UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

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

Commission File Number 0-6533

 

ALSERES PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		87-0277826
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)
239 South Street, Hopkinton, Massachusetts		01748
(Address of Principal Executive Offices)		(Zip 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 þ No o

     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 (§ 232.405 of this chapter) during the preceding 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 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 o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

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

     As of May 13, 2011, there were 26,785,645 shares of the registrant’s Common Stock issued and outstanding.

 

 

ALSERES PHARMACEUTICALS, INC.
FORM 10-Q
TABLE OF CONTENTS

		Page
Part I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010			3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010, and for the period from inception (October 16, 1992) to March 31, 2011			4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010, and for the period from inception (October 16, 1992) to March 31, 2011			5
Notes to Condensed Consolidated Financial Statements			6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3 Quantitative and Qualitative Disclosures About Market Risk		15
Item 4T Controls and Procedures		15
Part II OTHER INFORMATION
Item 1 Legal Proceedings		16
Item 6 Exhibits		16
SIGNATURES
EX-31.1
EX-31.2
EX-32.1
EX-32.2

     In this report, “we”, “us”, and “our” refer to Alseres Pharmaceuticals, Inc. The following are trademarks of ours that are mentioned in this Quarterly Report on Form 10-Q: Alseres™ and Altropane ^® . All other trade names, trademarks or service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners and are not the property of Alseres Pharmaceuticals, Inc. or any of our subsidiaries.

Part I — FINANCIAL INFORMATION

Item 1 — Financial Statements

Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)

Condensed Consolidated Balance Sheets

		(Unaudited)
		March 31,				December 31,
		2011				2010
ASSETS
Current assets:
Cash and cash equivalents		$	13,898			$	98,514
Security deposits			96,163				96,163
Prepaid expenses and other current assets			45,253				14,073
Total current assets			155,314				208,750
Property and Equipment, net			33,905				47,674
Indemnity fund			115,530				115,568
Security deposits and other assets			88,600				88,600
Total assets		$	393,349			$	460,592
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses		$	3,549,074			$	3,576,809
Convertible notes payable			29,000,000				29,000,000
Notes payable			5,260,000				4,660,000
Accrued interest payable on convertible notes			5,077,221				4,714,722
Accrued interest payable on demand notes			356,905				270,759
Accrued lease (Note 6)			68,923				65,922
Total current liabilities			43,312,123				42,288,212
Accrued lease, excluding current portion (Note 6)			12,520				30,503
Total liabilities			43,324,643				42,318,715
Commitments and contingencies (Note 7)
Series F convertible redeemable preferred stock, $.01 par value; 200,000 shares designated; 196,000 shares issued and outstanding at March 31, 2011 and December 31, 2010; (liquidation preference of $4,900,000 at March 31, 2011)			5,515,339				5,428,158
Stockholders’ deficit:
Preferred stock, $.01 par value; 1,000,000 shares authorized; 25,000 shares designated Convertible Series A, 500,000 shares designated Convertible Series D and 800 shares designated Convertible Series E; no shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively			—				—
Common stock, $.01 par value; 79,730,000 shares authorized at March 31, 2011 and December 31, 2010; 26,785,645 issued and outstanding at March 31, 2011 and December 31, 2010.			267,856				267,856
Additional paid-in capital			146,527,976				146,611,717
Deficit accumulated during development stage			(195,242,465	)			(194,165,854	)
Total stockholders’ deficit			(48,446,633	)			(47,286,281	)
Total liabilities and stockholders’ deficit		$	393,349			$	460,592

The accompanying notes are an integral part of the condensed consolidated financial statements.

Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)

Condensed Consolidated Statements of Operations

(Unaudited)

										From Inception
										(October 16, 1992)
		Three Months Ended March 31,								to
		2011				2010				March 31, 2011
Revenues		$	—			$	—			$	900,000
Operating expenses:
Research and development			25,596				474,807				115,973,875
General and administrative			597,597				727,154				67,379,539
Purchased in-process research and development			—				—				12,146,544
Total operating expenses			623,193				1,201,961				195,499,958
Loss from operations			(623,193	)			(1,201,961	)			(194,599,958	)
Gain on early extinguishment of debt			—				—				6,277,100
Other expense			—				(966	)			(1,517,878	)
Interest expense, net			(453,751	)			(656,700	)			(13,104,377	)
Investment income			333				673				7,704,648
Net loss			(1,076,611	)			(1,858,954	)			(195,240,465	)
Preferred stock beneficial conversion feature			—				—				(8,062,712	)
Accrual of preferred stock dividends and modification of warrants held by preferred stockholders			—				—				(1,229,589	)
Net loss attributable to common stockholders			(1,076,611	)			(1,858,954	)			(204,532,766	)
Basic and diluted net loss attributable to common stockholders per share		$	(0.04	)		$	(0.07	)
Weighted average common shares outstanding			26,785,645				25,572,312

The accompanying notes are an integral part of the condensed consolidated financial statements.

Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)

Condensed Consolidated Statements of Cash Flows
(Unaudited)

										From Inception
										(October 16,
										1992) to
		Three Months Ended March 31,								March 31,
		2011				2010				2011
Cash flows from operating activities:
Net loss		$	(1,076,611	)		$	(1,858,954	)		$	(195,240,465	)
Adjustments to reconcile net loss to net cash used for operating activities:
Purchased in-process research and development			—				—				12,146,544
Write-off of acquired technology			—				—				3,500,000
Interest expense settled through issuance of notes payable			—				—				350,500
Net gain on early extinguishment of debt											(5,277,300	)
Non-cash interest expense			—				189,293				3,966,394
Non-cash charges related to options, warrants and common stock			834				15,015				11,115,437
Amortization of financing costs			2,606				—				20,845
Amortization and depreciation			13,769				15,844				2,863,684
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses and other current assets			(31,180	)			(40,941	)			660,210
(Decrease) increase in accounts payable and accrued expenses			(27,735	)			273,187				2,776,409
Increase in accrued interest payable			448,645				465,648				5,434,126
(Decrease) increase in accrued lease			(14,982	)			(10,274	)			81,443
Net cash used for operating activities			(684,654	)			(951,182	)			(157,602,173	)
Cash flows from investing activities:
Cash acquired through Merger			—				—				1,758,037
Purchases of fixed assets			—				—				(1,652,114	)
Decrease (increase) in security deposits and other assets			—				15,696				(384,898	)
Decrease (increase) in indemnity fund			38				55				(115,530	)
Purchases of marketable securities			—				—				(132,004,923	)
Sales and maturities of marketable securities			—				—				132,004,923
Net cash provided by (used for) investing activities			38				15,751				(394,505	)
Cash flows from financing activities:
Proceeds from issuance of common stock			—				—				66,731,339
Buyback of common stock			—				—				(8,100	)
Proceeds from issuance of preferred stock			—				—				39,922,170
Preferred stock conversion inducement			—				—				(600,564	)
Proceeds from issuance of promissory notes			600,000				800,000				56,845,000
Proceeds from issuance of convertible debentures			—				—				9,000,000
Principal payments of notes payable			—				—				(7,749,667	)
Dividend payments on Series E Cumulative Convertible Preferred Stock			—				—				(516,747	)
Payments of financing costs			—				—				(5,612,855	)
Net cash provided by financing activities			600,000				800,000				158,010,576
Net (decrease) increase in cash and cash equivalents			(84,616	)			(135,431	)			13,898
Cash and cash equivalents, beginning of period			98,514				314,964				—
Cash and cash equivalents, end of period		$	13,898			$	179,533			$	13,898
Supplemental cash flow disclosures:
Cash paid for interest		$	—			$	—			$	628,406

The accompanying notes are an integral part of the condensed consolidated financial statements.

Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2011

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these financial statements 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.

The interim unaudited condensed consolidated financial statements contained herein include, in management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the financial position, results of operations, and cash flows for the periods presented. The results of operations for the interim period shown on this report are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The accompanying condensed consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The uncertainty inherent in the need to raise additional capital and the Company’s recurring losses from operations raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As of March 31, 2011, we had experienced total net losses since inception of approximately $204,533,000, stockholders’ deficit of approximately $48,447,000 and a net working capital deficit of approximately $43,157,000. For the foreseeable future, we expect to experience continuing operating losses and negative cash flows from operations as we execute our current business plan. The cash and cash equivalents available at March 31, 2011 will not provide sufficient working capital to meet our anticipated expenditures for the next twelve months. We believe that the approximately $170,000 in cash and cash equivalents available at May 2, 2011 combined with minimal additional operating capital committed by our lead investor and our ability to control certain costs, including those related to clinical trial programs, preclinical activities, and certain general and administrative expenses will enable us to meet our anticipated cash expenditures through May 2011.

In order to continue as a going concern, we must immediately raise additional funds through one or more of the following: a debt financing, an equity offering or a collaboration, merger, acquisition or other transaction with one or more pharmaceutical or biotechnology companies. We are currently engaged in fundraising efforts. There can be no assurance that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms, if at all. We also cannot be sure that we will be able to obtain additional credit from, or effect additional sales of debt or equity securities. If we are unable to raise additional or sufficient capital or if we violate a debt covenant or default under our convertible note purchase agreements, we will need to cease operations or reduce, cease or delay one or more of our research or development programs and/or adjust our current business plan and in any such event may not be able to continue as a going concern. Additionally, our common stock was delisted from trading on the NASDAQ Capital Market as a result of our failure to meet continued listing requirements of NASDAQ. On May 8, 2009 we began trading on the Pink Sheets OTC Market. This delisting has had an adverse affect on our ability to obtain future financing and could continue to adversely impact our stock price and the liquidity of our common stock.

Reclassification

Certain reclassifications have been made to the prior year’s consolidated condensed balance sheet to conform to the current year presentation.

2. Net Loss Per Share

Basic and diluted net loss per share attributable to common stockholders has been calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. All potentially dilutive common shares have been excluded from the calculation of weighted average common shares outstanding since their inclusion would be anti-dilutive.

Stock options and warrants to purchase approximately 3.6 million and 3.7 million shares of common stock were outstanding at March 31, 2011 and 2010, respectively, but were not included in the computation of diluted net loss per common share because they were anti-dilutive. The exercise of those stock options and warrants outstanding at March 31, 2011 could potentially dilute earnings per share in the future.

3. Reporting Comprehensive Loss

Accounting Standards Codification 220, Comprehensive Income (ASC 220), establishes standards for the reporting and display of comprehensive income (loss) and its components in the financial statements. Comprehensive income (loss) is the total of net income (loss) and all other non-owner changes in equity including such items as unrealized holding gains/losses on securities, foreign currency translation adjustments and minimum pension liability adjustments. The Company had no such items for the three months ended March 31, 2011 and 2010 and as a result, comprehensive loss is the same as reported net loss for all periods presented.

4. Accounting for Stock-Based Compensation

We have one stock option plan under which we can issue both nonqualified and incentive stock options to employees, officers, consultants and scientific advisors of the Company. At March 31, 2011, the 2005 Stock Incentive Plan (the “2005 Plan”) provided for the issuance of options, restricted stock, restricted stock units, stock appreciation rights or other stock-based awards to purchase 3,450,000 shares of our common stock. The 2005 Plan contains a provision that allows for an annual increase in the number of shares available for issuance under the 2005 Plan on the first day of each of the Company’s fiscal years during the period beginning in fiscal year 2006 and ending on the second day of fiscal year 2014. The annual increase in the number of shares shall be equal to the lowest of 400,000 shares; 4% of the Company’s outstanding shares on the first day of the fiscal year; and an amount determined by the Board of Directors. On January 1, 2009, the number of shares available for issuance under the 2005 Plan was increased by 400,000 shares. No adjustment was made in January 2011.

We also have outstanding stock options in three other stock option plans, the 1998 Omnibus Plan, the Amended and Restated Omnibus Stock Option Plan and the Amended and Restated 1990 Non-Employee Directors’ Non-Qualified Stock Option Plan. These plans have expired and no future issuance of awards is permissible.

Our Board of Directors determines the term, vesting provisions, price, and number of shares for each award that is granted. The term of each option cannot exceed ten years.

Stock-based employee compensation expense recorded during the three months ended March 31, 2011 and 2010 was $834 and $15,015, respectively. The $834 in expense recognized during the three months ended March 31, 2011 represents the remaining compensation costs related to non-vested stock options.

We use the Black-Scholes option-pricing model to calculate the fair value of each option grant on the date of grant. No stock options were granted during the three months ended March 31, 2011 and 2010.

A summary of our outstanding stock options for the three months ended March 31, 2011 and 2010 is presented below.

		Three months ended March 31,
		2011								2010
						Weighted-								Weighted-
						Average								Average
						Exercise								Exercise
		Shares				Price				Shares				Price
Outstanding at beginning of year			3,650,443			$	1.59				3,695,745			$	1.63
Granted			—				—				—				—
Exercised			—				—				—				—
Forfeited and expired			(5,000	)			15.63				(6,500	)			18.13
Outstanding at end of period			3,645,443			$	1.57				3,689,245			$	1.60
Options exercisable at end of period			3,645,443			$	1.57				3,536,745			$	1.62

The following table summarizes information about stock options outstanding at March 31, 2011:

		Options Outstanding												Options Exercisable
						Weighted-												Weighted
						Average				Weighted-								Average				Weighted-
						Remaining				Average								Remaining				Average
		Number				Contractual				Exercise				Number				Contractual				Exercise
Range of Exercise Prices		Outstanding				Life				Price				Exercisable				Life				Price
$1.15 — $1.36			2,713,000			3.1 years				$	1.15				2,713,000			3.1 years				$	1.15
$2.00 — $3.00			639,980			4.4 years					2.33				639,980			4.4 years					2.33
$3.10 — $4.65			255,363			5.5 years					3.40				255,363			5.5 years					3.40
$4.99 — $6.96			28,500			2.8 years					5.47				28,500			2.8 years					5.47
$8.95 — $13.06			8,600			0.5 years					10.57				8,600			0.5 years					10.57
			3,645,443			3.5 years				$	1.57				3,645,443			3.5 years				$	1.57

There was no intrinsic value of outstanding options and exercisable options as of March 31, 2011. There was no intrinsic value of options vested during the three months ended March 31, 2011. As of March 31, 2011, 384,172 shares were available for grant under the 2005 Plan.

5. Notes Payable and Debt

Convertible Notes Payable to Significant Stockholders						March 31, 2011				December 31, 2010
Unsecured convertible promissory note; interest rate of 5%; due December 31, 2010						$	9,000,000			$	9,000,000
Unsecured convertible promissory note; interest rate of 5%; due December 31, 2010		BCF					10,000,000				10,000,000
Unsecured convertible promissory note; interest rate of 5%; due December 31, 2010		BCF					5,000,000				5,000,000
Unsecured convertible promissory note; interest rate of 5%; due December 31, 2010							5,000,000				5,000,000
Aggregate carrying value						$	29,000,000			$	29,000,000

Interest expense of $362,499 and $621,016 was recorded related to the convertible notes payable for the three months ended March 31, 2011 and 2010, respectively.

The above unsecured convertible promissory notes may be converted, at the option of the Purchasers, into (i) shares of the Company’s common stock at a conversion price per share of $2.50, (ii) the right to receive future payments related to the Company’s molecular imaging products in amounts equal to 2% of the Company’s pre-commercial revenue related to such products plus 0.5% of future net sales of such products for each $1,000,000 of outstanding principal and interest that a Purchaser elects to convert into future payments, or (iii) a combination of (i) and (ii). Any outstanding notes that are not converted into the Company’s common stock or into the right to receive future payments became due and payable on December 31, 2010. As of March 31, 2011, the holders of this debt have not made any formal demand for payment and the Company continues to accrue interest on this obligation. However, each Purchaser is prohibited from effecting a conversion into common stock if at the time of such conversion the common stock issuable to such Purchaser, when taken together with all shares of common stock then held or otherwise beneficially owned by such Purchaser exceeds 19.9%, or 9.99% ISVP, of the total number of issued and outstanding shares of the Company’s common stock immediately prior to such conversion unless and until the Company’s stockholders approve the conversion of all of the shares of common stock issuable there under.

The Company is subject to certain debt covenants pursuant to the March 2008 Amended Purchase Agreement and the June 2008 Purchase Agreement (the “Purchase Agreements”). If the Company (i) fails to pay the principal or interest due under the Purchase Agreements, (ii) files a petition for action for relief under any bankruptcy or similar law or (iii) an involuntary petition is filed against the Company, all amounts borrowed under the Purchase Agreements may become immediately due and payable by the Company. In addition, without the consent of the Purchasers, the Company may not (i) create, incur or otherwise, permit to be outstanding any indebtedness for money borrowed, (ii) declare or pay any cash dividend, or make a distribution on, repurchase, or redeem, any class of the Company’s stock, subject to certain exceptions or sell, lease, transfer or otherwise dispose of any of the Company’s material assets or property or (iii) dissolve or liquidate.

Beneficial Conversion Feature (BCF)

Three of the unsecured promissory notes were issued with a conversion price of $2.50 which was below the market price of the Company’s common stock on the dates the agreements were entered into and resulted in the recording of a beneficial conversion feature. The Company recorded a BCF of $1,400,000 on (the “ISVP”) note and a BCF of $380,000 on (the “2008 RG”) note which was recognized as a decrease in the carrying value and an increase to additional paid-in capital. The BCF was fully recognized as interest expense using the effective interest method through December 31, 2010. Therefore, the Company did not record any interest expense related to the BCF for the three months ended March 31, 2011 and recorded approximately $185,000 for the three months ended March 31, 2010.

Promissory Notes

Demand Notes Payable to Significant Stockholder		March 31, 2011				December 31, 2010
Unsecured demand note payable; interest rate of 7% to Neurobiologics, Inc. (a subsidiary of the Company)		$	1,000,000			$	1,000,000
Unsecured demand note payable; interest rate of 7%: issued December 2009			350,000				350,000
Unsecured demand notes payable; interest rate of 7%: issued January 2010 - December 2010			3,310,000				3,310,000
Unsecured demand notes payable; interest rate of 7%: issued January 2011 - March 2011			600,000				—
			5,260,000				4,660,000
Accrued interest			356,905				270,759
Aggregate carrying value		$	5,616,905			$	4,930,759

Interest expense of $86,146 and $29,649 was recorded related to the demand notes payable for the three months ended March 31, 2011 and 2010, respectively.

According to a Schedule 13G/A filed with the SEC on November 29, 2010 Robert Gipson beneficially owned approximately 59.4% of the outstanding common stock of the Company on November 29, 2010. Robert Gipson, who serves as a Senior Director of Ingalls & Snyder and a General Partner of ISVP, served as a director of the Company from June 15, 2004 until October 28, 2004. According to a Schedule 13G/A filed with the SEC on January 12, 2010, Thomas Gipson beneficially owned approximately 20.0% of the outstanding common stock of the Company on December 31, 2009. According to a Schedule 13G/A filed with the SEC on February 9, 2011, Arthur Koenig beneficially owned approximately 7.6% of the outstanding common stock of the Company on December 31, 2010. According to a Schedule 13G filed with the SEC on February 9, 2011, ISVP owned approximately 9.99% of the outstanding common stock of the Company on December 31, 2010. According to a Schedule 13G filed with the SEC on February 10, 2011, Ingalls & Snyder LLC beneficially owned approximately 9.9% of the outstanding common stock of the Company on December 31, 2010.

6. Exit Activities

In September 2005, the Company relocated its headquarters from Boston to Hopkinton, Massachusetts. The Company amended its lease dated January 28, 2002 with Brentwood Properties, Inc. (the “Landlord”) for the property located in Boston. At March 31, 2011, the security deposit under the Lease Agreement was approximately $88,600 and not refundable to the Company until the termination of the lease in May 2012.

As a result of the Company’s relocation, an expense was recorded for the cost associated with the exit activity at its fair value in the period in which the liability was incurred. The liability recorded was calculated by discounting the estimated cash flows for the two sublease agreements and the Lease Agreement using an estimated credit-adjusted risk-free rate of 15%.

						Cash payments,
						net of
		December 31, 2010				sublease receipts				March 31, 2011
Lease Amendment		$	96,425			$	14,982			$	81,443
Short-term portion of lease accrual			65,922								68,923
Long-term portion of lease accrual		$	30,503							$	12,520

For the three months ended March 31, 2011 and 2010 the Company recorded approximately $3,200 and $5,400, respectively of expense related to the imputed cost of the lease expense accrual included in general and administrative expense in the accompanying Condensed Consolidated Statements of Operations.

7. Commitments and Contingencies

We recognize and disclose commitments when we enter into executed contractual obligations with third parties. We accrue contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

License Agreements

The Company has entered into license agreements (the “Harvard License Agreements”) with Harvard University and its affiliated hospitals (“Harvard and its Affiliates”) to acquire the exclusive worldwide rights to certain technologies within its molecular imaging and neurodegenerative disease programs. The Harvard License Agreements obligate the Company to pay up to an aggregate of approximately $2,520,000 in milestone payments in the future. The future milestone payments are generally payable only upon achievement of certain regulatory milestones.

The Company’s license agreements with Harvard and its Affiliates generally provide for royalty payments equal to specified percentages of product sales, annual license maintenance fees and continuing patent prosecution costs.

8. Income taxes

The Company is subject to both federal and state income tax for the jurisdictions within which it operates, which are primarily focused in Massachusetts. Within these jurisdictions, the Company is open to examination for tax years ended December 31, 2006 through December 31, 2010. However, because we are carrying forward income tax attributes such as NOLs from 2005 and earlier tax years, these attributes can still be audited when utilized on returns filed in the future. The U.S. Internal Revenue Service (IRS) has completed an audit of tax years 2007 and 2008 and has informed us that no adjustments to the federal tax returns as filed will be proposed as a result of the audit.

9. Fair Value Measurements

The fair value hierarchy prioritizes observable and unobservable inputs used to measure fair value into three broad levels:

     Level 1 — quoted prices in active markets for identical securities;

     Level 2 — other significant observable inputs, including quoted prices for similar securities, interest rates and credit risk,

     Level 3 — significant unobservable inputs, including our own assumptions in determining fair value

The following table summarizes the financial assets that we measured at fair value at March 31, 2011 and December 31, 2010. We did not have any non-financial assets or liabilities that were measured or disclosed at fair value for the three months ended March 31, 2011. No transfers occurred between Level 1 and Level 2 assets for the three months ended March 31, 2011.

		March 31, 2011								December 31, 2010
		Fair Value				Input Level				Fair Value				Input Level
Cash and money market funds — current assets		$	13,898			Level 1				$	98,514			Level 1
Indemnity fund-restricted money market funds			115,530			Level 1					115,568			Level 1
		$	129,428							$	214,082

It is not practicable to estimate the fair value of the Company’s convertible debt. However, it is likely that the fair value of the debt would be materially less than the carrying value of the debt because the conversion price of $2.50 is higher than the Company’s stock price of $0.13 as of March 31, 2011.

10. New Accounting Pronouncements

The Company has reviewed all recently issued, but not effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

11. Subsequent Events

We evaluated all events or transactions that occurred after March 31, 2011 up through the date we issued these financial statements. In April, 2011 we borrowed the principal sum of $170,000 from Robert Gipson. In May, 2011 we borrowed the principal sum of $170,000 from Robert Gipson. Both amounts are secured by demand promissory notes issued to Mr. Gipson that bear interest at the rate of 7% per annum.

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 Item 1A, “Risk Factors” and also carefully review the risks outlined in other documents that we file from time to time with the SEC.

Overview

Description of Company

We are a biotechnology company focused on the development of therapeutic and diagnostic products primarily for disorders in the central nervous system, or CNS. Our clinical and preclinical product candidates are based on two proprietary technology platforms:

	•		Molecular imaging program focused on the diagnosis of i) Parkinsonian Syndromes, or PS, including Parkinson’s Disease, or PD, and ii) Dementia with Lewy Bodies, or DLB;
	•		Regenerative therapeutics program primarily focused on nerve repair in patients who have had significant loss of CNS function resulting from CNS trauma.

At March 31, 2011, we were considered a “development stage enterprise” as defined in Accounting Standards Codification (ASC) 915-10. “ Development Stage Entities ” and will continue to be so until we commence commercial operations. A development stage enterprise is one in which planned principal operations have not commenced or, if its operations have commenced, there has been no significant revenue there from. Development stage companies report cumulative costs from the inception of the enterprise. Our development stage started on October 16, 1992 and continued through March 31, 2011.

As of March 31, 2011, we have experienced total net losses since inception of approximately $204,533,000, stockholders’ deficit of approximately $48,447,000 and a net working capital deficit of approximately $43,157,000. The cash and cash equivalents available at March 31, 2011 will not provide sufficient working capital to meet our anticipated expenditures for the next twelve months. At May 2, 2011, we had cash and cash equivalents of approximately $170,000 which combined with our ability to control administrative expenses will enable us to meet our anticipated cash expenditures through May, 2011.

In order to continue as a going concern and fund the approximately $30 million of investment required to complete the Altropane U.S. clinical trial program, we will need to raise additional capital through one or more of the following: a debt financing, an equity offering, or a collaboration, merger, acquisition or other transaction with one or more pharmaceutical or biotechnology companies. We are currently engaged in fundraising efforts. There can be no assurance that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms, if at all. We also cannot be sure that we will be able to obtain additional credit from, or effect additional sales of debt or equity securities to certain of our existing investors described below in Liquidity and Capital Resources. If we are unable to raise additional or sufficient capital, we will need to cease operations or reduce, cease or delay one or more of our research or development programs, adjust our current business plan and may not be able to continue as a going concern. Additionally, our common stock was delisted from trading on the NASDAQ Capital Market as a result of our failure to meet continued listing requirements of NASDAQ. On May 8, 2009 we began trading on the Pink Sheets OTC Market. This delisting has had an adverse affect on our ability to obtain future financing and has adversely impacted our stock price and the liquidity of our common stock. Our ability to advance our clinical programs, including the development of Altropane, is affected by the availability of financial resources. Financial considerations have caused us to suspend planned development activities for our clinical and preclinical programs until we are able to secure additional working capital. If we are not able to raise additional capital, we will not have sufficient funds to complete the clinical trial programs for Altropane.

Product Development — Molecular Imaging Program

Altropane Molecular Imaging Agent

The Altropane molecular imaging agent is intended to be used for the differential diagnosis of PS, including PD, and non-PS in patients with an upper extremity tremor. In July 2007, we completed enrollment in a clinical study that optimized Altropane’s image acquisition protocol which we believe will enhance Altropane’s commercial use. After a series of discussions with the U.S. Food and Drug Administration, or FDA, and our expert advisors, the POET-2 program was designed as a two-part Phase III program using the optimized Altropane image acquisition protocol. The first part of the program enrolled 54 subjects in a multi-center clinical study to acquire a set of Altropane images which will be used to train the expert readers, as is the customary process for clinical trials of molecular imaging agents. Enrollment in the first part of POET-2 was completed in January 2009. In April, 2009 we reached agreement with the FDA under the Special Protocol Assessment, or SPA, process for the second part of the Phase III clinical trial program of Altropane. A SPA is a process by which sponsors and the FDA reach an agreement on the size, design and analysis of clinical trials that will form the primary basis of approval. The Phase III program is designed to confirm the diagnostic utility of the agent in anticipation of drug registration. The second portion of the Phase III, POET-2 program consists of two clinical trials in up to 480 subjects in total to be conducted in parallel at up to 40 medical facilities throughout the US. The subjects to be tested will be 40-80 years of age and have had a tremor in their hand(s) or arm(s) for less than three years. Each subject will be assessed by a general neurologist, an Altropane imaging procedure and a Movement Disorder Specialist considered the “gold standard”. The success of the trial will be determined by measuring the diagnostic efficacy of the neurologist diagnosis compared with the diagnosis determined by the Altropane scan versus the MDS gold standard diagnosis. Based on the trial design and scope covered by the Special Protocol Assessment Agreement for POET-2, we estimate that the total costs to complete the POET-2 program and prepare and submit an NDA for Altropane in the U.S. will be approximately $30 million. This funding is not available at present and there can be no assurance that such funds will be available on acceptable terms if at all.

We believe in the current environment that, due to their proximity to commercialization and return on investment, late stage development programs may continue to be of significant interest to potential partners and investors. To maximize the value of our molecular imaging program, we are focusing on obtaining the funding necessary to execute the Altropane Phase III registration program. We are pursuing the capital necessary to enable us to advance the Altropane program through our own means. In parallel, we are seeking to partner our molecular imaging program with a firm or firms with the resources necessary for the completion of the Phase III clinical program, for the manufacturing and supply of Altropane, and for the launch and commercialization of Altropane. During 2010 we engaged in numerous discussions with potential development and commercialization partners for Altropane with no term sheets resulting from those discussions. Late in 2010 and early this year, a number of events occurred which have stimulated new interest in the Altropane program by potential partners. These included the purchase of Avid Radiopharmaceuticals by Eli Lilly for up to $800 million, the US approval of GE’s DaTscan product, a favorable FDA Advisory Panel review of Avid’s imaging product and EU guidance recommending imaging as first line diagnosis in dementias. We believe that these events could assist with our partnering and financing efforts for Altropane. We can provide no assurances that a partnership transaction will occur. We believe that the expansion of the program into other indications such as DLB and other countries including those in Europe could increase the value of the program for the partner and us. All of these activities require additional funding not presently available and as such have been suspended. There can be no assurance that the required funding to advance the Altropane program will be available on acceptable terms if at all.

We have licensed worldwide exclusive rights to develop Altropane from Harvard University and its affiliated hospitals, which we refer to as Harvard and its Affiliates, including the Massachusetts General Hospital. The license agreement provides for milestone payments and royalties based on product sales that are consistent with industry averages for such products.

Altropane Diagnostic for Parkinsonian Syndromes (PS)

PS is characterized by loss of dopamine-producing neurons resulting in a variety of movement disorders, especially tremors and gait problems. The most prevalent form of PS is PD which is a chronic, irreversible, neurodegenerative disease that generally affects people over 50 years old. PD is caused by a significant decrease in the number of dopamine producing neurons in specific areas of the brain. Inadequate production of dopamine causes, at least in part, the PD symptoms of tremor, muscle retardation and rigidity. PD can be difficult to diagnose using subjective analyses and can be confused with Essential Tremor, or ET. ET manifests with clinical symptoms very similar to those of PD. However, ET patients do not need the drugs routinely prescribed to PD patients.

Need for an Objective Diagnosis

According to published data, clinical criteria used to diagnose PS is prone to high error rates, especially in early stages of PD. This highlights the critical need for an effective diagnostic. Presently, patients who have experienced tremors and other evidence of a movement disorder may pursue diagnosis and treatment with a number of medical professionals. These include an internist or general practitioner, also known as a primary care physician, or PCP, a neurologist, or a movement disorder specialist, or MDS, whose practice is focused on movement disorders.

Patients can exhibit symptoms and/or have clinical histories that are inconclusive. A primary tool utilized to diagnose PD or PS is a clinical history and a physical exam. However, studies in the literature have reported error rates in diagnosing PD or PS from a low of 10% for MDSs to as high as 40 to 50% for PCPs.

This high error rate is driving the need for a diagnostic test that provides physicians with additional clinical information to help them make a definitive diagnosis when clinical symptoms and the patient’s history are inconclusive. Further, while the accuracy of MDSs is reported to be higher, the number of MDSs in the United States is limited with current estimates between 300 and 500. The limited availability of MDSs underscores the potential utility of a widely available diagnostic tool such as Altropane.

There are a number of important and potentially harmful results associated with misdiagnosis. These include:

	•		Patients who are improperly diagnosed as having PD but actually do not (false positive) may be administered medications for PD. These drugs can have damaging effects on individuals who do not actually have PD.
	•		Patients who are improperly diagnosed as not having PD but actually do (false negative), may not benefit from available treatments, thereby suffering further worsening of symptoms and progression of their disease.

Market Opportunity

It has been estimated that approximately 180,000 individuals in the United States per year present to their physician with new, undiagnosed cases of PD and ET, and are therefore candidates for a scan using the Altropane molecular imaging agent to diagnose or rule out early PS. It has also been estimated by the National Institute of Neurological Disorders and Stroke and the National Parkinson’s Foundation that the number of people in the United States with PD is between 500,000 and 1,500,000. It has been estimated by the Tremor Action Network that there are approximately 10,000,000 people in the United States with ET. In addition, a study done by the World Health Organization claims that approximately 2,000,000 individuals suffer from PD in Europe. We expect the number of individuals affected by PD to grow substantially as people continue to live longer and the overall population ages.

Altropane Diagnostic for Dementia with Lewy Bodies (DLB)

DLB is a progressive brain disease and the second most common cause of neurodegenerative dementia. The symptoms of DLB are caused by the build-up of Lewy bodies inside the section of the brain that controls particular aspects of memory and motor control. The similarity of symptoms between DLB and PD, and between DLB and Alzheimer’s disease, can make it difficult to accurately diagnose. As with PD, there is no objective diagnostic tool available in the United States. We believe that the underlying basis for DLB coupled with our existing preclinical and clinical data supports the potential development of Altropane as a diagnostic for DLB. We also believe the potential use of our molecular imaging agents for the diagnosis of DLB could be strategic in our partnering efforts for our molecular imaging program.

It has been estimated by the Alzheimer’s Association that there are approximately 7,000,000 to 10,000,000 people in the United States with dementia of which the journal Age and Ageing estimates that up to approximately 3,000,000 people have DLB. According to Alzheimer Europe, there were approximately 1,800,000 people in Europe with DLB.

Regenerative Therapeutics Program — Nerve Repair

Our nerve repair program is dormant at present with no investment being made in these technologies given our resource constraints. The program focused on product candidates that could restore movement and sensory function in patients who have had significant loss of CNS function resulting from traumas such as SCI, stroke, traumatic brain injury, or TBI, and optic nerve damage. Resource constraints have severely restricted our ability to progress our regenerative therapeutics program. On May 11, 2010, the Company was notified by CMCC of the termination of its license agreements with the Company as a result of the Company’s lack of resources and resulting inability to comply with the performance conditions of the licenses. At March 31, 2011 CMCC was owed a total of approximately $77,000 in license fees and legal costs associated with the licenses. Since we were unable to pay the overdue amounts within the cure periods specified in the CMCC licenses, we no longer have the rights to further develop and/or partner the axon regeneration technologies licensed from CMCC.

Research and Development

We rely on licensing from third parties as our source for new technologies and product candidates. Research and development expenses were approximately $26,000 and $475,000 for the three months ended March 31, 2011 and 2010, respectively.

Marketing and Sales

Although we currently sell no products, our strategy is to pursue partnering opportunities in order to accelerate and maximize commercialization of our clinical product candidates and strategic collaborations for development of our preclinical product candidates. These collaborators may provide financial and other resources, including capabilities in research, development, manufacturing, marketing and sales. There can be no assurances that we will be successful in our collaboration efforts.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements which have been prepared by us in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our estimates include those related to marketable securities, research contracts, the fair value and classification of financial instruments, our lease accrual and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Going Concern Basis of Accounting

The consolidated financial statements have been prepared on the basis that we will continue as a going concern. We have incurred significant operating losses and negative cash flows from operating activities since our inception. As of March 31, 2011, these conditions raised substantial doubt as to our ability to continue as a going concern. There can be no assurance that we will be successful in our efforts to raise additional capital or that we will be able to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability of the carrying amount of the recorded assets or the amount of liabilities that might result from the outcome of this uncertainty. In the event that we concluded that we would not be able to continue as a going concern, we would potentially present our financial statements on a liquidation basis of accounting.

Research Contracts

We regularly enter into contracts with third parties to perform research and development activities on our behalf in connection with our scientific technologies. Costs incurred under these contracts are recognized ratably over the term of the contract or based on actual enrollment levels which we believe corresponds to the manner in which the work is performed. Clinical trial, contract services and other outside costs require that we make estimates of the costs incurred in a given accounting period and record accruals at period end as the third party service periods and billing terms do not always coincide with our period end. We base our estimates on our knowledge of the research and development programs, services performed for the period, past history for related activities and the expected duration of the third party service contract, where applicable.

Fair Value and Classification of Financial Instruments

Historically, we have issued warrants to purchase shares of our common stock in connection with our debt and equity financings. We record each of the securities issued on a relative fair value basis up to the amount of the proceeds received. We estimate the fair value of the warrants using the Black-Scholes valuation model. The Black-Scholes valuation model is dependent on a number of variables and estimates including interest rates, dividend yield, volatility and the expected term of the warrants. Our estimates are based on market interest rates at the date of issuance, our past history for declaring dividends, our estimated stock price volatility and the contractual term of the warrants. The value ascribed to the warrants in connection with debt offerings is considered a cost of capital and amortized to interest expense over the term of the debt.

We have, at certain times, issued preferred stock and notes, which were convertible into common stock at a discount from the common stock market price at the date of issuance. The amount of the discount associated with such conversion rights represents an incremental yield, or “beneficial conversion feature” that is recorded when the consideration allocated to the convertible security, divided by the number of common shares into which the security converts, is below the fair value of the common stock at the date of issuance of the convertible instrument.

A beneficial conversion feature associated with the preferred stock is recognized as a return to the preferred stockholders and represents a non-cash charge in the determination of net loss attributable to common stockholders. The beneficial conversion feature is recognized in full immediately if there is no redemption date for the preferred stock, or over the period of issuance through the redemption date, if applicable. A beneficial conversion feature associated with debentures, notes or other debt instruments is recognized as a discount to the debt and is amortized as additional interest expense using the effective interest method over the remaining term of the debt instrument.

Lease Accrual

We are required to make significant judgments and assumptions when estimating the liability for our net ongoing obligations under our amended lease agreement relating to our former executive offices located in Boston, Massachusetts. We use a discounted cash-flow analysis to calculate the amount of the liability. We applied a discount rate of 15% representing our best estimate of our credit-adjusted risk-free rate. The discounted cash-flow analysis is based on management’s assumptions and estimates of our ongoing lease obligations, and income from sublease rentals, including estimates of sublease timing and sublease rental terms. It is possible that our estimates and assumptions will change in the future, resulting in additional adjustments to the amount of the estimated liability, and the effect of any adjustments could be material. We review our assumptions and judgments related to the lease amendment on at least a quarterly basis, until the outcome is finalized, and make whatever modifications we believe are necessary, based on our best judgment, to reflect any changes in circumstances.

Stock-Based Compensation

We measure compensation costs for all share-based awards at fair value on grant date and recognize it as expense over the requisite service period or expected performance period of the award. We estimate the fair value of stock-based awards using the Black-Scholes valuation model on the grant date. The Black-Scholes valuation model requires us to make certain assumptions and estimates concerning the expected term of the awards, the rate of return of risk-free investments, our stock price volatility, and our anticipated dividends. If any of our estimates or assumptions prove to be incorrect, our results could be materially affected.

Results of Operations

Three Months Ended March 31, 2011 and 2010

Our net loss and net loss attributable to common stockholders was $1,076,611 during the three months ended March 31, 2011 as compared with $1,858,954 during the three months ended March 31, 2010. Net loss attributable to common stockholders totaled $0.04 per share for the 2011 period as compared to $0.07 per share for the 2010 period. The decrease in net loss in the 2011 period was attributable to lower operating expenses resulting from our curtailment of operations. The decrease in net loss attributable to common stockholders on a per share basis in the 2011 period was due to the decrease in net loss in 2011 and the net increase in weighted average shares outstanding of approximately 1,213,000.

Research and development expenses were $25,596 during the three months ended March 31, 2011 as compared with $474,807during the three months ended March 31, 2010. The decrease of $449,211, or 95% for the three months ended March 31, 2011, was attributable to our scale back of operations resulting in $442,000 in reduced expenses related to Altropane PD.

General and administrative expenses were $597,597 during the three months ended March 31, 2011 as compared with $727,154 during the three months ended March 31, 2010. The decrease of $129,557, or 18% for the three months ended March 31, 2011, was attributable to (i) lower compensation and related costs of approximately $13,000 which resulted from a further reduction in headcount and lower stock-compensation expense of $14,000; and (ii) lower legal costs of approximately $20,000 and a reduction of $67,000 related to termination of consulting agreements; (iii) reduced occupancy expenses of $56,000 also contributed to the decrease in overall general and administrative expenses. The decrease was partially offset by approximately $70,000 related to an accrual adjustment recorded in 2010.

Other expense was $0 during the three months ended March 31, 2011 as compared with $966 during the three months ended March 31, 2010.

Interest expense was $453,751 during the three months ended March 31, 2011 as compared with $656,700 during the three months ended March 31, 2010. The decrease of $202,949, or 31% for the three months ended March 31, 2011, was attributable to the early extinguishment of $5,880,000 in debt during September 2010 offset by only $3,110,000 in new demand note obligations. All the Notes bear interest at the rate of 7% per annum.

Investment income was $333 during the three months ended March 31, 2011 as compared with $673 during the three months ended March 31, 2010. The decrease in the 2011 period was due to lower average cash and cash equivalent balances during the 2011 period.

Liquidity and Capital Resources

Net cash used for operating activities primarily related to our net loss, totaled $684,654 during the three months ended March 31, 2011 as compared to $951,182 during the three months ended March 31, 2010. The decrease in cash used during the 2011 period is primarily related to the decrease in net loss. Net cash provided by investing activities totaled $38 during the three months ended March 31, 2011 as compared to $15,751 during the three months ended March 31, 2010. The decrease of $15,713 in cash provided by investing activities is primarily attributable to the completion of scheduled refunds of our security deposit as of April 2010. Net cash provided by financing activities totaled $600,000 during the three months ended March 31, 2011 as compared to $800,000 during the three months ended March 31, 2010. The decrease during the 2011 period reflects our ability to further curtail spending and reduce our funding needs from our lead investor.

To date, we have dedicated most of our financial resources to the research and development of our product candidates, general and administrative expenses (including costs related to obtaining and protecting patents). Since inception, we have primarily satisfied our working capital requirements from the sale of our securities through private placements. These private placements have included the sale and issuance of preferred stock, common stock, promissory notes and convertible debentures.

A summary of financings completed through March 31, 2011 can be found in Note 5 of these Condensed Consolidated Financial Statements. A summary of financing activities through May 13, 2011 can be found in Note 11 of these Condensed Consolidated Financial Statements.

During the three months ended March 31, 2011, we have obtained all of our funding from Robert Gipson. In the event that Mr. Gipson cannot provide any future funding or we cannot obtain any additional funding from sources other than Mr. Gipson, we may need to cease operations or reduce, cease or delay one or more of our research or development programs and/or adjust our current business plan and in any such event may not be able to continue as a going concern.

In the future, our working capital and capital requirements will depend on numerous factors, including the progress of our research and development activities, the level of resources that we devote to the developmental, clinical, and regulatory aspects of our technologies, and the extent to which we enter into collaborative relationships with pharmaceutical and biotechnology companies.

As of March 31, 2011, we have experienced total net losses since inception of approximately $204,533,000, stockholders’ deficit of approximately $48,447,000 and a net working capital deficit of approximately $43,157,000. The cash and cash equivalents available at March 31, 2011 will not provide sufficient working capital to meet our anticipated expenditures for the next twelve months. At May 2, 2011, we had cash and cash equivalents of approximately $170,000 which combined with minimal additional operating capital committed by our lead investor and our ability to control certain costs, including those related to clinical trial programs, preclinical activities, and certain general and administrative expenses will enable us to meet our anticipated cash expenditures through May 2011.

In order to continue as a going concern, we will need to raise additional capital through one or more of the following: a debt financing, an equity offering, or a collaboration, merger, acquisition or other transaction with one or more pharmaceutical or biotechnology companies. We are currently engaged in fundraising efforts. There can be no assurance that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms, if at all. We also cannot be sure that we will be able to obtain additional credit from, or effect additional sales of debt or equity securities to certain of our existing investors (described below). If we are unable to raise additional or sufficient capital or if we violate a debt covenant or default under the March 2008 Amended Purchase Agreement or the June 2008 Purchase Agreement (described below) we may need to cease operations or reduce, cease or delay one or more of our research or development programs and/or adjust our current business plan and in any such event may not be able to continue as a going concern. Additionally, our common stock was delisted from trading on the NASDAQ Capital Market as a result of our failure to meet continued listing requirements of NASDAQ. On May 8, 2009 we began trading on the Pink Sheets OTC Market. This delisting has had an adverse affect on our ability to obtain future financing and has adversely impacted our stock price and the liquidity of our common stock. See the risk factor entitled “Our common stock has been delisted from, the NASDAQ Capital Market.”

Contractual Obligations and Commitments

The disclosures relating to our contractual obligations in our Annual Report on Form 10-K for the year ended December 31, 2010 have not materially changed since we filed that report.

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the market risks reported in our Annual Report on Form 10-K for the year ended December 31, 2010.

We generally maintain a portfolio of cash equivalents, and short-term and long-term marketable securities in a variety of securities which can include commercial paper, certificates of deposit, money market funds and government and non-government debt securities. The fair value of these available-for-sale securities are subject to changes in market interest rates and may fall in value if market interest rates increase. Our investment portfolio includes only marketable securities with active secondary or resale markets to help insure liquidity. We have implemented policies regarding the amount and credit ratings of investments. Due to the conservative nature of these policies, we do not believe we have material exposure due to market risk. We may not have the ability to hold our fixed income investments until maturity, and therefore our future operating results or cash flows could be affected if we are required to sell investments during a period in which increases in market interest rates have adversely affected the value of our securities portfolio. For fixed rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not earnings or cash flows. We do not have an obligation to prepay any fixed rate debt prior to maturity and, therefore, interest rate risk and changes in the fair market value of fixed rate debt should not have a significant impact on earnings or cash flows until such debt is refinanced, if necessary. The terms related to our fixed rate debt are described in Note 5 to the condensed consolidated financial statements. For variable rate debt, changes in interest rates generally do not impact the fair market value of the debt instrument, but do affect future earnings and cash flows. We did not have any variable rate debt outstanding during the three months ended March 31, 2011.

Item 4T — Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2011. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2011, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Part II — OTHER INFORMATION

Item 1 — Legal Proceedings

The disclosure contained under the heading “Contingencies” in Note 7 to the condensed consolidated financial statements included in Part I, Item 1 hereof is incorporated herein by reference.

Statements contained or incorporated by reference in this Quarterly Report on Form 10-Q that are not based on historical fact are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, and projections, and the beliefs and assumptions of our management including, without limitation, our expectations regarding our product candidates, including the success and timing of our preclinical, clinical and development programs, the submission of regulatory filings and proposed partnering arrangements, the outcome of any litigation, collaboration, merger, acquisition and fund raising efforts, results of operations, selling, general and administrative expenses, research and development expenses and the sufficiency of our cash for future operations. Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “could,” “will,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms, variations of such terms or the negative of those terms.

We cannot assure investors that our assumptions and expectations will prove to have been correct. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements. Such factors that could cause or contribute to such differences include those factors discussed below. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 6 — Exhibits

31.1*		Certification of the Chief Executive Officer pursuant to Section 1350 of Title 18, United States Code, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Chief Financial Officer pursuant to Section 1350 of Title 18, United States Code, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.