The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under "Risk Factors" in Item 1A of Part I of the 2011 Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

We are a biopharmaceutical company dedicated to developing and commercializing new, differentiated cancer therapies designed to improve and enable current standards of care. We currently have four product candidates in various stages of development:

? Marqibo® (vincristine sulfate liposome injection), our lead product candidate, is a novel, targeted Optisome™ encapsulated formulation product candidate of the Food and Drug Administration (FDA)-approved anticancer drug vincristine, currently in development primarily for the treatment of adult acute lymphoblastic leukemia, or ALL, in second or greater relapse or that has progressed following two or more prior lines of anti-leukemia therapy. In July 2011, we submitted to the FDA a new drug application, or NDA, seeking accelerated approval of Marqibo. In September 2011, the FDA accepted our NDA for filing under Subpart H - Accelerated Approval for New Drugs for Serious or Life Threatening Illnesses, and set an action date for our NDA under the Prescription Drug User Fee Act, commonly referred to as a PDUFA date, of May 13, 2012, reflecting a standard 10-month review timeline. After a hearing in front of a panel of the FDA's Oncologic Drugs Advisory Committee, or ODAC, on March 21, 2012, which resulted in a positive vote (7 to 4 with 2 abstentions) for Marqibo, the FDA requested, and we have provided, additional information relating to our NDA. On May 3, 2012, the FDA informed us that in order to complete its review of the submitted information, the FDA has extended the PDUFA date for 3 months to August 12, 2012.

? Menadione Topical Lotion, a novel supportive care product candidate being developed for the prevention and/or treatment of the skin toxicities associated with the use of epidermal growth factor receptor inhibitors, or EGFRIs, a type of anti-cancer agent used in the treatment of lung, colon, head and neck, pancreatic and breast cancer. MTL is currently being studied in a Phase 2 placebo-controlled clinical trial sponsored and conducted by Mayo Clinic.

? Brakiva™ (topotecan liposome injection), a novel targeted Optisome™ encapsulated formulation product candidate of the FDA-approved anticancer drug topotecan.

? Alocrest™ (vinorelbine liposome injection), a novel, targeted Optisome™ encapsulated formulation product candidate of the FDA-approved anticancer drug vinorelbine.

Revenues

We do not expect to generate any significant revenue from product sales or royalties in the foreseeable future. We may have revenues in the future only if we are able to develop and commercialize our products, license our technology and/or enter into strategic partnerships. If we are unsuccessful, our ability to generate future revenues will be significantly diminished.

Research and Development Expenses

Research and development expenses, which account for the bulk of our expenses, consist primarily of salaries and related personnel costs, fees paid to consultants and outside service providers for laboratory development, manufacturing, and other expenses relating to the acquiring, design, development, testing, and enhancement of our product candidates, including milestone payments for licensed technology. We expense research and development costs as they are incurred.

While expenditures on current and future clinical development programs are expected to be substantial, particularly in light of our available resources, they are subject to many uncertainties, including the results of clinical trials and whether we develop any of our drug candidates with a partner or independently. As a result of such uncertainties, we cannot predict with any significant degree of certainty the duration and completion costs of our research and development projects or whether, when and to what extent we will generate revenues from the commercialization and sale of any of our product candidates. The duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during clinical development and a variety of factors, including:

? the number of trials and studies in a clinical program;

? the number of patients who participate in the trials;

? the number of sites included in the trials;

? the rates of patient recruitment and enrollment;

? the duration of patient treatment and follow-up;

? the costs of manufacturing our drug candidates; and

? the costs, requirements, timing of, and the ability to secure regulatory approvals.

General and Administrative Expenses

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

Share-Based Compensation

Share-based compensation expenses consist primarily of expensing the fair-market value of a share-based award over the vesting term. This expense is included in our operating expenses for each reporting period.

Critical Accounting Policies

The accompanying discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. We believe there are certain accounting policies that are critical to understanding our financial statements, as these policies affect the reported amounts of expenses and involve management's judgment regarding significant estimates. We have reviewed our critical accounting policies and their application in the preparation of our financial statements and related disclosures with the Audit Committee of our Board of Directors. Our critical accounting policies and estimates are described below.

Share-Based Compensation

We account for share-based compensation in accordance with FASB ASC TOPIC 718 "Compensation - Stock Compensation." We have adopted a Black-Scholes-Merton model to estimate the fair value of stock options issued and the resultant expense is recognized in the statement of operations each reporting period.

Financial Instruments with Characteristics of Both Equity and Liabilities

We have issued certain financial instruments, including warrants to purchase common stock, rights to purchase shares of Series A-1 and A-2 Preferred Stock, and rights to purchase shares of Series A-3 Preferred Stock which have the characteristics of both equity and liabilities. These instruments were evaluated to be classified as liabilities at the time of issuance and are revalued at fair value from period to period with the resulting change in value included in other income/(expense).

Licensed In-Process Research and Development

Licensed in-process research and development relates primarily to technology, intellectual property and know-how acquired from another entity. We evaluate the stage of development as well as additional time, resources and risks related to development and eventual commercialization of the acquired technology. As we historically have acquired non-FDA approved technologies, the nature of the remaining efforts for completion and commercialization generally include completion of clinical trials, completion of manufacturing validation, interpretation of clinical and preclinical data and obtaining marketing approval from the FDA and other regulatory bodies. The cost in resources, probability of success and length of time to commercialization are extremely difficult to determine. Numerous risks and uncertainties exist with respect to the timely completion of development projects, including clinical trial results, manufacturing process development results and ongoing feedback from regulatory authorities, including obtaining marketing approval. Additionally, there is no guarantee that the acquired technology will ever be successfully commercialized due to the uncertainties associated with the pricing of new pharmaceuticals, the cost of sales to produce these products in a commercial setting, changes in the reimbursement environment or the introduction of new competitive products. Due to the risks and uncertainties noted above, we will expense such licensed in-process research and development projects when incurred. However, the cost of acquisition of technology is capitalized if there are alternative future uses in other research and development projects or otherwise based on internal review. All milestone payments will be expensed in the period the milestone is reached.

Clinical Study Activities and Other Expenses from Third-Party Contract Research Organizations

Much of our research and development activities related to clinical study activity are conducted by various third parties, including contract research organizations, which may also provide contractually defined administration and management services. Expense incurred for these contracted activities are based upon a variety of factors, including actual and estimated patient enrollment rates, clinical site initiation activities, labor hours and other activity-based factors. On a regular basis, our estimates of these costs are reconciled to actual invoices from the service providers, and adjustments are made accordingly.

Results of Operations

Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011

General and administrative expenses. For the three months ended March 31, 2012, general and administrative, or G&A, expense was $1.7 million, as compared to $1.5 million for the three months ended March 31, 2011. The $0.2 million increase is due to increased personnel related expenses of $0.2 million, $0.1 million related to increased professional fees and third-party service fees, offset partially by $0.1 million in decreased allocated departmental costs and overhead. Personnel costs increased due to higher bonus payments resulting from the achievement of certain corporate milestones in 2011.

Research and development expenses. The following table summarizes our R&D expenses incurred for preclinical support, contract manufacturing for clinical supplies and clinical trial services provided by third parties, as well as milestone payments for in-licensed technology for each of our current major product development programs for the three months ended March 31, 2012 and 2011. The table also summarizes outside services and allocated overhead costs, which consist of personnel, facilities and other costs not directly allocable to development programs.

                                                    Three months ended March 31,
                                                                                             %
R&D expenses ($ in thousands)                         2012               2011(1)          Change
Marqibo                                           $       1,058       $       3,255          -67.5%
Other product candidates                                     58                  56            3.6%
Professional fees and third-party service costs             182                 267          -31.8%
Allocable costs and overhead                                 87                 183          -52.5%
Personnel related expense                                 1,255               1,312           -4.3%
Share-based compensation expense                            102                  71           43.7%
Total research and development expense            $       2,742       $       5,144          -46.7%


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Marqibo. In the three months ended March 31, 2012, Marqibo costs decreased by $2.2 million compared to the same period in 2011. During the three months ended March 31, 2011, the Company incurred significant fees from contract research organizations (CROs) related to the preparation of the Marqibo NDA filing, which was submitted in July 2011. CRO costs and professional consultation fees decreased for the quarter ended March 31, 2012, compared to the corresponding quarter in the preceding year, as such activities were primarily limited to preparatory activities related to the March 2012 ODAC meeting.

We expect to spend approximately $20 million to $25 million on Marqibo in 2012, including costs for personnel, consultants and CROs, the majority of which will be spent on responding to FDA inquiries related to our NDA filing, pre-approval inspections at our contracted manufacturing facilities, expansion of the confirmatory Phase 3 trial as well as providing drug for the investigator sponsored trials for Marqibo in elderly patients with NHL and pediatric and adolescent patients with solid tumors and hematological malignancies, including ALL. We estimate that we will need to spend an additional $45 million to $50 million on external costs to run the trial needed to obtain full FDA approval in adult ALL. External costs include drug production, clinical trial costs, data management and supporting activities not provided by our full-time employees. These costs are impacted by the size and duration of the clinical trials. We expect that it will take several years until we will have completed development and obtained full FDA approval of Marqibo, if ever. We need to raise additional capital to fund these planned expenditures beyond mid-2012. If we are unable to raise additional capital when needed, we will have to discontinue our product development programs or relinquish or rights to some or all of our product candidates.

Other R&D expenses. Personnel related costs decreased by $0.1 million during the three months ended March 31, 2012 compared to the corresponding period in the preceding year. The decrease was driven by a reduction in the number of full-time employees from the prior year, and the increased reliance on professional consultants during the 2012 period.

Interest expense. For the three months ended March 31, 2012 and 2011, interest expense was $0.9 million for each respective period.

Gain or loss on change in fair market value of liabilities re-measured at fair value. We have certain financial instruments that are recorded as liabilities. We re-measure the fair value of these liabilities at each reporting period with the gain or loss recognized in the statement of operations. For the three months ended March 31, 2012, we recorded a net loss related to these liabilities of $25.1 million, compared to a net loss of $2.8 million in the corresponding period in the preceding year. The increase in net loss in the current period, compared to the same period last year, is driven by a $23.7 million loss incurred in connection with the revaluation of rights to purchase shares of Series A-3 Preferred in connection with the 2012 Investment Agreement executed on January 9, 2012. The revaluation of rights to purchase additional shares of Series A-1 and Series A-2 Preferred also contributed to $1.0 million of the total net loss. The value of these liabilities is largely dependent on the price of our common stock, and as the stock price increases or decreases, the value of these instruments will increase or decrease in relation. For additional details, see Notes 5, 7 and 9 of our unaudited condensed financial statements included elsewhere in this Form 10-Q.

Liquidity and Capital Resources

As of March 31, 2012, we had a stockholders' accumulated deficit of approximately $210.4 million, and for the fiscal quarter ended March 31, 2012, we experienced a net loss of $30.5 million. We have financed operations primarily through equity and debt financing and expect such losses to continue over the next several years. We have drawn down $27.5 million of long-term debt under the October 2007 Facility Agreement that we entered into with Deerfield Management and certain of its affiliates (collectively, "Deerfield"), with the entire balance due in June 2015. We currently have a limited supply of cash available for operations. As of March 31, 2012, we had aggregate cash and cash equivalents of $6.9 million.

On January 9, 2012, we entered into an Investment Agreement with certain investors pursuant to which we issued and sold to such investors an aggregate of 110,000 shares of Series A-2 Preferred at a per share purchase price of $100 for an aggregate purchase price of $11.0 million. The Investment Agreement also provides that, until the first anniversary of our receipt of marketing approval from the Food and Drug Administration for any of our product candidates, the investors have the right, but not the obligation, to purchase up to an additional 600,000 shares of Series A-3 Preferred at a purchase price of $100 per share. We had previously entered into an Investment Agreement dated June 7, 2010, pursuant to which the same investors purchased 400,000 shares of Series A-1 Preferred for an aggregate purchase price of $40.0 million.

As described above, we and Deerfield had previously entered into the Facility Agreement on October 30, 2007, as amended on June 7, 2010. In connection with the entry into the Investment Agreement, on January 9, 2012, we and Deerfield entered into a Second Amendment to Facility Agreement. Among other items, pursuant to the Second Amendment to Facility Agreement, we will satisfy our obligation under the Facility Agreement to make quarterly interest payments for the quarters ended December 31, 2011, March 31, 2012, June 30, 2012 and September 30, 2012, by issuing a whole number of shares of Series A-2 Preferred in lieu of cash. On January 9, 2012, we issued an aggregate of 6,826 shares of Series A-2 Preferred in satisfaction of interest accrued under the Facility Agreement for the quarter ended December 31, 2011. On March 30, 2012, we issued an aggregate of 6,752 shares of Series A-2 Preferred in satisfaction of interest accrued under the Facility Agreement for the quarter ended March 31, 2012.

We believe that our cash resources as of March 31, 2012 are only sufficient to fund our development plans to mid-2012. Accordingly, our financial statements reflect substantial doubt about our ability to continue as a going concern, which is also stated in the report from our auditors on the audit of our financial statements as of and for the year ended December 31, 2011. Our plan of operation for the year ending December 31, 2012 is to continue implementing our business strategy, including FDA approval of our lead product candidate Marqibo and continued development of our clinical trials for Marqibo and other drug candidates. We do not generate any recurring revenue and will require substantial additional capital before we will generate cash flow from our operating activities, if ever. We will be unable to continue development of our product candidates unless we are able to obtain additional funding through equity or debt financings or from payments in connection with potential strategic transactions. We can give no assurances that additional capital that we are able to obtain, if any, will be sufficient to meet our needs. Moreover, there can be no assurance that such capital will be available to us on favorable terms or at all, especially given the current economic environment which has severely restricted access to the capital markets. If anticipated costs are higher than planned or if we are unable to raise additional capital, we will have to significantly curtail planned development to maintain operations before the end of 2012.

As part of our planned research and development, we intend to use clinical research organizations and third parties to help perform our clinical studies and manufacturing. As indicated above, at our current and desired pace of clinical development of our product candidates, over the next 12 months we expect to spend approximately between $20 million and $25 million on clinical development for Marqibo (including milestone payments that may be triggered under the license agreements relating to our product candidates). We also expect to spend approximately $5.5 million on general corporate and administrative expenses. However, as noted above, our cash resources as of March 31, 2012 are only sufficient to fund our development plans to mid-2012.

The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:

? costs associated with conducting preclinical and clinical testing;

? costs of establishing arrangements for manufacturing our product candidates;

? payments required under our current and any future license agreements and collaborations;

? costs, timing and outcome of regulatory reviews;

? costs of obtaining, maintaining and defending patents on our product candidates; and

? costs of increased general and administrative expenses.

We have based our estimate on assumptions that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate.

Off-Balance Sheet Arrangements

We do not have any "off-balance sheet agreements," as that term is defined by SEC regulation.