GENTA INCORPORATED /DE/ - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITIONAL REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 1997

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

Commission File Number 0-19635

GENTA INCORPORATED
(Exact name of Registrant as specified
in its certificate of incorporation)

Delaware 33-0326866
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

3550 General Atomics Court
San Diego, California 92121
(Address of principal executive offices) (Zip Code)

(619) 455-2700
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: NONE

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

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

Yes [X] No

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

The approximate aggregate market value of the voting common equity held by
non-affiliates of the registrant was $5,951,651 million as of April 2, 1998. For
purposes of determining this number, 136,202 shares of common stock held by
affiliates are excluded.

As of April 2, 1998, the registrant had 5,737,756 shares of Common Stock
outstanding.

Documents Incorporated by Reference

Designated portions of Registrant's Definitive Proxy Statement to be furnished
for the Annual Meeting of the Stockholders are incorporated by reference in Part
III of this Form 10-K.

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UNLESS OTHERWISE INDICATED, ALL SHARE AND PER SHARE DATA IN THIS REPORT
HAVE BEEN ADJUSTED RETROACTIVELY TO REFLECT A 1-FOR-10 REVERSE STOCK SPLIT OF
THE COMPANY'S COMMON STOCK EFFECTIVE AS OF APRIL 7, 1997.

The statements contained in this Annual Report on Form 10-K that are
not historical are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding the
expectations, beliefs, intentions or strategies regarding the future. The
Company intends that all forward-looking statements be subject to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect the Company's views as of the date they are
made with respect to future events and financial performance, but are subject to
many risks and uncertainties, which could cause the actual results of the
Company to differ materially from any future results expressed or implied by
such forward-looking statements. Examples of such risks and uncertainties
include, but are not limited to: the obtaining of sufficient financing to
maintain the Company's planned operations; the timely development, receipt of
necessary regulatory approvals and acceptance of new products; the successful
application of the Company's technology to produce new products; the obtaining
of proprietary protection for any such technology and products; the impact of
competitive products and pricing and reimbursement policies; the changing of
market conditions and the other risks detailed in the Certain Trends and
Uncertainties section of Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") in this Annual Report on Form 10-K
and elsewhere herein. The Company does not undertake to update any
forward-looking statements.

See "MD&A--Certain Trends and Uncertainties" for a discussion of
certain risks and uncertainties applicable to the Company and its stockholders,
including the Company's need for additional funds to sustain its operations.

PART I

ITEM 1. BUSINESS

OVERVIEW

Genta Incorporated ("Genta" or the "Company"), incorporated under the
laws of the State of Delaware on February 4, 1988, is an emerging
biopharmaceutical company engaged in the development of a pipeline of
pharmaceutical products. Genta's multi-faceted approach has incorporated a
product development portfolio with balanced technical risk, a novel drug
delivery technology and a United States business base. The Company's research
efforts have been focused on the development of proprietary oligonucleotide
pharmaceuticals intended to block or regulate the production of disease-related
proteins at the genetic level. The Company's oligonucleotide programs are
focused primarily in the area of cancer. In late 1995, a phase I/IIa clinical
trial was initiated in the United Kingdom using Genta's anti-bcl-2 Anticode(TM)
oligonucleotide, G3139, in non-Hodgkin's lymphoma patients for whom prior
therapies have failed. The clinical trial is being conducted in collaboration
with the Royal Marsden NHS Trust and the Institute for Cancer Research. In late
1996, an Investigational New Drug application ("IND") for the G3139 clinical
program was filed in the United States and allowed to proceed by the United
States Food and Drug Administration ("FDA"). In late 1997, a phase I trial was
initiated in the United States at the Memorial Sloan-Kettering Cancer Center
(the "MSKCC") in New York City using G3139 in patients diagnosed with various
types of cancer to be followed by a phase IIa trial in prostate cancer. In
addition, the Company owns 50% of a drug delivery system joint venture with
Jagotec AG ("Jagotec"), Genta Jago Technologies B.V. ("Genta Jago") established
to develop oral controlled-release drugs. To date, no products from this joint
venture have been commercialized. The joint venture's original plan was to use
Jagotec's patented GEOMATRIX(R) drug delivery technology ("GEOMATRIX") in a
two-pronged commercialization strategy: the development of generic versions of
successful brand-name controlled-release drugs; and the development of
controlled-release formulations of drugs currently marketed in only
immediate-release form. The only products in development to date are those
intended to be comparable to the commercially available, brand-name,
controlled-release drugs. The Company also manufactures and markets specialty
biochemicals and intermediate products to the in vitro diagnostic and
pharmaceutical industries through its manufacturing subsidiary, JBL Scientific,
Inc. ("JBL"), a California corporation acquired by the Company in February,
1991.

SUMMARY OF BUSINESS AND RESEARCH AND DEVELOPMENT PROGRAMS

The following table describes the major areas to which the Company is
currently directing its research and product development efforts and the
development

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status of products or product candidates under development, as well as other
aspects of the Company's business:

Program Therapeutic Indications Development Status
------- ----------------------- ------------------

1. Anticode
G3139 o Impairs production of key cancer protein, Phase I/IIa clinical trials in
BCL2 (non-Hodgkin's lymphoma, the United Kingdom with respect
prostate, melanoma, breast and possibly to non-Hodgkin's lymphoma and in
others) the U.S. with respect to
prostate and possibly other
advanced solid tumor
malignancies.

Anti-FAK Oligonucleotides o Impairs production of key cancer protein, Pre-clinical
Focal Adhesion Kinase (melanoma,
lymphoma and multiple myeloma)

2. Oral Controlled-Release
Drugs

Bioequivalent Generics o Various Abbreviated New Drug
Applications ("ANDAs") may be
filed for up to three products
in 1998

3. Biochemical Manufacturing

Specialty Biochemicals; $4.7 million in 1997 sales
Intermediate
Products for biotechnology and
pharmaceutical industries

ANTICODE(TM) BRAND OF ANTISENSE OLIGONUCLEOTIDE PROGRAMS

Oligonucleotides represent a modern approach to drug development based
upon genetic control of disease. Many human diseases have genetic origins that
involve either the expression of a harmful foreign gene or the aberrant
expression of a normal or mutated human gene. The Company's Anticode(TM)
oligonucleotides are short strands of synthetic nucleic acids designed to bind
to ("hybridize" with) specific sequences of disease-related RNA or DNA, thereby
blocking or controlling production of disease-related proteins. The Company
believes that, because of their selective binding properties, Anticode(TM)
oligonucleotides should not interfere with the function of normal cells, and
therefore, should elicit significantly fewer side effects than traditional
drugs. Oligonucleotide drugs may attack a disease at one of two levels. One
approach is to prevent the synthesis of essential disease-related proteins. In
this approach, certain oligonucleotides are used to interrupt the processing of,
or selectively to bind to and

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destroy, individual messenger RNA (mRNA) sequences, which leads to the
down-regulation (lowering of levels) of specific proteins and thereby
effectively eliminates the disease. This is referred to as the "antisense"
mechanism of action. A second therapeutic opportunity is to prevent
transcription of disease-causing DNA into the mRNA copy of the gene. This is
referred to as the "triple-strand to DNA" mechanism of activity.

Genta has focused its Anticode(TM) research on oligonucleotides with
phosphorothioate backbones and mixed phosphorothioate and methylphosphonate
back- bones. The Company has licensed patents covering phosphorothioate
oligonucleotide constructions and has applied for patents covering the mixed
backbone constructions. Genta's scientists have improved the backbone
technologies by introducing mixed chirally-enriched or chirally-pure
oligonucleotides. In preclinical studies, these oligonucleotides effectively
interfere with the action of targeted mRNA sequences inside cells. Intravenous
administration of the improved technology oligonucleotides to certain animals
demonstrates that these compounds have greater stability in the circulatory
system and are eventually excreted intact in the urine. These improved backbone
technologies represent opportunities for second generation Anticode(TM)
antisense oligonucleotides, none of which are currently in development.
Management believes that the Company has the ability to acquire or produce
quantities of oligonucleotides sufficient to support its present needs for
research and its projected needs for initial clinical development programs.
However, in order to obtain oligonucleotides sufficient to meet the volume and
cost requirements needed for certain commercial applications of Anticode(TM)
oligonucleotide products, Genta requires raw materials currently provided by a
single supplier, and there can be no assurance that such supplier will continue
satisfactorily to provide the requisite raw materials. See "MD&A--Certain Trends
and Uncertainties--Difficult Manufacturing Process; Access to Certain Raw
Materials."

The Company's oligonucleotide research and development efforts are
currently focused on its cancer program as described below. Extensive additional
development will be required, and there can be no assurance that any product
will be successfully developed or will receive the necessary regulatory
approvals. See "MD&A--Certain Trends and Uncertainties--No Assurance of
Regulatory Approval; Government Regulation," "MD&A--Certain Trends and
Uncertainties--Dependence on Others" and "MD&A--Certain Trends and
Uncertainties--Uncertainty of Clinical Trials and Results."

Bcl-2 Gene Target.

The bcl-2 gene is a proto-oncogene and a major inhibitor of apoptosis
(programmed cell death) of cancerous cells. The protein produced by this gene
has two known critical functions in the progression of cancer: it makes cancer
cells immortal, creating a survival advantage of malignant over normal cells;
and confers resistance to radiation and chemotherapy, rendering those treatments
ineffective in the late stages of

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many types of cancer. Genta's lead anti-bcl-2 molecule, G3139, is designed to
bind to and destroy the mRNA that produces the bcl-2 protein product, thereby
interfering with the cellular production of the protein. High levels of bcl-2
are associated with a poor clinical prognosis in many solid tumor and
hematological malignancies such as lymphoma, leukemia, melanoma, multiple
myeloma prostate and breast cancers. The Company believes that its Anticode(TM)
antisense strategy against the bcl-2 gene has the potential to represent a
significant therapeutic opportunity in many of these cancers.

In preclinical studies conducted by Dr. Finbarr Cotter, at the
Institute for Child Health in London, an anti-bcl-2 oligonucleotide was shown to
cure lymphoma-like disease induced by the injection of human B-cell lymphoma
cells in immunodeficient mice. In addition, in a variety of other animal
studies, anti-bcl-2 Anticode(TM) oligonucleotides have been found to inhibit the
growth of human lymphoma, melanoma, colon, prostate and breast cancer tumors in
immunodeficient mice when administered alone or in combination with
chemotherapeutic agents. In the February 1998 issue of Nature Medicine, Dr.
Burkhard Jansen and colleagues published a report entitled,"bcl-2 antisense
therapy chemosensitizes human melanoma in SCID mice." They describe studies
showing that G3139 administered with dacarbazine (DTIC) produced significantly
greater tumor volume reduction than dacarbazine alone or than G3139 alone. In
ten of thirteen animals there was no tumor after the combination treatment.

In late 1995, a Phase I/IIa clinical trial was initiated in the United
Kingdom using Genta's anti-bcl-2 Anticode(TM) oligonucleotide, G3139, in human
non-Hodgkin's lymphoma patients for whom prior therapies had failed. The
clinical trial was conducted in collaboration with the Royal Marsden NHS Trust
("Royal Marsden") and the Institute for Cancer Research under the direction of
Dr. David Cunningham. The principal aim of this Phase I/IIa study was to define
the maximum tolerated dose of G3139. Secondary objectives included measurement
of clinical and biochemical disease parameters. The trial with Royal Marsden is
almost complete, and the Company believes that, other than mild irritation at
the site of the subcutaneous infusion in most of the patients or a low- grade
reversible thrombocytopenia (decrease in number of blood platelets), no serious
drug- attributable or dose-limiting adverse effects were seen until the maximum
tolerated dose was reached. Initial results in the first nine patients were
reported in The Lancet ("BCL-2 antisense therapy in patients with non-Hodgkin
lymphoma," A. Webb, et al., Vol. 349; pages 1137-1141, April 19, 1997). This
report revealed that four of the nine patients observed showed improvements in
their disease and in one patient the tumor had completely disappeared. Of the 17
patients treated to date, three suffered what were considered to be drug related
serious adverse events at high levels of drug presentation above the predicted
efficacy range. These events included a grade III skin reaction due to the
subcutaneous method of administration in the study; hypotension, and
thrombocytopenia. These patients were removed from the study and recovered from
the reaction. The patient who had experienced hypotension was later rechallenged
at a lower dose without any untoward event.

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In December 1996, the FDA granted the Company an allowance to initiate
clinical trials under an IND for the use of G3139 against non-Hodgkin's
lymphoma. In 1997, the Company expanded the IND to include the use of G3139
against prostate cancer. In addition, the Company anticipates that it may expand
this IND to include the use of G3139 against other types of cancers, including
melanoma and breast. The Company has had discussions with several cancer centers
regarding additional Phase I/IIa clinical trials of G3139. The Company is
currently discussing protocols with such centers and believes that additional
clinical trials could be commenced in 1998. In addition, the Company has had
discussions with the National Cancer Institute ("NCI") regarding additional
Phase I and II clinical trials. Assuming the Company and NCI agree to move
forward with such NCI sponsored trials, the Company will collaborate with NCI on
the design of such clinical studies and the selection of tumor targets. Under
the proposed arrangement, NCI would cover the costs of running both pre-clinical
and clinical studies while Genta would be responsible for supplying NCI with
necessary quantities of G3139 to carry out this work. There can be no assurance
that such IND for G3139 will be further expanded or that any additional clinical
studies will be conducted. See "MD&A--Certain Trends and Uncertainties--No
Assurance of Regulatory Approval; Government Regulation," "MD&A--Certain Trends
and Uncertainties-- Dependence on Others" and "Risk Factors--Uncertainty of
Clinical Trials and Results."

In December 1997, the Company initiated a United States Phase I/IIa
clinical trial at the MSKCC to evaluate G3139. The first part of the Phase I/IIa
study at the MSKCC is designed to define the maximum tolerated dose or optimal
biological dose with continuous intravenous infusion; the second part is to
determine the efficacy of the drug in advanced, androgen-independent prostate
cancer. Three of the first group of three patients in the dose escalation safety
phase have started treatment at a low dose of drug. The first two patients
completed the study without difficulty during the administration of G3139 and
the third is nearing completion. The first patient suffered a seizure after
treatment was completed, but the event was not considered to be drug related.

On March 31, 1998, the United States Patent and Trademark Office issued
a patent to which the Company has an exclusive license, for claims covering
antisense oligonucleotide compounds targeted against bcl-2. These claims cover
the Company's proprietary Anticode(TM) oligonucleotide molecules that target
bcl-2, including its lead clinical candidate, G3139. Other related patents and
claims in the United States and corresponding foreign patent applications are
still pending. See "MD&A--Certain Trends and Uncertainties--Uncertainty
Regarding Patents and Proprietary Technology."

Focal Adhesion Kinase (FAK) Gene Target.

FAK protein is highly active in the regulation of adhesion dependent
growth and motility of cells. In a variety of cancers such as those implicated
in melanoma, lymphoma and multiple myeloma, the increase of FAK protein has been
detected.

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Moreover, increased synthesis of FAK protein correlates with increased
invasiveness and ability of cancer to spread through the body (metastasize). In
collaborative preclinical experiments with Dr. William G. Cance at the
University of North Carolina, Genta's Anticode(TM) oligonucleotides against FAK
were shown to inhibit the growth of a primary tumor (the site at which the
cancer is believed to have begun) and virtually to eliminate metastases in human
melanoma, immunocompromised mice, xenograft models. Combined with the
observation that anti-FAK oligonucleotides appear to show few adverse effects
against normal tissues, such results indicate that the FAK target may represent
a promising therapeutic opportunity for both the treatment of primary disease
and the prevention of metastatic disease. At the current time the Company's
development work related to FAK-antisense has been placed on hold pending
discussions with Dr. Cance and the University of North Carolina.

Oligonucleotide Collaborative and Licensing Agreements.

Gen-Probe (Chugai). In February 1989, Genta entered into a development,
license and supply agreement with Gen-Probe Incorporated ("Gen-Probe").
Gen-Probe was subsequently acquired by Chugai Pharmaceutical Company, Ltd.
("Chugai"), a Japanese corporation. Gen-Probe has the option to acquire an
exclusive worldwide license to any product consisting of, including, derived
from or based on oligonucleotides for the treatment or prevention of
Epstein-Barr virus, cytomegalovirus, HIV, human T-cell leukemia virus-1 and all
leukemias and lymphomas. Genta is obligated to pursue the development of a
therapeutic compound for the treatment of one of these indications as its first
therapeutic development program. Under the agreement, if Gen-Probe exercises its
option to acquire rights to a product in any such indication, the Company will
grant Gen-Probe certain rights to sell such product and Gen-Probe must fund
Genta's development of any such product, subject to certain limitations and
early termination rights. If Gen-Probe fully funds the development of any such
product, profits on sales of such product will be shared between the parties. In
February 1996, Gen-Probe elected not to exercise such option with respect to
Genta's anti-bcl-2 products, waiving any rights it may have had to develop or
commercialize such products. The Gen-Probe agreement provides for perpetual
worldwide licenses in applicable proprietary rights; royalty payments shall not
accrue beyond the later of fifteen years after the first commercial sale of each
product and the duration of patent in the country of sale. Gen-Probe is a
stockholder in the Company.

Ts'o/Miller/Hopkins. In February 1989, the Company entered into a
license agreement with Drs. Paul Ts'o and Paul Miller (the "Ts'o/Miller
Agreement") pursuant to which Drs. Ts'o and Miller (the "Ts'o/Miller
Partnership") granted an exclusive license to the Company to certain issued
patents, patent applications and related technology regarding the use of nucleic
acids and oligonucleotides including methylphosphonates as pharmaceutical
agents. Dr. Ts'o is a Professor of Biophysics, Department of Biochemistry, and
Dr. Miller is a Professor of Biochemistry, both at the

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School of Public Health and Hygiene, Johns Hopkins University ("Johns Hopkins").
In May 1990, the Company entered into a license agreement with Johns Hopkins
(the "Johns Hopkins Agreement," and collectively with the Ts'o/Miller Agreement,
referred to herein as the "Ts'o/Miller/Hopkins Agreements") pursuant to which
Johns Hopkins granted Genta an exclusive license to its rights in certain issued
patents, patent applications and related technology developed as a result of
research conducted at Johns Hopkins by Drs. Ts'o and Miller and related to the
use of nucleic acids and oligonucleotides as pharmaceutical agents. In addition,
Johns Hopkins granted Genta certain rights of first negotiation to inventions
made by Drs. Ts'o and Miller in their laboratories in the area of
oligonucleotides and to inventions made by investigators at Johns Hopkins in the
course of research funded by Genta, which inventions are not otherwise included
in the Ts'o/Miller/Hopkins Agreements. Genta had agreed to pay Dr. Ts'o, Dr.
Miller and Johns Hopkins royalties on net sales of products covered by the
issued patents and patent applications, but not the related technology, licensed
to the Company under the Ts'o/Miller/Hopkins Agreements. The Company also agreed
to pay certain minimum royalties prior to commencement of commercial sales of
such products, which royalties may be credited under certain conditions against
royalties payable on subsequent sales. Subject to certain rights of early
termination, the Ts'o/Miller/Hopkins Agreements remain in effect for the life of
the last-to-expire patent licensed under the respective agreements or until
abandonment of the last-pending patent application licensed under the respective
agreements.

On February 14, 1997, the Company received notice from Johns Hopkins
that the Company was in material breach of the Johns Hopkins Agreement. The
Johns Hopkins Agreement provides that, if a material payment default is not
cured within 90 days of receipt of notice of such breach, Johns Hopkins may
terminate the Johns Hopkins Agreement. In February 1997, the Company paid Johns
Hopkins $100,000 towards the post-doctoral support program. On May 15, 1997,
Johns Hopkins sent a letter to the Company stating that the Johns Hopkins
Agreement was terminated. According to Johns Hopkins, as of December 31, 1997,
the Company owed Johns Hopkins and the Ts'o/Miller Partnership $602,657.52, of
which $287,500 consisted of royalty payments to the Partnership for 1995 through
1997 and the balance consisted of the Company's obligations to provide funds to
support a post-doctoral research program of Johns Hopkins and to support patent
prosecutions. The Company is in negotiations with Johns Hopkins as to payment of
the remaining balance although there can be no certainty that such negotiations
will be successful. The Company also received notice from the Ts'o/Miller
Partnership that it was in material breach of the license agreement for failure
to pay royalties for 1995 through 1997, which the Ts'o/Miller Partnership
claimed was in the aggregate amount of $275,068.49. This notice also provided
that if such breach was not cured within 90 days, the license would be
terminated. The negotiations that have been undertaken with Johns Hopkins have
included the Ts'o/Miller Partnership as well. Based on a review of the research
conducted with the technology provided by these licenses, the Company concluded
that it could not develop potential products using this

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technology. Management's current strategy, therefore, is to employ alternative
technologies that are available to it through other licenses or its own
intellectual property. Accordingly, the Company no longer believes that the
termination of the Ts'o/Miller/Hopkins Agreements will have a material adverse
effect on the Company's antisense research and development activities although a
requirement of the Company to pay the claimed amounts could have a material
adverse effect on its financial condition.

Other Anticode(TM) Antisense Agreements. The Company entered into
agreements with Johnson & Johnson Consumer Products, Inc. in late 1995 which
provided limited funding for preliminary feasibility studies using Genta's
Anticode(TM) oligonucleotide compounds. Another agreement entered into in 1991
with Procter and Gamble Company ended in 1995. Under the terms of these
agreements, if the collaborative partner elected to pursue the commercial
development of an Anticode(TM) oligonucleotide compound upon completion of the
feasibility studies, the parties would have entered into mutually acceptable
development, license and supply agreements. Neither of these collaborative
partners has indicated any interest in entering into such an agreement.

GENTA JAGO

In 1992, Genta and Jagotec determined to enter into a joint venture
(Genta Jago). The Company's purpose in establishing Genta Jago was to obtain a
limited-scope license to Jagotec's GEOMATRIX technology in the hopes of
producing shorter-term earnings than were expected from the Company's
Anticode(TM) antisense programs. Genta contributed $4 million in cash to Genta
Jago as well as the rights to apply its Anticode(TM) oligonucleotide technology
to six products and also contributed the Initial License referred to below.
Genta issued 120,000 shares of Common Stock valued at $7.2 million to Jagotec in
1992 as consideration for a license (the "Initial License") for Genta to use
Jagotec's GEOMATRIX technology with respect to approximately 25 products, under
the condition that Genta then contribute such technology to Genta Jago, which
Genta did. The value of the Common Stock Genta issued to Jagotec was considered
by the parties to be substantially below the actual fair market value of the
Initial License. Jagotec's contribution to the joint venture consisted of such
discount (coupled with the requirement that Genta contribute the Initial License
to the joint venture) as well as certain know-how applicable to the GEOMATRIX
technology.

In 1994, separate from the original 1992 joint venture agreement, Genta
and Jagotec began negotiations to expand Genta Jago to include the GEOMATRIX
technology as applied to 35 additional products (the "Additional License"). In
1994, Jagotec granted Genta, for $1.85 million, an option (the "Expansion
Option"), exercisable solely at Genta's discretion through April 30, 1995, to
expand the joint venture by purchasing from Jagotec the Additional License at
what the parties believed was a substantial

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discount to its actual fair market value on the condition that Genta then
contribute it to the joint venture. An additional $2.0 million (the "Deposit")
was deposited with Jagotec in 1994, but would only be retained by Jagotec, as
partial payment of the exercise price for the Expansion Option, if Genta
actually exercised the Expansion Option. If such Expansion Option was not
exercised, the $2.0 million Deposit would be transferred to Genta Jago in the
form of working capital loans payable by Genta Jago to Genta.

Pursuant to the terms of the Expansion Option, for Genta to exercise
the Expansion Option, Genta would have had to pay Jagotec an aggregate of $3.15
million in cash and 124,000 shares of Common Stock, valued at $1.6 million
(based on the trading price at such time). The parties agreed the $3.15 million
in cash would consist of (i) the $2.0 million Deposit made by Genta in 1994,
which would be applied to the Expansion Option's exercise price upon Genta's
election, in 1995, to exercise such Expansion Option; and (ii) an additional
cash payment of $1.15 million to exercise the Expansion Option to be paid by
Genta in 1995. In 1995, Genta exercised the Expansion Option.

The Company provides funding to Genta Jago pursuant to a working
capital loan agreement that expires in October 1998. See "MD&A--Liquidity and
Capital Resources." In 1995, Genta Jago returned the Anticode technology to
Genta in exchange for Genta's forgiveness of $4.7 million of principal and
interest outstanding under existing working capital loans to Genta Jago. This
amount was determined by an arm's- length negotiation between Genta, Jagotec,
and Genta Jago and was based on the amount actually expended by Genta Jago for
research and development related to the Anticode(TM) technology from the time
Genta Jago originally acquired the relevant license in 1992 through the date of
return in 1995.

Genta has the option (the "Purchase Option") to purchase Jagotec's
interest in Genta Jago during the period beginning on December 31, 1998 and
continuing through December 31, 2000 at a purchase price equal to the remainder
of (a) the sum of (i) the lesser of (x) 50% of the fair market value of Genta
Jago, excluding the fair market value of Genta Jago's rights to the Initial
License and the Additional License, or (y) $100 million, plus (ii) 50% of the
fair market value of Genta Jago's rights to the Initial License and the
Additional License, less (b) 1.714286 times the fair market value of the 70,000
shares of Common Stock issued to Jagotec pursuant to a Common Stock Transfer
Agreement dated as of December 15, 1992, between Genta and Jagotec.

Genta also has an exclusive worldwide license to use Jagotec's
GEOMATRIX technology in Genta's Anticode antisense development programs. Genta
Jago has contracted with Genta and Jagotec to conduct research and development
and to provide certain other services.

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The Company is currently in negotiations with Jagotec and its
affiliates to reach an agreement under which the terms of the joint venture
would be restructured. There can be no assurance that such negotiations will
result in a mutually satisfactory agreement.

Oral Controlled-Release Drugs

Formulations of drugs using the GEOMATRIX technology are designed to
swell and gel when exposed to gastrointestinal fluids. This swelling and gelling
is designed to allow the active drug component to diffuse from the tablet into
the gastrointestinal fluids, gradually over a period of up to 24 hours. The
Company believes that the GEOMATRIX technology may have other benefits that,
collectively, may distinguish it from competing controlled-release technologies.
More specifically, the Company believes these formulations can control drug
release and potentially modulate pharmacokinetic profiles to produce a variety
of desired clinical effects. For example, the GEOMATRIX technology may be used
to formulate tablets with a rapid or a delayed therapeutic effect by varying the
release characteristics of the drug from the tablet. The GEOMATRIX technology
may also be used to formulate tablets that release two drugs at the same or
different rates, or tablets that release a drug in several pulses after
administration.

Genta Jago is using the GEOMATRIX drug delivery technology to develop
oral controlled-release formulations for a broad range of presently marketed
drugs which have lost, or will, in the near to mid-term, lose patent protection
and/or marketing exclusivity. Certain of these presently marketed drugs are
already available in a controlled-release format, while others are only
available in an immediate release format that requires dosing several times
daily. In the case of drugs already available in a controlled-release format,
Genta Jago is seeking to develop bioequivalent products which would be
therapeutic substitutes for the branded products. In the case of currently
marketed products that are only available in immediate release form requiring
multiple daily dosing, Genta Jago is seeking to develop once or twice-daily
controlled-release formulations. The potential benefits of Genta Jago's oral
controlled-release formulations may include improved compliance, greater
efficacy and reduced side effects as a result of a more constant drug plasma
concentration than that associated with immediate release drugs administered
several times daily.

Genta Jago currently has eight products in various stages of
development that are intended to be bioequivalent generic versions of
brand-name, controlled-release drugs currently marketed by others. Four of these
products, nifedipine (Procardia XL(R)), ketoprofen (Oruvail(R)),
carbidopa/levodopa (Sinemet(R)CR), and naproxen (Naprelan(R)) are currently
undergoing manufacturing scale-up after completion of formulations development
and pilot human pharmacokinetic studies. During the manufacturing scale-up phase
of development, Genta Jago and its collaborators are seeking to proceed from the

- 11 -

production of small-scale research quantities to the production of larger-scale
quantities necessary for commercial scale manufacturing. The scale-up has not
yet been successfully completed for these products. Assuming successful
completion of manufacturing scale-up, pivotal bioequivalency studies are
scheduled to begin for these products in 1998. Genta Jago believes that if such
bioequivalency studies are successfully completed, Abbreviated New Drug
Applications (each an "ANDA") may be filed with the FDA for two of its products
in 1998. In addition, potentially bioequivalent versions of two other
products--Voltaren-XR(R) (diclofenac) and Covera-HS(R) (verapamil)--have
completed formulations development and pilot pharmacokinetic studies. Genta Jago
intends to proceed with manufacturing scale-up on these two products during
1998. In December 1997, a competitor of the Company, Elan Corporation, received
approval of their ANDA for a generic formulation of Oruvail(R) (ketoprofen), and
another company, Mylan Laboratories, Inc., has filed an ANDA for a generic
formulation of Procardia XL(R) (nifedipine). See "MD&A--Certain Trends and
Uncertainties--Potential Adverse Effect of Technological Change and
Competition."

Genta Jago has also completed initial formulations development and
pilot human pharmacokinetic studies for GEOMATRIX controlled-release
formulations of cefaclor (Ceclor CD(R)) and metoprolol tartrate and formulations
development is ongoing for additional products including acyclovir (Zovirax(R)).
Genta Jago continues to seek collaborative agreements for these products in
order to finance the manufacturing scale-up and required bioequivalency or
clinical studies. In addition to these products currently in development, Genta
Jago maintains the rights to apply the GEOMATRIX technology to the development
of up to approximately 50 additional drugs. There can be no assurance that any
product will be successfully developed or receive the necessary regulatory
approvals.

Oral Controlled-Release Collaborative and Licensing Agreements

Genta Jago's strategy is to commercialize its GEOMATRIX
controlled-release products worldwide by forming alliances with pharmaceutical
companies. Genta Jago has established three such collaborations.

Genta Jago/Gensia/Brightstone. In January 1993, Genta Jago entered into
a collaboration agreement with Gensia for the development and commercialization
of certain oral controlled-release pharmaceutical products for treatment of
cardiovascular disease. Under the agreement, Gensia provides funding for
formulation and preclinical development to be conducted by Genta Jago and is
responsible for clinical development, regulatory submissions and marketing.
Terms of the agreement provide Gensia exclusive rights to market and distribute
the products in North America, Europe and certain other countries. The agreement
has a term of the longer of twelve years and the patent term in the respective
countries within the territory. Genta Jago received $1.2 million, $2.2 million
and $1.9 million of funding in 1997, 1996 and 1995, respectively, pursuant to

- 12 -

the agreement. Collaborative revenues of $1.5 million, $2.8 million and $3
million were recognized under the agreement during the years ended December 31,
1997, 1996 and 1995, respectively. Effective October 1996, Gensia and SkyePharma
reached an agreement whereby a SkyePharma subsidiary, Brightstone Pharma, Inc.
("Brightstone"), was assigned Gensia's rights (and those of Gensia's partner,
Boehringer Mannheim) to develop and co-promote the potentially bioequivalent
nifedipine product under the collaboration agreement with Genta Jago. The
assignment was accepted by Genta Jago and has no impact on the terms of the
original agreement. Genta Jago is still entitled to receive additional milestone
payments from Brightstone triggered upon regulatory submissions and approvals,
as well as royalties or profit sharing ranging from 10% to 21% of product sales,
if any.

Genta Jago/Apothecon. In March 1996, Genta Jago entered into a
collaborative licensing and development agreement (the "Genta Jago/Apothecon
Agreement") with Apothecon, Inc. ("Apothecon"). Under the terms of the Genta
Jago/Apothecon Agreement, Apothecon will provide funding to Genta Jago up to a
specified maximum amount for the formulation of Q-CR ketoprofen (Oruvail(R)).
The Genta Jago/Apothecon Agreement expires upon the expiration of the relevant
patents in each covered country subject to certain early termination rights. The
agreement also provides for Genta Jago to receive potential milestone payments
and royalties on product sales. Terms of the agreement provide Apothecon
exclusive rights to market and distribute the products on a worldwide basis.

Genta Jago/Krypton. In October 1996, Genta Jago entered into five
collaborative licensing and development agreements (the "Genta Jago/Krypton
Agreements") with Krypton, Ltd. ("Krypton"), a subsidiary of SkyePharma, whereby
Genta Jago would sublicense to Krypton rights to develop and commercialize
potentially bioequivalent GEOMATRIX(R) versions of five currently marketed
products, as well as another agreement granting Krypton an option to sublicense
rights to develop and commercialize an improved version of a sixth product. The
Genta Jago/Krypton Agreements have terms of the shorter of fifteen years from
first commercial sale and the expiration of the patent term on a
territory-by-territory basis. During 1997, Genta Jago received funding of $1.9
million under the Genta Jago/Krypton Agreements and recognized $2.3 million of
collaborative revenue therefrom.

RESEARCH AND DEVELOPMENT

In an effort to focus its research and development efforts on areas
which provide the most significant commercial opportunities, the Company
continually evaluates its ongoing programs in light of the latest market
information and conditions, availability of third-party funding, technological
advances, and other factors. As a result of such evaluation, the Company's
product development plans have changed from time to time, and the Company
anticipates that they will continue to do so in the future. The Company

- 13 -

recorded research and development expenses of $5.4 million, $6.8 million and
$13.1 million during 1997, 1996, and 1995, respectively, of which approximately
$50,000, zero dollars and $1.1 million, respectively, were funded pursuant to
collaborative research and development agreements and of which approximately
$0.3 million, $1.6 million and $2.7 million, respectively, were funded pursuant
to a related party contract revenue agreement with Genta Jago. See
"MD&A--Results of Operations."

MANUFACTURING/JBL

All of the Company's product sales are attributable to its
manufacturing subsidiary, JBL Scientific, Inc. ("JBL"). The products JBL
manufactures include: enzyme substrates that are used as color-generating
reagents in clinical diagnostic tests, such as pregnancy tests, developed by
JBL's customers; and fine chemical raw materials used in pharmaceutical research
and development and manufacturing, such as those used to make biological
polymers like peptides and oligonucleotides. JBL manufactures approximately
110-125 products on a recurring basis.

Genta obtained its manufacturing capabilities in early 1991 through the
acquisition of JBL. JBL is a manufacturer of high-quality specialty chemicals
and intermediate products for the pharmaceutical and in vitro diagnostic
industries. A number of Fortune 500 companies use JBL products as raw material
in the production of a final product. JBL markets its products to over 100
purchasers in the pharmaceutical and diagnostic industries. JBL might, with
additional capital investment, be able to manufacture commercial grade
oligonucleotides, including G3139. See "MD&A--Certain Trends and
Uncertainties--Difficult Manufacturing Process; Access to Certain Raw
Materials." JBL holds a California site license to manufacture drugs for use in
clinical research, but the manufacturing facilities at JBL have not been
inspected by the FDA for compliance with requirements for Good Manufacturing
Practices ("GMP"). The Company is continuing to review and develop procedures,
documentation and facilities for the production of oligonucleotides which it
believes will adequately comply with the necessary GMP requirements. The Company
is currently having G3139 made on a contract manufacturing basis by a third
party supplier. See "MD&A--Certain Trends and Uncertainties--Difficult
Manufacturing Process; Access to Certain Raw Materials." To the extent Genta is
able to establish its own manufacturing capability for G3139, the Company should
be able to reduce the cost of producing such oligonucleotides.

The manufacture of all of the Company's and Genta Jago's products will
be subject to GMP requirements prescribed by the FDA or other standards
prescribed by the appropriate regulatory agency in the country of use. There can
be no assurance that the Company or Genta Jago will be able to manufacture
products or have products manufactured for either of them in a timely fashion at
acceptable quality and prices, that they or third-party manufacturers can comply
with GMP, or that they or third-party

- 14 -

manufacturers will be able to manufacture an adequate supply of product. Failure
to establish compliance with GMP to the satisfaction of the FDA can result in
delays in, or prohibition from, initiating clinical trials or commercial
marketing of a product.

GENTA EUROPE

During 1995, Genta Pharmaceuticals Europe S.A. ("Genta Europe")
received approximately 5.4 million French Francs (or, as of April 1, 1998,
approximately $869,000) of funding in the form of a loan from the French
government agency L'Agence Nationale de Valorisation de la Recherche ("ANVAR")
towards research and development activities pursuant to an agreement (the "ANVAR
Agreement") between ANVAR, Genta Europe and Genta. In October 1996, as part of
the Company's restructuring program, Genta Europe terminated all scientific
personnel. ANVAR asserted, in a letter dated February 13, 1998, that Genta
Europe was not in compliance with the ANVAR Agreement, and that ANVAR might
request the immediate repayment of such loan. The Company does not believe that
under the terms of the ANVAR Agreement ANVAR is entitled to request early
repayment and is working with ANVAR to achieve a mutually satisfactory
resolution.

SALES AND MARKETING

Genta Jago has secured collaborative agreements with three entities for
the development and commercialization of selected controlled-release
pharmaceuticals. See "Genta Jago--Oral Controlled-Release Collaborative and
Licensing Agreements." Genta Jago's collaborative agreements generally provide
the collaborative partner exclusive rights to market and distribute the products
in exchange for royalty payments to Genta Jago on product sales. Genta Jago's
goal is to form additional collaborations to develop and market a number of its
GEOMATRIX controlled-release products. There can be no assurance that any such
potential product will be successfully developed or that any prospective
collaborations or licensing arrangements will be entered into.

JBL manufactures and markets specialty biochemicals and intermediate
products to over 100 purchasers in the pharmaceutical and diagnostic industries,
with the top 10 customers representing more than 70% of JBL's total sales. JBL's
products are also sold to the academic, commercial and governmental research
markets primarily through distributors. In addition, JBL conducts contract
synthesis for pharmaceutical, diagnostic and industrial companies.

PATENTS AND PROPRIETARY TECHNOLOGY

The Company's policy is to protect its technology by, among other
things, filing patent applications with respect to technology considered
important to the development of its business. The Company also relies upon trade
secrets, unpatented

- 15 -

know-how, continuing technological innovation and the pursuit of licensing
opportunities to develop and maintain its competitive position.

Genta has a portfolio of intellectual property rights to aspects of
oligonucleotide technology, which includes novel compositions of matter, methods
of large-scale synthesis, methods of controlling gene expression, and cationic
lipid compositions for delivery of oligonucleotides into cells. This portfolio
includes issued United States and Canadian patents and patent applications filed
by the Company. In addition, foreign counterparts of certain applications have
been filed or will be filed at the appropriate time. Allowed patents generally
would not expire until 17 years after the date of allowance if filed in the
United States before June 8, 1995 or, in other cases, 20 years from the date of
application. Generally, it is the Company's strategy to apply for patent
protection in the United States, Canada, Western Europe, Japan, Australia and
New Zealand.

Since its incorporation, Genta has separately filed an aggregate of
over 400 United States and foreign patent applications covering new compositions
and improved methods to use, synthesize and purify oligonucleotides, linker-arm
technology, and compositions for their delivery. Of these, over 280 are active.

Under the agreement with Gen-Probe, Genta gained non-exclusive access
to all technology developed by Gen-Probe, as of February 1989, related to the
use of DNA probes for therapeutic applications. This technology is related to
nucleic acid probes for quantitation of organisms and viruses, methods for their
production, including nonnucleotide linking reagents, labeling, and
purification, and methods for their use including hybridization and enhanced
hybridization. This includes rights to 14 issued patents and several pending
United States patent applications and corresponding issued and pending
applications in foreign countries. See "Genta Jago--Oligonucleotide
Collaborative and Licensing Agreements - Gen-Probe (Chugai)."

Genta also gained access to certain rights from the National Institutes
of Health ("NIH") covering phosphorothioate oligonucleotides. This includes
rights to three United States issued patents, one issued European patent and
other corresponding foreign applications that are still pending. In addition,
under an agreement with the University of Pennsylvania, Genta has acquired
exclusive rights to antisense oligonucleotides directed against the bcl-2 gene
as well as methods of their use for the treatment of cancer. On March 31, 1998,
the United States Patent and Trademark Office issued a patent included in the
Company's license agreement for claims covering antisense oligonucleotide
compounds targeted against the bcl-2 gene. These claims cover the Company's
proprietary Anticode(TM) oligonucleotide molecules which target the bcl-2 gene
including its lead clinical candidate, G3139. Other related United States and
corresponding foreign patent applications are still pending.

- 16 -

Jagotec's GEOMATRIX technology is the subject of issued patents and
pending applications. Jagotec currently holds four issued United States patents,
five granted foreign patents, and other corresponding foreign patent
applications still pending that cover the GEOMATRIX technology. Certain rights
to GEOMATRIX technology have been licensed to Genta Jago. See "Genta Jago."

The patent positions of biopharmaceutical and biotechnology firms,
including Genta, can be uncertain and involve complex legal and factual
questions. Consequently, even though Genta is currently prosecuting its patent
applications with the United States and foreign patent offices, the Company does
not know whether any of its applications will result in the issuance of any
patents or if any issued patents will provide significant proprietary protection
or will be circumvented or invalidated. Since patent applications in the United
States are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature tend to lag behind actual
discoveries by several months, Genta cannot be certain that others have not
filed patent applications directed to inventions covered by its pending patent
applications or that it was the first to file patent applications for such
inventions.

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 the
Company. See "Competition." Accordingly, there can be no assurance that the
Company's patent applications will result in issued patents or that, if issued,
the patents will afford protection against competitors with similar technology;
nor can there be any assurance that any patents issued to Genta will not be
infringed or circumvented by others; nor can there be any assurance that others
will not obtain patents that the Company would need to license or design around.
There can be no assurance that the Company will be able to obtain a license to
technology that it may require or that, if obtainable, such a license would be
available on reasonable terms.

There can be no assurance that the Company's patents, if issued, would
be held valid by a court of competent jurisdiction. Moreover, the Company may
become involved in interference proceedings declared by the United States Patent
and Trademark Office (or comparable foreign office or process) in connection
with one or more of its patents or patent applications to determine priority of
invention, which could result in substantial cost to the Company, as well as a
possible adverse decision as to priority of invention of the patent or patent
application involved.

The Company also relies upon unpatented trade secrets and no assurance
can be given that third parties will not independently develop substantially
equivalent proprietary information and techniques or gain access to the
Company's trade secrets or disclose such technologies to the public, or that the
Company can meaningfully maintain and protect unpatented trade secrets.

- 17 -

Genta requires its employees, consultants, outside scientific
collaborators and sponsored researchers and other advisors to execute a
confidentiality agreement upon the commencement of an employment or consulting
relationship with the Company. The agreement generally provides that all
confidential information developed or made known to the individual during the
course of the individual's relationship with Genta shall be kept confidential
and shall not be disclosed to third parties except in specific circumstances. In
the case of employees, the agreement generally provides that all inventions
conceived by the individual shall be assigned to, and made the exclusive
property of, the Company. There can be no assurance, however, that these
agreements will provide meaningful protection for the Company's trade secrets or
adequate remedies in the event of unauthorized use or disclosure of such
information, or in the event of an employee's refusal to assign any patents to
the Company in spite of such contractual obligation. See "MD&A--Certain Trends
and Uncertainties--Uncertainty Regarding Patents and Proprietary Technology."

GOVERNMENT REGULATION

Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the manufacture and marketing of the
Company's proposed products and in its ongoing research and product development
activities. All of the Company's 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 premarket approval procedures by the FDA and similar authorities in
foreign countries. Various federal, and in some cases state, statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping 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 the expenditure of
substantial resources. Any failure by the Company, its collaborators or its
licensees to obtain, or any delay in obtaining, regulatory approvals could
adversely affect the marketing of any products developed by the Company and its
ability to receive product 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. Typically,
clinical testing involves a three-phase process. In Phase I, clinical trials are
conducted with a small number of subjects to determine the early safety profile
and the

- 18 -

pattern of drug distribution and metabolism. In Phase II, clinical trials are
conducted with groups of patients afflicted with a specific disease in order to
determine preliminary efficacy, optimal dosages and expanded evidence of safety.
In Phase III, large-scale, multi-center, comparative clinical trials are
conducted with patients afflicted with a target disease in order to provide
enough data for the statistical proof of efficacy and safety required by the FDA
and others. 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
II trials. These trials are frequently referred to as "Phase I/IIa" trials.

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 a New Drug Application ("NDA"), for
a biological product in the form of a Product License Application ("PLA") or for
medical devices in the form of a Premarket Approval Application ("PMA") for
approval to commence commercial sales. In responding to an NDA, PLA or PMA, 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 approvals will be
granted on a timely basis, if at all, or if granted will cover all the clinical
indications for which the Company is seeking approval or will not contain
significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use.

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 NDA, although no assurance can be
given that a product will be granted such treatment by the FDA.

For clinical investigation and marketing outside the United States, the
Company is or may be subject to foreign regulatory requirements governing human
clinical trials and marketing approval for drugs. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country. The Company's approach is to design its European
clinical trials studies to meet FDA, European Economic Community ("EEC") and
other European countries' standards. At present, the marketing authorizations
are applied for at a national level, although certain EEC procedures are
available to companies wishing to market a product in more than one EEC member
state. If the competent authority is satisfied that adequate

- 19 -

evidence of safety, quality and efficacy has been presented, a market
authorization will be granted. The registration system proposed for medicines in
the EEC after 1992 is a dual one in which products, such as biotechnology and
high technology products and those containing new active substances, will have
access to a central regulatory system that provides registration throughout the
entire EEC. Other products will be registered by national authorities under the
local laws of each EEC member state. With regulatory harmonization finalized in
the EEC, the Company's clinical trials will be designed to develop a regulatory
package sufficient for multi-country approval in the Company's European target
markets without the need to duplicate studies for individual country approvals.
This approach also takes advantage of regulatory requirements in some countries,
such as in the United Kingdom, which allow Phase I studies to commence after
appropriate toxicology and preclinical pharmacology studies, prior to formal
regulatory approval.

Prior to the enactment of the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Waxman/Hatch Act"), the FDA, by regulation,
permitted certain pre-1962 drugs to be approved under an abbreviated procedure
which waived submission of the extensive animal and human studies of safety and
effectiveness normally required to be in a NDA. Instead, the manufacturer only
needed to provide an Abbreviated New Drug Application ("ANDA") containing
labeling, information on chemistry and manufacturing procedures and data
establishing that the original "pioneer" product and the proposed "generic"
product are bioequivalent when administered to humans.

Originally, the FDA's regulations permitted this abbreviated procedure
only for copies of a drug that was approved by the FDA as safe before 1962 and
which was subsequently determined by the FDA to be effective for its intended
use. In 1984, the Waxman/Hatch Act extended permission to use the abbreviated
procedure established by the FDA to copies of post-1962 drugs subject to the
submission of the required data and information, including data establishing
bioequivalence. However, effective approval of such ANDAs were dependent upon
there being no outstanding patent or non-patent exclusivities.

Additionally, the FDA allows, under section 505(b)(2) of the Food Drug
and Cosmetic Act, for the submission and approval of a hybrid application for
certain changes in drugs which, but for the changes, would be eligible for an
effective ANDA approval. Under these procedures the applicant is required to
submit the clinical efficacy and/or safety data necessary to support the changes
from the ANDA eligible drug (without submitting the basic underlying safety and
efficacy data for the chemical entity involved) plus manufacturing and chemistry
data and information. Effective approval of a 505(b)(2) application is dependent
upon the ANDA-eligible drug upon which the applicant relies for the basic safety
and efficacy data being subject to no outstanding patent or non-patent
exclusivities. As compared to a NDA, an ANDA or a 505(b)(2)

- 20 -

application typically involves reduced research and development costs. However,
there can be no assurance that any such applications will be approved.
Furthermore, the supply of raw materials must also be approved by the FDA.

The Company is also subject to various foreign, federal, state and
local laws, regulations and recommendations relating to safe working conditions,
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 the Company's research and development work and
manufacturing processes. Although the Company believes it is in compliance with
these laws and regulations in all material respects (except as disclosed under
"MD&A--Liquidity and Capital Resources"), there can be no assurance that the
Company will not be required to incur significant costs to comply with such
regulations in the future. See "MD&A--Certain Trends and Uncertainties--No
Assurance of Regulatory Approval; Government Regulation."

COMPETITION

For many of their applications, the Company's and Genta Jago's products
under development will be competing with existing therapies for market share. In
addition, a number of companies are pursuing the development of antisense and
triple-strand technology and controlled-release formulation technology and the
development of pharmaceuticals utilizing such technologies. The Company competes
with fully integrated pharmaceutical companies which have more substantial
experience, financial and other resources and superior expertise in research and
development, manufacturing, testing, obtaining regulatory approvals, marketing
and distribution. Smaller companies may also prove to be significant
competitors, particularly through their collaborative arrangements with large
pharmaceutical companies or academic institutions. Furthermore, academic
institutions, governmental agencies and other public and private research
organizations have conducted and will continue to conduct research, seek patent
protection and establish arrangements for commercializing products. Such
products may compete directly with any products that may be offered by the
Company. In December 1997, a competitor of the Company, Elan Corporation
received approval of their ANDA for a generic formulation of Oruvail(R)
(ketoprofen), and another company, Mylan Laboratories, Inc., has filed an ANDA
for a generic formulation of procardia XL(R) (nifedipine). See "MD&A--Certain
Trends and Uncertainties--Potential Adverse Effect of Technological Change and
Competition."

The Company's products under development are expected to address an
array of markets. The Company's competition will be determined in part by the
potential indications for which the Company's products are developed and
ultimately approved by regulatory authorities. For certain of the Company's
potential products, an important factor in competition may be the timing of
market introduction of the Company's or

- 21 -

competitors' products. See "MD&A--Certain Trends and Uncertainties--Potential
Adverse Effect of Technological Change and Competition." Accordingly, the
relative speed with which Genta and Genta Jago 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. The
Company expects 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 the Company's and
Genta Jago's products under development non-competitive or obsolete.

The Company's competitive position also depends upon its 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. See "MD&A--Certain Trends and Uncertainties--Need for and
Dependence on Qualified Personnel," "MD&A-- Certain Trends and
Uncertainties--Uncertainty Regarding Patents and Proprietary Technology" and
"MD&A--Certain Trends and Uncertainties--Need for Additional Funds; Risk of
Insolvency."

JBL's products address several markets, including clinical chemistry,
diagnostics, molecular biology and pharmaceutical development. While many
customers have specified JBL products in their manufacturing protocols,
competition from several international competitors, many of whom have more
substantial experience, financial and other resources and superior expertise in
research and development, manufacturing, testing, obtaining regulatory
approvals, marketing and distribution, could undermine JBL's competitive
position. Competition has come primarily on price for some key JBL products for
pharmaceutical development, and from competing technologies in diagnostics and
molecular biology.

HUMAN RESOURCES

As of December 31, 1997, Genta, JBL and Genta Europe had nine, 40 and
one employees, respectively, nine of whom held doctoral degrees. Seventeen
employees were engaged in research and development activities, 19 were engaged
in manufacturing and 13 were in administration, sales and marketing positions.
Most of the management and professional employees of the Company and JBL have
had prior experience and positions with pharmaceutical and biotechnology
companies. Genta believes it maintains satisfactory relations with its
employees.

In 1997, the Company terminated 11 employees and Genta Europe
terminated one employee. The Company's overall staff was reduced by an
additional net reduction of three employees in 1997, and two more to date in
1998, due to attrition. See

- 22 -

"MD&A--Certain Trends and Uncertainties--Need for and Dependence on Qualified
Personnel."

ITEM 2. PROPERTIES

Genta's principal administrative offices are located in San Diego,
California where the Company occupied approximately 8,500 square feet. Effective
March 1, 1998, the Company reduced its leased space in San Diego to 4,732 square
feet and closed its laboratory facilities at this site. The Company's revised
lease for these remaining administrative office facilities extends through
August 1998, with the option for additional three-month extensions at the same
rate of $6,073 per month. The Company believes this space will be adequate for
its activities through 1998.

JBL, the Company's manufacturing subsidiary, leases and occupies
approximately 30,000 square feet of office, laboratory and manufacturing space
in San Luis Obispo, California. This lease expires in 2000. The lease calls for
rent of approximately $321,500 in 1998, with amounts generally increasing
annually thereafter to reflect cost of living related increases. The Company
currently uses substantially all of the manufacturing capacity of this facility.
The Company believes that such space will be adequate for its planned operations
through 1998. The Company also has an option to purchase property adjacent to
this facility, for expansion, if necessary. A director and officer and another
officer of the Company, Drs. Klem and Brown, respectively, are affiliated with
the owners of the leased and adjacent properties.

Genta Pharmaceuticals Europe, S.A., the Company's European subsidiary,
leases approximately 10,000 square feet of office, laboratory and manufacturing
space in Marseilles, France. The lease is cancelable in 2003 and expires in
2005. The annual lease cost is F.F. 575,319 (or, as of April 1, 1998,
approximately $93,000). With the reduction of its operations, Genta Europe is
currently seeking to sublet all or a portion of this space.

ITEM 3. LEGAL PROCEEDINGS

(a) On February 5, 1997, Equity-Linked Investors, L.P. and
Equity-Linked Investors-II (collectively, the "Plaintiffs") who, as a group, may
be deemed beneficially to own more than five percent of the outstanding shares
of the Common Stock of the Company as holders of Series A Preferred Stock, filed
suit (the "Suit") in the Delaware Court of Chancery (the "Court") against the
Company, each of the Company's directors and the Aries Funds (as hereinafter
defined in Item 5). Through the Suit, the Plaintiffs sought to enjoin the
transactions contemplated by The Note and Warrant Purchase Agreement (as
hereinafter defined in Item 5) (the "Transactions"), rescission of the
Transactions, damages, attorney fees, and such other and further relief as the
Court may deem just and proper. The Suit alleged that the Board of Directors of
the Company

- 23 -

breached fiduciary duties by failing to consider financing alternatives to the
Transactions and further alleged that the Transactions were not in the best
interests of the stockholders. Additionally, the Suit alleged that the Aries
Funds aided and abetted such breach of fiduciary duty through their
participation in the Transactions. On March 4 and 5, 1997, a trial was held
before the Court. On April 25, 1997, the Court rejected the plaintiffs'
challenge to the Transactions and ruled in favor of Genta, Genta's directors and
the Aries Funds, who were the defendants. The Court entered a judgment in favor
of Genta and its directors in the Suit.

LBC Capital Resources, Inc. ("LBC"), a Philadelphia-based broker/dealer
has asserted claims against the Company and others. LBC's claims relate to the
alleged breach by the Company of certain letter agreements, allegedly entered
into by LBC and the Company in 1995 and 1996 with respect to brokerage and/or
investment banking services particularly in connection with a $3 million
investment for which LBC is seeking a fee. On March 30, 1998, the Company
received a Statement of Claim under NASD arbitration rules, and a request that
the Company voluntarily submit to NASD arbitration. The Company has not yet
responded to that request. LBC's Statement of Claim seeks damages in the form of
cash (in excess of $4 million), stock, warrants and other securities. On April
9, 1998, the Company's counsel learned that, in addition, a Complaint has been
filed in the United States District Court for the Southern District of New York
(98 Civ. 2491) by LBC against the Company and the same other parties. However,
such Complaint has not yet been served upon the Company. The Company believes it
has valid legal and equitable defenses to LBC's claim. Whether LBC's claims are
ultimately adjudicated in arbitration or litigation, the Company intends to
defend vigorously and possibly to assert counterclaims against LBC.

(b) No material legal proceedings were terminated in the quarter ending
December 31, 1997.

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

No matters were submitted to a vote of security holders in the quarter
ended December 31, 1997.

Executive Officers of the Registrant

The executive officers of the Company are as follows:

Name Age Position

Kenneth G. Kasses, Ph.D 53 President, Chief
Executive Officer and
Director of the Company

- 24 -

Robert E. Klem, Ph.D. 53 Vice President and
Director of the Company
and Chairman of the
Board of JBL

Lauren R. Brown, Ph.D. 55 Vice President of the
Company and President of
JBL

Kenneth G. Kasses, Ph.D., is Genta's President, Chief Executive Officer
and a member of the Board of Directors. From 1991-1997, Dr. Kasses was
affiliated with the Radiopharmaceutical Division of The DuPont Merck
Pharmaceutical Company, serving as Senior Vice President and General Manager
until 1994 when he was appointed President. From 1988 through 1990, he served as
Director, Business Development and Planning, for the Medical Products Department
of E. I. duPont de Nemours & Company, Inc. In that capacity he played a key role
in the formation of The DuPont Merck Pharmaceutical Company, a joint venture
between DuPont and Merck and Co., Inc. Prior to that he served as Director, U.S.
Pharmaceuticals, for DuPont from 1987-1988 and as President of DuPont Critical
Care from 1986-1987. Prior to this, Dr. Kasses held a variety of executive
positions from 1973-86 at American Critical Care, CIBA-GEIGY Pharmaceuticals,
Ayerst Laboratories and Block Drug Company. Dr. Kasses received a B.S. in
biology from Dickinson College in 1966 and a Ph.D. in pharmacology from New York
Medical College in 1974. Dr. Kasses also currently serves on the Board of
Directors of the United Way of Merrimack Valley (Mass.).

Robert E. Klem, Ph.D., has been a director of the Company since
February 1991, a Vice President of the Company since October 1991 and is
currently the Company's Principal Accounting Officer. Dr. Klem co-founded JBL
Scientific, Inc. ("JBL"), a wholly owned subsidiary of the Company, in 1973 and,
since then, has been Chairman of the Board and Chief Technical Officer of JBL
with overall managerial responsibility for JBL. Previously, Dr. Klem was the
Plant Manager for The DuPont Company in Victoria, Texas from 1970 to 1974. Dr.
Klem received his Ph.D. in Organic Chemistry from the University of California
at Riverside.

Lauren R. Brown, Ph.D., has been a Vice President of the Company since
October 1991. He co-founded JBL Scientific in 1973 and since then has been
President of JBL, which Genta acquired in February 1991. He has had significant
experience in the scale-up of a wide variety of processes, including many custom
syntheses under GMP standards for outside companies. Present responsibilities
include oversight of sales and marketing, quality control and process
development programs as well as participating in the overall management of JBL.
Dr. Brown received his Ph.D. in Organic Chemistry from the University of
California at Riverside. He is active in community affairs in San Luis Obispo
and presently serves on the Boards for the YMCA and the Chamber of Commerce.

- 25 -

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

(a) Market Information

Throughout 1996 and in the beginning of 1997, the Company's common
stock was traded on the Nasdaq National Market under the symbol "GNTA."
Beginning February 7, 1997, the Company's common stock traded in the
over-the-counter market on the Nasdaq SmallCap Market, initially under the
symbol "GNTAC." During the 20 trading days immediately following the Company's
reverse stock split effected on April 7, 1997, the Company's common stock traded
under the symbol "GNTCD." Genta resumed trading under the symbol "GNTA" on July
24, 1997, after having met the terms for continued listing as set forth in the
April 11, 1997 revised exception of the Nasdaq Listing Qualifications Panel. The
following table sets forth, for the periods indicated, the high and low sales
prices for the common stock as reported by Nasdaq (as adjusted for the Reverse
Stock Split).

High Low
---- ---
1996
First Quarter 29 3/8 18 3/4
Second Quarter 28 3/4 14 3/8
Third Quarter 20 4 3/8
Fourth Quarter 15 2 13/16

1997
First Quarter 9 11/16 2 1/2
Second Quarter 6 1/2 1 3/4
Third Quarter 3 3/4 1 5/16
Fourth Quarter 2 3/4 25/32

(b) Holders

There were 337 holders of record of the Company's common stock as of
April 10, 1998.

(c) Dividends

The Company has never paid cash dividends on its common stock and does
not anticipate paying any such dividends in the foreseeable future. In addition,
the Company is restricted from paying cash dividends on its common stock until
such time

- 26 -

as all cumulative dividends have been paid on outstanding shares of its Series A
and Series D convertible preferred stocks. The Company currently intends to
retain its earnings, if any, after payment of dividends on outstanding shares of
Series A and Series D convertible preferred stock, for the development of its
business. See "MD&A--Liquidity and Capital Resources."

(d) Recent Sales Of Unregistered Securities

In February 1997, the Company raised gross proceeds of $3 million in a
private placement, to The Aries Fund, a Cayman Islands Trust and the Aries
Domestic Fund, L.P. (collectively the "Aries Funds"), of Convertible Notes and
warrants to purchase common stock ("Bridge Warrants"). The Convertible Notes,
together with accrued interest thereon, were converted pursuant to their terms
into an aggregate of 65,415 shares of Series D Preferred Stock, which in turn
are convertible, at $0.94375 per share, into 6,931,391 shares of common stock.
The Bridge Warrants permit the purchase of up to an aggregate of 6,357,616
shares of Common Stock at an exercise price of $0.471875 per share (subject to
adjustment upon the occurrence of certain events). Pursuant to the Note and
Warrant Purchase Agreement dated as of January 28, 1997 between the Company and
the Aries Funds (the "Note and Warrant Purchase Agreement"), the Aries Funds
have the right to appoint a majority of the members of the Board of Directors of
the Company. See "MD&A--Certain Trends and Uncertainties--Certain Interlocking
Relationships; Potential Conflicts of Interest."

On June 6, 1997, the Aries Funds entered into a Line of Credit
Agreement with the Company pursuant to which the Aries Funds provided the
Company with a line of credit of up to $500,000, which subsequently was repaid,
in consideration for warrants (the "Line of Credit Warrants") to purchase 50,000
shares of Common Stock exercisable at $2.50 per share, subject to adjustment
upon the occurrence of certain events.

As of August 27, 1997, the Company entered into separate consulting
agreements with each of Dr. Paul O.P. Ts'o and Dr. Sharon B. Webster (both
former directors of the Company), pursuant to which, in addition to certain
other compensation for consulting services to be rendered thereunder, the
Company issued 15,400 shares of Common Stock to Dr. Ts'o and 15,500 shares of
Common Stock to Dr. Webster.

On June 30, 1997, a total of 161.58 Premium Preferred UnitsTM ("Units")
were sold to accredited investors in a private placement (the "Private
Placement"). Such sale was made in reliance on the exemption from registration
pursuant to Rule 506 of Regulation D of the Securities Act. Each unit sold in
the Private Placement consists of 1,000 shares of Premium Preferred StockTM, par
value $0.001 per share, stated value $100.00 per share, and warrants to purchase
5,000 shares of the Company's common stock, par value $0.001 per share, at any
time prior to the fifth anniversary of the final closing date. A total of
$16,158,000 was raised. The net proceeds to the Company were

- 27 -

$14,036,772. The respective conversion and exercise prices of the Series D
Preferred Stock and the Class D Warrants is $0.94375 per share of common stock,
subject to adjustment upon the occurrence of certain events. In connection with
the Private Placement, the placement agent -- Paramount Capital, Inc. --
received cash commissions equal to 9% of the gross sales price and a
non-accountable expense allowance equal to 4% of the gross sales price, and the
placement agent received warrants (the "Placement Warrants") to purchase up to
10% of the Units sold in the Private Placement for 110% of the offering price
per Unit. Furthermore, the Company has agreed to enter into a financial advisory
agreement with the placement agent pursuant to which the financial advisor shall
receive certain cash fees and has received warrants (the "Advisory Warrants") to
purchase up to 15% of the Units sold in the Private Placement for 110% of the
offering price per Unit.

The Company was contractually required to file, and has filed, a
Registration Statement on Form S-3 with the Securities and Exchange Commission
(the "SEC") under the Securities Act with respect to the common stock issuable
upon conversion and upon exercise of the securities issued in the private
placement consummated in February 1997 and the Private Placement. The SEC has
not yet declared this registration statement effective. There can be no
assurance that such registration statement will ever become effective or that
any delay or failure to have such registration statement declared effective will
not have a material adverse effect on the Company. See "MD&A--Certain Trends and
Uncertainties--Subordination of Common Stock to Series A and Series D Preferred
Stock; Risk of Dilution; Anti-Dilution Adjustments."

- 28 -

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share amounts)
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:

Product sales $ 4,702 $ 4,925 $ 3,782 $ 3,574 $ 3,263
Gain on sale of technology -- 373 -- -- --
Related party contract revenue 350 1,559 2,748 2,957 --
Collaborative research and
development 50 -- 1,125 3,142 4,733
-------- -------- -------- -------- --------
5,102 6,857 7,655 9,673 7,996
-------- -------- -------- -------- --------
Costs and expenses:
Cost of products sold 3,099 2,479 1,899 1,710 1,593
Research and development 5,387 6,777 13,103 15,835 12,117
Charge for acquired in-process
research and development -- -- 4,762 1,850 --
Selling, general and administrative 8,075 6,255 6,361 7,032 5,140
-------- -------- -------- -------- --------
16,561 15,511 26,125 26,427 18,850
-------- -------- -------- -------- --------
Loss from operations (11,459) (8,654) (18,470) (16,754) (10,854)
Equity in net loss of joint venture (1,193) (2,712) (6,913) (7,425) (5,310)
Other income, net (2,773) (726) 17 731 646
-------- -------- -------- -------- --------
Net loss $(15,425) $(12,092) $(25,366) $(23,448) $(15,518)
Dividends on Preferred Stock (1,695) (2,525) (2,551) (2,550) (671)
Dividends imputed on preferred stock (16,158) (2,348) $ (1,000) -- --
-------- -------- -------- -------- --------
Net loss applicable to common shares $(33,278) $(16,965) $(28,917) $(25,998) $(16,189)
-------- -------- -------- -------- --------
Net loss per common Share (1) $ (7.52) $ (5.69) $ (14.82) $ (19.00) $ (11.90)
-------- -------- -------- -------- --------
Shares used in the calculation of net
loss per common share 4,422 2,983 1,952 1,371 1,362
-------- -------- -------- -------- --------
Deficiency of earnings to meet
combined fixed charges and
preferred stock dividends (2) $(33,278) $(16,965) $(28,917) $(25,998) $(16,189)

DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- -----
(In thousands)
CONSOLIDATED BALANCE
SHEET DATA:

Cash, cash equivalents and short-term
investments $ 8,456 $ 832 $ 272 $ 11,103 $34,594
Working capital (deficit) 5,807 (2,995) (1,580) 5,597 30,524
Total assets 15,754 11,169 15,631 23,808 45,486
Notes payable and capital lease
obligations, less current portion -- 120 2,334 1,871 1,651
Series A redeemable preferred stock 22,830 26,405 30,000 30,000 30,000
Total Stockholders' equity (deficit) (13,405) (22,331) (23,028) (14,504) 8,064

(1) Computed on the basis of net loss per common share described in Note 1 of
Notes to Consolidated Financial Statements

(2) The Company has incurred losses and, thus, has had a deficiency in fixed
charges and preferred stock dividend coverage since inception.

- 29 -

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

OVERVIEW

Since its inception in February 1988, Genta has devoted its principal
efforts toward drug discovery, research and development. Genta has been
unprofitable to date and, even if it obtains financing to continue its
operations, expects to incur substantial operating losses for the next several
years due to continued requirements for ongoing research and development
activities, preclinical and clinical testing, manufacturing activities,
regulatory activities, establishment of a sales and marketing organization, and
development activities undertaken by Genta Jago, the Company's joint venture
with Jagotec. From the period since its inception to December 31, 1997, the
Company has incurred a cumulative net loss of $124.5 million. The Company has
experienced significant quarterly fluctuations in operating results and it
expects that these fluctuations in revenues, expenses and losses will continue.

The Company's independent auditors have included an explanatory
statement in their report to the Company's financial statements at December 31,
1997, that expresses substantial doubt as to the Company's ability to continue
as a going concern. There are several factors that must be considered risks in
that regard and those that are known to management are discussed in
"MD&A--Certain Trends and Uncertainties."

The statements contained in this Annual Report on Form 10-K that are
not historical are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding the
expectations, beliefs, intentions or strategies regarding the future. The
Company intends that all forward-looking statements be subject to the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements reflect the Company's views as of the date they
are made with respect to future events and financial performance, but are
subject to many risks and uncertainties, which could cause the actual results of
the Company to differ materially from any future results expressed or implied by
such forward-looking statements. Examples of such risks and uncertainties
include, but are not limited to, obtaining sufficient financing to maintain the
Company's planned operations, the timely development, receipt of necessary
regulatory approvals and acceptance of new products, the successful application
of the Company's technology to produce new products, the obtaining of
proprietary protection for any such technology and products, the impact of
competitive products and pricing and reimbursement policies, changing market
conditions and the other risks detailed in the Certain Trends and Uncertainties
section of this Management's Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere in this Annual Report on Form 10- K. The
Company does not undertake to update any forward-looking statements.

- 30 -

RESULTS OF OPERATIONS

Operating revenues totaled $5.1 million in 1997 compared to $6.9
million in 1996 and $7.7 million in 1995. The decreases in revenues over this
period is primarily attributable to decreases in revenues from Genta Jago for
services provided to Genta Jago by the Company. These "Related party contract
revenues" were $350,000 in 1997, $1.6 million in 1996, and $2.7 million in 1997.
The expenses for which these revenues are received are recorded as Costs and
Expenses in the same period such that the net effect on Genta's consolidated
statements is zero (see below). It is anticipated that as the Company has
reduced its resources and focused them on its development of its lead Anticode
oligonucleotide, G3139, this trend will continue in that the Company will
continue to minimize the services it provides to Genta Jago. It should be noted
that at the same time, the Company is also reducing its commitment to provide
funds to Genta Jago. The Company is currently in negotiations with Jagotec and
its affiliates to reach an agreement under which the terms of the joint venture
would be restructured. There can be no assurance that such negotiations will
result in a mutually satisfactory agreement.

Collaborative research and development revenues were $50,000 in 1997,
representing deferred revenues recognized pursuant to the Company's
collaboration with Johnson & Johnson Consumer Products, Inc., and $1.1 million
in 1995, earned through the collaboration with The Procter & Gamble Company. See
"Business--Anticode(TM) Brand of Antisense Oligonucleotide
Programs--Oligonucleotide Collaborative and Licensing Agreements--Other Anticode
Agreements." Both of these agreements have ended and there have been no
indications that either will produce additional revenues in the future.

All of the Company's product sales are attributable to JBL. Sales of
specialty chemical and pharmaceutical intermediate products used in the clinical
diagnostics, pharmaceutical research and development and pharmaceutical
manufacturing decreased to $4.7 million in 1997 from $4.9 million in 1996 and
were $3.8 million in 1995. While the annual demand for many of JBL's products is
relatively stable, there has been a slight downward trend for clinical
diagnostic raw materials and an upward trend for research and development and
pharmaceutical manufacturing raw materials. Overall, demand for the Company's
products has been increasing, while competition has caused prices to decrease.
In 1995 and 1996, sales of products used in pharmaceutical manufacturing and
pharmaceutical research and development increased due to increased market
penetration while sales of products used in clinical diagnostics trended
slightly downward. In 1997, demand for the Company's products continued to
increase, particularly intermediates used in pharmaceutical research and
development and pharmaceutical manufacturing; however, competition caused sales
prices to decrease.

- 31 -

Europa Bioproducts ("Europa"), JBL's European distributor, accounted
for approximately 25%, of product sales in 1997, 27% in 1996, and 21% in 1995.
No other customer accounted for more than 10% of product sales in 1997. One
other customer who accounted for less than 10% of product sales in 1997
accounted for approximately 16% of product sales during the year ended December
31, 1995. Individual customers' demands for JBL products generally fluctuates
with the outcomes of clinical trials or the availability of funding. The Company
believes that the loss of any material customer, if not replaced, could have an
adverse effect on the Company.

Costs and expenses totaled $16.6 million in 1997 compared to $15.5
million in 1996 and $26.1 million in 1995. Over this period the costs of
products sold by JBL have increased as market penetration and volumes increased.
The increase in costs of products sold in 1997 as compared to 1996 was due to
increased labor costs necessary to meet increased production volumes and to the
redeployment of certain employees in connection with a reduction in Genta's
research and development staff. As a result of these increased costs and reduced
selling prices in response to competition, gross margins decreased from 50% in
1995 and 1996 to 34% in 1997.

Research and Development expenses as a whole were reduced in 1996 from
the prior year by $6.3 million (48%) and an additional $1.4 million (21%) in
1997. The decrease in research and development expenses is primarily
attributable to the Company's restructuring and the redeployment of certain
employees mentioned above, and related workforce reductions implemented in 1995,
1996 and 1997 (see below) together with the discontinuation or non-initiation of
several programs. Research and development and certain other services the
Company provided to Genta Jago under the terms of the joint venture were
significantly reduced over the period from 1995 through 1997. These amounts were
$2.7 million in 1995, $1.6 million in 1996, and $350,000 in 1997 (see above).
Also included in Research and Development expenses during 1995 were non-
recurring charges for acquired in-process research and development totaling $4.8
million associated with the expansion of Genta Jago to obtain rights to develop
additional GEOMATRIX-based products. The technological feasibility of the
acquired in-process research and development had not yet been established and
the technology had no future alternative uses at the date of acquisition.
Furthermore, due to uncertainties regarding the Company's ability to demonstrate
bioequivalence of potential products, management is unable to make estimates
regarding the efforts necessary to develop the acquired, in- process technology
into a commercially viable product. However, it is expected that any such
development would require significant cash resources.

In an effort to focus its research and development efforts on areas
that provide the most significant commercial opportunities, the Company
continually evaluates its ongoing programs in light of the latest market
information and conditions, availability of third-party funding, technological
advances, and other factors. As a result of such evaluation, the

- 32 -

Company's product development plans have changed from time to time, and the
Company anticipates that they will continue to do so in the future.

In total, the Company's costs and expenses increased by approximately
$1.0 million in 1997 relative to 1996. The decreases in research and development
expenses described above were partially offset by a $600,000 non-recurring
charge in General and Administrative Expenses recorded in the third quarter of
1997 related to management's decision to abandon certain patents that management
determined were no longer germane to the Company's mainstream business (see
below). In addition, G&A Expenses also increased as a result of increased legal
expenses associated with successfully defending the litigation brought by
certain of the Company's preferred stockholders challenging a $3.0 million
investment made in February 1997, which litigation was resolved in the Company's
favor in April 1997; increased accounting and legal expenses due to the
Company's successful efforts to avoid a potential Nasdaq delisting and
associated with the equity offerings consummated in 1997; and increased
recruiting expenses. See "Legal Proceedings" and "Market for Registrant's Common
Equity and Related Stockholder Matters -- Recent Sales of Unregistered
Securities."

As note above, in an effort to reduce costs and conserve working
capital, Genta initiated a termination plan in March 1995, whereby the Company
terminated 26 employees involved in the Company's research and development
activities. The Company recorded General and Administrative expenses totaling
$250,000 for accrued severance costs associated with the 26 terminated
employees. In October 1996, Genta again reassessed its personnel requirements
and established a second termination plan whereby the Company terminated 16
research and administrative employees and recorded General and Administrative
expenses of $850,000 for accrued severance. In May 1997, Genta again reassessed
its personnel requirements and established a third termination plan involving
the termination of 12 research and administrative employees. The Company
recorded General and Administrative expenses of $868,000 in the second quarter
of 1997 for accrued severance costs. The Company has reduced its work force to a
core group of corporate personnel to maintain Genta's operations in the
development of G3139. Chemical and manufacturing development and quality
assurance and control is managed or conducted at JBL, in coordination with
Genta's core staff.

Services and capabilities that have not been retained within the
Company are out- sourced through short-term contracts or from consultants. All
preclinical biology and clinical trial work is now conducted through such
collaborations with external scientists and clinicians. The Company anticipates
that, if sufficient collaborative revenues and other funding are available,
research and development expenses may increase in future years due to
requirements for preclinical studies, clinical trials, the G3139 Anticode
oligonucleotide program and increased regulatory costs. The Company will be
required to assess the potential costs and benefits of developing its own
Anticode(TM) oligonucleotide manufacturing, marketing and sales activities if
and as such products are successfully

- 33 -

developed and approved for marketing, as compared to establishing a corporate
partner relationship .

The Company's policy is to evaluate the appropriateness of carrying
values of the unamortized balances of intangible assets on the basis of
estimated future cash flows (undiscounted) and other factors. If such evaluation
were to indentify a material impairment of these intangible assets, such
impairment would be recognized by a write- down of the applicable assets. The
Company continues to evaluate the continuing value of patents and patent
applications, particularly as expenses to prosecute or maintain these patents
come due. Through this evaluation, the Company may elect to continue to maintain
these patents; seek to out-license them; or abandon them. In 1997, as a result
of such evaluation, the Company recorded charges to General & Administrative
Expenses of $600,000 to account for the value of the abandoned patents no longer
related to the research and development efforts of the Company.

The Company's equity in net loss of joint venture (Genta Jago) totaled
$1.2 million in 1997 compared to $2.7 million in 1996 and $6.9 million in 1995.
The decrease in the Company's equity in net loss of joint venture during 1997
relative to 1996 is largely attributable to the fact that development efforts
are now focused exclusively on GEOMATRIX-based products and a greater portion of
development activities were funded pursuant to Genta Jago's collaborative
agreements with third parties. The operating results of Genta Jago are based
primarily on three factors. First, Genta Jago receives collaborative research
and development revenue from third parties. Secondly, Genta Jago is billed by
Jagotec and Genta for research and development costs associated with Genta Jago
projects. Thirdly, there are general and administrative costs associated with
the joint venture. Through May 1995, Genta Jago's development efforts were not
strictly GEOMATRIX-based products. Genta Jago also had the right to develop six
Anticode(TM) oligonucleotide products licensed from Genta. However, in 1995 the
parties elected to focus Genta Jago's activities exclusively on GEOMATRIX-based
products. In connection with the return of the Anticode(TM) oligonucleotide
technology license rights to Genta in May 1995, Genta Jago's note payable to
Genta was credited with approximately $4.7 million in principal and accrued
interest. Genta Jago recorded the loan credit and related accrued interest as a
gain on waiver of debt in exchange for return of license rights to related
party. Furthermore, since Genta Jago was no longer responsible for developing
Anticode(TM) oligonucleotide products, its future working capital requirements
were reduced. The equity in net loss of joint venture is determined by reducing
the loss per Genta Jago financials by Genta's 20% markup on internal costs for
which the joint venture is billed plus the interest accrued on the working
capital loans.

Since the formation of Genta Jago, no products have been successfully
developed and marketed. Since the initial plans called for earlier introductions
and since there have been significant changes in the market environment since
the Company entered into the joint venture, there is reason to believe that any
products that may be marketed in the

- 34 -

future could represent significantly poorer financial opportunities than those
that were anticipated in the earlier plans. This reduction in opportunity
derives from factors such as the presence of direct competitors to Genta Jago's
products being in the marketplace before Genta Jago, and increasing pricing
pressures on pharmaceuticals, particularly multisource or generic products from
payers such as reimbursers and government buyers. See "MD&A--Certain Trends and
Uncertainties--Uncertainty of Technological Change and Competition" and
"MD&A--Certain Trends and Uncertainties--Uncertainty of Product Pricing,
Reimbursement and Related Matters." Both of these factors may adversely affect
Genta Jago even if it is successful in developing products to obtain regulatory
approval. As a result and in consideration of the Company's need to reduce
expenses and focus its efforts, the Company is seeking to direct its resources
from the joint venture to its Anticode development, specifically G3139, for the
immediate future.

Interest income has fluctuated significantly each year and is
anticipated to continue to fluctuate primarily due to changes in the levels of
cash, investments and interest rates each period.

Interest expense was $3,323,000 in 1997, $886,000 in 1996, and $323,000
in 1995. In consideration of EITF D-60 which was issued by the SEC in March
1997, the Company recorded $666,667 in imputed interest on $2.0 million in 4%
Convertible Debentures due August 1, 1997, that were originally issued in
September 1996 and were converted at a 25% discount to market. The discount
represents an effective interest rate of 38%. The charge has been included in
Interest expense in 1996. The Company also recorded a $3.0 million charge to
imputed interest in 1997 related to value associated with 6.4 million Bridge
Warrants issued in connection with a $ 3.0 million debt issue in February 1997.

In April 1998, in consideration of EITF D-60, the Company recorded
$2,348,000 and $1,000,000 in imputed dividends in 1996 and 1995, respectively,
for discounted conversion terms related to convertible preferred stock issued in
1996 and 1995. The preferred stock was convertible into common shares based on a
conversion price equal to 75% of the average closing bid prices of the Company's
common stock for a specified period. In 1997, the Company recorded $16,158,000
in imputed dividends for discounted conversion terms and liquidation preference
of the Series D Preferred Stock issued in the Private Placement. The charges
have been recorded as dividends imputed on preferred stock.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations primarily from
private and public offerings of its equity securities. Cash provided from these
offerings totaled approximately $112.4 million through December 31, 1997,
including net proceeds of $17.0 million raised during 1997. At December 31,
1997, the Company had cash, cash

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equivalents and short-term investments totaling $8.5 million compared to
$532,000 at December 31, 1996. The increase in cash, cash equivalents and
short-term investments during 1997 is largely attributable to proceeds from the
Company's private placements, as described in Note 8 to the Company's
consolidated financial statements.

The Company will need substantial additional funds before it can expect
to realize significant product revenue. The Company projects that at its current
rate of spending and for its current activities, its existing cash funds will
enable the Company to maintain its present operations into the first quarter of
1999. To the extent that the Company is successful in accelerating its
development of G3139 or in expanding its development portfolio or acquiring or
adding new development candidates, the current cash resources would be consumed
at a greater rate. Similarly, the Company has been seeking to identify and hire
additional senior managers to direct the business of the Company. To the extent
it is successful in these endeavors, the rate of cash utilization would also
increase. Certain parties with whom the Company has agreements have claimed
default and, should the Company be obligated to pay these claims or should the
Company engage legal services to defend or negotiate its positions or both, its
ability to continue operations could be significantly reduced or shortened. See
"MD&A--Certain Trends and Uncertainties--Claims of Genta's Default Under Various
Agreements." The Company anticipates that significant additional sources of
financing, including equity financings, will be required in order