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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.

14

     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.

15

     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 to comply with laws and regulations and these costs may become more significant.

D. Competition

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

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

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

E. Certain Risks and Uncertainties Related to the Company’s Business

     You should carefully consider the following risks and all of the other information set forth in this prospectus before deciding to invest in shares of our common stock. The risks described below are not the only ones facing our company. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.

     If any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer. In such case, the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.

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     The commercialization of our pharmaceutical products involves a number of significant challenges. In particular, our ability to commercialize products, such as Ganite^® and Genasense^®, depends, in large part, on the success of our clinical development programs, our efforts to obtain regulatory approvals and our sales and marketing efforts directed at physicians, patients and third-party payors. A number of factors could affect these efforts, including:

• our ability to demonstrate clinically that our products are useful and safe in particular indications;
  
  
• delays or refusals by regulatory authorities in granting marketing approvals;
  
  
• our limited financial resources and sales and marketing experience relative to our competitors;
  
  
• actual and perceived differences between our products and those of our competitors;
  
  
• the availability and level of reimbursement for our products by third-party payors;
  
  
• incidents of adverse reactions to our products;
  
  
• side effects or misuse of our products and the unfavorable publicity that could result; and
  
  
• the occurrence of manufacturing, supply or distribution disruptions.
  
  

     We cannot assure you that Genasense^® will receive FDA approval. Our financial condition and results of operations have been and will continue to be significantly affected by FDA action with respect to Genasense^®. In late 2003, we filed our first NDA with the FDA for Genasense^® as a treatment combined with chemotherapy for patients with malignant melanoma. On May 3, 2004 the FDA Oncology Drugs Advisory Committee voted not to recommend Genasense^®. 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.

     On November 8, 2004, we announced the results of our Phase 3 clinical trial of Genasense^® in patients with relapsed or refractory CLL. The trial 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. 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. We plan to discuss the feasibility of submitting a NDA based on these data in CLL with the FDA.

     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.

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     We cannot assure you that we will submit a NDA for Genasense^® in CLL or submit regulatory filings in melanoma or other diseases to the FDA or outside the U.S. Even if submitted, we cannot provide assurance that these submissions will result in regulatory approval of Genasense^® in any territory. Failure to obtain approval, or a substantial delay in approval of Genasense^® for these or any other indications, would have a material adverse effect on our results of operations and financial condition.

     Ultimately, our efforts may not prove to be as effective as those of our competitors. In the United States and elsewhere, our products will face significant competition. The principal conditions on which our product development efforts are focused and some of the other disorders for which we are conducting additional studies, are currently treated with several drugs, many of which have been available for a number of years or are available in inexpensive generic forms. Thus, even if we obtain regulatory approvals, we will need to demonstrate to physicians, patients and third-party payors that the cost of our products is reasonable and appropriate in light of their safety and efficacy, the price of competing products and the relative health care benefits to the patient. If we are unable to demonstrate that the costs of our products are reasonable and appropriate in light of these factors, we will likely be unsuccessful in commercializing our products.

     We intend to be a direct marketer of some products in the United States. Currently we do not have a sales force. Our sales force was eliminated in 2004 following our decision to withdraw the NDA for Genasense^® for the treatment of malignant melanoma. Our need to build a sales force capable of marketing our products may adversely affect our sales and limit the commercial success of our products.

     In April 2002, we entered into a series of agreements relating to the development and commercialization of Genasense^®, to which we refer collectively as the Collaborative Agreement, with Aventis and its affiliates. On November 8, 2004, we received from Aventis a notice of termination of the Collaborative Agreement. The key financial aspects of the Collaborative Agreement were the following:

• Aventis committed to provide up to $476.9 million in initial payments, milestone payments and for the purchase from us of equity and convertible notes.
  
  
• If Genasense^® received marketing approval from the FDA, we would have been entitled to royalties on Aventis’ exclusive worldwide net sales of Genasense^®.
  
  
• Aventis agreed to pay 75% of the development costs related to any U.S. NDA incurred by either us or Aventis subsequent to the execution of our Collaborative Agreement, and substantially all other development, marketing, and sales costs incurred worldwide.
  
  
• Aventis agreed to reimburse a portion of our expenses in building our sales force to market in the United States.
  
  

     As of December 31, 2004, we had received a total of $266.8 million in initial and near-term funding pursuant to the Collaborative Agreement, which included a $10.0 million licensing fee and $40.0 million in development funding, $10.0 million in convertible debt proceeds, $71.9 million pursuant to an at-market equity investment in our common stock, $127.6 million in expense reimbursements and $7.3 million in line of credit proceeds. As a result of the termination of the Collaborative Agreement, Aventis will continue to support the development of Genasense^® for a six-month period lasting until May 8, 2005. After May 8, 2005, we will be responsible for all Genasense^® costs. In addition, with the November 8, 2004 notice of termination by Aventis, Genta could no longer borrow additional funds under the line of credit and the remaining balance of the line of credit must be repaid no later than May 8, 2005. During the termination period, reimbursements due to Genta for ongoing development activities will continue to be applied against the line of credit balance. As a result of the termination of the Collaborative Agreement, Aventis has forgiven the $10.0 million of convertible debt and accrued interest issued to them in connection with the collaboration.

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     We are considering whether to seek a new partner for the development and commercialization of Genasense^®. If we determine not to collaborate with a partner, or are unable to identify a partner, we will be solely responsible for the development and commercialization of Genasense^®, including the costs associated therewith. We may not have sufficient resources to do so. Even if we are able to identify a partner, we may not be able to enter into an agreement on acceptable terms.

     We have entered into collaborative relationships relating to the conduct of clinical research and other research activities in order to augment our internal research capabilities and to obtain access to specialized knowledge and expertise. Our business strategy depends in part on our continued ability to develop and maintain relationships with leading academic and research institutions and with independent researchers. The competition for these relationships is intense, and we can give no assurances that we will be able to develop and maintain these relationships on acceptable terms.

     We also seek strategic alliances with corporate partners, primarily pharmaceutical and biotechnology companies, to help us develop and commercialize drugs. Various problems can arise in strategic alliances. A partner responsible for conducting clinical trials and obtaining regulatory approval may fail to develop a marketable drug. A partner may decide to pursue an alternative strategy or focus its efforts on alliances or other arrangements with third parties. A partner that has been granted marketing rights for a certain drug within a geographic area may fail to market the drug successfully. Consequently, strategic alliances that we may enter into may not be scientifically or commercially successful. In this regard, we have received from Aventis a notice of termination of the Collaborative Agreement.

     We cannot control the resources that any collaborator may devote to our products. Any of our present or future collaborators may not perform their obligations as expected. These collaborators may breach or terminate their agreements with us, for instance upon changes in control or management of the collaborator, or they may otherwise fail to conduct their collaborative activities successfully and in a timely manner.

     In addition, our collaborators may elect not to develop products arising out of our collaborative arrangements or to devote sufficient resources to the development, regulatory approval, manufacture, marketing or sale of these products. If any of these events occur, we may not be able to develop our products or commercialize our products.

     An important part of our strategy involves conducting multiple product development programs. We may pursue opportunities in fields that conflict with those of our collaborators. In addition, disagreements with our collaborators could develop over rights to our intellectual property. The resolution of such conflicts and disagreements may require us to relinquish rights to our intellectual property that we believe we are entitled to. In addition, any disagreement or conflict with our collaborators could reduce our ability to obtain future collaboration agreements and negatively impact our relationship with existing collaborators. Such a conflict or disagreement could also lead to delays in collaborative research, development, regulatory approval or commercialization of various products or could require or result in litigation or arbitration, which would be time consuming and expensive and could have a significant negative impact on our business, financial condition and results of operations.

     We have never been profitable. From the period since our inception to December 31, 2004, we have incurred a cumulative net loss of $356.0 million. We may never achieve revenue sufficient for us to attain profitability. Achieving profitability is unlikely before Genasense^® receives approval from the FDA for commercial sale in one or more indications.

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     Our operations to date have required significant cash expenditures. As a result of Aventis’ termination of the Collaborative Agreement, after May 8, 2005, we will be responsible for all Genasense^® costs. Our future capital requirements will depend on the results of our research and development activities, pre-clinical studies and clinical trials, competitive and technological advances, and regulatory activities of the FDA and other regulatory authorities. In order to commercialize our products, we will need to raise additional funds. On December 15, 2004, we sold 15 million shares of common stock at a price of $1.50 per share to two institutional investors, raising $21.6 million, net of fees and expenses. We will need to obtain more funding in the future through collaborations or other arrangements with research institutions and corporate partners or public and private offerings of our securities, including debt or equity financing. We may not be able to obtain adequate funds for our operations from these sources when needed or on acceptable terms. Future collaborations or similar arrangements may require us to license valuable intellectual property to, or to share substantial economic benefits with, our collaborators. If we raise additional capital by issuing additional equity or securities convertible into equity, our stockholders may experience dilution and our share price may decline. Any debt financing may result in restrictions on our spending.

     If we are unable to raise additional funds, we will need to do one or more of the following:

• delay, scale back or eliminate some or all of our research and product development programs;
  
  
• license third parties to develop and commercialize products or technologies that we would otherwise seek to develop and commercialize ourselves;
  
  
• attempt to sell our company;
  
  
• cease operations; or
  
  
• declare bankruptcy.
  
  

     We currently sell one product, Ganite^®. We do not expect to expand our marketed product portfolio significantly in the short term unless Genasense^® receives marketing approval. If Genasense^® is not approved, if approval is significantly delayed, or if in the event of approval, the product is commercially unsuccessful, we do not expect significant sales of other products to offset this loss of potential revenue.

     To diversify our product line in the long term, it will be important for us to identify suitable technologies and products for acquisition or licensing and development. If we are unable to identify suitable technologies and products, or if we are unable to acquire or license products we identify, we may be unable to diversify our product line and to generate long-term growth.

     Our success will depend to a large extent on our ability to:

• obtain U.S. and foreign patent or other proprietary protection for our technologies, products and processes;
  
  
• preserve trade secrets; and
  
  
• operate without infringing the patent and other proprietary rights of third parties.
  
  

     Legal standards relating to the validity of patents covering pharmaceutical and biotechnological inventions and the scope of claims made under these types of patents are still developing, and they involve complex legal and factual questions. As a result, our ability to obtain and enforce patents that protect our drugs is highly uncertain. If we are unable to obtain and enforce patents and licenses to protect our drugs, our business, results of operations and financial condition could be adversely affected.

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     We hold numerous U.S., foreign and international patents covering various aspects of our technology, which include novel compositions of matter, use, methods of large-scale synthesis and methods of controlling gene expression. In the future, however, we may not be successful in obtaining additional patents despite pending or future applications. Moreover, our current and future patents may not be sufficiently broad to protect us against competitors who use similar technology. Additionally, our patents, the patents of our business partners and the patents for which we have obtained licensing rights may be challenged, narrowed, invalidated or circumvented. Furthermore, rights granted under our patents may not be broad enough to cover commercially valuable drugs or processes and therefore may not provide us with any competitive advantage with respect thereto.

     The pharmaceutical and biotechnology industries have been greatly affected by time-consuming and expensive litigation regarding patents and other intellectual property rights. We may be required to commence, or may be made a party to, litigation relating to the scope and validity of our intellectual property rights or the intellectual property rights of others. Such litigation could result in adverse decisions regarding the patentability of our inventions and products, the enforceability, validity or scope of protection offered by our patents or our infringement of patents held by others. Such decisions could make us liable for substantial money damages, or could bar us from the manufacture, sale or use of certain products. Moreover, an adverse decision may also compel us to seek a license from a third party. The costs of any license may be expensive, and we may not be able to enter into any required licensing arrangement on terms acceptable to us.

     The cost to us of any litigation or proceeding relating to patent or license rights, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of complex patent or licensing litigation more effectively than we can because of their substantially greater resources. Uncertainties resulting from the initiation and continuation of any patent or related litigation could have a material adverse effect on our ability to compete in the marketplace.

     We also may be required to participate in interference proceedings declared by the U.S. Patent and Trademark Office and in International Trade Commission proceedings aimed at preventing the importation of drugs that would compete unfairly with our drugs. These types of proceedings could cause us to incur considerable costs.

     The patent covering the use of Ganite^® for its approved indication will expire in April 2005. Genta has filed and continues to file patent applications seeking intellectual property protection for Ganite^®.

     Most of our resources have been dedicated to the research and development of potential antisense pharmaceutical products such as Genasense^®, based upon oligonucleotide technology. While we have demonstrated the activity of antisense oligonucleotide technology in model systems in vitro and in animals, Genasense^® is our only antisense product to have been tested in humans. Several of our other technologies that serve as a possible basis for pharmaceutical products are only in pre-clinical testing. Results obtained in pre-clinical studies or early clinical investigations are not necessarily indicative of results that will be obtained in extended human clinical trials. Our products may prove to have undesirable and unintended side effects or other characteristics that may prevent our obtaining FDA or foreign regulatory approval for any indication. In addition, it is possible that research and discoveries by others will render our oligonucleotide technology obsolete or noncompetitive.

     Clinical trials are very costly and time-consuming. The length of time required to complete a clinical study depends upon many factors, including but not limited to the size of the patient population, the ability of patients to get to the site of the clinical study, the criteria for determining which patients are eligible to join the study and other issues. Delays in patient enrollment and other unforeseen developments could delay completion of a clinical study and increase its costs, which could also delay any eventual commercial sale of the drug that is the subject of the clinical trial.

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     Our commencement and rate of completion of clinical trials also may be delayed by many other factors, including the following:

• inability to obtain sufficient quantities of materials for use in clinical trials;
  
  
• inability to adequately monitor patient progress after treatment;
  
  
• unforeseen safety issues;
  
  
• the failure of the products to perform well during clinical trials and
  
  
• government or regulatory delays.
  
  

     The FDA and comparable regulatory agencies in foreign countries impose substantial pre-market approval requirements on the introduction of pharmaceutical products. These requirements involve lengthy and detailed pre-clinical and clinical testing and other costly and time-consuming procedures. Satisfaction of these requirements typically takes several years or more depending upon the type, complexity and novelty of the product. We cannot apply for FDA approval to market any of our products under development until pre-clinical and clinical trials on the product are successfully completed. Several factors could prevent successful completion or cause significant delays of these trials, including an inability to enroll the required number of patients or failure to demonstrate adequately that the product is safe and effective for use in humans. If safety concerns develop, the FDA could stop our trials before completion. We may not market or sell any product for which we have not obtained regulatory approval. On May 3, 2004, the FDA Oncology Drugs Advisory Committee voted not to recommend Genasense^® for marketing approval for the treatment of malignant melanoma. As a result, on May 13, 2004 we announced that we withdrew our NDA. We cannot assure you that the FDA or other regulatory agencies will ever approve the use of our products that are under development. If the patient populations for which our products are approved are not sufficiently broad, or if approval is accompanied by unanticipated labeling restrictions, the commercial success of our products could be limited and our business, results of operations and financial condition could consequently be materially adversely affected.

     We do not manufacture any of our products or product candidates and we do not plan to develop any capacity to do so. We have contracted with third-party manufacturers to manufacture Ganite^® and Genasense^®. The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, especially in scaling up initial production. These problems include difficulties with production costs and yields, quality control and assurance and shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Our third-party manufacturers may not perform as agreed or may terminate their agreements with us.

     In addition to product approval, any facility in which Genasense^® is manufactured or tested for its ability to meet required specifications must be approved by the FDA before it can manufacture Genasense^®. Failure of the facility to be approved could delay the approval of Genasense^®.

     We do not currently have alternate manufacturing plans in place. The number of third-party manufacturers with the expertise, required regulatory approvals and facilities to manufacture bulk drug substance on a commercial scale is limited, and it would take a significant amount of time to arrange for alternative manufacturers. If we need to change to other commercial manufacturers, the FDA and comparable foreign regulators must approve these manufacturers’ facilities and processes prior to our use, which would require new testing and compliance inspections, and the new manufacturers would have to be educated in or independently develop the processes necessary for the production of our products.

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     Any of these factors could cause us to delay or suspend clinical trials, regulatory submissions, required approvals or commercialization of our products or product candidates, entail higher costs and result in our being unable to effectively commercialize our products. Furthermore, if our third-party manufacturers fail to deliver the required commercial quantities of bulk drug substance or finished product on a timely basis and at commercially reasonable prices, and we were unable to promptly find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volume and on a timely basis, we would likely be unable to meet demand for our products and we would lose potential revenues.

     Ganite^®, Genasense^®, if it obtains regulatory approval, and any other product we may develop will be subject to ongoing regulatory oversight, primarily by the FDA. Failure to comply with post-marketing requirements, such as maintenance by us or by the manufacturers of our products of current Good Manufacturing Practices as required by the FDA, or safety surveillance of such products or lack of compliance with other regulations could result in suspension or limitation of approvals or other enforcement actions. Current Good Manufacturing Practices are FDA regulations that define the minimum standards that must be met by companies that manufacture pharmaceuticals and apply to all drugs for human use including those to be used in clinical trials as well as those produced for general sale after approval of an application by the FDA. These regulations define requirements for personnel, buildings and facilities, equipment, control of raw materials and packaging components, production and process controls, packaging and label controls, handling and distribution, laboratory controls and recordkeeping. Furthermore, the terms of any product candidate approval, including the labeling content and advertising restrictions, may be so restrictive that they could adversely affect the marketability of our product candidates. Any such failure to comply or the application of such restrictions could limit our ability to market our product candidates and may have a material adverse effect on our business, results of operations and financial condition. Such failures or restrictions may also prompt regulatory recalls of one or more of our products, which could have material and adverse effects on our business.

     The raw materials that we require to manufacture our drugs, particularly oligonucleotides, are available from only a few suppliers. If these suppliers cease to provide us with the necessary raw materials or fail to provide us with adequate supply of materials at an acceptable price and quality, we could be materially adversely affected.

     Our ability to commercialize drugs successfully will depend in part on the extent to which various third-party payors are willing to reimburse patients for the costs of our drugs and related treatments. These third-party payors include government authorities, private health insurers and other organizations, such as health maintenance organizations. Third-party payors often challenge the prices charged for medical products and services. Accordingly, if less costly drugs are available, third-party payors may not authorize or may limit reimbursement for our drugs, even if they are safer or more effective than the alternatives. In addition, the federal government and private insurers have changed and continue to consider ways to change the manner in which health care products and services are provided and paid for in the United States. In particular, these third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for new therapeutic products. In the future, it is possible that the government may institute price controls and further limits on Medicare and Medicaid spending. These controls and limits could affect the payments we collect from sales of our products. Internationally, medical reimbursement systems vary significantly, with some countries requiring application for, and approval of, government or third-party reimbursement. In addition, some medical centers in foreign countries have fixed budgets, regardless of levels of patient care. Even if we succeed in bringing therapeutic products to market, uncertainties regarding future health care policy, legislation and regulation, as well as private market practices, could affect our ability to sell our products in quantities, or at prices, that will enable us to achieve profitability.

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     In 2004, numerous complaints were filed in the United States District Court for the District of New Jersey against Genta and certain of our principal officers on behalf of purported classes of our shareholders who purchased our securities during several class periods. The complaints have been consolidated into a single action and allege that we and certain of our principal officers violated the federal securities laws by issuing materially false and misleading statements regarding Genasense^® for the treatment of melanoma that had the effect of artificially inflating the market price of our securities. The shareholder class action complaint in the various actions seeks monetary damages in an unspecified amount and recovery of plaintiffs’ costs and attorneys’ fees. In addition, three shareholder derivative actions have been filed against the directors and certain officers of Genta in New Jersey State and Federal courts. Based on facts substantially similar to those asserted in the shareholder class actions, the derivative plaintiffs claim that defendants have breached their fiduciary duties to the shareholders and other violations of New Jersey law. The Company believes these litigations are without merit and will vigorously defend against these suits.

     The administration of drugs to humans, whether in clinical trials or commercially, exposes us to potential product and professional liability risks, which are inherent in the testing, production, marketing and sale of human therapeutic products. Product liability claims can be expensive to defend and may result in large judgments or settlements against us, which could have a negative effect on our financial performance and materially and adversely affect our business. We maintain product liability insurance (subject to various deductibles), but our insurance coverage may not be sufficient to cover claims. Furthermore, we cannot be certain that we will always be able to maintain or increase our insurance coverage at an affordable price. Even if a product liability claim is not successful, the adverse publicity and time and expense of defending such a claim may interfere with or adversely affect our business and financial performance.

     As a part of our business strategy, we may make acquisitions of, or significant investments in, complementary companies, products or technologies, although no significant acquisition or investments are currently pending. Any future acquisitions would be accompanied by risks such as:

• difficulties in assimilating the operations and personnel of acquired companies;
  
  
• diversion of our management’s attention from ongoing business concerns;
  
  
• our potential inability to maximize our financial and strategic position through the successful incorporation of acquired technology and rights into our products and services;
  
  
• additional expense associated with amortization of acquired assets;
  
  
• maintenance of uniform standards, controls, procedures and policies; and
  
  
• impairment of existing relationships with employees, suppliers and customers as a result of the integration of new management personnel.
  
  

     We cannot guarantee that we will be able to successfully integrate any business, products, technologies or personnel that we might acquire in the future, and our failure to do so could harm our business.

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

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

     Our competitive position also depends upon our ability to attract and retain qualified personnel, obtain patent protection or otherwise develop proprietary products or processes and secure sufficient capital resources for the often substantial period between technological conception and commercial sales. We cannot assure you that we will be successful in this regard.

     Our business is highly dependent on our key executives and scientific staff. The loss of key personnel or the failure to recruit necessary additional or replacement personnel will likely impede the achievement of our development objectives. There is intense competition for qualified personnel in the pharmaceutical and biotechnology industries, and there can be no assurances that we will be able to attract and retain the qualified personnel necessary for the development of our business.

     Risks Related to Our Common Stock

     Provisions in our restated certificate of incorporation and bylaws may discourage third parties from seeking to obtain control of us and, therefore, could prevent our stockholders from receiving a premium for their shares. Our restated certificate of incorporation gives our board of directors the power to issue shares of preferred stock without approval of the holders of common stock. Any preferred stock that is issued in the future could have voting rights, including voting rights that could be superior to that of our common stock. The affirmative vote of 66-2/3% of our voting stock is required to approve certain transactions and to take certain stockholder actions, including the amendment of certain provisions of our certificate of incorporation. Our bylaws contain provisions that regulate how stockholders may present proposals or nominate directors for election at annual meetings of stockholders.

     In addition, we are subject to Section 203 of the Delaware General Corporation Law, which contains restrictions on stockholder action to acquire control of Genta.

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     We have never paid cash dividends on our common stock and do not anticipate paying any such dividends in the foreseeable future. We currently intend to retain our earnings, if any, for the development of our business.

     The market price of our common stock, like that of the common stock of many other biopharmaceutical companies, has been and likely will continue to be highly volatile. Factors that could have a significant impact on the future price of our common stock include but are not limited to:

• the results of pre-clinical studies and clinical trials by us or our competitors;
  
  
• announcements of technological innovations or new therapeutic products by us or our competitors;
  
  
• government regulation;
  
  
• developments in patent or other proprietary rights by us or our respective competitors, including litigation;
  
  
• fluctuations in our operating results; and
  
  
• market conditions for biopharmaceutical stocks in general.
  
  

     As of December 31, 2004, we had 95.4 million shares of common stock outstanding and options, warrants and convertible preferred stock outstanding exercisable for or convertible into 11.5 million additional shares. Future sales of shares of common stock by existing stockholders, holders of preferred stock who might convert such preferred stock into common stock and option and warrant holders who may exercise their options and warrants to purchase common stock also could adversely affect the market price of the common stock. Moreover, the perception that sales of substantial amounts of our common stock might occur could adversely affect prevailing market prices.

     We lease approximately 93 thousand square feet of office space in Berkeley Heights, New Jersey. Our annual rental costs for this space are approximately $2.4 million. Our lease on this space terminates in 2010.

     In 2004, numerous complaints were filed in the United States District Court for the District of New Jersey against Genta and certain of our principal officers on behalf of purported classes of our shareholders who purchased our securities during several class periods. The complaints have been consolidated into a single action and allege that we and certain of our principal officers violated the federal securities laws by issuing materially false and misleading statements regarding Genasense^® for the treatment of melanoma that had the effect of artificially inflating the market price of our securities. The shareholder class action complaint in the various actions seeks monetary damages in an unspecified amount and recovery of plaintiffs’ costs and attorneys’ fees. In addition, three shareholder derivative actions have been filed against the directors and certain officers of Genta in New Jersey State and Federal courts. Based on facts substantially similar to those asserted in the shareholder class actions, the derivative plaintiffs claim that defendants have breached their fiduciary duties to the shareholders and other violations of New Jersey law. The Company believes these litigations are without merit and will vigorously defend against these suits.

     Management does not believe that this litigation will have a material adverse impact on the Company’s financial results or liquidity.

     No matters were submitted to a vote of security holders in the quarter ended December 31, 2004.

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     (a) Market Information

     The Company’s common stock is traded on the Nasdaq National Market under the symbol “GNTA.” The following table sets forth, for the periods indicated, the high and low sales prices for the common stock as reported by Nasdaq.

     (b) Holders

     There were 605 holders of record of the Company’s common stock as of March 9, 2005.

     (c) Dividends

     The Company has never paid cash dividends on its common stock and does not anticipate paying any such dividends in the foreseeable future. The Company currently intends to retain its earnings, if any, for the development of its business.

     (f) Use of Proceeds

     In December 2004, the Company raised $21.6 million, net of issuance costs, from the issuance of common stock pursuant to our shelf registration statement. The net proceeds from the sale of the common stock will be used for general corporate purposes.

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Overview

     Since its inception in February 1988, Genta has devoted its principal efforts toward drug discovery and research and development. Genta’s strategy is to build a product and technology portfolio primarily focused on its cancer-related products. Genta has been unprofitable to date and expects to incur substantial operating losses due to continued requirements for ongoing and planned research and development activities, pre-clinical and clinical testing, manufacturing activities, regulatory activities and establishment of a sales and marketing organization. From our inception to December 31, 2004, we have incurred a cumulative net loss of $356.0 million. We have experienced significant quarterly fluctuations in operating results and we expect that these fluctuations in revenues, expenses and losses will continue.

     Our financial results in 2004 have been and will continue to be significantly affected by FDA action with respect to Genasense^®. In late 2003 we filed a NDA for Genasense^® to be used in combination with dacarbazine for the treatment of patients with melanoma who have not previously received chemotherapy. In the absence of increased survival, the FDA Oncology Drugs Advisory Committee 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. On the same day, the Company initiated a series of steps that were designed to conserve cash in order to focus on Genasense^®. The Company reduced its workforce by 85 employees, or approximately 45%, including its field sales employees. The Company also significantly reduced its marketing support of Ganite^®, its only marketed product. In August 2004, Genta closed its research facility in Salt Lake City, Utah, with a further reduction of 15 employees.

     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). 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.

     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. As a result of the outcome of the Phase 3 trial, the Company has virtually eliminated activities on this indication.

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     A significant source of funds during the last several years has been provided by the Company’s collaboration with Aventis, regarding the development and commercialization of Genasense^®. The key financial aspects of the Collaborative Agreement were the following:

• Aventis committed to provide up to $476.9 million in initial payments, milestone payments and for the purchase from us of equity and convertible notes.
  
• If Genasense^® received marketing approval from the FDA, we would have been entitled to royalties on Aventis’ exclusive worldwide net sales of Genasense^®.
  
• Aventis agreed to pay 75% of the development costs related to any U.S. NDA incurred by either us or Aventis subsequent to the execution of our Collaborative Agreement, and substantially all other development, marketing, and sales costs incurred worldwide.
  
• Aventis agreed to reimburse a portion of our expenses in building our sales force to market in the United States.
  
  

On November 8, 2004 the Company received from Aventis notice of termination of the agreements between Genta and Aventis. Pursuant to those agreements, Aventis will continue to support the development of Genasense^® for a six-month period lasting until May 8, 2005.

Results of Operations

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Total Revenues

     Total revenues, consisting of license fees, development funding and product sales were $14.6 million in 2004 compared to $6.7 million in 2003 and $3.6 million in 2002. License fees and development funding revenues are generated by the initial $10.0 million licensing fee and $40.0 million development funding received from Aventis in 2002 under the Collaborative Agreement (see Note 4 to our financial statements), along with non-exclusive sub-license agreements involving antisense technology. On November 8, 2004 Aventis gave notice to Genta that it was terminating its Collaborative Agreement with the Company regarding the development and commercialization of Genasense^®. Under the terms of the Collaborative Agreement, Aventis will continue to fund ongoing development activities through May 8, 2005. The Company had previously determined that, due to the nature of the ongoing development work related to the Collaborative Agreement, the end of the development phase and the fair-value of the undelivered elements were not determinable. Accordingly, we deferred recognition of the initial licensing fee and up-front development funding received from Aventis and recognized these payments on a straight-line basis over the original estimated useful life of the related first-to-expire patent of 115 months. As a result of the notice of termination of the Collaborative Agreement, the Company has determined that the period over which the remaining deferred revenue should be recognized will be through May 8, 2005. On November 9, 2004 we began to recognize the remaining deferred revenue over a six-month period, resulting in increased revenue of $9.9 million for 2004.

     In October 2003, the Company launched the commercial product Ganite^® for the treatment of cancer-related hypercalcemia that is resistant to hydration, generating $1.4 million in product sales in 2003. 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 $1.2 million in 2004, resulting in net sales of ($.5) million for 2004.

     Total revenues for 2003 of $6.7 million increased $3.1 million from the prior-year period. As we entered into the Collaborative Agreement in April 2002, 2002 annual results included the recognition of eight months of license fee and development funding revenue received from Aventis, while 2003 annual results included the recognition of twelve months of revenue. In October 2003, the Company launched Ganite^®, generating $1.4 million in product sales.

Cost of goods sold

     During 2004 we recorded provisions for excess Ganite^® inventory of $1.4 million.

Research and Development Expenses

     Research and development expenses before reimbursement were $71.5 million in 2004 compared to $83.1 million in 2003 and $87.2 million in 2002.

     Approximately $66.8 million or 93% of research and development expenses before reimbursement were incurred on the Genasense^® project for the twelve months ended December 31, 2004. Research and development expenses in 2004 include $33.0 million related to the expensing of vialed Genasense^® product and Genasense^® bulk drug substance, much of which had been originally produced and acquired to be commercial inventory and other expenses related to the manufacturing and purchase of Genasense^® bulk drug substance. Research and development expenses in 2003 include a $13.5 million write-off of acquired in-process research and development resulting from the August 2003 acquisition of Salus Therapeutics, Inc. In August 2004, Genta completed the closure of its research facility in Salt Lake City, which had originated from the acquisition of Salus Therapeutics, Inc. Excluding these items, research and development expenses declined $31.1 million in 2004, primarily resulting from our decision in May 2004 to reduce staff and reduce most non-Genasense^® related programs, as well as from the comparison to a prior-year period where expenses were significantly higher resulting from Genasense^® Phase 3 clinical trials and NDA preparation activities.

     Research and development expenses incurred on the Genasense^® project in 2003 were approximately $63.5 million, representing 91% of research and development expenses after excluding the write-off of acquired in-process research and development expenses.

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     During 2002, we purchased substantial amounts of drug substance to be used in Genasense^® Phase 3 clinical trials, leading to higher research and development expenses.

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

Selling, general and administrative expenses

     Selling, general and administrative expenses were $28.6 million in 2004 compared to $29.8 million in 2003 and $20.6 million in 2002. In 2004, a higher rate of spending in the first half of the year, in anticipation of approval and launch of Genasense^®, was more than offset by the impact of the May 2004 elimination of the sales force, reduction of other administrative positions and substantial reduction of marketing support for Ganite^®. This net decrease was partially offset by the recognition of $1.0 million of legal expenses related to a shareholder class action suit and three shareholder derivative suits (see Note 19 to our financial statements).

     During 2003, expenses substantially increased from 2002 due to the creation of a sales force, Ganite^® launch activities, a larger administrative staff and higher general corporate expenses driven by business growth.

Loss on disposition of property and equipment

     In August 2004, we completed the closure of our research facility in Salt Lake City, sold all related equipment and assigned our lease on the facility to another company. Additionally, we disposed of excess equipment at corporate headquarters. As a result of these actions, we recorded a loss on disposition of property and equipment of approximately $1.3 million.

Aventis Reimbursement

     Under the Collaborative Agreement with Aventis, Aventis paid 75% of U.S. NDA-directed development costs incurred by either Genta or Aventis and 100% of all other development, marketing and sales costs incurred within the U.S. and elsewhere as subject to the Collaborative Agreement. A breakdown of the various third-party, drug supply costs and internal costs of scientific and technical personnel (“Full-Time Equivalents” or “FTE’s”) that Aventis is required to reimburse under our Collaborative Agreement with Aventis, follows ($ thousands):

     Net expense reimbursement from Aventis of $43.3 million for 2004 decreased from $55.9 million for 2003 primarily due to the greater activity and expenses in 2003 resulting from the NDA filing for Genasense^®. Purchases of drug material are expensed as incurred and are not reimbursable pursuant to our Collaborative Agreement with Aventis until they are used in clinical trials.

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     In September 2004, the Company transferred $15.5 million of vialed Genasense^® drug product and Genasense^® bulk drug substance to Aventis; this material had been expensed in May 2004. This amount is included in Drug supply costs in the above table. The companies agreed to offset amounts owed under the line of credit extended by Aventis under the Collaborative Agreement (“Line of Credit”) by $14.8 million and accrued interest on the Line of Credit by $.7 million (see Note 13 to our financial statements).

     Once Aventis provided notice of termination of the Collaborative Agreement, all payments otherwise due from Aventis have been and will continue to be applied against any balance on the Line of Credit until the Line of Credit is repaid. In 2004, $12.9 million of reimbursement due to Genta was applied to the balance of the Line of Credit.

     Net expense reimbursement from Aventis of $55.9 million for the year ended December 31, 2003 increased from $28.5 million for the year ended December 31, 2002 due to the following factors: the comparison of twelve months of activity in 2003 compared to eight months in 2002, greater activity and expenses resulting from the NDA filing for Genasense^® and reimbursement for 2002 and 2003 drug substance purchases used in Phase 3 clinical trials.

     Reimbursement to Aventis consists of our 25% share of third party costs incurred by Aventis and internal costs of Aventis’ scientific and technical personnel.

Gain on extinguishment of debt

     On November 8, 2004, Aventis gave notice to Genta that it was terminating its Collaborative Agreement with the Company. Under the terms of the Collaborative Agreement, Aventis has forgiven the $10.0 million of convertible debt issued to them in connection with the collaboration, along with $1.5 million in accrued interest, resulting in a gain on extinguishment of debt of $11.5 million.

Other (expense)/income

     Net other expense of $.1 million for 2004 unfavorably compared to net other income of $.7 million for the prior year, primarily due to lower average investment balances throughout 2004 as compared to 2003. Net other income of $.7 million for 2003 declined $.7 million, or 50%, from 2002, principally due to lower investment balances and higher borrowings from Aventis.

Income tax benefit/(expense)

     New Jersey has enacted legislation permitting certain corporations located in New Jersey to sell state tax loss carryforwards and state research and development credits. During 2004, New Jersey allowed the Company to sell $11.6 million of its net operating loss carryforwards and we received $0.9 million from the sale, which we recognized as income tax benefit.

     If still available under New Jersey law, the Company will attempt to sell its tax loss carryforwards in 2005. We cannot be assured that the New Jersey program will continue next year, nor can we estimate what percentage of our saleable tax benefits New Jersey will permit us to sell, how much money will be received in connection with the sale, or if the Company will be able to find a buyer for its tax benefits.

Net Loss

     Genta incurred a net loss of $32.7 million, or $0.41 per share, for 2004, $50.1 million, or $0.67 per share, for 2003 and a net loss of $74.5 million, or $1.05 per share, for 2002. In 2004, the improvement in net loss and per share net loss to common shareholders was primarily due to accelerated recognition of the initial licensing fee and up-front development funding previously received from Aventis and the gain on extinguishment of debt as described above. In 2003, the improvement in net loss and per share net loss to common shareholders was primarily due to lower clinical drug substance purchases and higher reimbursement by Aventis as described above.

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Recent Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement (“SFAS”) No. 123(R), Share-Based Payment that will require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. SFAS No. 123(R) replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. The Company will adopt the provisions of SFAS No. 123R in 2005. We are evaluating the impact that the adoption of this standard will have on the Company’s results of operations, financial position or cash flows.

     In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29. We do not expect that the adoption of this statement will have any impact on the Company’s results of operations, financial position or cash flows.

     In November 2004, the FASB issued SFAS No. 151, Inventory Costs, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. As the Company uses third-party manufacturers and does not manufacture its own products, we do not expect that the adoption of this statement will have a material impact on the Company’s results of operations, financial position or cash flows.

Critical Accounting Policies

     Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements. In preparing our financial statements in accordance with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that, among other things, affect the reported amounts of assets and liabilities and reported amounts of revenues and expenses. These estimates are most significant in connection with our critical accounting policies, namely those of our accounting policies that are most important to the portrayal of our financial condition and results and require management’s most difficult, subjective or complex judgments. These judgments often result from the need to make estimates about the effects of matters that are inherently uncertain. Actual results may differ from those estimates under different assumptions or conditions. The Company believes that the following represent its critical accounting policies:

• Revenue recognition. Our policy is to recognize revenues under license arrangements when delivery has occurred or services have been rendered, persuasive evidence of an arrangement exists, the fee is fixed and determinable and collectibility is reasonably assured. Royalties are recognized when earned. Consistent with Staff Accounting Bulletin No. 104 Revenue Recognition, initial funding of ongoing development received from Aventis, after the achievement of certain research and development milestones were being recognized on a straight-line basis over the original estimated useful life of the related first-to-expire patent of 115 months. On November 8, 2004 we received from Aventis notice of termination of the agreements between Genta and Aventis, with an effective termination date of May 8, 2005. Accordingly, we are recognizing the remaining balance of the initial funding on a straight-line basis over the time period from November 9, 2004 through May 8, 2005 (see Note 12 to our financial statements).
  
  Genta recognizes revenue from product sales when title to product and associated risk of loss has passed to the customer and we are reasonably assured of collecting payment for the sale. All revenue from product sales are recorded net of applicable allowances for returns, rebates and other applicable discounts and allowances. We allow return of our product for up to twelve months after product expiration. 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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• Research and development costs. All such costs are expensed as incurred, including raw material costs required to manufacture drugs for clinical trials. Reimbursements for applicable Genasense^® related costs under the Collaborative Agreement, will continue to be recorded as a reduction to expense (see Note 4 to our financial statements).
  
  

Liquidity and Capital Resources

     At December 31, 2004, we had cash, cash equivalents and marketable securities totaling $42.2 million, a decline of $40.7 million from $82.9 million at December 31, 2003. During 2004 cash flow used in operating activities was $61.2 million, primarily resulting from a net loss of $32.7 million and non-cash reimbursements of research and development expenses of $27.3 million. Partially offsetting this outflow, in December we raised $21.6 million, net of issuance costs, from the issuance of common stock. Although no assurances can be expressed, management believes that at the current rate of spending, the Company should have sufficient cash funds to maintain its present operations through 2005.

     At December 31, 2004, the Company had $7.3 million outstanding (compared to $35.0 million as of December 31, 2003) on the Line of Credit from Aventis. Prior to June 30, 2004 the Line of Credit was classified as long term debt and beginning June 30, 2004, it was classified as short term debt. During 2004, as a result of certain non-cash transactions, the Company reduced amounts owed under the Line of Credit by $27.7 million. As a result of Aventis’ purchase commitments to Genta, in September we supplied $15.5 million of vialed Genasense^® drug product and Genasense^® bulk drug substance to Aventis. This amount is included in the Company’s Consolidated Statement of Operations as Aventis reimbursement. The companies agreed to offset amounts owed under the Line of Credit by $14.8 million and accrued interest on the Line of Credit by $0.7 million. With the Aventis notice of termination, Genta cannot borrow additional funds and the Line of Credit must be repaid no later than May 8, 2005. All payments otherwise due to Genta are applied against any balance on the Line of Credit until the Line of Credit is repaid. In 2004, $12.9 million of reimbursement due to Genta was applied to the balance of the Line of Credit. Under the terms of the Collaborative Agreement, Aventis will continue to reimburse Genta for ongoing Genasense^® clinical trials and development activities during the six-month notice period. We expect that a substantial portion of the $7.3 million outstanding on the Line of Credit will be repaid through the application of reimbursements. After May 8, 2005, all Genasense^® costs will be the responsibility of Genta.

     The terms of the Line of Credit provide for a favorable interest rate, which is set two days prior to the first day of each calendar quarter. As security for the repayment of the Line of Credit, Genta has granted Aventis a security interest in all of its rights to payments under the Collaborative Agreement, as well as all inventory related to Genasense^®.

     At December 31, 2003 cash, cash equivalents and marketable securities totaling $82.9 million declined $30.8 million from $113.7 million at December 31, 2002. During 2003, cash flow used in operating activities was $64.4 million, primarily resulting from a net loss of $50.1 million and lower accounts payable and accrued expenses of $17.4 million. Partially offsetting this outflow were borrowings under the Line of Credit from Aventis of $35.0 million.

     At December 31, 2002 cash, cash equivalents and marketable securities totaling $113.7 million increased $59.6 million from $54.1 million at December 31, 2001. During 2002, cash flow used in operating activities was $20.4 million, primarily resulting from a net loss of $74.5 million offset by the initial $10.0 million licensing fee and $40.0 million development funding received from Aventis under our collaborative agreement in 2002. The Company had proceeds of $71.0 million from a private placement of common stock and $10.0 million from the sale of convertible debt to Aventis.

     Our principal expenditures relate to our research and development activities, primarily focused on Genasense^®, which include our ongoing and future clinical trials. We expect these expenditures to continue. The Company currently anticipates total company average monthly cash outflows to be in the $3.0 million to $4.0 million range. Although no assurances can be expressed, management believes that at the current rate of spending, the Company should have sufficient cash funds to maintain its present operations through 2005. The Company may also seek collaborative agreements and other financing arrangements with potential corporate partners and other sources. However, there can be no assurance that any such collaborative agreements or other sources of funding will be available on favorable terms, if at all. The Company will need substantial additional funds before it can expect to realize significant product revenue.

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

Contractual Obligations

     Future contractual obligations at December 31, 2004 are as follows ($ thousands):

     (1) Consists of amounts under our line of credit with Aventis which are due on May 8, 2005.

     Not included in the above table are any Genasense^® bulk drug purchase obligations to Avecia per the terms of the Manufacturing and Supply Agreement entered into between Avecia and Genta in December 2002. The agreement calls for Genta to purchase a percentage of our global Genasense^® bulk drug requirements from Avecia during the term of the agreement. Due to the uncertainties regarding the timing of any Genasense^® approval and sales/volume projections, specific obligation amounts cannot be estimated at this time. Due to past purchases of Genasense^® bulk drug substance, the Company has access to sufficient drug for its current needs.

     Our carrying values of cash, marketable securities, accounts payable, accrued expenses and debt are a reasonable approximation of their fair value. The estimated fair values of financial instruments have been determined by us using available market information and appropriate valuation methodologies (see Note 2 to our financial statements). We have not entered into and do not expect to enter into, financial instruments for trading or hedging purposes. We do not currently anticipate entering into interest rate swaps and/or similar instruments.

     Genta’s primary market risk exposure with regard to financial instruments is to changes in interest rates, which would impact interest income earned on such instruments. We have no material currency exchange or interest rate risk exposure as of December 31, 2004. Therefore there will be no ongoing exposure to material adverse effect on our business, financial condition or results of operation for sensitivity to changes in interest rates or to changes in currency exchange rates.

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Genta Incorporated
Index to Financial Statements

37

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Genta Incorporated:

     We have audited the accompanying consolidated balance sheets of Genta Incorporated and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

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

     In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Genta Incorporated and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

     As discussed in Note (1) to the consolidated financial statements of Genta Incorporated, the Company received from Aventis notice of termination of the agreements between Aventis and the Company in November 2004. The implications of such termination to the Company are discussed in Note (1) to the consolidated financial statements.

     We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.     

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey
March 14, 2005

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GENTA INCORPORATED
CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)

See accompanying notes to consolidated financial statements.

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GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS