methotrexate was also found to be beneficial in those with inflammatory arthritis and psoriasis. In cancer, methotrexate has been used in breast, head and neck, lung, acute lymphocytic leukemia, gestational trophoblastic disease, lymphoma, and bone tumors. It is also used to treat rheumatoid arthritis and psoriasis. Trimetrexate is a methotrexate analog originally developed by Pfizer, which was approved in 1993 for the treatment of moderate-to-severe pneumocystis carinii pneumonia for immunocompromised patients. Alimta (pemetrexed), being developed by Eli Lilly and Company, was granted accelerated approval in August 2004 as a single agent to treat locally advanced or metastatic non-small cell lung cancer that is refractory to chemotherapy. Alimta was originally approved by the FDA in February 2004 for use in combination with cisplatin to treat patients with malignant pleural mesothelioma whose disease is unresectable or who are otherwise not candidates for curative surgery. According to Eli Lilly, sales of Alimta were reported to be $463 million in 2005. Possible advantages of Talotrexin versus other compounds include increased targeting to tumor cells, better tolerability and superior resistance profile.

We believe the efficacy and safety profile of Talotrexin will make it an attractive alternative to existing antifolate therapies for oncology and inflammatory diseases. We intend to achieve market share at the expense of existing and established products, as well as future products in the relevant target markets. Some of our competitors include, but are not limited to, Eli Lilly and Company (pemetrexed), Allos Therapeutics (pralatrexate), BioNumerik (MDAM), and BTG (plevitrexed).

Zensana™ (ondansetron oral spray)

Overview

Our second product candidate, Zensana™ (ondansetron oral spray), is a novel delivery system that utilizes the highly-absorptive surfaces of the oral mucosa to deliver ondansetron, widely used to prevent chemotherapy-induced nausea and vomiting, directly into the bloodstream with the potential of achieving therapeutic levels in a shorter period of time than conventional oral dosage forms. We hold an exclusive right to develop and commercialize Zensana™ in the U.S. and Canada pursuant to a license agreement with NovaDel Pharma, Inc.

Product Description

Zensana™ is a novel delivery system that utilizes the vast and highly-absorptive surfaces of the oral mucosa to deliver ondansetron directly into the bloodstream, potentially achieving therapeutic levels in a shorter period of time than conventional oral dosage forms. Ondansetron is a selective blocking agent of the serotonin 5-HT3 receptor type and is widely accepted as the standard of care to prevent chemotherapy-induced nausea and vomiting. Zensana™ may provide increased convenience and efficacy for cancer patients experiencing nausea and vomiting. Drug delivery across the oral mucosa avoids delays associated with tablet dissolution, gastrointestinal transit and absorption of conventional tablet and orally dissolving tablet formulations. Therefore, we expect the proprietary oral spray formulation of ondansetron to more rapidly alleviate nausea and vomiting as compared to current oral formulations of the drug. In addition, small doses of ondansetron are expected to be required since oral spray delivery avoids the “first pass effect” − metabolism and degradation of the active ingredient by the liver - of orally administered ondansetron.

Ondansetron is currently approved in the U.S. by the FDA and is currently being marketed by GlaxoSmithKline under the name Zofran® for the following indications:

(1) Prevention of nausea and vomiting associated with highly emetogenic (i.e., vomit-inducing) cancer chemotherapy;

(2) Prevention of nausea and vomiting associated with initial and repeat courses of moderately emetogenic cancer chemotherapy;

(3) Prevention of nausea and vomiting associated with radiotherapy in patients receiving either total body irradiation, single high-dose fraction to the abdomen, or daily fractions to the abdomen; and

(4) Prevention of postoperative nausea and/or vomiting.

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As with other antiemetics (i.e., agents that prevent or reduce vomiting), routine prophylaxis is not recommended for patients in whom there is little expectation that nausea and/or vomiting will occur postoperatively. In patients where nausea and/or vomiting must be avoided postoperatively, Zofran® Tablets, Zofran® ODT Orally Disintegrating Tablets, and Zofran® Oral Solution are recommended even where the incidence of postoperative nausea and/or vomiting is low.

Clinical and Regulatory Development Plan

Our clinical development strategy for Zensana™ has been focused on identifying a formulation that provides a dose of ondansetron that is equivalent to the approved 8 mg tablet formulations in terms of overall systemic exposure to the active ingredient. In addition, we expect that our development strategy will provide support for potential advantages of the Zensana™ formulation such as time to therapeutic effect or convenience in dispensing and administration.

In the first quarter of 2005, we completed a pilot pharmacokinetic, or “PK,” study with Zensana™ in 9 healthy subjects. This study indicated that Zensana™ had a comparable PK profile to the commercially available 8 mg ondansetron tablet, but with a more rapid time to detectable drug levels. Based on these proof-of-principle results, and other preclinical studies, we held a pre-IND meeting with the FDA in September 2005 to discuss our registrational strategy. At that meeting, we presented our planned clinical program, with specific regard to new drug application (NDA) enabling trials under the 505(b)(2) registration guidelines that we proposed. During this meeting, the FDA indicated that, should we prove PK exposure equivalence between Zensana™ and the approved oral 8mg dose, in terms of both maximum plasma concentration (Cmax) and total exposure as measured by the area under the curve (AUC), within the FDA’s standard 80% to125% range, it would be sufficient for an NDA filing. In addition, the FDA requested that we demonstrate how Zensana™ performs in a multidose setting and what the effects of food and water would have on the PK profile of Zensana™.

Based on the FDA’s guidance, we filed an IND in November 2005, and in December 2005, initiated the first of four pivotal PK trials, all in healthy volunteers: a single dose trial comparing Zensana™ to tablet Zofran® involving 32 healthy volunteers; a multidose or steadystate single arm trial of Zensana™ involving 15 healthy volunteers; a food & water PK study involving 24 healthy volunteers; and a confirmatory single-dose study involving 44 healthy volunteers.

The results of these pivotal PK trials, which we announced in the first quarter of 2006, demonstrated the following:

·   Zensana™ is statistically bioequivalent to the 8 mg tablet of ondansetron and has a safety profile similar to the ondansetron 8 mg tablet;

·   Zensana™ delivered statistically faster absorption as defined by median time to detectible drug levels of ondansetron at 15 minutes versus the tablet at 30 minutes;

·   Zensana™ was well-tolerated by both men and women and has a similar safety profile as the ondansetron 8 mg tablet; and

·   Zensana™ can be conveniently administered in multiple doses.

With these studies complete, we intend to submit an NDA in the second quarter of 2006, following a meeting with the FDA. We intend that this NDA will be based on demonstration of the bioequivalence of Zensana™ to already approved oral ondansetron under Section 505(b)(2) of the Food, Drug and Cosmetic Act (the “FDCA”). Section 505(b)(2) of the FDCA permits the FDA, in its review of an NDA, to rely on a previous FDA finding of safety and efficacy for a related drug. The 505(b)(2) approval pathway is distinguished from the Abbreviated New Drug Application (ANDA) or generics route by the requirement that drug products approved under this section must have significant difference relative to the reference approved product. The additional information in the 505(b)(2) applications can be provided by literature or reference to past FDA findings of safety and effectiveness for approved drugs, or it can be based upon studies conducted by or for the applicant to which it has obtained a right of reference. The majority of 505(b)(2) applications are filed for new formulations of drugs which are widely used, like ondansetron, so there is an understanding on the part of the FDA, as well as the medical community on their pharmacokinetics, safety and efficacy.

Assuming approval of our planned NDA by the FDA, we expect to commercially launch Zensana™ in 2007, following the expiration of certain patents related to ondansetron.

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Market and Competition

According to the National Cancer Institute over 500,000 Americans received chemotherapy in 2004, and the majority of these patients received an anti-emetic such as ondansetron. Nausea and vomiting are the leading concerns of patients undergoing chemotherapy. Annual U.S. sales for ondansetron were approximately $1.0 billion, representing a 66% market share among the four approved 5-HT3 products in 2004.

Since the introduction of Zofran® (ondansetron), the 5-HT3 class of treatment has grown significantly, with the introduction of three other U.S. marketed antiemetics (i.e. products that prevent vomiting and nausea) − Kytril (granisetron), Anzemet (dolasetron) and most recently, Aloxi (palonosetron). The two formulations most commonly prescribed for chemo-induced nausea and vomiting are the tablet and IV forms. Emend (aprepitant), an NK1 inhibitor, is the only FDA-approved agent for the prevention of delayed nausea and vomiting associated with highly emetogenic chemotherapy.

In addition to the currently branded antiemetics, there will be generic versions of ondansetron after the patent for Zofran® expires in December 2006. Manufacturers have submitted abbreviated new drug applications for the three formulations of ondansetron. After the launch of the generic versions, each of them will have 180 day exclusivity for the sale of their respectively approved formulation.

IPdR: Product Description

Overview

Our third product candidate, IPdR, is a radiation therapy sensitizer that we are developing for use in the treatment of certain types of brain cancers. When used in conjunction with radiation therapy, a sensitizer potentially makes the tumor area more likely to be damaged by the radiation. We hold an exclusive, worldwide license to develop and commercialize IPdR pursuant to a license agreement with Yale University and the State University of New York.

Product Description

Radiotherapy, also called radiation therapy, is the treatment of cancer and other diseases with ionizing radiation. Ionizing radiation deposits energy that injures or destroys cells in the area being treated − the target tissue − by damaging their genetic material, making it impossible for these cells to continue to grow. Although radiation damages both cancer cells and normal cells, the latter are able to repair themselves and function properly. Radiotherapy may be used to treat localized solid tumors, such as cancers of the skin, tongue, larynx, brain, breast, or uterine cervix. It can also be used to treat leukemia and lymphoma (cancers of the blood-forming cells and lymphatic system, respectively).

Two types of investigational drugs are being studied for their effect on cells undergoing radiation. Radiosensitizers, such as IPdR, potentially make the tumor cells more likely to be damaged, and radioprotectors, which protect normal tissues from the effects of radiation.

IPdR is a novel oral prodrug of the compound 5-iodo-2’-deoxyuridine, more commonly known as IUdR, being developed as a radiation therapy sensitizer for the treatment of certain types of brain cancers. Prodrugs are compounds that are converted within the body into their active form that has medical effects. IPdR is converted to IUdR by the enzyme aldehyde oxidase in the liver. Preclinical studies with IPdR in several animal models demonstrated that IPdR and radiation is superior in terms of safety and efficacy versus IUdR and radiation or radiation alone. While the toxicity of intravenously administered IUdR limits the duration and dose rate of treatment, it is believed that the decreased toxicity of orally administered IPdR makes it potentially useful in the radiation treatment. Preclinical studies, however, often do not reflect subsequent human clinical trial success. IPdR may not prove to be well tolerated or effective in human clinical trials.

Clinical and Regulatory Development Plan

The clinical development strategy for IPdR is to improve the therapeutic index of IUdR radiosensitization in poorly responsive (clinically radioresistant) human tumors. To achieve this, we propose to use a less systemically toxic halogenanted analogue that can be metabolized in the body to the active drug by the liver. Based on preclinical studies, the use of orally administered IPdR as a prodrug for IUdR-mediated tumor radiosensitization may achieve this goal.

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The first potential indication for the use of IPdR will be for malignant brain tumors. Glioblastoma multiforme and anaplastic astrocytoma are the two most common forms of malignant brain tumor. They are highly aggressive, locally invasive, and poorly responsive to most treatments. Overall, the incidence of anaplastic astrocytoma and glioblastoma multiforme in the United States is 12,000 new cases each year, which account for more than 50 percent of all primary brain tumors diagnosed each year in the United States each year. Malignant gliomas are typically diagnosed later in life, with a median age at diagnosis of 62 years. The incidence of malignant glioma has been increasing in the elderly population in recent years.

The reason for initially targeting malignant gliomas is that radiation therapy is the standard treatment for this cancer. Additionally, because these tumors are highly aggressive, standard endpoints such as increase in survival can be replaced by increased tumor response or decreased toxicity in these patients.

In September 2005, we initiated a Phase I clinical trial in colorectal, gastric, pancreatic and liver cancers. The objectives of this clinical trial are to establish the safety, dose and preliminary efficacy of IPdR in combination with radiation therapy. After the completion of this study, we expect to begin a Phase II study for malignant gliomas. After the completion of that study and meeting with the FDA, we anticipate initiating several additional Phase II and III studies. We envision these studies being done for primary brain tumor and for the treatment of brain metastases. Upon completion of these studies, and having a pre-NDA meeting with the FDA, we hope to use data from these studies to file a NDA. We estimate NDA approval and market launch in 2009. Also, development timelines may potentially be shorter through FDA “Fast Track” review due to the likelihood of orphan drug designation, high unmet medical need, and high rate of disease progression.

Competition

Chemoradiotherapy (external irradiation combined with concurrent chemotherapy) using fluorouracil (FU) and more recently 5FU prodrug XelodaÒ (capecitabine; Roche) has been in use since the 1960s in radical and adjuvant treatment programs. Also, FU can be considered one of the first “targeted” molecules in the oncologist’s armamentarium; its activity is based on the observations that uracil is preferentially used by cancer cells and that a fluorinated analog of this base might selectively alter cancer cell metabolism. IPdR is active downstream from the 5FU biological pathway. In 2002, 2 million patients were treated worldwide with FU, and a large percentage also received FU-based chemoradiotherapy, providing a basis for the oncologic management of many patients. Overall, FU chemoradiotherapy maximizes local control and, for some tumor sites, improves survival rates; moreover, it results in improved organ preservation with excellent functional outcome in several anatomic sites.

In addition, there are two late stage radiation sensitizers in clinical development: Efaproxyn (RSR13) and Xcytrin (motexafin gadolinium). RSR13, being developed by Allos, is a synthetic small molecule that enhances the diffusion of oxygen to hypoxic tumor tissues from hemoglobin. A Phase III study, known as ENRICH (Enhancing Whole Brain Radiation Therapy in Patients with Breast Cancer and Hypoxic Brain Metastases), is designed to compare the effect of whole brain radiation therapy with supplemental oxygen with or without Efaproxyn in women with brain metastases originating from breast cancer. Xcytrin, being developed by Pharmacyclics, is an anti-cancer agent with a novel mechanism of action that is designed to selectively concentrate in tumor and induce cancer cell death. Xcytrin has been granted Fast-Track status by the FDA for the treatment of brain metastases (cancer that has spread to the brain from another part of the body) in non-small cell lung cancer (NSCLC) patients. Xcytrin is currently being evaluated in a randomized Phase III clinical trial (the SMART trial) designed to compare the effects of whole brain radiation therapy alone to whole brain radiation therapy plus Xcytrin for the treatment of brain metastases in patients suffering from NSCLC.

Xcytrin, being developed by Pharmacyclics, is an anti-cancer agent with a novel mechanism of action that is designed to selectively concentrate in tumor and induce cancer cell death. Xcytrin has been granted Fast-Track status by the FDA for the treatment of brain metastases (cancer that has spread to the brain from another part of the body) in non-small cell lung cancer (NSCLC) patients. Xcytrin is currently being evaluated in a randomized Phase III clinical trial (the SMART trial) designed to compare the effects of whole brain radiation therapy alone to whole brain radiation therapy plus Xcytrin for the treatment of brain metastases in patients suffering from NSCLC.

Government Regulation

The research, development, testing, manufacture, labeling, promotion, advertising, distribution, and marketing, among other things, of our products are extensively regulated by governmental authorities in the United States and other countries. In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the “FDCA,” and its implementing regulations. Failure to comply with the applicable U.S. requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pending NDAs, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, and/or criminal prosecution.

Drug Approval Process. None of our drugs may be marketed in the U.S. until the drug has received FDA approval. The steps required before a drug may be marketed in the U.S. include:

· preclinical laboratory tests, animal studies, and formulation studies,

· submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin,

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· adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each indication,

· submission to the FDA of an NDA,

· satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current good manufacturing practices, or “cGMPs,” and

· FDA review and approval of the NDA.

Preclinical tests include laboratory evaluation of product chemistry, toxicity, and formulation, as well as animal studies. The conduct of the preclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions about issues such as the conduct of the trials as outlined in the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin.

Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND.

Clinical trials typically are conducted in three sequential phases, but the phases may overlap. The study protocol and informed consent information for study subjects in clinical trials must also be approved by an Institutional Review Board for each institution where the trials will be conducted. Study subjects must sign an informed consent form before participating in a clinical trial. Phase I usually involves the initial introduction of the investigational drug into people to evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics and pharmacologic actions, and, if possible, to gain an early indication of its effectiveness. Phase II usually involves trials in a limited patient population to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible adverse effects and safety risks; and (iii) evaluate preliminarily the efficacy of the drug for specific indications. Phase III trials usually further evaluate clinical efficacy and test further for safety by using the drug in its final form in an expanded patient population. There can be no assurance that Phase I, Phase II, or Phase III testing will be completed successfully within any specified period of time, if at all. Furthermore, the Company or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

The FDCA permits FDA and the IND sponsor to agree in writing on the design and size of clinical studies intended to form the primary basis of an effectiveness claim in an NDA application. This process is known as Special Protocol Assessment, or SPA. These agreements may not be changed after the clinical studies begin, except in limited circumstances.

Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical studies, together with other detailed information, including information on the manufacture and composition of the drug, are submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. The testing and approval process requires substantial time, effort, and financial resources. The agencies review the application and may deem it to be inadequate to support the registration and we cannot be sure that any approval will be granted on a timely basis, if at all. The FDA may also refer the application to the appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendations of the advisory committee.

The FDA has various programs, including fast track, priority review, and accelerated approval, that are intended to expedite or simplify the process for reviewing drugs, and/or provide for approval on the basis surrogate endpoints. Generally, drugs that may be eligible for one or more of these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that provide meaningful benefit over existing treatments. We cannot be sure that any of our drugs will qualify for any of these programs, or that, if a drug does qualify, that the review time will be reduced.

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Section 505(b)(2) of the FDCA allows the FDA to approve a follow-on drug on the basis of data in the scientific literature or a prior FDA approval of an NDA for a related drug. This procedure potentially makes it easier for generic drug manufacturers to obtain rapid approval of new forms of drugs based on proprietary data of the original drug manufacturer.

Before approving an NDA, the FDA usually will inspect the facility or the facilities at which the drug is manufactured, and will not approve the product unless cGMP compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing facilities as acceptable, the FDA may issue an approval letter, or in some cases, an approvable letter followed by an approval letter. Both letters usually contain a number of conditions that must be met in order to secure final approval of the NDA. When and if those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter. The approval letter authorizes commercial marketing of the drug for specific indications. As a condition of NDA approval, the FDA may require postmarketing testing and surveillance to monitor the drug’s safety or efficacy, or impose other conditions.

After approval, certain changes to the approved product, such as adding new indications, making certain manufacturing changes, or making certain additional labeling claims, are subject to further FDA review and approval. Before we can market our product candidates for additional indications, we must obtain additional approvals from FDA. Obtaining approval for a new indication generally requires that additional clinical studies be conducted. We cannot be sure that any additional approval for new indications for any product candidate will be approved on a timely basis, or at all.

Post-Approval Requirements. Often times, even after a drug has been approved by the FDA for sale, the FDA may require that certain post-approval requirements be satisfied, including the conduct of additional clinical studies. If such post-approval conditions are not satisfied, the FDA may withdraw its approval of the drug. In addition, holders of an approved NDA are required to: (i) report certain adverse reactions to the FDA, (ii) comply with certain requirements concerning advertising and promotional labeling for their products, and (iii) continue to have quality control and manufacturing procedures conform to cGMP after approval. The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing facilities; this latter effort includes assessment of compliance with cGMP. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. We intend to use third party manufacturers to produce our products in clinical and commercial quantities, and future FDA inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved NDA, including withdrawal of the product from the market.

Orphan Drug. The FDA may grant orphan drug designation to drugs intended to treat a “rare disease or condition,” which generally is a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA. If the FDA grants orphan drug designation, which it may not, the identity of the therapeutic agent and its potential orphan use are publicly disclosed by the FDA. Orphan drug designation does not convey an advantage in, or shorten the duration of, the review and approval process. If a product which has an orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, meaning that the FDA may not approve any other applications to market the same drug for the same indication, except in certain very limited circumstances, for a period of seven years. Orphan drug designation does not prevent competitors from developing or marketing different drugs for that indication.

Non-United States Regulation. Before our products can be marketed outside of the United States, they are subject to regulatory approval similar to that required in the United States, although the requirements governing the conduct of clinical trials, including additional clinical trials that may be required, product licensing, pricing and reimbursement vary widely from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved. The pricing review period often begins after market approval is granted. Even if a product is approved by a regulatory authority, satisfactory prices may not be approved for such product.

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In Europe, marketing authorizations may be submitted at a centralized, a decentralized or national level. The centralized procedure is mandatory for the approval of biotechnology products and provides for the grant of a single marketing authorization that is valid in all EU members states. As of January 1995, a mutual recognition procedure is available at the request of the applicant for all medicinal products that are not subject to the centralized procedure. There can be no assurance that the chosen regulatory strategy will secure regulatory approvals on a timely basis or at all.

Since the inception of Hana Biosciences, Inc. in December 2002, our efforts and resources have been focused primarily on acquiring and developing our biopharmaceutical technologies, raising capital and recruiting personnel. We completed four financings of $32.4 million, before applicable fees, and secured research grants totaling approximately $12 million. We are a development stage company and have no product sales to date and we will not receive any product sales until we receive approval from the FDA or equivalent foreign regulatory bodies to begin selling our pharmaceutical candidates. Developing pharmaceutical products, however, is a lengthy and very expensive process. Assuming we do not encounter any unforeseen safety issues during the course of developing our product candidates, we do not expect to complete the development of a product candidate until approximately 2007 or 2008. Currently, a large portion of the development expenses relating to our lead product candidate, Talotrexin, are being funded by grants. Once the development covered by the grants is complete, we expect that our research and development expenses will increase significantly. In addition, as we initiate development of IPdR and commercialization of Zensana™ (ondansetron oral spray), our second and third product candidates, our research and development and sales and marketing expenses will further increase. To the extent we are successful in acquiring additional product candidates for our development pipeline, our need to finance further research and development will continue increasing. Accordingly, our success depends not only on the safety and efficacy of our product candidates, but also on our ability to finance the development of the products. Our major sources of working capital have been proceeds from various private financings, primarily private sales of our common stock and other equity securities.

License Agreements and Intellectual Property

General

Our goal is to obtain, maintain and enforce patent protection for our products, formulations, processes, methods and other proprietary technologies, preserve its trade secrets, and operate without infringing on the proprietary rights of other parties, both in the United States and in other countries. Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for its product candidates, proprietary information and proprietary technology through a combination of contractual arrangements and patents, both in the U.S. and abroad. However, even patent protection may not always afford complete protection against competitors who seek to circumvent patents. See “Risk Factors - Risks Relating to Our Business - If we fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish,” following Item 1 of this Annual Report.

We also depend upon the skills, knowledge and experience of our scientific and technical personnel, as well as that of our advisors, consultants and other contractors, none of which is patentable. To help protect our proprietary know-how which is not patentable, and for inventions for which patents may be difficult to enforce, we rely and intend to rely in the future on trade secret protection and confidentiality agreements to protect our interests.

License Agreements

Talotrexin.Our rights to Talotrexin are governed by the terms of a December 2002 license agreement with Dana-Farber Cancer Institute and Ash Stevens, Inc. The agreement provides us with an exclusive worldwide royalty bearing license, including the right to grant sublicenses, to the intellectual property rights and know-how relating to Talotrexin and all of its uses. Patents related to this technology and covered by the license include: (i) a composition of matter patent, (ii) a utility application, and (iii) provisional use patents for multiple indications. The technology licensed to us includes one United States patent issued in 1988 and one pending patent application filed in April 2003.

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Upon execution of the license agreement, we paid a license fee of $100,000 to our licensors and also reimbursed them for patent-related expenses in an amount of approximately $11,000. In addition, the license agreement requires us to make future payments totaling up to $6 million upon the achievement of certain milestones, including a $5 million payment upon approval by the FDA of a New Drug Application for Talotrexin. To date, we have made one of these milestone payments in the amount of $100,000 following commencement of the Phase I clinical trial. Additionally, we are obligated to pay royalties in the amount of 3.5 percent of “net sales” (as defined in the license agreement) of Talotrexin. We are also required to pay to the licensors 20 percent of fees or non-royalty consideration (e.g., milestone payments, license fees) received by us in connection with any sublicense of Talotrexin granted prior to the start of a Phase II trial, and 15 percent of such fees after initiation of a Phase II clinical trial.

The license agreement includes certain other covenants, which require us to, among other things, maintain and prosecute patents related to Talotrexin; use our commercially reasonable efforts to bring the licensed product to market as soon as reasonably practicable; and prepare and provide to the licensors certain reports concerning our development and commercialization efforts. In the event we fail to carry out our responsibilities under the license agreement, the licensors may terminate the license. The license agreement may also be terminated in the event we fail to make a scheduled milestone or royalty payment, we otherwise materially breach the license agreement, or if we become involved in a bankruptcy, insolvency or similar proceeding, provided that we are entitled to notice of such intention to terminate and an opportunity to cure.

The license agreement automatically expires, on a country-by-country basis, on the date on which the last of the patent claims covered by the agreement expires, lapses or is declared invalid by a court of competent jurisdiction in such country. The first of the patents covered by the license agreement is set to expire in 2007, although the pending applications, if granted, will not expire until 2023.

IPdR.In February 2004, we entered into an exclusive worldwide, royalty-bearing license agreement with Yale University and The Research Foundation of State University of New York, including the right to grant sublicenses, for the rights to the intellectual property relating to IPdR. The licensed intellectual property includes patent rights relating to IPdR that do not expire until 2015, at the earliest. In addition to a $100,000 license fee paid upon execution of the agreement, we issued to our licensors 10-year options to purchase an aggregate of approximately 141,000 shares of our common stock at a price of $1.02 per share. We are also required to make an annual license payment of $25,000 on the anniversary of the agreement. In addition, we are required to make milestone payments in the aggregate amount of $500,000 upon the completion of a Phase IIb clinical trial and upon NDA approval by the FDA. As further consideration for the license, we are required to pay royalties to Yale and SUNY equal to 3 percent of net sales (as defined in the license agreement) from IPdR.

The license agreement also includes certain other covenants which obligate us to, among other things, initiate a Phase I trial for IPdR by February 2006 and a Phase II trial within 18 months of successful completion of the Phase I trial; file an NDA for FDA approval by February 2011; maintain and prosecute the patents relating to IPdR; and use our reasonable commercial efforts to implement a mutually-agreed upon plan for developing and commercializing IPdR. In the event we commit a material breach of our obligations under the license agreement, Yale and SUNY have the right to terminate the license agreement following notice to us and an opportunity to cure such breach (if capable of being cured).

The license agreement automatically expires, on a country-by-country basis, on the date on which the last of the patent claims covered by the agreement expires, lapses or is declared invalid by a court of competent jurisdiction in such country. The first of the two patents covered by the license agreement is set to expire in 2007 and the second is set to expire in 2015.

Zensana™ (ondansetron oral spray).Pursuant to the terms of an October 2004 license agreement with NovaDel Pharma, Inc., we hold a royalty-bearing, exclusive right and license to develop and commercialize within the United States and Canada NovaDel’s lingual spray version of ondansetron. The technology licensed to us under the license agreement currently covers one United States issued patent. In connection with the development of the licensed product, NovaDel has agreed to perform or cause to be performed certain development activities on behalf and at the expense of the Company.

In consideration for the license, the license agreement provides that (i) we will make double-digit royalty payments to NovaDel based on a percentage of “net sales” (as defined in the agreement); (ii) we are obligated to make various milestone payments in an aggregate amount of up to $10 million; and (iii) we issued to NovaDel 73,121 shares of our common stock (determined by dividing $500,000 by the average selling price of our common stock during the 10 business days preceding the date of the license agreement) and we purchased 400,000 shares of NovaDel’s common stock at a price of $2.50 per share. Neither party may sell such shares for a 2-year period following the effective date of the license agreement.

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The license agreement expires on the later of (i) the expiration date of the last to expire patent covered by the license (currently March 2022) or (ii) October 2024, 20 years from the effective date of the license agreement. The license agreement also provides that NovaDel may terminate the agreement upon notice prior to the expiration of its term in the event the Company becomes insolvent or defaults in its payment obligations, and either party may terminate the agreement after giving notice and an opportunity to cure in the event the other party commits a material breach.

Employees

We currently employ 16 persons, all of whom are based at our South San Francisco office. We believe the relationships with our employees are satisfactory.

ITEM 1A. RISK FACTORS

An investment in our common stock is very risky. You may lose the entire amount of your investment. Prior to making an investment decision, you should carefully review this entire prospectus and consider the following risk factors:

Risks Related to Our Business

We currently have no product revenues and will need to raise additional capital to operate our business.

To date, we have generated no product revenues. Until we receive approval for our product candidates from the FDA or other regulatory authorities, we cannot sell our drugs and will not have product revenues. Therefore, for the foreseeable future, we will have to fund all of our operations and capital expenditures from cash on hand, licensing fees and grants. We will need additional financing in addition to such funds, which may not be available on favorable terms, if at all. We may, however, choose to raise additional capital before 2007 in order to fund our future development activities, likely by selling shares of our capital stock or other securities. There can be no assurance that such capital will be available to us on favorable terms or at all. If we are unable to raise additional funds in the future on acceptable terms, or at all, we may be forced to curtail our desired development activities. In addition, we could be forced to delay or discontinue product development, reduce or forego sales and marketing efforts and forego attractive business opportunities. Any additional sources of financing will likely involve the sale of our equity securities, which will have a dilutive effect on our stockholders.

We are not currently profitable and may never become profitable.

We have a history of losses and expect to incur substantial losses and negative operating cash flow for the foreseeable future, and we may never achieve or maintain profitability. For the year ended December 31, 2005, we had a net loss of $10 million, and since our inception in December 2002 through December 31, 2005, we have an accumulated deficit of $18.1 million. Even if we succeed in developing and commercializing one or more of our product candidates, we expect to incur substantial losses for the foreseeable future and may never become profitable.

Our current “burn rate” − i.e., the amount of cash we spend to fund our operations − is approximately $1.1 million per month. We expect our burn rate to increase substantially in the foreseeable future as we

· continue to undertake pre-clinical development and clinical trials for our current and any new product candidates;

· seek regulatory approvals for our product candidates;

· implement additional internal systems and infrastructure;

· seek to acquire additional technologies to develop; and

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· hire additional personnel.

We expect to experience negative cash flow for the foreseeable future as we fund our operating losses and capital expenditures. As a result, we will need to generate significant revenues in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability in the future. Our failure to achieve or maintain profitability could negatively impact the value of our stock.

We have a limited operating history upon which to base an investment decision.

We are a development-stage company that was founded in December 2002. We only have three product candidates, two of which − IPdR and Zensana™(ondansetron oral spray) − we acquired in 2004. To date, we have not demonstrated an ability to perform the functions necessary for the successful commercialization of any of our product candidates. The successful commercialization of our product candidates will require us to perform a variety of functions, including:

· continuing to undertake clinical trials;

· participating in regulatory approval processes;

· formulating and manufacturing products; and

· conducting sales and marketing activities.

Our operations have been limited to organizing and staffing our company, acquiring, developing and securing our proprietary technologies and undertaking, through third parties, pre-clinical trials and clinical trials of our product candidates. These operations provide a limited basis for you to assess our ability to commercialize our product candidates and the advisability of investing in our securities.

If we do not obtain the necessary U.S. or worldwide regulatory approvals to commercialize our product candidates, we will not be able to market and sell our product candidates.

We will need FDA approval to commercialize our product candidates in the U.S. and approvals from the FDA equivalent regulatory authorities in foreign jurisdictions to commercialize our product candidates in those jurisdictions. In order to obtain FDA approval of any of our product candidates, we must submit to the FDA a New Drug Application, or NDA, demonstrating that the product candidate is safe for humans and effective for its intended use. This demonstration requires significant research and animal tests, which are referred to as pre-clinical studies, as well as human tests, which are referred to as clinical trials. Satisfaction of the FDA’s regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product candidate and requires substantial resources for research, development and testing. We cannot predict whether our research and clinical approaches will result in drugs that the FDA considers safe for humans and effective for indicated uses. Historically, only approximately 11 percent of all drug candidates that start clinical trials are eventually approved for sale. After clinical trials are completed, the FDA has substantial discretion in the drug approval process and may require us to conduct additional pre-clinical and clinical testing or to perform post-marketing studies. The approval process may also be delayed by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining regulatory approvals may:

· delay commercialization of, and our ability to derive product revenues from, our product candidates;

· impose costly procedures on us; and

· diminish any competitive advantages that we may otherwise enjoy.

Even if we comply with all FDA requests, the FDA may ultimately reject one or more of our NDAs. We cannot be sure that we will ever obtain regulatory clearance for any of our product candidates. Failure to obtain FDA approval of any of our product candidates will severely undermine our business by reducing our number of salable products and, therefore, corresponding product revenues.

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In foreign jurisdictions, we must receive approval from the appropriate regulatory authorities before we can commercialize our drugs. Foreign regulatory approval processes generally include all of the risks associated with the FDA approval procedures described above. We cannot assure you that we will receive the approvals necessary to commercialize any of our product candidates for sale outside the United States.

Some of product candidates are in early stages of clinical trials, which are very expensive, time-consuming and difficult to design. We cannot predict with any certainty that we will ever receive regulatory approval to sell our product candidates.

Talotrexin and IPdR are in early stages of development and require extensive clinical testing. In 2003, the FDA accepted our Investigational New Drug application, or “IND,” for Talotrexin and in March 2004 we initiated a Phase I clinical trial at Dana-Farber Cancer Institute, Massachusetts General Hospital and Beth-Israel Deaconess Hospital. We have also recently completed an open-label multicenter, multinational Phase I and II study of Talotrexin in the treatment of relapsed or refractory non-small cell lung cancer (NSCLC) and in June 2005, commenced an open-label multicenter Phase I and II study of Talotrexin in the treatment of refractory leukemia. We only commenced an initial Phase I in IPdR in September 2005.

Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial process is also time consuming. We estimate that clinical trials of our product candidates will take at least several years to complete. Further, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including:

· unforeseen safety issues;

· determination of dosing issues;

· lack of effectiveness during clinical trials;

· slower than expected rates of patient recruitment;

· inability to monitor patients adequately during or after treatment; and

· inability or unwillingness of medical investigators and institutional review boards to follow our clinical protocols.

In addition, we or the FDA may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the FDA finds deficiencies in our IND submissions or the conduct of these trials. Accordingly, we cannot predict with any certainty when or if we will ever be in a position to submit an NDA for any of our product candidates, or whether any such NDA would ever be approved.

If the results of our clinical trials do not support our product candidate claims, the completion of development of such product candidates may be significantly delayed or we may be forced to abandon development altogether, which will significantly impair our ability to generate product revenues.

Even if our clinical trials are completed as planned, we cannot be certain that their results will support our product candidate claims. Success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and pre-clinical testing. The clinical trial process may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. This failure would cause us to abandon a product candidate and may delay development of other product candidates. Any delay in, or termination of, our clinical trials will delay the filing of our NDAs with the FDA and, ultimately, our ability to commercialize our product candidates and generate product revenues. In addition, our clinical trials involve a small patient population. Because of the small sample size, the results of these early clinical trials may not be indicative of future results.

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If physicians and patients do not accept and use our drugs, our ability to generate revenue from sales of our products will be materially impaired.

Even if the FDA approves our product candidates, physicians and patients may not accept and use them. Acceptance and use of our product will depend upon a number of factors including:

· perceptions by members of the health care community, including physicians, about the safety and effectiveness of our drugs;

· pharmacological benefit and cost-effectiveness of our product relative to competing products;

· availability of reimbursement for our products from government or other healthcare payers;

· effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any; and

· the price at which we sell our products.

Because we expect sales of our current product candidates, if approved, to generate substantially all of our product revenues for the foreseeable future, the failure of any of these drugs to find market acceptance would harm our business and could require us to seek additional financing.

Because we are dependent on clinical research institutions and other contractors for clinical testing and for research and development activities, the results of our clinical trials and such research activities are, to a certain extent, beyond our control.

We depend upon independent investigators and collaborators, such as universities and medical institutions, to conduct our pre-clinical and clinical trials under agreements with us. For example, our current Phase I trial for Talotrexin is being conducted by Dana-Farber Cancer Institute, Massachusetts General Hospital and Beth-Israel Deaconess Hospital. These collaborators are not our employees and we cannot control the amount or timing of resources that they devote to our programs. These investigators may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. If outside collaborators fail to devote sufficient time and resources to our drug-development programs, or if their performance is substandard, the approval of our FDA applications, if any, and our introduction of new drugs, if any, will be delayed. These collaborators may also have relationships with other commercial entities, some of whom may compete with us. If our collaborators assist our competitors at our expense, our competitive position would be harmed.

Our intention to rely exclusively on third parties to formulate and manufacture our product candidates exposes us to a number of risks that may delay the development, regulatory approval and commercialization of our products or result in higher product costs.

We have no experience in drug formulation or manufacturing and do not intend to establish our own manufacturing facilities. We lack the resources and expertise to formulate or manufacture our own product candidates. We intend to contract with one or more manufacturers to manufacture, supply, store and distribute drug supplies for our clinical trials. If any of our product candidates receive FDA approval, we will rely on one or more third-party contractors to manufacture our drugs. Our anticipated future reliance on a limited number of third-party manufacturers, exposes us to the following risks:

· We may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited and the FDA must approve any replacement contractor. This approval would require new testing and compliance inspections. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our products after receipt of FDA approval, if any.

· Our third-party manufacturers might be unable to formulate and manufacture our drugs in the volume and of the quality required to meet our clinical needs and commercial needs, if any.

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· Our future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our products.

· Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA, the DEA, and corresponding state agencies to ensure strict compliance with good manufacturing practice and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers’ compliance with these regulations and standards, but we will be ultimately responsible for any of their failures.

· If any third-party manufacturer makes improvements in the manufacturing process for our products, we may not own, or may have to share, the intellectual property rights to the innovation.

Each of these risks could delay our clinical trials, the approval, if any, of our product candidates by the FDA, or the commercialization of our product candidates or result in higher costs or deprive us of potential product revenues.

We have no experience selling, marketing or distributing products and no internal capability to do so.

We currently have no sales, marketing or distribution capabilities. While we intend to have a role in the commercialization of our products, we do not anticipate having the resources in the foreseeable future to globally develop sales and marketing capabilities for all of our proposed products. Our future success depends, in part, on our ability to enter into and maintain collaborative relationships with other companies having sales, marketing and distribution capabilities, the collaborator’s strategic interest in the products under development and such collaborator’s ability to successfully market and sell any such products. We intend to pursue collaborative arrangements regarding the sales and marketing of our products, however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if able to do so, that they will have effective sales forces. To the extent that we decide not to, or are unable to, enter into collaborative arrangements with respect to the sales and marketing of our proposed products, significant capital expenditures, management resources and time will be required to establish and develop an in-house marketing and sales force with technical expertise. There can also be no assurance that we will be able to establish or maintain relationships with third party collaborators or develop in-house sales and distribution capabilities. To the extent that we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third parties, as well as the terms of our agreements with such third parties, which cannot be predicted at this early stage of our development. There can be no assurance that such efforts will be successful. In addition, there can also be no assurance that we will be able to market and sell our products in the United States or overseas.

If we cannot compete successfully for market share against other drug companies, we may not achieve sufficient product revenues and our business will suffer.

The market for our product candidates is characterized by intense competition and rapid technological advances. If our product candidates receive FDA approval, they will compete with a number of existing and future drugs and therapies developed, manufactured and marketed by others. In particular, assuming we obtain approval for Talotrexin, we will compete with existing antifolate therapies currently being sold by Pfizer (trimetrexate), Eli Lilly & Co. (pemetrexed) and Novartis (edatrexate). Although there are no approved radiation sensitizers currently on the market, there are several product candidates in development that will compete with IPdR and which are significantly further in development. For example, Allos Therapeutics and Pharmacyclics each have a radiation sensitizer in Phase III development. Zensana™ (ondansetron oral spray) will compete with the currently available oral form of the drug, which is currently being manufactured and sold by GlaxoSmithKline under the name Zofran®. These or other future competing products and product candidates may provide greater therapeutic convenience or clinical or other benefits for a specific indication than our products, or may offer comparable performance at a lower cost. If our products fail to capture and maintain market share, we may not achieve sufficient product revenues and our business will suffer.

We will compete against fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs and have substantially greater financial resources than we do, as well as significantly greater experience in:

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· developing drugs;

· undertaking pre-clinical testing and human clinical trials;

· obtaining FDA and other regulatory approvals of drugs;

· formulating and manufacturing drugs; and

· launching, marketing and selling drugs.

Developments by competitors may render our products or technologies obsolete or non-competitive.

Companies that currently sell both generic and proprietary compounds for the treatment of cancer include, among others, Pfizer (trimetrexate), Eli Lilly & Company (pemetrexed), Novartis (edatrexate), and Allos (PDX). Alternative technologies are being developed to treat cancer and immunological disease, several of which are in advanced clinical trials. In addition, companies pursuing different but related fields represent substantial competition. Many of these organizations have substantially greater capital resources, larger research and development staffs and facilities, longer drug development history in obtaining regulatory approvals and greater manufacturing and marketing capabilities than we do. These organizations also compete with us to attract qualified personnel, parties for acquisitions, joint ventures or other collaborations.

If we fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish.

Our success, competitive position and future revenues will depend in part on our ability and the abilities of our licensors to obtain and maintain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of third parties. We are not aware of any third party infringing on any of our intellectual property rights.

To date, through our license agreements for Talotrexin, IPdR and Zensana™ (ondansetron oral spray), we hold certain exclusive patent rights, including rights under U.S. patents and U.S. patent applications. We also have patent applications pending in several foreign jurisdictions. We anticipate filing additional patent applications both in the U.S. and in other countries, as appropriate. However, we cannot predict:

· the degree and range of protection any patents will afford us against competitors, including whether third parties will find ways to invalidate or otherwise circumvent our licensed patents;

· if and when patents will issue;

· whether or not others will obtain patents claiming aspects similar to those covered by our licensed patents and patent applications; or

· whether we will need to initiate litigation or administrative proceedings which may be costly whether we win or lose.

Our success also depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and advisors as well as our licensors and contractors. To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult to obtain, we rely on trade secret protection and confidentiality agreements. To this end, we require all of our employees to enter into agreements which prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business. These agreements may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information. If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer.

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If we infringe the rights of third parties we could be prevented from selling products, forced to pay damages, and defend against litigation.

To date, we have not received any threats, claims or other notices from third parties alleging that our products or methods infringe their rights. If our products, methods, processes and other technologies infringe the proprietary rights of other parties, however, we could incur substantial costs and we may have to:

· obtain licenses, which may not be available on commercially reasonable terms, if at all;

· redesign our products or processes to avoid infringement;

· stop using the subject matter claimed in the patents held by others, which could cause us to lose the use of one or more of our product candidates;

· pay damages; or

· defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our valuable management resources.

Our license agreements relating to our product candidates may be terminated in the event we commit a material breach, the result of which would significantly harm our business prospects.

Our license agreements relating to Talotrexin, IPdR and Zensana™ (ondansetron oral spray) are subject to termination by our licensors in the event we materially breach those agreements. With respect to the Talotrexin license, our licensor may terminate the agreement, after giving us notice and an opportunity to cure, if we commit a material breach, including failing to make a scheduled milestone or other payment when due. The agreement also provides that it may be terminated if we become involved in a bankruptcy, insolvency or similar proceeding. Our license agreements for IPdR and Zensana™ contain similar provisions. In the event these license agreements are terminated, we will lose all of our rights to develop and commercialize the applicable product candidate covered by such license, which would significantly harm our business and future prospects.

Our ability to generate product revenues will be diminished if our drugs sell for inadequate prices or patients are unable to obtain adequate levels of reimbursement.

Our ability to commercialize our drugs, alone or with collaborators, will depend in part on the extent to which reimbursement will be available from:

· government and health administration authorities;

· private health maintenance organizations and health insurers; and

· other healthcare payers.

Significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Healthcare payers, including Medicare, are challenging the prices charged for medical products and services. Under recently-proposed legislation, the cost of our product candidates, even if approved for commercial use, may not be reimbursable under Medicare. Government and other healthcare payers increasingly attempt to contain healthcare costs by limiting both coverage and the level of reimbursement for drugs. Even if our product candidates are approved by the FDA, insurance coverage may not be available, and reimbursement levels may be inadequate, to cover our drugs. If government and other healthcare payers do not provide adequate coverage and reimbursement levels for any of our products, once approved, market acceptance of our products could be reduced.

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If we are unable to successfully manage our growth, our business may be harmed.

Our success will depend upon the expansion of our operations and the effective management of our growth, which will place asignificant strain on our management and on our administrative, operational and financial resources. To manage this growth, weexpect that in the next 12 months we will hire an additional three employees, consisting of one person in an administrative functionand two employees focused on research and development. We expect that the total cost of these additional employees willapproximate $325,000 per year. We believe our current facilities are sufficient for such increase in headcount, but additional employees mayplace a strain on our management by having to address additional administrative needs. If we are unable to manage our growth effectively, our ability to manage the businessmay be harmed. In addition, we are also actively pursuing additional product candidates to acquire for development. Acquiring these additionalproducts, if any, could significantly increase our capital requirements and place further administrative strain on our existing personnel,which may delay or otherwise adversely affect the development of our existing product candidates if our employees are unable to devote sufficient time to developing those products. Alternatively, we may be required to hire even more employees, furtherincreasing the size of our organization and related expenses. If we are unable to manage this growth successfully, we may notefficiently use our resources, which may delay the development of our product candidates.

We rely on key executive officers and their experience and knowledge of our business would be difficult to replace in the event any of them left our company.

We are highly dependent on Mark J. Ahn, Ph.D., our president and chief executive officer, Fred Vitale, our vice president and chief business officer, Gregory Berk, our senior vice president and chief medical officer and John Iparraguirre, our vice president and chief financial officer. Dr. Ahn’s, Mr. Vitale’s and Dr. Berk’s employment with us are governed by a written employment agreements. Dr. Ahn’s and Mr. Vitale’s employment agreements provide for a term that expire in November 2008. Dr. Berk’s employment term under his agreement expires in November 2007. Mr. Iparraguirre does not have a written employment agreement with us. Dr. Ahn, Mr. Vitale, Dr. Berk and Mr. Iparraguirre may terminate their employment with us at any time, however, subject to certain non-compete and non-solicitation covenants. We are not aware that Dr. Ahn, Mr. Vitale, Dr. Berk and Mr. Iparraguirre have any plans to leave our company. We do not have “key person” life insurance policies for any of our officers and key employees. The loss of the technical knowledge and management and industry expertise that would resulting the event Dr. Ahn left our company could result in delays in the development of our product candidates and diversion of management resources. The loss of Mr. Vitale could impair our ability to expand our product development pipeline, which may harm our business prospects. The loss of Dr. Berk could impair our ability initiate new, and sustain existing, clinical trials. The loss of Mr. Iparraguirre could impair our ability to obtain additional financing.

If we are unable to hire additional qualified personnel, our ability to grow our business may be harmed.

We will need to hire additional qualified personnel with expertise in pre-clinical testing, clinical research and testing, government regulation, formulation and manufacturing and sales and marketing. In particular, over the next 12 months we plan to hire nine additional employees, consisting of one employee in an administrative function, five employees focused on research and development and three employees focused on sales and marketing. We expect that the hiring of such additional personnel will increase our annual expenditures by approximately $900,000. We compete for qualified individuals with numerous biopharmaceutical companies, universities and other research institutions. Competition for such individuals, particularly in the San Francisco Bay Area, is intense, and we cannot be certain that our search for such personnel will be successful. Attracting and retaining qualified personnel will be critical to our success.

We may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits.

The testing and marketing of medical products entail an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of pharmaceutical products we develop, alone or with collaborators. We currently do not carry product liability insurance but instead maintain a $5 million clinical trial insurance policy for the ongoing Phase I and Phase I/II trials of Talotrexin. Although we intend to obtain clinical trial insurance prior to the commencement of any clinical trials for IPdR and Zensana™(ondansetron oral spray), we, or any collaborators, may not be able to obtain insurance at a reasonable cost, if at all. Even if our agreements with any future collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

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Risks Related to Our Securities

Our stock price is, and we expect it to remain, volatile, which could limit investors’ ability to sell stock at a profit.

Since the completion of the EMLR-Hana Biosciences merger transaction in July 2004 through December 31, 2005, the market price of our common stock has ranged from a high of $15.00 per share to a low of $1.25 per share, as adjusted to reflect the 1-for-12 combination effected in connection with our September 30, 2004 reincorporation. The volatile price of our stock makes it difficult for investors to predict the value of their investment, to sell shares at a profit at any given time, or to plan purchases and sales in advance. A variety of factors may affect the market price of our common stock. These include, but are not limited to:

· announcements of technological innovations or new commercial products by our competitors or us;

· developments concerning proprietary rights, including patents;

· regulatory developments in the United States and foreign countries;

· economic or other crises and other external factors;

· period-to-period fluctuations in our revenues and other results of operations;

· changes in financial estimates by securities analysts; and

· sales of our common stock.

We will not be able to control many of these factors, and we believe that period-to-period comparisons of our financial results will not necessarily be indicative of our future performance. In addition, the stock market in general, and the market for biotechnology companies in particular, has experienced extreme price and volume fluctuations that may have been unrelated or disproportionate to the operating performance of individual companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance.

Because we do not expect to pay dividends, you will not realize any income from an investment in our common stock unless and until you sell your shares at profit.

We have never paid dividends on our common stock and do not anticipate paying any dividends for the foreseeable future. You should not rely on an investment in our stock if you require dividend income. Further, you will only realize income on an investment in our shares in the event you sell or otherwise dispose of your shares at a price higher than the price you paid for your shares. Such a gain would result only from an increase in the market price of our common stock, which is uncertain and unpredictable.

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ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES

Our executive offices are located at 400 Oyster Point Blvd., Suite 215, South San Francisco, California 94080. We currently occupy this space, which consists of 5,942 square feet of office space, pursuant to a written lease agreement under which we pay rent of approximately $10,400 per month. Our lease currently expires on December 31, 2006. We believe that our existing facilities are adequate to meet our current requirements. We do not own any real property.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of our fiscal year ended December 31, 2005, there were no matters submitted to a vote of our stockholders.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Common Stock

Our common stock traded on the on the OTC Bulletin Board under the symbol “EMLR.OB” until October 1, 2004. From October 1, 2004 until September 21, 2005, our common stock traded on the OTC Bulletin Board under the symbol “HNAB.OB.” Since September 22, 2005, our common stock has traded on the American Stock Exchange under the symbol “HBX.” The following table lists the high and low sale price for our common stock as quoted, in U.S. dollars, by the OTC Bulletin Board and American Stock Exchange, as applicable, during each quarter within the last two fiscal years. These quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not represent actual transactions. These quotations have been adjusted to reflect the 1-for-12 combination effected in connection with our reincorporation on September 30, 2004. The prices for the periods prior to June 2004 reflect the prices applicable to the common stock of EMLR, which we acquired in a reverse merger transaction on July 22, 2004.

	Price Range
Quarter Ended	High		Low
March 31, 2004	$	10.80	$	5.40
June 30, 2004		20.40		7.80
September 30, 2004		13.80		7.20
December 31, 2004		7.40		5.25
March 31, 2005		5.90		1.50
June 30, 2005		2.50		1.25
September 30, 2005		5.25		1.60
December 31, 2005		6.32		3.76

Record Holders

As of March 8, 2006, we had approximately 239 holders of record of our common stock. In addition, we had approximately 990 “street name” holders.

Dividends

We have not paid or declared any dividends on our common stock and we do not anticipate paying dividends on our common stock in the foreseeable future.

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Equity Compensation Plan Information

The following table provides additional information on the Company’s equity based compensation plans as of December 31, 2005:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance (excluding securities reflected in column (a) (c)
Equity compensation plans approved by stockholders		--	$	--		--
Equity compensation plans not approved by stockholders-outside any plan(1)		960,094		0.23		n/a
Equity compensation plans not approved by stockholders-2003 Plan(2)		563,289		0.86		295,704
Equity compensation plans not approved by stockholders-2004 Plan(2)		929,504		1.89		1,565,496

__________________

(1)	Represent shares of common stock issuable outside of any stock option plan. The numbers of shares and exercise price have been adjusted to give effect to the mergers and reincorporation effected in 2004.
(2)	Represent shares issued under the Company’s 2003 and 2004 Stock Option Plan. During 2004 the Company’s Board of Directors adopted the 2004 Plan and all future issuances of securities will be made under the 2004 Plan. See also Note 4 of the Company’s audited financial statements as of and for the year ended December 31, 2005 included in this Annual Report.

Issuer Purchases of Equity Securities

We did not make any repurchases of our common stock during the fiscal year 2005.

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial information has been derived from the audited financial statements. The information below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K and the financial statements and related notes thereto included in Item 8 of this Form 10-K in order to fully understand factors that may affect the comparability of the information presented below.

The following table sets forth selected financial data for our company as of and for the three fiscal years ended December 31, 2005 and the period from December 6, 2002 (date of inception) to December 31, 2002.

	As of and for the years ended December 31,
	2005			2004			2003			2002(1)
Income statement data:
Other Income (Expense)	$	166,043		$	25,393		$	(12,879	)	$	--
Net Loss	$	(10,042,963	)	$	(7,329,832	)	$	(551,856	)	$	(144,470	)
Net Loss Per Share, Basic and Diluted	$	(0.57	)	$	(0.80	)	$	(0.10	)	$	(0.03	)
Balance sheet data:
Total Assets	$	17,726,199		$	7,377,153		$	162,188		$	--
Long-term Debt	$	--		$	--		$	797,811		$	30,957
Total Equity (Deficiency)	$	16,189,573		$	6,212,294		$	(635,623	)	$	(144,470	)
(1)   Amounts in the column represent the period from December 6, 2002 (date of inception) to December 31, 2002.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this Annual Report. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” following Item 1 of this Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

Hana Biosciences is a South San Francisco, CA based development stage biopharmaceutical company focused on the acquisition, development and commercialization of innovative products to enhance cancer care. We aim to acquire proprietary rights to these products, by license or otherwise, fund their research and development and bring the products to market. Since the inception of Hana Biosciences, Inc. in December 2002, our efforts and resources have been focused primarily on acquiring and developing our pharmaceutical technologies, raising capital and recruiting personnel. We currently have three product candidates in early-stage development − Talotrexin (PT-523), for the treatment of a variety of solid tumor cancers and hematological malignancies; IPdR, being developed primarily for the treatment of brain cancers; and Zensana™ (Ondansetron oral spray), which is being developed to alleviate chemotherapy-induced nausea and vomiting. To date, we have not received approval for the sale of any drug candidates in any market and, therefore, have not generated any revenues from our drug candidates. Our objective is to be a leading oncology company. Our business model focuses on leveraging our experienced biopharmaceutical management team to advance our unique product candidates through translational research for timely transfer from the lab to clinical trials. We believe risk is mitigated by targeting multiple technologies with well-validated mechanisms of action and strong intellectual property rights to set the platform for accelerated growth.

We currently have three products in development:

·   Talotrexin (PT-523), our lead product candidate, is an antifolate, cytotoxic agent (i.e., substance harmful to the structure and function of cells) being evaluated for the treatment of solid tumors and hematological malignancies, including NSCLC (non-small cell lung cancer), ALL (acute lymphocytic leukemia), cervical, and ovarian cancers. Compared to currently available antifolates such as methotrexate or pemetrexed (Alimta®; Eli Lilly) in preclinical studies, Talotrexin enters into cells up to 10-times more efficiently, overcomes resistance by remaining active in tumors by not requiring polyglutamation, and binds more tightly to its anti-tumor target DHFR, which we believe will enhance its efficacy. Talotrexin is currently being studied in a Phase I trial in solid tumors, a Phase I/II trial in non-small cell lung cancer, and a Phase I/II trial in ALL. Hana intends to initiate additional Phase II trials in cervical and ovarian cancers.

·   Zensana™ (Ondansetron Oral Spray) is a delivery system that uses the vast and highly-absorptive surfaces of the oral mucosa to deliver ondansetron (Zofran®;GlaxoSmithkline) directly into the blood stream to prevent chemotherapy, radiation and post-operative induced nausea and vomiting. Taking pills for patients experiencing nausea and vomiting can be problematic. Drug delivery via oral mucosa avoids degradation in the GI tract and metabolism by liver enzymes − the so-called first-pass effect. Potential patient benefits include a faster onset of action, improved safety profile, and enhanced patient compliance. Zensana™ is being developed as a 505(b)(2) registration and targets a 2007 launch.

·   IPdR is a radiation therapy sensitizer that is designed for the treatment of certain types of brain cancers. Radiation therapy deposits energy that injures or destroys cells in the treated area. Radiosensitizers, when used in combination with radiation therapy, potentially make the tumor cells more likely to be damaged by the radiation therapy. IPdR is an orally administered prodrug for 5-iodo-2’-deoxyuridine, or IUdR. Prodrugs are compounds that are converted within the body into active form that has medical effects. A prodrug can be useful when the active drug is too toxic to administer systemically. IUdR would be an effective radiosensitizer, but its systemic toxicity limits the duration and dosage such that its efficacy is limited. We have initiated a Phase I IPdR clinical trial in colorectal, gastric, pancreatic and liver cancers.

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The successful development of our product candidates is highly uncertain. Product development costs and timelines can vary significantly for each product candidate and are difficult to accurately predict. Various laws and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of each product. The lengthy process of seeking these approvals, and the subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals could materially adversely affect our business.

Since the inception of Hana Biosciences, Inc. in December 2002, our efforts and resources have been focused primarily on acquiring and developing our biopharmaceutical technologies, raising capital and recruiting personnel. We completed four financings since inception with total gross proceeds of $32.4 million, before selling commissions and related offering expenses. We are a development stage company and have no product sales to date and we will not receive any product sales until we receive approval from the FDA or equivalent foreign regulatory bodies to begin selling our pharmaceutical candidates. Developing pharmaceutical products, however, is a lengthy and very expensive process. Assuming we do not encounter any unforeseen safety issues during the course of developing our product candidates, we do not expect to complete the development of a product candidate until approximately 2007, when we expect to commercially launch Zensana™ (ondansetron oral spray). In addition, as we continue the development of IPdR, our research and development expenses will further increase. To the extent we are successful in acquiring additional product candidates for our development pipeline, our need to finance further research and development will continue increasing. Accordingly, our success depends not only on the safety and efficacy of our product candidates, but also on our ability to finance the development of the products. Our major sources of working capital have been proceeds from various private financings, primarily private sales of our common stock and other equity securities.

Research and development expenses consist primarily of salaries and related personnel costs, fees paid to consultants and outside service providers for laboratory development, legal expenses resulting from intellectual property prosecution, business development and organizational affairs and other expenses relating to the design, development, testing, and enhancement of our product candidates. We expense our research and development costs as they are incurred.

General and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, recruitment expenses, professional fees and other corporate expenses, including general legal activities.

Our results include non-cash compensation expense as a result of the issuance of stock and certain stock option grants. Compensation expense for options granted to employees represents the difference between the fair value of our common stock and the exercise price of the options at the date of grant. Through December 31, 2005, we have accounted for stock-based employee compensation arrangements in accordance with the intrinsic value method under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and complied with the disclosure provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.” However, as a result of amendments to SFAS 123, the Company will be required to expense the fair value of all employees stock options over the service period beginning with its fiscal quarter ending March 31, 2006. Compensation for options granted to consultants has been determined in accordance with SFAS 123 as the fair value of the equity instruments issued. APB Opinion No. 25 has been applied in accounting for fixed and milestone-based stock options to employees and directors as allowed by SFAS 123. We currently have no outstanding milestone-based options. The intrinsic value has been recorded over the respective vesting periods of the individual stock options. The expense is included in the respective categories of expense in the statement of operations. We expect to record additional non-cash compensation expense in the future, which may be significant.

Results of Operations

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

General and administrative expenses. For the year ended December 31, 2005, general and administrative (“G&A”) expense was $3.8 million, as compared to $2.8 million for the year ended December 31, 2004. The increase of $1 million is due primarily to an increase in salaries and other employee benefits of approximately $250,000 which resulted from us realizing full-year salary expense of four fulltime employees at December 31, 2005. For the year ended December 31, 2005, we also incurred an increase of approximately $126,000 associated with professional fees and insurance. This increase is mostly attributed to higher accounting expenses as well as an increase in director and officer insurance when compared to the corresponding period of the previous year. In addition, we incurred an increase in expenses of approximately $67,000 relating to the listing of our securities on the American Stock Exchange. For the year ended December 31, 2005, our stock-based compensation expense included in G&A for options issued to employees increased by approximately $309,000. Another contributing factor to the additional overall expense was an increase of approximately $178,000 in stock-based expense relating to common stock earned by our investor relations firm. These increased expenses for the year ended December 31, 2005 were partially offset by a decrease in expenses of approximately $68,000 relating to the fair value of options granted to non employees for services rendered.

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Research and development expenses. For the year ended December 31, 2005, research and development (“R&D”) expense was $6.4 million, as compared to $4.5 million for the year ended December 31, 2004. The increase of $1.9 million is due primarily to an increase in the physical manufacturing of drug compounds, payments to our contract research organization, and legal expenses associated with our continued patent protection of approximately $1.4 million. Another contributing factor to the additional overall expense was an increase in salaries and other employee benefits of approximately $919,000 which resulted from increasing our full-time employees from six at December 31, 2004, to ten full-time employees devoted to R&D at December 31, 2005. For the year ended December 31, 2005, our stock-based compensation expense included in R&D for options issued to employees increased by approximately $155,000. In addition, for the year ended December 31, 2005, we experienced a decrease of approximately $291,000 relating to the fair value of option grants to non employees for services rendered. Another decrease for the year ended December 31, 2005 was attributable to two expenses relating to our October 2004 license agreement with NovaDel Pharma. As a result of that license agreement, we recognized an expense of $500,000 for the year ended December 31, 2004 related to the issuance of common stock to NovaDel in partial consideration for the license agreement. In addition, pursuant to the terms of the NovaDel license agreement, in exchange for $1.0 million, we purchased 400,000 shares of the NovaDel’s common stock at a per share price of $2.50, a premium of $0.91 per share or $364,000 over the then market value of our common stock, which was expensed as part of the license fee in the year ended December 31, 2004. For the year ended December 31, 2005, we also recognized an increase of $325,000 relating to milestones achieved as part of our on going clinical progression. Other increases for the year ended December 31, 2005, when compared to the previous year, is an increase in travel expense of approximately $139,000.Given the current and desired pace of clinical development of our three product candidates, over the next 12 months we estimate that we will need funds of approximately $12.5 million in order to fund our research and development activities. 

Interest income (expense), net. For the year ended December 31, 2005, net interest income was $185,620 as compared to net interest income of $26,040 for the year ended December 31, 2004. The increase of $159,580 resulted from our increased cash balance deposited in interest earning money market accounts as well as our repayment of all notes payable during the latter half of 2004 resulting in lower interest expense in 2005.

Other expense, net. For the year ended December 31, 2005, net other expense was $19,577 as compared to net other expense of $647 for the corresponding period of the previous year. The increase is attributed to our miscellaneous minimum state incorporation taxes present in the current year.

Net loss. Net loss for the year ended December 31, 2005 was $10.0 million as compared to $7.3 million for the year ended December 31, 2004. This increase in net loss is attributable primarily to an increase in general and administrative expenses of $984,504 and an increase in research and development expenses of $1.9 million.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

General and administrative expenses. For the year ended December 31, 2004, G&A expense was $2.8 million, as compared to $229,601 for the year ended December 31, 2003. The increase of $2.6 million is due primarily to an increase in payroll expenses of approximately $826,000 and an increase in employee benefits expense of approximately $82,000. This increase is a result of our increase in headcount from two full-time employees at December 31, 2003 to four full-time employees at December 31, 2004 in the general and administrative department. Another factor contributing to the overall increase in general and administrative expenses in 2004 was an increase in rent and utilities expense of approximately $140,000. This increase was a result of relocating our corporate headquarters from New York to California and the corresponding leasing of new facilities with rent expense totaling approximately $10,000 per month. For the year ended December 31, 2004, we recognized an increase in professional fees and travel expense of approximately $700,000 and $213,000, respectively, when compared to the year ended December 31, 2003. The increase in professional fees primarily relates to legal and accounting expenses incurred for the July 2004 merger and the resulting public reporting under federal securities laws. Another contributing factor to the increase in professional fees was the newly hired investor relations firm. The increase in travel expense for the year ended December 31, 2004 relates to executive travel in connection with investor meetings. Other increases for the year ended December 31, 2004 when compared to the corresponding period of the previous year are an increase in depreciation of $16,000 and an increase in director and officer insurance of $49,000. For the year ended December 31, 2004, we also incurred stock-based compensation expense included in G&A for options issued to employees totaling approximately $263,000, no corresponding expense existed for the year ended December 31, 2003. In addition, for the year ended December 31, 2004 we incurred stock-based compensation expense of approximately $169,000 relating to common stock to be issued in 2005, no corresponding expense existed for the year ended December 31, 2003.

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Research and development expenses. For the year ended December 31, 2004, R&D expense was $4.5 million as compared to $309,376 for the year ended December 31, 2003. The increase of $4.2 million is due primarily to an increase in salaries of $775,000 which resulted from increasing our full-time R&D employees from none at December 31, 2004 to nine full-time employees devoted to R&D at December 31, 2004. For the year ended December 31, 2004, we incurred an expense of $200,000 associated with milestone payments related to advancements in Talotrexin and IPdR. No such expense existed for the year ended December 31, 2003. For the year ended December 31, 2004, we also recognized an expense of $500,000 related to the issuance of common stock to NovaDel, Inc. in partial consideration for our October 2004 license agreement with NovaDel. In addition, pursuant to the terms of the NovaDel license agreement, we purchased 400,000 shares of the NovaDel’s common stock at a per share price of $2.50, a premium of $0.91 per share or $364,000 over the then market value of our common stock. This $364,000 was expensed as part of the license fee in the year ended December 31, 2004. We also recognized an increase in professional outside services of $1,683,000. This increase relates to the continuing development of our three lead compounds (Talotrexin, IPdR and Zensana™ (Ondansetron Oral Spray)) and includes costs incurred for the physical manufacturing of drug compounds, payments to our contract research organization and legal expenses associated with our continued patent protection. Other increases for fiscal year 2004 compared to fiscal year 2003 include an increase in clinical trial insurance of $24,000 and an increase in travel expense of $101,000. For the year ended December 31, 2004, we also incurred stock-based compensation expense included in R&D for options issued to employees totaling approximately $113,000, no corresponding expense existed for the year ended December 31, 2003. In addition, for the year ended December 31, 2004 we incurred stock-based compensation expense of approximately $81,000 relating to common stock to be issued in 2005. No corresponding expense existed for the year ended December 31, 2003. For the year ended December 31, 2004 we incurred expense of approximately $302,000 relating to the fair value option grants to non employees for services rendered for the year ended December 31, 2004. No such expense was present in the corresponding period of 2003.

Interest income (expense), net. For the year ended December 31, 2004, net interest income was $26,040 as compared to net interest expense of $12,879 for the year ended December 31, 2003. The increase of $38,919 resulted from our increased cash balance deposited in interest earning money market accounts as well as our repayment of all notes payable during the current year.

Other expense, net. For the year ended December 31, 2004, net other expense was $647 as compared to zero for the corresponding period of 2003. The increase is attributed to our miscellaneous minimum state tax payments offset by dividend income received from a cash account not present in 2003.

Net loss. Net loss for the year ended December 31, 2004 was $7.3 million as compared to $551,856 for the year ended December 31, 2003. This increase in net loss is attributable primarily to an increase in research and development expenses of $4.2 million and an increase in general and administrative expenses of $2.6 million. 

Liquidity and Capital Resources

From inception to December 31, 2005, we have incurred an aggregate net loss of $18.1 million, primarily as a result of expenses incurred through a combination of research and development activities related to the various technologies under our control and expenses supporting those activities.

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We have financed our operations since inception primarily through equity and debt financing. From inception through December 31, 2005, we had a net increase in cash and cash equivalents of $17.1 million. This increase primarily resulted from net cash provided by financing activities of $31.5 million, substantially all of which was derived from our four private placements which netted proceeds of $30.8 million. The increase in cash provided by financing activities was offset by net cash used in operating activities of $13.6 million and net cash used in investing activities of $784,482 for the cumulative period from inception to December 31, 2005. Our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing. Through December 31, 2005, a significant portion of our financing has been through private placements of common stock, preferred stock and debt financing. We will continue to fund operations from cash on hand and through future placements of capital stock or debt financings. We can give no assurances that any additional capital that we are able to obtain will be sufficient to meet our needs. Given the current and desired pace of clinical development of our three product candidates, we estimate that we will have sufficient cash on hand to fund clinical development through 2006 and into 2007. We may, however, choose to raise additional capital before 2007 in order to fund our future development activities, likely by selling shares of our capital stock or other securities. If we are unable to raise additional capital, we will likely be forced to curtail our desired development activities, which will delay the development of our product candidates. There can be no assurance that such capital will be available to us on favorable terms or at all. We will need additional financing thereafter until we can achieve profitability, if ever.

Financings. In February 2004, we raised gross proceeds of approximately $4.7 million through the sale of 2,802,989 shares of our common stock. In connection with this offering, we paid commissions and other offering related expenses consisting of $341,979 in cash and issued a 5-year warrant to purchase 277,331 shares of our common stock to Paramount BioCapital, Inc., for their services as placement agent.

Immediately prior to the EMLR−Hana Biosciences merger in July 2004 (see Note 2), we raised gross proceeds of $8 million through the sale of 2,395,210 shares of Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible at the holder’s election into 1.410068 common shares. On January 18, 2005 the effective date of the registration statement covering the resale of the common shares issuable upon conversion of the Series A Preferred Stock, the Series A Preferred Stock automatically converted into 3,377,409 shares of common shares.

During April 2005, we completed a private placement of 3,916,082 shares of our common stock at a price of $1.28 per share resulting in gross proceeds of approximately $5.0 million. In connection with the private placement, we issued to the investors and placement agents five-year warrants to purchase an aggregate of 1,525,629 shares of common stock at an exercise price of $1.57 per share. Included in the amounts issued to placement agents were 58,593 warrants issued to Paramount BioCapital, Inc., a related party. As of December 31, 2005, warrants to purchase 337,621 had been exercised, which resulted in gross proceeds to us totaling $530,064, and there remained outstanding warrants to purchase an aggregate of 1,188,008 shares. The terms of the investor warrants provide that we may, at our option, redeem the warrants after such time that the average closing price of our common stock exceeded $3.14 per share for a 30-day period, which condition was satisfied in August 2005. Accordingly, we may redeem the warrants, at a redemption price of $.01 per warrant share, at any time upon 30 days’ prior written notice to the warrant holders. The warrants remain exercisable by the holders until the expiration of such 30-day notice period. In connection with the private placement, we paid an aggregate of approximately $321,000 in commissions to placement agents. Included in the amounts paid to placement agents was $52,500 in commissions paid to Paramount BioCapital, Inc., a related party. We also incurred approximately $14,000 of legal expenses for the private placement.

On October 19, 2005, we completed a private placement of 3,686,716 shares of its common stock. Of the total number of shares sold, 3,556,000 shares were sold at a price of $4.00 per share and 130,716 shares were sold to executive officers and affiliates of a director of our company at a price of $4.59 per share, which resulted in total gross proceeds to us of approximately $14.8 million. In addition to the shares of common stock, the investors also received 5-year warrants to purchase an aggregate of 737,343 shares at an exercise price of $5.80 per share. In connection with the private placement, we paid an aggregate of approximately $1 million in commissions to placement agents and issued 5-year warrants to purchase an aggregate of 253,306 shares at an exercise price of $5.80 per share. We also incurred approximately $77,500 of legal and other expenses paid to placement agents.

Current and Future Financing Needs. We have incurred negative cash flow from operations since we started our business. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, our clinical trials, and our research and discovery efforts. Given the current and desired pace of clinical development of our three product candidates, over the next 12 months we estimate that we will need approximately $12.5 million in order to fund our research and development activities, including amounts for milestone payments that we expect to be triggered under the license agreements relating to our product candidates. The remaining amount is devoted to salaries associated with those individuals in the research and development department as well as and the manufacturing and clinical trial costs for our three product candidates. Given the current and desired pace of clinical development of our three product candidates, we estimate that we will have sufficient cash on hand to fund clinical development through 2006 and into 2007. We may, however, choose to raise additional capital before 2007 in order to fund our future development activities, likely by selling shares of our capital stock or other securities. However, the actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:

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·   progress of our research activities;

·   the number and scope of our research programs;

·   the progress of our pre-clinical and clinical development activities;

·   the progress of the development efforts of parties with whom we have entered into research and development agreements;

·   our ability to maintain current research and development programs and to establish new research and development and licensing arrangements;

·   our ability to achieve our milestones under licensing arrangements;

·   the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and

·   the costs and timing of regulatory approvals.

We have based our estimate on assumptions that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential sources of financing include strategic relationships, public or private sales of our stock or debt and other sources. We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed.

Research and Development Projects

Talotrexin.In 2003, we submitted an Investigational New Drug application (“IND”) with the U.S. Food and Drug Administration (“FDA”) to commence a Phase I clinical trial of Talotrexin for the treatment of cancer. This Phase I trial, which commenced in April 2004, will involve an estimated 25-45 patients, to date 26 subjects have received doses of Talotrexin. The primary purposes for this study are to evaluate the safety of Talotrexin when administered intravenously to patients with solid tumors and who have failed curative or survival prolonging therapy or for whom no such therapies exist, establish the maximum tolerated dose, and identify dose limiting toxicities.

In February 2005, we commenced a Phase I and II study of Talotrexin in the treatment of relapsed or refractory non-small cell lung cancer or “NSCLC”. The primary objectives of the Phase I portion of this study are to: (1) evaluate the safety of Talotrexin and (2) establish the maximum tolerated dose and identify the dose limiting toxicities of Talotrexin. The primary objectives of the Phase II portion of this study are to evaluate the activity of Talotrexin as therapy in subjects with NSCLC who have progressed on or following first-line therapy’s, as measured by overall survival. A total of 120 patients are expected to enroll in the Phase I and II clinical trial with 17 subjects already having received doses of Talotrexin. Further, we anticipate initiating a Phase II clinical trial in cervical cancer the first half of 2006.

In May 2005, we commenced a Phase I and II study of Talotrexin in the treatment of refractory adult lymphoblastic leukemia or “ALL”. The primary objectives of the Phase I portion of this study are to: (1) evaluate the safety of Talotrexin and (2) establish the maximum tolerated dose and identify the dose limiting toxicities of Talotrexin. The primary objectives of the Phase II portion of this study are to evaluate the activity of Talotrexin as therapy in leukemia patients with relapsed or refractory to frontline and/or salvage therapy as measured by overall response. A total of 75 patients are expected to enroll in the Phase I and II clinical trial with five subjects already having received doses of Talotrexin.

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Talotrexin has received clinical development grants from the National Cancer Institute. These grants cover the predominant cost of pre-clinical efficacy and safety testing, clinical manufacturing, and Phase I clinical program. Under the terms of these grants, all amounts are disbursed directly to the institutions conducting the studies. None of the funds are disbursed to Hana Biosciences and we have no obligation to repay such funds. Through December 31, 2005, we have incurred $ 2.6 million of costs related to our development of Talotrexin, of which $272,205 and $1.0 million was incurred in fiscal 2003 and 2004, respectively. For the year ended December 31, 2005, we incurred $1.3 million in the development of Talotrexin. We currently anticipate that we will need to expend an aggregate of approximately $70 million until we receive FDA approval for Talotrexin, should we opt to continue development. Costs incurred are a direct result of ensuring proper study conduct in accordance with local regulations. Should we choose to continue development we expect that it will take an additional 4-5 years before we complete development and obtain FDA approval of Talotrexin, if ever.

We believe we currently have sufficient capital to fund development activities of Talotrexin through 2006 and into 2007. Since our business does not generate any cash flow, however, we will need to raise additional capital to continue development of the product beyond 2007. We expect to raise such additional capital by either borrowing money or by selling shares of our capital stock. To the extent additional capital is not available when we need it, we may be forced to sublicense our rights to Talotrexin or abandon our development efforts altogether, either of which would have a material adverse effect on the prospects of our business. Further, our assumptions relating the expected costs of development and timeframe for completion are dependent on numerous factors other than available financing, including unforeseen safety issues, lack of effectiveness, and significant unforeseen delays in the clinical trial and regulatory approval process, any of which could be extremely costly. In addition, our estimates assume that we will be able to enroll a sufficient number of patients in each clinical trial.

Zensana™ (Ondansetron Oral Spray).In October 2004, we acquired the exclusive license rights to develop and commercialize Zensana™ (ondansetron oral spray), in the United States and Canada. As initial consideration for that license, we purchased 400,000 shares of common stock of NovaDel Pharma, Inc., our licensor, for an aggregate price of $1 million, and we issued to NovaDel 73,121 shares of our common stock. . Since acquiring our rights to Zensana™, through December 31, 2005, we have incurred $924,925 of project costs related to our development of which the entire amount was incurred in fiscal 2005. Currently, we anticipate that we will need to expend an aggregate of approximately $8 million until we receive FDA approval for Zensana™, should we opt to continue development. Should we choose to continue, we expect that it will take an additional year until we will have completed development and obtained FDA approval of Zensana™, if ever.

We believe we currently have sufficient capital to fund our development activities of Zensana™ through 2006 and into 2007. Since our business does not generate any cash flow, however, we will need to raise additional capital to continue development of the product beyond 2007. We expect to raise such additional capital by either borrowing money or by selling shares of our capital stock. To the extent additional capital is not available when we need it, we may be forced to sublicense our rights to Zensana™ or abandon our development efforts altogether, either of which would have a material adverse effect on the prospects of our business. Further, our assumptions relating the expected costs of development and timeframe for completion are dependent on numerous factors other than available financing, including unforeseen safety issues, lack of effectiveness, and significant unforeseen delays in the clinical trial and regulatory approval process, any of which could be extremely costly. In addition, our estimates assume that we will be able to enroll a sufficient number of patients in each clinical trial.

IPdR. In August 2004, an investigator-initiated IND was submitted to the FDA to initiate a Phase I clinical trial of IPdR for the treatment of selected radiosensitive cancers. After completing additional pre-clinical toxicology studies, the FDA approved the IND, and the phase I trial commenced in September 2005, which we estimate will involve approximately 40-60 patients. The primary purposes for this study will be to evaluate the safety of oral IPdR in patients with selected radiosensitive gastrointestinal cancers and who have failed curative or survival prolonging therapy or for whom no such therapies exist, establish the maximum tolerated dose, and identify dose limiting toxicities. In addition, we continue activities toward initiating a clinical trial in glioblastoma multiforme, a type of brain cancer, in early 2006.

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IPdR has received clinical development grants from the National Cancer Institute. These grants cover the predominant cost of pre-clinical efficacy and safety testing, clinical manufacturing, and Phase I clinical program. Under our license agreement the Company was obligated to reimburse other parties approximately $15,000 for past patent expenses. Since acquiring our rights to IPdR, through December 31, 2005, we have incurred $1.5 million of project costs related to our development of IPdR, of which $656,251 was incurred in fiscal 2004. Currently, we anticipate that we will need to expend an aggregate of approximately $50 million until we receive FDA approval for IPdR, should we opt to continue development. Should we choose to continue, we expect that it will take an additional 5 or 6 years until we will have completed development and obtained FDA approval of IPdR, if ever.

We believe we currently have sufficient capital to fund our development activities of IPdR through 2006 and into 2007. Since our business does not generate any cash flow, however, we will need to raise additional capital to continue development of the product beyond 2007. We expect to raise such additional capital by either borrowing money or by selling shares of our capital stock. To the extent additional capital is not available when we need it, we may be forced to sublicense our rights to IPdR or abandon our development efforts altogether, either of which would have a material adverse effect on the prospects of our business. Further, our assumptions relating the expected costs of development and timeframe for completion are dependent on numerous factors other than available financing, including unforeseen safety issues, lack of effectiveness, and significant unforeseen delays in the clinical trial and regulatory approval process, any of which could be extremely costly. In addition, our estimates assume that we will be able to enroll a sufficient number of patients in each clinical trial.

Off-Balance Sheet Arrangements

We do not have any “off-balance sheet agreements,” as that term is defined by SEC regulation. We do, however, have various commitments under certain agreements, as follows:

License Agreements. In the event we achieve certain milestones in connection with the development of our product candidates, we will be obligated to make milestone payments to our licensors in accordance with the terms of our license agreements, as discussed below. The development of pharmaceutical product candidates is subject to numerous risks and uncertainties, including, without limitation, the following: (1) risk of delays in or discontinuation of development from lack of financing, (2) our inability to obtain necessary regulatory approvals to market the products, (3) unforeseen safety issues relating to the products, (4) our ability to enroll a sufficient number of patients in our clinical trials, and (5) dependence on third party collaborators to conduct research and development of the products. Additionally, on a historical basis, only approximately 11 percent of all product candidates that enter human clinical trials are eventually approved for sale. Accordingly, we cannot state that it is reasonably likely that we will be obligated to make any milestone payments under our license agreements. Summarized below are our future commitments under our license agreements, as well as the amounts we have paid to date under such agreements.

Talotrexin License. Our rights to Talotrexin are governed by the terms of a December 2002 license agreement with Dana-Farber Cancer Institute and Ash Stevens, Inc. The agreement provides us with an exclusive worldwide royalty bearing license, including the right to grant sublicenses, to the intellectual property rights and know-how relating to Talotrexin and all of its uses. Upon execution of the license agreement, we paid a $100,000 license fee and reimbursed our licensors for approximately $11,000 of patent-related expenses. The license agreement also requires us to make an annual license fee payment of $25,000 and provides for future payments totaling up to $6 million upon the achievement of certain milestones, including a $5 million payment upon approval by the FDA of a New Drug Application for Talotrexin. To date, we have made one of these milestone payments in the amount of $100,000 following commencement of the Phase I clinical trial. Additionally, we are obligated to pay royalties in the amount of 3.5 percent of “net sales” (as defined in the license agreement) of Talotrexin. We are also required to pay to the licensors 20 percent of fees or non-royalty consideration (e.g., milestone payments, license fees) received by us in connection with any sublicense of Talotrexin granted prior to the start of a Phase II trial, and 15 percent of such fees after initiation of a Phase II clinical trial.

IPdR License. In February 2004, we entered into an exclusive worldwide, royalty-bearing license agreement with Yale University and The Research Foundation of State University of New York, including the right to grant sublicenses, for the rights to the intellectual property relating to IPdR. The license agreement expires as the patent rights subject to the license expire. The IPdR license covers two issued patents, expiring in 2007 and 2015, respectively. In addition to a $100,000 license fee paid on execution of the agreement, we are required to make additional license payments in the aggregate amount of $500,000 upon the completion of a Phase IIb clinical trial (currently estimated to be during fiscal 2006) and upon NDA approval by the FDA, which we estimate to occur no earlier than 2010, if ever. As further consideration for the license, we are required to pay royalties to Yale and SUNY equal to 3 percent of net sales (as defined in the license agreement) from IPdR.

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Zensana™ License. Our rights to Zensana™ are subject to the terms of an October 2004 license agreement with NovaDel Pharma, Inc. The license agreement grants us a royalty-bearing, exclusive right and license to develop and commercialize Zensana™ within the United States and Canada. The technology licensed to us under the license agreement currently covers one United States issued patent, which expires in March 2022. In consideration for the license, we issued 73,121 shares of our common stock to NovaDel and have agreed to make double-digit royalty payments to NovaDel based on a percentage of “net sales” (as defined in the agreement). We are also obligated to make various milestone payments in an aggregate amount of up to $10 million. In addition, we purchased from NovaDel 400,000 shares of its common stock at a price of $2.50 per share for an aggregate payment of $1 million.

Lease Agreements. In December 2005, we entered into an office lease that expires on December 31, 2006. Total remaining lease commitments amount to approximately $123,000.

Employment Agreements. The Company has entered into a written three year employment agreement with its President and Chief Executive Officer dated November 1, 2003. This agreement was amended in December 2005 and now provides for an employment term that expires in November 2008. The aggregate amount of compensation to be provided over the remaining term of the agreement amounted to approximately $756,000 at December 31, 2005.

The Company entered into a written two year employment agreement with its Vice President of Business Development on January 25, 2004. This agreement was amended in December 2005 and now provides for an employment term that expires in November 2008. The aggregate amount of compensation to be provided over the remaining term of the agreement amounted to approximately $550,000 at December 31, 2005.

The Company entered into a written three year employment agreement with its Vice President and Chief Medical Officer on October 21, 2004. The aggregate amount of compensation to be provided over the remaining term of the agreement amounted to approximately $440,000 at December 31, 2005.

The following table summarizes our long-term contractual obligations at December 31, 2005:

Contractual Obligations	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating Lease Obligations (1)	$	123,000	$	123,000		-		-		-
Total	$	123,000	$	123,000		-		-		-

(1) Operating Lease Obligations are payment obligations under an “operating lease” as classified by FASB Statement of Financial Accounting Standards No. 13. According to SFAS 13, any lease that does not meet the criteria for a “capital lease” is considered an “operating lease.”

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The response to this Item is submitted as a separate section of this report commencing on Page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None

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ITEM 9A. CONTROLS AND PROCEDURES.

As of December 31, 2005, we carried out an evaluation, under the supervision and with the participation of our chief executive and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective as of that date in alerting them on a timely basis to material information required to be disclosed in our periodic reports to the Securities and Exchange Commission. During the quarter ended December 31, 2005, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information in response to this Item is incorporated herein by reference to our 2006 Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this form 10-K. The Company has adopted a Code of Ethics applicable to its CEO, CFO and Controller. The Code of Ethics is available on our website at www.hanabiosciences.com and a copy is available free of charge to anyone requesting it.

ITEM 11. EXECUTIVE COMPENSATION

Information in response to this Item is incorporated herein by reference to our 2006 Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information in response to this Item is incorporated herein by reference to our 2006 Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information in response to this Item is incorporated herein by reference to our 2006 Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information in response to this Item is incorporated herein by reference to our 2006 Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

Exhibit No.	Description
2.1	Agreement and Plan of Merger dated June 17, 2004 by and among the Registrant, Hudson Health Sciences, Inc. (n/k/a Hana Biosciences, Inc.) and EMLR Acquisition Corp. (incorporated by reference to Exhibit 2.0 of the Registrant’s Form 8-K filed June 24, 2004).
3.1	Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form SB-2/a (SEC File No. 333-118426) filed October 12 2004).
3.2	Amended and Restated Bylaws of Hana Biosciences, Inc. (incorporated by reference to Exhibit 3.2 of the Registrant’s Registration Statement on Form SB-2/A (SEC File No. 333-118426) filed on October 12, 2004).
4.1	Specimen common stock certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form SB-2/a (SEC File No. 333-118426) filed October 12, 2004).
4.2	Form of common stock purchase warrant issued to Paramount BioCapital, Inc. in connection with February 2004 and April 2005 private placement (incorporated by reference to Exhibit 4.2 of the Registrant’s Annual Report on Form 10-KSB (SEC File No. 000-50782) for the year ended December 31, 2004).
4.3	Form of option to purchase an aggregate of 138,951 shares of common stock issued to Yale University and certain employees thereof (incorporated by reference to Exhibit 4.2 of the Registrant’s Annual Report on Form 10-KSB (SEC File No. 000-50782) for the year ended December 31, 2004).
4.4	Schedule of options in form of Exhibit 4.3 (incorporated by reference to Exhibit 4.2 of the Registration’s Annual Report on Form 10-KSB (SEC. File No. 000-50782) for the year ended December 31, 2004).
4.5	Form of warrant issued in connection with April 2005 private placement (incorporated by reference to Exhibit 4.5 of Registrant’s Form SB-2 (SEC File. No. 333-125083) filed on May 20, 2005).
4.6	Form of warrant issued in connection with Registrant’s October 2005 private placement (incorporated by reference to Exhibit 4.6 of Registrant’s Form S-3 (SEC File No. 333-129722) filed on November 15, 2005).
10.1	2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-QSB for the quarter ended September 30, 2004).
10.2	2003 Stock Option Plan for Hana Biosciences (formerly Hudson Health Sciences, Inc.) (incorporated by reference to Exhibit 10.2 of the Registrant’s Form S-8 (SEC File No. 333-126877) filed on July 26, 2005).
10.3	Form of Subscription Agreement between Registrant and investors in April 2005 private placement (incorporated by reference to Exhibit 10.12 of the Registrant’s Form SB-2 Registration Statement (File No. 333-125083) filed May 20, 2005).
10.4	License and Development Agreement dated October 26, 2004 by and between the Registrant and NovaDel Pharma, Inc. (incorporated by reference to Exhibit 10.7 of the Registrant’s Registration Staement on Form SB-2/A (SEC File No. 333-118426) filed January 14, 2005).+
10.5	Amendment No. 1 to License and Development Agreement dated August 8, 2005 between Hana Biosciences, Inc. and NovaDel Pharma, Inc. (incorporated by reference to Exhibit 99.1 of Current Report on Form 8-K filed by NovaDel Pharma, Inc. on August 12, 2005).
10.6	License Agreement dated on or about December 19, 2002, among Dana-Farber Cancer Institute, Inc., Ash Steven, Inc. and Hana Biosciences, Inc. (formerly Hudson Health Sciences, Inc.) (incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form SB-2 (SEC No. 333-118426) filed August 20, 2004).
10.7	License Agreement dated on or about February 4, 2004, among Yale University, The Research Foundation of State University of New York and Hana Biosciences, Inc. (formerly Hudson Health Sciences, Inc.) (incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form SB-2 (SEC No. 333-118426) filed August 20, 2004).
10.8	Separation Agreement between Russell L. Skibsted and Registrant dated December 28, 2005 (incorporated by reference to Registrant’s Form 8-K (SEC File No. 001-32626) filed on December 28, 2005).
10.9	Employment Agreement dated November 1, 2003 between Hana Biosciences, Inc. (formerly Hudson Health Sciences, Inc.) and Mark J. Ahn (incorporated by reference to Exhibit 10.1 of Registrant’s Registration Statement on Form SB-2 (SEC File No. 333-118426) filed August 20, 2004).
10.10	Amendment No. 1 to Employment Agreement between Registrant and Mark J. Ahn dated October 21, 2004 (incorporated by reference to Exhibit 10.11 of the Registrant’s 10-KSB (SEC File No. 000-50782) dated March 20, 2004).
10.11	Amendment No. 2 to Employment Agreement between Registrant and Mark J. Ahn dated December 19, 2005.
10.12	Employment Agreement dated January 25, 2004 between Hana Biosciences (formerly Hudson Health Sciences, Inc.) and Fred L. Vitale (incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form SB-2 (SEC File No. 333-118426) filed August 20, 2004).
10.13	Amendment No. 1 to Employment Agreement between Registrant and Fred L. Vitale dated December 19, 2005.
10.14	Employment Agreement between Gregory I. Berk and the Registrant dated October 21, 2004 (incorporated by reference to Exhibit 10.8 of the Registrant’s Registration Statement on Form SB-2/A (SEC No. 333-118426) filed November 24, 2004).
10.15	Letter Agreement between Gregory I. Berk and the Registrant dated October 21, 2004 (incorporated by reference to Exhibit 10.9 of the Registrant’s Registration Statement on Form SB-2/A (SEC No. 333-118426) filed November 24, 2004).
10.16	Form of Registration Rights Agreement dated July 21, 2004 by and among Hana Biosciences, Inc. (formerly Hudson Health Sciences, Inc.) and certain investors identified therein (incorporated by reference to Exhibit 10.5 of the Registrant’s Registration Statement on Form SB-2 (SEC No. 333-118426) filed August 20, 2004).
10.17	Securities Purchase Agreement dated October 19, 2005 among Registrant and the several purchasers identified therein (incorporated by reference to Exhibit 10.14 on Registrant’s Form S-3 (SEC File No. 333-129722) filed November 15, 2005).
23.1	Consent of J.H. Cohn LLP.
31.1	Certification of Chief Executive Officer.
31.2	Certification of Chief Financial Officer.
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

____________

+ Confidential treatment has been granted as to certain omitted portions of this exhibit pursuant to Rule 406 of the Securities Act.

35

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	Hana Biosciences, Inc.
Date: March 13, 2006	By:	/s/ Mark J. Ahn
		Mark J. Ahn
		President and Chief Executive Officer

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

Signature	Title	Date
/s/ Mark J. Ahn ——————————————————— Mark J. Ahn	President, Chief Executive Officer and Director (principal executive officer)	March 13, 2006
/s/ John P. Iparraguirre ——————————————————— John P. Iparraguirre	Vice President, Chief Financial Officer and Secretary Controller (principal financial and accounting officer)	March 13, 2006
——————————————————— Arie S. Belldegrun	Director	March __, 2006
/s/ Isaac Kier ——————————————————— Isaac Kier	Director	March 13, 2006
/s/ Leon E. Rosenberg ——————————————————— Leon E. Rosenberg	Director	March 13, 2006
/s/ Michael Weiser ——————————————————— Michael Weiser	Director	March 13, 2006

36

Index to Financial Statements of

Hana Biosciences, Inc.

Audited Financial Statements:
Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets as of December 31, 2005 and 2004	F-3
Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003 and for the Period from December 6, 2002 (date of inception) to December 31, 2005	F-4
Statements of Changes in Stockholders’ Equity (Deficiency) for the years ended December 31, 2005, 2004 and 2003 and for the Period from December 6, 2002 (date of inception) to December 31, 2005	F-5
Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003 and for the Period from December 6, 2002 (date of inception) to December 31, 2005	F-7
Notes to Financial Statements	F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Hana Biosciences, Inc.

We have audited the accompanying balance sheets of Hana Biosciences, Inc. (A Development Stage Enterprise) as of December 31, 2005 and 2004, and the related statements of operations, changes in stockholders’ equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 2005 and for the period from December 6, 2002 (date of inception) to December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hana Biosciences, Inc. (A Development Stage Company) as of December 31, 2005 and 2004, and its results of operations and cash flows for each of the years in the three-year period ended December 31, 2005 and for the period from December 6, 2002 (date of inception) to December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

/s/ J.H. Cohn LLP

San Diego, California

March 3, 2006

F-2

HANA BIOSCIENCES, INC.

(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

		December 31,			December 31,
		2005			2004
ASSETS
Current assets:
Cash and cash equivalents	$	17,082,521		$	6,584,361
Prepaid expenses and other current assets		74,729			26,885
Available-for-sale securities		472,000			--
Total current assets		17,629,250			6,611,246
Property and equipment, net		76,496			109,604
Investments in restricted equity securities, at cost		--			636,000
Other assets		20,453			20,303
Total assets	$	17,726,199		$	7,377,153
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	671,491		$	649,644
Accrued expenses		865,135			515,215
Total liabilities		1,536,626			1,164,859
Commitments and contingencies
Stockholders' equity:
Preferred stock; $0.001 par value:
10,000,000 shares authorized, 0 and 2,395,210 shares issued and outstanding at December 31, 2005 and December 31, 2004, respectively (liquidation preference $8,000,000)		--			2,395
Common stock; $0.001 par value:
100,000,000 shares authorized, 22,348,655 and 10,792,702 shares issued and outstanding at December 31, 2005 and December 31, 2004, respectively		22,349			10,793
Additional paid-in capital		34,400,345			13,975,514
Common stock to be issued - 55,500 shares		--			249,750
Accumulated other comprehensive loss		(164,000	)		--
Deficit accumulated during the development stage		(18,069,121	)		(8,026,158	)
Total stockholders' equity		16,189,573			6,212,294
Total liabilities and stockholders' equity	$	17,726,199		$	7,377,153

See accompanying notes to financial statements.

F-3

HANA BIOSCIENCES, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

		Years Ended    December 31,									Cumulative Period from December 6, 2002 (date of inception) to December 31,
		2005			2004			2003			2005
Operating expenses:
General and administrative	$	3,793,210		$	2,808,706		$	229,601		$	6,833,582
Research and development		6,415,796			4,546,519			309,376			11,414,096
Total operating expenses		10,209,006			7,355,225			538,977			18,247,678
Loss from operations		(10,209,006	)		(7,355,225	)		(538,977	)		(18,247,678	)
Other income (expense):
Interest income (expense), net		185,620			26,040			(12,879	)		198,781
Other expense, net		(19,577	)		(647	)		--			(20,224	)
Total other income (expense)		166,043			25,393			(12,879	)		178,557
Net loss	$	(10,042,963	)	$	(7,329,832	)	$	(551,856	)	$	(18,069,121	)
Net loss per share, basic and diluted	$	(0.57	)	$	(0.80	)	$	(0.10	)
Weighted average shares used in computing net loss per share, basic and diluted		17,662,365			9,119,344			5,640,271

See accompanying notes to financial statements.

F-4

HANA BIOSCIENCES, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)

Period from December 6, 2002 (date of inception) to December 31, 2005

	Preferred stock						Common stock
	Shares			Amount			Shares		Amount		Additional paid-in capital			Common stock to be issued			Subscription receivable			Unearned consulting fee			Accumulated other comprehensive loss			Deficit accumulated during development stage			Total stockholders' equity (deficiency)				Comprehensive (Loss)
Issuance of common stock at $0.001 per share for subscription receivable				$	--			5,640,266	$	5,640	$	34,360		$	--		$	(40,000	)	$	--		$	--		$	--		$	--		$	--
Net loss		--			--			--		--		--			--			--			--			--			(144,470	)		(144,470	)		--
Balance at December 31, 2002		--			--			5,640,266		5,640		34,360			--			(40,000	)		--			--			(144,470	)		(144,470	)		--
Payment for subscription receivable		--			--			--		--		--			--			4,000			--			--			--			4,000			--
Satisfaction of subscription receivable through rendering of services		--			--			--		--		--			--			36,000			--			--			--			36,000			--
Stock options issued to nonemployees for services		--			--			--		--		14,750			--			--			--			--			--			14,750			--
Common stock to be issued for services rendered		--			--			--		--		5,953			--			--			--			--			--			5,953			--
Net loss		--			--			--		--		--			--			--			--			--			(551,856	)		(551,856	)		--
Balance at December 31, 2003		--			--			5,640,266		5,640		55,063			--			--			--			--			(696,326	)		(635,623	)		--
Common stock issued for services to be rendered								126,131		126		212,319			--			--			(212,445	)		--			--			--			--
Common stock issued to nonemployees for services rendered in 2003		--			--			3,887		4		591			--			--			--			--			--			595			--
Proceeds from private placement, net of $341,979 in fees		--			--			2,802,989		2,803		4,376,352			--			--			--			--			--			4,379,155			--
Stock options issued to nonemployees for services		--			--			--		--		310,252			--			--			--			--			--			310,252			--
Compensation expense recorded upon issuance of stock options to employees		--			--			--		--		375,552			--			--			--			--			--			375,552			--
Proceeds from private placement		2,395,210			2,395			--		--		7,997,605			--			--			--			--			--			8,000,000			--
Issuance of shares for debt repayment		--			--			63,326		64		149,936			--			--			--			--			--			150,000			--
Issuance of shares for license agreement		--			--			73,121		73		499,927			--			--			--			--			--			500,000			--
55,500 shares to be issued for services rendered		--			--			--		--		--			249,750			--			--			--			--			249,750			--
Shares issued by accounting acquirer in reverse acquisition		--			--			2,082,982		2,083		(2,083	)		--			--			--			--			--			--			--
Satisfaction of unearned consulting fees through rendering of services		--			--			--		--		--			--			--			212,445			--			--			212,445			--
Net loss		--			--			--		--		--			--			--			--			--			(7,329,832	)		(7,329,832	)		--
Balance at December 31, 2004		2,395,210			2,395			10,792,702		10,793		13,975,514			249,750			--			--			--			(8,026,158	)		6,212,294			--
Automatic conversion of Series A Preferred Stock		(2,395,210	)		(2,395	)		3,377,409		3,377		(982	)		--			--			--			--			--			--			--
Issuance of shares for services rendered in 2004		--			--			55,500		55		249,695			(249,750	)		--			--			--			--			--			--
Stock options issued to nonemployees for services		--			--			--		--		44,777			--			--			--			--			--			44,777			--
Compensation expense recorded upon issuance of stock options to employees		--			--			--		--		988,267			--			--			--			--			--			988,267			--
Proceeds from private placement, net of $334,519 in fees		--			--			3,916,082		3,916		4,674,150			--			--			--			--			--			4,678,066			--
Issuance of shares to nonemployees for services rendered in 2005		--			--			59,063		59		178,312			--			--			--			--			--			178,371			--
Proceeds from private placement, net of $1,072,254 in fees		--			--			3,686,716		3,687		13,748,059			--			--			--			--			--			13,751,746			--
Issuance of shares upon exercise of warrants and options		--			--			461,183		462		542,553			--			--			--			--			--			543,015			--
Net loss		--			--			--		--		--			--			--			--			--			(10,042,963	)		(10,042,963	)		(10,042,963	)
Unrealized loss on available for sale securities		--			--			--		--		--			--			--			--			(164,000	)		--			(164,000	)		(164,000	)
Balance at December 31, 2005		--		$	--			22,348,655	$	22,349	$	34,400,345		$	--		$	--		$	--		$	(164,000	)	$	(18,069,121	)	$	16,189,573		$	(10,206,963	)

See accompanying notes to financial statements.

F-6

HANA BIOSCIENCES, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

		Year Ended   December 31,									Cumulative Period from December 6, 2002 (date of inception) to December 31,
		2005			2004			2003			2005
Cash flows from operating activities:
Net loss	$	(10,042,963	)	$	(7,329,832	)	$	(551,856	)	$	(18,069,121	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		45,960			21,093			4,933			71,986
Issuance of options to employees		988,267			375,552			--			1,363,819
Issuance of stock and options to nonemployees for services		223,148			310,847			20,703			554,698
Services rendered for satisfaction of unearned consulting fee		--			212,445			--			212,445
Services rendered in lieu of payment of subscription receivable		--			--			36,000			36,000
Shares to be issued to employees for services rendered		--			249,750			--			249,750
Issuance of shares in partial consideration for license agreement		--			500,000			--			500,000
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses and other assets		(47,994	)		(17,071	)		(30,117	)		(95,182	)
Increase (decrease) in accounts payable		21,847			541,331			(5,200	)		671,491
Increase in accrued and other current liabilities		349,920			502,336			12,879			865,135
Net cash used in operating activities		(8,461,815	)		(4,633,549	)		(512,658	)		(13,638,979	)
Cash flows from investing activities:
Purchase of property and equipment		(12,852	)		(86,301	)		(49,329	)		(148,482	)
Purchase of equity securities		--			(636,000	)		--			(636,000	)
Net cash used in investing activities		(12,852	)		(722,301	)		(49,329	)		(784,482	)
Cash flows from financing activities:
Proceeds from issuances of notes payable to stockholders		--			125,000			645,662			801,619
Collection of subscription receivable		--			--			4,000			4,000
Repayment of notes payable to stockholders		--			(651,619	)		--			(651,619	)
Proceeds from exercise of warrants and options		543,015			--			--			543,015
Proceeds from private placements of preferred and common stock, net		18,429,812			12,379,155			--			30,808,967
Net cash provided by financing activities		18,972,827			11,852,536			649,662			31,505,982
Net increase in cash and cash equivalents		10,498,160			6,496,686			87,675			17,082,521
Cash and cash equivalents, beginning of period		6,584,361			87,675			--			--
Cash and cash equivalents, end of period	$	17,082,521		$	6,584,361		$	87,675		$	17,082,521
Supplemental disclosures of cash flow data:
Cash paid for interest	$	1,704		$	37,749		$	--		$	39,453
Supplemental disclosures of noncash financing activities:
Common stock issued for repayment of debt	$	--		$	150,000		$	--		$	150,000
Common stock issued on conversion of preferred stock	$	2,395		$	--		$	--		$	2,395
Common stock issued for services to be rendered	$	--		$	450,948		$	--		$	450,948
Common stock issued to employees for services rendered in 2004	$	249,750		$	--		$	--		$	249,750
Unrealized loss on available-for-sale securities	$	164,000		$	--		$	--		$	164,000

See accompanying notes to financial statements.

F-7

HANA BIOSCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

NOTE 1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION

BUSINESS:

Hana Biosciences, Inc. (“Hana” or the “Company”) is a biopharmaceutical company based in South San Francisco, California, which seeks to acquire, develop, and commercialize innovative products to enhance cancer care. The Company is committed to creating value by accelerating the development of our three lead product candidates and expanding its product candidate pipeline by being the alliance partner of choice to universities, research centers and other institutions.

BASIS OF PRESENTATION:

The Company is a development stage enterprise since the Company has not generated revenue from the sale of its products and its efforts through December 31, 2005 have been principally devoted to identification, licensing and clinical development its products as well as raising capital. Accordingly, the financial statements have been prepared in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by Development Stage Enterprises.”

The Company reported a net loss of $10.0 million for the year ended December 31, 2005. The net loss from date of inception, December 6, 2002, to December 31, 2005, amounted to $18.1 million. The Company’s operating activities have used cash since its inception.

The Company has financed operations since inception primarily through equity and debt financing. During the year ended December 31, 2005, the Company had a net increase in cash and cash equivalents of $10.5 million. This increase primarily resulted from net cash provided by financing activities of $19.0 million, substantially all of which was derived from the Company’s two private placements which netted the Company proceeds of $18.4 million. The increase in cash provided by financing activities was offset by net cash used in operating activities of $8.5 million and net cash used in investing activities of $12,852 for the year ended December 31, 2005. Total cash resources as of December 31, 2005 were $17.1 million compared to $6.6 million at December 31, 2004.

The Company’s continued operations will depend on whether it is able to raise additional funds through various potential sources, such as equity and debt financing. Through December 31, 2005, a significant portion of its financing has been through private placements of common stock, preferred stock and debt financing. The Company will continue to fund operations from cash on hand and through the similar sources of capital previously described. The Company can give no assurances that any additional capital that it is able to obtain will be sufficient to meet its needs. Given the current and desired pace of clinical development of its three product candidates, management estimates that the Company will have sufficient cash on hand to fund clinical development through 2006 and into 2007. The Company, however, may choose to raise additional capital before 2007 in order to fund its future development activities, likely by selling shares of capital stock or other securities. If it is unable to raise additional capital, the Company will likely be forced to curtail desired development activities, which will delay the development of its product candidates. There can be no assurance that such capital will be available on favorable terms or at all. The Company will need additional financing thereafter until it can achieve profitability, if ever.

NOTE 2. MERGER WITH PUBLIC COMPANY AND REINCORPORATION

In July 2004, the Company merged with Email Real Estate.com, Inc., or “EMLR,”, a Colorado corporation. In connection with that transaction, a wholly-owned subsidiary of EMLR merged with and into the Company, with the Company remaining as the surviving corporation and a wholly-owned subsidiary of EMLR. The Company then changed its name to “Hana Biosciences, Inc.” in connection with the merger. In exchange for their shares of capital stock in Hana Biosciences, the former stockholders of Hana Biosciences received shares of capital stock of EMLR representing approximately 87 percent of the outstanding equity of EMLR on a fully-diluted basis after giving effect to the transaction. In addition, the terms of the merger provided that the board of directors of EMLR would be reconstituted immediately following the effective time of the transaction such that the directors of EMLR were replaced by the directors of Hana Biosciences. Further, upon the effective time of the merger, the business of EMLR, which was insignificant, was abandoned and the business plan of Hana Biosciences was adopted. The transaction was therefore accounted for as a reverse acquisition with Hana Biosciences, Inc. as the acquiring party for accounting purposes and EMLR as the acquired party for accounting purposes. Accordingly, the 2,082,982 shares of EMLR outstanding at the time of the merger were deemed, for accounting purposes, to be an issuance by the Company. The merger with EMLR did not have any significant effects on the Company’s assets or liabilities or on the Company’s results of operations subsequent to the date of the merger.

F-8

HANA BIOSCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

At a special meeting held on September 28, 2004, the shareholders of EMLR approved a proposal to reincorporate that corporation, then the parent corporation of Hana Biosciences, under the laws of the state of Delaware by merging it with and into Hana Biosciences, a Delaware corporation, so that Hana Biosciences remained as the surviving corporation. The reincorporation merger became effective September 30, 2004. In connection with the reincorporation merger, each outstanding common share of EMLR automatically converted into and became exchangeable for one twelfth of a share of common stock of Hana Biosciences. In addition, each of the 6,179,829 outstanding shares of EMLR, Series B Convertible Preferred Stock automatically converted into approximately 1.410068 common shares of Hana Biosciences. Accordingly, all share and per share information in these financial statements are presented to retroactively reflect the reincorporation and the effect it had on the capitalization of the Company.

Unaudited pro forma information, assuming this acquisition occurred at the beginning of the respective years ended December 31, 2004 and 2003 is as follows:

		2004			2003
Net loss	$	(7,332,832	)	$	(636,856	)
Net loss per share, basic and diluted	$	(0.80	)	$	(0.11	)

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

RESEARCH AND DEVELOPMENT

All research and development costs are expensed as incurred and include costs of consultants who conduct research and development on behalf of the Company. Costs related to the acquisition of technology rights and patents for which development work is still in process are expensed as incurred and considered a component of research and development costs.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

F-9

HANA BIOSCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

COMPUTATION OF NET LOSS PER COMMON SHARE

Basic net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding for the period (there were no adjustments to net loss since there were no requirements to pay dividends on outstanding preferred stock). Diluted net loss per common share is the same as basic net loss per common share, since potentially dilutive securities from stock options, stock warrants and convertible preferred stock would have an antidilutive effect because the Company incurred a net loss during each period presented. The number of shares potentially issuable at December 31, 2005, 2004 and 2003 upon exercise or conversion that were not included in the computation of net loss per share totaled 4,901,869, 2,537,086 and 556,997, respectively.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful life of 3 to 5 years for the assets. Property and equipment consists of the following at December 31:

		2005			2004
Property and equipment	$	148,482		$	135,630
Less accumulated depreciation		(71,986	)		(26,026	)
Net property and equipment	$	76,496		$	109,604

CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalent balances primarily in one high credit quality financial institution. As of December 31, 2005, the balance exceeded the Federal Deposit Insurance Corporation limitation for coverage of $100,000 by approximately $17.0 million.

STOCK OPTIONS

The Company measures compensation cost related to stock options issued to employees using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees”. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Principles No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation” and Statement of Financial Accounting Principles No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure”. During the years ended December 31, 2005 and 2004, the Company recorded earned compensation cost of $988,267 and $375,552, respectively, attributable to the intrinsic value of options granted to employees at exercise prices that were less than the market value at the date of grant.

For the year ended December 31, 2003 there was no material difference between the Company’s historical net loss and pro forma net loss, determined using the Black-Scholes option pricing model in accordance with the provisions of SFAS 123.

Had compensation costs for the years ended December 31, 2005 and 2004 been determined in accordance with the fair value method prescribed by SFAS 123 for all options issued to employees and amortized over the vesting period, the Company’s net loss and net loss per common share (basic and diluted) for options would have been increased to the pro forma amounts indicated below.

		2005			2004
Net loss, as reported	$	(10,042,963	)	$	(7,329,832	)
Add: Stock-based employee compensation expense for stock options included in reported net loss per common share		988,267			375,552
Deduct: Total stock-based employee compensation expense determined under fair value method		(1,527,553	)		(468,863	)
Net loss, pro forma	$	(10,582,249	)	$	(7,423,143	)
Net loss per common share - basic and diluted
As reported	$	(0.57	)	$	(0.80	)
Pro forma	$	(0.60	)	$	(0.81	)

F-10

HANA BIOSCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

As a result of amendments to SFAS 123, the Company will be required to expense the fair value of all employee stock options over the vesting period beginning with its fiscal quarter ending March 31, 2006.

The foregoing pro forma information regarding net loss and net loss per common share has been determined as if the Company had accounted for its employee stock options under the Black-Scholes method. The assumptions used to calculate the fair value of stock options granted to employees were as follows:

	Years Ended December 31,
	2005		2004
Risk-free interest rate	3.5 - 4.0	%	3.0	%
Expected life (in years)	8		8-10
Volatility	87.1 - 106.5	%	0 - 94.9	%
Dividend yield	0	%	0	%

In accordance with the provisions of SFAS 123, all other issuances of common stock, stock options or other equity instruments to non-employees as the consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued (unless the fair value of the consideration received can be more reliably measured). During the years ended December 31, 2005, 2004 and 2003, the Company recognized $44,777, $310,252 and $14,750 of expense relating to the granting of options to non-employees for services and such expense is included in the accompanying statement of operations, respectively. For the 2003 options, the fair value was determined based upon the agreed upon price between the Company and the non-employees. The assumptions used to calculate the fair value of stock options granted during 2005 and 2004 to non-employees were as follows:

	Years Ended December 31,
	2005		2004
Risk-free interest rate	3.0	%	3.0	%
Expected life (in years)	8		8-10
Volatility	87.1 - 106.1	%	0 - 94.9	%
Dividend yield	0	%	0	%

CASH AND CASH EQUIVALENTS

The Company considers all highly-liquid investments with maturities of three months or less when acquired as cash equivalents. Cash equivalents are carried at cost, which approximates fair value.

INVESTMENT SECURITIES

At December 31, 2005, the Company classified its marketable securities as available-for-sale (See Note 11). Available-for-sale securities are carried at estimated fair value, with the unrealized gains and losses reported in stockholders’ equity and included in accumulated other comprehensive loss.

NOTE 4. STOCKHOLDERS’ EQUITY

Issuance of common stock:

Year Ended December 31, 2002

On December 6, 2002, the Company issued 5,640,266 shares of its common stock to various private investors for subscriptions receivable of $40,000 ($0.14 per share). These receivables were relieved in 2003 through a cash payment of $4,000 and various services rendered amounting to $36,000.

Year Ended December 31, 2004

On January 30, 2004, the Company issued 3,887 shares of common stock valued at $6,548 ($1.68 per share) to a vendor in return for services rendered in 2003.

F-11

HANA BIOSCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

On February 19, 2004, the Company sold 2,802,989 shares of common stock at $1.68 per share during a private placement. The Company raised net proceeds of approximately $4.4 million (see Note 5).

On January 31 and June 1, 2004, the Company entered into two separate agreements whereby it was originally obligated to issue an aggregate of 267,734 shares of common stock valued at $450,948 ($1.68 per share) to two vendors in return for services to be rendered.  On December 31, 2004 an amendment was reached with one of the vendors to reduce the amount ultimately issuable in common stock for services already performed.  As a result, the Company issued 126,131 shares of common stock valued at $212,445 ($1.68 per share) to the two vendors in return for services rendered during 2004.   The Company is no longer obligated to issue any additional shares in accordance with these two agreements.

On August 18, 2004, the Company issued 63,326 shares of common stock valued at $150,000 ($2.37 per share) for repayment of outstanding notes payable.

On November 3, 2004, the Company issued 73,121 shares of common stock valued at $500,000 ($6.84 per share) in satisfaction of the Company’s license agreement with NovaDel Pharma, Inc (see Note 6).

Year Ended December 31, 2005

On January 18, 2005, the Company’s registration statement on Form SB-2 was declared effective by the Securities and Exchange Commission. As a result of the effectiveness of the registration statement, all of the Company’s Series A Convertible Preferred Stock automatically converted into an aggregate of 3,377,409 common shares on January 18, 2005.

On January 19, 2005, the Company issued 55,500 shares of common stock valued at $249,750 ($4.50 per share) to certain current and former employees and a director of the Company for services rendered in 2004.

On April 28, 2005, the Company sold 3,916,082 shares of common stock at $1.28 per share during a private placement. The Company raised net proceeds of approximately $4.7 million (see Note 5).

On October 19, 2005, the Company sold 3,686,716 shares of common stock at $4.00 and $4.59 per share during a private placement. The Company raised net proceeds of approximately $13.8 million (see Note 5).

On December 2, 2005, the Company issued 59,063 shares of common stock valued at $178,371 (at an average of $3.02 per share) to a vendor in return for services rendered during 2005.   The Company is no longer obligated to issue any additional shares in accordance with this agreement.

During the year ended December 31, 2005, the Company issued 461,183 shares of common stock upon the exercise of stock options and warrants. The total proceeds of these exercises were $543,015.

Issuance of Series A Convertible Preferred Stock:

The Company is authorized to issue up to 10,000,000 shares or preferred stock.

On July 21, 2004, the Company sold 2,395,210 shares of Series A Convertible Preferred Stock at $3.34 per share in a private placement. The Company raised gross proceeds of $8.0 million. Each share of Series A Convertible Preferred Stock was convertible at the holder’s election into 1.410068 common shares. On January 18, 2005, upon the effective date of the registration statement covering the resale of the common shares issuable upon conversion of the Series A Preferred Stock, each share of Series A Preferred Stock automatically converted into common shares.

Along with the holders of common stock, each holder of Series A shares had one vote on all matters submitted to the holders of common stock for each share of common stock into which the Series A shares could be converted.

F-12

HANA BIOSCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

Upon the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the Series A shares would have been entitled to be paid, prior to any payments made to the holders of any securities ranking junior to the Series A shares, including common stockholders, an amount equal to $3.34 per share. Holders of Series A shares were not entitled to dividends.

Stock Options:

During 2003, the Company established a stock option plan (the “2003 Plan”) under which it may grant incentive and non-qualified stock options to employees, directors, consultants and service providers to purchase up to an aggregate of 1,000,000 shares of its common stock at an exercise price determined by a committee of the Board of Directors subject to the following: (a) the exercise price of an incentive option shall not be less than 100% of fair market value of the common stock at the date of the grant; and (b) the exercise price of a non-qualified option shall be determined by the committee. As of December 31, 2005, the Company has issued 704,296 options under the 2003 Plan.

During 2003, the Company recognized $14,750 of expense relating to the granting of options to non-employees for services and such expense is included in the accompanying statement of operations.

During 2003, the Company granted options to purchase 556,977 shares of common stock outside the 2003 Plan to employees and outside consultants of the Company at a weighted average exercise price of $0.24 per share.

During 2004, the Company established a new stock option plan (the “2004 Plan”) under which it may grant incentive and non-qualified stock options to employees, directors, consultants and service providers to purchase up to an aggregate of 2,500,000 shares of its common stock at an exercise price determined by a committee of the Board of Directors. As of December 31, 2005, the Company had issued 934,504 options under the 2004 Plan.

During 2004, the Company granted options to purchase an aggregate of 1,478,815 shares of common stock to employees and directors of the Company. These options were granted at a weighted average exercise price of $1.16 per share. During the year, the Company issued options to certain employees where the fair value exceeded the exercise price. The Company expensed $375,552 in 2004 relating to the intrinsic value associated with the option grants.

For 2004, the Company granted options to purchase an aggregate of 399,822 shares of common stock to vendors, members of the Scientific Advisory Board and license agreement partners. These options were granted at a weighted average exercise price of $1.00. The fair value of these options was determined to be $302,002 on the date of the grant. Also, the Company incurred $8,250 of expense in 2004 relating to options issued in 2003 and vesting in the current year.

During 2005, the Company granted options to purchase an aggregate of 673,000 shares of common stock to employees and directors of the Company. These options were granted at a weighted average exercise price of $1.59 per share. During the year ended December 31, 2005, the Company expensed $988,267 relating to the intrinsic value associated with option grants in which the fair value exceeded the exercise price.

During 2005, the Company granted options to purchase an aggregate of 26,000 shares of common stock to consultants. These options were granted at a weighted average exercise price of $2.07. The fair value of these options was determined to be $44,777 on the date of the grant.

The weighted average fair value of options granted during 2005, 2004 and 2003 is as follows:

		2005		2004		2003
Exercise price equal to market price for 699,000, 535,826 and 0 shares	$	1.60	$	0.36	$	--
Exercise price less than market price for 0, 1,286,409 and 521,725 shares	$	--	$	2.48	$	0.71
Exercise price greater than market price for 0, 56,402 and 35,252 shares	$	--	$	--	$	--

The following table summarizes information about stock option activity for the years ended December 31, 2005, 2004 and 2003, all of which are at fixed prices, and changes in outstanding options during each year:

F-13

HANA BIOSCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

	Number of shares			Weighted  average  exercise price
Outstanding January 1, 2003		0		$	0.00
Options granted under plans		0			0.00
Options granted outside plans		556,977			0.24
Options exercised		0			0.00
Options cancelled		0			0.00
Outstanding December 31, 2003		556,977			0.24
Options granted under plans		1,256,958			1.56
Options granted outside plans		621,679			0.24
Options exercised		0			0.00
Options cancelled		(176,259	)		0.39
Outstanding December 31, 2004		2,259,355			0.97
Options granted under plans		699,000			1.60
Options granted outside plans		0			0.00
Options exercised		(119,517	)		1.52
Options cancelled		(385,951	)		1.73
Outstanding December 31, 2005		2,452,887			1.01
Exercisable at December 31, 2005		1,107,199			0.83

The following table summarizes information about stock options outstanding at December 31, 2005:

	Weighted Average Number of Options		Remaining Contractual Life of Options		Number of Options
Exercise Price	Outstanding		Outstanding		Exercisable
$   0.07		98,707		8.2 yrs.		98,707
$   0.17		678,079		7.9 yrs.		390,534
$   0.34		443,434		8.3 yrs.		190,113
$   1.01		141,007		8.1 yrs.		141,007
$   1.33		368,000		9.3 yrs.		0
$  1.62 - $   1.69		316,257		8.8 yrs.		98,704
$  2.17 - $   2.40		336,000		8.9 yrs.		164,333
$   3.34		71,403		8.8 yrs.		23,801
$  0.07 - $   3.34		2,452,887		8.5 yrs.		1,107,199

In addition on December 31, 2005, the Company also had 2,448,982 warrants outstanding in connection with the Company’s February 2004, April 2005 and October 2005 Private Placements (see Note 5) at a weighted average exercise price of $3.31.

NOTE 5. PRIVATE PLACEMENTS OF COMMON AND PREFERRED SHARES

During February 2004, pursuant to a private placement memorandum, the Company sold 2,802,989 shares of common stock at a price of $1.68 per share and received net proceeds of approximately $4.4 million. In connection with the placement and as consideration for its services as placement agent, the Company paid cash fees of $326,979 and issued warrants to purchase 277,731 shares of common stock at $1.85 per share to a related party. These warrants were immediately exercisable and expire on February 15, 2009. As of December 31, 2005, 4,045 warrants had been exercised, 2,959 warrants had been cancelled and there remained outstanding warrants to purchase an aggregate of 270,326 shares.

F-14

HANA BIOSCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

Immediately prior to the EMLR - Hana Biosciences merger in July 2004 (see Note 2), the Company raised gross proceeds of $8.0 million through the sale of 2,395,210 shares of Series A Convertible Preferred Stock at $3.34 per share. Following the Company’s reincorporation in September 2004 (Note 2), each share of Series A Convertible Preferred Stock was convertible at the holder’s election and without further consideration into 1.410068 common shares. On January 18, 2005, the Company’s registration statement on Form SB-2 was declared effective by the Securities and Exchange Commission. As a result of the effectiveness of the registration statement, all of the Series A Convertible Preferred Stock automatically converted into an aggregate of 3,377,409 common shares.

During April 2005, the Company completed a private placement of 3,916,082 shares of its common stock at a price of $1.28 per share resulting in gross proceeds of approximately $5.0 million. In connection with the private placement, the Company issued to the investors and placement agents five-year warrants to purchase an aggregate of 1,525,629 shares of common stock at an exercise price of $1.57 per share. Included in the amounts issued to placement agents were 58,593 warrants issued to Paramount BioCapital, Inc., a related party. As of December 31, 2005, 337,621 warrants had been exercised, which resulted in gross proceeds to the Company totaling $530,064, and there remained outstanding warrants to purchase an aggregate of 1,188,008 shares. The terms of the investor warrants provide that the Company may, at its option, redeem the warrants after such time that the average closing price of the Company’s common stock exceeded $3.14 per share for a 30-day period, which condition was satisfied in August 2005. Accordingly, the Company may redeem the warrants, at a redemption price of $.01 per warrant share, at any time upon 30 days’ prior written notice to the warrant holders. The warrants remain exercisable by the holders until the expiration of such 30-day notice period. In connection with the private placement, the Company paid an aggregate of approximately $321,000 in commissions to placement agents. Included in the amounts paid to placement agents was $52,500 in commissions paid to Paramount BioCapital, Inc., a related party. The Company also incurred approximately $14,000 of legal expenses for the private placement.

During October 2005, the Company completed a private placement of 3,686,716 shares of its common stock. Of the total number of shares sold, 3,556,000 shares were sold at a price of $4.00 per share and 130,716 shares were sold to executive officers and affiliates of a director of the Company at a price of $4.59 per share, which resulted in total gross proceeds to the Company of approximately $14.8 million. In addition to the shares of common stock, the investors also received 5-year warrants to purchase an aggregate of 737,343 shares at an exercise price of $5.80 per share, all of which remained outstanding at December 31, 2005. In connection with the private placement, the Company paid an aggregate of approximately $1.0 million in commissions to placement agents and issued 5-year warrants to purchase an aggregate of 253,306 shares at an exercise price of $5.80 per share, all of which remained outstanding at December 31, 2005. The Company also incurred approximately $77,500 of legal and other expenses paid to placement agents.

NOTE 6. LICENSE AGREEMENTS

In December 2002, the Company entered into an exclusive worldwide royalty-bearing license agreement with Dana-Farber Cancer Institute and Ash Stevens, Inc. for its product Talotrexin. In consideration for the license, the Company paid to the licensors an initial license fee of $100,000 and agreed to make additional payments totaling $6 million upon the achievement of certain milestones, including a $5 million payment upon approval by the FDA of a New Drug Application.

In February 2004, the Company entered into an exclusive worldwide, royalty-bearing license agreement with Yale University and The Research Foundation of State University of New York for its product IPdR. In consideration for the grant of the license, the Company paid Yale and SUNY an initial aggregate license fee of $100,000 and issued 10 year options to purchase 100,000 shares of Hana’s common stock. The Company is also required to make two additional license payments of $250,000 each upon the completion of a Phase IIb clinical trial and upon New Drug Application approval by the FDA, respectively.

On October 26, 2004, the Company entered into a License Agreement with NovaDel Pharma, Inc. (NovaDel). Pursuant to the terms of the License Agreement, NovaDel granted to the Company a royalty-bearing exclusive right and license to develop and commercialize within the United States and Canada NovaDel’s lingual spray version of ondansetron, the most widely prescribed anti-emetic for preventing chemotherapy-induced nausea and vomiting. The technology licensed to the Company under the license agreement currently covers one United States issued patent. In connection with the development of the licensed product, NovaDel has agreed to perform or cause to be performed certain development activities on behalf and at the expense of the Company.

F-15

HANA BIOSCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

The license agreement provides that (i) the Company will make royalty payments to NovaDel based on a percentage of “Net Sales” (as defined in the agreement); (ii) the Company is obligated to make various milestone payments in an aggregate amount of up to $10 million.

As part of the agreement the Company issued to NovaDel 73,121 shares of its common stock having a value of $500,000 at the date of issuance and the Company also purchased 400,000 shares of NovaDel’s common stock for $1.0 million or $2.50 per share. The fair value of the NovaDel shares equaled $1.59 per share on the date of the license agreement and as a result, the Company has expensed the $364,000 premium as a licensing fee in the accompanying 2004 statement of operations and recorded the balance of $636,000 as an investment (see Note 11). Neither party may sell each other’s shares for a 2-year period following the effective date of the license agreement.

The license agreement expires on the later of (i) the expiration date of the last to expire patent covered by the license (currently March 18, 2022) or (ii) 20 years from the effective date of the license agreement. The license agreement also provides that NovaDel may terminate the agreement upon notice prior to the expiration of its term in the event the Company becomes insolvent or defaults in its payment obligations, and either party may terminate the agreement after giving notice and an opportunity to cure in the event the other party commits a material breach.

NOTE 7. NOTES PAYABLE    

During 2003, the Company issued various notes payable to stockholders to fund the Company’s operations. These notes had an interest rate of 5% and were originally due on January 15, 2005.

On August 18, 2004, the Company repaid all of its outstanding notes payable and accrued interest. The balance as of August 18, 2004 was repaid using cash of $689,368 and the issuance of 63,326 shares of common stock having a fair value of $150,000 ($2.37 per share) for the repayment of the remaining balance of outstanding notes payable.

NOTE 8. SHARES TO BE ISSUED

On September 23, 2004, the Board of Directors authorized the issuance of up to 60,000 shares to certain current and former employees and a director of the Company following the date the Company completed its reincorporation merger with EMLR, which was completed on September 30, 2004 (See Note 2). The final amount to be distributed subsequent to December 31, 2004 was 55,500 shares of common stock. Compensation expense of $249,750 related to this issuance was recorded in the accompanying 2004 financial statements based on the fair market value of $4.50 per share on the date of grant which was in the fourth quarter of 2004. These shares were subsequently issued on January 19, 2005.

NOTE 9. INCOME TAXES

There was no current or deferred tax expense for the years ended December 31, 2005, 2004 and 2003 because of the Company’s operating losses.

The components of deferred tax assets (there were no deferred tax liabilities) as of December 31, 2005 and 2004 are as follows:

		2005			2004
Deferred tax assets:
Net operating loss carryforwards	$	5,840,000		$	2,508,000
Research and development credit		667,000			--
Accrued compensation and accrued vacation		58,000			146,000
Stock-based compensation		691,000			409,000
Fixed assets and license agreements		365,000			368,000
		7,621,000			3,431,000
Less valuation allowance		(7,621,000	)		(3,431,000	)
Deferred tax assets, net	$	--		$	--

F-16

HANA BIOSCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of those deferred tax assets will not be realized. Due to the uncertainties related to the Company’s ability to realize benefits from its deferred tax assets in subsequent years, the Company recorded valuation allowances to fully offset its deferred tax assets. The net increases in the total valuation allowance for the years ended December 31, 2005, 2004 and 2003 were an increase of $4.2 million, $3.1 million and $238,000, respectively. The tax benefits expected based on the Company’s pre-tax losses in 2005, 2004 and 2003 using the federal statutory tax rate of 34% have been reduced to an actual benefit of zero due principally to the aforementioned increases in the valuation allowance.

At December 31, 2004, the Company had potentially utilizable federal and state net operating loss tax carryforwards of approximately $14.7 million and $14.2 million, respectively. The net operating loss carryforwards expire in various amounts through 2025 for federal and state tax purposes. At December 31, 2005, the Company also had research and development credit carryforwards of approximately $446,000 and $221,000 for federal and state tax reporting purposes, respectively.

NOTE 10. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

At December 31, 2005, the Company was obligated under an office lease that expires on December 31, 2006. The aggregate amount of lease payments over the remaining term amounted to approximately $123,000 at December 31, 2005. Rent expense totaled approximately $111,000 in 2005 and 2004 and $10,000 in 2003.

EMPLOYMENT AGREEMENTS

The Company has entered into a written three year employment agreement with its President and Chief Executive Officer dated November 1, 2003. This agreement was amended in December 2005 and now provides for an employment term that expires in November 2008. The aggregate amount of compensation to be provided over the remaining term of the agreement amounted to approximately $756,000 at December 31, 2005.

The Company entered into a written two year employment agreement with its Vice President of Business Development on January 25, 2004. This agreement was amended in December 2005 and now provides for an employment term that expires in November 2008. The aggregate amount of compensation to be provided over the remaining term of the agreement amounted to approximately $550,000 at December 31, 2005.

The Company entered into a written three year employment agreement with its Vice President and Chief Medical Officer on October 21, 2004. The aggregate amount of compensation to be provided over the remaining term of the agreement amounted to approximately $440,000 at December 31, 2005.

NOTE 11. AVAILABLE FOR SALE SECURITIES

As explained in Note 6, during October 2004, the Company acquired 400,000 shares of common stock from NovaDel Pharma, Inc. for, effectively, $636,000. As a result of restrictions on its ability to sell the shares, the Company was required by SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” to account for those shares using the cost method through October 2005 and thereafter as marketable equity securities. As of December 31, 2005, the Company has classified the shares as available-for-sale and recorded changes in their value as part of its comprehensive loss. The following is a summary of the Company’s available-for-sale securities at December 31, 2005:

	December 31, 2005
	Original Cost		Gross Unrealized Gains			Gross Unrealized Losses				Estimated Fair Value
Shares of NovaDel Pharma Inc.	$	636,000		$	—		$	(164,000	)	$	472,000

F-17

HANA BIOSCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

NOTE 12. 401(K) SAVINGS PLAN

During 2004, the Company adopted a 401(k) Plan (the “401(k) Plan”) for the benefit of its employees. The Company is required to make matching contributions to the 401(k) Plan equal to 100% of the first 5% of wages deferred by each participating employee. During 2005 and 2004, the Company incurred total charges of approximately $87,000 and $45,000, respectively, for employer matching contributions.

F-18

INDEX TO EXHIBITS FILED WITH THIS REPORT

Exhibit No.	Description
10.11	Amendment No. 2 to Employment Agreement between Registrant and Mark J. Ahn dated December 19, 2005.
10.13	Amendment No. 1 to Employment Agreement between Registrant and Fred L. Vitale dated December 19, 2005.
23.1	Consent of J.H. Cohn LLP.
31.1	Certification of Chief Executive Officer.
31.2	Certification of Chief Financial Officer.
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-10.11

Exhibit 10.11

AMENDMENT NO. 2 TO

EMPLOYMENT AGREEMENT

THIS AMENDMENT NO. 2 (the “Amendment”) to the EMPLOYMENT AGREEMENT (the “Agreement”), is made as of December 16, 2005 by and between Hana Biosciences, Inc. (formerly Hudson Health Sciences, Inc.), a Delaware corporation (the “Company”), and Mark J. Ahn, Ph.D. (“Executive”).

WHEREAS, the parties hereto entered into that certain Employment Agreement dated November 1, 2003, as amended October 21, 2004 (the “Agreement”);

WHEREAS, the parties desire to amend the Agreement in order to extend the Term (as defined in the Agreement) for an additional two (2) years; and

WHEREAS, the parties further desire to amend the Agreement in order to accelerate the vesting of options to purchase shares of the Company’s common stock held by Executive.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and agreements hereinafter set forth, the Company and Executive agree as follows:

1.Section 2 of the Agreement is hereby amended and restated in its entirety, as follows:

“2. Term. The employment of the Executive by the Company as provided in Section 1 shall be for a period commencing on the date hereof and ending on November 1, 2008, unless earlier terminated in accordance with the provisions of Section 9 below (the “Term”).”

2.In the event of a Change of Control, the vesting conditions relating all options to purchase shares of the Company’s common stock then held by Executive shall immediately accelerate and such options shall be deemed fully exercisable by Executive, notwithstanding any term to the contrary contained in the written instruments evidencing the terms and conditions of such stock options.

3.All capitalized terms used but not defined herein shall have the meanings ascribed to them in the Agreement.

4.Except as amended or modified by this Amendment, the parties hereby confirm all other terms and provisions of the Agreement.

5.This Amendment may be executed in any number of counterparts, each of which shall constitute an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

COMPANY:   Hana Biosciences, Inc.     By:     /s/ Fred L. Vitale        ———————————————        Its: Vice President EXECUTIVE:         /s/ Mark J. Ahn
 ———————————————— Mark J. Ahn, Ph.D.

EX-10.13

Exhibit 10.13

AMENDMENT NO. 1 TO

EMPLOYMENT AGREEMENT

THIS AMENDMENT NO. 1 (the “Amendment”) to the EMPLOYMENT AGREEMENT (the “Agreement”), is made as of December 16, 2005 by and between Hana Biosciences, Inc. (formerly Hudson Health Sciences, Inc.), a Delaware corporation (the “Company”), and Fred L. Vitale (“Employee”).

WHEREAS, the parties hereto entered into that certain Employment Agreement dated January 23, 2004 (the “Agreement”); and

WHEREAS, the parties desire to amend the Agreement in order to extend the Term (as defined in the Agreement) to November 1, 2008.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and agreements hereinafter set forth, the Company and Executive agree as follows:

1.Section 2 of the Agreement is hereby amended and restated in its entirety, as follows:

“2. Term. The Employee’s employment under this Agreement (the “Term”) shall commence as of January 25, 2004 (the “Effective Date”) and shall continue until November 1, 2008, unless sooner terminated pursuant to Section 8 of this Agreement. Notwithstanding anything to the contrary contained herein, the provisions of this Agreement covering protection of Confidential Information shall continue in effect as specified in Section 5 hereof and survive the expiration or termination hereof. The Term may be extended for additional one (1) year periods upon mutual written consent of the Employee and the Board.”

2.All capitalized terms used but not defined herein shall have the meanings ascribed to them in the Agreement.

3.Except as amended or modified by this Amendment, the parties hereby confirm all other terms and provisions of the Agreement.

4.This Amendment may be executed in any number of counterparts, each of which shall constitute an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

COMPANY:   Hana Biosciences, Inc.     By:     /s/ Mark J. Ahn        ——————————————————     President & Chief Executive Officer EMPLOYEE:                  /s/ Fred L. Vitale —————————————————— Fred L. Vitale

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

______________________________________________________________

We consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-118426, 333-125083 and 333-129722) and on Form S-8 (Nos. 333-126877 and 333-126878) previously filed by Hana Biosciences, Inc. of our report, dated March 3, 2006, on the financial statements of Hana Biosciences, Inc. as of December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005, which report appears in this annual report on Form 10-K for the year ended December 31, 2005.

/s/ J. H. COHN LLP

San Diego, California

March 15, 2006

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Mark J. Ahn, certify that:

1. I have reviewed this Annual Report on Form 10−K of Hana Biosciences, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a−15(e) and 15d−15(e)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: March 15, 2006	/s/ Mark J. Ahn
	Mark J. Ahn
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, John P. Iparraguirre, certify that:

1. I have reviewed this Annual Report on Form 10−K of Hana Biosciences, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a−15(e) and 15d−15(e)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: March 15, 2006	/s/ John P. Iparraguirre
	John P. Iparraguirre
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

OF

CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002, each of the undersigned officers of Hana Biosciences, Inc. do hereby certify that:

(a) the Annual Report on Form 10−K of Hana Biosciences, Inc. (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Hana Biosciences, Inc.

Date: March 15, 2006	/s/ Mark J. Ahn
	Mark J. Ahn
	President and Chief Executive Officer

Date: March 15, 2006	/s/ John P. Iparraguirre
	John P. Iparraguirre
	Chief Financial Officer