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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission File No. 0-10736

MGI PHARMA, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 952/346-4700

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value

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.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  x    No  ¨

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2004, the last business day of the registrant’s most recent second quarter, was approximately $1,906,000,000 (based on the closing price of the registrant’s common stock as reported by the Nasdaq National Market on such date).

The number of shares outstanding of each of the registrant’s classes of common stock, as of March 7, 2005, was: Common Stock, $.01 par value; 71,450,679 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Pursuant to General Instruction G the responses to Items 10, 11, 12 and 14 of Part III of this report are incorporated herein by reference to certain information contained in the registrant’s definitive Proxy Statement for its 2005 Annual Meeting of Stockholders to be held on May 10, 2005.

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PART I

This Form 10-K contains forward-looking statements within the meaning of federal securities laws that may include statements regarding intent, belief or current expectations of the Company and its management. These forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause the Company’s actual results to differ materially from the results discussed in these statements. Risks and uncertainties that might affect our results are detailed from time to time in the Company’s filings with the Securities and Exchange Commission, and are included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cautionary Statements, of this Form 10-K. The Company does not intend to update any of the forward-looking statements after the date of this Form 10-K to conform them to actual results.

Overview

MGI PHARMA, INC., “we”, “MGI”, or the “Company”, is an oncology-focused biopharmaceutical company that acquires, develops and commercializes proprietary pharmaceutical products that meet cancer patient needs. It is our goal to become a leader in oncology through application of our three core competencies of oncology product acquisition, development and commercialization, which we apply toward our portfolio of oncology products and product candidates. We acquire intellectual property or product rights from others after they have completed the basic research to discover the compounds that will become our product candidates or marketed products. This allows us to focus our skills on product development and commercialization rather than directly performing drug discovery.

We currently market several cancer-related pharmaceutical products in the United States using our 112-person oncology-focused sales organization. (See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Revenues for a breakdown of sales by product over the last three years.) We focus our sales efforts solely within the United States, where we have retained product rights to our currently marketed products and product candidates under development. We have created alliances with other pharmaceutical or biotechnology companies for the sale and marketing of our products in other countries. (See Note 14 to the consolidated financial statements for further information on revenues attributable to U.S. and foreign customers.)

We began face-to-face sales calls or direct promotion of Aloxi^® (palonosetron hydrochloride) injection in September 2003 in the United States for the prevention of chemotherapy-induced nausea and vomiting, or CINV. Sales of Aloxi injection accounted for approximately 83 percent of our $192.1 million of product sales in 2004. We marketed Salagen^® Tablets (pilocarpine hydrochloride) in the United States to oncologists as a treatment for the symptoms of radiation-induced dry mouth in head and neck cancer patients and to rheumatologists as a treatment for dry mouth associated with the autoimmune disease Sjögren’s syndrome. Beginning in December 2004, generic 5 milligram pilocarpine hydrochloride tablets entered the United States markets where Salagen Tablets compete and we have suspended direct promotion of Salagen Tablets. If the introduction of these competing products adheres to the classic pattern of initial generic competition in a pharmaceutical product class, we would expect Salagen Tablets sales to decline significantly from our 2004 sales of $29.3 million in the United States. In March 2001, we began direct promotion of Hexalen^® capsules after acquiring the Hexalen capsules business in November 2000. Hexalen capsules are second-line chemotherapy for ovarian cancer patients who are refractory to first-line therapies.

On November 17, 2003, we and Helsinn Healthcare SA announced an expansion of our exclusive United States and Canada license and distribution agreement to include rights for the post operative nausea and vomiting, or PONV, application of Aloxi injection and an oral Aloxi formulation. Phase 2 trials of Aloxi injection for prevention of PONV indicated that Aloxi injection was safe and well tolerated. We expect phase 3 trials to begin in 2005 for use of Aloxi injection in the prevention of PONV and Aloxi capsules for the prevention of CINV.

In September 2004, we began direct promotion of Kadian^® (morphine sulfate sustained release) capsules in the United States to oncology health care professionals for moderate to severe pain associated with cancer, under a promotion arrangement with Alpharma, Inc. Kadian capsules continue to be marketed by Alpharma to pain specialists in the United States, other than oncology health care professionals.

In September 2004, we obtained exclusive worldwide rights to the development, commercialization, manufacturing and distribution of Dacogen^™ (decitabine) injection for all indications from SuperGen, Inc. Dacogen injection is an investigational anti-cancer therapeutic, which is currently in development for the treatment of patients with myelodysplastic syndrome, or MDS. The MDS New Drug Application, or NDA, and Marketing Authorization Application, or MAA, for Dacogen injection were submitted and accepted for review by the Food and Drug Administration, or FDA, and European Medicines Agency, or EMEA, respectively. The FDA established a Prescription Drug User Fee Act, or PDUFA, goal date for the NDA of September 1, 2005. Given the broad activity of Dacogen injection in hematologic cancers, we also intend to initiate during 2005 a pivotal phase 3 program in patients with acute myeloid leukemia, or AML.

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Saforis^™ oral suspension is a late-stage, novel, proprietary formulation of L-glutamine, an amino acid critical to the repair of cellular damage. Saforis oral suspension decreased the duration and severity of chemotherapy induced inflammation of the tissues lining the mouth, or oral mucositis. In 2004, a phase 3 trial of Saforis oral suspension was completed in 326 patients and it met its primary clinical objective of clinically significant reduction of oral mucositis in patients receiving Saforis oral suspension compared to placebo. A second phase 3 trial is planned to begin in 2005.

We are currently developing ZYC101a as a treatment for young women with high-grade cervical dysplasia. In a recently completed phase 2, multicenter, randomized placebo controlled trial of 161 women with high-grade cervical dysplasia that was conducted in the United States and Europe, ZYC101a was shown to be safe and well tolerated. In a prospectively defined cohort of patients under 25 years of age, the drug promoted resolution of high-grade dysplasia in 70 percent of patients, versus 23 percent in the placebo arm. In all patients, resolution was 43 percent for patients on drug and 27 percent for patients on placebo. A phase 3 trial to further assess the safety and efficacy of ZYC101a will begin in 2005 and is being designed to become a key part of submissions to regulatory authorities for seeking marketing approval.

Irofulven, the lead cancer therapy product candidate from our proprietary family of compounds, called acylfulvenes, is in a series of clinical trials. Based on our analysis of results from our trials of irofulven, we believe that irofulven is adequately tolerated for a chemotherapeutic, with evidence of monotherapy activity against a wide range of cancers including prostate, liver, ovarian, and pancreatic tumors. These results have been seen in patients with refractory tumors, meaning tumors that are unresponsive or no longer responsive to prior chemotherapy regimens. We also are conducting a series of trials with irofulven in combination therapy with currently approved cancer agents. We believe that an advantage of combination therapy is the potential to achieve better anti-cancer benefit with an acceptable side effect profile compared to either agent used alone. The most advanced of these combination trials is a phase 2, multi-arm, randomized trial of irofulven in combination with capecitabine and prednisone in hormone refractory prostate cancer, or HRPC, patients previously treated with docetaxel. Most HRPC patients in the United States who are receiving chemotherapy are treated with docetaxel, and we believe significant unmet need exists among prostate cancer patients who have failed hormone therapy and who have progressed on docetaxel.

We believe we have a robust portfolio of oncology related product candidates. Our current product candidates are predominately in advanced stages of development and are intended to have diverse roles in treating cancer patients or cancer related conditions. Our portfolio includes therapeutic and supportive care product candidates.

The following table summarizes the principal indications and commercial rights for our marketable products.

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The following table summarizes the principal indications, development status and sponsor for our products under development.

We were incorporated under the name Molecular Genetics, Inc. in Minnesota in November 1979.

Business Strategy

Our goal is to become a leading oncology-focused biopharmaceutical company serving well-defined markets. The key elements of our strategy are to:

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Cancer Overview

According to the American Cancer Society, or ACS, there are approximately 1.4 million new cases of cancer diagnosed in the United States each year. Cancer is the second leading cause of death in the United States and is projected to result in approximately 570,000 deaths in the United States in 2005.

Cancer is characterized by the uncontrolled growth and spread of abnormal cells. These abnormal or malignant cells accumulate and form tumors that can compress, invade and destroy normal tissue. If malignant cells break away from the primary tumor, they can travel through the bloodstream or lymphatic system to other areas of the body where they may settle and form new tumors. This spread of a tumor to a new site is called metastasis.

Different types of cancer vary in their rates of growth and patterns of spread, and, consequently respond in varying degrees to different types of treatment. The four most common forms of treatment for cancer in order of their typical use are:

A cancer patient often receives a combination of treatments depending upon the type and extent of the disease. While surgery attempts to remove localized cancer from the patient and radiation attempts to kill cancer cells, there are significant limitations and complications associated with these treatments that result in high rates of treatment failure. This failure is due primarily to metastasis and dose-limiting severe side effects. Chemotherapeutic agents attempt to address the limitations of surgery and radiation, which are local treatments, by interfering with the replication of cancer cells that may have spread to distant sites in the patient. Immunotherapy is a rapidly developing area of cancer treatment and is most often provided in combination with other cancer therapies. In addition to treatment of their cancer, cancer patients often need supportive care to prevent or treat the side effects of radiation or chemotherapy. Examples include treatment of chemotherapy-induced nausea and vomiting, oral mucositis, pain, and various anemias, or abnormally low blood cell counts.

Cancer is a disease characterized by uncontrolled cell replication, which requires cells to first replicate their DNA. Therefore, many chemotherapeutic agents attempt to interfere with cancer cells’ ability to replicate DNA, or following the replication of their DNA, the ability of the cancer cells to divide. Different classes of chemotherapeutic agents are distinguished by their mechanism of action or how they specifically interfere with the cancer cells’ ability to replicate DNA or divide.

When a cancer cell’s DNA is sufficiently damaged by a chemotherapeutic agent, DNA synthesis is inhibited or cell division is inhibited, and a cellular process known as apoptosis, or programmed cell death, may be activated. Apoptosis of tumor cells can lead to reduction in tumor size or to the arrest of tumor growth. Certain chemotherapeutic agents may act to directly promote apoptosis in tumor cells.

Because different chemotherapeutic agents may target different cellular processes required for DNA replication and cell division or apoptosis, chemotherapeutic agents are often used in combination to exploit potential synergy with different mechanisms of action, and minimize the side effect profile of the individual agents. Agents that specifically induce apoptosis or interfere with DNA replication or cell division in novel ways are therefore excellent candidates to be used in combination with existing chemotherapy agents.

One of the principal causes of chemotherapy treatment failure is the development of drug resistance by cancer cells, where cancer cells become resistant or refractory to the intended cytotoxic action of a variety of conventional chemotherapeutic agents. In many cases, resistance developed to a specific chemotherapeutic agent results in multi-drug resistance where the cancer cell becomes resistant to a wide variety of chemotherapeutic agents. Given the current limitations of chemotherapy, there is a clear need for new

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therapies that are effective against a broad range of resistant and refractory cancers, as well as chemotherapeutics that act by novel mechanisms that can offer benefits as a combination therapy with existing chemotherapeutic agents.

Reactivation of tumor suppressor genes that exist naturally in a patient’s cells is an area of active research. Excessive methylation, or hypermethylation, can stop the expression of a tumor suppressor gene and production of the anti-cancer protein it encodes. This biological effect has been implicated as a fundamental factor in the development of cancers. Methylation is the attachment of a small cluster of carbon and hydrogen elements known as a methyl group. Attachment of a methyl group to a gene may stop its functioning. Researchers are identifying and evaluating ways to prevent or reverse hypermethylation, thereby allowing tumor suppressor genes to produce the natural proteins that can stop or reduce the growth of tumors.

Standard response criteria are used to report the results of oncology clinical trials. In solid tumor clinical trials, a complete response means that all measurable tumor tissue has disappeared and the patient appears to be disease free. A partial response means that measurable tumor tissue has shrunk by at least 50 percent in two-dimensional measurements or 30 percent in single dimensional measurements. Stable disease means that the size of the measurable tumor tissue has not shrunk sufficiently to be considered a partial response, but it has not grown more than 25 percent from its smallest size during treatment. Progressive disease means that the tumor has grown by more than 25 percent from its smallest size during treatment.

Achieving agreement on the appropriate clinical measures to use in myelodysplasic syndrome, or MDS, clinical trials is challenging because MDS spans a diverse range of abnormal blood cell production by patients. As a result, appropriate clinical measures will vary depending upon the cross-section of MDS patients enrolled in a trial.

To help group similar cross-sections of MDS patients for clinical trial (also prognostic and treatment) purposes, various classification systems have been developed. While these classification systems help in the conduct and evaluation of individual clinical trials, a lack of standardization and the evolving nature of the classification systems can make it difficult to compare the results of one trial to another trial. Therefore it is very important to understand the classification system and definitions used for a particular MDS clinical trial before drawing conclusions about those results relative to other trials.

The more common classification or prognostic systems include:

A key difference between FAB and WHO classification is the percent of immature bone marrow blood cells, or blasts, required before the patient is classified as having evolved from MDS to acute myeloid leukemia, or AML. Under the FAB system if blasts are 30 percent or less of all blood cells in the sample, the patient is classified as having MDS. The threshold under the WHO system is 20 percent.

The factors used in the IPSS to predict the potential for MDS to evolve into AML and survival periods include:

The IPSS categories ranging from low risk to high risk of the patient’s MDS evolving into AML are as follows:

Given what may be a prolonged course of MDS for patients evaluated as IPSS Low or Intermediate-1 risk, alleviation of disease-related symptoms and improved quality of life may be the most appropriate clinical measures. For patients evaluated as IPSS Intermediate-2 or High risk, extending the period of time before the disease progresses, to more severe MDS or AML, or survival period may be the most appropriate clinical measures.

A group of MDS clinical experts known as the International Working Group, or IWG, reported the results of their deliberations on standardizing response criteria for MDS in the journal Blood (Blood.2000; 96:3671-3674). Given the diverse nature of MDS they identified and defined clinical measures in the following categories:

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Subsequent clinical trial results will likely adopt the standard response criteria recommended by the IWG, thereby facilitating comparisons between independent clinical trials.

Marketable Products

Aloxi Injection for the Prevention of Chemotherapy-Induced Nausea and Vomiting

Aloxi (palonosetron hydrochloride) injection is a potent, highly selective serotonin subtype 3, or 5-HT₃, receptor antagonist differentiated by its strong receptor binding affinity and extended half life for the prevention of chemotherapy-induced nausea and vomiting, or CINV. We obtained exclusive U.S. and Canada Aloxi injection license and distribution rights from Helsinn Healthcare SA in April 2001. On July 25, 2003, approval was received from the FDA to market Aloxi injection for the prevention of acute and delayed CINV. We began promoting Aloxi injection in September 2003 through our oncology-focused sales organization. Aloxi injection competes in the growing U.S. 5-HT₃ receptor antagonist market estimated to be $1.7 billion in 2004. Of this amount, the market for prevention of CINV is estimated to be approximately $900 million. Product sales of Aloxi injection in 2004 and 2003 were $159.3 million and $9.7 million, respectively.

Chemotherapy-Induced Nausea and Vomiting Overview

Depending on the type of cancer and treatment goals determined by physicians, patients may receive chemotherapy as part of their treatment regimen. One of the most feared side-effects of most chemotherapy treatments is chemotherapy-induced nausea and vomiting, or CINV. Supportive care products to treat the side effects of chemotherapy, such as CINV, have emerged to improve patient comfort and compliance with treatment regimens. While there are many types of supportive care products for cancer patients, this summary is focused on the prevention of CINV.

Efforts to treat tumors such as those found in breast and lung cancer have led physicians to administer more aggressive chemotherapy regimens. These cytotoxic agents often cause CINV by triggering release of serotonin from cells in the gastrointestinal tract. The released serotonin stimulates nerve receptors that activate the vomiting center via the chemoreceptor trigger zone. When, and if, serotonin stimulates serotonin subtype 3, or 5-HT_3, receptors to initiate nerve impulses to the central nervous system through the 5-HT₃ receptors, vomiting, or emesis, may ensue. Serotonin subtype 3, or 5-HT₃ receptor antagonists, such as Aloxi injection, act by binding to serotonin receptors in the peripheral and possibly central nervous system, thereby blocking serotonin stimulation of the associated nerves and reducing or eliminating CINV. CINV can be characterized as acute nausea and vomiting, occurring within 24 hours following administration of chemotherapy, or delayed nausea and vomiting, occurring 24 to 120 hours following administration of chemotherapy.

Although CINV has been managed to a greater degree in recent years, it is estimated that up to 85 percent of cancer patients receiving chemotherapy will experience some degree of emesis if not prevented with an antiemetic. The severity of emesis is dependent upon the type of chemotherapy administered, the dosing schedule of the chemotherapy, how quickly it was administered, and the patient’s age and gender, among other predisposing factors. If emesis is not properly managed, it can cause dehydration and poor quality of life, eventually leading to interruption or discontinuation of chemotherapy. Although the vast majority of patients receiving emetogenic chemotherapy are administered a 5-HT₃ receptor antagonist, there remains a need to improve upon the prevention of acute CINV and, especially delayed CINV. Despite the availability of preventive treatments, including first generation 5-HT₃ receptor antagonists, nearly fifty percent of all patients receiving chemotherapy experience nausea and vomiting.

Aloxi Injection Clinical Data for CINV

The results of phase 3 clinical trials demonstrate that Aloxi injection is more effective than ondansetron (Zofran^®) and dolasetron (Anzemet^®) injections, which combined account for approximately 59 percent percent of CINV sales of 5-HT₃ receptor antagonists in 2004. The most frequently prescribed chemotherapies, including those used to treat the most common cancers such as breast, lung and colon, are considered moderately emetogenic, or have a moderate to moderately high potential to cause nausea and vomiting. Based on the phase 3 trials conducted, Aloxi injection is shown statistically to have greater efficacy or to be as effective as ondansetron and dolasetron for prevention of acute and delayed CINV. Overall, the incidence, pattern, duration, and intensity of adverse reactions were similar among patients treated with Aloxi injection and other 5-HT₃ receptor antagonists. In 633 patients treated with Aloxi injection during phase 3 trials, the most common adverse reactions related to the study drug were headache (9 percent), and constipation (5 percent). The table below provides a summary of the efficacy results from these pivotal phase 3 clinical trials, where complete response rate is defined as the proportion of treated patients which had no vomiting and no rescue medication.

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We believe that Aloxi injection is competitive in the U.S. CINV market for 5-HT₃ receptor antagonists because Aloxi injection:

The potency and extended half-life of Aloxi injection may enable patients and their healthcare providers to control both acute and delayed CINV for several days following chemotherapy with a single intravenous dose. We believe this single, fixed dose treatment is more convenient compared to other marketed 5-HT₃ receptor antagonists, which usually demand patients to adhere to an oral follow-up therapy regimen for several days.

Salagen Tablets for the Symptoms of Xerostomia and Sjögren’s Syndrome

MGI conceived, developed and markets Salagen Tablets (pilocarpine hydrochloride) in the United States. Salagen Tablets were the first prescription drug approved to treat the symptoms of chronic dry mouth in patients with radiation-induced xerostomia and in patients with Sjögren’s syndrome. Chronic dry mouth can be a painful and debilitating condition. Salagen Tablets stimulate the exocrine glands, including the salivary glands, to increase their moisture-producing activity. Saliva is important to oral health and quality of life in general. People with chronic dry mouth can experience difficulty eating and sleeping, rapid tooth decay, periodontal disease and oral infections. Sales of Salagen Tablets in the United States were $29.3 million, $26.5 million and $22.3 million in 2004, 2003 and 2002, respectively. Salagen Tablets’ clinically-proven efficacy and safety has allowed it to maintain leadership in the market for treatment of chronic dry mouth symptoms associated with head and neck cancer patients treated with radiation and with Sjögren’s syndrome patients.

The FDA granted us orphan drug status for Salagen Tablets in 1994 as a treatment for the symptoms of xerostomia induced by radiation therapy in head and neck cancer patients and in 1998 for the symptoms of dry mouth associated with Sjögren’s syndrome. Our orphan drug protection for Salagen Tablets for the treatment of symptoms of radiation-induced xerostomia in head and neck cancer patients expired in March 2001 and our orphan drug protection for Sjögren’s syndrome expired in February 2005. In December 2004, the FDA approved a competitor’s Abbreviated New Drug Application, or ANDA, for a generic 5 milligram pilocarpine hydrochloride tablet and a second ANDA was approved in January 2005. If the introduction of these competing products adheres to the classic pattern of initial generic competition in a pharmaceutical product class, we would expect Salagen Tablet sales in 2005 to decline significantly. As a result, we suspended promotion of Salagen Tablets.

Also, in December 2004, we entered into a five-year manufacturing supply and distribution agreement for 5 milligram pilocarpine hydrochloride tablets, with Purepac Pharmaceutical Co. (“Purepac”), a subsidiary of Alpharma, Inc. Under the terms of this manufacturing, supply and distribution agreement, we will manufacture and supply 5 milligram pilocarpine hydrochloride tablets to Purepac for exclusive distribution in the United States and we will receive the supply price and a portion of gross margin of sales by Purepac.

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Head and neck cancer

Although often effective in treating primary tumors of the head and neck, radiation therapy can permanently damage a patient’s salivary glands, resulting in xerostomia, a significant, chronic reduction of saliva production. Patients using Salagen Tablets for radiation-induced dry mouth typically take one tablet three times per day during the course of radiation therapy, which will last approximately six to eight weeks and may then take it indefinitely to treat the residual dry mouth symptoms that follow radiation therapy.

Salagen Tablets have been shown to stimulate the residual functioning tissue in the damaged salivary glands to increase saliva production and provide patients with a longer-lasting solution for the symptoms of radiation-induced chronic dry mouth. In two 12-week trials that were the primary basis for the approval of Salagen Tablets in 1994, 369 patients who had been treated with radiation therapy for head and neck cancer were assessed for the ability of Salagen Tablets, versus placebo, to relieve the symptoms of dry mouth and to stimulate saliva production. In both trials, patients who received Salagen Tablets experienced significant improvement in their overall condition of dry mouth. Those patients also demonstrated statistically significant improvements in salivary flow compared to the patients receiving placebo tablets. Less than one percent of the patients who received Salagen Tablets withdrew from these trials due to lack of efficacy. Sweating was the most commonly reported side effect; however, less than one percent of patients taking the approved dosing regimen withdrew from the trial due to sweating.

Sjögren’s syndrome

Sjögren’s syndrome is a chronic autoimmune disorder in which the body’s own immune system attacks the moisture-producing glands, including the salivary glands, causing them to lose their ability to produce adequate moisture. Symptoms of Sjögren’s syndrome vary in degree and type, but the common component is chronic dryness. Patients can exhibit dry mouth, swollen glands, dry eyes, vaginal dryness and fatigue. The syndrome can be manifested alone (primary Sjögren’s) or in combination with other autoimmune disorders (secondary Sjögren’s).

In patients with Sjögren’s syndrome-related dry mouth, Salagen Tablets can help to relieve the symptoms of oral dryness. Salagen Tablets can stimulate the salivary glands to increase production of saliva, which is essential to maintaining good oral health. For Sjögren’s syndrome patients, previously available therapies included tear and saliva substitutes. These types of products provide transient relief at best and often fail to prevent complications.

In two 12-week trials that were the primary basis for the supplemental approval of Salagen Tablets for Sjögren’s syndrome in 1998, a total of 629 primary or secondary Sjögren’s syndrome patients were assessed for the ability of Salagen Tablets, versus placebo, to relieve the symptoms of dry mouth and to stimulate saliva production. Patients receiving Salagen Tablets four times a day reported a significant improvement in their symptoms associated with oral dryness, and they also demonstrated a significant increase in saliva for the full 12 weeks. Similar to the Salagen Tablet trials in head and neck cancer patients, less than one percent of the patients receiving Salagen Tablets withdrew from the trial due to lack of efficacy. The most common side effect was mild to moderate sweating. Less than four percent of patients taking the approved dosing regimen withdrew from the study due to sweating.

Hexalen Capsules for Ovarian Cancer

In November 2000, we purchased worldwide rights to Hexalen (altretamine) capsules from MedImmune Oncology, Inc. Hexalen capsules are an orally administered chemotherapy that is approved as a second-line treatment of ovarian cancer. Hexalen capsules are approved for the treatment of ovarian cancer in 21 countries including the United States. Sales of Hexalen capsules in the United States were $2.4 million in 2004.

In the two trials that were the primary basis for its approval in the United States, Hexalen capsules were administered as a single agent for 14 or 21 days of a 28-day cycle. In the 51 patients with measurable or evaluable disease, there were seven complete responses and two partial responses for an overall response rate of 18 percent. The duration of these responses ranged from two months in a patient with a palpable pelvic mass to 36 months in a patient who achieved a complete response. In some patients, tumor regression was associated with improvement in symptoms and performance status. Side effects of Hexalen capsules are comparable to those seen with other approved chemotherapies and include mild to moderate bone marrow suppression, nausea and vomiting, numbness, tingling or pain of hands or feet, and central nervous system symptoms.

Another trial in 97 ovarian cancer patients, which was published in Gynecologic Oncology (Vol. 82 pages 317-322, 2001), investigated the ability of six months of treatment with Hexalen capsules to extend survival following achievement of a complete response with front-line therapy. At two years, following completion of front-line therapy, patients in this trial demonstrated a higher survival rate compared to that seen in earlier trials.

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Kadian Capsules for Cancer Pain

In July 2004, we entered into a three-year promotion agreement for Kadian capsules, a sustained release formulation of morphine, with Alpharma, Inc. Under the terms of this promotion agreement, we promote Kadian capsules in the United States to oncology health care professionals for moderate to severe pain associated with cancer. We began promoting Kadian capsules to oncologists in September of 2004. Kadian capsules continue to be marketed by Alpharma to pain specialists in the United States, other than oncology health care professionals.

Products Under Development

Dacogen Injection Overview

In September 2004, we obtained exclusive worldwide rights to the development, commercialization, manufacturing and distribution of Dacogen (decitabine) injection for all indications from SuperGen, Inc. Dacogen injection is an investigational anti-cancer therapeutic which is currently in development for the treatment of patients with myelodysplastic syndrome, or MDS. Dacogen injection regulatory applications for the treatment of MDS are being reviewed for marketing approval by the FDA in the United States and the EMEA in Europe. A pivotal phase 3 trial and two supporting phase 2 trials for the MDS indication form the clinical basis of these applications. The FDA has established September 1, 2005 as the Prescription Drug User Fee Act, or PDUFA, action goal date for the NDA. SuperGen will, with our assistance, continue to pursue these MDS regulatory applications and all MDS responsibilities will transition to us by the end of 2005. We have assumed responsibility for development of all other indications for Dacogen injection.

The anticancer activity of Dacogen injection is due to both inhibition of cell growth, or cytotoxicity, which is observed at higher doses and decreasing methylation of deoxyribonucleic acid, or DNA, which is predominately observed at lower doses. Decreasing DNA methylation, or hypomethylation, is a relatively new approach to cancer treatment. Excess DNA methylation has been implicated as a fundamental factor in the development of cancers. Researchers have determined that an increase in specific methylation of DNA can result in blocking the expression of genes, such as tumor suppressor genes. In clinical trials, researchers have demonstrated that Dacogen injection can reverse the methylation of DNA, potentially leading to re-expression of tumor suppressor genes. In clinical trials, Dacogen injection has demonstrated activity in MDS, acute myeloid leukemia, or AML, and chronic myeloid leukemia, or CML. Preclinical data suggest that Dacogen injection may be effective in the treatment of solid tumor cancers where DNA methylation status is believed to be important, such as melanoma, colon and ovarian cancer.

Myelodysplastic Syndrome

MDS is a bone marrow disorder characterized by bone marrow production of abnormally functioning, immature blood cells. According to the American Cancer Society and the Aplastic Anemia and MDS International Foundation, approximately 10,000 to 30,000 new cases of MDS are diagnosed each year in the United States, although it is difficult to accurately determine the incidence because MDS is not recorded by the national tumor registry in the United States. In the majority of afflicted patients, MDS results in death from bleeding and infection. In approximately 30 percent of patients, MDS will convert to acute myeloid leukemia or AML, a disease with a high mortality rate.

In multiple Phase 2 trials in Europe, Dacogen injection demonstrated activity for treating patients with MDS. Based on positive results from these European Phase 2 trials, a randomized Phase 3 study was conducted at over 22 cancer centers in North America that compared Dacogen injection plus best supportive care treatment to supportive care treatment alone in a total of 170 MDS patients. Best supportive care involved treatment with antibiotics, blood growth factors and blood transfusions. Dacogen injection was administered intravenously over three hours at a dose of 15 milligrams for each square meter of body surface area, every eight hours for three consecutive days. The co-primary endpoints of the trial were overall response rate, or the sum of the percent of patients experiencing complete and partial responses, as defined by the International Working Group, or IWG, criteria and time to AML diagnosis or death. Secondary endpoints included duration of response, cytogenetic response rate, transfusion requirements, quality of life, survival, and safety. An independent review of bone marrow and response data was conducted. In December 2004 at the American Society of Hematology, or ASH, Annual Meeting, data from the phase 3 trial were presented. The overall response rate (complete responses plus partial responses) as defined by intent to treat criteria, or ITT, for patients treated with Dacogen injection following independent and blinded review, was 17 percent with a median response duration of 266 days, compared to zero percent in the patients receiving only supportive care treatment. This overall response rate is statistically significant. Median time to AML diagnosis or death was 340 days for the Dacogen injection treatment arm compared to 219 days for patients who received only supportive care. All patients who responded to Dacogen injection treatment became or remained transfusion independent and had

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higher quality of life scores for several parameters, including improvement of global health status, physical functioning, fatigue, and shortness of breath. The primary toxicity associated with Dacogen injection treatment was suppression of bone marrow production of blood cells, or myelosuppression, including suppressed production of white blood cells, or neutropenia, blood clotting cells, or thrombocytopenia, and red blood cells, or anemia. The results from this phase 3 trial are consistent with those from the phase 2 trials and confirm activity of Dacogen injection for MDS.

Also presented at the December 2004 ASH Annual Meeting were interim results of a trial designed to compare three different dosing regimens for Dacogen injection. MDS patients in this trial were randomized to receive one of three Dacogen injection regimens every four to six weeks. Of the 51 patients who had data available for evaluation at the time of the interim analysis, the overall response rate was 43 percent; including a 35 percent complete response rate and an 8 percent partial response rate. Adverse events were primarily a result of myelosuppression and included fever (7 percent) and infection (12 percent). These data support the hypothesis that these alternative Dacogen injection regimens are active in treating MDS patients and may offer dose scheduling flexibility.

The phase 3 trial was designed to support regulatory approval of Dacogen injection for the treatment of patients with MDS. Dacogen injection received orphan drug designation for MDS in the United States and Europe, which may provide us with seven years of marketing exclusivity in the United States and ten years marketing exclusivity in Europe, if Dacogen injection is approved for treatment of MDS by the respective regulatory authorities. However, the regulatory approval processes may take a significant amount of time and Dacogen injection may not be approved.

In May 2004, azacitidine was approved by the FDA as the first drug to be approved for the treatment of MDS. If Dacogen injection is also approved for treatment of MDS, it will compete directly with azacitidine. Sales of azacitidine began on July 1, 2004 and totaled $47 million during 2004.

Other Potential Indications

Beyond the activity of Dacogen injection for MDS, we believe phase 1 and 2 trials demonstrate that Dacogen injection may be active in a variety of other hematological malignancies such as AML and CML. We expect to begin a phase 3 trial of Dacogen injection in AML patients in the first half of 2005 and we are currently conducting a multi-center phase 2 trial with Dacogen injection for the treatment of refractory CML in patients who have failed previous front-line therapy. Phase 1 results also suggest that Dacogen injection may be useful for treatment of non-malignant diseases such as sickle cell anemia, for which we are supplying Dacogen injection to investigators for their phase 2 clinical trials in this area of study. Dacogen received orphan drug designation from the FDA for sickle cell anemia in September 2002, which may provide seven years of marketing exclusivity in the United States if Dacogen injection is approved by the FDA for the treatment of sickle cell anemia. Further, the Dacogen injection clinical and scientific program is the subject of a Clinical Research and Development Agreement, or CRADA, with the National Cancer Institute, or NCI. Pursuant to the CRADA, we will supply Dacogen injection for pre-clinical and clinical trials that will be managed by the NCI and that will focus primarily on the treatment of solid tumors.

Saforis^™ Oral Suspension Overview

Saforis^™ oral suspension is a late-stage, novel, proprietary oral formulation of L-glutamine, an amino acid which is critical to the repair of cellular damage. In multiple clinical trials, Saforis oral suspension decreased the duration and/or severity of chemotherapy-induced inflammation of the tissues lining the mouth, or oral mucositis. Additionally, Saforis oral suspension reduced the healing time of oral mucositis, reduced patients’ requirements for analgesics to treat pain due to oral mucositis, improved patients’ ability to swallow, thereby improving nutrition and improved patients’ overall quality of life. In 2004, a phase 3 trial of Saforis oral suspension was completed in 326 randomized patients and it met its primary clinical objective of clinically significant reduction of oral mucositis in patients receiving Saforis oral suspension compared to those patients receiving the placebo. A second phase 3 trial is planned to begin in 2005. Our goal is for Saforis oral suspension to be the first product marketed in the United States for the prevention and treatment of chemotherapy-induced oral mucositis. Saforis received Fast Track Designation from the Food and Drug Administration in 2002, which is designed to facilitate the development and expedite the review of applications of drugs that are intended to treat serious or life-threatening conditions and demonstrate the potential to address an unmet medical need for such a condition.

Oral Mucositis

Oral mucositis is one of the most common dose-limiting toxicities of cancer chemotherapy and radiotherapy. The incidence of oral mucositis in patients receiving chemotherapy ranges from 15 percent in those patients receiving standard chemotherapy doses to 76 percent in patients receiving high chemotherapy doses related to bone marrow transplantation, or BMT. In addition, virtually all patients experience oral mucositis following radiotherapy of the head and neck region.

Oral mucositis usually occurs within 5 to 7 days after the administration of chemotherapy or radiotherapy, and can last for 2 to 3 weeks, or longer in patients with below-normal numbers of white blood cells. As mucositis becomes more severe, breaks in the tissue

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surface, or ulcers, develop. These ulcers may be extremely painful; may temporarily interfere with oral intake and nutrition; may reduce the patient’s quality of life; and may result in serious clinical complications, including systemic infection. Severe oral mucositis with extensive ulceration may require hospitalization and direct into the bloodstream, or intravenous, administration of narcotics for pain management and supplements for nutrition. Further, oral mucositis frequently leads to dose reductions in subsequent chemotherapy cycles, and the pain of mucositis may discourage patients from continuing cancer treatment.

L-glutamine

L-glutamine has multiple functions in the human body, including enabling the transfer of nitrogen between tissues and regulation of protein synthesis. L-glutamine is a conditionally essential amino acid, because it is critical in times of serious illness when tissue repair is necessary or during times of high levels of cell replication. When such increased demands occur, the requirements for L-glutamine can exceed the body’s ability to produce sufficient amounts and intake of L-glutamine is needed to maintain normal plasma concentrations.

The rapidly dividing cells of tissues lining the mouth cavity, or oral mucosa, use L-glutamine not only as the primary fuel for cell replication, but also as the nitrogen source for cellular repair. Thus, the availability of L-glutamine becomes critical when these tissues have been injured as a result of chemotherapy or radiotherapy.

When L-glutamine is taken orally, it does not readily dissolve and it is quickly converted into an ineffective molecule. Both topical delivery to the oral mucosa or swallowing of L-glutamine has previously been limited by these factors and by widespread metabolism throughout the body. Even when administered intravenously, this widespread metabolism may limit the L-glutamine available within the oral mucosa.

Saforis oral suspension, with its proprietary delivery system, delivers 100 times more L-glutamine into mucosal epithelial cells compared to L-glutamine without this proprietary delivery system. The availability of adequate L-glutamine should allow damaged cells to regain normal function after injury, regulate and support protein synthesis, and provide critical metabolic energy and nitrogen that can optimize growth rates of replicating cells in rebuilding tissues.

ZYC101a Overview

The goal of treatment with ZYC101a is to enhance the natural immune response of a patient infected with human papilloma virus, or HPV, by allowing the immune process to produce a substance that is seen as foreign, an HPV antigen, which results in a heightened immune system response to HPV in the patient. The enhanced immune response, in the form of activated cells is expected to recognize and heal the patient’s abnormal growth of cervical tissue, or cervical dysplasia. ZYC101a is a circular form of double-strand DNA that can exist outside the nucleus of a cell, or plasmid DNA, contained within biodegradable poly (lactide-co-glycolide), or PLG, microparticles. This microencapsulation-based formulation of ZYC101a facilitates uptake of plasmid DNA by certain antigen-presenting cells, or APCs. Once internalized by an APC, the plasmid DNA is used to produce a protein, fragments of which attach to carrier molecules. This complex migrates to the surface of the APC and is recognized by T cells specific for HPV. These T cells, representing an enhanced immune response, migrate to the cervix and eliminate the HPV positive disease causing cells, thereby enabling the patient to heal.

We are currently developing ZYC101a as a treatment for young women with high-grade cervical dysplasia. A phase 2, multicenter, randomized placebo controlled trial of 161 women with high-grade cervical dysplasia was conducted in the United States and Europe. Patients enrolled in this phase 2 trial received an intramuscular injection of ZYC101a every three weeks for a total of three doses. ZYC101a was shown to be safe and well tolerated. In a prospectively defined cohort of patients under 25 years of age, the drug promoted resolution of high-grade dysplasia in 70 percent of patients, versus 23 percent in the placebo arm. In all patients, resolution was 43 percent for patients on drug and 27 percent for patients on placebo. In other open label trials, the drug was found to be safe and well-tolerated and disease resolution was observed in a high percentage of young patients. The most frequently observed adverse event in these trials was mild to moderate injection site pain, which was manageable with ibuprofen or acetaminophen. A phase 3 trial to further assess the safety and efficacy of ZYC101a will begin in 2005 and is being designed to become a key part of a submission for seeking marketing approval.

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Human Papilloma Virus and Cervical Dysplasia Overview

Human papilloma virus, or HPV, refers to a group of viruses that includes more than 100 different strains or types. More than 30 of these viruses are sexually transmitted and can infect the genital area. The areas include the skin of the penis, vulva, or anus, and the lining of the vagina, cervix, and rectum. Most people who become infected with HPV will not have any symptoms, and the infection will resolve on its own. In the United States, approximately 20 million people are currently infected with HPV. At least 50 percent of sexually active men and women acquire genital HPV infection at some point in their lives. It is estimated that as many as 70 percent of women have had HPV or are currently infected by HPV and that by age 30, at least 80 percent will have acquired genital HPV infection. HPV is the cause of cervical dysplasia.

The three types of cervical dysplasia (also called cervical intraepithelial neoplasia, or CIN) are mild, or CIN 1, moderate, or CIN 2, and severe, or CIN 3. Mild dysplasia is by far the most common type. Mild dysplasia is not considered to be a true pre-cancerous disease by many experts, because in about 70 percent of cases the abnormal cervical tissue reverts to normal tissue over time without any specific medical intervention. However, in a subset of women, mild dysplasia can progress to a more serious disease. Often, moderate and severe types of cervical dysplasia, or CIN 2/3, are grouped together and called high-grade cervical dysplasia.

A diagnosis of CIN 2/3 is based upon cellular changes, or transformation, that leads to sufficiently abnormal cervical cell replication and the generation of a cervical lesion that is deemed a pre-cancerous condition. This diagnosis requires that women be treated to eliminate the lesion and the causative transformed cells, which have the potential to develop into cervical cancer over a long period of time. CIN 2/3 lesions are generally treated by a surgical excision procedure called the loop electrocautery excisional procedure, or LEEP. This surgical and other CIN 2/3 treatments are associated with efficacy rates of 70 percent to 90 percent. However, these procedures are invasive and can cause a number of short-term and long-term side effects. LEEP places women at risk because it is a surgical procedure and can result in complications such as bleeding, a narrowing of the cervical opening, cervical incompetence, loss of mucous glands, and secondary infertility.

ZYC300

Our second immunotherapy compound in clinical development is ZYC300. ZYC300, an encapsulated plasmid encoding a commonly expressed tumor antigen, has completed a phase 1/2a trial in 17 patients with late stage metastatic hematological and solid tumors. The enzyme cytochrome P450 1B1, or CYP1B1, is encoded by the ZYC300 plasmid. Data from this trial were selected for oral presentation at the American Society of Clinical Oncology, or ASCO, 2003 Annual Meeting and demonstrated that ZYC300 was well tolerated and biologically active. During 2005, we intend to advance ZYC300 into a clinical trial in patients with solid tumors.

The Immune System and ZYC300

Recent studies, in both human and animal systems, have provided compelling evidence that the immune system can be activated to specifically recognize human tumor cells and kill them. Most attention has focused on thymus-derived cells, or T cells, as the principal cause of anti-tumor immunity especially in light of findings that tumor-derived proteins function as tumor-associated antigens, or TAA, and targets for T cells. The demonstration that TAA-specific immune responses can lead to tumor regression has been borne out extensively in animal models and data from clinical trials suggest that this approach is safe, feasible, and potentially effective in humans. Until recently, clinical efforts have been somewhat limited, in part because most tumor antigens are restricted in expression to one or a few tumor types and to a fraction of subjects with these types of tumors. CYP1B1, the enzyme encoded in the ZYC300 plasmid, is widely expressed in human cancer but rarely in normal tissues. Administration of ZYC300 in preclinical studies resulted in anti-tumor T cell responses and r