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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2009

OR

For the transition period from              to             

Commission File Number 000-23223

CURAGEN CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (203) 481-1104

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceeding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

The number of shares outstanding of the registrant’s common stock as of November 2, 2009 was 1,000.

(All shares are issued to Celldex Therapeutics, Inc.)

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CURAGEN CORPORATION

FORM 10-Q

INDEX

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CURAGEN CORPORATION

CONDENSED BALANCE SHEETS

(in thousands, except par value and share data)

(unaudited)

See accompanying notes to condensed financial statements

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CURAGEN CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

See accompanying notes to condensed financial statements

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CURAGEN CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

See accompanying notes to condensed financial statements

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CURAGEN CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

1.              Basis of Presentation and Business Overview

The accompanying unaudited condensed financial statements of CuraGen Corporation (the “Company” or “CuraGen”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of our management, the accompanying unaudited condensed financial statements include all adjustments, consisting of normal recurring accruals, necessary to present fairly our financial position, results of operations and cash flows.  Interim results are not necessarily indicative of the results that may be expected for the entire year.

CuraGen has evaluated all subsequent events through November 6, 2009, the date of filing of this Form 10-Q.

The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008.

As more fully discussed in Note 8, on October 1, 2009, the Company merged into a wholly-owned subsidiary of Celldex Therapeutics, Inc. (“Celldex”), a public company, (the “Celldex Merger”) in accordance with a definitive merger agreement dated May 28, 2009 (the “Celldex Merger Agreement”) and as approved at a special meeting of the Company’s shareholders on September 30, 2009.

2.              Stock-Based Compensation

During the three and nine months ended September 30, 2009 and 2008, the Company recognized compensation expense in total operating expenses on the condensed statements of operations with respect to employee stock options and restricted stock grants as follows:

There were no stock option or restricted stock grants during the three months ended September 30, 2009 and 2008.

The approximate weighted-average grant date fair values using the Black-Scholes option valuation model of all stock options granted during the nine months ended September 30, 2009 and 2008 were as follows:

The 2007 Stock Incentive Plan (“2007 Stock Plan”) was approved by the Company’s stockholders as of May 2, 2007.  The 2007 Stock Plan provides for the issuance of stock options and stock grants to employees, directors and consultants of CuraGen.  A total of 3,000,000 shares of common stock were originally reserved for issuance under the 2007 Stock Plan.  In May 2008, upon approval of the Company’s stockholders, the amount reserved under the 2007 stock plan was increased to 6,000,000.

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A summary of the stock option activity under the 2007 Stock Plan, as of September 30, 2009, and changes during the three months ended September 30, 2009, are as follows:

The total intrinsic value of stock options exercised under the 2007 Stock Plan during the three months ended September 30, 2009 was $0.1 million.  There were no options exercised under the 2007 Stock Plan during the three months ended September 30, 2008.

As of September 30, 2009 there was $1.0 million of total unrecognized compensation expense related to unvested stock option grants under the 2007 Stock Plan.  As a result of the Celldex Merger, on October 1, 2009, 2,414,007 stock options under the 2007 Stock Plan vested in accordance with the terms of the stock option agreements and employment agreements.  All outstanding stock options under the 2007 Stock Plan were assumed by Celldex effective October 1, 2009, as discussed in Note 8 below.

A summary of the stock option activity under the 1997 Employee, Director and Consultant Stock Plan (“1997 Stock Plan”) as of September 30, 2009, and changes during the three months ended September 30, 2009, are as follows:

There were no options exercised under the 1997 Stock Plan during the three months ended September 30, 2009 and 2008.

In September 2009, in accordance with the terms of the Celldex Merger Agreement and as provided for under the 1997 Stock Plan, all unvested options under the 1997 Stock Plan immediately vested and became fully exercisable for a specified period of time prior to the consummation of the Celldex Merger, and were terminated at closing if they were not exercised during that period.  Accordingly, during the third quarter of 2009, the Company recorded a $0.2 million acceleration charge related to total unrecognized compensation expense related to previously unvested stock option grants under the 1997 Stock Plan as of September 30, 2009.

There was no restricted stock activity under the 2007 Stock Plan during the three months ended September 30, 2009.  As of September 30, 2009, there were 37,500 restricted shares outstanding under the 2007 Stock Plan.  There were no restricted shares vested under the 2007 Stock Plan during the three months ended September 30, 2009 and 2008.

A summary of all restricted stock activity under the 1997 Stock Plan as of September 30, 2009, and changes during the three months ended September 30, 2009, are as follows:

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3.              (Loss) Income Per Share

On January 1, 2009, the Company adopted a new U.S. GAAP accounting standard which impacted the determination and reporting of earnings per share by requiring the inclusion of restricted stock, which has the right to share in dividends, if declared, equally with common shareholders as participating securities. During periods of net income, participating securities are allocated a proportional share of net income determined by dividing total weighted average participating securities by the sum of total weighted average common shares and participating securities (“the two-class method”). During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. Including these shares in the Company’s earnings per share calculation during periods of net income has the effect of diluting both basic and diluted earnings per share. The Company’s prior period basic and diluted shares outstanding, as well as per share amounts presented below, have been adjusted retroactively.

For the three and nine months ended September 30, 2008, potentially dilutive securities representing 1,442,552 shares of common stock related to unvested stock options were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.  Due to the net loss for the period ended September 30, 2009, anti-dilutive potential common shares, consisting of convertible subordinated debt and outstanding stock options, were 6,136,380 as of September 30, 2009.

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4.              Investments

The following tables show the amortized cost, gross unrealized gains and losses and estimated fair value of available-for-sale securities as of December 31, 2008 and September 30, 2009 based on published closing prices by major security type (in thousands):

The accumulated balance of other comprehensive income is disclosed as a separate component of stockholders’ equity and consists of unrealized gains and losses on short-term investments and marketable securities.  Total comprehensive loss is as follows:

The Company reviews its investment portfolio on a regular basis to determine if there is an impairment that is other than temporary. As of September 30, 2009 there were no securities with unrealized losses.

All of the securities in the Company’s investment portfolio are priced by the Company’s investment manager.  On a quarterly basis, the Company obtains a second price for each security to compare to the price obtained from the Company’s investment manager.  As of September 30, 2009, there were no material variances in the prices obtained from these two sources and as such the Company has used the pricing provided by the Company’s investment manager.

On January 1, 2008, the Company adopted a new U.S. GAAP accounting standard that defines fair value, provides a consistent framework for measuring fair value and expands fair value financial statement disclosure

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requirements. The valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. The fair value hierarchy is as follows:

Level 1 Inputs – Quoted prices for identical instruments in active markets.

Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs – Instruments with primarily unobservable value drivers.

The following table represents the fair value hierarchy for those financial assets measured at fair value on a recurring basis as of September 30, 2009.

Fair Value Measurements on a Recurring Basis as of September 30, 2009

Level I securities in the Company’s portfolio consist primarily of Money Market accounts. Level II securities in the Company’s portfolio primarily consist of Federal government agency sponsored securities.

5.              Extinguishment of Debt

During February 2009, the Company repurchased $4.8 million of its 4% convertible subordinated debentures due February 2011, for total consideration of $3.8 million, plus accrued interest of $0.1 million at the date of repurchase. As a result of the transaction, in the first quarter of 2009 the Company recorded a gain of $1.0 million which is net of the write-off of the ratable portion of unamortized deferred financing costs relating to the repurchased debt.

In July 2009, the Company repurchased $1.6 million of its 4% convertible subordinated debentures due February 2011, for total consideration of $1.4 million, plus accrued interest of $0.02 million at the date of repurchase. As a result of the transactions, in the third quarter of 2009 the Company recorded a gain of $0.2 million which is net of the write-off of the ratable portion of unamortized deferred financing costs relating to the repurchased debt.

As of September 30, 2009, the market value of the Company’s $12.5 million 4% convertible subordinated notes due 2011, based on quoted market prices, was approximately $11.5 million.

6.              Recently Enacted Pronouncements

On January 1, 2009, the Company adopted the following new U.S. GAAP accounting standards all of which did not have a material impact on the Company’s financial condition or results of operations:

·                  Measure non-financial assets and liabilities that are not on a recurring basis recognized or disclosed at fair value in the financial statements; and

·                  Disclose the fair values of financial instruments in interim and annual financial statements. Prior to the issuance of the new accounting standard, disclosures about fair values of financial instruments were only required to be disclosed annually.

On April 1, 2009, the Company adopted the following new U.S. GAAP accounting standards all of which did not have a material impact on the Company’s financial condition or results of operations:

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·                  Estimate fair value when the volume and level of activity for the asset or liability have significantly decreased and identify circumstances that indicate a transaction is not orderly; and

·                  Improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements.

On July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification”) which is the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. As the Codification was not intended to change or alter existing U.S. GAAP, the Codification did not have any impact on the Company’s financial statements or results of operations.

In August 2009, the FASB issued a new U.S. GAAP accounting standard that provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or 2) a valuation technique that is consistent with the principles of an income approach or market approach. The standard also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The Company is required to adopt this standard on October 1, 2009 and does not expect the adoption will have a material impact on its financial position or results of operations; however, this standard may impact the Company in future periods.

In October 2009, the FASB issued a new U.S. GAAP accounting standard which amends existing revenue recognition accounting guidance to provide accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. The existing guidance previously required that the fair value of the undelivered item be the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the product was not individually sold because of its unique features. Under the existing guidance if the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. The new standard is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.  The Company is currently evaluating the potential impact of this standard on its financial position and results of operations.

7.              Seattle Genetics, Inc. Collaboration Agreement

In June 2004, CuraGen and Seattle Genetics, Inc. (“Seattle Genetics”) entered into a collaboration agreement to license Seattle Genetics’ proprietary antibody-drug conjugate (“ADC”) technology for use with the Company’s proprietary antibodies for the potential treatment of cancer. The Company paid an upfront fee of $2.0 million for access to the ADC technology for use in one of its proprietary antibody programs. In February 2005, the Company also exercised its option to access Seattle Genetics’ ADC technology for use with a second antibody program in exchange for a $1.0 million payment. In June 2006, the Company paid a milestone payment for the enrollment of the first patient in the first Phase I clinical trial of CR011-vcMMAE for the treatment of metastatic melanoma. In April 2008, the Company paid a milestone payment for the initiation of a Phase II clinical trial of CR011-vcMMAE. Milestone payments under this collaboration agreement are payable upon the initiation of each phase of clinical trials and upon marketing approval.  Under the terms of the agreement, total milestone payments from the initiation of clinical trials through marketing approval will be $14.0 million for each antibody-drug conjugate.  All milestones were fully expensed at the time of the achievement of the milestone, pursuant to CuraGen’s accounting policy for such fees.

8.              Celldex Merger

In connection with the Celldex Merger, effective October 1, 2009, Celldex (i) issued 15,722,713 shares of Celldex common stock, or 0.2739 shares, in exchange for each share of outstanding CuraGen common stock, plus

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cash in lieu of fractional shares (the “Celldex Exchange Ratio”), (ii) assumed all of the CuraGen stock options outstanding under the CuraGen 2007 Stock Plan, and (iii) assumed CuraGen’s $12.5 million remaining obligation for its 4% convertible subordinated debt due in February 2011 (the “CuraGen Debt”).  The CuraGen 2007 Options convert into shares of the Celldex’s common stock after applying the Celldex Exchange Ratio.

In connection with the consummation of the Celldex Merger, effective October 1, 2009, Celldex, CuraGen, and The Bank of New York Mellon (formerly the Bank of New York) (the “Trustee”) amended the CuraGen Debt to provide that the CuraGen Debt shall be convertible into shares of Celldex common stock at the rate of 28.27823 shares of Celldex common stock per $1,000 principal amount of notes, or $35.36 per share.

Memorandum of Understanding

Following the announcement of the proposed acquisition by Celldex of CuraGen, a putative class action complaint, Margaret Capps v. Timothy Shannon, et al., was filed in the Connecticut Superior Court, Judicial District of New Haven, on June 9, 2009. A second putative class action complaint, Cheryl Smith v. CuraGen Corporation, et al., was filed in the Court of Chancery of the State of Delaware on June 15, 2009. Both lawsuits purport to have been brought on behalf of all public stockholders of CuraGen, and name CuraGen, all of its former directors, Celldex, and Cottrell Merger Sub as defendants. The complaints alleged, among other things, that the merger consideration paid to CuraGen stockholders in the merger is unfair and undervalues CuraGen. In addition, the complaints alleged that CuraGen’s former directors violated their fiduciary duties by, among other things, failing to maximize stockholder value and failing to engage in a fair sale process. The Plaintiffs in the two actions also sought to add claims that CuraGen’s former directors breached their fiduciary duty of disclosure by making purportedly misleading and incomplete disclosures in the preliminary proxy statement concerning the merger. The complaints also alleged that CuraGen and Celldex aided and abetted the alleged breaches of fiduciary duties by CuraGen’s directors.

On July 21, 2009, the attorneys for the parties in the two actions executed a memorandum of understanding (the “MOU”) pursuant to which such actions will be dismissed with prejudice, subject to final court approval of the settlement in the MOU. CuraGen agreed to make certain revisions to the joint proxy statement/prospectus (which was prepared in connection with the approval by CuraGen’s stockholders of the merger and by Celldex’s stockholders of the stock issued to the former stockholders of CuraGen in the merger) as part of the agreement among the parties to settle the actions and agreed to pay attorneys’ fees and expenses as awarded by the court, expected to be $0.3 million. The settlement of the actions, subject to court approval, will result in a dismissal of all merger-related claims against CuraGen’s former board of directors, CuraGen and Celldex. The MOU resolves the allegations by the plaintiffs against the defendants in connection with the proposed acquisition, and includes no admission of wrongdoing.  The settlement outlined in the MOU remains subject to, among other things, (i) drafting and execution of a formal stipulation of settlement and such other documentation as may be required to obtain final court approval of the settlement, (ii) final court approval of the settlement and entry of a final order and judgment by the court providing for such release language as is contained in the settlement documents, and (iii) the entry of orders dismissing the actions with prejudice on the merits.  On August 27, 2009, a stipulation of settlement was submitted to the court for the action captioned Cheryl Smith v. CuraGen Corporation, et al, pending in the Court of Chancery of the State of Delaware, and thereafter a fairness hearing was set for November 9, 2009 where the parties will seek approval of their settlement of the Delaware Action.

At September 30, 2009, the Company had accrued $0.3 million related to the MOU.

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CURAGEN CORPORATION

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our management’s discussion and analysis of our financial condition and results of operations include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated. See Part II, Item 1A, “Risk Factors.”

Overview

We are a biopharmaceutical development company dedicated to improving the lives of patients by developing novel therapeutics for the treatment of cancer. We have taken a systematic approach to identifying and validating promising therapeutics and are now focused on developing and advancing a potential drug candidate through clinical development.  We are currently focusing the majority of our human and financial resources on our oncology therapeutic area.

Royalties or other revenue generated from commercial sales of products developed through the application of our technologies or expertise is not expected for several years, if at all. We expect that our revenue or income sources for at least the next several years may be limited to potential milestones and other potential payments related to partnering CR011-vcMMAE and interest income.

We expect to continue incurring expenses relating to our research and development efforts as we focus on clinical trials required for the development of CR011-vcMMAE. Conducting clinical trials is a lengthy, time-consuming and expensive process and we expect to incur continued losses over the next several years.

Significant Recent Developments

In connection with the Celldex Merger, effective October 1, 2009, Celldex (i) issued 15,722,713 shares of Celldex common stock, or 0.2739 shares, in exchange for each share of outstanding CuraGen common stock, plus cash in lieu of fractional shares (the “Celldex Exchange Ratio”), (ii) assumed all of the CuraGen stock options outstanding under the CuraGen 2007 Stock Plan, and (iii) assumed CuraGen’s $12.5 million remaining obligation for its 4% convertible subordinated debt due in February 2011 (the “CuraGen Debt”).  The CuraGen 2007 Options and CuraGen Debt convert into shares of the Celldex’s common stock after applying the Celldex Exchange Ratio.

In July 2009, we repurchased a total of $1.6 million of our 4% convertible subordinated debentures due February 2011, for an aggregate purchase price of $1.4 million, reflecting an aggregate discount from the face value of such notes of approximately 15% and resulting in a $0.2 million gain.

CR011-vcMMAE for the Treatment of Cancer

CR011-vcMMAE is an antibody-drug conjugate, or ADC, comprised of CR011, a fully-human monoclonal antibody resulting from our collaboration with Amgen Fremont linked to monomethylauristatin E, or vcMMAE, using technology licensed from Seattle Genetics. CR011 targets glycoprotein NMB, or GPNMB, a protein located on the surface of cancer cells including melanoma and breast cancer. After CR011-vcMMAE binds to the target protein, the ADC is transported inside the cancer cell where vcMMAE is cleaved from the antibody and inhibits tubulin polymerization leading to cell death.

CR011-vcMMAE Clinical Development Program

In June 2006 we initiated a Phase I/II open-label, multi-center, dose escalation study evaluating the safety, tolerability and pharmacokinetics of CR011-vcMMAE for patients with unresectable Stage III or Stage IV melanoma who have failed no more than one prior line of cytotoxic therapy. We are currently evaluating CR011-vcMMAE in clinical trials for the treatment of patients with advanced melanoma and for the treatment of patients with metastatic breast cancer, as further described in the table below.

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Phase II Trial Results for the Treatment of Metastatic Melanoma Cancer

In June 2006, we initiated a Phase I/II open-label, multi-center, dose escalation study evaluating the safety, tolerability and pharmacokinetics of CR011-vcMMAE for patients with unresectable Stage III or Stage IV melanoma who have failed no more than one prior line of cytotoxic therapy.

During Phase I, doses of CR011-vcMMAE between 0.03 mg/kg to 2.63 mg/kg were evaluated and generally well tolerated, with rash and neutropenia emerging at higher doses. The maximum tolerated dose, or MTD, was determined to be 1.88 mg/kg administered intravenously (IV) once every three weeks.

On June 1, 2009, we announced the results from this ongoing study at the 2009 American Society of Clinical Oncology, or ASCO, Annual Meeting. Thirty six patients were treated in the Phase II portion of the study.  Of the patients enrolled, 94% had Stage IV disease of which two-thirds were classified as M1c, the poorest risk group.

The study successfully met its primary activity endpoint, with 5 objective responses (1 unconfirmed) observed in 34 evaluable patients, and median duration of response of 5.3 months.  The median overall progression-free survival, or PFS, was 4.4 months. Tumor shrinkage was observed in 58% of patients, and 20 patients had best response of stable disease. Dermatologic adverse events consisting of rash, alopecia, and pruritus were the most common toxicities in this study. Other adverse events included fatigue, diarrhea, musculoskeletal pain, anorexia and nausea.  Grade 3 or 4 neutropenia was observed in 5 patients. The absence of rash in the first cycle of treatment predicted a worse PFS.  Additionally, in a subset of patients with tumor biopsies, high levels of tumor expression of GPNMB appeared to correlate with favorable outcome.

Enrollment has been completed in the Phase I portion of the melanoma trial to evaluate more frequent dosing schedules of CR011-vcMMAE, including a weekly and a two out of every three-week regimen, to explore if more frequent administration can provide additional activity in patients with metastatic melanoma.  Preliminary data from 28 patients were presented at ASCO.  At that time, a dose of 1.0 mg/kg given once every week had been identified as the MTD in a weekly schedule, and a dose of 1.5mg/kg was being explored in the two out of three week schedule. Although median duration of follow-up was only 6 weeks, objective responses had thus far been observed in 3 of 11 evaluable patients treated with weekly CR011-vcMMAE (1 confirmed) and 1 confirmed response in 8 evaluable patients treated with CR011-vcMMAE two out of every three weeks.  We anticipate presenting updated results from the more frequent dosing regimens during the first half of 2010.

Phase II Trial Results for the Treatment of Breast Cancer

On June 25, 2008, we announced the initiation of patient dosing in an open-label, multi-center Phase II study of CR011-vcMMAE administered intravenously once every three weeks to patients with locally advanced or metastatic breast cancer who have received prior therapy. The study began with a bridging phase to confirm the MTD and has expanded into a Phase II open-label, multi-center study. Preliminary data were presented at ASCO 2009 on 18 evaluable patients treated at doses of 1.0 — 1.88mg/kg from the Phase I portion and the initial portion of the Phase II study. Selection for enrollment was not based on expression of GPNMB in patients’ tumors. The median number of prior chemotherapy regimens for metastatic disease was 4 (range 2-11). Triple negative disease (ER/PR/Her-2 negative) was present in 44% of patients. Partial responses were seen in 3 patients (1 confirmed), including a patient with triple negative disease. Fifty percent (50%) of patients showed tumor shrinkage. Toxicities were similar to those observed in previous studies with CR011-vcMMAE; the most common adverse events were rash, alopecia, and fatigue.

On June 17, 2009, we announced that the Phase II study of CR011-vcMMAE in breast cancer has met the efficacy criteria for advancement to the second stage of enrollment. Fifteen patients had been enrolled in the Phase II portion of the study at a dose of 1.88mg/kg given once every three weeks.  Two of the first four evaluable Phase II patients were progression-free at 12 weeks, therefore, as part of the Simon 2-Stage design, the Phase II trial would advance to the second stage and enroll a total of approximately 25 patients.

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Enrollment has now been completed in the trial and we anticipate presenting updated results from this study during the second half of 2009.

Critical Accounting Policies and Use of Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates, including those related to investment valuation, accrued expenses, and stock based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008.

Results of Operations

The following table sets forth a comparison of the components of our net loss for the three months ended September 30, 2009 and 2008 (in millions):

The following table sets forth a comparison of the components of our net (loss)/income for the nine months ended September 30, 2009 and 2008 (in millions):