Unassociated Document

(9)

The Baker Bros. Affiliates have the right to acquire (setting aside for these purposes the restrictions described in footnote 1) a total of 112,313,289 shares of Common Stock which are held as set forth below. 667, L.P.: 9,545,699 shares of Common Stock, comprised of 1,551,822 shares of Common Stock, $9,479.51 of the June 2008 Notes, which are convertible into 94,795 shares of Common Stock, $196,333.33 of the April 2009 Notes, which are convertible into 1,963,333 shares of Common Stock, $162,303.62 of July 2009 Notes, which are convertible into 1,623,036 shares of Common Stock, and $78,279.60 of September 2009 Notes, which are convertible into 782,796 shares of Common Stock. The fund also holds an April 2009 Warrant to purchase 475,000 shares with an exercise price of $0.50 per share, which warrant is not exercisable until October 2, 2009, a July 2009 Warrant to purchase 170,000 shares with an exercise price of $1.00 per share, which warrant is not exercisable until January 7, 2010, a July 2009 Warrant to purchase 314,217 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010, and a September 2009 Warrant to purchase 195,700 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010. The fund also has the right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to purchase an additional $190,000.00 face amount of the April 2009 Notes, which are convertible into 1,900,000 shares of Common Stock, and a warrant to purchase 475,000 shares with an exercise price of $0.50 per share. 667, L.P. #2: 7,661,357 shares of Common Stock, comprised of 1,262,179 shares of Common Stock, $7,568.57 of the June 2008 Notes, which are convertible into 75,686 shares of Common Stock, $160,166.07 of the April 2009 Notes, which are convertible into 1,601,667 shares of Common Stock, $120,325.80 of July 2009 Notes, which are convertible into 1,203,258 shares of Common Stock, and $63,798.40 of September 2009 Notes, which are convertible into 637,984 shares of Common Stock. The fund also holds an April 2009 Warrant to purchase 387,500 shares with an exercise price of $0.50 per share, which warrant is not exercisable until October 2, 2009, a July 2009 Warrant to purchase 140,000 shares with an exercise price of $1.00 per share, which warrant is not exercisable until January 7, 2010, a July 2009 Warrant to purchase 256,087 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010, and a September 2009 Warrant to purchase 159,496 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010. The fund also has the right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to purchase an additional $155,000.00 face amount of the April 2009 Notes, which are convertible into 1,550,000 shares of Common Stock, and a warrant to purchase 387,500 shares with an exercise price of $0.50 per share. Baker Brothers Life Sciences L.P.: 93,416,380 shares of Common Stock, comprised of 11,882,595 shares of Common Stock, $70,459.50 of the June 2008 Notes, which are convertible into 704,595 shares of Common Stock, $1,506,600 of the April 2009 Notes, which are convertible into 15,066,000 shares of Common Stock, $1,192,999.17 of July 2009 Notes, which are convertible into 11,929,992 shares of Common Stock, and $599,836.10 of September 2009 Notes, which are convertible into 5,998,361 shares of Common Stock. The fund also holds an April 2009 Warrant to purchase 3,645,000 shares with an exercise price of $0.50 per share, which warrant is not exercisable until October 2, 2009, a July 2009 Warrant to purchase 1,307,500 shares with an exercise price of $1.00 per share, which warrant is not exercisable until January 7, 2010, a July 2009 Warrant to purchase 2,407,747 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010, and a September 2009 Warrant to purchase 1,499,590 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010. The fund also has the right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to purchase an additional $1,458,000.00 face amount of the April 2009 Notes, which are convertible into 14,580,000 shares of Common Stock, and a warrant to purchase 3,645,000 shares with an exercise price of $0.50 per share. The fund also has the right, pursuant to a Consent Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7, 2009, to purchase $2,075,000 face amount of the April 2009 Notes, which are convertible into 20,750,000 shares of Common Stock. 14159, L.P.: 2,338,925 shares of Common Stock, comprised of 381,318 shares of Common Stock, $2,146.14 of the June 2008 Notes, which are convertible into 21,462 shares of Common Stock, $48,566.67 of the April 2009 Notes, which are convertible into 485,667 shares of Common Stock, $38,443.80 of July 2009 Notes, which are convertible into 384,438 shares of Common Stock, and $19,288.96 of September 2009 Notes, which are convertible into 192,890 shares of Common Stock. The fund also holds an April 2009 Warrant to purchase 117,500 shares with an exercise price of $0.50 per share, which warrant is not exercisable until October 2, 2009, a July 2009 Warrant to purchase 42,500 shares with an exercise price of $1.00 per share, which warrant is not exercisable until January 7, 2010, a July 2009 Warrant to purchase 77,427 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010, and a September 2009 Warrant to purchase 48,223 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010. The fund also has the right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to purchase an additional $47,000.00 face amount of the April 2009 Notes, which are convertible into 470,000 shares of Common Stock, and a warrant to purchase 117,500 shares with an exercise price of $0.50 per share. By virtue of their ownership of entities that have the power to control the investment decisions of the Baker Bros. Affiliates, Felix J. Baker and Julian C. Baker may each be deemed to be beneficial owners of shares held or acquirable by the Baker Bros. Affiliates and may be deemed to have shared power to vote or direct the vote of and shared power to dispose or direct the disposition of such securities.

(10)

The BAM Opportunity Fund, L.P. has the right to acquire (setting aside for these purposes the restrictions described in footnote 1) 32,868,814 shares of Common Stock, comprised of 8,681, 214 shares of Common Stock, $547,635 of the April 2009 Notes, which are convertible into 5,476,350 shares of Common Stock, and $479,500 of September 2009 Notes, which are convertible into 4,795,000 shares of Common Stock. The fund also holds an April 2009 Warrant to purchase 2,000,000 shares at an exercise price of $0.50 per share, which warrant is not exercisable until October 2, 2009, a July 2009 Warrant to purchase 717,500 shares with an exercise price of $1.00 per share, which warrant is not exercisable until January 7, 2010, and a September 2009 Warrant to purchase 1,198,750 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010. The fund also has the right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to purchase an additional $800,000 face amount of the April 2009 Notes, which are convertible into 8,000,000 shares of Common Stock, and a warrant to purchase 2,000,000 shares with an exercise price of $0.50 per share. The BAM Opportunity Fund, L.P. is a private investment partnership, the sole general partner of which is BAM Capital, LLC. As the sole general partner, BAM Capital, LLC has the power to vote and dispose of the Common Stock owned by the BAM Opportunity Fund, L.P. and, accordingly, may be deemed the “beneficial owner” of such Common Stock. As the investment manager of the BAM Opportunity Fund, L.P., BAM Management, LLC has the power to vote and dispose of the Common Stock owned by the BAM Opportunity Fund, L.P. and, accordingly, may be deemed the “beneficial owner” of such Common Stock. The managing members of BAM Capital, LLC and BAM Management, LLC are Hal Mintz and Ross Berman. Each of BAM Capital, LLC, BAM Management, LLC, Hal Mintz and Ross Berman disclaims beneficial ownership of all shares of Common Stock held or acquirable by the BAM Opportunity Fund, L.P., except to the extent of their pecuniary interest therein.

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(11)

Boxer Capital LLC has the right to acquire (setting aside for these purposes the restrictions described in footnote 1) a total of 36,064,344 shares of Common Stock, comprised of 5,221,907 shares of Common Stock, $525,000 face amount of April 2009 Notes, which are convertible into 5,250,000 shares of Common Stock, $469,868.53 of July 2009 Notes, which are convertible into 4,698,685 shares of Common Stock, and $120,371.47 of September 2009 Notes, which are convertible into 1,203,715 shares of Common Stock. The fund also holds an April 2009 Warrant to purchase 1,312,500 shares with an exercise price of $0.50 per share, which warrant is not exercisable until October 2, 2009, a July 2009 Warrant to purchase 470,000 shares with an exercise price of $1.00 per share, which warrant is not exercisable until January 7, 2010, a July 2009 Warrant to purchase 1,174,671 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010, and a September 2009 Warrant to purchase 300,929 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010. The fund also has the right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to purchase an additional $525,000 face amount of the April 2009 Notes, which are convertible into 5,250,000 shares of Common Stock, and a warrant to purchase 1,312,500 shares with an exercise price of $0.50 per share. The fund also has the right, pursuant to a Consent Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7, 2009, to purchase $986,943.70 face amount of the April 2009 Notes, which are convertible into 9,869,437 shares of Common Stock. Boxer Asset Management Inc. is the managing member and majority owner of Boxer Capital LLC. Joseph Lewis is the sole indirect owner and controls Boxer Asset Management Inc. Boxer Capital LLC has shared voting and dispositive power with regard to the Common Stock, the warrants to purchase Common Stock, and the notes convertible into shares of Common Stock it owns directly. Boxer Asset Management Inc. and Joseph Lewis each have shared voting and dispositive power with regard to the Common Stock owned directly by Boxer Capital LLC. MVA Investors LLC, II is the independent, personal investment vehicle of certain employees of Boxer Capital LLC and Tavistock Life Sciences Company, which is a Delaware corporation and an affiliate of Boxer Capital LLC. Investment decisions of Boxer Capital LLC are made by a majority vote of its investment committee. As such, MVA Investors LLC, II is not controlled by Boxer Capital LLC, Boxer Asset Management Inc. or Joseph Lewis. MVA Investors LLC, II has sole voting and dispositive power over the Common Stock, the warrants to purchase Common Stock and the notes convertible into Common Stock owned by it. Neither Boxer Capital LLC, Boxer Asset Management Inc. nor Mr. Lewis have any voting or dispositive power with regard to the Common Shares held by MVA Investors LLC, II. For more information regarding MVA Investors LLC, II, see footnote 19.

(12)

Cat Trail Private Equity Fund, LLC has the right to acquire (setting aside for these purposes the restrictions described in footnote 1) 49,004,563 shares of Common Stock, comprised of 8,709,023 shares of Common Stock and $450,000 face amount of April 2009 Notes, which are convertible into 4,500,000 shares of Common Stock, and $1,078,643.21 face amount of July 2009 Notes, which are convertible into 10,786,432 shares of Common Stock. The fund also holds an April 2009 Warrant to purchase 1,125,000 shares with an exercise price of $0.50 per share, which warrant is not exercisable until October 2, 2009, a July 2009 Warrant to purchase 405,000 shares with an exercise price of $1.00 per share, which warrant is not exercisable until January 7, 2010, and a July 2009 Warrant to purchase 2,291,608 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010. The fund also has the right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to purchase an additional $450,000 face amount of the April 2009 Notes, which are convertible into 4,500,000 shares of Common Stock, and a warrant to purchase 1,125,000 shares with an exercise price of $0.50 per share. The fund also has the right, pursuant to a Consent Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7, 2009, to purchase $1,556,250 face amount of the April 2009 Notes, which are convertible into 15,562,500 shares of Common Stock. David Dekker, as the managing member of Cat Trail Private Equity, LLC, may be deemed to beneficially own the shares of Common Stock held or acquirable by Cat Trail Private Equity, LLC. Mr. Dekker shares voting and dispositive power over such shares with Cat Trail Private Equity, LLC. Mr. Dekker disclaims beneficial ownership of all shares reported herein except to the extent of his pecuniary interest therein.

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(13)

Arcus Ventures Fund has the right to acquire (setting aside for these purposes the restrictions described in footnote 1) 23,007,926 shares of Common Stock. The fund owns 5,920,156 shares of Common Stock and $458,321.61 of July 2009 Notes, which are convertible into 4,583,216 shares of Common Stock. The fund also holds an April 2009 Warrant to purchase 562,500 shares of Common Stock with an exercise price of $0.50 per share, which warrant is not exercisable until October 2, 2009, a July 2009 Warrant to purchase 202,500 shares with an exercise price of $1.00 per share, which warrant is not exercisable until January 7, 2010, and a July 2009 Warrant to purchase 1,145,804 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010. The fund also has the right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to purchase an additional $225,000 face amount of the April 2009 Notes, which are convertible into 2,250,000 shares of Common Stock, and a warrant to purchase 562,500 shares with an exercise price of $0.50 per share. The fund also has the right, pursuant to a Consent Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7, 2009, to purchase $778,125 face amount of the April 2009 Notes, which are convertible into 7,781,250 shares of Common Stock. As the general partner of Arcus Ventures Fund, Arcus Ventures Management, LLC may be deemed to be the beneficial owner of the shares held or acquirable by the fund. As members of Arcus Ventures Management, LLC, James B. Dougherty and Steven Soignet may be deemed to be the beneficial owners of the shares held or acquirable by the fund. Each of Messrs. Dougherty and Soignet disclaims beneficial ownership of the shares of Common Stock held or acquirable by the fund, except to the extent of his pecuniary interest therein.

(14)

Cranshire Capital LP has the right to acquire (setting aside for these purposes the restrictions described in footnote 1) 2,450,192 shares of Common Stock, comprised of 1,057,692 shares of Common Stock and $35,000 of September 2009 Notes, which are convertible into 350,000 shares of Common Stock. The fund also holds an April 2009 Warrant to purchase 150,000 shares of Common Stock with an exercise price of $0.50 per share, which warrant is not exercisable until October 2, 2009, a July 2009 Warrant to purchase 55,000 shares of Common Stock with an exercise price of $1.00 per share, which warrant is not exercisable until January 7, 2010, and a September 2009 Warrant to purchase 87,500 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010. The fund also has the right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to purchase an additional $60,000 face amount of the April 2009 Notes, which are convertible into 600,000 shares of Common Stock, and a warrant to purchase 150,000 shares with an exercise price of $0.50 per share. Downsview Capital, Inc. (“Downsview”) is the general partner of Cranshire Capital LP, and consequently, has voting control and investment discretion over securities held by Cranshire Capital LP. Mitchell P. Kopin, President of Downsview, has voting control over Downsview. As a result of the foregoing, each of Mr. Kopin and Downsview may be deemed to have beneficial ownership (as determined under Section 13(d) of the Exchange Act) of the shares of Common Stock beneficially owned by Cranshire Capital LP.

(15)

Rockmore Investment Master Fund Ltd. has the right to acquire (setting aside for these purposes the restrictions described in footnote 1) 2,514,583 shares of Common Stock, comprised of 1,114,710 shares of Common Stock, $30,000 face amount of April 2009 Notes, which are convertible into 300,000 shares of Common Stock, $22,341.93 face amount of July 2009 Notes, which are convertible into 223,419 shares of Common Stock, and $14,243.07 of September 2009 Notes, which are convertible into 142,431 shares of Common Stock. The fund also holds an April 2009 Warrant to purchase 75,000 shares with an exercise price of $0.50 per share, which warrant is not exercisable until October 2, 2009, a July 2009 Warrant to purchase 27,500 shares with an exercise price of $1.00 per share, which warrant is not exercisable until January 7, 2010, a July 2009 Warrant to purchase 28,355 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010, and a September 2009 Warrant to purchase 35,608 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010. The fund also has the right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to purchase an additional $30,000 face amount of the April 2009 Notes, which are convertible into 300,000 shares of Common Stock, and a warrant to purchase 75,000 shares with an exercise price of $0.50 per share. The fund also has the right, pursuant to a Consent Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7, 2009, to purchase $19,256 face amount of the April 2009 Notes, which are convertible into 192,560 shares of Common Stock. Rockmore Capital, LLC (“Rockmore Capital”) and Rockmore Partners, LLC (“Rockmore Partners”), each a limited liability company formed under the laws of the State of Delaware, serve as the investment manager and general partner, respectively, to Rockmore Investments (US) LP, a Delaware limited partnership, which invests all of its assets through Rockmore Investment Master Fund Ltd., an exempted company formed under the laws of Bermuda. By reason of such relationships, Rockmore Capital and Rockmore Partners may be deemed to share dispositive power over the shares of Common Stock owned by Rockmore Investment Master Fund Ltd. Rockmore Capital and Rockmore Partners disclaim beneficial ownership of such shares of Common Stock. Rockmore Partners has delegated authority to Rockmore Capital regarding the portfolio management decisions with respect to the shares of Common Stock owned by Rockmore Investment Master Fund Ltd. and, as of September 16, 2009, Mr. Bruce T. Bernstein and Mr. Brian Daly, as officers of Rockmore Capital, are responsible for the portfolio management decisions of the shares of Common Stock owned by Rockmore Investment Master Fund Ltd. By reason of such authority, Messrs. Bernstein and Daly may be deemed to share dispositive power over the shares of Common Stock owned by Rockmore Investment Master Fund Ltd. Messrs. Bernstein and Daly disclaim beneficial ownership of such shares of Common Stock and neither of such persons has any legal right to maintain such authority. No other person has sole or shared voting or dispositive power with respect to the shares of Common Stock as those terms are used for purposes under Regulation 13D-G of the Exchange Act. No person or “group” (as that term is used in Section 13(d) of the Exchange Act, or the SEC’s Regulation 13D-G) controls Rockmore Investment Master Fund Ltd.

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(16)

RRC BioFund, LP has the right to acquire (setting aside for these purposes the restrictions described in footnote 1) 1,225,096 shares of Common Stock, comprised of 528,846 shares of Common Stock and $17,500 of September 2009 Notes, which are convertible into 175,000 shares of Common Stock. The fund also holds an April 2009 Warrant to purchase 75,000 shares with an exercise price of $0.50 per share, which warrant is not exercisable until October 2, 2009, a July 2009 Warrant to purchase 27,500 shares with an exercise price of $1.00 per share, which warrant is not exercisable until January 7, 2010, and a September 2009 Warrant to purchase 43,750 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010. The fund also has the right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to purchase an additional $30,000 face amount of the April 2009 Notes, which are convertible into 300,000 shares of Common Stock, and a warrant to purchase 75,000 shares with an exercise price of $0.50 per share. As manager of RRC Management, LLC, the sole general partner of RRC BioFund, LP, James A. Silverman has the sole authority to vote and dispose of all of the shares held by RRC BioFund, LP.

(17)

Rodman & Renshaw, LLC is a broker-dealer under the Exchange Act.

(18)

Rodman & Renshaw, LLC has the right to acquire (setting aside for these purposes the restrictions described in footnote 1) 13,896,252 shares of Common Stock, comprised of 682,502 shares of Common Stock, $41,554.49 of July 2009 Notes, which are convertible into 415,545 shares of Common Stock, and $5,625.51 of September 2009 Notes, which are convertible into 56,255 shares of Common Stock. They also hold a June 2008 Warrant to purchase 800,000 shares with an exercise price of $1.00 per share, an April 2009 Warrant to purchase 2,916,000 shares with an exercise price of $0.50 per share, which warrant is not exercisable until October 2, 2009, a July 2009 Warrant to purchase 1,827,500 shares with an exercise price of $1.00 per share, which warrant is not exercisable until January 7, 2010, a July 2009 Warrant to purchase 4,303,886 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010, and a September 2009 Warrant to purchase 1,814,064 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010 . Rodman has the right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to purchase an additional $30,000 face amount of the April 2009 Notes, which are convertible into 300,000 shares of Common Stock, and a warrant to purchase 75,000 shares with an exercise price of $0.50 per share. Rodman also has the right, pursuant to a Consent Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7, 2009, to purchase $70,550 face amount of the April 2009 Notes, which are convertible into 705,500 shares of Common Stock. 15,800,000 of the total shares set forth above were acquired by Rodman & Renshaw, LLC as compensation in connection with its service as placement agent to the Company for the June 2008 financing, April 2009 financing, July 2009 financing and September 2009 financing. Dave Horin, the Chief Financial Officer of Rodman & Renshaw, LLC, has sole voting and dispositive power over the shares held by Rodman & Renshaw, LLC.

(19)

MVA Investors LLC, II has the right to acquire (setting aside for these purposes the restrictions described in footnote 1) 2,423,691 shares of Common Stock, comprised of 618,815 shares of Common Stock, $111,448.90 of July 2009 Notes, which are convertible into 1,114,489 shares of Common Stock, and $32,941.16 of September 2009 Notes, which are convertible into 329,412 shares of Common Stock. They also hold a July 2009 Warrant to purchase 278,622 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010, and a September 2009 Warrant to purchase 82,353 shares with an exercise price of $1.00 per share, which warrant is not exercisable until March 4, 2010. MVA Investors LLC, II has sole voting and dispositive power over the Common Stock, the warrants to purchase Common Stock and the notes convertible into Common Stock owned by it. MVA Investors LLC, II is the independent, personal investment vehicle of certain employees of Boxer Capital LLC and Tavistock Life Sciences Company, which is a Delaware corporation and an affiliate of Boxer Capital LLC. As such, MVA Investors LLC, II is not controlled by Boxer Capital, Boxer Asset Management Inc. or Joseph Lewis. Neither Boxer Capital LLC, Boxer Asset Management Inc. nor Mr. Lewis have any voting or dispositive power with regard to the Common Shares held by MVA Investors LLC, II. Investment decisions of MVA Investors LLC II are made by a majority vote of its investment committee. For additional information regarding Boxer Capital LLC, see footnote 11.

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DESCRIPTION OF BUSINESS

Overview

We are a biopharmaceutical company engaged in pharmaceutical (drug) research and development. We are dedicated to the identification, development and commercialization of novel drugs for the treatment of cancer and related diseases. Our research portfolio consists of two major programs: “DNA/RNA Medicines” (which includes our lead oncology drug, Genasense®); and “Small Molecules” (which includes our marketed product, Ganite®, and the investigational compounds tesetaxel and G4544).

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

Genasense®

The Company’s principal goal has been to secure regulatory approval for the marketing of Genasense®. Genasense® has been studied in combination with a wide variety of anticancer drugs in a number of different cancer indications. We have reported results from randomized trials of Genasense® in a number of diseases. Under our own sponsorship or in collaboration with others, we are currently conducting additional clinical trials. We are especially interested in the development, regulatory approval, and commercialization of Genasense® in at least three diseases: melanoma; chronic lymphocytic leukemia (CLL); and non-Hodgkin’s lymphoma (NHL).

Genasense® has been submitted for regulatory approval in the U.S. on two occasions and to the European Union (EU) once. These applications proposed the use of Genasense® plus chemotherapy for patients with advanced melanoma (U.S. and EU) and relapsed or refractory chronic lymphocytic leukemia (CLL) (U.S.-only). None of these applications resulted in regulatory approval for marketing. Nonetheless, we believe that Genasense® can ultimately be approved and commercialized and we have undertaken a number of initiatives in this regard that are described below.

Melanoma

The Company’s major current initiative is a randomized controlled trial that tests whether the addition of Genasense to standard chemotherapy can improve outcomes for patients with advanced melanoma. In 2004, the Company withdrew its New Drug Application (NDA) for Genasense® in melanoma after an advisory committee to the Food and Drug Administration (FDA) failed to recommend approval. A negative decision was also received for a similar application in melanoma from the European Medicines Agency (EMEA) in 2007. Data from the Phase 3 trial that comprised the basis for these applications were published in 2006. These results showed that treatment with Genasense® plus dacarbazine compared with dacarbazine alone in patients with advanced melanoma was associated with a statistically significant increase in overall response, complete response, durable response, and progression-free survival (PFS). However, the primary endpoint of overall survival approached but did not quite reach statistical significance (P=0.077). Subsequently, our analysis of this trial showed that there was a significant treatment interaction effect related to levels of a blood enzyme known as LDH. When this effect was analyzed by treatment arm, survival was shown to be significantly superior for patients with a non-elevated LDH who received Genasense® (P=0.018; n=508). Moreover, this benefit was particularly noteworthy for patients whose baseline LDH did not exceed 80% of the upper limit of normal for this lab value. LDH had also been previously described by others as the single most important prognostic factor in advanced melanoma.

Based on these data, in August 2007 we initiated a new Phase 3 trial of Genasense® plus chemotherapy in advanced melanoma. This trial, known as AGENDA, is a randomized, double-blind, placebo-controlled study in which patients are randomly assigned to receive Genasense® plus dacarbazine or dacarbazine alone. The study uses LDH as a biomarker to identify patients who are most likely to respond to Genasense®, based on data obtained from our preceding trial in melanoma. The co-primary endpoints of AGENDA are progression-free survival (PFS) and overall survival.

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AGENDA is designed to expand evidence for the safety and efficacy of Genasense® when combined with dacarbazine for patients who have not previously been treated with chemotherapy. The study prospectively targets patients who have low-normal levels of LDH. In March 2009, we have completed accrual of 315 patients into AGENDA. In May 2009, an analysis by an independent Data Monitoring Committee for both safety and futility indicated that the study passed an evaluation for futility and safety. Accordingly, the Committee recommended that the study should continue to completion. We expect results on the primary assessment of PFS in the fourth quarter of 2009. If those data are positive, we currently expect to submit regulatory applications based upon confirmation that the addition of Genasense® to chemotherapy results in a statistically significant improvement in PFS. Approval by FDA and EMEA will allow Genasense® to be commercialized by us in the U.S. and EU. Genasense® in melanoma has been designated an Orphan Drug in Australia and the U.S., and the drug has received Fast Track designation in the U.S.

We are conducting other trials of Genasense ® in melanoma including a Phase 2 trial of Genasense® plus chemotherapy consisting of Abraxane® (paclitaxel protein-bound particles for injectable suspension) (albumin bound) plus temozolomide (Temodar®). We also expect to examine different dosing regimens that will improve the dosing convenience and commercial acceptance of Genasense®, including its administration by brief 1- hour IV infusions.

CLL

As noted above, our NDA for the use of Genasense® plus chemotherapy in patients with relapsed or refractory CLL was not approved. We conducted a randomized Phase 3 trial in 241 patients with relapsed or refractory CLL who were treated with fludarabine and cyclophosphamide (Flu/Cy) with or without Genasense®. The trial achieved its primary endpoint: a statistically significant increase (17% vs. 7%; P=0.025) in the proportion of patients who achieved a complete response (CR), defined as a complete or nodular partial response. Patients who achieved this level of response also experienced disappearance of predefined disease symptoms. A key secondary endpoint, duration of CR, was also significantly longer for patients treated with Genasense® (median exceeding 36+ months in the Genasense® group, versus 22 months in the chemotherapy-only group).

Several secondary endpoints were not improved by the addition of Genasense®. The percentage of patients who experienced serious adverse events was increased in the Genasense® arm; however, the percentages of patients who discontinued treatment due to adverse events were equal in the treatment arms. The incidence of certain serious adverse reactions, including but not limited to nausea, fever and catheter-related complications, was increased in patients treated with Genasense®.

We submitted our NDA to the FDA in December 2005 in which we sought accelerated approval for the use of Genasense® in combination with Flu/Cy for the treatment of patients with relapsed or refractory CLL who had previously received fludarabine. In December 2006, we received a “non-approvable” notice for that application from FDA. In April 2007, we filed an appeal of the non-approvable notice using FDA’s Formal Dispute Resolution process. In March 2008, we received a formal notice from FDA that indicated additional confirmatory evidence would be required to support approval of Genasense® in CLL, either from a new clinical trial or from collection of additional information regarding the progression of disease in patients from the completed trial.

In June 2008, we announced results from 5 years of follow-up on patients who had been accrued to our completed Phase 3 trial. These data showed that patients treated with Genasense® plus chemotherapy who achieved either a complete response (CR) or a partial response (PR) also achieved a statistically significant increase in survival with chemotherapy alone (median = 56 months vs. 38 months, respectively). After 5 years of follow-up, 22 of 49 (45%) responders in the Genasense® group were alive compared with 13 of 54 (24%) responders in the chemotherapy-only group (hazard ratio = 0.6; P = 0.038). Moreover, with 5 years of follow-up, 12 of 20 patients (60%) in the Genasense® group who achieved CR were alive, 5 of these patients remained in continuous CR without relapse, and 2 additional patients had relapsed but had not required additional therapy. By contrast, only 3 of 8 CR patients in the chemotherapy-only group were alive, all 3 had relapsed, and all 3 had required additional anti-leukemic treatment.

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These data were again submitted to FDA in the second quarter of 2008, and the application was again denied in December 2008. Genta re-appealed the denial, and in March 2009, CDER decided that available data were still insufficient to support approval of Genasense® in CLL, and the Agency recommended conducting another clinical trial. We have made no decision whether to conduct this study.

As with melanoma, we believe the clinical activity in CLL should be explored with additional clinical research. We plan to explore combinations of Genasense® with other drugs that are used for the treatment of CLL, and to examine more convenient dosing regimens.

NHL

Several trials have shown definite evidence of clinical activity for Genasense® in patients with non-Hodgkin’s lymphoma (NHL). We would like to conduct additional clinical studies in patients with NHL to test whether Genasense® can be approved in this indication. Previously, we reported that randomized trials of Genasense® in patients with myeloma, acute myeloid leukemia, (AML), hormone-refractory prostate cancer (HRPC), small cell lung cancer and non small cell lung cancer were not sufficiently positive to warrant further investigation on the dose-schedules that were examined or with the chemotherapy that was employed in these trials. Data from these trials have been presented at various scientific meetings. However, we believe that alternate dosing schedules, in particular the use of brief high-dose IV infusions, provide an opportunity to re-examine the drug’s activity in some of these indications.

Tesetaxel

In March 2008, we obtained an exclusive worldwide license for tesetaxel from Daiichi Sankyo Company Ltd. Tesetaxel is a novel taxane compound that is taken by mouth. Tesetaxel has completed Phase 2 trials in a number of cancer types, and the drug has shown definite evidence of antitumor activity in gastric cancer and breast cancer. Tesetaxel also appears to be associated with a lower incidence of peripheral nerve damage, a common side effect of taxanes that limits the maximum amount of these drugs that can be given to patients. At the time we obtained the license, tesetaxel was on “clinical hold” by FDA due to the occurrence of several fatalities in the setting of severe neutropenia. In the second quarter of 2008, we filed a response to the FDA requesting a lift of the clinical hold, which was granted in June 2008. In January 2009, we announced initiation of a new clinical trial with tesetaxel to examine the clinical pharmacology of the drug over a narrow dosing range around the established Phase 2 dose.

We have also submitted applications to FDA for designation of tesetaxel as an Orphan Drug for treatment of patients with advanced gastric cancer and for patients with advanced melanoma. Both of these designations were granted. Our initial priority for clinical testing of tesetaxel includes the evaluation of safety and efficacy in patients with advanced gastric cancer. Other disease priorities for clinical research include advanced melanoma and bladder cancer, among other disorders. Maintenance of the license from Daiichi Sankyo requires certain payments that include amortization of licensing fees and milestones. If such payments are not made, Daiichi Sankyo may elect to terminate the license; however, a portion of the licensing fees are due even in the event of termination.

Oral Gallium-Containing Compounds (G4544)

Our third pipeline product is G4544, which is a novel oral formulation of a gallium-containing compound that we developed in collaboration with Emisphere Technologies, Inc. We completed a single-dose Phase 1 study of an initial formulation of this new drug known as “G4544(a)”, the results of which were presented at a scientific meeting in the second quarter of 2008. We are currently contemplating a second study using a modified formulation, known as “G4544(b)”, in order to test whether this formulation will prove more clinically acceptable.

If we are able to identify a clinically and commercially acceptable formulation of G4544 or another oral gallium-containing compound, we currently intend to pursue a 505(b)(2) strategy to establish bioequivalence to our marketed product, Ganite®, for its initial regulatory approval of G4544. We believe a drug of this type may also be broadly useful for treatment of other diseases associated with accelerated bone loss, such as bone metastases, Paget’s disease and osteoporosis. In addition, new uses of gallium-containing compounds have been identified for treatment of certain infectious diseases. While we have no current plans to begin clinical development in the area of infectious disease, we intend to support research conducted by certain academic institutions by providing clinical supplies of our gallium-containing drugs.

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Ganite®

We are currently marketing Ganite® in the U.S., which is an intravenous formulation of gallium, for treatment of cancer-related hypercalcemia that is resistant to hydration. We have announced our intention to seek a buyer for Ganite®, but we have not yet found an acceptable transaction.

Summary of Business and Research and Development Programs

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

•

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

•

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

•

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

•

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

Research and Development Programs

DNA/RNA Medicines

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

Antisense Technology

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

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

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

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Genasense® as a Regulator of Apoptosis (“Programmed Cell Death”)

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

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

Bcl-2 as an Inhibitor of Programmed Cell Death

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

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

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

Genasense®

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

Overview of Preclinical and Clinical studies of Genasense®

Preclinical Studies

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

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Clinical Studies

Genasense® has been in clinical trials since 1995. We currently have efficacy and safety data on over 2,000 patients in Phase 1, Phase 2 and Phase 3 clinical trials that have been conducted in the U.S., Europe, South America and Australia. These studies have included patients with a wide variety of tumor types, including advanced melanoma, several types of acute and chronic leukemia, NHL, multiple myeloma and cancers of the prostate, colon, lung, breast and other tumor types. Since 2001, Genta and its collaborators have jointly initiated approximately twenty clinical trials. Results of these clinical trials suggest that Genasense® can be administered to cancer patients with acceptable side-effects and that such treatment may reduce the level of Bcl-2 protein in cancer cells. The results of most of these trials have been publicly presented at scientific meetings and/or published in peer-reviewed scientific journals.

Based on work accomplished to date, we have focused on three indications for Genasense®: melanoma; CLL; and non-Hodgkin’s lymphoma. In addition, we have sought to develop treatment methods for Genasense® that do not involve the use of continuous IV infusions.

In the first quarter of 2007, we completed a trial using a concentrated solution of Genasense® administered by bolus subcutaneous injection. This trial showed that a total dose of 225 mg could be administered as a single subcutaneous injection, which is approximately equivalent to the daily dose used in the Phase 3 trial of Genasense® in CLL. The limiting reaction in this study was a localized and reversible skin rash. In 2007, we began a new Phase 1 trial of Genasense® administered as an IV infusion over 2 hours. This trial showed that the maximally tolerable dose was 900 mg, and we have now advanced that study into a trial at that dose administered twice per week. We have also continued to escalate the single dose of Genasense® up to a total of 1200 mg over 2 hours. The pharmacokinetic and pharmacodynamic data from these trials may be useful for determining whether the prior requirement for treatment by continuous IV infusion can ultimately be eliminated by these more convenient dosing regimens.

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

Ganite®

Ganite® as a Treatment for Cancer-Related Hypercalcemia

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

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

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

In May 2004, we eliminated our sales force and significantly reduced our marketing support for Ganite®. Since then, we have continued only minimal marketing support of the product. On March 2, 2006, we announced publication of a randomized, double blind, Phase 2 trial that showed Ganite® was highly effective when compared with Aredia® (pamidronate disodium; Novartis, Inc.) in hospitalized patients with cancer-related hypercalcemia.

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

Based on previously published data, Ganite® showed clear anticancer activity in patients with certain types of cancer, particularly NHL. Due to patent expirations previously described, we do not plan further clinical trials for Ganite® as an anticancer drug.

Other Pipeline Products and Technology Platforms

Oral Gallium-Containing Compounds

We have sought to develop novel formulations of gallium-containing compounds that can be taken orally and that will have extended patent protection. Such formulations might be useful for diseases in which long-term low-dose therapy is deemed desirable, such as bone metastases, Paget’s disease and osteoporosis. In March 2006, Genta and Emisphere Technologies, Inc. announced that the two companies had entered into an exclusive worldwide licensing agreement to develop an oral formulation of a gallium-containing compound. A number of candidate formulations have been developed in this collaboration. In August 2007, we announced submission of an Investigational New Drug Application, or IND, to the Endocrinologic and Metabolic Drugs Division of the FDA for a new drug known as G4544. G4544 is a new tablet formulation that enables oral absorption of the active ingredient contained in Ganite®. Results of the initial clinical trial were presented at a scientific meeting in the second quarter of 2008. In January 2009, we announced that two new patents related to the Company’s franchise in gallium-containing products have issued in the United States. Applications similar to these patents are pending worldwide, and several additional applications that address other compositions and uses have been filed in the U.S. and other territories. These patents and filings provide for claims of compositions and uses of gallium compounds that can be taken by mouth over extended periods for treatment of skeletal diseases as well as other indications. Progress in the clinical development of G4544 program was delayed in 2008 due to financial constraints, but we currently expect to continue our program when our financial condition improves.

Antisense and RNAi Research and Discovery

We have had several other oligonucleotide-based discovery programs and collaborations devoted to the identification of both antisense- and RNAi-based inhibitors of oncology gene targets. However, spending on these research programs was sharply reduced due to financial constraints. We have no current agents that we consider “lead compounds” that would justify advancement into late-stage preclinical testing.

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

Patents and Proprietary Technology

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

We own or have licensed several patents and applications to numerous aspects of oligonucleotide technology, including novel compositions of matter, methods of large-scale synthesis, methods of controlling gene expression and methods of treating disease. our patent portfolio includes approximately 65 granted patents and 66 pending applications in the U.S. and foreign countries. We endeavor to seek appropriate U.S. and foreign patent protection on our oligonucleotide technology.

We have licensed ten U.S. patents relating to the composition of Genasense® and its backbone chemistry that expire between 2008 and 2015. The U.S. composition patents for Genasense may be eligible for extension under Waxman-Hatch provisions. Corresponding patent applications have been filed in three foreign countries. We also own five U.S. patent applications relating to methods of using Genasense® expected to expire in 2020 and 2026, with approximately 50 corresponding foreign patent applications and granted patents.

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

Tesetaxel, its potential uses, composition, and methods of manufacturing are covered under a variety of patents licensed exclusively from Daiichi Sankyo, Inc. We believe that composition-of-matter claims on tesetaxel extend to at least 2020 in the U.S. and Europe and to 2022 in Japan. A number of other patents have been filed worldwide for this compound.

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

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

Competitors or potential competitors may have filed applications for, or have received patents and may obtain additional patents and proprietary rights relating to, compounds or processes competitive with those of ours. Accordingly, there can be no assurances that our patent applications will result in issued patents or that, if issued, the patents will afford protection against competitors with similar technology. We cannot provide assurance that any patents issued to us will not be infringed or circumvented by others, nor can there be any assurance that we will obtain necessary patents or technologies or the rights to use such technologies.

In addition, there may be patents which are unknown to us and which may block our ability to make, use or sell our product. We may be forced to defend ourselves against charges of infringement or we may need to obtain expensive licenses to continue our business. See the above Risk Factor entitled “We may be unable to obtain or enforce patents, other proprietary rights and licenses to protect our business; we could become involved in litigation relating to our patents or licenses that could cause us to incur additional costs and delay or prevent our introduction of new drugs to market”.

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

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

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Research and Development

In addition to our current focus in the areas described above, we continually evaluate our programs in light of the latest market information and conditions, the availability of third party funding, technological advances, financial liquidity and other factors. As a result of such evaluations, we change our product development plans from time to time and anticipate that we will continue to do so. We recorded research and development expenses of $20.0 million, $13.5 million and $28.1 million during the years ended December 31, 2008, 2007 and 2006, respectively.

Sales and Marketing

Currently we do not have a sales force. Personnel who had been hired into our sales teams were terminated following workforce reductions that took place in 2004 and 2006, owing to adverse regulatory decisions. W. Lloyd Sanders, who is presently Senior Vice President and Chief Operating Officer, was hired in January 2006 to run our sales and marketing programs.

At the present time, we do not contemplate rebuilding a sales and marketing infrastructure in the United States absent favorable regulatory actions on Genasense®. For international product sales, we may distribute our products through collaborations with third parties.

Manufacturing and Raw Materials

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

We currently rely on third parties to manufacture our products. We have a manufacturing and supply agreement with Avecia Biotechnology, Inc., or Avecia, a leading multinational manufacturer of pharmaceutical products, to supply quantities of Genasense®. This agreement renews automatically at the end of each year, unless either party gives one-year notice. We are not obligated to purchase further drug substance from Avecia prior to approval of Genasense®. We believe this agreement is sufficient for our production needs with respect to Genasense®.

For Ganite® we have a manufacturing and supply agreement with Johnson Matthey Inc. that renews automatically at the end of each year, unless either party gives one-year notice. Under the agreement, we will purchase a minimum of 80% of our requirements for quantities of Ganite®; however, there are no minimum purchase requirements.

For tesetaxel, we are currently evaluating new suppliers of both bulk drug substance and finished goods with the intent of completely replacing the supply chain that was previously used to manufacture this compound. Until the new supply chain is established, we will continue to use investigational supplies of the compound that was manufactured and is currently in inventory at Daiichi Sankyo Company, Ltd.

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

Human Resources

As of September 22, 2009, we had 23 employees, 7 of whom hold doctoral degrees. As of that date, there were 17 employees engaged in research, development and other technical activities and 6 in administration. None of our employees are represented by a union. Most of our management and professional employees have had prior experience and positions with pharmaceutical and biotechnology companies. We believe we maintain satisfactory relations with our employees and have not experienced interruptions of operations due to employee relations issues.

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Government Regulation

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

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

Clinical trials are generally categorized into four phases.

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

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

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

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

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

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

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

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

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

Competition

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

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

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

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Results of Operations for the Years Ended December 31, 2008, 2007 and 2006

	Summary Operating Results
	For the years ended December 31,
($ thousands)										$ Change
	2008			2007			2006			‘08 vs. ‘07			‘07 vs. ‘06
Product sales - net	$	363		$	580		$	708		$	(217	)	$	(128	)
Cost of goods sold		102			90			108			12			(18	)
Gross margin		261			490			600			(229	)		(110	)

Operating expenses:
Research and development		19,991			13,491			28,064			6,500			(14,573	)
Selling, general and administrative		10,452			16,865			25,152			(6,413	)		(8,287	)
Settlement of office lease obligation		3,307			-			-			3,307			-
Provision for settlement of litigation		(340	)		(4,240	)		5,280			3,900			(9,520	)
Write-off of prepaid royalty		-			-			1,268			-			(1,268	)
Total operating expenses		33,410			26,116			59,764			7,294			(33,648	)

Other (expense)/ income, net		(1,435	)		836			1,454			(2,271	)		(618	)
Amortization of deferred financing costs and debt discount		(11,229	)		-			-			(11,229	)		-
Fair value – conversion feature liability		(460,000	)		-			-			(460,000	)		-
Fair value – warrant liability		(2,000	)		-			-			(2,000	)		-
Loss before income taxes		(507,813	)		(24,790	)		(57,710	)		(483,023	)		32,920

Income tax benefit		1,975			1,470			929			505			541
Net loss	$	(505,838	)	$	(23,320	)	$	(56,781	)	$	(482,518	)	$	33,461

Product sales - net

Product sales - net were $0.4 million in 2008 compared with $0.6 million in 2007. Product sales-net in 2008 included $25,000 of sales of Ganite® and in 2007 included $60,000 in sales of Genasense® through the “named-patient” program managed for us by IDIS Limited (a privately owned company based in the United Kingdom), whereby IDIS distributes Ganite® and Genasense® on a “named patient” basis. “Named patient” distribution refers to the distribution or sale of a product to a specific healthcare professional for the treatment of an individual patient. Unit sales of Ganite® increased 2.7% in 2008, but reported product sales - net in 2008 include the negative impact of returns of Ganite® due to expired dating of product. Product sales-net in 2007 and 2006 included favorable adjustments to a reserve for returns of Ganite® of $0.1 million and $0.3 million, respectively.

Cost of goods sold

Cost of goods sold increased in 2008 compared to the prior year due to higher unit sales of Ganite® and higher unit costs. Lower cost of goods sold in 2007 than in 2006 is primarily the result of lower unit sales of Ganite®.

Research and development expenses

Research and development expenses were $20.0 million in 2008, compared with $13.5 million in 2007. This increase was primarily due to the recognition of $2.5 million in March 2008 for license payments on tesetaxel, $1.0 million in accrued milestone payments related to tesetaxel, and higher expenses from the AGENDA clinical trial. In addition, during the fourth quarter of 2007, we revised our estimate of certain accrued expenses in the amount of $4.7 million, since such amount was no longer deemed probable. These factors were partially offset by lower compensation expense resulting from our workforce reductions in April 2008 and May 2008.

Research and development expenses incurred on the Genasense® project in 2008 were approximately $15.0 million, representing 75% of research and development expenses, (including the $2.5 million for license payments and $1.0 million in milestone payments related to tesetaxel).

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Research and development expenses were $13.5 million in 2007 compared with $28.1 million in 2006. The prior year included higher manufacturing and other expenses incurred in preparation for the possible commercial launch of Genasense® and expenses related to regulatory review. The decline in expenses in 2007 reflects the comparison to this higher level of expenses in 2006, as well as the impact of a staff reduction in December 2006. Also, in 2007, we revised our estimate of certain accrued expenses in the amount of $4.7 million, since such amount was no longer deemed probable. Research and development expenses incurred on the Genasense® project in 2007 were approximately $10.3 million, representing 76% of research and development expenses.

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

Selling, general and administrative expenses

Selling, general and administrative expenses were $10.5 million in 2008, compared with $16.9 million in 2007. The decrease is primarily due to our efforts at lowering administrative expenses, lower office rent of $1.1 million and lower compensation expense resulting from our workforce reductions in April 2008 and May 2008.

Selling, general and administrative expenses were $16.9 million in 2007, compared with $25.2 million in 2006. The prior year included a buildup of sales and marketing expenses incurred in preparation for a possible commercial launch of Genasense®. The decline in expenses in 2007 reflects the comparison to this higher level of expenses in 2006, as well as the impact of our December 2006 staff reduction. In addition, depreciation expense declined by $0.8 million and share-based compensation declined by $1.1 million.

Settlement of office lease obligation

In May 2008, we entered into an amendment of our lease for office space with The Connell Company, (Connell) whereby the lease for one floor of our office space in Berkeley Heights, New Jersey was terminated. Connell received a termination payment of $1.3 million, comprised solely of our security deposits and we agreed to pay Connell $2.0 million upon the earlier of July 1, 2009 or our receipt of at least $5.0 million in upfront cash from a business development deal. In January 2009, we entered into another amendment of our agreement with Connell whereby our future payment of $2.0 million is now payable on January 1, 2011. We accrued for the $2.0 million and it is included on our Consolidated Balance Sheets. We will pay 6.0% interest in arrears to Connell from July 1, 2009 through the new payment date. The initial interest payment of approximately $30,000 will be payable as of October 1, 2009.

Provision for settlement of litigation

In 2006, we recorded an expense of $5.3 million that provided for the issuance of 40,000 shares of our common stock, for a settlement in principle of class action litigation. At December 31, 2007, the revised estimated value of the common shares portion of the litigation settlement was $1.0 million, resulting in a reduction in the liability for the settlement of litigation of $4.2 million. On June 27, 2008, the date that the settlement was finalized, the revised value of the 40,000 shares was $0.7 million, resulting in a reduction in the liability for the settlement of litigation of $0.3 million. See Note 6 to our Consolidated Financial Statements for the year ended December 31, 2008 for a further discussion of this provision.

Write-off of prepaid royalty

In December 2000, we recorded $1.3 million as the fair value for our commitment to issue 27,056 shares (not adjusted for 1-for-50 reverse stock split) of common stock to a major university as consideration for an amendment to a license agreement initially executed on August 1991 related to antisense technology licensed from the university. The amendment provided for a reduction in the royalty percentage rate to be paid to the university based on the volume of sales of our products containing the antisense technology licensed from such university. These shares were issued in 2001. In December 2006, we received a non-approvable notice from the FDA for our NDA for the use of Genasense® plus chemotherapy in patients with CLL. As a result, we accounted for the impairment of these prepaid royalties and recorded a write-off of this asset, (see Note 8 to our Financial Statements).

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Gain on maturity of marketable securities

Interest income and other income, net

Interest expense

The total of the above referenced accounts resulted in expense, net of $(1.4) million in 2008 and income, net of $0.8 million in 2007. This decline was primarily due to interest incurred on the convertible notes, as well as lower interest income, resulting from lower investment balances. Other income, net of $0.8 million in 2007 declined from $1.5 million in 2006, primarily due to lower interest income, resulting from lower investment balances, along with higher interest expense.

Amortization of deferred financing costs and debt discount

On June 9, 2008, we issued $20 million of our senior secured convertible notes, issued our private placement agent a warrant to purchase 800,000 shares of our common stock at an exercise price of $1.00 per share and incurred a financing fee of $1.2 million. The deferred financing costs, including the financing fee and the value of the warrant, are being amortized over the two-year term of the convertible notes, resulting in amortization of $11.2 million in 2008.

Fair value – conversion feature liability

On the date that we issued the convertible notes, there were an insufficient number of authorized shares of common stock in order to permit conversion of all of the notes. In accordance with EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (EITF 00-19), when there are insufficient authorized shares to allow for settlement of convertible financial instruments, the conversion obligation for the notes should be classified as a liability and measured at fair value on the balance sheet.

On June 9, 2008, based upon a Black-Scholes valuation model that included a closing price of our common stock of $10.00 per share, we calculated a fair value of the conversion feature of $380.0 million and expensed $360.0 million, the amount that exceeded the proceeds of the $20.0 million from the initial closing. On October 6, 2008, the date on which our stockholders approved an amendment to Genta’s Restated Certificate of Incorporation, as amended, to increase the total number of authorized shares of capital stock available for issuance, we re-measured the conversion feature liability and credited it to Stockholders’ equity, resulting in total expense for the year ended December 31, 2008 of $460.0 million.

Fair value – warrant liability

The warrant was also treated as a liability and was initially recorded at a fair value of $7.6 million based upon a Black-Scholes valuation model that included a closing price of our common stock of $10.00 per share. On October 6, 2008, we re-measured the warrant liability and credited it to Stockholders’ equity, resulting in total expense for the year ended December 31, 2008 of $2.0 million.

Income tax benefit

New Jersey has legislation permitting certain corporations located in the state to sell state tax loss carryforwards and state research and development credits. We sold portions of our New Jersey net operating losses research and development credits and received approximate payments of $2.0 million in 2008, $1.5 million in 2007 and $0.9 million in 2006 that are recognized as income tax benefit.

If still available under New Jersey law, we will attempt to sell our remaining tax losses in 2009. We can not be assured that the New Jersey program will continue next year, nor can we estimate what percentage of our saleable tax benefits New Jersey will permit us to sell, how much money will be received in connection with the sale, if we will be able to find a buyer for our tax benefits or if such funds will be available in a timely manner.

Net loss

Genta incurred a net loss of $505.8 million, or $455.09 per share, for 2008, $23.3 million, or $39.36 per share, for 2007 and $56.8 million, or $125.88 per share, for 2006.

The larger net loss in 2008 compared to 2007 is primarily due to the fair value charge of the conversion feature liability of $460.0 million, the amortization of deferred financing costs and debt discount of $11.2 million, the expenses resulting from the reduction in our office space of $3.3 million, the fair value charge of the warrant liability of $2.0 million, the recognition of $2.5 million in March 2008 for license payments on tesetaxel, $1.0 million in accrued milestone payments related to tesetaxel and higher expenses resulting from the AGENDA clinical trial, slightly offset by lower compensation expense resulting from the two reductions in workforce, as well as lower administrative expenses.

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The lower net loss in 2007 compared to 2006 is primarily due to a comparison with a prior year that reflected a buildup of sales, marketing and manufacturing expenses incurred in anticipation of a possible commercial launch of Genasense®. In addition, the lower loss in 2007 reflects our staff reduction in December 2006, lower share-based compensation expense, lower depreciation expense and includes a benefit of $4.2 million due to a reduction in the provision for settlement of litigation.

Critical Accounting Policies

Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements. In preparing our financial statements in accordance with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that, among other things, affect the reported amounts of assets and liabilities and reported amounts of revenues and expenses. These estimates are most significant in connection with our critical accounting policies, namely those of our accounting policies that are most important to the portrayal of our financial condition and results and require management’s most difficult, subjective or complex judgments. These judgments often result from the need to make estimates about the effects of matters that are inherently uncertain. Actual results may differ from those estimates under different assumptions or conditions. We believe that the following represents our critical accounting policies:

Going concern. Our recurring losses from operations and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern and as a result, our independent registered public accounting firms included an explanatory paragraph in their reports on our consolidated financial statements for the years ended December 31, 2008 and December 31, 2007 with respect to this uncertainty. We have prepared our financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should we be unable to continue in existence.

Revenue recognition. We recognize revenue from product sales when title to product and associated risk of loss has passed to the customer and we are reasonably assured of collecting payment for the sale. All revenue from product sales are recorded net of applicable allowances for returns, rebates and other applicable discounts and allowances. We allow return of our product for up to twelve months after product expiration.

Research and development costs. All such costs are expensed as incurred, including raw material costs required to manufacture drugs for clinical trials.

Estimate of fair value of convertible notes and warrant. We use a Black-Scholes model to estimate the fair value of our convertible notes and warrant.

Liquidity and Capital Resources

At December 31, 2008, we had cash, cash equivalents and marketable securities totaling $4.9 million, compared with $7.8 million at December 31, 2007, reflecting the net proceeds from the placement of $20 million of notes on June 9, 2008 offset by funds used in operating our company. During 2008, cash used in operating activities was $25.7 million compared with $31.7 million in 2007, reflecting our efforts to lower our spending.

On June 9, 2008, we issued 2-year senior convertible promissory notes bearing interest at an annual rate of 15%, payable at quarterly intervals in stock or cash at our option and the notes are convertible into shares of Genta common stock at a conversion rate of 10,000 shares of common stock for every $1,000.00 of principal. Holders of the notes have the right, but not the obligation, for the following 12 months following the initial closing date to purchase in whole, or in part, up to an additional $20 million of the notes. We have the right to force conversion of the notes in whole, or in part, if the closing bid price of our common stock exceeds $0.50 for a period of 20 consecutive trading days. Certain members of our senior management participated in this offering. The notes are secured by a first lien on all of our assets. In addition, the notes prohibit any additional financing without the approval of holders of more than two-thirds of the principal amount of the notes.

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The notes included certain events of default, including a requirement that we obtain stockholder approval within a specified period of time to amend our certificate of incorporation to authorize additional shares of common stock. On October 6, 2008, at the Annual Meeting of Stockholders, our stockholders approved an amendment to Genta’s Restated Certificate of Incorporation, as amended, to increase the total number of authorized shares of capital stock available for issuance from 255,000,000, consisting of 250,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, to 6,005,000,000, consisting of 6,000,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock.

In accordance with the terms of the notes, we elected to pay interest due on the notes on December 9, 2008 in shares of our common stock to all noteholders where the issuance of the shares would not cause the noteholder to beneficially own more than 4.999% of our outstanding common stock. Accordingly, on December 9, 2008, we issued 80,000 shares and $0.1 million to satisfy our interest payment.

Through December 31, 2008, our noteholders have voluntarily converted approximately $4.5 million of our convertible notes, resulting in us issuing 8.9 million shares of common stock. From January 1, 2009 through February 4, 2009, holders of convertible notes have voluntarily converted approximately $4.6 million of their notes, resulting in an issuance of 9.2 million shares of common stock.

Upon the occurrence of an event of default, holders of the notes have the right to require us to prepay all, or a portion, of their notes as calculated as the greater of (a) 150% of the aggregate principal amount of the note plus accrued interest or (b) the aggregate principal amount of the note plus accrued interest divided by the conversion price; multiplied by a weighted average price of our common stock. Pursuant to a general security agreement, entered into concurrently with the notes, the notes are secured by a first lien on all of our assets.

In February 2008, the Company sold 0.1 million shares of the Company’s common stock at a price of $25.00 per share, raising approximately $3.1 million, before estimated fees and expenses.

Effective May 7, 2008, we moved the trading of our common stock from The NASDAQ Capital Markets to the Over-the-Counter Bulletin Board (OTCBB) maintained by FINRA (formerly, the NASD). This action was taken pursuant to receipt of notification from the NASDAQ Listing Qualifications Panel that we had failed to demonstrate our ability to sustain compliance with the $2.5 million minimum stockholders’ equity requirement for continued listing on The NASDAQ Capital Markets. On July 10, 2008, we received notification from The NASDAQ Capital Market that The NASDAQ Capital Market had determined to remove our common stock from listing on such exchange. The delisting was effective at the opening of the trading session on July 21, 2008.

In March 2007, we sold 0.1 million shares of our common stock at a price of $108.00 per share, raising net proceeds of $10.2 million.

During 2007, the Company issued notes payable to finance premiums for its corporate insurance policies of $1.1 million at interest rates running from 5.2% to 5.9%. Payments were scheduled for seven or ten equal monthly installments for the notes initiated in 2007. The remaining balance on the notes payable was $0.5 million at December 31, 2007, which was then fully paid off during 2008.

Presently, with no further financing, we project that we will run out of funds in January 2010. If we are unable to raise additional financing, we could be required to reduce our spending plans, reduce our workforce, license to others products or technologies we would otherwise seek to commercialize ourselves and sell certain assets. There can be no assurance that we can obtain financing, if at all, on terms acceptable to us.

Irrespective of whether an NDA or MAA for Genasense® are approved, we will require additional cash in order to maximize this commercial opportunity and continue its clinical development opportunities. We have had discussions with other companies regarding partnerships for the further development and global commercialization of Genasense®. Additional alternatives available to us to sustain our operations include financing arrangements with potential corporate partners, debt financing, asset-based loans, royalty-based financing, equity financing and other sources. However, there can be no assurance that any such collaborative agreements or other sources of funding will be available on favorable terms, if at all.

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

Contractual Obligations

Future contractual obligations at December 31, 2008 are as follows ($ thousands):

	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Uncertain tax positions*	$	841	$	841	$	0	$	0	$	0
Operating lease obligations		2,859		706		2,153		0		0
Maturity of convertible notes		15,540		0		15,540		0		0
License obligations to Daiichi Sankyo		2,125		2,125		0		0		0
Total	$	21,365	$	3,672	$	17,693	$	0	$	0

* see Note 13 to the Consolidated Financial Statements

Virtually all of the operating lease obligations result from our lease of approximately 25,000 square feet of office space in Berkeley Heights, New Jersey. Our lease on this space terminates in 2010. In May 2008, we entered into an amendment of our lease agreement with The Connell Company, (Connell) whereby the lease for one floor of our office space was terminated. We agreed to pay Connell a payment of $2.0 million upon the earlier of July 1, 2009 or our receipt of at least $5.0 million in upfront cash from a business development deal. In February 2009, we entered into another amendment of our agreement with Connell whereby our future payment of $2.0 million is now payable on January 1, 2011. We will pay 6.0% interest in arrears to Connell from July 1, 2009 through the new payment date. The initial interest payment of approximately $30,000 will be payable as of October 1, 2009.

On June 9, 2008, we issued senior convertible promissory notes maturing on June 9, 2010, (see Note 12 to the Consolidated Financial Statements). Holders of the notes have the right, but not the obligation, to convert their notes, or a portion of their notes, in to shares of Genta common stock at a present conversion rate of 10,000 shares of common stock for every $1,000 of principal. The amount in the table above, $15.5 million, is the face value of convertible notes outstanding at December 31, 2008. This amount would be due on June 9, 2010 assuming no voluntary conversions by noteholders prior to the maturity date. As of February 4, 2009, the amount is $10.9 million.

On March 7, 2008, we entered into a license agreement with Daiichi Sankyo Company, Limited, a Japanese corporation based in Tokyo, Japan, whereby we obtained the exclusive license for tesetaxel. Pursuant to the agreement, as of December 31, 2008, we owe Daiichi Sankyo two installments of $562,000 and an earned milestone payment of $1.0 million. The agreement also provides for additional payments by us upon achievement of certain clinical and regulatory milestones and royalties on net product sales. The agreement provides provisions whereby failure to make timely payments to Daiichi Sankyo may provide grounds for termination of the agreement.

Not included in the above table are any Genasense® bulk drug purchase obligations to Avecia per the terms of the Manufacturing and Supply Agreement entered into between Avecia and Genta in May 2008. The agreement calls for Genta to purchase a percentage of its global Genasense® bulk drug requirements from Avecia during the term of the agreement. Due to the uncertainties regarding the timing of any Genasense® approval and sales/volume projections, specific obligation amounts cannot be estimated at this time. Due to past purchases of Genasense® bulk drug substance, the Company has access to sufficient drug for its current needs. In addition, not included in the above table are potential milestone payments to be made to Emisphere and other suppliers of services, since such payments are contingent on the occurrence of certain events.

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CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

On July 16, 2008, following an extensive review and request-for-proposal process, our Audit Committee determined not to renew our engagement of Deloitte & Touche LLP as our independent registered public accounting firm and dismissed them as our auditors. On July 16, 2008, the Audit Committee recommended and approved the appointment of Amper, Politziner & Mattia, LLP as our auditors for the fiscal year ending December 31, 2008, commencing immediately on such date.

No accountant’s report issued by Deloitte & Touche LLP on the financial statements for either of the two (2) fiscal years ended December 31, 2007 and December 31, 2006 contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, except that Deloitte & Touche LLP’s report on our consolidated financial statements as of and for the year ended December 31, 2007 contained an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern as a result of recurring losses and negative cash flows from operations.

During each of the fiscal years ended December 31, 2007 and December 31, 2006 and the subsequent interim period from January 1, 2008 through our notice to Deloitte & Touche LLP of its non-renewal on July 16, 2008: (i) there were no disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure, which disagreement, if not resolved to the satisfaction of Deloitte & Touche LLP, would have caused it to make reference to the subject matter of the disagreement in connection with its reports; and (ii) there were no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K). In addition, Deloitte & Touche LLP’s reports on our financial statements for the past two years did not contain an adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles. Deloitte & Touche LLP’s reports on our financial statements did include an explanatory paragraph relating to our ability to continue as a going concern and our adoption of Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment, effective January 1, 2006, and Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement no. 109, effective January 1, 2007.

During our fiscal years ended December 31, 2006 and December 31, 2007 and the subsequent interim period from January 1, 2008 through the engagement of Amper, Politziner & Mattia, LLP on July 16, 2008, we did not consult with Amper, Politziner & Mattia, LLP regarding the application of accounting principles to a specified transaction, either completed or proposed; the type of audit opinion that might be rendered on our consolidated financial statements, or any matter that was either the subject of disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K; or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our carrying values of cash, marketable securities, accounts payable, accrued expenses and debt are a reasonable approximation of their fair value. If our stock price were to increase, the Black Scholes model will calculate a higher estimate of the fair value of our convertible notes and warrant. If our stock price were to decrease, the Black Sholes model will calculate lower values. The estimated fair values of financial instruments have been determined by us using available market information and appropriate valuation methodologies (See Note 1 to our Consolidated Financial Statements for the Years Ended December 31, 2008, 2007 and 2006). We have not entered into and do not expect to enter into, financial instruments for trading or hedging purposes. We do not currently anticipate entering into interest rate swaps and/or similar instruments.

Our primary market risk exposure with regard to financial instruments is to changes in interest rates, which would impact interest income earned on such instruments. We have no material currency exchange or interest rate risk exposure as of December 31, 2008. Therefore, there will be no ongoing exposure to a potential material adverse effect on our business, financial condition or results of operation for sensitivity to changes in interest rates or to changes in currency exchange rates.

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MANAGEMENT

Our Directors and executive officers, their age, positions, the dates of their initial election or appointment as Directors or executive officers, and the expiration of the terms are as follows:

Name	Age	Position With The Company
Raymond P. Warrell, Jr., M.D.	59	Chairman and Chief Executive Officer
Gary Siegel	51	Vice President, Finance
Loretta M. Itri, M.D., F.A.C.P.	59	President Pharmaceutical Development and Chief Medical Officer
W. Lloyd Sanders	48	Sr. Vice President and Chief Operating Officer
Christopher P. Parios	68	Director
Daniel D. Von Hoff, M.D.	61	Director
Douglass G. Watson	64	Director

All directors hold office until the annual meeting next following their election and/or until their successors are elected and qualified. Officers are elected annually by the Board of Directors (the “Board”) and serve at the discretion of the Board. Information with respect to the business expenses and affiliation of our directors and executive officers is set forth below:

Raymond P. Warrell, Jr., M.D., 59, has been our Chief Executive Officer and a member of our Board since December 1999 and our Chairman since January 2001. From December 1999 to May 2003, he was also our President. From 1978 to 1999, Dr. Warrell was associated with the Memorial Sloan-Kettering Cancer Center in New York, where he held tenured positions as Member, Attending Physician, and Associate Physician-in-Chief, and with the Joan and Sanford Weill Medical College of Cornell University, where he was Professor of Medicine. Dr. Warrell also has more than 20 years of development and consulting experience in pharmaceuticals and biotechnology products. He was a co-founder and chairman of the scientific advisory board of PolaRx Biopharmaceuticals, Inc., which developed Trisenox®, a drug for the treatment of acute promyelocytic leukemia, which is now marketed by Cephalon, Inc. Dr. Warrell holds or has filed numerous patents and patent applications for biomedical therapeutic or diagnostic agents. He has published more than 100 peer-reviewed papers and more than 240 book chapters and abstracts, most of which are focused upon drug development in tumor-related diseases. Dr. Warrell is a member of the American Society of Clinical Investigation, the American Society of Hematology, the American Association for Cancer Research and the American Society of Clinical Oncology. Among many awards, he has received the U.S. Public Health Service Award for Exceptional Achievement in Orphan Drug Development from the FDA. He obtained a B.S. in Chemistry from Emory University, a M.D. from the Medical College of Georgia, and a M.B.A. from Columbia University Graduate School of Business. Dr. Warrell is married to Dr. Loretta M. Itri, President, Pharmaceutical Development and Chief Medical Officer of Genta.

Gary Siegel, 51, joined Genta in May 2003 as Director, Financial Services, was appointed Senior Director, Financial Services in April 2004 and was appointed Vice President, Finance in September 2007. During his tenure at Genta, Mr. Siegel has been accountable for the day-to-day accounting and financial operations of the Company including public and management reporting, treasury operations, planning, financial controls and compliance. Mr. Siegel became an executive officer of the Company and assumed the role of interim Principal Accounting Officer, interim Principal Financial Officer and interim Corporate Secretary, effective February 29, 2008. Prior to joining Genta, he worked for two years at Geller & Company, a private consulting firm, where he led the management reporting for a multi-billion dollar client. His twenty-two years of experience in the pharmaceutical industry include leadership roles at Warner-Lambert Company and Pfizer Inc., where he held positions of progressively increasing levels of responsibility including Director, Corporate Finance and Director, Financial Planning & Reporting.

Loretta M. Itri, M.D., F.A.C.P., 59, has been our President, Pharmaceutical Development and Chief Medical Officer since May 2003, prior to which she was Executive Vice President, Pharmaceutical Research and Development and Chief Medical Officer. Dr. Itri joined Genta in March 2001. Previously, Dr. Itri was Senior Vice President, Worldwide Clinical Affairs, and Chief Medical Officer at Ortho Biotech Inc., a Johnson & Johnson company. As the senior clinical leader at Ortho Biotech and previously at J&J’s R.W. Johnson Pharmaceutical Research Institute (PRI), she led the clinical teams responsible for NDA approvals for Procrit® (epoetin alpha), that company’s largest single product. She had similar leadership responsibilities for the approvals of Leustatin®, Renova®, Topamax®, Levaquin®, and Ultram®. Prior to joining J&J, Dr. Itri was associated with Hoffmann-La Roche, most recently as Assistant Vice President and Senior Director of Clinical Investigations, where she was responsible for all phases of clinical development programs in immunology, infectious diseases, antivirals, AIDS, hematology and oncology. Under her leadership in the areas of recombinant proteins, cytotoxic drugs and differentiation agents, the first successful Product License Application (PLA) for any interferon product (Roferon-A®; interferon alfa) was compiled. Dr. Itri is married to Dr. Warrell, our Chief Executive Officer and Chairman.

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W. Lloyd Sanders, 48, assumed the position of Senior Vice President and Chief Operating Officer in March 2008. He had been our Senior Vice President, Commercial Operations since October 2006. Mr. Sanders joined Genta in January 2006 as Vice President, Sales and Marketing. He has twenty years of experience in the pharmaceutical industry. Prior to joining Genta, Mr. Sanders was associated with Sanofi-Synthelabo, and subsequently Sanofi-Aventis. From October 2004 through January 2006 he was Vice-President, Oncology Sales for the combined companies. In that role, he had key product sales responsibility for Eloxatin® (oxaliplatin), Taxotere® (docetaxel), Anzemet® (dolasetron mesylate), and ELITEK® (rasburicase). He led the successful restructuring, integration, deployment, strategic development, and tactical execution of the merged companies’ sales forces. He was responsible for national account GPO contracting strategy and negotiations, and he shared responsibility for oncology sales training and sales operations. From October 2002 through October 2004, Mr. Sanders was Area Vice President, Oncology Sales. He led the 110-member team that achieved record sales for an oncology product launch with Eloxatin®. From 1987 until 2002, he held positions of progressively increasing levels of responsibility at Pharmacia, Inc. (now Pfizer), most recently as Oncology Sales Director, West/East. Mr. Sanders holds a Bachelor of Business Administration from Memphis State University.

Christopher P. Parios, 68, has been a member of our Board since September 2005. Mr. Parios has more than thirty-seven years of pharmaceutical industry experience, including product development, marketing and promotion, strategy and tactic development, and managing pharmaco-economic and reimbursement issues. He has worked with many of the major companies in the pharmaceutical industry including Hoffmann-LaRoche, Ortho-McNeil, Pfizer, Novartis, Schering Plough, Janssen, Ortho Biotech, and Bristol-Myers Squibb. For the period 1997 to May of 2008, Mr. Parios was Executive Director of The Dominion Group, an independent healthcare consulting firm that specializes in market research, strategic planning, and competitive intelligence monitoring. In this role, he was responsible for the full range of market research, consulting, and business planning activities to facilitate informed business decisions for clients regarding product development, acquisitions, product positioning, and promotion. Mr. Parios continues to consult with the Dominion Group on a part-time basis. Previously, Mr. Parios was President and Chief Operating Officer of the Ferguson Communication Group, as well as Vice Chairman of the parent company, CommonHealth USA, a leading full-service communications resource for the healthcare industry. Mr. Parios was a partner in Pracon, Inc., a health-care marketing consulting firm from 1982 to 1991, and helped engineer the sale of that firm to Reed-Elsevier in 1989. Over a twenty-year period, Mr. Parios held progressively senior positions at Hoffmann-LaRoche, Inc., most recently as Director of New Product Planning and Regulatory Affairs Management. This group established the project management system for drug development at Roche and coordinated developmental activities for such products as Versed®, Rocephin®, Roferon®, Accutane®, Rimadyl®, and Tegison®. Mr. Parios was also a member of the corporate team responsible for domestic and international product and technology licensing activities.

Daniel D. Von Hoff, M.D., F.A.C.P., 61, has been a member of our Board since January 2000. Since November 2002, he has been Physician in Chief and Director of Translational Research at Translational Genomics Research Institute’s (Tgen) in Phoenix, Arizona. He is also Chief Scientific Officer for US Oncology since January 2003 and he is also the Chief Scientific Officer, Scottsdale Clinical Research Institute since November 2005. Dr. Von Hoff’s major interest is in the development of new anticancer agents, both in the clinic and in the laboratory. He and his colleagues were involved in the beginning of the development of many of the agents now used routinely, including: mitoxantrone, fludarabine, paclitaxel, docetaxel, gemcitabine, CPT-11, and others. At present, he and his colleagues are concentrating on the development of molecularly targeted therapies. Dr. Von Hoff’s laboratory interests and contributions have been in the area of in vitro drug sensitivity testing to individualize treatment for the patient. He and his laboratory are now concentrating on discovery of new targets in pancreatic cancer. Dr. Von Hoff has published more than 531 papers, 129 book chapters, and more than 891 abstracts. Dr. Von Hoff was appointed to President Bush’s National Cancer Advisory Board for June 2004 — March 2010. Dr. Von Hoff is the past President of the American Association for Cancer Research, a Fellow of the American College of Physicians, and a member and past board member of the American Society of Clinical Oncology. He is a founder of ILEX™ Oncology, Inc. (acquired by Genzyme). He is founder and the Editor Emeritus of Investigational New Drugs — The Journal of New Anticancer Agents; and, Editor-in-Chief of Molecular Cancer Therapeutics.

Douglas G. Watson, 64, has been a member of our Board since April 2002 and was appointed Vice Chairman of our Board and Lead Director in March 2005. From 1999 through the present, Mr. Watson is the founder and has served as Chief Executive Officer of Pittencrieff Glen Associates, a leadership and management-consulting firm. Prior to taking early retirement in 1999, Mr. Watson spent 33 years with Geigy/Ciba-Geigy/Novartis, during which time he held a variety of positions in the United Kingdom, Switzerland and the United States. From 1986 to 1996, he was President of Ciba U.S. Pharmaceuticals Division, and in 1996 he was appointed President & Chief Executive Officer of Ciba-Geigy Corporation. During this ten-year period, Mr. Watson was an active member of the Pharmaceutical Research & Manufacturers Association board in Washington, DC. Mr. Watson became President & Chief Executive Officer of Novartis Corporation in 1997 when the merger of Ciba-Geigy & Sandoz was approved by the Federal Trade Commission. Mr. Watson is currently Chairman of the Board of OraSure Technologies Inc., and Chairman of the Board of Javelin Pharmaceuticals Inc. He also serves on the boards of Dendreon Corporation and BioMimetic Therapeutics Inc.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview of Compensation Program

The Compensation Committee, also referred to herein as the Committee, of the Board of Directors has responsibility for overseeing our compensation and benefit policies, evaluating senior executive performance, and determining compensation for our senior executives, including our executive officers. The Committee ensures that the total compensation paid to executive officers is fair, reasonable and competitive.

The individuals who serve as our Chairman of the Board and Chief Executive Officer (CEO), and the Chief Financial Officer (CFO), as well as the other individuals included in the Summary Compensation Table below, are referred to as the “executive officers”.

Compensation Philosophy and Objectives

Our compensation philosophy is based on our belief that our compensation programs should: be aligned with stockholder’s interests and business objectives; reward performance; and be externally competitive and internally equitable. We seek to achieve three objectives, which serve as guidelines in making compensation decisions:

•

Providing a total compensation package which is competitive and therefore, enables us to attract and retain, high-caliber executive personnel;

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Integrating compensation programs with our short-term and long-term strategic plan and business objectives; and

•

Encouraging achievement of business objectives and enhancement of stockholder value by providing executive management long-term incentive through equity ownership.

Role of Executive Officers in the Compensation Decisions

The Committee makes all compensation decisions regarding the compensation of our executive officers. The CEO reviews the performance of our executive officers and except for the President, Pharmaceutical Development & Chief Medical Officer (President), who is the spouse of the CEO, the CEO makes recommendations to the Committee based on these reviews, including salary adjustments, variable cash awards and equity awards. The Committee can exercise its discretion in modifying any recommended adjustments or awards to executives. With respect to the President, the Committee in its sole discretion determines the amount of any adjustments or awards.

Establishing Executive Compensation

Compensation levels for our executive officers are determined through comparisons with other companies in the biotechnology and pharmaceutical industries, including companies with which we compete for personnel. To determine external competitiveness practices relevant to the executive officers, we review data from two industry surveys of executive compensation: Radford Biotechnology Compensation Survey and Organization Resources Counselors (collectively, External Market Data). In addition, in 2007 the Committee retained Towers Perrin, a leading compensation consultant with expertise in biopharmaceutical industry compensation practices, to assist in its analysis of executive compensation. Towers Perrin provided a third-party perspective based on their extensive knowledge of the industry and they advised the Committee of developments in the design of compensation programs and provided benchmarks against which we compare our total compensation packages. Towers Perrin conducted a peer group analysis in order to weigh the competitiveness of the Company’s overall compensation arrangements in relation to comparable biopharmaceutical companies. The peer companies were: Allos Therapeutics, Ariad Pharmaceuticals, Avalon Pharmaceuticals, Cell Genesys, Cell Therapeutics, Favrille, Hana Biosciences, Introgen Therapeutics, NeoPharm, Pharmacyclics, Poniard Pharmaceuticals, Spectrum Pharmaceuticals, Telik and Vion Pharmaceuticals. These companies were selected for the peer group because, like Genta, they were oncology focused, public pharmaceutical companies with products in mid to late-stage development.

In 2008, the Committee retained Aon Radford Consulting (a nationally recognized compensation consulting firm with specific expertise in dealing with the equity issues of biopharmaceutical companies) to conduct a review of market trends related to equity compensation in consideration of the fact that the Company’s 1998 Plan would be expiring in May 2008. The peer group companies used for that analysis were: Access Pharmaceuticals, Inc., AMDL, Inc., Celsion Corp., Idera Pharmaceuticals, Inc., Infinity Pharmaceuticals, Inc., Opexa Therapeutics, Inc., Oscient Pharmaceuticals Corp., Poniard Pharmaceuticals, Inc., SEQUENOM, Inc. and Targeted Genetics Corp. These companies were selected because, like Genta, they were oncology focused, public pharmaceutical companies with products in mid to late-stage development.

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It is the Committee’s objective to target total annual compensation of each executive officer at a level between the 50th and 75th percentiles for comparable positions. However, in determining the compensation for each executive officer, the Committee also considers a number of other factors including: an evaluation of the responsibilities required for each respective position, individual experience levels and individual performance and contributions toward achievement of our business objectives. There is no pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. Instead, the Committee determines the mix of compensation for each executive officer based on its review of the competitive data and its analysis of that individual’s performance and contribution to our performance. In addition, in light of our stage of development, considerable emphasis is placed on equity-based compensation in an effort to preserve cash to finance our research and development efforts.

Other Factors Considered in Establishing 2008 Compensation for Executive Officers

Our potential products are in various stages of research and development and limited revenues have as yet been generated from product sales. As a result, the use of traditional performance standards, such as corporate profitability, is not believed to be appropriate in the evaluation of the performance of us or our individual executives. The compensation of our executive officers is based, in substantial part, on industry compensation practices, trends noted (in the External Market Data, peer group analysis and by Towers Perrin), as well as the extent to which business and the individual executive officers’ objectives are achieved. Such objectives are established and modified as necessary to reflect changes in market conditions and other factors. Individual performance is measured by reviewing whether these objectives have been achieved.

Among the significant business objectives achieved during 2008 were the following: 75% enrollment of the Phase 3 AGENDA trial of Genasense® in patients with advanced melanoma; the licensing of the drug, tesetaxel from Daiichi Sankyo, obtaining from the FDA a lifting of the clinical hold on tesetaxel, Orphan Drug designation by the FDA for tesetaxel as treatment for advanced melanoma and preparations for the resumption of clinical trials for tesetaxel; the sale of 122,000 shares of our common stock, raising net proceeds of $2.9 million and the sales of $20 million of senior convertible notes, raising net proceeds of $18.7 million. These milestones enabled continued progress towards the commercialization and development of Genasense® and tesetaxel, and were considered carefully in evaluating executive performance and making determinations regarding executive compensation. However, three significant factors warranted very substantial weight in evaluating our business performance and in making executive compensation decisions. These factors were: 1) our receipt of a complete response letter from the FDA regarding our amended New Drug Application (NDA) for the use of Genasense® plus chemotherapy in patients with chronic lymphocytic leukemia (CLL) determining that FDA cannot approve the NDA in its present form and suggested the need for an additional clinical study; 2) our inability to close a licensing or partnership deal for Genasense®, tesetaxel, Ganite® or G4544 before the close of the fiscal year ; and 3) our inability to raise additional operating capital before the close of the fiscal year.

The Committee reviewed peer analysis data, the compensation history of each executive officer including their annual salary, cash incentive bonus and stock option awards. Due to our failure to meet critical business and financial objectives (as described above), Dr. Warrell recommended that, for the second year in a row, there not be any annual salary increases and that no incentive bonuses be paid to any employee, including executive officers and the Committee approved Dr. Warrell’s recommendation. No year-end stock option grants were made at the end of 2008 because we do not have a stock incentive plan. Due to our depressed stock price and the two-year freeze on annual salaries (Dr. Warrell’s salary was decreased by 15% by the Committee effective January 1, 2008), the equity-based long-term incentive compensation and total compensation level (annual salary, incentive bonus and equity based compensation) for each of the executive officers was below the median (50th percentile). The Committee also considered Drs. Warrell and Itri’s voluntary deferral of the cash portion of their salaries for the period from April 19, 2008 through August 17, 2008 in order to conserve cash. The deferred amounts, totaling approximately $381,000 have been accrued as a liability and have not been paid.

Elements of Executive Compensation

Our compensation package for executive officers generally consists of annual cash compensation, which includes both fixed (annual salary) and variable (cash incentive bonus program) elements; long-term compensation in the form of stock options and other perquisites. The main components are annual salary, cash incentive bonus and stock options, all of which are common elements of executive compensation pay in general and throughout the biotechnology and pharmaceutical industry.

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Annual Salary

We pay an annual salary to our employees and the executive officers as consideration for fulfillment of certain roles and responsibilities. Changes in annual salaries for executive officers, if any, are generally effective at the beginning of each year. As noted above, there were no annual salary increases for 2009 or 2008.

Increases to annual salary reflect a reward and recognition for successfully fulfilling the position’s role and responsibilities, the incremental value of the experience, knowledge, expertise and skills the individual acquires and develops during employment with us and adjustments as appropriate based on external competitiveness and internal equity. In consideration of our cash resources, there were no salary increases for 2009 or 2008 and Dr. Warrell’s base salary was decreased by the Committee by 15% effective January 1, 2008. In order to further conserve our cash resources, Drs. Warrell and Itri deferred the cash portions of their salaries from April 19, 2008 through August 17, 2008, and again agreed to defer a portion of their salaries effective January 5, 2009.

Cash Incentive Bonus Program

The target cash incentive bonus program award for the CEO (forty percent of annual salary) and the President (thirty percent of annual salary) is based on the terms of their employment agreements. The Committee determines the annual target for the other executive officers each year based on external competitiveness and internal equity. Based on the External Market Data, the target amounts for executive officers who were Senior Vice Presidents and Vice Presidents were established at thirty percent and twenty-five percent of annual salary, respectively. As noted above, there were no cash bonuses paid to any of the executive officers for 2008.

Typically, we award cash incentive bonuses to employees, including the executive officers, as a reward and recognition for contributing to our achievement of specific annual business objectives established by the Committee at the beginning of the year. All employees are eligible for a form of cash incentive bonus, although payment of a cash incentive bonus is made at an individual level each year contingent upon our overall performance. However, as described above, our business performance was insufficient in 2008 to warrant the payment of cash incentive bonuses to our employees, including executive officers.

Equity-Based Compensation

We grant equity-based compensation to employees, including executive officers, to attract, motivate, engage and retain highly qualified and highly sought-after employees. We grant equity awards on a broad basis to encourage all employees to work with a long-term view. Stock options are inherently performance-based because they deliver value to the option holder only if the value of our stock increases. Thus, stock options are a potential reward for long-term value creation and serve as an incentive for employees who remain with us to contribute to the overall long-term success of the business. We also award RSUs because we believe RSUs are an appropriate vehicle due to our ongoing concerns over the dilutive effect of option grants on our outstanding shares, our desire to have a more direct correlation between the FAS 123(R) compensation expense we must take for financial accounting purposes and the actual value delivered to our executive officers and other employees and the fact that the incentive effects of RSUs are less subject to market volatility than stock options. Because equity compensation is a significant component of our compensation package, the Committee adopted our 2009 Stock Incentive Plan which received stockholder approval on August 26, 2009, to replace the Company’s 1998 Stock Incentive Plan and 1998 Non-Employee-Directors Stock Option Plan.

April 2008 Restricted Stock Unit Grants

On April 18, 2008, following careful analysis which included: 1) a review of market trends, including consultation with Aon Radford Consulting (a nationally recognized compensation consulting firm with specific expertise in dealing with the equity issues of biopharmaceutical companies); 2) consideration of the fact that the 1998 Plan would be expiring in May 2008; and 3) the determination that the commitment and motivation of our workforce would be vital to ongoing efforts to commercialize Genasense® and achieve other corporate objectives, management recommended to the Committee that Restricted Stock Units, or RSUs, be issued to certain executive officers and all employees under the 1998 Plan. The Committee reviewed management’s recommendation and approved the April 2008 RSU grants.

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Two of the five executive officers received grants under the program. Mr. Sanders and Mr. Siegel received RSU grants of 1,300 and 800 shares, valued on their grant dates at $26,650 and $16,400, respectively. Pursuant to there terms, the RSUs vested 50% on January 15, 2009 and 50% on June 30, 2009. At December 31, 2008, the value of the RSU grants to Messrs. Sanders and Siegel were $176 and $108, respectively.

2007 Stock Incentive Plan and September 2007 Stock Option Grants

In September, 2007, the Board approved a 2007 Stock Incentive Plan, or 2007 Plan, conditioned upon the receipt of stockholder approval by September 17, 2008. However, due to the marked changes in the general economic environment combined with the deterioration of the price of Genta common stock, the Board elected not to submit the 2007 Plan to stockholders for approval and on September 18, 2008, the 2007 Plan expired. As a consequence, Genta currently has no forward-looking equity incentive plan at this time.

Acquisition Bonus Plan

In order to retain our executive officers and other employees prior to stockholder approval of the 2007 Plan, the Committee concurrently approved an Acquisition Bonus Plan. Under the program, participants were eligible to receive a portion of the proceeds realized from a change in control that occurred prior to the earlier of (i) December 31, 2008 or (ii) the approval by our stockholders of the 2007 Plan. On September 27, 2007, our executive officers and employees were granted a number of units in the Acquisition Bonus Plan that corresponded to the number of contingent stock options granted to them under the 2007 Plan. As noted, however, the 2007 plan was never submitted for stockholder approval, and as a consequence the Acquisition Bonus Plan expired December 31, 2008.

Equity Award Exchange Offer

On July 9, 2009, our Board approved an Equity Award Exchange Offer Program to non-employee Directors whereby each non-employee Director was given the opportunity to exchange their outstanding stock options to purchase shares of Genta common stock for new replacement restricted stock units (“New RSUs”) provided the 2009 Stock Incentive Plan was approved by our stockholders. The 2009 Stock Incentive Plan was approved by our stockholders on August 26, 2009. Our outstanding options have exercise prices that are significantly higher than the current market price of our common stock. For this reason, the Board believes that these options have little or no current value as an incentive to retain and motivate non-employee Directors, and are unlikely to be exercised in the foreseeable future. By making the offer to exchange outstanding options for New RSUs, our Board intends to provide our non-employee Directors with the benefit of receiving equity awards that over time may have a greater potential to increase in value, and thereby create better incentives for our non-employee Directors to remain with us and contribute to the attainment of our business and financial objectives and the creation of value for all of our stockholders.

Determining The Timing And Exercise Price Of Equity-Based Compensation

There is no established practice of timing equity grants in advance of the release of favorable financial results or adjusting the award date in connection with the release of unfavorable financial developments affecting our business. Stock option grants to Section 16 officers are made only at duly convened meetings of the Compensation Committee. Performance awards for existing executive officers and employees are typically made in connection with the annual review process which occurs in January each year. Options or RSUs relating to these performance awards are then usually granted in the January meeting of the Committee. Equity awards for newly hired executives are typically made at the next scheduled Committee meeting following the executive’s hire date. It is our intent that all stock option grants have an exercise price per share equal to the closing selling price per share on the grant date.

Retirement Benefits

All employees are eligible to participate in the Genta Incorporated Savings & Retirement Plan (Savings Plan), a tax-qualified retirement savings plan, which allows contributions to the Savings Plan on a before-tax basis in an amount up to the lesser of 50% of the employee’s annual salary or a limit prescribed by the Internal Revenue Service. All contributions to the Savings Plan are fully vested upon contribution. We provide retirement benefits to our employees because we believe retirement benefits are an integral part of employee benefit programs within the biotechnology and pharmaceutical industry.

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Perquisites

None of our executive officers other than our Chief Executive Officer and President, Pharmaceutical Development and Chief Medical Officer have perquisites in excess of $10,000 in annual value. Our Chief Executive Officer and President, Pharmaceutical Development and Chief Medical Officer have employment agreements that provide for the perquisites discussed under the heading “Employment Agreements”.

Severance Benefits

We have adopted a severance pay program for nearly all of our employees, including executive officers, except for Drs. Itri and Warrell, who are eligible for severance benefits under the terms of their employment agreements as described below. The severance pay program is intended to preserve employee morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored workforce reduction or a change in control of our company. In addition, for executives, the program is intended to align executive and stockholder interests by enabling executives to consider corporate transactions that are in the best interests of the stockholders and other of our constituents without undue concern over whether the transactions may jeopardize the executive’s own employment.

These arrangements, like other elements of executive compensation, are structured with regard to practices at comparable companies for similarly-situated officers and in a manner we believe is likely to attract and retain high quality executive talent.

Although there are some differences in the benefit levels depending on the employee’s job level, the basic elements are comparable for all employees, except for Drs. Itri and Warrell as noted above, and for Messrs. Sanders and Siegel, as noted below:

•

Double trigger. Unlike “single trigger” plans that pay out immediately upon a change in control, Genta’s severance pay program requires a “double trigger” — a change in control followed by an involuntary loss of employment within one year thereafter. This is consistent with the purpose of the program, which is to provide employees with financial protection upon loss of employment.

•

Covered terminations. Employees may be eligible for payments, if there is either a workforce reduction or if within one year of a change in control, their employment is terminated without cause by the Company.

•

Severance payment. Subject to signing a release, eligible terminated employees may receive severance.

•

Benefit continuation. Subject to signing a release, basic health and dental insurance may be continued following termination of employment.

•

Accelerated vesting of equity awards. Upon a change in control, any unvested equity awards become vested.

Certain Severance Arrangements

In the event of their termination as a result of a reduction in force or change in control, Mr. Sanders and Mr. Siegel are eligible for up to 24 weeks of severance equal to $131,538 and $96,923, respectively, paid in portions on a bi-weekly basis and not as a lump sum. Mr. Sanders and Mr. Siegel are also eligible to continue their health/dental benefits at the Company’s expense for up to four months, with an estimated value of $7,116 each. Drs. Itri’s and Warrell’s eligibility for severance payments are described under the heading “Employment Agreements”.

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Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code disallows a tax deduction to publicly held companies for compensation paid to certain of their executive officers, to the extent that compensation exceeds $1.0 million per covered officer in any year. The limitation applies only to compensation that is not considered to be performance-based. The stock options granted to our executive officers have been structured with the objective of qualifying those awards as performance-based compensation. Non-performance-based compensation paid to our executive officers for 2008 did not exceed the $1.0 million limit per covered officer. The RSUs awarded as a component of equity compensation will not qualify as performance-based compensation. However, we believe that in establishing the cash and equity incentive compensation programs for our executive officers, the potential deductibility of the compensation payable under those programs should be only one of a number of relevant factors taken into consideration, and not the sole governing factor. For that reason, we may deem it appropriate to provide one or more executive officers with the opportunity to earn incentive compensation, whether through cash bonus programs tied to our financial performance or through RSUs tied to the executive officer’s continued service, which may, together with base salary, exceed in the aggregate the amount deductible by reason of Section 162(m) or other provisions of the Internal Revenue Code. We believe it is important to maintain cash and equity incentive compensation at the levels needed to attract and retain the executive officers essential to our success, even if all or part of that compensation may not be deductible by reason of the Section 162(m) limitation.

2009 Objectives and Executive Compensation Guidelines

Our business objectives for 2009 include: completing enrollment of the phase 3 AGENDA trial of Genasense® in patients with advanced melanoma; public release of information regarding final analysis of progression-free survival (PFS) from the advanced melanoma trial; initiating and completing enrollment of the Phase I trial of our oral taxane, tesetaxel; and ongoing financing and business development activities that will further the development and commercialization of our products. At present, the 2009 compensation guidelines will be generally comparable to the 2008 guidelines with respect to the following: components of compensation; anticipated salary adjustments; cash incentive bonus targets and equity-based compensation. The Committee will make adjustments if necessary based on their assessment of a variety of factors including: industry trends; competitive market data; business objectives and corporate performance.

Summary Compensation Table

The following table sets forth certain information regarding compensation earned by or paid to our Chief Executive Officer, and other executive officers (collectively, the ‘‘named executive officers’’) during the years ended December 31, 2008, 2007 and 2006, respectively.

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)(1)	Option Awards ($)(1)	Non-Equity Incentive Plan Compensation ($)(2)	Nonqualified Deferred Compensation earnings ($)(3)	All Other Compensation ($)		Total ($)
Raymond P. Warrell, Jr. M.D.	2008	409,662	—	—	446,667	—	—	31,060	(4)	887,389
Chairman and Chief Executive	2007	480,000	—	—	1,139,940	—	—	41,096	(4)	1,661,036
Officer	2006	460,000	—	—	2,743,824	50,000	—	40,462	(4)	3,294,286

Richard J. Moran (5)	2008	61,538	—	—	28,400	—	—	3,077	(6)	93,015
Senior Vice President,	2007	320,000	—	10,463	29,100	—	—	17,261	(6)	376,824
Chief Financial Officer and Corporate Secretary	2006	304,500	—	—	35,900	100,000	—	11,000	(6)	451,400

Gary Siegel	2008	210,000	—	12,551	17,278	—	—	11,518	(7)	251,347
Vice President, Finance	2007	196,846	—	—	32,007	—	—	11,250	(7)	240,103
	2006	183,750	—	—	46,778	66,500	—	11,000	(7)	308,028

Loretta M. Itri, M.D.	2008	467,500	—	—	78,221	—	—	20,061	(8)	565,782
President, Pharmaceutical	2007	467,500	—	—	459,201	—	—	21,836	(8)	948,537
Development and Chief Medical Officer	2006	445,200	—	—	979,852	—	—	19,848	(8)	1,444,900

W. Lloyd Sanders	2008	285,000	—	20,396	39,100	—	—	5,642	(9)	350,138
Senior Vice President and	2007	285,000	—	—	39,100	—	—	40,405	(9)	364,505
Chief Operating Officer	2006	245,000	—	—	36,250	78,000	—	33,579	(9)	392,829

(1)

The amounts reflect the dollar amount recognized for financial statement reporting purposes for the years ended December 31, 2008, 2007 and 2006, respectively, in accordance with FAS 123(R). These figures include amounts from awards granted in 2003, 2004, 2005, 2006 and 2007. Assumptions used in the calculations of these amounts for the years ended December 31, 2006, 2007 and 2008, respectively, are in Note 14 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

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In the event of a liquidation of Genta, the holders of Series A Convertible Preferred Stock are entitled to a liquidation preference equal to $50.00 per share.

Series G Participating Cumulative Preferred Stock

Two million shares of our Preferred Stock have been designated as Series G Participating Cumulative Preferred Stock, none of which are issued and outstanding. The Series G Participating Cumulative Preferred Stock are subject to the Stockholder Rights Plan described above.

15% Senior Secured Convertible Notes

On June 5, 2008, we entered into a securities purchase agreement with certain institutional and accredited investors, to place up to $40 million of senior secured convertible notes, referred to herein as the notes, with such investors. On June 9, 2008, we placed $20 million of such notes in the initial closing. The notes bear interest at an annual rate of 15%, currently payable at quarterly intervals in payment-in-kind notes, and after adjusting for the April 2, 2009 Notes, are convertible into shares of our common stock at a conversion rate of 10,000 shares of common stock for every $1,000.00 of principal. Until February 17, 2009, the holders of the notes had the right, but not the obligation, to purchase in whole or in part up to an additional $20 million of notes. We have the right to force conversion of the notes in whole or in part on any date after December 31, 2009 if the closing bid price of our common stock exceeds $0.50 for a period of 10 consecutive trading days and certain other conditions are met.

On February 17, 2009, we amended the 2008 Notes to delete the second tranche option to purchase an additional $20 million of 2008 Notes.

Certain members of our senior management participated in the initial closing.

The issuance of common stock upon conversion of the convertible notes has adversely affected the voting power of remaining holders of common stock and could result in a change in control of Genta without further action by the stockholders.

8% Senior Secured Convertible Notes

On April 2, 2009, we entered into a securities purchase agreement with certain institutional and accredited investors, to place up to $12 million of senior secured convertible notes, referred to herein as the notes, with such investors. The Company closed with gross proceeds of approximately $6 million. The notes bear interest at an annual rate of 8% payable semi-annually and payable in kind at quarterly intervals in stock or cash at our option, and are convertible into shares of our common stock at a conversion rate of 10,000 shares of common stock for every $1,000.00 of principal. We have the right to force conversion of the notes in whole or in part on any date after December 31, 2009 if the daily volume weighted average price of our common stock exceeds $0.50 for a period of 10 consecutive trading days and certain other conditions are met.

8% Unsecured Subordinated Convertible Notes

On July 7, 2009, the Company entered into a securities purchase agreement with certain institutional and accredited investors, to place up to $10 million of Units, each unit consisting of (i) 70% unsecured subordinated convertible notes, or the July 2009 Notes, and (ii) 30% shares of the Company’s common stock. The Company also issued to the investors two-year warrants to purchase common stock in an amount equal to 25% of the number of shares of common stock issuable upon conversion of the July 2009 Notes purchased by each investor. The Company closed with gross proceeds of $3 million. The July 2009 Notes bear interest at an annual rate of 8% payable semi-annually in cash or other July 2009 Notes, and are convertible into shares of our common stock at a conversion rate of 10,000 shares of common stock for every $1,000.00 of principal. We have the right to force conversion of the July 2009 Notes, in whole or in part on any date after January 1, 2010 if the daily volume weighted average price of the Company’s common stock exceeds $0.50 for a period of 10 consecutive trading days and certain other conditions are met.

On August 6, 2009 and August 24, 2009, the Company entered into amendment agreements whereby, among other things, certain accredited institutional investors who were parties to the July 2009 securities purchase agreement agreed to permit us to raise up to $10 million through the sale of additional shares of common stock, July 2009 Notes and warrants at an additional closing under the July 7, 2009 Securities Purchase Agreement, increasing the aggregate amount that we may raise to $13 million, and delaying our obligations to file a registration statement covering the shares of common stock and shares of common stock underlying the July 2009 Notes and warrants that were issued on July 7, 2009.

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On September 4, 2009, the Company entered into a consent and amendment agreement whereby, among other things, certain accredited institutional investors who were parties to the July 2009 securities purchase agreement agreed to decrease the amount we could raise under the July 2009 securities purchase agreement to $10 million in the aggregate and delay our obligation to file a registration statement covering the shares of common stock and shares of common stock underlying the July 2009 Notes and July 2009 Warrants. On that same date, we closed on $7 million of additional July 2009 Notes, common stock and July 2009 Warrants.

Also on September 4, 2009, the Company entered into a securities purchase agreement with certain accredited institutional investors, pursuant to which we issued $3 million of units consisting of (i) 70% September 2009 Notes, and (ii) 30% common stock, or the September 2009 financing. In connection with the sale of the units, we also issued to the investors September 2009 Warrants. Pursuant to the terms of the securities purchase agreement, the investors had four business days from the date of the agreement to sign the agreement and provide their respective investment to the Company. Certain investors chose not to participate, and therefore, all of the investors who chose to participate in the September 2009 financing agreed to a revised allocation of the $3 million investment among the investors.

Delaware Anti-Takeover Law

Under Section 203 of the Delaware General Corporation Law certain “business combinations” between a Delaware corporation, whose stock generally is publicly traded or held of record by more than 2,000 stockholders, and an “interested stockholder” are prohibited for a three-year period following the date that such stockholder became an interested stockholder, unless:

•

the corporation has elected in its certificate of incorporation not to be governed by Section 203 (we have not made such an election);

•

either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder was approved by the board of directors of the corporation before the other party to the business combination became an interested stockholder;

•

upon consummation of the transaction that made it an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the commencement of the transaction excluding voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer;

•

on or subsequent to such date the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66-2/3% of the outstanding voting stock which is not owned by the interested stockholder.

The three-year prohibition also does not apply to certain business combinations proposed by an interested stockholder following the announcement or notification of certain extraordinary transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation’s directors. A “business combination” is defined to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder. In general, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more of a corporation’s voting stock.

The statute could prohibit or delay mergers or other takeover or change in control attempts with respect to us and, accordingly, may discourage attempts to acquire us even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.

Advance Notice Requirements for Stockholder Proposals

Our amended and restated bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide timely notice thereof in writing. To be timely, a stockholder’s notice must be delivered to the secretary at our principal executive offices not less than 50 calendar days nor more than 75 calendar days prior to the meeting; provided, that if less than 65 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 15th day following the day on which notice of the date of the annual meeting was mailed or such public disclosure was made. Our amended and restated bylaws also specify requirements as to the form and content of a stockholder’s notice. These provisions may discourage stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders.

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Transfer Agent Information

Our transfer agent is BNY Mellon Securities LLC.

PLAN OF DISTRIBUTION

Each selling stockholder of the common stock and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the OTC Bulletin Board or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of the following methods when selling shares:

•

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

•

block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

•

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

•

an exchange distribution in accordance with the rules of the applicable exchange;

•

privately negotiated transactions;

•

broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

•

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

•

a combination of any such methods of sale; and

•

any other method permitted by applicable law.

The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.

In connection with the sale of the common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholders.

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We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling stockholders without registration and without regard to any volume limitations by reason of Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

LEGAL MATTERS

Certain legal matters with respect to the validity of shares of our common stock being offered hereby will be passed on for us by Morgan, Lewis & Bockius LLP, Princeton, New Jersey.

EXPERTS

The consolidated financial statements as of and for the year ended December 31, 2008, and for the effects of the 1-for-50 reverse stock split on the 2007 and 2006 consolidated financial statements included in this prospectus have been audited by Amper, Politziner & Mattia, LLP, an independent registered public accounting firm, as stated in their report appearing herein and elsewhere in the registration statement (which report expresses an unqualified opinion on the consolidated financial statements and includes an explanatory paragraph relating to Genta Incorporated’s ability to continue as a going concern). Such consolidated financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

The consolidated financial statements as of December 31, 2007, and for each of the two years in the period ended December 31, 2007 (prior to the effects of the 2009 reverse stock split), not presented herein, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein and elsewhere in the registration statement (which report expresses an unqualified opinion on the consolidated financial statements and includes explanatory paragraphs relating to (1) Genta Incorporated’s ability to continue as a going concern; (2) the adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109, effective January 1, 2007 ); and (3) Deloitte & Touche LLP was not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the effects of the 2009 reverse stock split and, accordingly, does not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors). Such report has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

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HOW TO GET MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities offered by this prospectus. This prospectus, which forms a part of the registration statement, does not contain all the information set forth in the registration statement, as permitted by the rules and regulations of the SEC. For further information with respect to us and the securities offered by this prospectus, reference is made to the registration statement. Statements contained in this prospectus as to the contents of any contract or other document that we have filed as an exhibit to the registration statement are qualified in their entirety by reference to the exhibits for a complete statement of their terms and conditions. The registration statement and other information may be read and copied at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

We will also send you copies of the material we file with the SEC, free of charge, upon your request. Please call or write our Investor Relations department at:

Genta Incorporated

Attention: Investor Relations

200 Connell Drive

Berkeley Heights, NJ 07922

(908) 286-9800

We make available free of charge on our internet website (http://www.genta.com) our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part.

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Genta Incorporated

INDEX TO FINANCIAL STATEMENTS

At December 31, 2008

Reports of Independent Registered Public Accounting Firms			F-2
Consolidated Balance Sheets as of December 31, 2008 and 2007			F-4
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006			F-5
Consolidated Statements of Stockholders’ (Deficit) /Equity for the years ended December 31, 2008, 2007 and 2006			F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006			F-7
Notes to Consolidated Financial Statements			F-8

At June 30, 2009

Consolidated Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008			F-28
Consolidated Statements of Operations (unaudited) for three and six months ended June 30, 2009 and 2008			F-29
Consolidated Statements of Cash Flows (unaudited) for three and six months ended June 30, 2009 and 2008			F-30
Notes to Consolidated Financial Statements			F-31

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Genta Incorporated and Subsidiaries

We have audited the accompanying consolidated balance sheet of Genta Incorporated and Subsidiaries (the “Company”) as of December 31 2008, and the related consolidated statement of operations, stockholders’ (deficit) equity, and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Genta Incorporated and Subsidiaries as of December 31, 2008, and the results of their operations and their cash flows for the year then ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

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

We have also audited the retroactive adjustments to the 2007 and 2006 consolidated financial statements for the one-for-fifty reverse common stock split in 2009, which is described in Note 1 to the consolidated financial statements. In our opinion, such retrospective adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review or apply any procedures to the 2007 and 2006 consolidated financial statements of the Company other than with respect to the retrospective adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2007 and 2006 consolidated financial statements taken as a whole.

/s/ Amper, Politziner & Mattia, LLP

Edison, New Jersey

February 12, 2009, except for the effects of the retroactive adjustment for the one-for-fifty reverse common stock split described in Note 1 to the Consolidated Financial Statements, which the date is June 26, 2009

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Genta Incorporated:

We have audited, before the effects of the adjustments to retrospectively apply the reverse stock split discussed in Note 1 to the consolidated financial statements, the accompanying consolidated balance sheet of Genta Incorporated and subsidiaries (the “Company”) as of December 31, 2007, and the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for the years ended December 31, 2007 and 2006 (the 2007 and 2006 consolidated financial statements before the effects of the adjustments discussed in Note 1 to the consolidated financial statements are not presented herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, such 2007 and 2006 consolidated financial statements, before the effects of the adjustments to retrospectively apply the reverse stock split discussed in Note 1 to the consolidated financial statements, present fairly, in all material respects, the financial position of Genta Incorporated and subsidiaries as of December 31, 2007, and the results of their operations and their cash flows for the years ended December 31, 2007 and 2006, in conformity with accounting principles generally accepted in the United States of America.

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

As discussed in Note 2 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 , effective January 1, 2007.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the effects of the reverse stock split discussed in Note 1 to the consolidated financial statements and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey

March 17, 2008

F-3

GENTA INCORPORATED

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)	December 31, 2008			December 31, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	4,908		$	5,814
Marketable securities (Note 3)		—			1,999
Accounts receivable — net of allowances of $12 at December 31, 2008 and $38 at December 31, 2007		2			31
Inventory (Note 4)		121			225
Prepaid expenses and other current assets (Note 6)		973			19,170
Total current assets		6,004			27,239
Property and equipment, net (Note 7)		300			323
Deferred financing costs on convertible note financing (Note 11)		911			—
Deferred financing costs — warrant (Note 11)		5,478			—
Other assets (Note 5)		—			1,731
Total assets	$	12,693		$	29,293

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)/EQUITY

Current liabilities:
Accounts payable and accrued expenses (Note 6 and Note 9)	$	11,224		$	25,850
Notes payable (Note 10)		—			512
Total current liabilities		11,224			26,362
Long-term liabilities:
Office lease settlement obligation (Note 5)		1,979			—
Convertible notes due June 9, 2010, $15,540 outstanding, net of debt discount of ($11,186) (Note 11)		4,354			—
Total long-term liabilities		6,333			—

Commitments and contingencies (Note 18)

Stockholders’ (deficit)/equity (Note 13):
Preferred stock, 5,000 shares authorized:
Series A convertible preferred stock, $.001 par value; 8 shares issued and outstanding, liquidation value of $385 at December 31, 2008 and December 31, 2007, respectively		—			—
Series G participating cumulative preferred stock, $.001 par value; 0 shares issued and outstanding at December 31, 2008 and December 31, 2007, respectively		—			—
Common stock, $.001 par value; 6,000,000 and 250,000 shares authorized 9,734 and 611 shares issued and outstanding at December 31, 2008 and December 31, 2007, respectively		10			1
Additional paid-in capital		939,252			441,189
Accumulated deficit		(944,126	)		(438,288	)
Accumulated other comprehensive income		—			29
Total stockholders’ (deficit)/equity		(4,864	)		2,931
Total liabilities and stockholders’ (deficit)/equity	$	12,693		$	29,293

See accompanying notes to consolidated financial statements.

F-4

GENTA INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
(In thousands, except per share data)	2008			2007			2006
Product sales — net	$	363		$	580		$	708
Cost of goods sold		102			90			108
Gross margin		261			490			600

Operating expenses:
Research and development		19,991			13,491			28,064
Selling, general and administrative		10,452			16,865			25,152
Settlement of office lease obligation (Note 5)		3,307			—			—
Provision for settlement of litigation (Note 6 and Note 18)		(340	)		(4,240	)		5,280
Write-off of prepaid royalty (Note 8)		—			—			1,268
Total operating expenses		33,410			26,116			59,764

Other (expense)/income, net:
Gain on maturity of marketable securities		31			159			310
Interest income and other income, net		252			837			1,216
Interest expense		(1,718	)		(160	)		(72	)
Amortization of deferred financing costs and debt discount (Note 11)		(11,229	)		—			—
Fair value — conversion feature liability (Note 11)		(460,000	)		—			—
Fair value — warrant liability (Note 11)		(2,000	)		—			—
Total other (expense)/income, net		(474,664	)		836			1,454
Loss before income taxes		(507,813	)		(24,790	)		(57,710	)
Income tax benefit (Note 12)		1,975			1,470			929
Net loss	$	(505,838	)	$	(23,320	)	$	(56,781	)

Net loss per basic and diluted common share	$	(455.09	)	$	(39.36	)	$	(125.88	)
Shares used in computing net loss per basic and diluted common share		1,112			592			451

See accompanying notes to consolidated financial statements.

F-5

GENTA INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)/EQUITY

For the Years Ended December 31, 2008, 2007 and 2006

	Convertible Preferred Stock					Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive Income			Total Stockholders’ (Deficit)/
(In thousands)	Shares			Amount		Shares		Amount		Capital		Deficit			(Loss)			Equity
Balance at January 1, 2006		10		$	—		381	$		$	373,824	$	(358,187	)	$	60		$	15,697

Net loss		—			—		—		—		—		(56,781	)		—			(56,781	)
Net change in value of marketable securities		—			—		—		—		—		—			(29	)		(29	)

Issuance of common stock, net of issuance costs of $3,125		—			—		63				37,725		—			—			37,725

Issuance of common stock in connection with conversion of Series A preferred stock		(2	)		—		—-		—		—		—			—			—

Issuance of common stock, net of issuance costs of $925		—			—		67		—		14,875		—			—			14,875

Issuance of common stock in connection with exercise of stock options		—			—		—		—		156		—			—			156

Stock-based compensation expense		—			—		—		—		2,999		—			—			2,999

Balance at December 31, 2006		8			—		511				429,579		(414,968	)		31			14,642

Net loss		—			—		—		—		—		(23,320	)		—			(23,320	)
Net change in value of marketable securities		—			—		—		—		—		—			(2	)		(2	)

Issuance of common stock, net of issuance costs of $562		—			—		100		1		10,237		—			—			10,238

Stock-based compensation expense		—			—		—		—		1,373		—			—			1,373

Balance at December 31, 2007		8			—		611		1		441,189		(438,288	)		29			2,931

Net loss		—			—		—		—		—		(505,838	)		—			(505,838	)
Net change in value of marketable securities		—			—		—		—		—		—			(29	)		(29	)

Issuance of common stock, net of issuance costs of $183		—			—		123				2,876		—			—			2,876

Issuance of common stock as interest payment on Senior Convertible Promissory Note		—			—		80				647		—			—			647

Issuance of common stock on voluntary conversions of Senior Convertible Promissory Note		—			—		8,920		9		4,451		—			—			4,460

Transfer of warrant liability to paid-in-capital		—			—		—		—		9,600		—			—			9,600

Transfer conversion feature liability to paid-in-capital		—			—		—		—		480,000		—			—			480,000

Vesting of restricted stock		—			—		-		—		—		—			—			—

Stock-based compensation expense		—			—		—		—		489		—			—			489

Balance at December 31, 2008		8		$	—		9,734	$	10	$	939,252	$	(944,126	)	$	—		$	(4,864	)

See accompanying notes to consolidated financial statements.

F-6

GENTA INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
(In thousands)	2008			2007			2006
Operating activities:
Net loss	$	(505,838	)	$	(23,320	)	$	(56,781	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		154			170			942
Loss on disposition of equipment		10			—			—
Amortization of deferred financing costs and debt discount (Note 11)		11,229			—			—
Share-based compensation (Note 14)		489			1,373			2,999
Provision for sales returns		79			(133	)		(300	)
Gain on maturity of marketable securities		(31	)		(159	)		(310	)
Interest payment settled in shares of common stock (Note 19)		647			—			—
Provision for settlement of litigation, net (Note 6)		(340	)		(4,240	)		5,280
Write-off of prepaid royalty (Note 8)		—			—			1,268
Change in fair value — conversion feature liability (Note 11)		460,000			—			—
Change in fair value — warrant liability (Note 11)		2,000			—			—
Changes in operating assets and liabilities:					—			—
Accounts receivable		29			(14	)		42
Inventory		104			83			88
Prepaid expenses and other current assets		198			627			(142	)
Accounts payable and accrued expenses		5,615			(6,071	)		2,264
Other assets		—			(42	)		(40	)
Net cash used in operating activities		(25,655	)		(31,726	)		(44,690	)
Investing activities:
Purchase of marketable securities		—			(13,900	)		(56,784	)
Maturities of marketable securities		2,000			32,000			49,091
Release of restricted cash deposits (Note 5)		1,731			—			—
Purchase of property and equipment		(141	)		(222	)		(136	)
Net cash provided by (used in) investing activities		3,590			17,878			(7,829	)
Financing activities:
Net proceeds from sale of common stock, net (Note 13)		2,876			10,238			52,691
Issuance of note payable (Note 10)		—			1,155			1,174
Repayments of note payable (Note 10)		(512	)		(1,285	)		(1,261	)
Issuance of convertible notes net of financing cost of $1,205 (Note 11)		18,795			—			—
Issuance of common stock upon exercise of stock options (Note 15)		—			—			155
Net cash provided by financing activities		21,159			10,108			52,759
Increase (decrease) in cash and cash equivalents		(906	)		(3,740	)		240
Cash and cash equivalents at beginning of year		5,814			9,554			9,314
Cash and cash equivalents at end of year	$	4,908		$	5,814		$	9,554

See accompanying notes to consolidated financial statements.

F-7

GENTA INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2008, 2007 and 2006

1. Organization and Business

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

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

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

The Company had $4.9 million of cash and cash equivalents on hand at December 31, 2008. Net cash used in operating activities during 2008 was $25.7 million, which represents an average monthly outflow of $2.1 million.

On June 5, 2008, the Company entered into a securities purchase agreement with certain institutional and accredited investors to place up to $40 million of senior secured convertible notes with such investors. On June 9, 2008, the Company placed $20 million of such notes in the initial closing.

The 2-year notes bear interest at an annual rate of 15% payable at quarterly intervals in stock or cash at the Company’s option, and are convertible into shares of Genta common stock at a conversion rate of 2,000 shares of common stock for every $1,000 of principal. Holders of the notes have the right, but not the obligation, for the 12 months following the initial closing date to purchase in whole or in part up to an additional $20 million of the notes. The Company shall have the right to force conversion of the notes in whole or in part if the closing bid price of the Company’s common stock exceeds $0.50 for a period of 20 consecutive trading days. Certain members of senior management of Genta participated in this offering. The notes are secured by a first lien on all assets of Genta.

The notes included certain events of default, including a requirement that the Company obtain stockholder approval within a specified period of time to amend its certificate of incorporation to authorize additional shares of common stock. On October 6, 2008, at the Annual Meeting of Stockholders, the Company’s stockholders approved an amendment to Genta’s Restated Certificate of Incorporation, as amended, to increase the total number of authorized shares of capital stock available for issuance from 255,000,000, consisting of 250,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, to 6,005,000,000, consisting of 6,000,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock.

The Company will require additional cash in order to maximize its commercial opportunities and continue its clinical development opportunities. The Company has had discussions with other companies regarding partnerships for the further development and global commercialization of Genasense®. Additional alternatives available to the Company to subsequently sustain its operations include financing arrangements with potential corporate partners, debt financing, asset-based loans, royalty-based financings, equity financing and other sources. However, there can be no assurance that any such collaborative agreements or other sources of funding will be available on favorable terms, if at all. Presently, with no further financing, management projects that the Company will run out of funds in the first quarter of 2009. The Company currently does not have any additional financing in place. There can be no assurance that the Company can obtain financing, if at all, on terms acceptable to it.

F-8

GENTA INCORPORATED

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

•

delay, scale back or eliminate some or all of the Company’s research and product development programs and sales and marketing activity;

•

license third parties to develop and commercialize products or technologies that the Company would otherwise seek to develop and commercialize themselves;

•

attempt to sell the Company;

•

cease operations; or

•

declare bankruptcy.

On June 26, 2009, the Company effected a one-for-fifty reverse stock split of its common stock. It did not reduce the number of shares that the Company is authorized to issue or change the par value of the common stock. All references to common share values in these consolidated financial statements have been restated to reflect this split.

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements are presented on the basis of accounting principles generally accepted in the United States of America. Such financial statements include the accounts of the Company and all majority-owned subsidiaries.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect reported earnings, financial position and various disclosures. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid instruments with maturities of three months or less from the date acquired and are stated at cost that approximates their fair market value. At December 31, 2008, the amounts on deposit that exceeded the $250,000 federally insured limit was $3.9 million.

Revenue Recognition

The Company recognizes revenue from product sales when title to product and associated risk of loss has passed to the customer and the Company is reasonably assured of collecting payment for the sale. All revenue from product sales are recorded net of applicable allowances for returns, rebates and other applicable discounts and allowances. The Company allows return of its product for up to twelve months after product expiration.

Research and Development

Research and development costs are expensed as incurred, including raw material costs required to manufacture products for clinical trials.

F-9

Delaware	2836	33-0326866
(State or other jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
incorporation or organization)	Classification Code Number)	Identification Number)

Title of Each Class of Securities to Be Registered	Amount to be Registered (1)			Proposed Maximum Offering Price Per Security		Proposed Maximum Aggregate Offering Price			Amount of Registration Fee
Shares of Common Stock (par value $0.001 per share)		38,990,000	(2)	$	0.77	$	30,022,300.00	(3)	$	1,675.00
Shares of Common Stock (par value $0.001 per share) underlying the July 2009 Notes		70,010,000	(4)	$	0.77	$	53,907,700.00	(3)	$	3,008.00
Shares of Common Stock underlying the July 2009 Warrants		23,502,500	(5)	$	1.00	$	23,502,500.00	(6)	$	1,312.00
Shares of Common Stock (par value $0.001 per share) underlying the September 2009 Notes		21,000,001	(7)	$	0.77	$	16,170,000.77	(3)	$	903.00
Shares of Common Stock underlying the September 2009 Warrants		7,050,000	(5)	$	1.00	$	7,050,000.00	(6)	$	394.00
TOTAL									$	7,292.00

Common stock offered by selling stockholders		• 160,552,501 shares of our common stock, including 38,990,000 shares issued as part of the July 7, 2009 and September 4, 2009 financings, 23,502,500 shares issuable upon the exercise of the July 2009 Warrants, 7,050,000 shares issuable upon the exercise of the September 2009 Warrants, 70,010,000 shares issuable upon the conversion of the July 2009 Notes and 21,000,001 shares issuable upon the conversion of the September 2009 Notes.

Use of proceeds		We will not receive any proceeds from the sale of the shares of our common stock by the selling stockholders other than as a result of the exercise of the July 2009 Warrants and September 2009 Warrants for cash held by the selling stockholders.

Trading		Our common stock is traded on the OTC Bulletin Board under the symbol “GETA.OB.”

Risk Factors		You should read the “Risk Factors” section of this prospectus for a discussion of factors to consider carefully before deciding to invest in our common stock.

	June 30, 2009 as adjusted for the July 2009 financing and the September 2009 financing (unaudited)		June 30, 2009 as adjusted for the July 2009 financing (unaudited)				June 30, 2009 (unaudited, as reported)				December 31, 2008
Balance Sheet Data
(in thousands except per share amounts):
Cash and cash equivalents	$	12,611		$	3,396			$	696			$	4,908
Working capital (deficiency)		1,229			(7,986	)			(10,686	)			(5,220	)
Total assets		22,165			12,950				10,250				12,693
Total stockholders’ equity/(deficit)		8,668			(1,332	)			(4,332	)			(4,864	)

	As reported (unaudited)			As adjusted for the July 2009 financing (unaudited)			As adjusted for the July 2009 financing and September 2009 financing (unaudited)
Convertible notes as of June 30, 2009 actual $8,779 outstanding net of debt discount of ($7,434), as of June 30, 2009 adjusted for July 7, 2009 financing, $10,880 outstanding net of debt discount of ($9,535), and as of June 30, 2009 adjusted for July 7, 2009 financing and September 4, 2009 financing, $17,880 outstanding net of debt discount of ($16,535)	$	1,344		$	1,344	(1)	$	1,344	(2)
Common stock, $.001 par value; 6,000,000 shares authorized, 99,771 shares issued and outstanding at June 30, 2009, 108,761 shares issued and outstanding as of June 30, 2009 adjusted for the July 7, 2009 financing, and 138,761 shares issued and outstanding as of June 30, 2009 adjusted for the July 7, 2009 financing and September 4, 2009 financing		100			109			139
Preferred stock, 5,000 authorized:
Series A convertible preferred stock, $.001 par value; 8 shares issued and outstanding, liquidation value of $385 at June 30, 2009 (actual and as adjusted)		—			—			—
Series G participating cumulative preferred stock, $.001 par value; 0 shares issued and outstanding at June 30, 2009 (actual and as adjusted)		—			—			—
Additional paid-in capital		993,843			996,834			1,006,804
Accumulated deficit		(998,275	)		(998,275	)		(998,275	)

Total stockholders’(deficit)/equity		(4,332	)		(1,332	)		8,668

Total capitalization	$	(2,988	)	$	12			10,012

		Page
PROSPECTUS SUMMARY		1
RISK FACTORS		7
FORWARD-LOOKING STATEMENTS		18
USE OF PROCEEDS		19
DETERMINATION OF OFFERING PRICE		19
DIVIDEND POLICY		19
CAPITALIZATION		20
DILUTION		21
SELLING STOCKHOLDERS		21
DESCRIPTION OF BUSINESS		31
DESCRIPTION OF PROPERTY		42
LEGAL PROCEEDINGS		42
PRICE RANGE OF COMMON STOCK		43
EQUITY COMPENSATION PLAN INFORMATION		44
SELECTED FINANCIAL INFORMATION		45
SUPPLEMENTARY FINANCIAL INFORMATION		46
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		47
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		63
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		63
MANAGEMENT		64
EXECUTIVE COMPENSATION		66
SECURITY OWNERSHIP OF MANAGEMENT		79
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS		80
SHARES ELIGIBLE FOR FUTURE SALE		84
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		85
DESCRIPTION OF CAPITAL STOCK		86
PLAN OF DISTRIBUTION		89
LEGAL MATTERS		90
EXPERTS		90
HOW TO GET MORE INFORMATION		91
INDEX TO FINANCIAL STATEMENTS		F-1
PART II		II-1

	Six months ended June 30, (unaudited)			Year ended December 31,
	2009			2008			2007			2006
Consolidated Statements of Operations Data
(in thousands except per share amounts):
Product sales — net	$	131		$	363		$	580		$	708
Costs of goods sold		1			102			90			108
Operating expenses		10,112			33,410			26,116			59,764
Amortization of deferred financing costs and debt discount		(16,912	)		(11,229	)		—			—
Fair value — conversion feature liability		(19,040	)		(460,000	)		—			—
Fair value — warrant liability		(7,655	)		(2,000	)		—			—
All other (expense)/income -net		(561	)		(1,435	)		836			1,454
Loss before income taxes		(54,149	)		(507,813	)		(24,790	)		(57,710	)
Income tax benefit		-			1,975			1,470			929
Net loss	$	(54,149	)	$	(505,838	)	$	(23,320	)	$	(56,781	)
Net loss per basic and diluted common share *	$	(1.24	)	$	(455.09	)	$	(39.36	)	$	(125.88	)
Common shares used in computing net loss per basic and diluted share *		43,575			1,112			592			451

	Number of Shares held or acquirable (without reference to restrictions prior to the Offering)		Shares of Common Stock Beneficially Owned Prior to the Offering				Maximum Number of Shares to be Sold Pursuant to this Prospectus		Number of Shares held or acquirable (without reference to restrictions) After the Offering (4)		Shares of Common Stock Beneficially Owned After the Offering
Selling stockholder			Number of Shares Beneficially Owned (1)		Percent of Class (1)(2)(3)						Number of Shares Beneficially Owned (4)		Percent of Class (1)(2)(3)
Tang Capital Partners, LP		125,817,573(5)		16,966,752		9.999%		49,792,009		76,025,564		16,966,752		9.999%

667, L.P.		112,962,361(6)		16,966,752		9.999%		4,569,360		68,522,480		16,966,752		9.999%

667, L.P. #2		112,962,361(7)		16,966,752		9.999%		3,725,485		68,522,480		16,966,752		9.999%

Baker Brothers Life Sciences, L.P.		112,962,361(8)		16,966,752		9.999%		35,018,477		68,522,480		16,966,752		9.999%

14159, L.P.		112,962,361(9)		16,966,752		9.999%		1,126,559		68,522,480		16,966,752		9.999%

BAM Opportunity Fund, L.P.		32,868,814(10)		13,277,527		7.825%		12,868,814		20,000,000		13,277,527		7.618%

Boxer Capital LLC		36,064,344(11)		14,384,927		8.043%		13,069,908		22,994,436		14,384,927		8.043%

Cat Trail Private Equity Fund, LLC		49,004,563(12)		16,966,752		9.999%		18,099,203		30,905,360		16,966,752		9.999%

Arcus Ventures Fund		19,539,199(13)		9,597,016		5.656%		9,049,601		10,489,598		9,597,016		5.536%

Cranshire Capital LP		2,450,192(14)		2,450,192		1.432%		950,192		1,500,000		1,500,000		*

Rockmore Investment Master Fund Ltd.		2,514,583(15)		2,514,583		1.470%		610,809		1,903,774		1,903,774		1.117%

RRC BioFund, LP		1,225,096(16)		1,225,096		*		475,096		750,000		750,000		*

Rodman & Renshaw, LLC (17)		13,896,252(18)		8,954,327		5.032%		8,773,296		5,122,956		5,122,956		2.942%

MVA Investors LLC, IIl		2,423,691(19)		2,423,691		1.413%		2,423,691		0		0		*

	High*		Low*
2007
First Quarter	$	168.00	$	93.00
Second Quarter	$	123.00	$	84.00
Third Quarter	$	90.00	$	40.00
Fourth Quarter	$	65.50	$	26.00

2008
First Quarter	$	43.50	$	18.50
Second Quarter (through May 7, 2008)	$	22.50	$	7.50

Plan Category	Number of Securities to Be Issued Upon Exercise of Outstanding Options and Rights		Weighted-Average Exercise Price of Outstanding Options and Rights			Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column)
Equity compensation plans approved by security holders(1)		39,594	$	1,053.50	(2)		3,070	(3)
Equity compensation plans not approved by security holders		—					—
Total		39,594	$	1,053.50			3,070

	Six Months ended June 30, 2009			Year Ended December 31, (in thousands except per share amounts)
	(Unaudited)			2008			2007			2006			2005			2004
Consolidated Statements of Operations Data:
License fees & royalties	$	—		$	—		$	—		$	—		$	5,241		$	3,022
Development funding		—			—			—			—			20,988			12,105
Product sales — net		131			363			580			708			356			(512	)
Total revenues		131			363			580			708			26,585			14,615
Costs of goods sold		1			102			90			108			52			170
Provision for excess inventory		—			—			—			—			—			1,350
Total cost of goods sold		—			102			90			108			52			1,520
Operating expenses — gross		10,112			33,410			26,116			59,764			37,006			101,324
sanofi-aventis reimbursement		—			—			—			—			(6,090	)		(43,292	)
Operating expenses — net		10,112			33,410			26,116			59,764			30,916			58,032

Gain on forgiveness of debt		—			—			—			—			1,297			11,495
Amortization of deferred financing costs and debt discount		(16,912	)		(11,229	)		—			—			—			—
Fair value — conversion feature liability		(19,040	)		(460,000	)		—			—			—			—
Fair value — warrant liability		(7,655	)		(2,000	)		—			—			—			—
All other (expense)/income-net		(561	)		(1,435	)		836			1,454			502			(147	)
Loss before income taxes		(54,149	)		(507,813	)		(24,790	)		(57,710	)		(2,584	)		(33,589	)
Income tax benefit		—			1,975			1,470			929			381			904
Net loss	$	(54,149	)	$	(505,838	)	$	(23,320	)	$	(56,781	)	$	(2,203	)	$	(32,685	)
Net loss per basic and diluted common share *	$	(1.24	)	$	(455.09	)	$	(39.36	)	$	(125.88	)	$	(6.42	)	$	(122.87	)

Shares used in computing net loss per basic and diluted common share*		43,575			1,112			592			451			343			266

	At June 30, 2009 (unaudited)			At December 31, (in thousands)
				2008			2007		2006		2005		2004
Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	696		$	4,908		$	7,813	$	29,496	$	21,282	$	42,247
Working capital (deficit)		(10,686	)		(5,220	)		877		12,682		11,703		(4,269	)
Total assets		10,250			12,693			29,293		51,778		27,386		50,532
Total stockholders’ equity (deficit)		(4,332	)		(4,864	)		2,931		14,642		15,697		1,752

	Three Months Ended (unaudited) (in thousands except per share amounts)
	Jun 30 2009			Mar 31 2009			Dec 31 2008		Sep 30 2008		June 30 2008			Mar 31 2008			Dec 31 2007			Sep 30 2007
Total revenues	$	68		$	62		$	—	$	115	$	131		$	117		$	266		$	115
Net income/(loss)	$	(43,082	)	$	(11,067	)	$	29,569	$	212,613	$	(738,364	)	$	(9,657	)	$	(1,748	)	$	(7,732	)
Net income/(loss) per basic common share: *	$	(0.63	)	$	(0.61	)	$	12.90	$	289.22	$	(1,004.58	)	$	(14.29	)	$	(2.85	)	$	(12.63	)
Net income/(loss) per diluted common share: *	$	(0.63	)	$	(0.61	)	$	1.08	$	5.12	$	(1,004.58	)	$	(14.29	)	$	(2.85	)	$	(12.63	)
Shares used in computing basic per common share amounts: *		68,870			17,999			2,292		735		735			676			612			612
Shares used in computing diluted per common share amounts: *		68,870			17,999			27,401		41,524		735			676			612			612

			Estimated Future Payouts Under Non-Equity Incentive						Estimated Future Payouts Under Equity Incentive Plan Awards (2)						All Other Stock Awards: Number of Shares of Stock or		All Other Option Awards: Number of Securities Underlying		Exercise Price of Option		Grant Date Fair Value of Stock and Option
			Plan Awards (1)						Threshold		Target		Maximum		Units		Options		Awards		Awards
Name	Grant Date		Threshold ($)		Target ($)		Maximum ($)		(# Shares)		(# Shares)		(# Shares)		(#)(3)		(#)		($/sh)		($)
Dr. Warrell		(4)		—		3,840		5,760		—		—		—		—		—		—		—
Mr. Moran (3)		(4)		—		1,920		2,560		—		—		—		—		—		—		—
Mr. Siegel	4/11/2008			0		1,050		1,470		0		400		600		800		—		—		16,400
Dr. Itri		(4)		—		2,805		4,675		—		—		—		—		—		—		—
Mr. Sanders	4/11/2008			0		1,710		2,280		0		600		800		1,300		—		—		26,650

	Option Awards								Stock Awards
Name	Number Of Securities Underlying Unexercised Options Exercisable (#)		Number Of Securities Underlying Unexercised Options Unexercisable (#(1))		Option Exercise Price ($)		Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)			Market Value of Shares or Units of Stock That Have not Vested ($)
Dr. Warrell		10,585		—		800.50	10/27/09			—			—
		2,646		—		800.50	02/14/10			—			—
		1,000		—		2,390.50	01/01/11			—			—
		1,000		—		4,110.00	01/25/12			—			—
		1,000		—		2,358.50	01/28/13			—			—
		—		3,333		2,964.00	05/16/13			—			—
		250		—		3,096.00	01/04/14			—			—
		500		—		486.00	01/28/15			—			—
		2,646		—		800.50	10/28/15			—			—
		563		188		615.00	01/23/16			—			—
		1,667		1,666		648.00	03/31/16			—			—
		167		166		137.00	01/12/07			—			—
Mr. Siegel		46		—		3,015.00	05/22/13			—			—
		23		—		3,096.00	01/04/14			—			—
		33		—		750.00	06/30/14			—			—
		33		—		486.00	01/07/15			—			—
		93		12		282.00	04/04/15			—			—
		25		8		270.00	04/15/15			—			—
		02		8		555.00	09/19/15			—			—
		25		8		615.00	01/23/16			—			—
		8		16		231.00	12/01/16			—			—
		20		20		137.00	01/12/17			—			—
		—		—		—		—		800	(2)		108	(3)
Dr. Itri		1,000		—		1,719.00	03/28/11			—			—
		133		—		4,110.00	01/25/12			—			—
		100		—		2,358.50	01/28/13			—			—
		—		1,000		3,585.00	08/05/13			—			—
		166		—		3,096.00	01/05/14			—			—
		100		—		486.00	01/07/15			—			—
		125		41		615.00	01/23/16			—			—
		407		1,259		477.00	07/27/16			—			—
		83		83		137.00	01/12/17			—			—
Mr. Sanders		250		83		543.00	01/16/16			—			—
		50		50		137.00	01/12/17			—			—
		—		—		—		—		1,300	(2)		176	(3)

Name	Fees paid ($) (1)		Stock Awards ($)		Option awards ($) (2)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation ($)		All Other Compensation ($)		Total ($)
Martin J. Driscoll (3)	$	38,000		-	$	6,753		-		-		-	$	44,753
Christopher P. Parios	$	36,750		-	$	4,267		-		-		-	$	41,017
Daniel D. Von Hoff, M.D.	$	27,000		-	$	733		-		-		-	$	27,733
Douglas G. Watson	$	43,250		-	$	1,100		-		-		-	$	44,350

	Amount and Nature of Beneficial Ownership
Name and Address (1)	Number of Shares (2)			Percent of Class
Raymond P. Warrell, Jr., M.D.		9,624,900	(3)		5.7	%
Loretta M. Itri, M.D.		9,624,900	(4)		5.7	%
Richard J. Moran		434	(5)		*
Gary Siegel		503	(6)		*
W. Lloyd Sanders		919	(6)		*
Martin J. Driscoll (7)		408	(8)		*
Christopher P. Parios		695,658	(6)		*
Daniel D. Von Hoff, M.D.		695,658	(6)		*
Douglas G. Watson		695,658	(6)		*
All Directors and Executive Officers as a group		11,714,339	(9)		6.9	%

	Amount and Nature of Beneficial Ownership
Name and Address	Number of Shares			Percent of Class
Tang Capital Partners, LP 4401 Eastgate Mall San Diego, CA 92121		16,966,752	(1)		9.9	%
BAM Opportunity Fund, L.P.		13,476,214	(2)		8.0	%
Felix J. Baker and Julian C. Baker		16,968,279	(3)		9.9	%
Arcus Ventures Fund, L.P.		10,503,366	(4)		6.0	%
Cat Trail Private Equity Fund, LLC		17,754,451	(5)		10.0	%
Boxer Capital LLC		14,384,927	(6)		8.5	%
Rodman & Renshaw, LLC		8,954,327	(7)		5.0	%

Name	Number of Shares		Percent of Class Outstanding
667, L.P.		11,647,351		6.5	%
Baker Brothers Life Sciences, L.P.		16,968,279		9.7	%
14159, L.P.		1,581,684		0.9	%

Total		16,968,279		9.9	%

	December 31, 2007
Cost	$	1,970
Gross unrealized gains		29
Gross unrealized losses		—
Fair value	$	1,999

	December 31,
	2008		2007
Raw materials	$	24	$	24
Work in process		—		—
Finished goods		97		201
	$	121	$	225

	Estimated		December 31,
	Useful Lives		2008			2007
Computer equipment		3	$	2,298		$	2,855
Software		3		3,206			3,211
Furniture and fixtures		5		899			936
Leasehold improvements	Life of lease			463			420
Equipment		5		182			182
				7,048			7,604
Less accumulated depreciation and amortization				(6,748	)		(7,281	)
			$	300		$	323

	October 6, 2008			June 9, 2008
Price of Genta common stock	$	12.50		$	10.00
Volatility		137.4	%		125.6	%
Risk-free interest rate		1.36	%		2.73	%
Remaining contractual lives		1.68			2.00

($ in thousands)	2008		2007
Unrecognized tax benefits: January 1	$	1,567	$	1,388

Gross increases: Tax positions taken in prior periods

Gross decreases: Tax positions taken in prior periods

Gross Increases- Current period tax positions	$	278	$	179

Lapse of Statute of Limitations

Unrecognized tax benefits: December 31	$	1,845	$	1,567

($ thousands, except per share data)	2008		2007		2006
Research and development expenses	$	151	$	521	$	997
Selling, general and administrative		338		852		2,002
Total share-based compensation expense	$	489	$	1,373	$	2,999
Share-based compensation expense, per basic and diluted common share	$	0.44	$	2.32	$	6.65

	Number of Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Stock Options
Outstanding at December 31, 2005		31			1,512.00
Granted		9			582.00
Exercised		—			—
Forfeited or expired		(1	)		1,266.00
Outstanding at December 31, 2006		39		$	1,311.00
Granted		6			70.00
Exercised		—			—
Forfeited or expired		(2	)		819.00
Outstanding at December 31, 2007		43		$	1,152.50
Granted		—			—
Exercised		—			—
Forfeited or expired		(6	)		888.00
Outstanding at December 31, 2008		37		$	1,191.50		3.8	$	—
Vested and exercisable at December 31, 2008.		26		$	1,109.50		1.7	$	—

Restricted Stock Units	Number of Shares (in thousands)			Weighted Average Grant Date Fair Value per Share
Outstanding nonvested RSUs at January 1, 2007		0		$	—
Granted		1		$	71.00
Vested		0		$	—
Forfeited or expired		(1	)	$	71.00
Outstanding nonvested RSUs at December 31, 2007		0		$	71.00
Granted		10		$	20.50
Vested		0		$	71.00
Forfeited or expired		(5	)	$	20.50
Outstanding nonvested RSUs at December 31, 2008		5		$	20.50

Year	Options Granted (in Thousands)		Weighted Average Grant Date Per Share Fair Value
2008		0	$	12.50
2007		7		71.00
2006		9		585.00

Range of Prices	Options Outstanding		Weighted Average Remaining Life in Years		Weighted Average Exercise Price		Options Exercisable		Weighted Average Exercise Price of Options Exercisable
$12.50 - $99.00		4		9.0	$	39.00		1	$	43.00
$136.50 - $477.00		3		7.4		353.50		1		347.50
$483.00 - $648.00		6		7.0		612.00		3		604.50
$729.00 - $800.50		16		0.9		800.00		16		800
$1,719.00 - $2,805.00		4		2.8		2,162.00		4		2,162.00
$2,964.00 - $5,475		6		4.2		3,314.50		2		3,761.50
		39		3.9	$	1,188.50		27		1,111.00

	Quarter Ended
($ thousands, except per share data)	Mar. 31			Jun. 30			Sep. 30		Dec. 31
Revenues	$	117		$	131		$	115	$	—
Gross margin		92			102			89		(23	)
Operating expenses		9,816			10,268			7,563		5,763
Other income/(expense), net		67			(728,198	)		220,087		33,380
Net (loss)/income		(9,657	)		(738,364	)		212,613		29,569
Net (loss)/income per basic common share**	$	(14.29	)	$	(1,004.58	)	$	289.22	$	12.90
Net (loss)/income per diluted common share	$	(14.29	)	$	(1,004.58	)	$	5.12	$	1.08

	Quarter ended
	June 30, 2008		September 30, 2008
($ thousands)	(restated)		(restated)
Selected Balance Sheet Data:
Current assets	$	17,230	$	9,450
Total assets		26,029		17,113
Current liabilities		767,403		12,827
Total liabilities		767,986		546,310

	(as previously reported)		(as previously reported)
Current assets	$	35,230	$	27,450
Total assets		44,029		35,113
Current liabilities		785,403		30,827
Total liabilities		785,986		564,310

(In thousands, except par value data)
	June 30, 2009			December 31,
	(unaudited)			2008
ASSETS
Current assets:
Cash and cash equivalents	$	696		$	4,908
Accounts receivable – net of allowances of $55 at June 30, 2009 and $12 at December 31, 2008, respectively		34			2
Inventory (Note 3)		119			121
Prepaid expenses and other current assets		584			973
Total current assets		1,433			6,004
Property and equipment, net		271			300
Deferred financing costs and debt discount (Note 6)		8,546			6,389
Total assets	$	10,250		$	12,693

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	11,259		$	11,224
Convertible notes due June 9, 2010, $2,829 outstanding, net of debt discount of ($1,969) (Note 6)		860			—
Total current liabilities		12,119			11,224
Long-term liabilities:
Office lease settlement obligation (Note 4)		1,979			1,979
Convertible notes due June 9, 2010, $15,540 outstanding, net of debt discount of ($11,186) (Note 6)		—			4,354
Convertible notes due April 2, 2012, $5,950 outstanding, net of debt discount of ($5,466) (Note 6)		484			—
Total long-term liabilities		2,463			6,333

Commitments and contingencies (Note 9)

Stockholders’ deficit:
Preferred stock, 5,000 shares authorized:
Series A convertible preferred stock, $.001 par value; 8 shares issued and outstanding, liquidation value of $385 at June 30, 2009 and December 31, 2008, respectively		—			—
Series G participating cumulative preferred stock, $.001 par value; 0 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively		—			—
Common stock, $.001 par value; 6,000,000 and 6,000,000 shares authorized, 99,771 and 9,734 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively		100			10
Additional paid-in capital		993,843			939,252
Accumulated deficit		(998,275	)		(944,126	)
Total stockholders’ deficit		(4,332	)		(4,864	)
Total liabilities and stockholders’ deficit	$	10,250		$	12,693

	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except per share data)	2009			2008			2009			2008
Product sales – net	$	69		$	131		$	131		$	248
Cost of goods sold		1			29			1			54
Gross margin.		68			102			130			194

Operating expenses:
Research and development.		3,674			4,454			5,972			10,891
Selling, general and administrative		1,968			2,587			4,140			6,225
Settlement of office lease obligation (Note 5)		—			3,307			—			3,307
Reduction in liability for settlement of litigation, net		—			(80	)		—			(340	)
Total operating expenses		5,642			10,268			10,112			20,083

Other income/(expense):
Gain on maturity of marketable securities		—			—			—			31
Interest income and other income, net		1			40			16			100
Interest expense		(189	)		(198	)		(576	)		(223	)
Amortization of deferred financing costs and debt discount (Note 7)		(10,625	)		(840	)		(16,912	)		(840	)
Fair value – conversion feature liability (Note 6)		(19,040	)		(720,000	)		(19,040	)		(720,000	)
Fair value – warrant liability (Note 6)		(7,655	)		(7,200	)		(7,655	)		(7,200	)
Total other income/(expense)		(37,508	)		(728,198	)		(44,167	)		(728,132	)

Net loss	$	(43,082	)	$	(738,364	)	$	(54,149	)	$	(748,021	)

Net loss per basic and diluted share	$	(0.63	)	$	(1,004.84	)	$	(1.24	)	$	(1,060.69	)
Shares used in computing net loss per
basic and diluted share		68,870			735			43,575			705

	June 30,		December 31,
	2009		2008
Raw materials	$	24	$	24
Finished goods		95		97
	$	119	$	121