UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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: 0-21990

OXiGENE, INC.

(Exact name of registrant as specified in its charter)

Delaware		13-3679168
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

701 Gateway Blvd, Suite 210
South San Francisco, CA 94080
(Address of principal executive offices, including zip code)

(650) 635-7000
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

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 such shorter period that the registrant was required to submit and post such files). Yes þ 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.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

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 November 4, 2011, there were 14,879,857 shares of the Registrant’s Common Stock issued and outstanding.

 

 

OXiGENE, INC.
Cautionary Factors that May Affect Future Results

     The disclosure and analysis by OXiGENE, Inc. (the “Company”) in this report contain “forward-looking statements.” Forward-looking statements give management’s current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words, such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning. These include statements, among others, relating to the sufficiency of our financial resources, our planned future actions, our clinical trial plans, our research and development plans and expected outcomes, our prospective products or product approvals, our beliefs regarding our intellectual property position, our plans with respect to funding operations, projected expense levels, and the outcome of contingencies.

     Any or all of our forward-looking statements in this report may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual results may vary materially from those set forth in forward-looking statements. The uncertainties that may cause differences include, but are not limited to: the Company’s need for additional funds to finance its operations in the near term; the Company’s history of losses, anticipated continuing losses and uncertainty of future financing; the early stage of product development; uncertainties as to the future success of ongoing and planned clinical trials; the unproven safety and efficacy of products under development; the sufficiency of the Company’s existing capital resources; the Company’s dependence on others for much of the clinical development of its product candidates under development, as well as for obtaining regulatory approvals and conducting manufacturing and marketing of any product candidates that might successfully reach the end of the development process; the impact of government regulations, health care reform and managed care; competition from other companies and other institutions pursuing the same, alternative or superior technologies; the risk of technological obsolescence; uncertainties related to the Company’s ability to obtain adequate patent and other intellectual property protection for its proprietary technology and product candidates; dependence on officers, directors and other individuals; and risks related to product liability exposure.

     We will not update forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. You are advised to consult any further disclosures we make in our reports to the Securities and Exchange Commission, including our reports on Form 10-Q, 8-K and 10-K. Our filings list various important factors that could cause actual results to differ materially from expected results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

INDEX

		Page No.
PART I—FINANCIAL INFORMATION			4
Item 1. Unaudited Financial Statements			4
Condensed Balance Sheets			4
Condensed Statements of Operations			5
Condensed Statements of Cash Flows			6
Notes to Condensed Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures about Market Risk			31
Item 4. Controls and Procedures			32
PART II—OTHER INFORMATION			32
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 3. Defaults Upon Senior Securities			32
Item 4. (Removed and Reserved)			33
Item 5. Other Information			33
Item 6. Exhibits			33
SIGNATURES			33
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements—Unaudited

OXiGENE, Inc.

(All amounts in thousands, except per share data)
(Unaudited)

		September 30, 2011				December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents		$	12,644			$	4,602
Restricted cash			20				75
Prepaid expenses			195				256
Other current assets			74				75
Total current assets			12,933				5,008
Furniture and fixtures, equipment and leasehold improvements			836				1,512
Accumulated depreciation			(793	)			(1,425	)
			43				87
License agreements, net of accumulated amortization of $1,187 and $1,114 at September 30, 2011 and December 31, 2010, respectively			313				386
Other assets			86				86
Total assets		$	13,375			$	5,567
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable		$	473			$	458
Accrued research and development			1,171				2,125
Accrued restructuring			1,113				—
Accrued other			212				628
Total current liabilities			2,969				3,211
Derivative liability long term			9				7,611
Total liabilities			2,978				10,822
Commitments and contingencies
Stockholders’ equity (deficit)
Preferred Stock, $.01 par value, 15,000 shares authorized; 0 shares issued and outstanding at September 30, 2011 and December 31, 2010			—				—
Common stock, $.01 par value, 300,000 shares authorized and 14,771 shares issued and outstanding at September 30, 2011; 300,000 shares authorized and 5,501 shares issued and outstanding at December 31, 2010			148				55
Additional paid-in capital			225,257				202,390
Accumulated deficit			(215,008	)			(207,700	)
Total stockholders’ equity (deficit)			10,397				(5,255	)
Total liabilities and stockholders’ equity (deficit)		$	13,375			$	5,567

See accompanying notes.

OXiGENE, Inc.

Condensed Statements of Operations
(All amounts in thousands, except per share data)
(Unaudited)

		Three months ended September 30,								Nine months ended September 30,
		2011				2010				2011				2010
Operating costs and expenses(1) :
Research and development		$	1,098			$	2,379			$	4,280			$	9,912
General and administrative			1,309				1,256				4,095				4,637
Restructuring			1,146				—				1,146				510
Total operating costs and expenses			3,553				3,635				9,521				15,059
Loss from operations			(3,553	)			(3,635	)			(9,521	)			(15,059	)
Change in fair value of warrants and other financial instruments			40				(9,893	)			2,219				(6,987	)
Investment income			1				3				3				14
Other (expense) income, net			(1	)			(11	)			(9	)			5
Net loss		$	(3,513	)		$	(13,536	)		$	(7,308	)		$	(22,027	)
Basic and diluted net loss per share		$	(0.25	)		$	(3.47	)		$	(0.74	)		$	(6.24	)
Weighted-average number of common shares outstanding — Basic and diluted			13,969				3,896				9,870				3,530
(1) Includes share based compensation expense as follows:
Research and development		$	5			$	62			$	171			$	109
General and administrative			59				114			$	379			$	541
Total share based compensation expense		$	64			$	176			$	550			$	650

See accompanying notes.

OXiGENE, Inc.

Condensed Statements of Cash Flows
(All amounts in thousands)
(Unaudited)

		Nine months ended September 30,
		2011				2010
Operating activities:
Net loss		$	(7,308	)		$	(22,027	)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of warrants and other financial instruments			(2,219	)			6,987
Depreciation			44				77
Amortization of license agreement			73				73
Stock-based compensation			550				650
Changes in operating assets and liabilities:
Restricted cash			55				65
Prepaid expenses and other current assets			62				232
Accounts payable, accrued expenses and other payables			(234	)			(4,000	)
Net cash used in operating activities			(8,977	)			(17,943	)
Investing activities:
Changes in other assets			—				40
Net cash provided by investing activities			—				40
Financing activities:
Proceeds from issuance of common stock, net of acquisition costs			17,019				10,380
Proceeds from exercise of employee stock plans			—				45
Net cash provided by financing activities			17,019				10,425
Increase (decrease) in cash and cash equivalents			8,042				(7,478	)
Cash and cash equivalents at beginning of period			4,602				13,932
Cash and cash equivalents at end of period		$	12,644			$	6,454
Non- cash Disclosures:
Fair market value of stock issued in exchange for warrants		$	5,381			$	—
Fair market value reclassification of CEFF warrants to equity in connection with warrant exchange		$	3			$	—
Fair market value of private placement warrants at issuance		$	—			$	11,868
Fair market value reclassification of CEFF warrants to liabilities in connection with private placement		$	—			$	103
Fair market value of warrants at exercise		$	—			$	5,043

See accompanying notes.

OXiGENE, Inc.

1. Summary of Significant Accounting Policies

Basis of Presentation

     The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They 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 and commitments in the normal course of business. The financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, however, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

     The balance sheet at December 31, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in the Annual Report on Form 10-K for OXiGENE, Inc. (the “Company”) for the year ended December 31, 2010, which can be found at www.oxigene.com. The Report of Independent Registered Public Accounting Firm at the beginning of the Consolidated Financial Statements section in our Annual Report on Form 10-K for the year ended December 31, 2010 includes a going concern explanatory paragraph.

     During the nine months ended September 30, 2011, the Company sold approximately 7,707,000 shares of common stock pursuant to an “at the market” (ATM) equity offering sales agreement with McNicoll, Lewis & Vlak LLC, or MLV, resulting in net proceeds to the Company of approximately $17,019,000. In October 2011 the Company sold approximately 86,000 shares of common stock pursuant to the ATM sales agreement resulting in net proceeds to the Company of approximately $128,000. There remains a total of approximately $3,700 in net proceeds of the maximum amount allowed under the Company’s prospectus supplement to Form S-3 dated July 8, 2011. No assurance can be given that the Company will sell any additional shares under the ATM sales agreement, or, if it does, as to the price or amount of shares that it will sell, or the dates on which any such sales will take place.

     On September 1, 2011, the Company announced a restructuring plan designed to focus the Company’s capital resources on its most promising early-stage clinical programs and further reduce its cash utilization. The Company announced the following key aspects of the restructuring and their effects on the Company’s operations including current and planned clinical trials:

	•		At this time, a Company sponsored Phase 3 registrational study of ZYBRESTAT in patients with anaplastic thyroid cancer (ATC) funded entirely by Company financial resources is not feasible. OXiGENE intends to continue to explore options for conducting such a study, including potential collaborations with national and international head and neck cancer cooperative groups. Future development decisions concerning ZYBRESTAT in patients with ATC will be made following a review of all options by OXiGENE’s management and its board of directors.
	•		OXiGENE is concluding the final analysis of its completed Phase 2 study of ZYBRESTAT in conjunction with standard chemotherapy and bevacizumab in patients with non-small cell lung cancer (FALCON study). Once the final overall survival data is available a decision regarding further development of the study of ZYBRESTAT in patients with NSCLC will be made. Any future development decisions concerning the study of ZYBRESTAT in patients with NSCLC will be made following review of final data by the Company’s management and board of directors.
	•		OXiGENE plans to continue to support the ongoing randomized Phase 2 trial of ZYBRESTAT in combination with bevacizumab in patients with relapsed ovarian cancer, which is an NCI-sponsored study being conducted by the Gynecologic Oncology Group (GOG), an organization dedicated to clinical research in the field of gynecologic cancer.
	•		OXiGENE plans to continue support of the ongoing investigator-sponsored Phase 1 trial of OXi4503 in patients with AML or myelodysplastic syndrome (MDS), being conducted at the University of Florida and with support by The Leukemia & Lymphoma Society’s Therapy Acceleration Program.
	•		OXiGENE will evaluate additional early-stage development opportunities for its two product candidates, ZYBRESTAT and OXi4503, subject to available resources at the time.
	•		The Company is reducing its workforce by 11 full-time equivalent employees or approximately 61%.

•

The Company will seek to reduce the amount of space it currently rents, primarily by closing its office in Waltham, Massachusetts and by conducting its operations only out of its South San Francisco office as soon as practicable.

     The Company offered severance benefits to the terminated employees, and anticipates recording a total charge of approximately $1,200,000, primarily associated with personnel-related termination costs. In order to provide for an orderly transition, the Company is implementing the reduction in work force in a phased manner. The Company took a restructuring charge in the third quarter of 2011 of approximately $1,146,000, with the remainder expected to be taken over the following two quarters as the transition is effected. Substantially all of the charge is expected to represent cash expenditures. The Company anticipates that, with its current financial resources, it will be able to support the completion of the ongoing clinical studies outlined above. Should the Company decide to initiate additional studies, it would need to raise additional capital. Upon completion of the restructuring activities outlined above, the Company expects to reduce expenses from its current levels by an annual amount of approximately $2,000,000.

     Based on the Company’s current ongoing programs and operations and taking into consideration the expected reductions in cash utilization resulting from its September 2011 reduction in force, the Company’s expect its current cash resources will be sufficient to fund operations through the first half of fiscal 2013. However, OXiGENE’s cash requirements may vary materially from those now planned for or anticipated by management due to numerous risks and uncertainties. The Company is aggressively pursuing other forms of capital infusion including public or private financing, strategic partnerships or other arrangements with organizations that have capabilities and/or products that are complementary to the Company’s own capabilities and/or products, in order to continue the development of its product candidates. If the Company is unable to access additional funds when needed, it may not be able to continue the development of its product candidates or the Company could be required to delay, scale back or eliminate some or all of its development programs and other operations. Any additional equity financing, which may not be available to the Company or may not be available on favorable terms, will likely be dilutive to its current stockholders and debt financing, if available, may involve restrictive covenants. If the Company accesses funds through collaborative or licensing arrangements, it may be required to relinquish rights to some of its technologies or product candidates that it would otherwise seek to develop or commercialize on its own, on terms that are not favorable to the Company. The Company’s ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm its business, financial condition and results of operations. As a result of this uncertainty and the substantial doubt about the Company’s ability to continue as a going concern as of December 31, 2010, the Report of Independent Registered Public Accounting Firm at the beginning of the Consolidated Financial Statements section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 includes a going concern explanatory paragraph. If the Company is unable to access additional funds in the future or reduce cash expenditures as anticipated, it is likely that the Company’s 2011 Report of Independent Registered Public Accounting Firm will also include a going concern explanatory paragraph.

Fair Value

     The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the Company’s investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:

Level 1 inputs		Quoted prices in active markets;
Level 2 inputs		Generally include inputs with other observable qualities, such as quoted prices in active markets for similar assets or quoted prices for identical assets in inactive markets; and
Level 3 inputs		Valuations based on unobservable inputs.

     As of September 30, 2011 and December 31, 2010, OXiGENE did not hold any assets or liabilities subject to these standards, except the derivative liabilities and other financial instruments discussed below in “Warrants”, which are valued using level 3 inputs. As of September 30, 2011 and December 31, 2010, OXiGENE held $12,664,000 and $4,677,000 in cash, cash equivalents and restricted cash, respectively. The Company has adopted the fair value standard as it relates to the non-recurring fair value measurements, such as the assessment of other long-lived assets for impairment.

Accrued Research and Development

     The Company charges all research and development expenses, both internal and external costs, to operations as incurred. The Company’s research and development costs represent expenses incurred from the engagement of outside professional service organizations, product manufacturers and consultants associated with the development of the Company’s potential product candidates. The Company recognizes expenses associated with these arrangements based on the completion of activities as specified in the applicable contracts. Costs incurred under fixed-fee contracts are expensed ratably over the contract period absent

any knowledge that the services will be performed other than ratably. Costs incurred under contracts with clinical trial sites and principal investigators are generally accrued on a patient-treated basis consistent with the terms outlined in the contract. In determining costs incurred on some of these programs, the Company takes into consideration a number of factors, including estimates and input provided by internal program managers. Upon termination of such contracts, the Company is normally only liable for costs incurred and committed to date. As a result, accrued research and development expenses represent the Company’s reasonably estimated contractual liability to outside service providers at any particular point in time.

Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in the Company’s Common stock

     The Company evaluates all derivative financial instruments issued in connection with its equity offerings when determining the proper accounting treatment for such instruments in the Company’s financial statements. The Company considers a number of generally accepted accounting principles to determine such treatment. The Company performs a number of steps to evaluate the features of the instrument against the guidance provided in the accounting pronouncements in order to determine the appropriate accounting treatment. The Company’s policy with regard to settling outstanding financial instruments is to settle those with the earliest maturity date first which essentially sets the order of preference for settling the awards. In the majority of circumstances, the Company utilizes the Black Scholes method to determine the fair value of its derivative financial instruments. In some cases, where appropriate, the Company utilizes the Binomial method or other appropriate methods to determine the fair value of such derivative financial instruments. Key valuation factors in determining the fair value include, but are not limited to, the current stock price as of the date of measurement, the exercise price, the remaining contractual life, expected volatility for the instrument and the risk-free interest rate. Changes in fair value are recorded as a gain or loss in the Company’s Statement of Operations with the corresponding amount recorded as an adjustment to liability on its Balance Sheet. The expected volatility factor, in particular, is subject to significant variability from measurement period to measurement period and can result in large gains or losses from period to period.

Patents and Patent Applications

     The Company has filed applications for patents in connection with technologies that it is developing. The patent applications and any patents issued as a result of these applications are important to the protection of the Company’s technologies that may result from its research and development efforts. Costs associated with patent applications and maintaining patents are expensed as general and administrative expense as incurred.

Stock-based Compensation

     The Company expenses the estimated fair value of all share-based payments issued to employees over the vesting period. The Company has a 2005 Stock Plan (“2005 Plan”) that provides for the award of stock options, restricted stock and stock appreciation rights to employees, directors and consultants to the Company. The Company also has a 2009 Employee Stock Purchase Plan (“2009 ESPP”).

     The Company is required to estimate the level of award forfeitures expected to occur and record compensation expense only for those awards that are ultimately expected to vest. This requirement applies to all awards that are not yet vested. Accordingly, OXiGENE performs a historical analysis of option awards that were forfeited prior to vesting, and ultimately records total stock option expense that reflects this estimated forfeiture rate. In the Company’s calculation, it segregates participants into two distinct groups, (1) directors and officers and (2) employees, and OXiGENE applies estimated forfeiture rates using the Straight Line method. This analysis is re-evaluated quarterly and the forfeiture rate is adjusted as necessary.

Income Taxes

     The Company accounts for income taxes based upon the provisions of ASC 740, Income Taxes. Under ASC 740, deferred taxes are recognized using the liability method whereby tax rates are applied to cumulative temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes based on when and how they are expected to affect the tax return.

     Realization of the deferred tax assets is uncertain due to the historical losses of the Company and therefore a full valuation allowance has been established.

2. Furniture and Fixtures, Equipment and Leasehold Improvements

     Furniture and fixtures, equipment and leasehold improvements are recorded at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which range from three to five years. During the second quarter

of 2011, $676,000 in fully depreciated assets, primarily consisting of leasehold improvements which were no longer in use, have been written off.

     Property and equipment consisted of the following at the dates indicated below:

		September 30, 2011				December 31, 2010
		(in thousands)
Leasehold improvements		$	25			$	449
Equipment			598				647
Furniture and fixtures			213				416
Total gross assets			836				1,512
Less accumulated depreciation			(793	)			(1,425	)
Total property and equipment		$	43			$	87

     On September 1, 2011, the Company announced a restructuring plan designed to focus the Company’s capital resources on its most promising early-stage clinical programs and further reduce its cash utilization. In connection with this restructuring, the Company recognized approximately $721,000 of research and development restructuring expenses and approximately $425,000 of general and administrative restructuring expenses in the quarter ended September 30, 2011. The restructuring expenses include severance payments, health and medical benefits and related taxes, which are expected to be paid through the end of fiscal 2012.

     The following table sets forth the components of the Company’s restructuring for the three-month period ended September 30, 2011 (in thousands):

						Amounts Paid Through				Amounts Accrued as of
		Charges				September 30, 2011				September 30, 2011
General and Administrative Employee severance and related costs		$	425			$	(21	)		$	404
Research and Development Employee severance and related costs			721				(12	)			709
Total restructuring		$	1,146			$	(33	)		$	1,113

     In August 1999, the Company entered into an exclusive license agreement for the commercial development, use and sale of products or services covered by certain patent rights owned by Arizona State University. From the inception of the agreement through September 30, 2011, the Company has paid a total of $2,500,000 in connection with this license. The Company capitalized the net present value of the total amount paid under the initial terms of the license, or $1,500,000, and is amortizing this amount over the patent life or 15.5 years.

     The Company expects to record amortization expense related to this license agreement of approximately $8,100 per month through November 2014. The net book value at September 30, 2011 and December 31, 2010, was approximately $313,000 and $386,000, respectively. The Company performs an impairment analysis of its long-lived assets if triggering events occur. The Company conducts reviews for such triggering events periodically and, even though triggering events such as a going concern opinion and continuing losses have occurred, the Company has determined that there is no impairment to this asset. The license agreement provides for additional payments from the Company upon the initiation of certain clinical trials or the completion of

certain regulatory approvals, which payments could be accelerated upon the achievement of certain financial milestones as defined in the agreement. To date, no clinical trials triggering payments under the agreement have been completed and no regulatory approvals have been obtained. The Company expenses these payments to research and development in the period the obligation becomes both probable and estimable.

5. Stockholders’ Equity (Deficit), Common and Preferred Shares

     The Company had 300,000,000 shares of common stock authorized as of September 30, 2011 and December 31, 2010. As of September 30, 2011, the Company had approximately 14,771,000 shares of common stock issued and outstanding.

     In July 2010, the Company entered into an “at the market” (ATM) equity offering sales agreement with MLV, pursuant to which it may issue and sell shares of its common stock from time to time through MLV acting as its sales agent and underwriter. Sales of the Company’s common stock through MLV are made on the Company’s principal trading market by means of ordinary brokers’ transactions at market prices, in block transactions or as otherwise agreed by MLV and the Company. The Company has paid MLV a commission rate of up to 7.0% of the gross sales price per share of any common stock sold through MLV as agent under the sales agreement. During the nine months ended September 30, 2011, the Company sold approximately 7,707,000 shares of common stock pursuant to the ATM sales agreement resulting in net proceeds to the Company of approximately $17,019,000. In October 2011 the Company sold approximately 86,000 shares of common stock pursuant to the ATM sales agreement resulting in net proceeds to the Company of approximately $128,000. Under the Company’s current prospectus supplement to Form S-3 dated July 8, 2011, there remains approximately $3,700 in net proceeds available to be sold under the ATM arrangement. No assurance can be given that the Company will sell any additional shares under the ATM sales agreement, or, if it does, as to the price or amount of shares that it will sell, or the dates on which any such sales will take place.

Reverse Stock Split

     In February 2011, the Company’s board of directors voted unanimously to implement a 1:20 reverse stock split of the Company’s common stock, following authorization of the reverse split by a shareholder vote on December 21, 2010. The reverse split became effective on February 22, 2011. All of the share and per share values discussed and shown in the consolidated financial statements prior to this date have been adjusted to reflect the effect of this reverse stock split.

Warrant Exchange Agreements

     On January 18, 2011, OXiGENE entered into separate Warrant Exchange Agreements (Private Placement Warrant Exchange) with each of the holders of Series A and Series C warrants to purchase shares of common stock, issued in March 2010, pursuant to which, at the initial closing, the warrant holders exchanged their outstanding Series A and Series C warrants having “ratchet” price-based anti-dilution protections for (A) an aggregate of 1,096,933 shares of common stock and (B) Series E Warrants to purchase an aggregate of 1,222,623 shares of common stock. The Series E Warrants were not exercisable for nine months, had an exercise price of $4.60 per share (reflecting the market value of the shares of common stock as of the close of trading on January 18, 2011, prior to the entry into the Warrant Exchange Agreements), and did not contain any price-based anti-dilution protections. In addition, the Company agreed to seek shareholder approval to issue, in exchange for the Series E Warrants, up to 457,544 additional shares of common stock to the warrant holders in a subsequent closing. The initial closing occurred on January 20, 2011, and the subsequent closing took place on March 21, 2011, following a stockholder meeting on March 18, 2011. As a result, there were no Series A, Series C or Series E warrants outstanding as of the subsequent closing date nor for any period thereafter. Similar to the Series A and Series C warrants, the Series E Warrants were classified as a liability during the period that they were outstanding.

     In connection with the warrant exchange, the Company also amended its Stockholder Rights Agreement with American Stock Transfer & Trust Company, LLC, dated as of March 24, 2005, as amended as of October 1, 2008, October 14, 2009 and March 10, 2010, to provide that the provisions of the Stockholder Rights Agreement shall not apply to the transactions contemplated by the Warrant Exchange Agreements.

     The following table summarizes the number of shares of common stock of the Company issued and the proceeds received during the nine month period ended September 30, 2011:

Shares Issued in Connection with:		Shares Issued				Net Proceeds
		(in thousands)
Director fees			8			$	—
ATM			7,707				17,019
Private Placement Warrant Exchange			1,554				—
Other			1				—
Totals			9,270			$	17,019

     Share issuances to our directors under the Director Compensation policy are described below. The shares issued in connection with the Private Placement Warrant Exchange during the nine month period ended September 30, 2011 relate to the Warrant Exchange Agreements described above.

Warrants, Options, Non-Vested Stock, 2009 ESPP and Director Compensation Policy

Warrants

     The following is a summary of the Company’s warrant-related derivative liability activity for the nine months ended September 30, 2011 (in thousands):

		(In thousands)
Derivative liability outstanding at December 31, 2010		$	7,611
Impact of warrant exchange agreements			(6,071	)
CEFF warrants — amounts reclassified to equity			(3	)
Net decrease in fair value of all warrants			(1,528	)
Derivative liability outstanding at September 30, 2011		$	9

     The table below summarizes the value of the warrant-related derivative liabilities recorded on the Company’s balance sheet (in thousands):

		As of September 30,				As of December 31,
		2011				2010
Warrants Issued in Connection with:		Long-term				Long-term
Committed Equity Financing Facility		$	—			$	6
Direct Registration Series I Warrants			9				107
Private Placement Series A Warrants			—				4,143
Private Placement Series C Warrants			—				3,355
Total derivative liability		$	9			$	7,611

     The gain (loss) from the change in fair value of warrants and other financial instruments for the three and nine month periods ended September 30, 2011 and September 30, 2010 is summarized below (in thousands):

		Three months ended September 30,								Nine months ended September 30,
		2011				2010				2011				2010
Committed Equity Financing Facility Warrants		$	—			$	5			$	3			$	95
Direct Registration Warrants			40				99				99				2,077
Excess of value of the Private Placement Warrants at issuance over the net proceeds of the offering			—				—				—				(4,433	)
Gain recognized in connection with warrant exchange agreements			—				—				690
Private Placement Warrants			—				(9,997	)			1,427				(4,726	)
Total gain (loss) on change in fair market value of derivatives		$	40			$	(9,893	)		$	2,219			$	(6,987	)

     The following is a summary of the Company’s outstanding common stock warrants as of September 30, 2011 and December 31, 2010:

										Number of Warrants outstanding as of:
										(in thousands)
						Weighted Average
Warrants Issued in Connection with:		Date of Issue				Exercise Price				September 30, 2011				December 31, 2010
Committed Equity Financing Facility		February 19, 2008				$	54.80				13				13
Direct Registration Series I Warrants		July 20, 2009				$	42.00				141				141
Private Placement Series A Warrants		March 11, 2010				$	5.60				—				1,536
Private Placement Series C Warrants		March 11, 2010				$	5.60				—				1,229
Total Warrants outstanding											154				2,919

     Note that as of December 31, 2010, the Committed Equity Financing Facility warrants were accounted for as a liability. Effective with the Warrant Exchange described above, these warrants have been reclassified as equity.

Private Issuance of Public Equity “PIPE” Warrants

     On March 11, 2010, the Company completed a definitive agreement with certain institutional investors to sell shares of its common stock and four separate series of warrants to purchase common stock in a private placement. Gross proceeds of the financing were approximately $7,500,000, before deducting placement agent fees and estimated offering expenses, and excluding the subsequent exercises of the warrants.

     The four separate series of warrants consisted of the following:

     (A) Series A Warrants to initially purchase 328,947 shares of common stock, which were exercisable immediately after issuance, had a 5-year term and had an initial per share exercise price of $30.40;

     (B) Series B Warrants to initially purchase 328,947 shares of common stock, which were initially exercisable at a per share exercise price of $22.80, on the earlier of the six month anniversary of the closing date or the date on which the Company’s stockholders approved the issuance of shares in the transaction, and expired on the later of three months from the effective date of the resale registration statement covering such shares and seven months from the closing date. These warrants expired on October 12, 2010;

     (C) Series C Warrants to initially purchase 328,947 shares of common stock, and which would be exercisable upon the exercise of the Series B Warrants and on the earlier of the six month anniversary of the closing date or the date on which the Company’s stockholders approved the issuance of shares in the transaction, would expire five years after the date on which they become exercisable, and had an initial per share exercise price of $22.80; and

     (D) Series D Warrants to purchase shares of common stock. The Series D Warrants were not immediately exercisable. The Company registered for resale 337,757 shares of common stock issuable upon exercise of the Series D Warrants pursuant to an agreement with the warrant holders. All of the Series D Warrants were exercised by November 4, 2010 and there are no Series D Warrants outstanding after that date.

     The Series A, B and C warrants listed above contained full ratchet anti-dilution features based on the price and terms of any financings completed after March 11, 2010 as described in the warrant agreements. All of the warrants listed above contained a cashless exercise feature as described in the warrant agreements.

     The Company determined that in accordance with Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity, the Series A, B, and C warrants qualify for treatment as liabilities due to provisions of the related warrant agreements that call for the number of warrants and their exercise price to be adjusted in the event that the Company issues additional shares of common stock, options or convertible instruments at a price that is less than the initial exercise price of the warrants. The Company also determined that, in accordance with ASC 815, Derivatives and Hedging, the Series D Warrants meet the definition of a derivative. The issuance date fair market value of the Series A, B, C and D warrants of $11,868,000 was recorded as a liability. The approximately $4,933,000 excess of the fair value of the liability recorded for these warrants over the net proceeds received was recorded as a charge to earnings and is included in “Change in fair value of warrants and other financial instruments” within the Statement of Operations. Changes in the fair market value from the date of issuance to the exercise date and reporting date, until exercised or cancelled will be recorded as a gain or loss in the statement of operations.

     As of December 31, 2010, all Series B and D warrants had either been exercised or expired.

     On January 18, 2011, OXiGENE entered into separate Warrant Exchange Agreements with each of the holders of Series A and Series C warrants to purchase shares of common stock, issued in March 2010, pursuant to which, at the initial closing, the warrant holders exchanged their outstanding Series A and Series C warrants having “ratchet” price-based anti-dilution protections for (A) an aggregate of 1,096,933 shares of common stock and (B) Series E Warrants to purchase an aggregate of 1,222,623 shares of common stock. The Series E Warrants were not exercisable for six months, had an exercise price of $4.60 per share (reflecting the market value of the shares of common stock as of the close of trading on January 18, 2011, prior to the entry into the Warrant Exchange Agreements), and did not contain any price-based anti-dilution protections. In addition, the Company agreed to seek shareholder approval to issue, in exchange for the Series E Warrants, up to 457,544 additional shares of common stock to the warrant holders in a subsequent closing. The Series E Warrants were accounted for as a liability from the date of issuance to the date of exchange, all of which occurred during the first quarter of fiscal 2011. The initial closing occurred on January 20, 2011, and the subsequent closing took place on March 21, 2011, following the stockholder meeting on March 18, 2011. The Company determined that in accordance with Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity, the Series E warrants qualify for treatment as a liability during the period that they were outstanding due to provisions of the related warrant agreement that allow for the warrants to be net settled in shares of the Company’s common stock under certain circumstances as described in the agreement. There were no Series A, Series C or Series E warrants outstanding as of September 30, 2011.

     On January 20, 2011, the date of the initial closing of the Warrant Exchange Agreements, the Company marked the existing Series A and C warrants to market at a combined fair value of $6,633,000. These warrants were exchanged for Series E warrants, valued at $1,555,000, and shares of common stock valued at $4,388,000. The difference between these items was recorded as a gain on the transaction of $690,000. On the date of the subsequent closing, the fair value of the Series E warrants was equal to the value of the 457,544 shares of common stock issued in the exchange, and therefore there was no gain or loss on the transaction.

     The table below summarizes the factors used to determine the value of the Series A and C warrants outstanding during the nine month period ended September 30, 2011. The Company established the fair value of the Series A and C warrants using the Black-Scholes option valuation model:

		Warrant Valuation on date
		of Warrant Exchange
		January 19, 2011								Total Fair Market
		Series A				Series C				Value
Stock Price		$	4.32			$	4.32
Exercise Price		$	5.60			$	5.60
Contractual life (in Years)		4.1 years				4.5 years
Expected volatility			82	%			79	%
Risk-free interest rate			1.53	%			1.68	%
Fair market value (in thousands)		$	3,663			$	2,970			$	6,633

		Warrant Valuation as of
		December 31, 2010								Total Fair Market
		Series A				Series C				Value
Stock Price		$	4.60			$	4.60
Exercise Price		$	5.60			$	5.60
Contractual life (in Years)		4.2 years				4.5 years
Expected volatility			81	%			80	%
Risk-free interest rate			2.01	%			2.01	%
Fair market value (in thousands)		$	4,143			$	3,355			$	7,498

     Management determined the fair value of the Series E Warrants on the date of the initial closing to be $1,555,000. This fair value was estimated based upon the $4.00 per share fair value of the 457,544 shares of common stock expected to be exchanged for the Series E Warrants upon shareholder approval adjusted for a 15% discount for lack of marketability which existed until the expected shareholder vote. Management determined the fair value of the Series E warrants on the date of the subsequent closing to be $993,000. This fair value was estimated based upon the $2.17 per share fair value of the 457,544 shares of common stock exchanged for the Series E Warrants.

Committed Equity Financing Facility (“CEFF”) with Kingsbridge Capital Limited

     In February 2008, OXiGENE entered into a Committed Equity Financing Facility (“CEFF”) with Kingsbridge Capital Limited (“Kingsbridge”), which was subsequently amended in February 2010 to increase the commitment period, increase the draw down discount price and increase the maximum draw period. Effective October 14, 2011, the CEFF was terminated by the Company pursuant to the terms of the common stock purchase agreement with Kingsbridge.

     Under the terms of the amended CEFF, Kingsbridge committed to purchase, subject to certain conditions, up to 285,401 shares of the Company’s common stock during the period ending May 15, 2012. While the CEFF was effective, OXiGENE was able to draw down in tranches at discounts as described in detail in the common stock purchase agreement. In connection with the CEFF, the Company issued a warrant to Kingsbridge to purchase 12,500 shares of its common stock at a price of $54.80 per share exercisable beginning six months after February 19, 2008 and for a period of five years thereafter. As of September 30, 2011, there were a total of 253,671 shares available for sale under the CEFF, which has since been terminated.

     Due to the initially indeterminate number of shares of common stock underlying the warrants issued in connection with the Company’s private placement on March 11, 2010, OXiGENE concluded that the CEFF warrants should be recorded as a liability effective with the date of the private placement. The fair value of the warrants on this date was reclassified from equity to derivative liabilities. Changes in the fair market value from the date of the private placement to the reporting date were recorded as a gain or loss in “Change in fair value of warrants and other financial instruments” in the Statement of Operations. Effective with the warrant

exchange agreements executed in January 2011 in connection with the March 2010 private placement as described above, the number of shares underlying the warrants issued in connection with the Company’s private placement was no longer indeterminable, and the CEFF warrants were reclassified to equity. The Company revalued these warrants on the effective date of the exchange and recorded the gain in the Statement of Operations. The Company established the fair value of the CEFF warrants using the Black-Scholes option valuation model as reflected in the table below:

		Warrant Valuation as of:
		Date of Warrant
		Exchange
		January 19, 2011				December 31, 2010
Stock Price		$	4.32			$	4.60
Exercise Price		$	54.80			$	54.80
Contractual life (in Years)		2.6 years				2.6 years
Expected volatility			87	%			96	%
Risk-free interest rate			0.82	%			1.02	%
Fair market value (in thousands)		$	3			$	6

Direct Registration Warrants

     On July 20, 2009, OXiGENE raised approximately $10,000,000 in gross proceeds, before deducting placement agents’ fees and other offering expenses, in a registered direct offering (the “Offering”) relating to the sale of 312,500 units, each unit consisting of (i) one share of common stock, (ii) a five-year warrant (“Direct Registration Series I”) to purchase 0.45 shares of common stock at an exercise price of $42.00 per share of common stock and (iii) a short-term warrant (“Direct Registration Series II”) to purchase 0.45 shares of common stock at an exercise price of $32.00 per share of common stock (the “Units”). The short-term warrants expired on September 24, 2010 consistent with the terms of the warrant, without being exercised.

     OXiGENE determined that the Direct Registration Series I warrants should be classified as a liability as they require delivery of registered shares of common stock and thus could require net-cash settlement in certain circumstances. Accordingly, these warrants were recorded as a liability at their fair value as of the date of their issuance and are revalued at each subsequent reporting date.

     The fair value of the direct registration warrants was determined using the Black-Scholes option valuation model applying the following assumptions:

		Series I Warrant Valuation as of:
		September 30, 2011				December 31, 2010
		Series I				Series I
Stock Price		$	1.01			$	4.60
Exercise Price		$	42.00			$	42.00
Contractual life (in Years)		2.8 years				3.6 years
Expected volatility			108	%			86	%
Risk-free interest rate			0.42	%			1.02	%
Fair market value (in thousands)		$	9			$	107

Options

     The Company’s 2005 Stock Plan as amended at the 2011 Annual Meeting of Stockholders in October 2011 (the “2005 Plan”) provides for the award of options, restricted stock and stock appreciation rights to acquire up to 2,500,000 shares of the Company’s common stock in the aggregate. This number includes shares of its common stock, if any, that were subject to awards under the Company’s 1996 Stock Incentive Plan (the “1996 Plan”) as of the date of adoption of the 2005 Plan but which were returned or will be returned to the 2005 Plan upon the cancellation, surrender or termination of such award. Currently, the 2005

Plan allows for awards of up to 200,000 shares that may be granted to any one participant in any fiscal year. For options subject to graded vesting, the Company elected the straight-line method of expensing these awards over the service period.

     The following is a summary of the Company’s stock option activity under its 1996 Plan and 2005 Plan for the nine-month period ended September 30, 2011:

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
		Shares				Price				Life				Value
		(In thousands)								(Years)				(In thousands)
Options outstanding at December 31, 2010			326			$	28.49
Granted			17			$	1.14
Exercised			—
Forfeited and expired			(78	)		$	19.98
Options outstanding at September 30, 2011			265			$	29.22				6.77
Options exercisable at September 30, 2011			154			$	35.63				5.51
Options vested or expected to vest at September 30, 2011			222			$	31.09				6.42

     During the nine months ended September 30, 2011, approximately 7,800 options expired. As of September 30, 2011, there was approximately $449,000 of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over a weighted average period of 2.15 years.

     A total of 17,000 stock options were granted during the nine month period ended September 30, 2011 and 257,000 stock options were granted during the nine month period ended September 30, 2010.

     The following stock options were granted during the three and nine month periods ended September 30, 2011 and September 30, 2010:

		Three months ended September 30,								Nine months ended September 30,
		2011				2010				2011				2010
Options Granted (In thousands)			17				83				17				257
Weighted average fair value		$	0.79			$	0.11			$	0.79			$	0.81

     The fair values for the stock options granted were estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the three and nine month periods ended September 30, 2011 and 2010:

		Three months ended September 30,								Nine months ended September 30,
		2011				2010				2011				2010
Weighted Average Assumptions
Risk-free interest rate			0.85	%			0.50	%			0.85	%			1.83	%
Expected life		5 years				5 years				5 years				5 years
Expected volatility			90	%			74	%			90	%			70	%
Dividend yield			0.00	%			0.00	%			0.00	%			0.00	%

Restricted Stock

     The Company recorded expense of $0 and approximately $11,000 during the three month periods ended September 30, 2011 and September 30, 2010, respectively, related to restricted stock awards granted in June 2007. The Company recorded expense of approximately $19,000 and $71,000 during the nine month periods ended September 30, 2011 and September 30, 2010, respectively. The restricted stock awards were valued based on the closing price of the Company’s common stock on their respective grant dates. Compensation expense has been recognized on a straight-line basis over the 4 year vesting period of the awards.

Employee Stock Purchase Plan (2009 ESPP)

     Under the 2009 Employee Stock Purchase Plan (the “2009 ESPP”), employees have the option to purchase shares of the Company’s common stock at 85% of the closing price on the first day of each purchase period or the last day of each purchase period (as defined in the 2009 ESPP), whichever is lower, up to specified limits. Eligible employees are given the option to purchase shares of the Company’s common stock, on a tax-favored basis, through regular payroll deductions in compliance with Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). Currently, an aggregate of 125,000 shares of common stock may be issued under the 2009 ESPP, subject to adjustment each year pursuant to the terms of the 2009 ESPP. The Company recorded expense relating to the 2009 ESPP for the three month periods ended September 30, 2011 and September 30, 2010 of approximately $0 and $3,000, respectively. The Company recorded expense relating to the 2009 ESPP for the nine month periods ended September 30, 2011 and September 30, 2010 of approximately $1,000 and $6,000, respectively. Pursuant to the 2009 ESPP provisions, each year beginning in 2010 there will be an annual increase in the number of shares available for issuance under the ESPP on the first day of the new year in an amount equal to the lesser of: 25,000 shares or 5% of the shares of Common Stock outstanding on the last day of the preceding fiscal year.

Director Compensation Policy

     In December 2009, the board of directors approved a policy which established compensation to be paid to non- employee directors of the Company, to provide an inducement to obtain and retain the services of qualified persons to serve as members of the board of directors. In September 2011, the board of directors approved an amendment and restatement of the policy (the “Amended and Restated Director Compensation Policy”). The Amended and Restated Director Compensation Policy provides for annual compensation of $80,000 in cash/equity value to each non-employee director payable in two payments of $40,000 in cash/equity value, on January 2 and July 1. Each non-employee director may elect to receive such compensation in a combination of fully vested options and/or stock and up to 50% in cash. Prior to the September 2011 amendment, each of the Company’s non-employee directors were granted 1,250 fully vested shares of common stock on both January 2 and July 1 of each year they were a director. The Company recorded expense for the three month periods ended September 30, 2011 and September 30, 2010, of $13,000 and $29,000, respectively, for these shares. The Company recorded expense of approximately $48,000 and $229,000 during the nine month periods ended September 30, 2011 and September 30, 2010, respectively, for these shares.

6. Agreements

     In July 2010, the Company entered into an “at the market” equity offering sales agreement with MLV, pursuant to which it may issue and sell shares of its common stock from time to time through MLV acting as its sales agent and underwriter. Sales of the Company’s common stock through MLV are made on the Company’s principal trading market by means of ordinary brokers’ transactions at market prices, in block transactions or as otherwise agreed by MLV and the Company. MLV uses its commercially reasonable efforts to sell the Company’s common stock from time to time, based upon instructions from the Company (including any price, time or size limits the Company may impose). The Company has paid MLV a commission rate of up to 7.0% of the gross sales price per share of any common stock sold through MLV as agent under the sales agreement. The Company has also provided MLV with customary indemnification rights.

7. Net Loss Per Share

     Basic and diluted net loss per share was calculated by dividing the net loss per share attributed to OXiGENE shares of common stock by the weighted-average number of common shares outstanding. All of the Company’s common stock equivalents are anti-dilutive for all periods in which the Company has reported a net loss. For the three month period ended June 30, 2010, for which the Company reported net income, all of the Company’s common stock equivalents, except for the Series D warrants, have been excluded from the diluted net income per share calculation due to the exercise price of those common stock equivalents exceeding the fair market value of the Company’s common stock as of the date of the calculation. Although the exercise price of the Series D warrants was $0.001 per share, the period for determining the number of shares of common stock underlying the Series D warrants did not begin until July 1, 2010 and therefore no shares associated with the Series D warrants were included in the diluted net income per share calculation. Accordingly, common stock equivalents of approximately 418,000 and 3,944,000 at September 30, 2011 and September 30, 2010, respectively, were excluded from the calculation of weighted average shares for diluted net loss per share.

8. Subsequent Event

     From October 1, 2011 through November 10, 2011, the Company sold approximately 86,000 shares of common stock pursuant to the ATM sales agreement resulting in net proceeds to the Company of approximately $128,000. The Company did not have any other material recognizable or unrecognizable subsequent events that occurred after September 30, 2011 up through the date the Company issued these financial statements.

     Effective October 14, 2011, the Company terminated the CEFF pursuant to the terms of the common stock purchase agreement with Kingsbridge. The warrant for 12,500 shares of common stock issued to Kingsbridge remains outstanding until August 19, 2013, subject to certain conditions.

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

     Our Management’s Discussion and Analysis of Financial Condition and Results of Operations as of September 30, 2011 and September 30, 2010 should be read in conjunction with the sections of our audited consolidated financial statements and notes thereto, as well as our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that is included in our Annual Report on Form 10-K for the year ended December 31, 2010, and also with the unaudited financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Our Business

     We are a clinical-stage, biopharmaceutical company developing novel therapeutics to treat cancer and eye diseases. Our primary focus is the development of product candidates referred to as vascular disrupting agents, or VDAs, that selectively disable and destroy abnormal blood vessels that provide solid tumors a means of growth and survival and also are associated with visual impairment in a number of ophthalmological diseases and conditions. To date, more than 400 subjects have been treated with ZYBRESTAT, our lead candidate, in human clinical trials, and the drug candidate has generally been observed to be well-tolerated.

     In February 2011, our board of directors voted unanimously to implement a 1:20 reverse stock split of our common stock, following authorization of the reverse split by a shareholder vote on December 21, 2010. The reverse split became effective on February 22, 2011. All of the share and per share amounts discussed in this Form 10-Q have been adjusted to reflect the effect of this reverse split.

     On September 1, 2011, we announced a restructuring plan designed to focus our capital resources on its most promising early-stage clinical programs and further reduce our cash utilization. We announced the following key aspects of the restructuring and their effects on our operations including current and planned clinical trials:

	•		At this time, a Company sponsored Phase 3 registrational study of ZYBRESTAT in patients with anaplastic thyroid cancer (ATC) funded entirely by our financial resources is not feasible. We intend to explore options for conducting such a study, including potential collaborations with national and international head and neck cancer cooperative groups. Future development decisions concerning ZYBRESTAT in patients with ATC will be made following a review of all options by our management and board of directors.
	•		We are concluding the final analysis of our completed Phase 2 study of ZYBRESTAT in conjunction with standard chemotherapy and bevacizumab in patients with non-small cell lung cancer (FALCON study). Once the final overall survival data is available a decision regarding further development of the study of ZYBRESTAT in patients with NSCLC will be made. Any future development decisions concerning the study of ZYBRESTAT in patients with NSCLC will be made following review of final data by our management and board of directors.
	•		We plan to continue the support of the ongoing randomized Phase 2 trial of ZYBRESTAT in combination with bevacizumab in patients with relapsed ovarian cancer, which is an NCI-sponsored study being conducted by the Gynecologic Oncology Group (GOG), an organization dedicated to clinical research in the field of gynecologic cancer.
	•		We plan to continue support of the ongoing investigator-sponsored Phase 1 trial of OXi4503 in patients with AML or myelodysplastic syndrome (MDS), which is being conducted at the University of Florida and with support by The Leukemia & Lymphoma Society’s Therapy Acceleration Program.
	•		We will evaluate additional early-stage development opportunities for our two product candidates, ZYBRESTAT and OXi4503, subject to available resources at the time.
	•		We are reducing our workforce by 11 full-time equivalent employees or approximately 61%.
	•		We will seek to reduce the amount of space we currently rent primarily by closing our facility in Waltham, Massachusetts and by conducting our operations only out of our South San Francisco facility as soon as practicable.

     We offered severance benefits to the terminated employees, and anticipate recording a total charge of approximately $1,200,000, primarily associated with personnel-related termination costs. In order to provide for an orderly transition, we are implementing the reduction in work force in a phased manner. We took a restructuring charge in the third quarter of 2011 of approximately $1,146,000, with the remainder expected to be taken over the following two quarters as the transition is effected. Substantially all of the charge is expected to represent cash expenditures. We anticipate that, with our current financial resources, we will be able to support the completion of the ongoing clinical studies outlined above. Should we decide to initiate additional studies, we would need to raise additional capital. Upon completion of the restructuring activities outlined above, we expect to reduce expenses from our current levels by an annual amount of approximately $2,000,000.

     Based on our current ongoing programs and operations and taking into consideration the expected reductions in cash utilization resulting from our September 2011 reduction in force, we expect our current cash resources will be sufficient to fund operations through the first half of fiscal 2013. If we are unable to access additional funds when needed, we will not be able to continue the development of our product candidates and could be required to delay, scale back or eliminate some or all of our development programs and other operations. Such funding may not be available to us on acceptable terms, or at all. Any additional equity financing, which may not be available to us or may not be available on favorable terms, most likely will be dilutive to our current stockholders and debt financing, if available, may involve restrictive covenants. If we access funds through collaborative or licensing arrangements, we may be required to relinquish rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize on our own, on terms that are not favorable to us. Our ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm our business, financial condition and results of operations. As a result of this uncertainty and the substantial doubt about our ability to continue as a going concern as of December 31, 2010, the Report of Independent Registered Public Accounting Firm at the beginning of the Consolidated Financial Statements section in our Annual Report on Form 10-K for the year ended December 31, 2010 includes a going concern explanatory paragraph. If we are unable to access additional funds in the future, it is likely that our 2011 Report of Independent Registered Public Accounting Firm will also include a going concern explanatory paragraph.

ZYBRESTAT for Oncology

     We are currently pursuing the development of ZYBRESTAT, a reversible tubulin binding agent that works by disrupting the network of blood vessels, or vasculature, within tumors, also referred to as vascular disruption. ZYBRESTAT selectively targets the existing abnormal vasculature found specifically in most solid tumors and causes endothelial cells in that vasculature to round up and block the flow of blood to the tumor. The downstream tumor environment is then deprived of oxygen and nutrients, and the resulting restriction in blood supply kills the cells in the central portion of the tumor. Based on ZYBRESTAT’s positive activity observed in animal models, we have conducted multiple clinical trials of ZYBRESTAT in a variety of tumor types. We have completed a Phase 2/3 clinical trial of ZYBRESTAT in patients with anaplastic thyroid cancer (ATC) and have ongoing clinical trials of ZYBRESTAT in patients with non-small cell lung cancer (NSCLC) and ovarian cancer.

FACT (fosbretabulin in anaplastic cancer of the thyroid) trial — Phase 2/3 study with ZYBRESTAT in anaplastic thyroid cancer (ATC)

     In earlier Phase 1 studies of ZYBRESTAT in ATC, clinical investigators observed several objective responses in treatment with ZYBRESTAT, including a complete response lasting more than 13 years, in patients with ATC. A subsequent Phase 2 study in 26 ATC patients showed a 23% rate of one year survival in a disease where median expected survival of patients is approximately 3-4 months from the time of diagnosis and fewer than 10% of patients are typically alive at one year.

     Based on this encouraging data, we completed a Special Protocol Assessment, or SPA, process with the U.S. Food and Drug Administration, or FDA, in 2007, for a Phase 2/3 study, which we refer to as the FACT trial, in which ZYBRESTAT was to be evaluated in 180 patients as a potential treatment for ATC. ATC is a highly aggressive and lethal malignancy for which there are currently no approved therapeutics and extremely limited treatment options.

     The primary endpoint for the FACT trial was overall survival. Eligible patients with histologically or cytologically confirmed ATC were randomized either to the treatment arm of the study, in which they received ZYBRESTAT in combination with the chemotherapeutic agents carboplatin and paclitaxel, or to the control arm of the study, in which they received only carboplatin and paclitaxel. Central pathology review by external pathologists not associated with the study was utilized to confirm the histological diagnosis prior to enrollment of patients.

     The FACT trial began enrolling patients in 2007. A total of 40 clinical sites in 11 countries participated in this clinical study, which was conducted in accordance with good clinical practice guidelines and the SPA. Due to the rarity of the disease and the fact that many of the patients screened for the study did not meet the trials inclusion criteria or either died or no longer met the trial’s inclusion criteria, the enrollment period spanned more than twice the planned 18 month period. As a result of both the length of the enrollment period and financial constraints affecting us, in February 2010, we chose to continue to treat and follow all 80 patients who were enrolled in the Phase 2/3 FACT clinical trial in ATC in accordance with the SPA, but to stop further enrollment.

     In June 2011, Julie Sosa, M.D., Associate Professor of Surgery and of Medicine at Yale University and principal investigator in the Phase 2/3 study, presented final data from the trial at the American Society of Clinical Oncology (ASCO) conference in Chicago, Illinois. Dr. Sosa presented data reflecting a median overall survival (OS) time of 5.2 months for patients who received ZYBRESTAT and chemotherapy compared with 4.0 months for patients receiving chemotherapy alone, representing a 28% reduction in the risk of death for patients receiving ZYBRESTAT and chemotherapy. For patients treated with ZYBRESTAT and chemotherapy, the data suggested that the likelihood of being alive at six months was 48% compared with 35% for patients treated with the control arm regimen. At one year, the data suggested that the likelihood of being alive was 26% for patients treated with ZYBRESTAT and chemotherapy compared with 9% for patients treated with chemotherapy alone. As in other studies, ZYBRESTAT appeared to be well tolerated.

     The FDA has been informed that enrollment in this study was halted at 80 patients and that we expected that the SPA would no longer be applicable. The orphan drug status and the expedited review designations have not been affected by the halted enrollment in the Phase 2/3 study. On March 16, 2011, we met with the FDA to discuss the results of this study and a potential path forward. The FDA indicated at the meeting that the data from the FACT trial are suggestive of possible clinical activity that may warrant continued development, and that to seek regulatory approval, we should plan to conduct an additional clinical trial with a survival endpoint. The FDA also confirmed that, as we expected, the SPA that had been agreed upon at the start of the study is no longer in effect.

     In connection with the restructuring announced on September 1, 2011, we determined that a Company sponsored Phase 3 registrational study of ZYBRESTAT in patients with anaplastic thyroid cancer (ATC) funded entirely by our financial resources is not feasible. We continue to explore options for conducting such a study, including potential collaborations with national and international thyroid and head and neck cancer cooperative groups. Future development decisions concerning ZYBRESTAT in patients with ATC will be made following a review of all options by our management and board of directors.

     ZYBRESTAT has been awarded orphan drug status by the FDA and the European Commission in the European Union for the treatment of advanced ATC and for the treatment of medullary, Stage IV papillary and Stage IV follicular thyroid cancers. The FDA also granted Fast Track designation to ZYBRESTAT for the treatment of regionally advanced and/or metastatic ATC.

FALCON (fosbretabulin in advanced lung oncology) trial — randomized, controlled Phase 2 study with ZYBRESTAT in non-small cell lung cancer

     We are currently evaluating ZYBRESTAT in a randomized, controlled Phase 2 clinical trial, which we refer to as the FALCON trial, as a potential first-line treatment for stage IIIB/IV non-small cell lung cancer, or NSCLC. In the FALCON trial, patients are randomized either to the treatment arm of the study, in which they receive ZYBRESTAT (CA4P) in combination with the chemotherapeutic agents, carboplatin and paclitaxel, and bevacizumab, a drug that interferes with blood vessel growth, or angiogenesis, or to the control arm of the study, in which they receive a standard combination regimen of carboplatin, paclitaxel and bevacizumab. The objective of the study is to determine the safety, tolerability, and efficacy of ZYBRESTAT at a dose of 60 mg/m² in combination with carboplatin, paclitaxel and bevacizumab in Stage IIIB or IV non-squamous NSCLC.

     We believe that this study will suggest a benefit of ZYBRESTAT in NSCLC therapy. We further believe these data could be used to design a pivotal registration program with ZYBRESTAT in NSCLC and more generally, provide clinical validation supporting further evaluation of ZYBRESTAT in combination with commonly used anti-angiogenic therapeutics that act by selectively inhibiting a particular blood vessel growth path, namely, the vascular endothelial growth factor, or VEGF, pathway. In June 2010 the study reached its target enrollment with 63 patients randomized. Primary endpoints of this study were safety of the combination therapy and progression-free survival; secondary endpoints were overall survival and objective response rate.

     Edward Garon, M.D., Assistant Professor of Medicine at the University of California, Los Angeles and primary investigator in the study, presented the progression-free survival data from this study at the ASCO conference in Chicago, Illinois in June 2011. Dr. Garon’s updated analysis, conducted approximately 11 months after the enrollment of the last patient in June 2010, showed that the combination regimen of ZYBRESTAT plus bevacizumab, carboplatin and paclitaxel (ZYBRESTAT arm) appeared to be well-tolerated with no significant cumulative toxicities when compared with the control arm of the study. In addition, a pre-specified subgroup analysis showed meaningful improvements in median time to progression for patients with poor performance status (ECOG Performance Status 1). Poor performance status in this context refers to patients who present with higher tumor burden or larger tumors, who have additional medical complications, who suffer from additional illnesses such as emphysema or diabetes, or who may be taking other medications. While the median time to progression for the overall patient population was similar in both arms of the study, 8.6 months for the ZYBRESTAT arm compared with 9.0 months on the control arm, an analysis of the patient strata showed that patients with poor performance status who received chemotherapy and bevacizumab showed a progression-free survival of only 3.8 months as compared to a median time to progression of 9.8 months in this same subgroup when receiving ZYBRESTAT along with chemotherapy and bevacizumab, with a hazard ratio of 0.51. This data, suggesting that the addition of ZYBRESTAT may benefit patients with a poorer performance status, is preliminary at this stage and we believe that more study is warranted by the meaningful improvements suggested among patients with poor performance status.

     Dr. Garon’s presentation also included data on the achieved rate of objective response. In terms of Partial Response as Best Overall Tumor Response (Intent to Treat) patients on the active treatment arm including ZYBRESTAT achieved a 56% rate of objective response according to RECIST criteria, as compared to 36% on the control arm.

     Since the presentation of the progression-free survival data at ASCO 2011, the overall survival follow-up has continued with each patient having been followed for survival for at least one year following the initiation of study therapy. The final results from this analysis were available in November 2011 and the analysis of the data showed that the combination regimen of ZYBRESTAT plus bevacizumab, carboplatin and paclitaxel (ZYBRESTAT arm) was observed to be well-tolerated with no significant cumulative toxicities or overlapping toxicities with bevacizumab when compared with the control arm of the study (standard chemotherapy plus bevacizumab). In addition, an analysis of patients with tumor burden greater than 10 cm suggested meaningful improvements in overall survival for patients receiving ZYBRESTAT in addition to bevacizumab and chemotherapy. For patients with this large tumor burden, median overall survival was 14.2 months, compared with 11.0 months for patients on the control arm of the study. For the overall patient population, no survival benefit was observed for patients receiving ZYBRESTAT.

ZYBRESTAT in ovarian cancer

     On June 1, 2009, we reported positive final data from an investigator-sponsored Phase 2 study of ZYBRESTAT and carboplatin plus paclitaxel chemotherapy in patients with platinum-resistant ovarian cancer at the 2009 ASCO Annual Meeting. Of 44 patients enrolled in the study, 11 (25%) had confirmed partial responses as determined by the Gynecologic Cancer Inter Group (GCIG) response criteria, i.e., response by tumor imaging (RECIST) and/or ovarian cancer biomarker (CA-125) criteria. An additional 4 patients had unconfirmed partial responses, and stable disease responses were reported in an additional 16 patients. The combination regimen of ZYBRESTAT and carboplatin plus paclitaxel chemotherapy was observed to be well-tolerated with approximately half of the patients completing all 6 cycles of therapy.

     Based on the results of this Phase 2, single-arm, two-stage study, in February 2011, we announced that we have entered into a Cooperative Research and Development Agreement (CRADA) with the National Cancer Institute’s (NCI) Cancer Therapy Evaluation Program (CTEP) to collaborate on the conduct of a randomized Phase 2 trial of ZYBRESTAT in combination with bevacizumab in up to 110 patients with relapsed, platinum-sensitive ovarian cancer. Under the terms of the agreement, we are providing ZYBRESTAT to NCI for an NCI-sponsored study being conducted by the Gynecologic Oncology Group (GOG), an organization dedicated to clinical research in the field of gynecologic cancer. The aim of the trial will be to determine if the combination of ZYBRESTAT and bevacizumab will enhance anti-tumor effects and further delay tumor progression when compared to bevacizumab alone. Investigators initiated enrollment in this Phase 2 study in the first half of 2011. The primary endpoint of the study will be progression-free survival, with results expected to become available in early 2013.

     The June 2011 ASCO meeting in Chicago, Illinois included an announcement that the addition of Avastin (bevacizumab) to a chemotherapy regimen reduces the risk of progression in patients with platinum-sensitive ovarian cancer. This is of particular interest to OXiGENE in view of the NCI / CTEP Phase 2 study of ZYBRESTAT in combination with bevacizumab for platinum-sensitive ovarian cancer patients, and we are encouraged to see additional data from other studies supporting use of bevacizumab in platinum-sensitive ovarian cancer patients.

     Further development of our ongoing clinical trials will depend on continuing analysis and results of these ongoing clinical studies and our cash resources at that time.

Possible areas for future development

     We believe that, if successful, the ongoing ZYBRESTAT for oncology clinical trial program will establish a compelling rationale for further development of ZYBRESTAT as a treatment for:

	•		aggressive and difficult-to-treat solid tumors;
	•		use in combination with chemotherapy in a variety of solid tumors, particularly those in which carboplatin and/or paclitaxel chemotherapy are commonly used; and
	•		use in combination with commonly used drugs, such as bevacizumab, that interfere with blood vessel growth, or angiogenesis, in various solid tumor indications.

     We believe these areas for potential further development collectively represent a significant unmet medical need and thus a significant potential commercial market opportunity that includes cancers of the thyroid, ovary, kidney, liver, head and neck, breast, lung, skin, brain, colon and rectum.

OXi4503, a unique, second generation VDA for oncology indications

     We are currently pursuing development of OXi4503, a second-generation, dual-mechanism VDA, as a treatment for certain solid tumor types and, as a more recent development, for the treatment of myeloid leukemias. We believe that OXi4503 is differentiated from other VDAs by its dual-action activity: in addition to having potent vascular disrupting effects, OXi4503 is unique in that certain enzymes in the human body can help convert it to a form of chemical that has direct tumor cell killing effects. We believe this unique property may result in enhanced anti-tumor activity in certain tumor types as compared with other VDA drug candidates. Based on data from preclinical studies, we believe that OXi4503 may have enhanced activity in tumor types with relatively high levels of the enzymes that facilitate the conversion of OXi4503 to the form of chemical that kills tumor cells. These tumor types include hepatocellular carcinoma, melanoma, and leukemias of the myeloid lineage. In preclinical studies, OXi4503 has shown potent anti-tumor activity against solid tumors and acute myeloid leukemia models, both as a single agent and in combination with other cancer treatment modalities.

     We have completed a Phase 1 clinical trial of OXi4503 in patients with advanced solid tumors sponsored by Clinical Research United Kingdom. In collaboration with us, Professor Gordon Rustin and colleagues from the Mount Vernon Cancer Research Centre, UK and other institutions in the United Kingdom, reported positive final data from this study at the 2010 ASCO Annual Meeting. In this study, 45 patients with advanced solid tumors who had declined or were unresponsive to standard treatment were treated with escalating doses of OXi4503. Partial responses were observed in two patients with epithelial ovarian cancer and stable disease was observed in 9 patients. OXi4503 was also observed to be well-tolerated in this study. To date, OXi4503 has been observed to have a manageable side-effect profile similar to that of other agents in the VDA class, potential single-agent clinical activity, and effects on tumor blood flow and tumor metabolic activity, as determined with several imaging modalities. We also evaluated escalating doses of OXi4503 in an OXiGENE-sponsored Phase 1b trial, initiated in the first quarter of 2009 in patients with solid tumors with hepatic involvement. This study confirmed the recommended dose established in the first Phase 1 study. We have completed the final analysis of this study and look forward to either publishing the data or presenting it at an upcoming medical meeting.

     Currently, we are exploring possible clinical studies but we have no firm plans to continue the evaluation of OXi4503 in patients with solid tumors. A proposal to study the use of OXi4503 in combination with a tyrosine kinase inhibitor in patients with advanced ovarian is in the evaluation stage.

     Based on the results of preclinical studies published in the journal Blood in September 2010 that show OXi4503 has potent activity against acute myelogenous leukemia (AML) in animal models, we entered into a clinical trial agreement pursuant to which investigators at the University of Florida initiated an investigator sponsored Phase 1 study of OXi4503 in patients with AML or myelodysplastic syndrome (MDS) in May 2011. This open-label, dose-escalating study for the treatment of up to 36 patients is being conducted in patients with relapsed or refractory AML and MDS and will evaluate the safety profile, maximum tolerated dose and biologic activity of OXi4503 in these patients. We expect that initial indications of biologic activity from this study may be available in 2012.

     The general direction of future development of OXi4503 for hematologic indications will depend on the outcome of the analysis of the study in AML, as well as available financial resources and potential partnering activities.

ZYBRESTAT for Ophthalmology

     In addition to developing ZYBRESTAT as an intravenously administered therapy for oncology indications, we have undertaken an ophthalmology research and development program with ZYBRESTAT with the ultimate goal of developing a topical formulation of ZYBRESTAT for ophthalmological diseases and conditions that are characterized by abnormal blood vessel growth within the eye that result in loss of vision. Previously, we reported results at the 2007 annual meeting of the Association for Research in Vision and Ophthalmology, or ARVO, from a Phase 2 study in patients with myopic macular degeneration in which all patients in the study met the primary clinical endpoint of vision stabilization at three months after study entry.

     In December 2010, we completed a randomized, double-masked, placebo-controlled Phase 2 proof-of-mechanism trial, which we refer to as the FAVOR trial, with a single dose of intravenously-administered ZYBRESTAT in patients with polypoidal choroidal vasculopathy (PCV), a form of choroidal neovascularization, which is a condition where new blood vessels form in the choroid, a part of the eye, and which can lead to vision loss and, ultimately, blindness. Current therapies, including approved drugs that interfere with blood vessel growth, known as anti-angiogenics, appear to provide limited benefit. We believe that the architecture of the abnormal vasculature in certain eye tissues, namely the retina and choroid, which contribute to PCV patients’ loss of vision, may be particularly susceptible to treatment with a VDA such as ZYBRESTAT.

     We believe that PCV represents an attractive target indication and development pathway for ZYBRESTAT. Unlike wet age-related macular degeneration, an indication for which several anti-angiogenic drugs are approved or prescribed off-label, conducting clinical studies of ZYBRESTAT in patients with ophthalmologic indications not yet approved for treatment with such anti-angiogenic drugs could potentially prove to reduce development time and expense. The objectives of the FAVOR trial and the ongoing preclinical program of ZYBRESTAT in ophthalmology are to:

	•		determine the therapeutic utility of ZYBRESTAT in PCV, and visualize the effect of ZYBRESTAT on the vasculature of the polyps associated with PCV;
	•		determine blood concentrations of drug required for activity in humans and thereby estimate, with the benefit of preclinical data, an appropriate dose of topically-administered ZYBRESTAT to be evaluated in subsequent human clinical studies; and
	•		further evaluate the feasibility of developing a topical formulation of ZYBRESTAT for ophthalmological indications.

     Findings from the Phase 2 study, including effects on retinal thickness and retinal bleeding, are to be presented at the 6^th Asia-Pacific-Vitreo Retinal Society Congress (APVRS) in Hyderabad, India on December 2, 2011.

     We believe that a safe, effective and convenient topically-administered anti-vascular therapeutic would have advantages over currently approved anti-vascular, ophthalmological therapeutics, many of which must be injected directly into patients’ eyes, in some cases on a chronic monthly basis.

     For this purpose we have been developing a potential “minitab” topical formulation of ZYBRESTAT which has demonstrated attractive pharmacokinetic and safety properties and efficacy in destroying abnormal vasculature in a rat choroidal melanoma model following administration in the eye. We believe that a topical formulation would enhance our partnering opportunities to further develop ZYBRESTAT in diseases of the eye.

     To date, we have completed preclinical testing that indicated that ZYBRESTAT has activity in six different preclinical ophthalmology models, including a model in which ZYBRESTAT was combined with an approved drug that interferes with blood vessel growth, or anti-angiogenic agents. We have also completed multiple preclinical studies suggesting that ZYBRESTAT, when applied topically to the surface of the eye at doses that appear to be well-tolerated, penetrates to the retina and choroid in quantities that we believe should be sufficient for therapeutic activity.

     We are also evaluating the requirements for additional preclinical toxicology and efficacy studies with ZYBRESTAT for topical ophthalmological formulations to better position the program for partnering. Further development of this program will depend on the outcome of our evaluation of these requirements and available financial resources.

Results of Operations

Three Months Ended September 30, 2011 and September 30, 2010

Revenue

     We reported no licensing revenue for the three months ended September 30, 2011 and September 30, 2010. Our only current source of potential revenue is from the license to a third party of our formerly owned Nicoplex and Thiol nutritional and diagnostic technology. Future revenues from this license agreement, if any, are expected to be minimal. We do not expect to generate material revenue or fee income in the near future unless we enter into a major licensing arrangement.

Costs and expenses

Summary

     The following table summarizes our operating expenses for the periods indicated, in thousands and as a percentage of total expenses. This table also provides the changes in our operating components and their percentages:

		Three Months ended September 30,
		2011								2010								Increase (Decrease)
						% of Total								% of Total
						Operating								Operating
		Amount				Expenses				Amount				Expenses				Amount				%
Research and development		$	1,098				31	%		$	2,379				65	%		$	(1,281	)			-54	%
General and administrative			1,309				37	%			1,256				35	%			53				4	%
Restructuring			1,146				32	%			—								1,146
Total operating expenses		$	3,553				100	%		$	3,635				100	%		$	(82	)			-2	%

Research and development expenses

     The table below summarizes the most significant components of our research and development expenses for the periods indicated, in thousands and as a percentage of total research and development expenses. The table also provides the changes in these components and their percentages:

		Three Months ended September 30,
		2011								2010								Increase (Decrease)
						% of Total								% of Total
		Amount				Expenses				Amount				Expenses				Amount				%
External services		$	500				46	%		$	1,510				63	%		$	(1,010	)			-67	%
Employee compensation and related			472				43	%			644				27	%			(172	)			-27	%
Employee stock-based compensation			5				0	%			62				3	%			(57	)			-92	%
Other			121				11	%			163				7	%			(42	)			-26	%
Total research and development		$	1,098				100	%		$	2,379				100	%		$	(1,281	)			-54	%

     The reduction in external services expenses for the quarter ended September 30, 2011 compared to the same three month period in 2010 is primarily attributable to a reduction in spending on all of our clinical projects for the comparable periods with the majority of the reduction coming from ZYBRESTAT for oncology program, most prominently our anaplastic thyriod cancer and non-small cell lung cancer projects. These two major studies have been progressing to conclusion over the last 12 to 18 months. In addition, we experienced reductions in expenses on our OXi4503 and ZYBRESTAT for ophthalmology programs for the comparable 2011 period, primarily related to our decision in February 2010 to scale back efforts on some of our projects in these areas.

     The reduction in employee compensation and related expenses for the quarter ended September 30, 2011 compared to the same three month period of 2010 is due to the reductions in our clinical project expenses noted above. In February 2010, we implemented a Company wide restructuring plan due to our decision to scale back activities in some of our ongoing clinical projects.

     We continue to evaluate next steps in the development of our clinical programs. As a result, research and development expenses in the future could vary significantly from those incurred in the 2011 fiscal year.

General and administrative expenses

     The table below summarizes the most significant components of our general and administrative expenses for the periods indicated, in thousands and as a percentage of total general and administrative expenses. The table also provides the changes in these components and their percentages:

		Three Months ended September 30,
		2011								2010								Increase (Decrease)
						% of Total								% of Total
		Amount				Expenses				Amount				Expenses				Amount				%
Employee compensation and related		$	410				31	%		$	456				36	%		$	(46	)			-10	%
Employee stock-based compensation			46				4	%			85				7	%			(39	)			-46	%
Consulting and professional services			494				38	%			453				36	%			41				9	%
Other			359				27	%			262				21	%			97				37	%
Total general and administrative		$	1,309				100	%		$	1,256				100	%		$	53				4	%

     General and administrative expenses remained fairly flat for the comparable three month periods ended September 30, 2011 and September 30, 2010. Employee stock-based compensation expense can vary significantly from period to period due to the timing and vesting of option grants. During fiscal 2011, there have not been any stock option grants to employees. The increase in other expense for the three month period ended September 30, 2011 compared to the same three month period ended September 30, 2010 is attributable to higher fees and taxes related to being a public company.

Restructuring Plan

     On September 1, 2011, we announced a restructuring plan designed to focus our capital resources on our most promising early-stage clinical programs and further reduce our cash utilization.

     We offered severance benefits to the terminated employees, and anticipate recording a total charge of approximately $1,200,000, primarily associated with personnel-related termination costs. In order to provide for an orderly transition, we are implementing the reduction in work force in a phased manner. We took a restructuring charge in the third quarter of 2011 of approximately $1,146,000, with the remainder expected to be taken over the following two quarters as the transition is effected. Substantially all of the charge is expected to represent cash expenditures.

Other Income and Expenses

     The table below summarizes Other Income and Expense in our Statements of Operations for the three month periods ended September 30, 2011 and September 30, 2010, in thousands:

		Three months ended September 30,								Increase (Decrease)
		2011				2010				Amount				%
Change in fair value of warrants and other financial instruments		$	40			$	(9,893	)		$	9,933				-100	%
Investment income			1				3				(2	)			-67	%
Other (expense) income, net			(1	)			(11	)			10				-91	%
Total		$	40			$	(9,901	)		$	9,941				-100	%

     We recorded an unrealized (non cash) loss in 2011 and gain in 2010 as a result of the change in the estimated Fair Market Value of our common stock warrants issued in connection with the offerings of our common stock as discussed in the Warrants section of Note 5 to the financial statements.

     The table below summarizes the components of the change in fair value of warrants and other financial instruments for the three month periods ended September 30, 2011 and September 30, 2010, in thousands.

		Three months ended September 30,
		2011				2010
Committed Equity Financing Facility Warrants		$	—			$	5
Direct Registration Warrants			40				99
Private Placement Warrants			—				(9,997	)
Total gain (loss) on change in fair market value of derivatives		$	40			$	(9,893	)

Nine Months Ended September 30, 2011 and September 30, 2010

Revenue

     We reported no licensing revenue for the nine months ended September 30, 2011 and September 30, 2010. Our only current source of potential revenue is from the license to a third party of our formerly owned Nicoplex and Thiol nutritional and diagnostic technology. Future revenues from this license agreement, if any, are expected to be minimal. We do not expect to generate material revenue or fee income unless we enter into a major licensing arrangement.

Costs and expenses

Summary

          The following table summarizes our operating expenses for the periods indicated, in thousands and as a percentage of total expenses. This table also provides the changes in our operating components and their percentages:

						Nine Months ended September 30,
		2011								2010								Increase (Decrease)
						% of Total								% of Total
						Operating								Operating
		Amount				Expenses				Amount				Expenses				Amount				%
Research and development		$	4,280				45	%		$	9,912				66	%		$	(5,632	)			-57	%
General and administrative			4,095				43	%			4,637				31	%			(542	)			-12	%
Restructuring			1,146				12	%			510				3	%			636				125	%
Total operating expenses		$	9,521				100	%		$	15,059				100	%		$	(5,538	)			-37	%

Research and development expenses

          The table below summarizes the most significant components of our research and development expenses for the periods indicated, in thousands and as a percentage of total research and development expenses. The table also provides the changes in these components and their percentages:

						Nine Months ended September 30,
		2011								2010								Increase (Decrease)
						% of Total								% of Total
		Amount				Expenses				Amount				Expenses				Amount				%
External services		$	2,050				48	%		$	6,703				68	%		$	(4,653	)			-69	%
Employee compensation and related			1,664				39	%			2,579				26	%			(915	)			-35	%
Employee stock-based compensation			171				4	%			109				1	%			62				57	%
Other			395				9	%			521				5	%			(126	)			-24	%
Total research and development		$	4,280				100	%		$	9,912				100	%		$	(5,632	)			-57	%

          The reduction in external services expenses for the nine month period ended September 30, 2011 compared to the same nine month period in 2010 is primarily attributable to a reduction in spending on all of our clinical projects for the comparable periods with the majority of the reduction coming from ZYBRESTAT for oncology program, most prominently our anaplastic thyriod cancer and non-small cell lung cancer projects. These two major studies have been progressing to conclusion over the last 12 to 18 months. In addition, we experienced reductions in expenses on our OXi4503 and ZYBRESTAT for ophthalmology programs for the comparable 2011 period, primarily related to our decision in February 2010 to scale back efforts on some of our projects in these areas.

          The reduction in employee compensation and related expenses for the nine month period ended September 30, 2011 compared to the same nine month period of 2010 is due to the reductions in our clinical project expenses noted above. In February 2010, we implemented a Company wide restructuring plan due to our decision to scale back activities in some of our ongoing clinical projects.

          The increase in stock-based compensation expense for the nine month period ended September 30, 2011 compared to the same nine month period of 2010 is primarily due to the timing of issuance and vesting of stock options for the comparable periods.

          The reduction in other expenses for the nine month period ended September 30, 2011 compared to the same nine month period of 2010 is primarily due to a reduction in both our research and development facility related costs as well as program wide support costs for the comparable periods.

General and administrative expenses

          The table below summarizes the most significant components of our general and administrative expenses for the periods indicated, in thousands and as a percentage of total general and administrative expenses. The table also provides the changes in these components and their percentages:

						Nine Months ended September 30,
		2011								2010								Increase (Decrease)
						% of Total								% of Total
		Amount				Expenses				Amount				Expenses				Amount				%
Employee compensation and related		$	1,395				34	%		$	1,591				34	%		$	(196	)			-12	%
Employee stock-based compensation			331				8	%			312				7	%		$	19				6	%
Consulting and professional services			1,460				36	%			1,909				41	%		$	(449	)			-24	%
Other			909				22	%			825				18	%		$	84				10	%
Total general and administrative		$	4,095				100	%		$	4,637				100	%		$	(542	)			-12	%

          The reduction in employee compensation and related expenses for the nine month period ended September 30, 2011 compared to the same nine month period of 2010 is due to a reduction in our average full time equivalents for the comparable periods. In February 2010, we implemented a Company wide restructuring plan due to our decision to scale back activities in some of our ongoing clinical projects.

          The reduction in consulting and professional services expenses for the nine month period ended September 30, 2011 compared to the same nine month period of 2010 is primarily due to one time costs incurred in our attempt to acquire Vaxgen Inc and due to the PIPE financing deal that did not recur in the 2011 period and lower board member compensation attributable to lower stock cost basis during the 2011 nine month period as board members are paid in the form of non-cash stock grants. In addition, we experienced lower legal, accounting and service provider expenses due to fewer significant transactions during the 2011 period.

Restructuring Plan

          On September 1, 2011, we announced a restructuring plan designed to focus our capital resources on its most promising early-stage clinical programs and further reduce our cash utilization.

          We offered severance benefits to the terminated employees, and anticipate recording a total charge of approximately $1,200,000, primarily associated with personnel-related termination costs. In order to provide for an orderly transition, we are implementing the reduction in work force in a phased manner. We took a restructuring charge in the third quarter of 2011 of approximately $1,146,000, with the remainder expected to be taken over the following two quarters as the transition is effected. Substantially all of the charge is expected to represent cash expenditures.

          We also executed a restructuring in February 2010, designed to focus our existing resources on our highest-value clinical assets and reduce our cash utilization. We incurred a charge of $510,000, primarily associated with personnel-related termination costs in connection with this restructuring.

Other Income and Expenses

     The table below summarizes Other Income and Expense in our Statements of Operations for the nine month periods ended September 30, 2011 and September 30, 2010, in thousands:

		Nine months ended September 30,								Increase (Decrease)
		2011				2010				Amount				%
Change in fair value of warrants and other financial instruments		$	2,219			$	(6,987	)		$	9,206				-132	%
Investment income			3				14				(11	)			-79	%
Other (expense) income, net			(9	)			5				(14	)			-280	%
Total		$	2,213			$	(6,968	)		$	9,181				-132	%

          We recorded an unrealized (non cash) gain in both the 2011 and 2010 periods as a result of the change in the estimated Fair Market Value of our common stock warrants issued in connection with the offerings as discussed in the Warrants section of Note 4 to the financial statements.

          The table below summarizes the components of the change in fair value of warrants for the nine month periods ended September 30, 2011 and September 30, 2010, in thousands.

		Nine months ended September 30,
		2011				2010
Committed Equity Financing Facility Warrants		$	3			$	95
Direct Registration Warrants			99				2,077
Excess of value of the Private Placement Warrants at issuance over the net proceeds of the offering			—				(4,433	)
Gain recognized in connection with warrant exchange agreements			690				—
Private Placement Warrants			1,427				(4,726	)
Total gain (loss) on change in fair market value of derivatives		$	2,219			$	(6,987	)

Liquidity and Capital Resources

          To date, we have financed our operations principally through net proceeds received from private and public equity financing and through our strategic development arrangement with Symphony. We have experienced negative cash flow from operations each year since our inception, except in fiscal 2000. As of September 30, 2011, we had an accumulated deficit of approximately $215,008,000. We expect to continue to incur ongoing losses, over at least the next several years due to, among other factors, our continuing and planned clinical trials and anticipated research and development activities. We had cash, cash equivalents and restricted cash of approximately $12,664,000 at September 30, 2011.

          The following table summarizes our cash flow activities for the periods indicated, in thousands:

		Nine months ended September 30,
		2011				2010
Operating activities:
Net loss		$	(7,308	)		$	(22,027	)
Non-cash adjustments to net loss			(1,552	)			7,787
Changes in operating assets and liabilities			(117	)			(3,703	)
Net cash used in operating activities			(8,977	)			(17,943	)
Investing activities:
Change in other assets			—				40
Net cash provided by investing activities			—				40
Financing activities:
Proceeds from issuance of common stock			17,019				10,425
Net cash provided by financing activities			17,019				10,425
Increase (decrease) in cash and cash equivalents			8,042				(7,478	)
Cash and cash equivalents at beginning of period			4,602				13,932
Cash and cash equivalents at end of period		$	12,644			$	6,454