CASI Pharmaceuticals, Inc. - FORM 10-Q

Attached files

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EX-10.2 - EX-10.2 - CASI Pharmaceuticals, Inc.	v201299_ex10-2.htm
EX-31.1 - CASI Pharmaceuticals, Inc.	v201299_ex31-1.htm
EX-32.1 - CASI Pharmaceuticals, Inc.	v201299_ex32-1.htm
EX-31.2 - CASI Pharmaceuticals, Inc.	v201299_ex31-2.htm
EX-32.2 - CASI Pharmaceuticals, Inc.	v201299_ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to _____________.

Commission file number 0-20713

ENTREMED, INC.

(Exact name of registrant as specified in its charter)

Delaware	58-1959440
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

9640 Medical Center Drive

Rockville, Maryland

(Address of principal executive offices)

20850

(Zip code)

(240) 864-2600

(Registrant’s telephone number, including area code)

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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES ¨ NO ¨

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer þ

Smaller reporting company o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨ NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most recent practicable date.

Class		Outstanding at November 10, 2010
Common Stock $0.01 Par Value		11,517,566

ENTREMED, INC.

Table of Contents

	PAGE
PART I. FINANCIAL INFORMATION

Item 1 — Consolidated Financial Statements

Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009		3

Consolidated Statements of Operations for the Nine Months Ended September 30, 2010 and 2009 (unaudited)		4

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (unaudited)		5

Notes to Consolidated Financial Statements (unaudited)		6

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3 — Quantitative and Qualitative Disclosures About Market Risk		26

Item 4 — Controls and Procedures		26

Part II. OTHER INFORMATION

Item 1 — Legal Proceedings		27

Item 1A – Risk Factors		27

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		27

Item 3 — Defaults upon Senior Securities		27

Item 4 — Removed and Reserved		27

Item 5 — Other Information		27

Item 6 — Exhibits		27

SIGNATURES		28

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements also may be included in other statements that we make. All statements that are not descriptions of historical facts are forward-looking statements. These statements can generally be identified by the use of forward-looking terminology such as “believes,” “expects,” “intends,” “may,” “will,” “should,” or “anticipates” or similar terminology. These forward-looking statements include, among others, statements regarding the timing of our clinical trials, our cash position and future expenses, and our future revenues.

Our forward-looking statements are based on information available to us today, and we will not update these statements.

Actual results could differ materially from those currently anticipated due to a number of factors, including the risk that we may be unable to continue as a going concern as a result of our inability to raise sufficient capital for our operational needs; the possibility that we may be delisted from trading on the Nasdaq Capital Market; the volatility of our common stock; risks relating to the need for additional capital and the uncertainty of securing additional funding on favorable terms; the failure to consummate a transaction to monetize our Thalomid® royalty stream for any reason, including our inability to obtain the required third-party consents; declines in actual sales of Thalomid® resulting in reduced royalty payments; risks associated with our product candidates; the early-stage products under development; results in preclinical models are not necessarily indicative of clinical results; uncertainties relating to preclinical and clinical trials, including delays to the commencement of such trials; success in the clinical development of any products; dependence on third parties; and risks relating to the commercialization, if any, of our proposed products (such as marketing, safety, regulatory, patent, product liability, supply, competition and other risks). Additional information about the factors and risks that could affect our business, financial condition and results of operations, are contained in our filings with the U.S. Securities and Exchange Commission (SEC), which are available at www.sec.gov.

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

EntreMed, Inc.

Consolidated Balance Sheets

(Unaudited)

	September 30, 2010			December 31, 2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	8,387,862		$	6,312,182
Short-term investments		44,841			54,071
Accounts receivable, net of allowance for doubtful accounts of $72,145 at September 30, 2010 and December 31, 2009		-			3,286,858
Prepaid expenses and other		314,393			220,925
Total current assets		8,747,096			9,874,036

Property and equipment, net		119,644			171,498
Other assets		5,918			21,494
Total assets	$	8,872,658		$	10,067,028

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	1,350,502		$	1,968,607
Accrued liabilities		283,178			745,183
Current portion of loan payable		2,978,028			8,555,404
Total current liabilities		4,611,708			11,269,194

Loan payable, less current portion		-			723,814

Total liabilities		4,611,708			11,993,008

Commitments and contingencies		-			-

Stockholders' equity (deficit):
Convertible preferred stock, $1.00 par value; 5,000,000 shares authorized and 3,350,000 shares issued and outstanding at September 30, 2010 and December 31, 2009 (liquidation value - $33,500,000 at September 30, 2010 and December 31, 2009)		3,350,000			3,350,000
Common stock, $.01 par value: 170,000,000 shares authorized at September 30, 2010 and December 31, 2009: 11,517,938 and 8,061,040 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively		115,179			80,610
Additional paid-in capital		384,122,469			368,804,067
Treasury stock, at cost: 79,545 shares held at September 30, 2010and December 31, 2009		(8,034,244	)		(8,034,244	)
Accumulated deficit		(375,292,454	)		(366,126,413	)
Total stockholders' equity (deficit)		4,260,950			(1,925,980	)
Total liabilities and stockholders' equity (deficit)	$	8,872,658		$	10,067,028

See accompanying notes.

EntreMed, Inc.

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2010			2009			2010			2009
Revenues:
Royalties	$	-		$	3,300,000		$	-		$	3,300,000
Other		-			368,333			-			368,333
	$	-		$	3,668,333		$	-		$	3,668,333

Costs and expenses:
Research and development		1,291,721			2,326,969			3,146,802			5,939,903
General and administrative		691,623			911,816			2,513,527			3,082,270
Acquired In-Process R&D		-			-			3,000,000			-
		1,983,344			3,238,785			8,660,329			9,022,173

Investment income		-			-			-			68,931
Interest expense		(106,784	)		(344,634	)		(496,482	)		(1,198,125	)
Other income (expense)		(5,183	)		-			(9,230	)		-

Net Income (Loss)		(2,095,311	)		84,914			(9,166,041	)		(6,483,034	)

Dividends on Series A convertible preferred stock		(251,250	)		(251,250	)		(753,750	)		(753,750	)

Net loss attributable to common shareholders	$	(2,346,561	)	$	(166,336	)	$	(9,919,791	)	$	(7,236,784	)

Net loss per share (basic and diluted)	$	(0.24	)	$	(0.02	)	$	(1.09	)	$	(0.91	)
Weighted average number of common shares outstanding (basic and diluted)		9,714,788			7,979,839			9,098,380			7,977,197

See accompanying notes.

EntreM,ed, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	NINE MONTH PERIOD ENDED
	SEPTEMBER 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(9,166,041	)	$	(6,483,034	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		55,449			75,553
Write-off of in-process R&D		3,000,000			-
Amortization of discount on short-term investments		-			(21,124	)
Stock-based compensation expense		250,311			280,153
Non-cash interest		45,095			107,358
Investment impairment loss		9,230			-
Changes in operating assets and liabilities:
Accounts receivable		3,286,858			580,225
Prepaid expenses and other		(93,468	)		119,799
Deferred rent		-			(20,763	)
Accounts payable		(618,105	)		(1,266,637	)
Accrued liabilities		(462,005	)		(1,928,385	)
Net cash used in operating activities		(3,692,676	)		(8,556,855	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short term investments		-			(7,992,859	)
Maturities of short term investments		-			14,500,000
Unrealized loss on short term investments					(4,436	)
Purchases of furniture and equipment		(3,595	)		-
Net cash (used in) provided by investing activities		(3,595	)		6,502,705

CASH FLOWS FROM FINANCING ACTIVITIES
Stock issuance costs		-			(10,450	)
Repayment of loan		(6,330,709	)		(5,705,013	)
Net proceeds from sale of common stock		12,102,660			-
Net cash provided by (used in) financing activities		5,771,951			(5,715,463	)

Net increase (decrease) in cash and cash equivalents		2,075,680			(7,769,613	)
Cash and cash equivalents at beginning of period		6,312,182			16,743,129
Cash and cash equivalents at end of period	$	8,387,862		$	8,973,516

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	451,388		$	1,090,678

Non-cash investing activity:
Stock issued in connection with milestone payment related to acquisition of Miikana
	$	3,000,000		$	-

See accompanying notes.

ENTREMED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 (unaudited)

1. Basis of Presentation

The accompanying consolidated financial statements include the accounts of EntreMed, Inc. (the Company or EntreMed) and its wholly-owned subsidiary, Miikana Therapeutics, Inc. (Miikana). All inter-company balances and transactions have been eliminated in consolidation. The Company refers to EntreMed and its consolidated subsidiary.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such consolidated financial statements do not include all of the information and disclosures required by U. S. generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine-month periods ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. For further information, refer to our audited consolidated financial statements and footnotes thereto included in our Form 10-K for the year ended December 31, 2009.

On July 1, 2010, the Company affected a 1-for-11 reverse split of its common stock, which was authorized by its Board of Directors on June 9, 2010. The primary objective in affecting the reverse split was to better enable the Company to maintain the listing of its common stock on the NASDAQ Capital Market. As a result of the reverse stock split, each eleven shares of the common stock that was issued and outstanding or held in treasury on July 1, 2010 at 8:00 am. Eastern time were automatically combined into one share. The reverse stock split reduced the number of issued and outstanding shares of common stock as of July 1, 2010 from approximately 105.9 million shares to approximately 9.6 million shares. No fractional shares were issued in connection with the reverse stock split. Stockholders who were entitled to fractional shares instead became entitled to receive a cash payment in lieu of receiving fractional shares equal to the fractional share interest multiplied by $0.40 (the per share closing price of the Company’s common stock as last reported on the NASDAQ Stock Market on June 30, 2010). The reverse stock split affected all of the holders of common stock uniformly. Shares of common stock underlying outstanding options and warrants were proportionately reduced and the exercise price of outstanding options and warrants was proportionately increased in accordance with the terms of the agreements governing such securities. All common stock share and per share information in the unaudited interim condensed consolidated financial statements and notes thereto included in this report have been restated to reflect retrospective application of the reverse stock split, except for par value per share and the number of authorized shares, which were not affected by the reverse stock split.

Material subsequent events have been considered for disclosure and recognition through the filing date of these consolidated financial statements.

Liquidity Risks

The accompanying unaudited consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the period ended September 30, 2010, the Company raised $12.1 million from the sale of its common stock. Based on current plans, the Company expects its current available cash and cash equivalents, along with the receipt of anticipated royalty payments in fiscal 2010 and 2011, will be sufficient to meet its cash requirements through fiscal 2011. In the event the royalty payments are received in amounts significantly less than expected, the Company will continue to pursue opportunities to raise additional capital to fund its operating needs. Since inception, the Company has incurred significant losses from operations and has incurred an accumulated deficit of $375 million. The Company expects to continue to incur expenses, resulting in operating losses, for the foreseeable future due to, among other factors, its continuing clinical trials, planned future clinical trials, and other anticipated research and development activities.

The Company’s ability to continue as a going concern is dependent on its success at raising additional capital sufficient to meet its obligations on a timely basis, the ongoing receipt of royalty payments and its ability to ultimately attain profitability. As the amount of the royalty payments to be received cannot be reasonably estimated, there is no assurance that the Company will not be required to raise additional capital sufficient to enable the Company to continue its operations for the next twelve months and through fiscal 2011. If additional funds are raised by issuing equity securities, dilution to existing shareholders may result. There can be no assurance that adequate additional financing will be available to the Company on terms that it deems acceptable, if at all. In the event the Company does not have sufficient cash to support the ENMD-2076 development program, and additional financing is not obtained, the Company will reduce expenses as appropriate.

These factors could significantly limit the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

2. Revenue Recognition

Revenue is recognized when all of the following criteria are met: 1) persuasive evidence of an arrangement exists, 2) delivery has occurred or services have been rendered, 3) the price to the buyer is fixed and determinable and 4) collectibility is reasonably assured. Royalty revenue is not recognized until it is realized.

3. Restructuring

In connection with the Company’s business plan to become a clinically-focused operation, accelerating the clinical development of ENMD-2076, with the objective to lower operating costs and preserve capital, the Company experienced workforce reductions in December 2008 and in December 2009 which in the aggregate resulted in the elimination of approximately seventy percent of the Company’s total positions across all areas of business. The Company incurred charges for severance and related benefits totaling $228,754 and $1,783,773 during the fourth quarters of 2009 and 2008, respectively. At December 31, 2009, $228,754 is included in accrued liabilities. There were no additional charges during 2010. The Company has accounted for this restructuring as prescribed by authoritative guidance.

A summary of changes in the accrued liabilities during the nine months ended September 30, 2010, is as follows:

	R&D			G&A
	Expenses			Expenses
Balance at December 31, 2009							$	228,754
Cash payments	$	(184,359	)	$	(44,395	)		(228,754	)
Balance at September 30, 2010							$	-

Cumulative costs incurred with respect to the restructuring are $2,013,000, of which, approximately $1,067,000 have been expensed as general and administrative costs and $946,000 have been expensed as research and development costs. The Company did not incur additional costs during the nine months ended September 30, 2010 and does not expect to incur additional costs in connection with these terminations.

4. Recently Adopted Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (FASB) issued new authoritative guidance related to fair value disclosures. The provisions of the guidance require an entity to: (i) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers and (ii) present separate information for Level 3 activity pertaining to gross purchases, sales, issuances, and settlements. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the gross basis reconciliation for the Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010. The adoption did not have a material impact on the Company’s financial position and results of operations, as it does not have any transfers between Level 1 and Level 2 fair value measurements.

In February 2010, the FASB issued an amendment to existing authoritative guidance which requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company’s financial position and results of operations.

5.	Short-Term Investments

Short-term investments at September 30, 2010 consist of equity securities. The Company has classified these investments as available for sale. Such securities are carried at fair market value. The cost of securities sold is calculated using the specific identification method. Realized gains and losses and declines in value judged to be other than temporary on securities available for sale, if any, are included in operations. As a result of a decrease in value during the three months ended September 30, 2010, realized losses of $5,183 were recorded for the three months ended September 30, 2010. An overall decline in value during the nine months ended September 30, 2010, that is considered to be other than temporary, resulted in net realized losses of $9,230 for the nine months ended September 30, 2010. There were no realized gains or losses for the nine months ended September 30, 2009. Net unrealized losses of $12,413 were recorded for the nine months ended September 30, 2009. Short-term investments are principally uninsured and subject to normal credit risk.

The following is a summary of available-for-sale securities at September 30, 2010:

	Available-for-Sale Securities
	Amortized		Gross Realized		Gross Realized			Estimated Fair Value (Net Carrying
	Cost		Gains		Losses			Amount)
Equity Securities	$	125,000	$	5,954	$	(86,113	)	$	44,841

Total	$	125,000	$	5,954	$	(86,113	)	$	44,841

The following is a summary of available-for-sale securities at December 31, 2009:

	Available-for-Sale Securities
	Amortized		Gross Realized		Gross Realized			Estimated Fair Value (Net Carrying
	Cost		Gains		Losses			Amount)
Equity Securities	$	125,000	$	-	$	(70,929	)	$	54,071

Total	$	125,000	$	-	$	(70,929	)	$	54,071

6. Loan Payable

On September 12, 2007, EntreMed, Inc. and Miikana Therapeutics, Inc. (“Miikana”), its wholly-owned subsidiary, entered into a Loan and Security Agreement (“Loan Agreement”) with General Electric Capital Corporation (“GECC”), as agent, Merrill Lynch Capital and Oxford Finance Corporation (collectively, “the Lenders”). The Loan Agreement provides for (i) a term loan (“Term Loan”) issued by the Lenders to the Company in the aggregate amount of $20,000,000 and (ii) the issuance and sale to the Lenders of stock purchase warrants evidencing the Lenders’ right to acquire their respective pro rata share of 250,000 shares of common stock of the Company (“Warrants”).

The Term Loan expires on the earlier of (i) January 1, 2011 or (ii) the date the Term Loan otherwise becomes due and payable under the Loan Agreement, whether by acceleration of the obligations under the Term Loan or otherwise. The Company will make its final repayment of approximately $761,000 to GECC on January 1, 2011.

The Term Loan will accrue interest in arrears at a fixed annual interest rate of 10.47% until the Term Loan is fully repaid. The Company paid interest of $97,240 and $313,703 during the three months ended September 30, 2010 and 2009, respectively. The Company paid interest of $451,388 and $1,090,678 during the nine months ended September 30, 2010 and 2009, respectively.

The Company has the right to voluntarily prepay the Term Loan, in full or in part, upon five business days’ written notice to GECC. Under certain circumstances, the prepayment of the aggregate amount outstanding under the Term Loan triggers a prepayment penalty equal to 1% on such prepayment amount if such prepayment is made after the two year anniversary of the closing date but on or before the Term Loan maturity date. The Loan Agreement contains customary events of default that permits GECC to accelerate the Company’s outstanding obligations if an event of default occurs and it is not cured within the applicable grace periods. The Loan Agreement also provides for automatic acceleration upon bankruptcy and other insolvency events.

The Term Loan was used for general corporate purposes and is secured by the personal property owned by the Company, except for any intellectual property owned by the Company. Notwithstanding the foregoing, the collateral for the Term Loan includes (i) all cash, royalty fees and other proceeds that consist of rights of payment or proceeds from the sale, licensing or other disposition of all or any part of, or rights in, the intellectual property and the Thalidomide Royalty Agreement and (ii) the Company’s rights under the Thalidomide Royalty Agreement.

The Loan Agreement contains customary affirmative and negative covenants. The Company was in compliance with such covenants as of September 30, 2010.

The Warrants are exercisable by the Lenders until September 12, 2012 at an exercise price of $22.00 per share (as adjusted to reflect the one-for-eleven reverse stock split, as further described in Note 12 to these Notes to the Consolidated Financial Statements). The fair value of the Warrants issued was $190,000, calculated using a Black-Scholes-Merton value of $.76 with an expected and contractual life of 5 years, an assumed volatility of 98%, and a risk-free interest rate of 4.11%. The value of the Warrants, and an upfront underwriting fee of $100,000 paid to one of the Lenders, are recorded as a discount on the loan and are amortized as interest expense over the life of the loan. The Company also incurred certain debt issuance costs that were deferred and are included in other assets in the Company’s balance sheet as of September 30, 2010 and December 31, 2009. Amortization of these fees and the discount results in an effective interest rate of 11.40%. Non-cash interest expense related to the amortization of debt issuance costs and debt discount was $9,545 and $30,842 for the three months ended September 30, 2010 and 2009, respectively. Non-cash interest expense related to the amortization of debt issuance costs and debt discount was $45,095 and $107,357 for the nine months ended September 30, 2010 and 2009, respectively.

The carrying value and estimated fair value of debt, before discount, were approximately $2,981,000 and $2,998,000 respectively, at September 30, 2010. The fair value was estimated based on the quoted market price.

7. Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (“the exit price”) in an orderly transaction between market participants at the measurement date. The authoritative guidance outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value, EntreMed primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). The Company has determined that the fair value measurements are in accordance with the guidance.

The guidance established a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”). EntreMed currently does not have non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis.

There have been no transfers of assets or liabilities between the fair value measurement classifications.

The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy, defined as follows:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2 – Inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted pries that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 – Unobservable inputs that reflect our own assumptions, based on the best information available, including our own data.

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value as of September 30, 2010:

			Fair Value Measurements at September 30, 2010
	Total Carrying Value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
	September 30, 2010		(Level 1)		(Level 2)		(Level 3)
Cash equivalents	$	2,105,868	$	2,105,868	$	—	$	—
Available for sale securities*		44,841		44,841		—		—

* Realized losses related to available for sale securities are included in operations, as disclosed in Note 5.

			Fair Value Measurements at December 31, 2009
	Total Carrying Value at		Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs
	December 31, 2009		(Level 1)		(Level 2)		(Level 3)
Cash equivalents	$	4,105,868	$	4,105,868	$	—	$	—
Available for sale securities*		54,051		54,051		—		—

* Realized losses related to available for sale securities are included in operations, as disclosed in Note 5.

The Company’s Level 1 assets include money market instruments and equity securities with quoted prices in active markets.

8. Stockholders’ Equity

On January 11, 2010, the Company consummated the issuance and sale of 284,090 shares of its common stock, par value $0.01 per share, to an institutional investor for an aggregate purchase price of $2,500,000. The offering was made pursuant to a stock purchase agreement dated as of January 8, 2010 between the Company and the investor.

On February 3, 2010, the Company consummated the issuance and sale of 349,650 shares of its common stock, par value $0.01 per share, to an institutional investor for an aggregate purchase price of $2,500,000. The offering was made pursuant to a stock purchase agreement dated as of February 3, 2010 between the Company and the investor.

On April 16, 2010, the Company consummated the issuance and sale of 526,500 shares of its common stock, par value $0.01 per share, to an institutional investor for an aggregate purchase price of $3,000,000. The offering was made pursuant to a stock purchase agreement dated as of April 16, 2010 between the Company and the investor.

On September 7, 2010, the Company consummated the issuance and sale of 1,886,662 shares of its common stock, par value $0.01 per share, and warrants to purchase up to an aggregate of 377,327 shares of common stock, to a group of investors for an aggregate purchase price of $5,094,000. The offering was made pursuant to a securities purchase agreement effective as of September 7, 2010 between the Company and such investors. The warrants shall be exercisable on or after March 9, 2011 and are exercisable until September 9, 2013 at an exercise price of $2.825 per share. The fair value of the warrants issued was $660,322, calculated using the Black-Scholes-Merton valuation model value of $1.75 with an expected and contractual life of 3 years, an assumed volatility of 99%, and a risk-free interest rate of 1.57%.

All common stock share and per share information discussed above have been restated to reflect retrospective application of the July 1, 2010 reverse stock split, except for par value per share which was not affected by the reverse stock split.

9. Share-Based Compensation

The Company has adopted incentive and nonqualified stock option plans for executive, scientific and administrative personnel of the Company as well as outside directors and consultants, of which 314,120 shares remain available for grant under the Company’s 2001 Long-Term Incentive Plan as of September 30, 2010. There are 606,138 shares issuable under options previously granted under the plans and currently outstanding, with exercise prices ranging from $1.76 to $522.50. Options granted under the plans vest over periods varying from immediately to three years, are not transferable and generally expire ten years from the date of grant.

The Company records compensation expense associated with stock options and other equity-based compensation in accordance with provisions of authoritative guidance. Compensation costs are recognized based on a straight-line method over the requisite service period, which is generally the option vesting term of three years.

The Company’s net loss for the nine months ended September 30, 2010 and September 30, 2009 includes compensation expense of $250,311 and $280,153, respectively, related to the Company’s share-based compensation awards. The compensation expense related to the Company’s share-based compensation arrangements is recorded as components of general and administrative expense and research and development expense, as follows:

	NINE MONTHS ENDED SEPTEMBER 30,
	2010		2009
Research and development	$	28,993	$	94,505
General and administrative		221,318		185,648
Share-based compensation expense	$	250,311	$	280,153
Net share-based compensation expense, per common share:
Basic and diluted	$	0.028	$	0.035

The Company uses the Black-Scholes-Merton valuation model to estimate the fair value of stock options granted to employees. Option valuation models, including Black-Scholes-Merton, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award.

Following are the weighted-average assumptions used in valuing the stock options granted to employees during the nine-month periods ended September 30, 2010 and 2009:

	NINE MONTH PERIOD ENDED SEPTEMBER 30,
	2010			2009
Expected volatility		97.50	%		78.02	%
Risk-free interest rate		2.38	%		2.08	%
Expected term of option	5 years			5 years
Forfeiture rate*		5.00	%		5.00	%
Expected dividend yield		0.00	%		0.00	%

* - Authoritative guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. During the nine-month periods ended September 30, 2010 and 2009, forfeitures were estimated at 5%.

The weighted average fair value of stock options granted during the nine-month periods ended September 30, 2010 and 2009 was $5.50 and $01.10, respectively.

A summary of the Company’s stock option plans and of changes in options outstanding under the plans for the six months ended September 30, 2010, is as follows:

	Number of Options			Weighted Average Exercise Price
Outstanding at January 1, 2010		634,797		$	60.49
Granted		36,816		$	7.37
Exercised		(7,010	)	$	1.76
Expired		(55,885	)	$	223.12
Forfeited		(2,580	)	$	4.38
Outstanding at September 30, 2010		606,138		$	43.19
Vested and expected to vest at September 30, 2010		603,901		$	43.32
Exercisable at September 30, 2010		561,402		$	46.37

Cash received from option exercises under all share-based payment arrangements for the three and nine months ended September 30, 2010 was $2,000 and $12,340, respectively. Cash received from option exercises for the three and nine months ended September 30, 2009 was $700 and $10,700.

10.	Acquired In-Process R&D

In January 2006, the Company acquired Miikana, a private biotechnology company. Pursuant to the merger agreement, based on the success of the acquired preclinical programs, the Company may pay up to an additional $18 million upon the achievement of certain clinical and regulatory milestones. Such additional payments will be made in cash or shares of stock at our option. The lead molecule in the Aurora Kinase Program, ENMD-2076, advanced into clinical development in 2008. ENMD-2076 is a selective kinase inhibitor with activity against Aurora A and angiogenic kinases linked to promoting cancer and inflammatory diseases. Dosing of the first patient in 2008 triggered a purchase price adjustment milestone of $2 million. Dosing of the first patient in a Phase 2 trial in April 2010 triggered an additional purchase price adjustment milestone of $3 million. The Company paid each of the milestone payments in shares of its common stock. In June 2008, 233,100 shares of common stock were issued and in June 2010, 403,550 shares of common stock were issued as consideration for the satisfaction of the two milestone payments. The additional payments of $2 million in 2008 and $3 million in 2010 were recorded to expense as in-process research and development since the research and development project related to the Aurora Kinase Program had not reached technical feasibility and has no future alternative use. As of September 30, 2010, a $4 million potential milestone payment remains, payable in cash or shares of stock at our option, related to the ENMD-2076 program. In addition, there are $9 million in milestone payments that pertain to a preclinical program that we are no longer pursuing. In the event that we reinitiate the program and certain clinical and regulatory milestones are satisfied, payments will be made in either cash or shares of stock, at our discretion.

11. Income Taxes

At December 31, 2009, the Company has a $2.96 million unrecognized tax benefit for which a full valuation allowance has been recorded.

During the nine months ended September 30, 2010, there were no material changes to the measurement of unrecognized tax benefits in various taxing jurisdictions. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense.

The tax returns for all years in the Company’s major tax jurisdictions are not settled as of January 1, 2010; no changes in settled tax years have occurred through September 30, 2010. Due to the existence of tax attribute carryforwards (which are currently offset by a full valuation allowance), the Company treats all years’ tax positions as unsettled due to the taxing authorities’ ability to modify these attributes.

12.	Subsequent Events

As previously announced, on August 17, 2010, the Company received a letter from the Listing Qualifications Department of the NASDAQ Stock Market indicating that the Company was not in compliance with the minimum $35 million minimum market value of listed securities (“MVLS”) requirement for continued listing on The NASDAQ Capital Market under Rule 5550(b)(2).

As of October 13, 2010, the Company had maintained a minimum MVLS of $35 million for at least 10 consecutive trading days and subsequently received a letter from the NASDAQ Stock Market stating that the Company has regained compliance with the requirement for continued listing on the NASDAQ Capital Market as set forth in NASDAQ Marketplace Rule 5550(b)(2).

On October 29, 2010, the Company received notification from the Internal Revenue Service that it had been approved to receive Qualifying Therapeutic Discovery Project Grant funds in the amount of $244,479 for ENMD-2076 under section 48D of the Internal Revenue Code.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

We are a clinical-stage pharmaceutical company focused on developing ENMD-2076, an Aurora A and angiogenic kinase inhibitor for the treatment of cancer. ENMD-2076 is currently in a Phase 2 study in ovarian cancer and Phase 1 studies in advanced cancers, multiple myeloma and leukemia. ENMD-2076 is a novel orally-active, Aurora A/angiogenic kinase inhibitor with potent activity against Aurora A and multiple tyrosine kinases linked to cancer and inflammatory diseases. ENMD-2076 is relatively selective for the Aurora A isoform in comparison to Aurora B. Aurora kinases are key regulators of the process of mitosis, or cell division, and are often over-expressed in human cancers. ENMD-2076 exerts its effects through multiple mechanisms of action, including antiproliferative activity and the inhibition of angiogenesis. ENMD-2076 has demonstrated significant, dose-dependent preclinical activity as a single agent, including tumor regression, in multiple xenograft models (e.g. breast, colon, leukemia), as well as activity towards ex vivo-treated human leukemia patient cells.

ENMD-2076 has received orphan drug designation for the treatment of ovarian cancer, multiple myeloma and acute myeloid leukemia (“AML”).

ENMD-2076 is our only program currently under active clinical evaluation. This prioritization allows us to direct the majority of our resources to the clinical development of ENMD-2076. However, we also own intellectual property for our other therapeutic candidates. So that we can continue to accelerate the development of ENMD-2076, we do not intend to initiate additional new studies for these programs unless additional significant financing becomes available to us. Our other therapeutic candidates include MKC-1, an oral cell-cycle inhibitor with activity against the mTOR pathway that has completed multiple Phase 2 clinical trials for cancer, and ENMD-1198, a novel antimitotic agent that has completed a Phase 1 study in advanced cancers. We also have an approved Investigational New Drug Application (IND) for the use of Panzem® in rheumatoid arthritis (RA) treatment. All of our candidates are multi-mechanism drugs that target disease cells and the blood vessels that nourish them, which we believe can be developed to be safe and convenient, and provide the potential for improved patient outcomes.

We have incurred substantial operating losses since our inception due in large part to expenditures for our research and development activities. At September 30, 2010, we had an accumulated deficit of $375 million. We expect to continue to incur expenses, resulting in operating losses, for the foreseeable future due to, among other factors, our continuing clinical trials, planned future clinical trials, and other anticipated research and development activities. We have successfully completed four financings since December 31, 2009, increasing our net cash by approximately $12,100,000. Based on current plans, we expect our current available cash and cash equivalents, along with the receipt of expected royalty payments during 2010 and 2011, to be sufficient to meet our cash requirements through fiscal 2011. We will continue efforts to augment our cash and cash equivalent balances as of September 30, 2010 by pursuing opportunities to raise capital. These activities may include strategic alliances or collaborative development opportunities with organizations that have capabilities and/or products that complement our efforts for continued development of our potential product candidate, which we intend to pursue to commercialization. However, there can be no assurance that adequate additional financing under such arrangements will be available to us on terms that we deem acceptable, if at all.

On January 11, 2010, we sold 284,090 shares of our common stock, par value $0.01 per share, to an institutional investor for an aggregate purchase price of $2,500,000. On February 3, 2010, we sold 349,650 shares of our common stock to the same institutional investor for an aggregate purchase price of $2,500,000. On April 16, 2010, we sold 526,500 shares of our common stock to the same institutional investor for an aggregate purchase price of $3,000,000.

On September 8, 2010, we consummated the issuance and sale of an aggregate of 1,886,622 shares of our common stock and issued warrants to purchase up to an aggregate of 377,327 shares of common stock to certain investors. The warrants have a three year term from the date of issuance and are exercisable at any time 181 days after the date of issuance. We received aggregate gross proceeds of $5.1 million, or $2.70 per share, which price per share of common stock represents the consolidated closing bid price of our common stock on September 7, 2010, as reported by the NASDAQ Stock Market. The exercise price of the warrant is $2.825 per share. Concurrent with the issuance and sale of the common stock and warrants, we entered into a rights agreement with Selected Value Therapeutics I, LLC, a Delaware limited liability company (“SVT”) and an entity in which the investors have an interest, pursuant to which SVT has an option to exercise, on behalf of the investors, certain license, development and commercialization rights for ENMD-2076 in China. If the option is exercised, we will be entitled to receive development milestone payments and royalties on future product sales within the geographic market. The option is exercisable at any time until December 31, 2011.

Our net proceeds from these four offerings were approximately $12.1 million. Additional funds raised by issuing equity securities may result in dilution to existing shareholders. If we fail to obtain additional capital when needed, we may be required to delay, scale back, or eliminate our clinical program.

On July 1, 2010, we affected a 1-for-11 reverse split of our common stock, which was authorized by our stockholders at the Annual Meeting of Stockholders held in June 2010. The primary objective in affecting the reverse split was to better enable us to maintain the listing of our common stock on the NASDAQ Capital Market. The reverse stock split reduced the number of our issued and outstanding shares of common stock as of July 1, 2010 from approximately 105.9 million shares to approximately 9.6 million shares. The par value per share and the number of authorized shares of our common stock were not affected by the reverse stock split. All share and per-share information for our common stock included in this report, other than par value and number of authorized shares, have been restated to reflect retrospective application of the reverse stock split.

As of July 15, 2010, our stock had maintained a minimum closing bid price of $1.00 or more for at least 10 consecutive trading days and, subsequently, we received a letter from the NASDAQ Stock Market stating that we had regained compliance with NASDAQ’s $1.00 minimum closing bid price requirement.

In addition to the $1.00 minimum closing bid price, NASDAQ’s Rule 5550(b) requires that the companies listed on The NASDAQ Capital Market maintain a minimum stockholders' equity of $2.5 million or a Market Value of Listed Securities (“MVLS”) of $35 million.

On August 17, 2010, we received a Staff Determination Letter from NASDAQ indicating that we were not in compliance with the minimum MVLS requirement for continued listing on the NASDAQ Capital Market as set forth in NASDAQ Marketplace Rule 5550(b)(2), which requires us to have a minimum MVLS of $35 million for at least 30 consecutive business days. We were given 180 calendar days, or until February 14, 2011, to regain compliance with the rule. In order to regain compliance our MVLS must close at $35 million or more for a minimum of 10 consecutive trading days.

On October 13, 2010, we received a letter from the NASDAQ Stock Market indicating that we regained compliance with the requirement for continued listing on the NASDAQ Capital Market as set forth in NASDAQ Marketplace Rule 5550(b)(2) by sustaining a minimum market value of listed securities of $35 million for a minimum of 10 consecutive trading days.

At September 30, 2010, our consolidated stockholders’ equity was approximately $4,261,000 and the market value of our listed securities was approximately $43.4 million. The NASDAQ Listing Rules require that we either maintain a $35 million MVLS or stockholders’ equity of at least $2.5 million. There can be no assurance that we will continue to meet these standards for continued listing in the future.

CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Our critical accounting policies, including the items in our consolidated financial statements requiring significant estimates and judgments, are as follows:

Going Concern - A fundamental principle of the preparation of financial statements in accordance with GAAP is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business. This principle is applicable to all entities except for entities in liquidation or entities for which liquidation appears imminent. In accordance with this requirement, our policy is to prepare our consolidated financial statements on a going concern basis unless we intend to liquidate or have no other alternative but to liquidate. Based on current plans, we expect our current available cash and cash equivalents, along with the receipt of royalty payments during 2010 and 2011, to be sufficient to meet our cash requirements through fiscal 2011. We have prepared our consolidated financial statements on a going concern basis. Our consolidated financial statements included in this Quarterly Report on Form 10-Q do not reflect any adjustments that might specifically result from the outcome of this uncertainty.

Revenue Recognition - We recognize revenue in accordance with the provisions of authoritative guidance issued, whereby revenue is not recognized until it is realized. Revenue is recognized when all of the following criteria are met: 1) persuasive evidence of an arrangement exists, 2) delivery has occurred or services have been rendered, 3) the price to the buyer is fixed and determinable and 4) collectibility is reasonably assured.

Royalty Revenue – Royalties from licenses are based on third-party sales and recorded as earned in accordance with contract terms, when third-party results are reliably measured and collectibility is reasonably assured. We expect that the majority of our 2010 revenues will be from royalties on the sale of Thalomid®, which we will recognize when we receive the royalty payment. In 2004, certain provisions of a purchase agreement dated June 14, 2001 by and between Bioventure Investments kft (“Bioventure”) and the Company were satisfied and, as a result, beginning in 2005 we became entitled to share in the royalty payments received by Royalty Pharma Finance Trust, successor to Bioventure, on annual Thalomid® sales above a certain threshold. Based on the licensing agreement royalty formula, annual royalty sharing commences with Thalomid® annual sales of approximately $225 million.

We are also eligible to receive royalties from Oxford Biomedica, PLC based on a portion of the net sales of products developed for the treatment of ophthalmic (eye) diseases based in part on Endostatin. Under our original Endostatin license agreement with Children’s Medical Center Corporation, a portion of the royalties we receive from Oxford Biomedica are payable to CMCC.

In the future, royalty payments, if any, will be recorded as revenue when received and/or when collectibility is reasonably assured.

Research and Development - Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, research collaborations, costs associated with preclinical testing and clinical trials of our product candidates, including the costs of manufacturing drug substance and drug product, regulatory maintenance costs, and facilities expenses. Research and development costs are expensed as incurred.

Expenses for Clinical Trials – Expenses for clinical trials are incurred from planning through patient enrollment to reporting of the data. We estimate expenses incurred for clinical trials that are in process based on patient enrollment and based on clinical data collection and management. Costs that are associated with patient enrollment are recognized as each patient in the clinical trial completes the enrollment process. Estimated clinical trial costs related to enrollment can vary based on numerous factors, including expected number of patients in trials, the number of patients that do not complete participation in a trial, and when a patient drops out of a trial. Costs that are based on clinical data collection and management are recognized in the reporting period in which services are provided. In the event of early termination of a clinical trial, we would accrue an amount based on estimates of the remaining non-cancelable obligations associated with winding down the clinical trial.

Stock-Based Compensation – All share-based payment transactions are recognized in the consolidated financial statements at their fair values. Using the straight-line expense attribution method over the requisite service period, which is generally the option vesting term of three years, share-based compensation expense recognized in the three and nine months ended September 30, 2010 totaled $18,981 and $250,311, respectively. Share-based compensation expense recognized in the comparable periods in 2009 totaled $39,703 and $280,153, respectively.

The determination of fair value of stock-based payment awards on the date of grant using the Black-Scholes-Merton model is affected by our stock price, as well as the input of other subjective assumptions. These assumptions include, but are not limited to, the expected forfeiture rate and expected term of stock options and our expected stock price volatility over the term of the awards. Changes in the assumptions can materially affect the fair value estimates.

Any future changes to our share-based compensation strategy or programs would likely affect the amount of compensation expense recognized.

RESULTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2010 and September 30, 2009.

Revenues. There were no revenues recorded in the three and nine-month periods ended September 30, 2010. For the three and nine-month periods ended September 30, 2009, we recorded estimated royalty revenues of $3,300,000 and other revenues of $368,000. We do not expect to record revenue in 2010 until the fourth quarter. Our 2010 revenues, if any, will result from Celgene’s sale of Thalomid®. We earn royalties once sales of Thalomid exceed approximately $225 million annually, pursuant to a 2001 agreement with Royalty Pharma, as noted above. Thalomid® is distributed and sold by Celgene Corporation and/or its affiliates, and thus, we have no control over sales of Thalomid® or the amount, if any, of royalty payments we will receive.

Research and Development Expenses. Our research and development expenses for the three and six months ended September 30, 2010 totaled $1,292,000 and $3,147,000, respectively. Research and development expenses for the corresponding 2009 periods were $2,327,000 and $5,940,000, respectively.

Reflected in our R&D expenses totaling $1,292,000 for the three-month period ended September 30, 2010 are direct project costs of $1,045,000 for ENMD-2076, $24,000 for Panzem® oncology, $22,000 for ENMD-1198 and $13,000 for MKC-1. The 2009 research and development expenses for the comparable period included $1,798,000 for ENMD-2076, $34,000 for ENMD-1198 and $75,000 for MKC-1. Research and development expenses totaling $3,147,000 for the nine-month period ended September 30, 2010 include direct project costs of $2,570,000 related to ENMD-2076, $74,000 related to Panzem® oncology, $56,000 related to ENMD-1198 and $247,000 for MKC-1. The 2009 research and development expenses for the comparable period included $3,704,000 for ENMD-2076, $118,000 for Panzem®, $413,000 for MKC-1, and $128,000 for ENMD-1198. The decrease in research and development costs in the three and nine-month periods ended September 30, 2010, as compared to same periods in 2009, reflects our continued focus on the clinical development of ENMD-2076 as we ceased clinical and manufacturing activities in our discontinued programs.

At September 30, 2010, accumulated direct project expenses for Panzem® oncology were $54,319,000; direct ENMD-1198 project expenses totaled $13,199,000; and, since acquired, accumulated direct project expenses for ENMD-2076 totaled $16,728,000 and for MKC-1, accumulated project expenses totaled $10,158,000. Our research and development expenses also include non-cash stock-based compensation totaling $10,000 and $29,000, respectively, for the three and nine months ended September 30, 2010 and $14,000 and $95,000 for the respective corresponding 2009 periods. The decrease in stock-based compensation expense is related to fewer stock options granted in the nine months ending September 30, 2010. The balance of our research and development expenditures includes facility costs and other departmental overhead, and expenditures related to the non-clinical support of our programs.

The initiation of our multi-center Phase 2 study with ENMD-2076 in patients with ovarian cancer resulted in an increase in our research and development expenses in the three months ended September 30, 2010. Six sites are participating in the study and are currently enrolling patients. We expect our research and development expenses to be similar in the fourth quarter of 2010. We will continue to conduct research on ENMD-2076 in order to comply with stipulations made by the FDA, as well as to increase understanding of the mechanism of action and toxicity parameters of ENMD-2076 and its metabolites. Completion of clinical development may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.

We estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:

CLINICAL PHASE		ESTIMATED COMPLETION PERIOD
Phase I		1 Year
Phase II		1-2 Years
Phase III		2-4 Years

The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol, including, among others, the following:

the number of patients that ultimately participate in the trial;

the duration of patient participation in the study and follow-up that seems appropriate in view of the results;

the number of clinical sites included in the trials; and

the length of time required to enroll suitable patient subjects.

We test our potential product candidates in numerous preclinical studies to identify indications for which they may be product candidates. We may conduct multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain product candidates or for certain indications in order to focus our resources on more promising product candidates or indications.

Our proprietary drug candidates have also not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our clinical data establish safety and efficacy. Historically, the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.

We will be opportunistic about collaborative arrangements with third parties to complete the development and commercialization of our products. In the event that third parties take over the development process for one of our product candidates, the estimated completion date would largely be under the control of that third party rather than us. We cannot forecast with any degree of certainty which proprietary products or indications, if any, will be subject to future collaborative arrangements, in whole or in part, and how such arrangements would affect our capital requirements.

As a result of the uncertainties discussed above, among others, we are unable to estimate the duration and completion costs of our research and development projects. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements, when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from time to time in order to continue with our business strategy. There can be no assurance that we will be able to successfully access external sources of financing in the future. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

Research and development expenses consist primarily of compensation and other expenses related to research and development personnel and costs associated with internal and contract preclinical testing and clinical trials of our product candidates, including the costs of manufacturing drug substance and drug product, regulatory maintenance costs, and facilities expenses. Expenditures during the three and nine months ended September 30, 2010 were specifically impacted by the following:

Outside Services – In the three-month period ended September 30, 2010, we expended $29,000 on outside service activities versus $80,000 in the same 2009 period. For the nine-month period ended September 30, 2010 outside services are $40,000 compared to $401,000 for the same 2009 period. The decrease in 2010 as compared to 2009 continues to reflect the absence of utilizing outsourced services to conduct development of products from discontinued programs.

Clinical Trial Costs – Clinical trial costs, which include clinical site fees, monitoring costs and data management costs, decreased to $665,000 in the three months ended September 30, 2010 from $992,000 in the three-month period ended September 30, 2009. Clinical trial costs for the nine-month period ended September 30, 2010 decreased to $1,131,000 from $2,000,000 for the comparable 2009 period. The decrease relates primarily to our focus on the clinical development of ENMD-2076, reducing patient costs for cycles of treatment that were not completed in trials that have wound down in discontinued programs.

Contract Manufacturing Costs – The costs of manufacturing the material used in clinical trials for our product candidates is reflected in contract manufacturing. These costs include bulk manufacturing, encapsulation and fill and finish services, product release costs and storage fees. Contract manufacturing costs for the three months ended September 30, 2010 decreased by $325,000 to $39,000 from $364,000 during the same period in 2009. For the nine-month period ended September 30, 2010, manufacturing costs decreased to $189,000 from $586,000 for the comparable 2009 period. The decrease reflects the absence of encapsulation costs for ENMD-2076 that were incurred in 2009, plus a credit received in 2010 reflecting a reduction in the scope of previously contracted compatibility, formulation development and GMP manufacture of ENMD-2076.

Personnel Costs – Personnel costs decreased to $297,000 in the three-month period ended September 30, 2010 from $494,000 in the corresponding 2009 period. For the nine-month period, personnel costs decreased in 2010 to $957,000 from $1,626,000 for the corresponding 2009 period. The decrease is attributed to the elimination of three management positions in December 2009.

Also reflected in our 2010 research and development expenses for the three-month period ended September 30, 2010 are patent costs of $133,000 and facility and related expenses of $50,000. In the corresponding 2009 period, these expenses totaled $117,000 and $117,000, respectively. For the nine-month period ended September 30, 2010, patent costs were $331,000 and facility and related expenses were $158,000. In the corresponding 2009 period, these expenses totaled $372,000 and $492,000, respectively.

General and Administrative Expenses. General and administrative expenses include compensation and other expenses related to finance, business development and administrative personnel, professional services and facilities.

General and administrative expenses decreased to $692,000 in the three-month period ended September 30, 2010 from $912,000 in the corresponding 2009 period. For the nine-month period, general and administrative expenses decreased in 2010 to $2,514,000 from $3,082,000 for the corresponding 2009 period. This decrease was primarily a result of fewer fees paid to directors with the resignation of one director from our Board, and also a decrease in the cost of professional services, including accounting and legal fees.

Interest Expense. Interest expense, which relates to a financing transaction with General Electric Capital Corporation (GECC) in September 2007, decreased to approximately $107,000 (including $9,545 of non-cash interest) in the three-month period ended September 30, 2010 from approximately $345,000 (including $30,842 of non-cash interest) in the corresponding 2009 period. For the nine-month period, interest expense decreased in 2010 to approximately $496,000 (including $45,095 of non-cash interest) from approximately $1,198,000 (including $107,357 of non-cash interest) for the corresponding 2009 period.

Investment Income. Due to the absence of invested cash during the three and nine-month periods ended September 30, 2010, we earned no investment income. We also earned no investment income in the three-month period ended September 30, 2009. Investment income in the nine-month period ended September 30, 2009 was $69,000.

Dividends on Series A Convertible Preferred Stock. The Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2010 and 2009 reflect a dividend of $251,250 and $753,750, respectively, relating to Series A Convertible Preferred Stock held by Celgene pursuant to a Securities Purchase Agreement dated December 31, 2002. The holders of Series A Preferred Stock accumulate dividends at an annual rate of 6% and will participate in dividends declared and paid on our common stock, if any. All accumulated dividends must be paid before any dividends may be declared or paid on the common stock. We have no plans to pay any dividends in the foreseeable future.

LIQUIDITY AND CAPITAL RESOURCES

To date, we have been engaged primarily in research and development activities. As a result, we have incurred and expect to continue to incur operating losses in 2010 and the foreseeable future before we commercialize any products. Based on our current plans, we expect our current available cash and cash equivalents, along with the receipt of expected royalty payments during 2010 and 2011, to be sufficient to meet our cash requirements for the next twelve months and through fiscal 2011. In the event the royalty payments are received in amounts significantly less than our estimates, we plan to continue to pursue opportunities to raise additional capital to fund our operating needs.

Our ability to continue as a going concern is dependent on our success at raising additional capital sufficient to meet our obligations on a timely basis, the ongoing receipt of royalty payments and our ability to ultimately attain profitability. As the amount of the royalty payments to be received cannot be reasonably estimated, there is no assurance that we will not be required to raise additional capital sufficient to enable us to continue our operations for the next twelve months and through fiscal 2011. If additional funds are raised by issuing equity securities, dilution to existing shareholders may result. There can be no assurance that adequate additional financing will be available to us on terms that we deem acceptable, if at all. In the event we do not have sufficient cash to support the ENMD-2076 development program, and additional financing is not obtained, we will explore alternatives to raising capital by being opportunistic about other potential forms of capital infusion, including strategic alliances or collaborative development opportunities, engaging in one or more strategic transactions, monetizing non-core assets and/or other transactions that provide capital to further the development of ENMD-2076. If we fail to obtain additional capital when needed, we will reduce expenses as appropriate.

We did not include any adjustments to the consolidated financial statements included in this Quarterly Report on Form 10-Q to reflect the possible future effects that may result from the uncertainty of our ability to continue as a going concern because we believe that we will continue to be a financially sound and viable business, continuing to conduct clinical trials for, and further development of, ENMD-2076 and provide value to our shareholders.

In January 2006, we acquired Miikana Therapeutics, Inc., a private biotechnology company, in exchange for approximately 905,500 shares of our common stock and the assumption of certain obligations of Miikana. We acquired certain drug candidates in connection with the acquisition, including the lead molecule in the Aurora Kinase Program, ENMD-2076, which advanced into clinical development in 2008. ENMD-2076 is a kinase inhibitor with activity towards Aurora A and multiple other kinases linked to promoting cancer. Dosing of the first patient in ENMD-2076 trials triggered a milestone payment of $2 million to the former Miikana stockholders payable in stock or cash, at the Company’s discretion. In June 2008, 233,100 shares of common stock were issued to the former Miikana stockholders as consideration for the satisfaction of the milestone payment. In April 2010, dosing of the first patient in a Phase 2 trial for ENMD-2076 triggered an additional milestone payment of $3 million, payable in stock or cash, at the Company’s sole discretion. In June 2010, 403,550 shares of common stock were issued to the former Miikana stockholders as consideration for the satisfaction of the milestone payment. Former Miikana stockholders may also earn an additional payment of $4 million for the ENMD-2076 program upon the satisfaction of additional clinical and regulatory milestones; however, we do not expect these milestones to be satisfied in 2010. Additionally, under the terms of the merger agreement, the former Miikana stockholders may earn up to $9 million of potential payments upon the satisfaction of clinical and regulatory milestones related to a preclinical program we no longer pursue. We do not expect such additional milestones to be satisfied during 2010. Through the Miikana acquisition, we also acquired rights to MKC-1, a Phase 2 clinical candidate licensed from Roche by Miikana in April 2005. Under the terms of the agreement, Roche may be entitled to receive future payments upon successful attainment of certain clinical, regulatory and commercialization milestones; however, since ENMD-2076 is the only program currently under active clinical evaluation by the Company, we do not expect to trigger any of these milestone payments during fiscal 2010.

In September 2007, we entered into a $20 million term loan agreement with General Electric Capital Corporation (the “Term Loan”). The Term Loan accrues interest in arrears at a fixed annual rate of 10.47%. The Term Loan will be repaid in January 2011. For additional information on the Term Loan, please see Note 6 of the Notes to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

On August 6, 2009, we filed with the SEC a $30 million shelf registration statement on Form S-3, which was declared effective on October 9, 2009 and allows us to issue any combination of common stock, preferred stock, warrants to purchase common stock or preferred stock or units consisting of any of the foregoing.

As discussed above, on September 8, 2010, pursuant to the shelf registration statement, we consummated the issuance and sale, to certain investors, of units consisting of our common stock and warrants to purchase shares of our common stock, and received aggregate gross proceeds of $5.1 million. As of the period ended September 30, 2010, we have sold approximately $13 million of our securities pursuant to the shelf registration statement.

At September 30, 2010, we had cash and short-term investments of $8,432,703 with working capital of $4,135,388, compared to cash and short-term investments of $6,366,253 with a working capital deficit of ($1,395,158) at December 31, 2009.

To accomplish our business plans, we will be required to continue to conduct substantial development activities for ENMD-2076, our leading program. Under our operating plans for the remainder of 2010, we expect to continue to pursue ENMD-2076 in oncology and complete enrollment of patients in our ovarian cancer Phase 2 trial at six sites in the United States and Canada. We expect our 2010 results of operations to reflect a net loss of approximately $11,300,000, including non-cash charges of approximately $4,400,000.

We expect that the majority of our 2010 revenues will continue to be from royalties on the sales of Thalomid®. Thalomid® is sold by a third-party and we have no control over such party’s sales efforts or the resources devoted to Thalomid® sales, or the impact that generic drugs or alternative products will have on the sales of Thalomid®. We expect to record royalty-sharing revenues in the fourth quarter of 2010; however, there can be no assurance of the amount of revenues that will be recorded, if any. In addition, under our licensing agreement with Oxford Biomedica, PLC and Oxford Biomedica (UK) Limited Oxford, we are entitled to receive payments upon the achievement of certain milestones with respect to the development of gene therapies for ophthalmic (eye) diseases. However, we do not control the drug development efforts of Oxford and have no control over when or whether such milestones will be reached. We do not believe that we will receive any developmental milestone payments under this agreement in 2010.

Our estimated future capital requirements are uncertain and could change materially as a result of many factors, including the progress of our research, development and clinical activities. If adequate funds are not available through either the capital markets, strategic alliances, or collaborators, we may be required to delay, reduce the scope of or eliminate our research, development or clinical program efforts, effect additional changes to our facilities or personnel, or obtain funds through other arrangements that may require us to relinquish some of our assets or rights to certain of our existing or future technologies, product candidates, or products on terms not favorable to us.

Off-Balance Sheet Arrangements and Contractual Obligations

We have no off-balance sheet financing arrangements, and there have been no material changes to our contractual obligations table in our Form 10-K for the year ended December 31, 2009.

INFLATION AND INTEREST RATE CHANGES

Management does not believe that our working capital needs are sensitive to inflation and changes in interest rates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve our capital until it is required to fund operations while at the same time maximizing the income we receive from our investments without incurring investment market volatility risk. Our investment income is sensitive to the general level of U.S. interest rates. In this regard, changes in the U.S. interest rates affect the interest earned on our cash and cash equivalents. Due to the short-term nature of our cash and cash equivalent holdings, a 10% movement in market interest rates would not materially impact on the total fair market value of our portfolio as of June 30, 2010.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s Executive Chairman and Principal Accounting Officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) were effective as of September 30, 2010 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its Executive Chairman and Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s assessment of the effectiveness of internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2010 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law. This legislation includes an exemption for companies with less than $75 million in market capitalization (non-accelerated filers) to Section 404(b) of the Sarbanes-Oxley Act of 2002, which requires an external auditor’s report on the effectiveness of a registrant’s internal control over financial reporting. The Securities and Exchange Commission (the “SEC”) has not published a final rule on this new law. The Company is in the process of determining the effects, if any, of this new law.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject in the normal course of business to various legal proceedings in which claims for monetary or other damages may be asserted. We are not currently a party to any legal proceedings.

ITEM 1A. RISK FACTORS

For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors discussion set forth in Item 1A of EntreMed’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and the information under “Special Note Regarding Forward-Looking Statements” included in this report. There have been no material changes to our risk factors from those disclosed in Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

REMOVED AND RESERVED

ITEM 5.

OTHER INFORMATION

Not applicable.

ITEM 6.

EXHIBITS

4.1	Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 10, 2010)

10.1	Form of Securities Purchase Agreement by and among the Company and the purchasers party thereto, dated September 7, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 10, 2010)

10.2	China Rights Agreement, dated September 7, 2010, by and between the Company and Selected Value Therapeutics I, LLC †

31.1	Rule 13a-14(a) Certification of Executive Chairman

31.2	Rule 13a-14(a) Certification of Principal Accounting Officer

32.1	Section 1350 Certification of Executive Chairman

32.2	Section 1350 Certification of Principal Accounting Officer

† Pursuant to a request for confidential treatment, portions of this Exhibit have been redacted from the publicly filed document and have been furnished separately to the Securities and Exchange Commission as required by Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ENTREMED, INC.
		(Registrant)

Date: November 12, 2010		/s/ Michael M. Tarnow
		Michael M. Tarnow
		Executive Chairman

Date: November 12, 2010		/s/ Kathy R. Wehmeir-Davis
		Kathy R. Wehmeir-Davis
		Principal Accounting Officer

EXHIBIT INDEX

4.1	Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 10, 2010)

10.1	Form of Securities Purchase Agreement by and among the Company and the purchasers party thereto, dated September 7, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 10, 2010)

10.2	China Rights Agreement, dated September 7, 2010, by and between the Company and Selected Value Therapeutics I, LLC †

31.1	Rule 13a-14(a) Certification of Executive Chairman

31.2	Rule 13a-14(a) Certification of Principal Accounting Officer

32.1	Section 1350 Certification of Executive Chairman

32.2	Section 1350 Certification of Principal Accounting Officer

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