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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

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

For the Fiscal Year Ended December 31, 2004

o 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)

(908) 286-9800
(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
(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 ý No o

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

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

     The approximate aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $159,885,000 as of June 30, 2004 (the last business day of the registrant’s most recently completed second fiscal quarter). For purposes of determining this number, 16,416,341 shares of common stock held by affiliates as of June 30, 2004 are excluded. For purposes of making this calculation, the registrant has defined affiliates as including all directors, executive officers and beneficial owners of more than ten percent of the common stock of the Company.

     As of March 9, 2005, the registrant had 95,358,215 shares of Common Stock outstanding.

Documents Incorporated by Reference

     Certain provisions of the registrant’s definitive proxy statement to be filed not later than April 30, 2005 pursuant to Regulation 14A are incorporated by reference in Items 10 through 13 of Part III of this Annual Report on Form 10-K.

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Genta Incorporated
Table of Contents

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Table of Contents

     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 actual results to differ materially from any future results expressed or implied by such forward-looking statements. Forward-looking statements include, without limitation, statements about:

• the Company’s ability to obtain necessary regulatory approval, especially U.S. Food and Drug Administration (“FDA”) approval or failure to approve Genasense^®;
  
• the safety and efficacy of the Company’s products;
  
• the commencement and completion of clinical trials;
  
• the Company’s ability to develop, manufacture and sell its products;
  
• the adequacy of the Company’s capital resources and the Company’s ability to obtain sufficient financing to maintain
  
• the Company’s planned operations;
  
• the adequacy of the Company’s patents and proprietary rights;
  
• the impact of litigation that has been brought against the Company and its officers and directors;
  
• the other risks described under Certain Risks and Uncertainties Related to the Company’s Business.
  
  

     The Company does not undertake to update any forward-looking statements.

     We make available free of charge on our internet website (http://www.genta.com) our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. The content on the Company’s website is available for informational purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference into this Form 10-K.

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PART I

A. Overview

     Genta Incorporated (“Genta” or the “Company”) was incorporated in Delaware on February 4, 1988. Genta is a biopharmaceutical company dedicated to the identification, development and commercialization of novel drugs for cancer and related diseases. Our research portfolio consists of two major areas of focus:

• DNA/RNA Medicines, which include drugs that are based on chemical modifications of oligonucleotides; and
  
• Small Molecules
  
  

     The DNA/RNA Medicines program includes drugs that are based on technologies known as antisense, decoys and RNA interference. The Company’s lead drug from this program is an investigational antisense compound known as Genasense^® (oblimersen sodium injection). Genasense^® is designed to block the production of a protein known as Bcl-2. Current science suggests that Bcl-2 is a fundamental (although not sole) cause of the inherent resistance of cancer cells to current anticancer treatments, such as chemotherapy, radiation, or monoclonal antibodies. While Genasense^® has displayed some anticancer activity when used by itself, the Company is developing the drug primarily as a means of amplifying the cytotoxic effects of other anticancer treatments.

     Genasense^® has been studied in combination with a wide variety of anticancer drugs in a number of different cancer indications. Three randomized Phase 3 trials of Genasense^® have been completed in malignant melanoma, chronic lymphocytic leukemia (CLL), and multiple myeloma. Under its own sponsorship or in collaboration with the U.S. National Cancer Institute (NCI), Genta is currently conducting a number of additional trials.

     In May 2004, the Company’s New Drug Application (NDA) for Genasense^® plus chemotherapy in malignant melanoma failed to gain a majority vote for marketing approval by the Oncology Drug Advisory Committee (ODAC) of the U.S. Food and Drug Administration (FDA). Genta subsequently withdrew the NDA from further consideration. The Company has continued long-term follow-up of patients who were enrolled into the melanoma trial. Genta is conducting additional analyses of those data and expects to provide an update of these results in 2005. The Company is also exploring the feasibility of filing similar regulatory applications in the European Union.

     In December 2004, the Company released initial results from its other Phase 3 trials. The trial in multiple myeloma failed to meet endpoints that would be sufficient for regulatory approval. The trial in CLL met its primary endpoint of significantly increasing the proportion of patients who achieved a complete or nodular partial remission, as determined by blinded expert review of clinical data and bone marrow biopsies. A significant increase in disease-free survival was also observed. No difference was observed in overall response rate, time-to-disease progression, or overall survival. Adverse events (irrespective of relation to study drugs) during treatment or within 30 days from last dose of treatment that resulted in death occurred in 9 patients treated with Genasense^® plus chemotherapy compared with 5 patients treated with chemotherapy alone. The percentage of patients who experienced serious adverse events was increased in the Genasense^® arm; however, the percentages of patients who discontinued treatment due to adverse events were equal in the treatment arms. The incidence of certain serious adverse reactions, including but not limited to nausea, fever and catheter-related complications, was increased in patients treated with Genasense^®.

     Genta is currently conducting additional analyses of data from this trial and is exploring the feasibility of filing a NDA for this indication based on existing data. Such an application would be filed using the “Fast Track” designation previously granted by the FDA, which allows approval of a drug based on a surrogate endpoint that is reasonably likely to be predictive of clinical benefit. Approval under this mechanism is contingent upon a company conducting one or more additional trials that would conclusively document that benefit. The Company is also exploring the feasibility of filing similar regulatory applications in the European Union.

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     In April 2002, we entered into a series of agreements with Aventis, a member of the sanofi-aventis Group (“Aventis”), regarding the development and commercialization of Genasense^®. On November 8, 2004, the Company received from Aventis a notice of termination of these agreements. Pursuant to those agreements, Aventis is required to fund substantial portions of the development costs of Genasense^® until May 8, 2005. Genta has initiated discussions with other potential marketing and development partners for Genasense^®.

     The Company has two additional programs in the DNA/RNA Medicines program. The first is an antisense drug (LR3001) directed against an oncogene called c-myb. LR3001 has been tested in a clinical Phase 1 trial, and the Company is currently seeking to restart that study, which is currently being sponsored by an independent investigator. The second is a drug called the CRE-BP Decoy, which remains in the laboratory testing stage.

     The Small Molecules Program currently includes drugs that are based on gallium-containing compounds. The lead drug from this Program is Ganite^® (gallium nitrate injection), which was approved by FDA in October 2003 for the treatment of cancer-related hypercalcemia that is resistant to hydration. In Phase 2 studies, Ganite^® has been reported to demonstrate direct anticancer activity, particularly in patients with malignant lymphoma and bladder cancer. Following the adverse outcome of the ODAC meeting in May 2004 for Genasense^®, the Company markedly reduced spending on the development, sale and marketing of Ganite^® resulting in significantly lower sales of Ganite^®. A number of side effects have been reported related to treatment with Ganite^®. These side effects are described in the Product Insert for the drug. Genta has also been engaged in developing new formulations of gallium-containing compounds that may be orally absorbed; to date, however, these efforts have not yielded a compound that the Company has advanced into late-stage preclinical testing.

     The Company seeks to acquire additional drugs in these two Programs that will enhance the value of its pipeline to shareholders.

B. Summary of Business and Research and Development Programs

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

     Research and Development Programs

     DNA/RNA Medicines

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

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     Antisense Technology

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

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

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

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

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

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

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

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

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

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     Genasense^®

     Genasense^® has been designed to block the production of Bcl-2. Current science suggests that Bcl-2 is a fundamental cause of the inherent resistance of cancer cells to current cancer treatments, such as chemotherapy, radiation or monoclonal antibodies. Blocking Bcl-2, therefore, may enable cancer treatments to be more effective. While Genasense^® has displayed some anticancer activity when used by itself, we believe the drug can be optimally used as a means of amplifying the effectiveness of other cancer therapies, most of which function by triggering apoptosis, which as noted is relatively blocked in cancer cells to over-production of Bcl-2.

Overview of Preclinical and Clinical studies of Genasense^®

     Preclinical Studies

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

     Clinical Studies

     Genasense^® has been in clinical trials since 1995 in both the United States and Europe. We currently have efficacy and safety data on over 1,400 patients in Phase 1, Phase 2 or Phase 3 clinical trials. These studies have been conducted in patients with a wide variety of tumor types, including advanced malignant melanoma, several types of leukemia, non-Hodgkin’s lymphoma (NHL) and cancers of the prostate, colon, lung, breast and other tumor types. Since 2001, Genta and the National Cancer Institute (NCI) have jointly approved the initiation of approximately twenty clinical trials. In addition to making Genasense^® available to more physicians and patients, these trials allow us to evaluate Genasense^® in certain diseases (and in combination with other chemotherapy drugs) that would otherwise be outside our initial priorities for clinical development. The overall results of clinical trials performed to date suggest that Genasense^® can be administered to cancer patients with acceptable side-effects, and that such treatment may reduce the level of Bcl-2 protein in cancer cells.

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     The following chart sets forth the progress of our clinical trials with respect to various potential indications for Genasense^®:

     Highlights of the randomized trials sponsored directly by the Company follow:

     Phase 3 Trial of Genasense^® Plus Chemotherapy in Patients with Malignant Melanoma

     In late 2003, we filed an NDA for Genasense^® to be used in combination with dacarbazine for the treatment of patients with melanoma who had not previously received chemotherapy. The FDA accepted our NDA filing on February 5, 2004 and granted “Priority Review” status to the application, which targeted an agency action on or before June 8, 2004. On February 10, 2004, we were invited by the FDA to meet on May 3, 2004 with ODAC. On May 3, 2004 we presented results of our Phase 3 trial of Genasense^® in combination with dacarbazine versus dacarbazine alone to the ODAC. A majority of the committee members voted that the increased number of clinical responses were indicative of the clinical activity of Genasense^® in melanoma. However, in the absence of increased survival, a majority of the committee members voted that the evidence presented did not provide substantial evidence of effectiveness, as measured by response rate and progression-free survival, to outweigh the increased toxicity of administering Genasense^® for the treatment of patients with metastatic melanoma who have not received prior chemotherapy. On May 13, 2004 the Company announced that it had withdrawn its NDA. Genta continues to track data from patients enrolled in this trial and to analyze its results. The Company expects to present updated information from this trial in 2005. The Company is currently reviewing the possibility for filing the updated data for marketing approval in Europe. The Company has not yet determined what, if any, additional clinical trials may be undertaken with Genasense^® in patients with melanoma.

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     Phase 3 Trial of Genasense^® Plus Chemotherapy in Patients with Chronic Lymphocytic Leukemia

     In November 2004, the Company reported results from a randomized Phase 3 clinical trial of Genasense^® in patients with relapsed or refractory chronic lymphocytic leukemia (CLL). Patients were eligible for this trial if they had failed standard treatment for CLL that had included fludarabine. Two hundred forty one patients were randomized to receive standard chemotherapy with fludarabine and cyclophosphamide with or without Genasense^®. The primary objective of the study was to evaluate whether the addition of Genasense^® would increase the proportion of patients who attained major objective responses (defined as complete remission or a nodular partial remission), as determined by review of clinical data and bone marrow biopsies using experts who were blinded as to treatment assignment. Analysis of study results has shown that the addition of Genasense^® to chemotherapy was associated with a statistically significant increase in the major objective response rate compared with the rate observed in patients who were treated with chemotherapy alone. A significant increase in disease-free survival was also observed. No difference was observed in overall response rate, time-to-disease progression, or overall survival. The incidence of certain serious adverse reactions, including but not limited to nausea, fever and catheter-related complications, was increased in patients treated with Genasense^®. Adverse events (irrespective of relation to study drugs) during treatment or within 30 days from last dose of treatment that resulted in death occurred in 9 patients treated with Genasense^® plus chemotherapy compared with 5 patients treated with chemotherapy alone. The percentage of patients who experienced serious adverse events was increased in the Genasense^® arm; however, the percentages of patients who discontinued treatment due to adverse events were equal in the treatment arms.

     Genta plans to discuss the feasibility of submitting an NDA for “Accelerated Approval” based on this data with the FDA. The CLL trial has both “Fast Track” and “Orphan Drug” designations from the FDA. The Company is also exploring the feasibility of filing similar regulatory applications in the European Union.

     In mid-2004, the Company became aware of an episode of employee misconduct that involved an unauthorized attempt by the employee to analyze data from the Company’s Phase 3 trial of Genasense^® in patients with CLL. The episode, which was undertaken prior to assessment of the external expert clinical review of response, was fully investigated by the Company and the Company reported the incident to the FDA. While there can be no assurance, the Company does not currently believe this episode will have a material impact on the analysis or interpretation of the study results, nor that it will affect whether or not the Company will receive marketing approval for Genasense^® in CLL.

     Phase 3 Trial of Genasense^® Plus Chemotherapy in Patients with Multiple Myeloma

     In November 2004, Genta reported that the Company's randomized Phase 3 clinical trial of Genasense^® in patients with multiple myeloma did not meet its primary endpoint. The trial had been designed to evaluate whether the addition of Genasense^® to standard therapy with high-dose dexamethasone could increase the time to development of progressive disease in patients who previously had received extensive therapy. Based on the results of the Phase 3 trial, the Company has no plans to submit an NDA in this indication at the current time. The Company has not yet determined what additional clinical trials, if any, may be undertaken in patients with multiple myeloma.

     Other Trials

     Other randomized trials are being conducted by either the Company or by oncology cooperative groups. These trials materially differ from previous studies noted above in that they were not prospectively reviewed by FDA for registration suitability prior to initiation. Details of these trials are as follows:

     A large U.S. cooperative oncology group, the Cancer and Leukemia Group B (CALGB) is running a Phase 3 trial in patients with acute myelocytic leukemia (AML) over the age of 60 who have not previously received chemotherapy. All patients in this trial receive standard chemotherapy with daunorubicin and cytarabine and they are randomly assigned to receive additional treatment with Genasense^® or no other treatment. This trial is currently projected to enroll up to approximately 500 patients. As yet, the CALGB has not released expectations for enrollment completion. While the primary endpoint is overall survival, a variety of secondary endpoints (such as complete remission rate and remission duration) will be sequentially examined during the conduct of this trial.

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     During June 2004, Genta completed enrollment in a randomized Phase 2 trial of Genasense^® plus docetaxel in patients with non-small cell lung cancer. Patients who met a variety of eligibility criteria and who had failed front-line platinum-containing chemotherapy were eligible. Patients were randomly assigned to receive a standard dose of docetaxel with or without Genasense^®. A total of 298 patients were enrolled into this study. The primary endpoint of the study was to increase overall survival in patients treated with Genasense^® plus chemotherapy compared with patients treated with chemotherapy alone. Key secondary endpoints include comparisons of progression-free survival and objective response.

     Two oncology cooperative groups, including the European Organization for Research and Treatment of Cancer (EORTC) and the CALGB, are conducting exploratory randomized trials, as follows:

     During the fourth quarter of 2004, the CALGB completed enrollment in a randomized trial of Genasense^® in patients with small cell lung cancer. The trial evaluates patients with extensive disease who have not previously received chemotherapy. The trial includes approximately 55 patients and randomly assigns patients to receive Genasense^® plus chemotherapy with carboplatin and etoposide or chemotherapy alone. The endpoint of the trial is to determine the proportion of patients who have survived at least twelve months from the date of randomization. Data from this trial are expected to be available in 2006.

     The EORTC is conducting a randomized study of Genasense^® in patients with hormone-refractory prostate cancer who have not previously received chemotherapy. In this study, all patients receive standard therapy with docetaxel and are randomly assigned to receive Genasense^® or no other treatment. The current sample size is projected at 102 patients; the primary objective is to compare response rates of prostate specific antigen (PSA).

     In addition to these randomized trials, the Company, either under its own sponsorship or in collaboration with the NCI is also conducting a number of non-randomized clinical trials in patients with various types of cancer.

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

Ganite^®

     On October 6, 2003, we began marketing Ganite^® for the treatment of cancer-related hypercalcemia. Ganite^® is our first drug to receive marketing approval.

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

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

     The extension for an important patent covering the use of Ganite^® for its approved indication will expire in April 2005. Genta has filed patent applications seeking additional patent protection for Ganite^®.

     In May 2004, the Company eliminated its sales force and significantly reduced its marketing support for Ganite^®. After evaluating various options, we decided during the third quarter of 2004 to continue selective marketing support of the product. In December 2004, a wholesaler contacted the Company to return a significant portion of its inventory of Ganite^®. The Company agreed to the return of this product and recorded a provision for sales returns, as well as provided for potential returns from other wholesalers. Our provision for sales returns increased by $1.2 million in 2004.

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     Based on previously published data, we believe that Ganite^® may also be a useful treatment for patients with certain types of cancer, particularly non-Hodgkin’s lymphoma (NHL). Approximately 54,000 new cases of NHL are diagnosed in the United States each year. We have been granted an investigational new drug exemption, or IND, and we have commenced clinical trials of Ganite^® for the treatment of patients with relapsed NHL. In December 2004, we announced the results of a Phase 2 clinical trial in patients with NHL. The results showed that Ganite^® displayed antitumor activity in patients with various types of advanced NHL who had failed to respond or had relapsed from other types of treatment. However, the use of Ganite^® for these indications entailed the use of higher doses than were used in the hypercalcemia trials and as a result, an increased number of serious adverse events were recorded in this trial. In particular, several patients experienced optic neuritis and optic atrophy associated with visual loss, along with other side effects. As a result of the cost savings actions announced in May 2004, spending on the clinical development of Ganite^® as a chemotherapy agent was also reduced. When sufficient resources become available, we may resume clinical development of Ganite^® in NHL and other indications by initiating new clinical trials. Previous clinical trials of Ganite^® showed that the drug has not been associated with significant myelosuppression, a decrease of bone marrow activity often associated with cancer therapy, which can cause increased susceptibility to bleeding and infection. We believe this feature may allow Ganite^® to be incorporated into combination chemotherapy regimens that employ other drugs that cause myelosuppression, thereby potentially increasing the utility of such therapy for patients.

Other Pipeline Products and Technology Platforms

     Oral Gallium

     For several years, we have been attempting to develop novel formulations of gallium-containing compounds that can be taken orally. Such formulations might be useful for diseases in which long-term low-dose therapy is deemed desirable, such as bone metastases, Paget’s disease and osteoporosis. Such patients are commonly afflicted by bone pain and susceptibility to fractures. To date, a suitable oral formulation that would be available for clinical development has not yet been identified.

     Decoys

     In addition to antisense compounds from the DNA/RNA Medicines Program, we have explored the development of compounds known as “decoys” that are short strands of DNA or RNA which bind proteins known as transcription factors. Normally, transcription factors bind to specific portions of DNA known as response elements and regulate the functions of genes in a positive or negative fashion (i.e., they can turn genes “on” or “off”). When a cell is flooded with an excess of decoys, these decoys compete with normal DNA response elements to bind transcription factors and inactivate them. By selectively inactivating the transcription factor, the function of the gene can be regulated in a positive or negative manner. This type of control could potentially be used to regulate genes that are critically involved in the cause, metastasis, or progression of cancer.

     In December 2000, Genta licensed patents and technology relating to decoys from the National Institutes of Health (“NIH”). This technology targets a transcription factor known as the cyclic adenosine monophosphate response element binding protein, or CRE-BP. Pre-clinical studies conducted at the NIH have shown broad anticancer activity for this compound, with very low toxicity to normal cells. Due to the financial constraints described above, the Company has sharply reduced current spending on the Decoy program and is currently reviewing whether or not to retain this compound within its research portfolio.

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     c-myb Antisense

     In December 2004, Genta acquired worldwide rights from Temple University to intellectual property and technology and a novel antisense compound (LR3001) that targets c-myb, a central gene that regulates the growth of cancer cells. LR3001 has been tested in two Phase 1 clinical trials at the University of Pennsylvania in patients with drug-resistant myeloid leukemia. To date, clinical investigations have been supported by grants from the NIH, including the Rapid Access to Investigational Drugs (RAID) program. Genta has submitted a request for designation of LR3001 as an Orphan Drug for the treatment of chronic myelocytic leukemia (CML) to the FDA, and notice of this designation was received in February 2005. The Company is currently working with the lead investigator to re-qualify a substantial inventory of LR3001, which – if successful – should be sufficient to complete the Phase 1 program. Following completion of Phase 1, the Company will then decide whether or not to take LR3001 into Phase 2 clinical trials. Based on the biology of c-myb, potential target diseases for LR3001 include CML, neuroblastoma and cancer of the breast and colon, among other conditions.

     Antisense and RNAi Research and Discovery

     We have had several other oligonucleotide-based discovery programs and collaborations devoted to the identification of both antisense- and RNAi-based inhibitors of oncology gene targets. However, spending on these research programs was sharply reduced due to financial constraints previously mentioned. The Company has no current agents that it considers “lead compounds” that would justify their being advanced into late-stage pre-clinical testing.

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

Patents and Proprietary Technology

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

     We own or have licensed several patents and applications to numerous aspects of oligonucleotide technology, including novel compositions of matter, methods of large-scale synthesis, methods of controlling gene expression and methods of treating disease. Genta’s patent portfolio includes approximately 90 granted patents and 105 pending applications in the U.S. and foreign countries. Genta endeavors to seek appropriate U.S. and foreign patent protection on its oligonucleotide technology.

     Genta has licensed seven U.S. patents relating to Genasense^® and its backbone chemistry that expire between 2008 and 2015 and three pending U.S. patent applications that relate to Genasense^®. Corresponding patent applications have been filed in three foreign countries. Genta also owns three U.S. patent applications relating to methods of using Genasense^® that expire in 2020, with approximately 45 corresponding foreign patent applications.

     Included among Genta’s property rights are certain rights licensed from the NIH covering phosphorothioate oligonucleotides. We also acquired from the University of Pennsylvania exclusive rights to antisense oligonucleotides directed against the Bcl-2 mRNA, as well as methods of their use for the treatment of cancer. In 1998, two U.S. patents were issued encompassing our licensed antisense oligonucleotide compounds targeted against the Bcl-2 mRNA and the use of these compounds outside of organisms. These claims cover our proprietary antisense oligonucleotide molecules, which target the Bcl-2 mRNA including Genasense^®. Other related U.S. and corresponding foreign patent applications are still pending.

     The patent covering the use of Ganite^® for its approved indication will expire in April 2005. Genta has filed patent applications seeking additional patent protection for Ganite^®.

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

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

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

     We require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements with us. These agreements generally provide that all confidential information developed or made known to an individual during the course of the individual’s relationship with 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, Genta. There can be no assurance, however, that these agreements will provide meaningful protection to our trade secrets, or guarantee adequate remedies in the event of unauthorized use or disclosure of confidential proprietary information, or in the event of an employee’s refusal to assign any patents to Genta in spite of his/her contractual obligation.

Research and Development

     In addition to our current focus in the areas described above, we continually evaluate our programs in light of the latest market information and conditions, the availability of third-party funding, technological advances and other factors. As a result of such evaluations, we change our product development plans from time to time and anticipate that we will continue to do so. In August 2004, Genta closed of its research facility in Salt Lake City, which had originated from the August 2003 acquisition of Salus Therapeutics, Inc. We recorded research and development expenses of $71.5 million, $83.1 million, and $87.2 million during the years ended December 31, 2004, 2003 and 2002, respectively.

Sales and Marketing

     In May 2004, the Company initiated a series of steps that are designed to conserve cash in order to focus on Genasense^®. The Company reduced its workforce by 85 employees, including the elimination of its sales force.

     Either alone or in partnerships with other companies, we intend to be a direct marketer or co-marketer of our pharmaceutical products by rebuilding a sales and marketing infrastructure in the United States to launch and fully realize the commercial potential of our products if approved by the FDA. For international product sales, we intend to distribute our products through collaborations with third parties.

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Manufacturing and Raw Materials

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

     We currently rely on third parties to manufacture our products. In December 2002, we signed a five-year manufacturing and supply agreement with Avecia Biotechnology, Inc., or Avecia, a leading multinational manufacturer of pharmaceutical products, to supply quantities of Genasense^®. This agreement is also renewable beyond the initial five-year period. We are not obligated to purchase further drug substance from Avecia prior to approval of Genasense^®. We believe this agreement is sufficient for our production needs with respect to Genasense^®.

     We have a three-year manufacturing and supply agreement with Johnson Matthey Inc. expiring in December 2006, whereby Genta will purchase a minimum of 80% of our requirements for quantities of Ganite^®. There are no minimum purchase requirements under the agreement.

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

Human Resources

     In May 2004, as a part of the Company’s reduction in workforce, the Company eliminated 85 employees, or approximately 45%, including 27 positions classified as research and development positions. In August 2004, Genta completed the closure of its research facility in Salt Lake City, which had originated from the August 2003 acquisition of Salus Therapeutics, Inc. As a result, the Company eliminated an additional 15 positions classified as research and development positions.

     As of December 31, 2004, Genta had 73 employees, 15 of whom hold doctoral degrees. As of that date, there were 49 employees engaged in research, development and other technical activities, 2 employees in sales and marketing and 22 in administration. None of Genta’s employees are represented by a union. Most of the management and professional employees of Genta have had prior experience and positions with pharmaceutical and biotechnology companies. Genta believes it maintains satisfactory relations with its employees and has not experienced interruptions of operations due to labor disagreements.

C. Government Regulation

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

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

     Clinical trials are generally categorized into four phases.

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

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

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

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

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

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

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

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

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