Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q and other materials filed or to be filed by us with the Securities and Exchange Commission, or the SEC, as well as information included in oral statements or other written statements made or to be made by us, contain forward-looking statements within the meaning of federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our industry, our beliefs and assumptions. These risks and uncertainties include those described in "Part II, Other Information, Item 1A. Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. Forward-looking statements, whether express or implied, are not guarantees of future performance and are subject to risks and uncertainties, which can cause actual results to differ materially from those currently anticipated, due to a number of factors, which include, but are not limited to:

• the amount and timing of costs associated with the continuing global launch of Abraxane®;

• our ability to maintain and/or improve sales and earnings performance;

• the actual results achieved in further clinical trials of Abraxane® may or may not be consistent with the results achieved to date;

• the market adoption of any new pharmaceutical products;

• the difficulty in predicting the timing or outcome of product development efforts and regulatory approvals;

• our ability and that of our suppliers to comply with laws, regulations and standards, and the application and interpretation of those laws, regulations and standards, that govern or affect the pharmaceutical industry, the non-compliance with which may delay or prevent the sale of their products;

• the availability and price of acceptable raw materials and components from third-party suppliers;

• any adverse outcome in litigation;

• general economic, political and business conditions that adversely affect our company or our suppliers, distributors or customers;

• changes in costs, including changes in labor costs, raw material prices or advertising and marketing expenses;

• inventory reductions or fluctuations in buying patterns by wholesalers or distributors;

• the impact on our products and revenues of patents and other proprietary rights licensed or owned by us, our competitors and other third parties;

• the ability to successfully manufacture our products in an efficient, time-sensitive and cost effective manner;

• the impact of recent legislative changes to the governmental reimbursement system; and

• risks inherent in acquisitions, divestitures and spin-offs, including the capital resources required for acquisitions, business risks, legal risks and risks associated with the tax and accounting treatment of such transactions.

Forward-looking statements also include the assumptions underlying or relating to any of the foregoing or other such statements. When used in this report, the words "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict" and similar expressions are generally intended to identify forward-looking statements.

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, whether as a result of new information, changes in assumptions, future events or otherwise. Readers should carefully review the factors described in "Item 1A: Risk Factors" of Part II of this Quarterly Report on Form 10-Q and other documents we file from time to time with the Securities and Exchange Commission. Readers should understand that it is not possible to predict or identify all such factors. Consequently, readers should not consider any such list to be a complete set of all potential risks or uncertainties.

OVERVIEW

The following management's discussion and analysis of financial condition and results of operations, or MD&A, is intended to assist the reader in understanding our company. The MD&A is provided as a supplement to, and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008, including "Item 1: Business"; "Item 1A: Risk Factors"; "Item 6: Selected Financial Data"; and "Item 8: Financial Statements and Supplementary Data."

Background

We are one of the few fully integrated global biotechnology companies, with a breakthrough marketed product (Abraxane®), global ownership of our proprietary technology platform and clinical pipeline, and dedicated nanoparticle manufacturing capabilities for worldwide supply integrated with seasoned in-house capabilities, including discovery, clinical drug development, regulatory and sales and marketing.

We are dedicated to the discovery, development and delivery of next-generation therapeutics and core technologies that offer patients safer and more effective treatments for cancer and other critical illnesses. Our portfolio includes the world's first and only protein-based nanometer-sized chemotherapeutic compound (Abraxane ®) which is based on our proprietary tumor targeting technology known as the nab® technology platform. This nab® technology platform is the first to exploit the tumor's biology against itself, taking advantage of an albumin-specific, receptor-mediated transport system and allowing the delivery of a drug from the vascular space across the blood vessel wall to the underlying tumor tissue. Abraxane® is the first clinical and commercial validation of our nab® technology platform. From the discovery and research phase to development and commercialization, we are committed to rapidly enhancing our product pipeline and accelerating the delivery of breakthrough therapies that will transform the lives of patients who need them.

We own the worldwide rights to Abraxane®, a next generation, nanometer-sized, solvent-free taxane that was approved by the U.S. Food and Drug Administration, or the FDA, in January 2005 for its initial indication in the treatment of metastatic breast cancer and launched in February 2005. We believe the successful launch of Abraxane ® validates our nab® tumor targeting technology, a novel biologically interactive (receptor-mediated) system to deliver chemotherapeutic agents.

We are currently developing a raw material supply business, including active pharmaceutical ingredients, for biological and biosimilar applications. Ultimately, these raw materials may be used in our product candidates and/or sold to third parties. At various times, we may pursue revenue opportunities from sales of our raw materials, but we cannot assure any such opportunities will materialize to any meaningful degree or at all.

Proposed 2009 Spin-Off

In January 2009, we announced that our board of directors approved a plan to spin-off a newly-formed subsidiary, Abraxis Health, Inc., as a new independent, stand-alone company holding a significant portion of our drug discovery, pilot manufacturing and development business. If the spin-off occurs, our stockholders would own (i) shares of Abraxis Health and (ii) shares of our common stock, and we would continue to operate our existing business, excluding the drug discovery, manufacturing and development business to be held by Abraxis Health. In connection with the proposed spin-off, Abraxis Health would enter into several agreements with us related to, among other things, manufacturing, transition services, tax allocations and a number of ongoing commercial relationships. In addition, in connection with the proposed spin-off, we plan to contribute $5 million of our cash balance to Abraxis Health as well as provide a $225 million secured credit facility to Abraxis Health.

The proposed spin-off is subject to a number of closing conditions, including final approval by our board of directors and the effectiveness of the registration statement registering the common stock of Abraxis Health to be distributed to our stockholders in connection with the spin-off. Approval by our stockholders is not required as a condition to the consummation of the proposed spin-off. In connection with the proposed spin-off, Abraxis Health filed a registration statement on Form 10 with the SEC on August 4, 2009, withdrawn on August 12, 2009. Abraxis Health plans to file a new Form 10 registration statement, and stockholders are urged to read it, including any amendments or supplements thereto, carefully when available because it will contain important information about the proposed spin-off.

Investments in Expression Pathology

In April 2009, we acquired preferred stock in Expression Pathology, Inc. (EPI), providing us with a 52% ownership interest, for an aggregate purchase price of $6.7 million. EPI is a developer of technology for tissue protein analysis and is developing proprietary, personalized medicine clinical assays that relate measurement of protein biomarkers to specific patient treatment decisions. EPI's proprietary technologies include the Liquid Tissue® technology for the extraction of proteins from formalin-fixed tissue and the Director™ technology for the laser microdissection of tissue. We accounted for EPI as a business combination and the assets and liabilities of EPI are consolidated in our unaudited condensed consolidated financial statements from the date of acquisition.

Stock Repurchase Program

On April 20, 2009, we announced that our board of directors approved a program to repurchase up to $100 million of our common stock. Share repurchases, if any, will be funded by internal cash resources and will be made through open market purchases. The timing, volume and nature of share repurchases are subject to market prices and conditions, applicable securities laws and other factors, and are at the discretion of management. Share repurchases may be commenced, suspended or discontinued at any time without prior notice. During the three months ended June 30, 2009, we repurchased 20,500 shares of our common stock for $0.9

million pursuant to the stock repurchase program, which were subsequently retired in the third quarter of 2009. We did not repurchase any shares of our common stock during the three months ended September 30, 2009.

Universal Shelf Registration Statement

On June 18, 2008, we filed a registration statement on Form S-3 with the Securities and Exchange Commission (SEC). On July 2, 2009, the SEC declared this registration statement effective. Under this registration statement, we may, from time to time, offer shares of our common stock and preferred stock, various series of debt securities or warrants or rights to purchase any such securities, either individually or in units, in one or more offerings, in amounts we will determine from time to time, up to a total of $400 million. In addition, certain stockholders may, from time to time, sell in one or more offerings up to a total of 2,000,000 shares of our common stock.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2009 and September 30, 2008

The following table sets forth the results of our operations for the three
months ended September 30, 2009 and 2008, and forms the basis for the following
discussion of our operating activities:



                                                                                            Change Favorable
                                                                                             (Unfavorable)
                                                Three Months Ended September 30,             2009 vs. 2008
                                                  2009                    2008                $            %
                                                     (unaudited, in thousands, except per share data)
Consolidated statements of operations
data:
Revenue:
Abraxane                                     $        82,854         $        92,045      $   (9,191 )     (10 )%
Other                                                 13,774                   1,336          12,438       931 %

Net revenue                                           96,628                  93,381           3,247         3 %
Cost of sales                                         19,714                  11,128          (8,586 )     (77 )%

Gross profit                                          76,914                  82,253          (5,339 )      (6 )%
Operating expenses:
Research and development                              51,030                  21,015         (30,015 )    (143 )%
Selling, general and administrative                   58,013                  56,273          (1,740 )      (3 )%
Litigation costs                                          -                      221             221       100 %
Impairment charge                                         -                    9,214           9,214       100 %
Amortization of intangible assets                      9,952                   9,872             (80 )      (1 )%
Equity in net income of Drug Source Co.,
LLC                                                   (1,090 )                  (469 )           621       132 %

Total operating expenses                             117,905                  96,126         (21,779 )     (23 )%

Loss from operations                                 (40,991 )               (13,873 )       (27,118 )    (195 )%
Interest income                                          614                   4,274          (3,660 )     (86 )%
Other income (expense)                                   743                  (5,481 )         6,224       114 %

Loss before income taxes                             (39,634 )               (15,080 )       (24,554 )    (163 )%
Benefit for income taxes                              (1,590 )                   (21 )         1,569      7471 %

Net loss                                     $       (38,044 )       $       (15,059 )    $  (22,985 )    (153 )%

Net loss attributable to non controlling
interest                                                (330 )                    -             (330 )      -

Net loss attributable to controlling
interest                                     $       (37,714 )       $       (15,059 )    $  (22,655 )    (150 )%

Basic and diluted net loss per common
share                                        $         (0.94 )       $         (0.38 )
Basic and diluted weighted-average common
shares outstanding                                    40,100                  40,048

Net Revenue

Net revenue for the three months ended September 30, 2009 increased by $3.2 million, or 3.5% to $96.6 million as compared to $93.4 million for the same period in 2008. Included in net revenue for the three months ended September 30, 2008 was $9.1 million of recognized deferred revenue related to the co-promotion agreement with AstraZeneca which ended in January 2009.

Abraxane revenue for the three months ended September 30, 2009 decreased $9.1 million to $82.9 million compared to $92.0 million for the same period in 2008. Excluding the recognition of deferred revenue associated with the co-promotion agreement, total Abraxane revenue for the three months ended September 30, 2009 decreased by $0.1 million, or 0.1%, to $82.9 million as compared to $83.0 million for the same period in the previous year.

Other revenue for the three months ended September 30, 2009 increased by $12.5 million or 931.0% to $13.8 million compared to $1.3 million for the same period in 2008 primarily due to sales of raw materials in 2009.

Gross Profit

Gross profit for the three months ended September 30, 2009 was $76.9 million, or 79.6% of net revenue, as compared to $82.3 million, or 88.1% of net revenue, for the same period in 2008. Excluding recognized deferred revenue related to the co-promotion agreement, gross profit as a percentage of net revenue for the three months ended September 30, 2009 was 79.6% as compared to 86.8% for the same period in 2008. The decrease was primarily due to the elimination of the deferred revenue recognized from the co-promotion agreement, higher volume of sales of lower margin products, a voluntarily initiated recall of certain lots of Abraxane ® and increased sales of Abraxane® outside of the United States.

Research and Development

Our research and development expenses are comprised primarily of costs related to our drug discovery efforts, drug development efforts, clinical trials, and other research and development activities. We do not track total research and development expenses separately for each of our product development programs. Drug discovery and drug development expenses mostly include personnel expense, lab supplies, non-refundable upfront payments, consulting fees, occupancy costs and other third-party costs.

The scope and magnitude of our future research and development expenses are difficult to predict at this time given the number of studies that will need to be conducted for any of our potential product candidates. In general, biotechnology product development involves a series of steps. The process begins with discovery and preclinical research leading up to the submission of an Investigational New Drug (IND) application to the U.S. Food and Drug Administration (FDA), which allows for the initiation of the clinical evaluation of a potential drug candidate in humans. Clinical trials are typically comprised of three phases of study: Phase 1, Phase 2 and Phase 3. Generally, the majority of a drug candidate's total development costs are incurred during Phase 3, which consists of trials that are typically both the longest and largest conducted during the drug development process. The length of time to complete clinical trials may take as many as seven to ten years. However, the length of time may vary substantially according to factors relating to the particular clinical trial, such as the type and intended use of the drug candidate, the clinical trial design and the ability to enroll suitable patients.

The estimation of completion dates or costs to complete our research and development projects would be highly speculative and subjective due to the numerous risks and uncertainties associated with developing biotechnology products. These risks could include (i) significant changing government regulation, (ii) the uncertainty of future preclinical and clinical study results, (iii) uncertainties associated with developing biotechnology products and (iv) uncertainties associated with process development and manufacturing. Our research and development expenses can vary from period to period given the rate at which clinical trial materials are acquired and utilized and the rate at which we are successful in enrolling suitable patients. The following table summarizes our research and development expenses for the three months ended September 30, 2009 and 2008:

                                           Three Months Ended September 30,
                                              2009                  2008
                                                    (in thousands)
       Discovery                        $           5,791     $           3,263
       Drug development                            10,899                 7,329
       Clinical trials                             24,952                 6,656
       Other research and development               9,388                 3,767

                                        $          51,030     $          21,015

Research and development expense for the three months ended September 30, 2009 increased $30.0 million, or 142.8%, to $51.0 million as compared to $21.0 million for the same period in 2008. The majority of the increase was due to additional spending on Phase III clinical trials for non-small cell lung cancer, pancreatic cancer and melanoma. The remainder of the increase was attributable to investments in early stage discovery and other research and development projects.

Selling, General and Administrative

Selling, general and administrative expense for the three months ended September 30, 2009 increased $1.7 million to $58.0 million, or 60.0% of net revenue, from $56.3 million, or 60.3% of net revenue, for the same period in 2008. The reacquisition of Abraxane® marketing rights in the U.S. yielded savings due to the elimination of commission payments. These savings were offset by increased investment in the global expansion of Abraxane® primarily in China and the European Union, and increased spending on U.S. sales and marketing.

Litigation Costs

For the three months ended September 30, 2008, we accrued additional litigation costs of $0.2 million for post-judgment interest for a matter which we are appealing.

Impairment Charge

For the three months ended September 30, 2008, we recorded a property, plant and equipment impairment charge totaling $9.2 million for an anticipated sale of certain property, plant and equipment.

Amortization of Intangible Assets

Amortization of intangible assets for the three months ended September 30, 2009 was $9.9 million, the same as for the comparable period in the prior year.

Equity Income in Drug Source Company, LLC

Income from Drug Source Company in the third quarter of 2009 increased $0.6 million to $1.1 million compared to the corresponding period in 2008 primarily due to higher gross margins on sales.

Other Non-Operating Items

Interest income consisted primarily of interest earned on invested cash. The decrease in interest income for the three months ended September 30, 2009 of $3.7 million was due to lower investment balances and lower interest rates in 2009 as compared to 2008. For the three months ended September 30, 2009, the average yield on cash investments was 0.4%.

Net other income increased $6.2 million for the three months ended September 30, 2009 primarily due to gains recognized on the fair value of derivatives in the third quarter of 2009 compared to other than temporary losses recorded on available for sale securities for the same period in the prior year.

Provision for Income Taxes

Our effective tax rate for the three months ended September 30, 2009 was approximately 4.0%, resulting in a benefit for income taxes. The effective tax rate for the three months differs from the statutory rate primarily as the result of a tax benefit resulting from the utilization of current operating losses against unrealized gains reported in Other Comprehensive Income. We recorded a corresponding tax expense against Other Comprehensive Income. The effective tax rate was also impacted by certain states where the state tax was based on gross receipts. Finally, the rate was impacted by a tax benefit reported in a foreign jurisdiction.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2009 and September 30, 2008

The following table sets forth the results of our operations for the nine months
ended September 30, 2009 and 2008, and forms the basis for the following
discussion of our operating activities:



                                                                                           Change Favorable
                                                                                            (Unfavorable)
                                                Nine Months Ended September 30,             2009 vs. 2008
                                                 2009                    2008                $            %
                                                    (unaudited, in thousands, except per share data)
Consolidated statements of operations
data:
Revenue:
Abraxane                                    $      228,627         $        245,810      $  (17,183 )      (7 )%
Other                                               25,712                    7,335          18,377       251 %

Net revenue                                        254,339                  253,145           1,194        -
Cost of sales                                       43,457                   29,680         (13,777 )     (46 )%

Gross profit                                       210,882                  223,465         (12,583 )      (6 )%
Operating expenses:
Research and development                           122,772                   61,325         (61,447 )    (100 )%
Selling, general and administrative                150,708                  157,313           6,605         4 %
Litigation costs                                        -                    57,609          57,609       100 %
Acquired in-process research and
development                                             -                    13,900          13,900       100 %
Impairment charge                                       -                     9,214           9,214       100 %
Amortization of intangible assets                   29,859                   29,483            (376 )      (1 )%
Equity in net income of Drug Source Co.,
LLC                                                 (2,450 )                   (245 )         2,205       900 %

Total operating expenses                           300,889                  328,599          27,710         8 %

Loss from operations                               (90,007 )               (105,134 )        15,127        14 %
Interest income                                      2,501                   15,385         (12,884 )     (84 )%
Other income (expense)                                 240                   (4,941 )         5,181       105 %

Loss before income taxes                           (87,266 )                (94,690 )         7,424         8 %
(Benefit) provision for income taxes                (1,641 )                    203           1,844       908 %

Net loss                                    $      (85,625 )       $        (94,893 )    $    9,268        10 %

Net loss attributable to non controlling
interest                                            (1,557 )                     -           (1,557 )      -

Net loss attributable to controlling
interest                                    $      (84,068 )       $        (94,893 )    $   10,825        11 %

Basic and diluted net loss per common
share                                       $        (2.10 )       $          (2.37 )
Basic and diluted weighted-average common
shares outstanding                                  40,098                   40,021

Net Revenue

Net revenue for the nine months ended September 30, 2009 increased by $1.2 million, or 0.5%, to $254.3 million as compared to $253.1 million for the same period in 2008. Included in net revenue for the nine months ended September 30, 2008 was $27.3 million of recognized deferred revenue related to the co-promotion agreement with AstraZeneca which ended in January 2009.

Abraxane revenue for the nine months ended September 30, 2009 decreased $17.2 . . .