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Executives

Tim Smith - Senior DirectorInvestor Relations and Corporate Communications

Lonnie Moulder - ChiefExecutive Officer and President

Bill Spengler - ExecutiveVice President and Chief Financial Officer

Mary Lynne Hedley - ExecutiveVice President and Chief Scientific Officer

Eric Loukas - Executive VicePresident, Chief Operating Officer and General Counsel

Analysts

Jim Reddoch - Friedman,Billings, Ramsey & Co.

Eric Ende - Merrill Lynch

John Sullivan - Leerink Swann

Chris Raymond - Robert Baird& Co.

Joel Sendek - Lazard Capital Markets

Geoff Meacham - JPMorgan

Katherine Kim - Banc of America

Philip Gross - Adage CapitalManagement

Eric Vieira - MajesticResearch

MGI Pharma Inc. (MOGN) Q3 2007 Earnings ConferenceCall October 17, 2007 5:00 PM ET

Operator

Welcome to MGI Pharma’s Third Quarter 2007 FinancialResults Conference Call. At this time,all participants are in a listen-only mode. Following the prepared remarks, there will bea question-and-answer session. Please beadvised that this call is being recorded at MGI Pharma's request.

Now, I will turn the call over to Tim Smith, SeniorDirector of Investor Relations and Corporate Communications at MGI Pharma. Please go ahead.

Tim Smith

Thank you, Matt, and good afternoon. Welcome to MGI Pharma's third quarter 2007financial results conference call. I amTim Smith, Senior Director of Investor Relations and Corporate Communications.

With me on today's call are Lonnie Moulder, ourPresident and Chief Executive Officer; Bill Spengler, our Executive VicePresident and Chief Financial Officer. Dr. Mary Lynne Hedley, our ExecutiveVice President and Chief Scientific Officer; and Eric Loukas, our ExecutiveVice President, Chief Operating Officer and General Counsel.

We hope you have all had a chance to review the newsrelease we issued this afternoon, which we will discuss during this call, andthen we will open it up for questions.

I want to remind everyone that during this conferencecall we will make forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. These may include statements regarding:intent, belief, or current expectations of the company and its management.

These forward-looking statements are not guarantees offuture performance and involve a number of risks and uncertainties that maycause the company's actual results to differ materially from the resultsdiscussed in these statements.

Factors that might cause such differences and otherrisks and uncertainties are detailed in the company's filings with theSecurities and Exchange Commission, including our most recently filed forms10-K and 10-Q. The information in this conference call related to projectionsor other forward-looking statements represents the company's best judgment asof today, Wednesday, October 17th, 2007.

While a recording of this call will be made availableon our Corporate website for a limited period of time, the company does notassume a duty to update any of these forward-looking statements to conform themto actual results.

Now that I have covered these items, I will turn thecall over to our President and Chief Executive Officer, Lonnie Moulder. Lonnie?

Lonnie Moulder

Thanks, Tim. Good afternoon. Thank you for joining us to discuss the strongoperating results we have reported for the third quarter.

I will review product sales performance and provide anupdate on our product franchises in the MGI Pharma development pipeline. Bill Spengler will then discuss in more detailour third quarter financial results, and review our updated 2007 financialguidance. We will then open up the callfor questions.

Total revenue for the third quarter was $112.5 millionand included $66.3 million of Aloxi sales and $34.6 million of Dacogen sales. We are extremely pleased with the combinedsales performance of these marketed brands and the accelerating profitabilityof our business for the third consecutive quarter.

In addition, the MGI Pharma team made significantprogress on the regulatory front during the third quarter, as we submitted theAquavan new drug application, were notified of the FDA acceptance of asupplemental NDA for Aloxi for the treatment of postoperative nausea andvomiting, or PONV, and received FDA approval of an sNDA that allows formultiple doses of Aloxi in association with multi-day chemotherapy regimens.

These regulatory milestones represent the collectiveefforts of numerous MGI Pharma associates, and I truly appreciate their hardwork and dedication to achieving timely completion of these corporateobjectives.

Turning to a discussion of our marketed products, Iwill begin with Aloxi. A best-in-classproduct and the only 5-HT3 receptor antagonist approved for bothacute and delayed chemotherapy-induced nausea and vomiting or CINV in patientsundergoing the most commonly used chemotherapy regimens.

Aloxi sales quickly rebounded this quarter from thetransient disruption in the CINV market, increasing 37% versus the secondquarter. While we expected sales to growdue to Aloxi's differentiated profile and our dominant share of voice in themarketplace, we are extremely pleased with the sales results during the thirdquarter.

In addition, we see a substantial opportunity forcapturing market share that GlaxoSmithKline took from the older agents in theclass over the past several years as they heavily discounted Zofran. The MGI associates working in the field andour offices and supporting the Aloxi brand are doing a great job.

As I mentioned earlier, this quarter the FDA approvedan sNDA for Aloxi that included the removal of a dosing recommendation from theproducts label, which limited Aloxi use to once per seven-day interval.

Physicians are now able to prescribe repeated doses ofAloxi for cancer patients receiving multiple-day chemotherapy regimens. Multi-day chemotherapy regimens frequentlyused to treat lung, colon, and testicular cancers and hematologic malignanciescan present a significant challenge in preventing nausea and vomiting due tothe overlap of the acute and delayed phases of CINV.

This Aloxi label change opens up approximately anadditional 10% of the CINV market that the prior label restricted us frompenetrating.

Finally, we also see an opportunity to expand theAloxi CINV franchise through the launch of an oral formulation. An sNDA for oral Aloxi capsules will besubmitted to the FDA this quarter. Forreference, oral formulations of 5-HT3 receptor antagonists representapproximately 10% of the day of chemotherapy market, but Aloxi has not yet beenable to participate in this market. Wecontinue to see the peak sales opportunity for Aloxi for CINV in the $500million range.

During the third quarter, the FDA accepted for reviewthe sNDA for Aloxi for the treatment of PONV and a PDUFA or Prescription DrugUser Fee Act goal date of March 4th 2008 was established.

Data from study PALO-04-07, one of the two Phase IIItrials that form the basis of the NDA submission, were presented last Saturdayat the Annual Meeting of the American Society of Anesthesiologists, or ASA.

Complete response rates, defined as no emesis and nouse of rescue medication for those selected dose of Aloxi 0.075 milligrams,were significantly higher during the 0 to 24 and 0 to 72-hour time periodsfollowing surgery.

Similarly, results for study PALO-04-06, a secondPhase III trial, show that the 0 to 24 and 0 to 72 hour complete response rateend points for the selected dose of 0.075 milligrams were achieved.

If the sNDA for Aloxi and PONV is approved by the FDA,we would expect to launch Aloxi in the PONV setting during the second quarter of2008 with a newly established acute care field force.

We believe this field force would be promoting adifferentiated product in Aloxi and its longer activity and efficacy willbenefit patients in this setting. Theaddition of a PONV indication will also bring synergy to our CINV promotionalactivities in the hospital settings, allowing us to further accelerate ourmarket penetration.

The PONV opportunity includes nearly 16 millionsurgery patients who receive an anti-emetic on a prophylactic basis annually inthe U.S. In a largeprospective observational study conducted last year in nearly 400 patientsreceiving standard of care, results show that many patients experience asignificant level of nausea and vomiting in the first six hours followingsurgery, and also in the 72-hour period following surgery.

These data demonstrate that there is an ongoing needfor effective agents that can improve control of both nausea and vomiting forthe 72-hour period following surgery. Currentlyavailable treatment options are short acting, and none have been shown toprovide longer-term relief.

Aloxi's unique pharmaco dynamic profile and extendedduration of activity will enable dosing prior to surgery and could prevent PONVfor up to three days with a single dose, potentially addressing a verysignificant unmet need in this large market. If approved by the FDA, we believe the PONVindication for Aloxi may add up to $250 million in peak sales in addition tothe $500 million associated with the CINV indication. Aloxi for PONV would become the first of twonew product launches for an expanded acute care field force in 2008.

I will now turn to Dacogen. Sales of Dacogen during the third quarter of2007 totaled $34.6 million, representing 15% sequential growth versus secondquarter sales of $30.2 million. End userdemand is strong. We believe the successof Dacogen is due to the clinical benefit that it provides the MDS patient - arapid time to response and a manageable side effect profile.

Dacogen is viewed by many clinicians as the morepotent hypomethylating agent which, in terms of clinical experience, has beenseen as translating into patients more quickly attaining a clinical response. According to data from IMS, Dacogen hasachieved approximately a 50% market share of the hypo hypomethylating class ofagents.

We continue to manage a broad clinical developmentprogram for Dacogen together with our partner, Janssen-Cilag. The Phase III EORTC survival trial in advancedMDS patients is fully accrued and we expect top-line data will be available inearly 2008.

Our Phase III survival trial in AML continues toaccrue patients, and numerous Phase I and II trials in MDS and AML, includingmaintenance therapy studies, combination studies, and trials in othermalignancies are ongoing.

We look forward to an exciting American Society ofHematology, or ASH meeting in December where numerous Dacogen data presentationswill occur.

Turning now to Aquavan, a sedative agent beingevaluated in patients undergoing short surgical or diagnostic procedures, wesubmitted an NDA in September. The basisof the NDA includes results from three pivotal trials of Aquavan: a Phase IIItrial in patients undergoing colonoscopy; a Phase III trial in patientsundergoing bronchoscopy; and an open label study of Aquavan in patientsundergoing a variety minor surgeries. Theprimary goals of these studies were to demonstrate the safety and the efficacyof Aquavan in a variety of short procedures.

We have discussed previously the colonoscopy trial metits primary endpoint of sedation success with a P-value of less than 0.001. The safety profile of Aquavan in this studywas predictable with no manual or mechanical ventilation required for anypatient in the study. In addition,Aquavan demonstrated an advantage in recovery of cognitive function, orclearheaded recovery, following the procedure.

This is an important parameter that may help todifferentiate Aquavan in the marketplace by enabling patients to more quicklyresume normal function and improve through-put in the colonoscopy or proceduresuite. A quicker recovery from sedationbenefits patients, may reduce a patient's time in the recovery room andrequires fewer resources.

Similarly, the bronchoscopy trial met its primaryendpoint of sedation success with a P-value of less than 0.001 as well as allsecondary end points. The safety profileof Aquavan was predictable and similar to the safety profile of the controlarm. Results of this trial will be morefully presented at CHEST 2007, the annual conference of the American College of Chest Physicians in Chicago this weekend.

To summarize, we believe the pivotal program resultsdescribed an effective sedative agent with solid safety across a spectrum ofpatients and common procedures that do not require monitored anesthesia caresedation. If approved by the FDA, weexpect to launch Aquavan during the second half of 2008 with an expanded acutecare sales force that will focus on Aquavan and Aloxi in the PONV setting.

Aquavan will likely be the only product being promotedin the moderate sedation setting. Itsrapid onset of action, high rate of sedation success, rapid clearheadedrecovery, and predictable safety profile will serve as significantdifferentiating features versus other agents.

As for the market opportunity for Aquavan, we believeAquavan could add at least $400 million in peak sales to our top-line. We estimate there are more than 40 millionprocedures per year in the U.S. requiring moderate sedation with gastrointestinalprocedures encompassing approximately one-half of this total.

Finally, our R&D portfolio is progressing well. We expect our pivotal trial for amolimogene inpatients with high-grade cervical dysplasia to be fully accrued by the end ofthis week. While prophylactic vaccinesare now available for the prevention of human papilloma virus infection, weestimate 1.2 million patients per year will develop cervical dysplasia in the U.S.

Recent published data confirms that HPV prophylacticvaccines are not effective in patients who have been exposed to the virus. Amolimogene is being developed as atherapeutic to treat cervical dysplasia and could provide an alternative to aninvasive surgical procedure.

AKR-501, an oral small molecule thrombopoietinmimetic, is currently being evaluated for the treatment of idiopathicthrombocytopenic purpura or ITP in a randomized double-blind placebo-controlledPhase II study. Approximately 65patients with chronic relapse refractory ITP will receive daily doses ofplacebo or AKR-501 at doses of 2.5, 5, 10, or 20 milligrams for 28 days.

End points for this study include the proportion ofpatients who achieve platelet counts greater than, or equal to 50,000, theproportion of patients who achieve a platelet count greater than or equal to100,000, and the proportion of patients who double their platelet count. We are also preparing to initiate Phase IIclinical trials of AKR-501 in hepatitis induced thrombocytopenia andchemotherapy induced thrombocytopenia over the next several quarters. We look forward to updating you in the futureregarding the progress we are making with this exciting product candidate.

Regarding the ZYC 300 Phase I, II program for patientswith solid tumors, the initial enrollment target of 20 patients has been metand, due to encouraging initial clinical activity, the investigators haverequested that additional patients be enrolled. We expect to enroll these patients by the end of the year and toinitiate a Phase II trial of ZYC 300 during 2008.

These focused R&D investments, along withlifecycle initiatives for Aloxi and Dacogen, will provide a foundation for longer-termgrowth. With that, I will turn the callover to Bill who will review our third quarter 2007 financial results and our2007 guidance. Bill?

Bill Spengler

Thank you, Lonnie, and good afternoon everyone. BeforeI begin, I would again ask that you please keep in mind that our adjusteddisclosure is a non-GAAP presentation. Andas a result, I direct your attention to the reconciliation schedules thataccompany our earnings release for more specific information. During the call, I will primarily be referringto period comparisons using the adjusted numbers. I will then also identify and briefly compareGAAP information, particularly when referring to operating profit and netincome results. With that, I will turnto the numbers.

Beginning with the P&L, total revenue in the thirdquarter was $112.5 million compared to $97 million in the third quarter of2006. Total revenue, therefore, grewyear-on-year by 16%, primarily due to the inclusion of Dacogen sales, followingits commercial launch in the second quarter last year. Total revenue also grew by 21% over the secondquarter of 2007. Aloxi sales in thethird quarter were $66.3 million, representing a 37% sequential increase overthe prior quarter.

Our net selling price or NSP for Aloxi vial rose tothe mid-120s, up from approximately $120 per vial in the second quarter. A primary factor contributing to the increasein Aloxi's NSP is the ongoing reduction in the level of quarter-end discountsbeing offered. These reductions are alsoserving to continue the leveling of revenue achieved month-by-month during aquarter. Also noteworthy, Aloxi'sinventory held at the distributor level declined quarter-on-quarter.

During the third quarter, sales of Dacogen totaled$34.6 million, representing a 15% sequential quarter-on-quarter growth. Thisresult contains a $1.9 million reversal of deferred revenue related to aprogram, which began in the second quarter of last year to support the initiallaunch of Dacogen.

Finally, sales of Gliadel were $8.4 million in Q3 andtherefore, in summary, we have very favorable revenue results to report thisquarter. Adjusted gross margin in thequarter was $76.3 million, or 68% of product sales, versus $63.1 million, or65% of product sales in the third quarter of 2006. The approximately 3% of sales improvement inthe margin ratio year-on-year was primarily due to product mix, in particular,the inclusion of the relatively higher margined Dacogen revenue.

Adjusted selling, general administrative expenses were$34.4 million in the third quarter compared to $36.1 million during the sameperiod last year. This year-on-year decline is largely attributable to thecontrols in place over our selling and general administrative expenses. Adjusted research and development expenses forthe quarter were $16.7 million compared to $20.5 million in the third quarterlast year. This $3.8 millionyear-over-year decline is largely the result of having concluded certainclinical trials that were ongoing at this time last year, and also due to therestructure activity undertaken at the end of 2006.

On an adjusted basis, this quarter our operatingincome was $25.2 million, a nearly four-fold improvement over the adjustedoperating income of $6.6 million reported for the same period in 2006, and anincrease of $13.9 million or more than double that reported in the secondquarter of this year. Also on anadjusted basis, our net income in Q3 was $24.8 million or $0.30 per dilutedshare, compared to a net income of $5.8 million or $0.07 per diluted share forthe same period in 2006. This resultalso represented a $0.17 per share improvement over Q2 of this year.

This significant increase in adjusted net income andadjusted earnings per share, whether compared to the preceding quarter orcompared to the same period in the prior year, reflects the P&L leverageinherent in the MGI business model. Weexpect this leverage to become even more apparent in the coming quarters, asrevenue growth continues to outpace expense growth. Again, our adjusted disclosure is a non-GAAPpresentation and I direct your attention to the reconciliation schedules Imentioned previously.

I will now turn briefly to a discussion of our resultsunder U.S. GAAP. GAAP product grossmargin totaled $74.3 million or 66% of product sales in the third quarter,compared to $62.1 million or 64% of product sales in the third quarter lastyear. The margin improvement on thisaccounting basis occurred for similar reasons to those identified in ourcomments on our adjusted results.

GAAP SG&A expenses totaled $38.7 million for thethird quarter compared to $38.4 million in Q3 2006, while GAAP research anddevelopment expenses totaled $22.8 million in the third quarter compared to$21.2 million of R&D expense in Q3 of 2006. GAAP R&D in the currentquarter contained a $5 million milestone payment to HELSINN, related to theFDA's acceptance for filing of the sNDA for the PONV indication of Aloxi.

MGI reported GAAP operating income $11.2 million inthe third quarter, and a GAAP net income of $10.9 million or $0.13 per dilutedshare. This compares to operating incomeof $2.6 million and net income of 1.7 million or $0.02 per diluted share in thethird quarter of 2006.

I will now briefly overview our year-to-date results. For the nine months ended September 30, 2007, total revenues were$288.8 million compared to $262.4 million during the same period last year. Total revenue, therefore, grew year-on-year by9%, despite the transient pressure on Aloxi in the first half of the year, andprimarily due to the inclusion of Dacogen following its commercial launch inlate Q2 of 2006.

On an adjusted basis, combined SG&A and R&Dexpenses for the first nine months of 2007 were $153.7 million, compared to$166.8 million during the same period last year. We continue to be well positioned to achieveour full-year expense guidance on an adjusted basis. Our year-to-date gross margins have alsoimproved.

Product gross margins on an adjusted basis for thefirst nine months of this year totaled $199.5 million or 69% of product sales,which compares with $170.7 million or 65% of product sales in the first ninemonths last year. As we have discussedin the past, the addition of Dacogen and increased revenue on higher marginGliadel are beneficial, as is the elimination of the Guilford legacy product Aggrastat from our product mix.

Adjusted net income for the first nine months of 2007was $45 million or $0.55 per diluted share, compared to an adjusted net incomeof $1.7 million, or $0.02 per diluted share during the same period last year. We also achieved profitability on a U.S. GAAPbasis for the first nine months with net income of $13.7 million or $0.17 perdiluted share.

I will now turn very briefly to our balance sheet. Cash and marketable debt securities at the endof the third quarter were $166.5 million compared to 4127 million at the end ofthe third quarter of 2006, approximately $5.4 million than at the end of Q2this year.

Although partly offset by incremental cash collectionsafter quarter end cut-off, our cash balance was reduced by $%45 million lastweek as we funded closing payments related to the exclusive license to develop AkaRx products and the opportunity toeventually exercise an option to acquire 100% of the company. In light of the size of this businessopportunity, we are extremely pleased to have concluded this transaction.

I will now review our 2007 financial guidance on anadjusted basis. As we approach the end of the year, we continue to be confidentin the 2007 financial guidance provided in August during our conference call todiscuss the development and license agreement with AkaRx.

We therefore continue to anticipate adjusted SG&Aexpenses this year of approximately $140 million to $145 million and adjustedR&D expenses of approximately $73 million. We also continue to anticipate positiveadjusted operating income. At thispoint, we see Dacogen sales of least 115 million for the full year, and wecontinue to see single-digit growth in Gliadel.

Turning to Aloxi, at this early point in the quarter,we now expect approximately a 10% sequential growth in fourth quarter revenuewhen compared to the third quarter. Finally,please once again note that this adjusted guidance commentary excludesamortization of intangibles, non cash stock compensation expense, license andmilestone payments, charges related to restructuring under the plan that weannounced last year, and in-process research and development charges, IPR&D, related to the AkaRx transaction.

With that I will turn the call back over to Lonnie.

Lonnie Moulder

Thank you, Bill. We will now open up the call for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes fromJim Reddoch from FBR.

Jim Reddoch - FBR

Well, good afternoon and nice quarter. A couple of quick questions on Aloxi. Where do you think you exited the quarter,market share-wise? I believe you saidbefore that you have thought you were around 40% market share, maybe headed toas high as 60% market share. Where arewe now on that trajectory?

I believe, Bill, you said that the inventory was drawndown over the quarter. Had it beenoverstocked or was it above the mean level exiting Q2 such that you are nowbelow the mean level? How does it look? Thanks.

Lonnie Moulder

Tim, I will talk to the market share question. The market share that we last discussed wasapproaching 40% overall. We will have ina few weeks the September IMS data, and we need the monthly data in order tocompare how we are doing to the other agents in the class. We do get weekly data, but that is only on ourown drug.

So I will not be able to update market share forexiting the quarter until we have that October release of IMS data for themonth of September. And as far as the60% share, that is the share that we believe we can grow this franchise to forCINV in the IV and the oral formulation with approximately 6 million -- justover 6 million annual day of chemotherapy doses with about a 60 share. That would give us sales at our anticipatedpricing in excess of 500 million at peak, again, for CINV.

Bill will address your other question.

Bill Spengler

Yes, Jim. Actually,the inventory level really came down at the distributor level by about 10 daysor so. Both numbers are within normalrange. We have an agreement with ourdistributors that they will not hold more than approximately a month's worth ofinventory. They were approximately atthat level at the end of the preceding quarter. They are running right down and closer to thetwo-week level, right now. It has to dowith the improved level of revenue during the period.

Jim Reddoch - FBR

So there was no buy-in in advance of the change inreimbursement?

Lonnie Moulder

There was not. And,Jim, there is no need for them to do that. They can get product within 48 hours from us.

Bill Spengler

Okay, fair enough. I will not take all of everybody else'squestions but I have one more on the Dacogen Guidance, which looked kind ofinteresting. Do we need to know anythingabout how September looked? Because allwe have seen are numbers from July and August but those were months that seemedto be tracking for something better than what your guidance implies for thefourth quarter. Certainly, if it is atthe 115 level. I guess you said more than115, but that was September up from August. We will start at that. Thanks.

Lonnie Moulder

Demand continues to grow for the brand, Jim.

Bill Spengler

And we did adjust at least the comment to at least115, which I think is reflecting some of the thinking you are putting across.

Jim Reddoch - FBR

Okay. Fairenough. Thanks.

Operator

Our next question comes from Eric Ende from MerrillLynch.

Eric Ende - Merrill Lynch

Thanks. I havea bunch of Dacogen-related questions. You said that you guys had 50% share ofhypomethylating agents. Is that dollarshare or script share? Because I thinkyou used to have 55%.

Lonnie Moulder

Eric, we say approximately 50%. The IMS dollar share last reported was over50%. I was just rounding that. It is approximate. Our actual patient share and it is a bitcomplicated to do this. You have to makesome assumptions, assuming what the actual dose is, that a patient will get,how many vials, and you track the vials with IMS. Our actual patient share is probably just under50%. So that is what we have beensaying. I am just confirming that. Overall, it is about a 50 share.

Eric Ende - Merrill Lynch

Bottom line is you have not lost share. You are not implying that, are you?

Lonnie Moulder

No, not at all.

Eric Ende - Merrill Lynch

You also said there was a reversal of something forone point something million. Can youjust repeat that?

Bill Spengler

Yes. It was adeferred revenue item really from last year. I think we spoke to this at the time oflaunch. We said that for a select groupof doctors, and this was initially to encourage trial.

In the event that there were not reimbursement throughMedicare for the use of Dacogen we would, in effect, provide the product tothem. We would reimburse them for whatthey had paid on the products.

Now, under the accounting rules, that required us towait to recognize that revenue until we could validate that no one had actuallyredeemed under that program. In theentire year, there has only been five vials redeemed related to that. That was awhile ago, so it took us thisperiod of time to validate no history of having any redemption.

Therefore, in this quarter that $1.9 million that hadpreviously been deferred could be brought into the revenue line. Hopefully, that made sense.

Eric Ende - Merrill Lynch

Yes. Basically,what you are saying is demand was $1.9 million essentially?

Bill Spengler

Yes. I will sayex-factory was that.

Eric Ende - Merrill Lynch

Can you guys talk about if you are actually seeingmarket expansion within the hypomethylating agents now?

Lonnie Moulder

Eric, clearly since we launched the drug there hasbeen significant market expansion that is continuing. If you recall, at the time we launched, weestimated approximately 20% to 25% of the eligible patients with MDS werereceiving a hypomethylating agent. That hasalmost doubled now.

If you are speaking to over the last month or two,have we seen any changes in that trend? No. It continues to grow, and, again, I do nothave information on the competitive product for the month of September, onlythrough August.

Eric Ende - Merrill Lynch

Just quickly, stock option expense, what is theexpectation for 2007?

Bill Spengler

We have not actually provided guidance in thereconciling items. I would say that you couldtake what you are seeing as Q3 numbers, which are disclosed at the back, andadd that in for Q4. So it would beapproximately a $25 million kind of number, full year.

Eric Ende - Merrill Lynch

I appreciate it.

Operator

Our next question comes from Howard Liang from LeerinkSwann.

John Sullivan - Leerink Swann

Hello, this is actually John. I am filling in for Howard. I just have a quick question about theinventory levels. I know that thesuppliers can get them very quickly, and now the levels are around two weeks. Do you see any anticipate any change in that? Do you think it will maintain it to around thetwo-week area or fluctuate somewhere between that in the one month time frame?

Lonnie Moulder

In the oncology marketplace, the distributors are ableto obtain the product quickly. They thenneed to quickly be able to ship the product off to the clinics, because many ofthe clinics want to put in an order two or three times a week and just have thedrug available for when the patients come in. They can predict that.

So the agreements we have with our distributors allowsup to a month of inventory. Now, what isa month? Well, it depends on what yoursales trends are and looking back and estimating what the month is.

Since our sales trends for Aloxi are up - significantly up - an amount of Aloxi thatmight be similar to what has been held in the past is actually less days ofinventory. I am sure you could see howthat works.

But actually the amount of units ending the thirdquarter in the distribution channel was less than the end of the secondquarter, which was about a month. Sothose are the factors.

Having about two or three weeks is reasonable. A product like Dacogen actually has just undertwo weeks, but it is a much more expensive product. So we would anticipate that the distributorswill keep something clearly under a month, but more than a week. That may fluctuate from time to time.

John Sullivan - Leerink Swann

Very good. Theintra quarter distribution of Aloxi sales, I know you made a comment that it hasbeen greatly reduced, or flattened, due to the reduction of end-of-quarterdiscounts. Do you see any more change,or is it only a little bit more adjustment for that? You think it will stay similar to what you sawthis quarter going forward?

Lonnie Moulder

There will be changes over time into the future, asyou look at contract changes, pricing changes. So there's always going to be a little bit ofvolatility, but not nearly what had occurred when we had the competitiverebating program versus Glaxo.

What you will see in the third quarter is about whatyou will see going forward. Of course,again, we are on an upward trend with the product. So each month in a quarter, and each quarterwill be up over what had been seen previously.

John Sullivan - Leerink Swann

Very good. The same thing with - I think you answeredthis - with Dacogen. Again, the inter-quartersales trends with that drug, because it is, again, a similar sort of thing,because it is still progressing. Are youjust seeing steady increase, or is there, again, a weighted month at the end ofthe quarter?

Lonnie Moulder

There is some volatility with Dacogen, but it is not apattern that one could discern. If yougo back and look at the end user demand, you will see months that are a greatacceleration over prior months, and then maybe a month or two at about a stablelevel at a new plateau, and then another month of acceleration, and then stablefor a month or two.

That has been the history for the whole class, if youlook back at it using either IMS or NDC data. Some of that is related to holidays. Obviously, with the five-day regimen withDacogen or the seven-day regimen with the other agent, the Thanksgiving week,the Christmas week is a bit lower than a typical week. I think if you look back at the data it reallystands out.

John Sullivan - Leerink Swann

Very good. Thankyou very much.

Operator

Thank you. Ournext question comes from Chris Raymond from Robert Baird & Company.

Chris Raymond - Robert Baird & Company

Thanks for taking the question. I just wanted tounderstand a little bit about the R&D number. Back about month and a half ago I guess youguys raised your R&D spending guidance. If you touched on this I apologize, but I wasa little surprised that the R&D number was as low as it was this quarter. Can you talk a little bit about that? Should we expect a big step up in fourthquarter? And what is driving that, if so?

Lonnie Moulder

Well, we did talk about that actually. We discussed it when we discussed the AkaRxtransaction in August. We are bringingin at this point the ongoing costs of the existing Phase II trial and we aregearing up for two other Phase II trials. So the run rate does not, in the past, includebringing in that expense base. So that isa change from the run rate. In addition,we aad previously been studied ceed the full year estimate.

Chris Raymond - Robert Baird & Company

So 73, right?

Lonnie Moulder

Correct, that is the number we have out there.

Chris Raymond - Robert Baird & Company

Great. Alsoafter this transaction, I think you mentioned that you had a $45 millionstep-down, which I think brings your cash - if I do the math - to about $120 or so. Is that correct?

Lonnie Moulder

Assuming all other things being constant, that wouldbe correct.

Chris Raymond - Robert Baird & Company

Right. Can youcomment a little bit about the adequacy of that cash going forward in terms ofneed for new financing et cetera?

Lonnie Moulder

Yes, wholly adequate. We are showing operating cash flowprofitability, we are generating cash as our receipts go up related toincreased Aloxi and Dacogen revenue. Wehave no change in terms as a result. Weare just collecting more cash. Ourexpense base is under control. Payablesare under control.

We have a line of credit, should we need it, arevolver available to us for up to $75 million. So there really is absent a significanttransaction of some kind which we do not foresee in the near term. There is absolutely no need for an incrementalfinancing.

Chris Raymond - Robert Baird & Company

One final question. What was Gliadel revenue this quarter?

Lonnie Moulder

$8.4 million. Ithink I mentioned that in my comments.

Chris Raymond - Robert Baird & Company

Okay. Thanks.

Operator

Thank you. Ournext question comes from Joel Sendek from Lazard Capital.

Joel Sendek - Lazard Capital

Thanks. I havea bunch of questions. First of all, onAquavan, can you tell us what the PDUFA date is?

Lonnie Moulder

Joel, the submission occurred at the end of September,and we are in that period of up to 60 days before we will hear back on thefiling of the NDA by the FDA and the establishment of the PDUFA date. But we would assume a standard review, so thatis 10 months from the submission.

Joel Sendek - Lazard Capital

Okay. Are you prepared to launch Aquavan immediatelyonce you get the approval?

Lonnie Moulder

Obviously, there is the final packaging that needs tobe done, and the shipment into the distribution channel. I would say, though, if it comes right beforethe Labor Day holiday it is probably best to wait until afterwards. August is not a great time to launch a newpharmaceutical product. So we aretargeting late third quarter.

Joel Sendek - Lazard Capital

Okay. Turningto Aloxi real quick, do you know if any Aloxi was used off-label for more thanonce a week or is that totally a green field opportunity for you?

Lonnie Moulder

There was some use there. Although what we now have are evidence ofbenefit from CMS carriers for actually reimbursing, at least under CMS, formulti-day chemotherapy regimens withAloxi. So having that label change ishelpful.

Joel Sendek - Lazard Capital

Okay. My lastquestion is on Dacogen. I am wonderingif you can give us any feel for the duration of therapy, whether that haschanged at all.

Lonnie Moulder

That is a good question. I have been challenged to clearly identify aquantitative data source to land on what the number of cycles are per patient. We know since launch, it has gradually movedup and is it in the 4-plus range now. Probably. That is the best I can do.

Joel Sendek - Lazard Capital

Okay. Thanks alot. That is all.

Operator

Thank you.

Lonnie Moulder

Next question.

Operator

Our next question comes from Geoff Meacham fromJPMorgan.

Geoff Meacham - JPMorgan

Hi, guys. Congratulationson a good quarter.

Lonnie Moulder

Thanks, Jeff.

Geoff Meacham - JPMorgan

Question for you, just a follow-up to Joel's questionon Dacogen. I think the ERTC protocol is,formally, treatment up to eight cycles for Dacogen. Do you have any sense for what percent ofpatients commercially can tolerate that in your experience so far?

Lonnie Moulder

Tolerating it is something. As the MDS patients start to have theirmarrow recover, they do fine with hypomethylating agents. It is usually the first cycle or two that aretough. Once they get through that, in eachsubsequent cycle some patients may have a drop in count. One of the reasons why so many more patientsare receiving these agents is that the clinicians understand that now, and theyjust manage them through what might be a small drop in counts immediately aftera cycle. So tolerating the drugs is notthe issue in the long term.

There are patients that, on any chemotherapy regimenover time, can become fatigued just with the process of going in forchemotherapy. That is probably a biggerissue. Obviously, now that there is moreand more discussion about survival benefits with this class of agents, and thephysician being able to educate the patient that the additional cycles areimportant, yes, their counts may be more normal, and the blast cell counts aredown, so they are less likely to progress to leukemia with less cycles. But for a survival benefit, more cycles arebeneficial and that will be helpful for clinicians to talk to the patients toallow them to stay on therapy. I know ofsituations where patients have been on therapy for over two years, meaning morethan 20 cycles.

Geoff Meacham - JPMorgan

Thanks. That isreally helpful. Just a question onAloxi. What is your guidance imply, your sequential guidance imply for NSPs andhow are you guys thinking about that as we go into 2008?

Lonnie Moulder

When we launched the drug, you may recall this, thenet selling price that we recognized per vial of Aloxi was close to 140. After the rebating program that Glaxo put inplace - that we then countered - beginning two and a half years ago, our netselling price has degraded, along with Medicaid rebating that became greaterthan what was initially anticipated.

So, we came down to, actually in the fourth quarter oflast year, below 120, into the low teens, and then most recently we have beenin the 120 range. This quarter we areback up to the mid-120s and we see this fairly quickly getting into the 130s. We will have to give you specifics on thatquarter-by-quarter, though.

Geoff Meacham - JPMorgan

Okay. Thanks.

Operator

Thank you. Ournext question comes from Katherine Kim from Banc of America.

Katherine Kim - Banc of America

Hi. Can you hear me?

Lonnie Moulder

Yes, Katherine.

Bill Spengler

Yes, we can.

Katherine Kim - Banc of America

Okay. My firstquestion is on the Dacogen guidance of at least 115. Obviously, there is upside there, but is thereanything specific that you are seeing in the marketplace or anything for whyyou are not actually raising the number?

Leon Moulder

There is really nothing specific I think in trends that exist now orwe foresee existing in the fourth quarter. The only thing that is critical to remember,which is why we are a little circumspect, is that we have - as Lonnie mentionedbefore - just a slowdown in use over a Thanksgiving and Christmas kind of aperiod, which is just a seasonal effect that maybe we are being prudent to tryto keep in mind.

Katherine Kim - Banc of America

Okay. For theEORTC phase III trial on the survival trial, you said that youexpect top line in early 2008. Are wetalking somewhere in the first quarter?

Leon Moulder

Katherine, with the survival trial, that isevent-based. We can not project that tothe specific month. Early means it is inthe first half of the year.

Katherine Kim - Banc of America

Okay.

Leon Moulder

We would anticipate it coming sometime probably prior to ASCO, but we willnot be able to give you more information until we get that information from theEORTC.

Katherine Kim - Banc of America

Okay. Could youjust talk about the status of the AML study? When do you expect to complete enrollment andwhen do you think you can have data?

Leon Moulder

The global AML survival trial, this is the trial in elderly AMLpatients with poor cytogenetics, 480 patients in total. The enrollment will complete by yearend nextyear. Then the patients are followed for one year, but again, the enrollmentwill complete next year at the end.

Katherine Kim - Banc of America

Okay. Allright. Thank you.

Operator

Our next question comes from Phillip Gross from AdageCapital Management.

Phillip Gross - Adage Capital Management

Hi everybody. Justa couple of questions. You had mentionedthat you are getting some leverage on the P&L and that that should continuethrough the ensuing quarters. Should weexpect that essentially in every quarter next year, and/or for the year 2008,given the sales force ramp and the preparation for launch of Aquavan and AloxiPONV?

Leon Moulder

What I would say is that it may not be in all quarters, but it wouldclearly be for the year. So what happensis you are ramping up the field force in the first quarter, then launching thePONV indication shortly thereafter.

You do not have any revenue coverage on the costs youhave in the first quarter. However,offsetting that still in the first quarter is the ongoing growth in bothDacogen and Aloxi. The leverage will notbe quite as evident in the first quarter as I suspect it will be in the secondand the future quarters, and definitively on a full-year basis.

Phillip Gross - Adage Capital Management

Okay, that is very helpful. A little more specifically as Jeff has raisedsome questions about that selling price, should we -- I understand it is goingto rise over time. The $5 jump is alittle more than we were expecting.

How should we -- is there a kind of a natural bump-upbecause of the transition that is going on, that is kind of a bigger step thanwe should expect going forward quarter-on-quarter? Or is it the beginning of a ramp that willhappen over the next two years?

Leon Moulder

I think there are several factors here. Clearly, we pulled back on some of the levelof rebating that existed in the past. Wehad situations in the past where the Medicaid rebating came in a bit higherthan anticipated, and that may have almost artificially depressed the NSP,Phil, and that is now behind us. So, Iwould see moderate increases quarterly under our new contract.

Philip Gross - Adage Capital Management

And the Medicaid was double dipping for a while. Is that over now, so we are only havingsingle dipping in the NSP? Or are youstill reserving for both of the rebate payments that exist?

Lonnie Moulder

Yes, that still occurs, but the actual impact is muchlower than it was in the past.

Philip Gross - Adage Capital Management

Okay. A couple ofother questions. One is inventoriesthroughout the channel. At the cliniclevel, are you comfortable? Do you have visibility on where theinventories are at the clinic level as opposed to the distributor level?

Lonnie Moulder

No, we do not have visibility at the clinic level. We do run a lot of the same numbers you guysmight be looking at on the trends over time and demand. We just assume that most clinics are not inthe business of holding a substantial amount of Aloxi vials. So, no, we do not have crystal clear vision,no reporting mechanism on clinic inventory.

Phillip Gross - Adage Capital Management

But do you feel like those are at normal levels, ifnot below normal levels?

Lonnie Moulder

I think that is really built into our guidance forAloxi going forward. But we see growth,and that is true underlying growth, and no impact of how much product clinicsmay be pulling in. Remember, thesignificant rebating programs associated with some of the quarterly volatility,or end of quarter volatility are now really gone.

Phillip Gross - Adage Capital Management

Okay. A lastquestion. GAAP EPS versus essentiallycash or adjusted EPS. How do you want usto look at that? I noticed that First Callis still using the GAAP EPS in terms of their reporting convention. How do you switch that? Do you guys have to get on the road toconvince people, do you want to convince people that cash is the right way tolook at you guys? And when do you startpaying taxes?

Bill Spengler

That is an interesting question. I think because of significant charges thatcome in at times for IP R&D. I willgive you an example. We will have a $45million charge in the fourth quarter related to the fact that we have just spent$45 million for the option and the right to develop the AkaRx products. I think, that should be adjusted out of theinformation because it is a one-time non-attributable charge. It bears no trends to the correlations in thebusiness, and it would confuse the reader.

If you get into questions on stock-based compensation,most people will adjust out that number. The reason is that, as all of us adopted thenew rules (123R), we all accelerate investing on prior options. So there are significant changes instock-based comp as the new layers of grants begin to build into the base andit grows. And depending on your investingperiod, you peak either at three years or four years from now. Because of that difference, most people liketo adjust that out.

Beyond that, you can put a restructured charge in orout. That is an uncommon thing for us,but that is kind of your call. Itherefore think the best way to track us in general is by an adjusted earningsnumber, because it removes the one-offs and gives you an idea of trends in thebusiness. Apart from that than I wouldtake a look at cash, those kind of things, any swings in the balance sheet.

Phillip Gross - Adage Capital Management

How do you get First Call to change their reportingconvention? Are you guys involved inthat at all?

Bill Spengler

No. I have topretty much leave that to them. It isnot my effort to try to tell them how to take a look at these things.

Phillip Gross - Adage Capital Management

And the taxes?

Bill Spengler

Taxes? Well, wereally have, we are not a taxpayer at this point with the exception of minimalstate obligations. We do not see thatchanging in the near term.

Phillip Gross - Adage Capital Management

Meaning throughout 2008 and into 2009?

Bill Spengler

It is possible. As you probably know, you need a series of sequential quarters and thencumulative earnings to be able to get to the point where you become a taxpayer. In that case, that could be - the absoluteearliest would be at the end of 2008. Itis likely more of a 2009 event for us.

Phillip Gross - Adage Capital Management

Okay. Thankyou.

Lonnie Moulder

Thanks, Phil.

Operator

Thank you. Ournext question comes from Eric Vieira from Majestic Research.

Eric Vieira - Majestic Research

Thanks for taking the call. Phil asked the question I was really lookingfor, but maybe to get a little more color on that, you are assuming minus thenet sale price increase, you are really looking at about 33% growthquarter-over-quarter with Aloxi. So isit correct to assume then that, as you said, it is pretty much end-user demanddriving that growth?

The second question regards to guidance for the fourthquarter. You have 10%quarter-over-quarter growth, and you also made a statement that yourexpectations for the multiple dosing has a growth opportunity of 10%. Where is that multiple dosing growth - I mean,is that going to be growing over time to get it to a peak sale growth of 10%representing all of Aloxi, or are weexpected to see that 10% coming into the second quarter and then, therefore,potential flat growth coming from just other demand for Aloxi? Thanks.

Lonnie Moulder

I am not sure if I am understanding what you areasking. Let me try and clarify this. It sounds as if you are mixing the multi-dosechemotherapy 10% market opportunity with our 10% sequential sales increase asfar as guidance, fourth quarter over third quarter. The two are only partially connected. Obviously, if we are sitting at just under a40% market share overall, on the day of chemotherapy market, which is just over6 million doses, we have an opportunity to grow in a variety of ways.

We can be growing because of the multi-day chemoregimens, where we have not had as much utilization in the past, but that isonly 10% of the overall market. What weare seeing now is some more use there, but clearly just general growth acrossthe entire market of chemo regimens.

A lot of those regimens being those considered moreemetogenic, having a higher propensity to cause nausea and vomiting, andclearly there is an opportunity where GlaxoSmithKline had captured almost 20share points from the old 5-HT3 antagonist in the clinic setting byaggressive contracting. That aggressivecontracting changed the economics for the clinics, and that is now gone. Sothose 20 share points just in general across the market are up for grabs.

In addition in the hospital market setting, where wehave actually gained share during the first half of the year, the Glaxo bundlecontract no longer exists. It is not anobstacle to us to continue to gain share. So there is a variety of places we intend togain share as I said before, ultimately towards a 60% share overall. So it is really an accelerating franchise forus right now.

Eric Vieira - Majestic Research

Now, that helps me understand. It will be slower growth, and just coming at aone-time thing. But then, getting backto my first question with regards to-- you obviously have no insight then intoend user demand to see what that growth was versus what Phil was discussingabout clinic inventory levels?

Lonnie Moulder

Yeah, we have insight into end user demand. We cannot be precise with any number, but it isextremely strong. Thanks. Last question.

Operator

Our final question comes from Jim Reddoch with FBR.

Jim Reddoch - FBR

A quick follow-up, if I could on what we might see atASH. Is the adopt data going to be anoral presentation? Will there besurvival? It seems like I had heard thatSuperGen had been saying that there might be survival, so I was confused onthat, even in terms of survival? Also,will there be a median number of cycles in the adopted day-to-day? Thanks.

Lonnie Moulder

The ASH presentations are not yet publicized by ASH. As you know, the investigators and the authorsreceive notification - and most of them have by now - but it will not be untilearly November where that is public. Soit is not appropriate for us to be discussing that until ASH puts that forward. We will then communicate what we know.

Adopt was submitted as an abstract - I can share thatwith you - and the Adopt trial was the five-day dosing every 28-day regimenthat had previously been studied at a single institution. That study is really looking at clinicalresponses in order to add that dosing regimen to a label that currently existsbased on a response rate employed for Dacogen in a randomized Phase III trial.

So that study looks at responses in a single-armtrial. Obviously, over-time-survivalwill be tracked for those patients, but it is not a head-to-head trial - it isnot controlled. There will be data thatwe would hope to see at ASH based on a number of presentations and other MDSstudies, AML studies, combination use, and looking at survival in MDS. But as we get into November, and that becomespublic, then we will share with everyone what the data presentations will be,what form they will be in, what day, what time, all of that.

Jim Reddoch - FBR

Okay.

Lonnie Moulder

All right. Well,thank you, everyone. We have a number ofkey milestones ahead of us related to our commercial franchises and ourpipeline this year, and we look forward to updating you. Have a great evening.

Operator

Ladies and gentlemen, thank you for participating intoday's conference. This does concludethe program. You may all disconnect. Have a great day.

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