- Quarterly Report (10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2010

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

For the transition period from to

Commission File Number 001-33284

MOLECULAR INSIGHT

PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

Massachusetts

04-0562086

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)


160 Second Street, Cambridge, Massachusetts		02142
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (617) 492-5554

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ¨ NO ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO x

The number of shares outstanding of the registrant’s common stock as of November 1, 2010 was 25,268,327.

INDEX TO FORM 10-Q


		PAGE
PART I FINANCIAL INFORMATION

ITEM 1.	Financial Statements-Unaudited		3

	Condensed Consolidated Balance Sheets at December 31, 2009 and September 30, 2010		3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2010		4
	Condensed Consolidated Statement of Stockholders’ Deficit for the Nine Months Ended September 30, 2010		5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2010		6
	Notes to the Unaudited Consolidated Financial Statements		7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		27

ITEM 4.	Controls and Procedures		27

PART II OTHER INFORMATION

ITEM 1A.	Risk Factors		29

ITEM 6.	Exhibits		32

SIGNATURES			33

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements — Unaudited

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	December 31, 2009			September 30, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	15,467,048		$	23,153,968
Investments		48,514,855			—
Accounts receivable — net		651,094			226,014
Prepaid expenses		538,690			3,140,273
Other current assets		363,355			1,316,124
Debt issuance costs — net		4,526,855			3,434,990

Total current assets		70,061,897			31,271,369
Property and equipment — net		4,044,488			4,219,340
Restricted cash		500,000			962,993

Total assets	$	74,606,385		$	36,453,702


LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	1,720,756		$	277,096
Accrued expenses		8,041,130			7,587,145
Bonds payable — net of discount		174,838,383			189,829,205

Total current liabilities		184,600,269			197,693,446
Asset retirement obligation		294,637			308,855
Deferred revenue		25,000			25,000
Other long term liabilities		183,075			354,400
Commitments and contingencies (Note 9) Stockholders’ deficit:
Common stock, $0.01 par value; authorized, 100,000,000 shares at December 31, 2009 and September 30, 2010; issued and outstanding, 25,268,327 shares at December 31, 2009 and September 30, 2010		252,683			252,683
Additional paid-in capital		182,142,165			183,863,283
Accumulated other comprehensive loss		(540	)		—
Accumulated deficit		(292,890,904	)		(346,043,965	)

Total stockholders’ deficit		(110,496,596	)		(161,927,999	)

Total liabilities and stockholders’ deficit	$	74,606,385		$	36,453,702

See notes to unaudited consolidated financial statements.

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2010			2009			2010
Revenue — research and development grants	$	101,239		$	456,733		$	450,372		$	1,353,322
Operating expenses:
Cost of product revenues		—			116,886			—			260,544
Research and development		8,964,002			5,472,578			22,075,870			19,664,644
General and administrative		7,255,680			7,729,890			14,836,433			18,618,799
General and administrative — related parties		198,967			—			1,708,323			—

Total operating expenses		16,418,649			13,319,354			38,620,626			38,543,987

Loss from operations		(16,317,410	)		(12,862,621	)		(38,170,254	)		(37,190,665	)
Other income (expense):
Interest income		202,390			12,955			962,476			70,291
Interest expense		(5,267,193	)		(5,549,678	)		(16,048,920	)		(16,082,687	)
Change in fair value of bond derivative		—			50,000			—			50,000

Total other expense, net		(5,064,803	)		(5,486,723	)		(15,086,444	)		(15,962,396	)

Net loss	$	(21,382,213	)	$	(18,349,344	)	$	(53,256,698	)	$	(53,153,061	)

Basic and diluted net loss per common share	$	(0.85	)	$	(0.73	)	$	(2.12	)	$	(2.11	)

Weighted average shares used to compute basic and diluted net loss per common share		25,199,097			25,235,420			25,159,153			25,235,420

See notes to unaudited consolidated financial statements.

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF

STOCKHOLDERS’ DEFICIT

(UNAUDITED)


	Common Stock $0.01 Par Value				Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Deficit			Total Comprehensive Loss
	Number of Shares		Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Deficit			Total Comprehensive Loss
Balance at January 1, 2010		25,268,327	$	252,683	$	182,142,165	$	(540	)	$	(292,890,904	)	$	(110,496,596	)
Stock-based compensation		—		—		1,721,118		—			—			1,721,118
Unrealized loss on available-for-sale securities, net of tax		—		—		—		(12,722	)		—			(12,722	)	$	(12,722	)
Realized currency translation adjustment		—		—		—		13,262			—			13,262			13,262
Net loss		—		—		—		—			(53,153,061	)		(53,153,061	)		(53,153,061	)

Total comprehensive loss		—		—		—		—			—			—		$	(53,152,521	)

Balance at September 30, 2010		25,268,327	$	252,683	$	183,863,283	$	—		$	(346,043,965	)	$	(161,927,999	)

See notes to unaudited consolidated financial statements.

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
	2009			2010
Cash flows from operating activities:
Net loss	$	(53,256,698	)	$	(53,153,061	)
Adjustments to reconcile net loss to cash used in operating activities:
Noncash interest expense and accretion		16,062,272			16,096,905
Depreciation and amortization		746,986			534,305
Loss on disposal of assets		—			88,613
Provision for doubtful accounts receivable		—			35,816
Stock-based compensation expense		3,345,985			1,721,118
Change in fair value of bond derivative		—			(50,000	)
Changes in assets and liabilities:
Accounts receivable		(3,433,777	)		389,264
Prepaid expenses		463,411			(2,601,583	)
Other current assets		(998,913	)		(956,191	)
Accounts payable		899,267			(1,377,667	)
Accrued expenses and other		(1,226,747	)		(216,587	)
Accounts payable and accrued expenses-related parties		(351,581	)		—
Deferred revenue		4,400,000			—

Net cash used in operating activities		(33,349,795	)		(39,489,068	)

Cash flows from investing activities:
Purchase of investments		(44,199,419	)		(8,897,867	)
Proceeds from investments		70,248,000			57,400,000
Purchase of property and equipment		(510,064	)		(854,107	)
Restricted cash		—			(462,993	)

Net cash provided by investing activities		25,538,517			47,185,033

Cash flows from financing activities:
Proceeds from exercise of common stock options and warrants		571,438			—
Proceeds from sale of restricted stock		687			—

Net cash provided by financing activities		572,125			—

Effect of foreign exchange rate changes on cash and cash equivalents		(2,061	)		(9,045	)

Net increase (decrease) in cash and cash equivalents		(7,241,214	)		7,686,920
Cash and cash equivalents — beginning of period		25,494,834			15,467,048

Cash and cash equivalents — end of period	$	18,253,620		$	23,153,968

Supplemental disclosures of cash flows information:
Noncash investing and financing activities:
Payment-in-kind bonds in lieu of cash interest payments	$	12,161,922		$	12,037,899

See notes to unaudited consolidated financial statements.

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND OPERATIONS

Nature of Business — Molecular Insight Pharmaceuticals, Inc. (the “Company”) was incorporated in January 1997 and is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of targeted therapeutic and imaging radiopharmaceuticals for use in oncology. Product candidates are designed to improve patient diagnosis, treatment and management. The Company’s research programs are conducted both internally and through strategic collaborations. The Company is based in Cambridge, Massachusetts and conducts its operations and manages its business as one operating segment.

Risks and Uncertainties — The Company is subject to the risks of a highly leveraged, clinical-stage company, such as developing saleable products, building up the research, manufacturing, administrative personnel, and organization structures to support growth, dependence on strategic partners, licensors and third-party contractors to successfully research, develop, manufacture and commercialize its product candidates based on the Company’s technologies, maintaining compliance with the covenants set forth in an Indenture (“Bond Indenture”) governing the Senior Secured Floating Rate Bonds due 2012 (the “Bond”), and obtaining future financing when required. In addition, the Company is also subject to risks common to companies in the biopharmaceutical industry including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and approval requirements, commercialization of its potential products, uncertainty of market acceptance of products, competition from larger companies, and its ability to reach commercial production of its product candidates.

Going Concern, Liquidity — The Company has incurred significant net losses and negative operating cash flows since inception. At September 30, 2010, the Company had an accumulated deficit of $346.0 million including the $53.2 million net losses incurred for the nine months ended September 30, 2010. The Company has five clinical-stage product candidates in development and will need to spend significant capital to fulfill planned operating goals and continue to conduct clinical and non-clinical trials, achieve regulatory approvals and, subject to such approvals, successfully produce products for commercialization. As such, the Company expects to continue to incur significant net losses and negative operating cash flows in the foreseeable future.

As of September 30, 2010, the Company had approximately $23.2 million of cash and cash equivalents, and $198.6 million of Bonds and accrued and unpaid interest. The terms of the Company’s Bond Indenture include various covenants, including among others, financial covenants that require the Company maintain a minimum liquidity level on a quarterly basis. The minimum liquidity covenant (as defined in the Bond Indenture and which substantially represents all of the Company’s cash, cash equivalents and investments) requires the Company to maintain a minimum amount of $25.7 million and $29.2 million at September 30, 2010 and December 31, 2010, respectively. The Company failed to comply with this covenant as of September 30, 2010, which default was temporarily waived under the terms of a waiver agreement with the Bond holders and Bond Indenture trustee as discussed below. Additionally, under the Bond Indenture, the Company is required to deliver audited annual financial statements to Bond holders which are not subject to a “going concern” or like qualification or exception from its independent auditors. In the report of the independent registered public accounting firm on the Company’s financial statements as of and for the year ended December 31, 2009, the independent auditors included an explanatory paragraph relating to substantial doubt about whether the Company can continue as a going concern. Consequently, the inclusion of such a “going concern” paragraph resulted in a default under the terms of the Bond Indenture which was also temporarily waived (and currently remains subject to waiver) by the Bond holders.

On November 3, 2010, the Company received a further extension of a waiver agreement executed on March 15, 2010 with the holders of the Bonds and the Bond Indenture trustee. The waiver has been extended until 11:59PM Eastern Standard Time on November 19, 2010, subject to earlier termination by the Bond holders upon certain circumstances. Under the terms of the waiver agreement and subsequent amendments thereto, the Bond holders and Bond Indenture trustee temporarily waived a default arising from the inclusion of the “going concern” paragraph in the report of the independent registered public accounting firm on the Company’s financial statements as of and for the year ended December 31, 2009, any default arising from the Company’s failure to comply with the minimum liquidity requirements set forth in the Bond Indenture and other technical defaults under the Bond Indenture. The waiver continues to be subject to a number of terms and conditions. The Company cannot be assured that any further extension of the waiver will be obtained from the Bond holders and Bond Indenture trustee. Consequently, the long-term bond obligations and related debt issuance costs have been classified as current liabilities and current assets, respectively, at December 31, 2009 and at September 30, 2010. The Company cannot guarantee its ability to continue as a going concern or meet the minimum liquidity requirements in the future unless it can restructure the debt and raise additional capital, of which there can be no assurance. If the Bond Indenture is restructured in a transaction required to be accounted for as an extinguishment or the outstanding balance of the bond obligations is demanded by the Bond holders, unamortized debt issue costs of $3.4 million at September 30, 2010 would be required to be expensed at the restructuring or demand date.

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In order to continue operations in the short and long term, the Company must restructure the terms of its outstanding Bonds and raise additional capital. The Company’s failure to restructure the Bonds and raise capital when needed will have a significant negative impact on its financial condition and its ability to continue its operations.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.

Management’s Plans

The Company is continuing to discuss with the Bond holders various proposals. Any transaction as a result of discussions with the Bond holders, if consummated, will be substantially dilutive to the holders of the Company’s shares of common stock and may result in the Company’s existing equity becoming effectively subordinated to newly-issued securities in the transaction as the newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. Debt issued as a result of a restructuring transaction may be secured and issued on terms that differ from the current indebtedness under the Bond Indenture. Such transaction, if consummated, may also result in the Company ceasing to list its securities on any securities exchange or bulletin board and ceasing to be a public reporting company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), may result in a change in the composition of the Company’s board of directors and other governance matters, and may result in other changes to the Company’s capital structure. The Company cannot be assured that such discussions will be successful or that it will reach such an agreement on terms favorable to the Company, or at all. The terms of any restructuring, if consummated, are uncertain and would likely have a significant impact on the Company and its existing equity. Moreover, in connection with the discussions with the Bond holders to reach such an agreement, the Bond holders may impose additional operational or financial restrictions on the Company or modify the terms of our existing Bond Indenture. These restrictions may limit the Company’s ability, among other things, to make necessary capital expenditures or incur additional indebtedness. In addition, the Bond holders may require the Company to pay additional fees, prepay a portion of its indebtedness, accelerate the amortization schedule for its indebtedness or agree to higher interest rates on its outstanding indebtedness or take other actions that could adversely affect the Company’s business. The Bond holders may also require the Company to raise additional capital concurrently with any restructuring or thereafter which will be substantially dilutive to the holders of the Company’s existing shares of common stock and may include securities or debt with rights, preferences or privileges senior to those of existing stockholders. If the waiver grace period (or any extension thereof) expires or terminates, and the Company is unable to reach an agreement with Bond holders regarding an additional extension period or an agreement regarding the restructuring of its outstanding debt, the Company will be in default of its obligations under the Bond Indenture, and the Bond holders may choose to accelerate its debt obligations under the Bond Indenture and demand immediate repayment in full and seek to foreclose on the collateral supporting such obligations. If its indebtedness under the Bond Indenture is accelerated or is not restructured on acceptable terms, it is likely that the Company will be unable to repay its debt obligations and it may seek protection under the U.S. Bankruptcy Code or similar relief. Even if a consensual restructuring occurs, the restructuring will most likely occur through a U.S. Bankruptcy Code Chapter 11 proceeding or similar proceeding.

The Company may also seek to raise additional funds through public or private sales of equity and other strategic collaborative arrangements which are limited under the provisions of the Bond Indenture. If the Company raises additional funds through the issuance of new equity securities, its stockholders will experience substantial dilution, or the new equity securities may have rights, preferences or privileges senior to those of existing stockholders. To the extent that the Company raises additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to its technologies or its product candidates or grant licenses on terms that are not favorable to the Company. The Company has no current commitments from any persons that they will provide any additional financing. Given the current market conditions and the status of the Company’s product development pipeline, obtaining financing may be difficult and may not be available on commercially acceptable terms, or at all.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements reflect the operations of the Company and its wholly owned subsidiaries, namely Molecular Insight Limited, based in the United Kingdom, Molecular Insight Pharmaceuticals GmbH (“GmbH”), based in Germany, and Biostream Therapeutics, Inc., based in the United States. Intercompany accounts and transactions for all subsidiaries have been eliminated in consolidation. The Company disposed of GmbH on May 10, 2010 and as such, is no longer a subsidiary of the Company as of September 30, 2010. The loss recognized on disposition of GmbH was not significant.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (of normal and recurring nature) necessary for a fair statement of the Company’s financial position, results of operations, and cash flows. The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The Company’s significant accounting policies are described in the Notes to the Consolidated Financial Statements in the 2009 Annual Report on Form 10-K and updated, as necessary, in this Form 10-Q. The December 31, 2009 consolidated balance sheet presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make judgments, assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

3. FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments — The carrying amounts of the Company’s financial instruments, which include cash equivalents, investments, accounts receivable, accounts payable and accrued expenses, approximate their fair values due to their short-term nature. The embedded derivative, as described below, is recorded at its estimated fair value. Due to the circumstances described in Notes 1 and 8 to the unaudited financial statements, Management cannot reasonably estimate the fair value of the Company’s bond obligations, including accrued interest which are paid-in-kind and issued as additional bonds to bond holders at September 30, 2010. Further, the Bond Indenture is not publicly traded and contains characteristics that are not widely observed in similar debt instruments.

The Company records cash equivalents, which are held in money market funds and invested U.S. treasuries, at fair value (level 1) as quoted prices and an active market exists.

The Company measures and records the fair value of its available-for-sale securities at the closing market price (level 1) at period end for these investment instruments and the balance sheet valuation reflects the aggregate fair market value of all available-for-sale securities. Unrealized changes in such fair values are recorded in accumulated other comprehensive income.

The Company measures the fair value of the embedded derivative (contingent mandatory redemption feature — see Note 8) through the use of unobservable inputs (level 3) which include adjustable interest rates, fixed budgeted research spending based on a pre-determined timeline (as defined by the Company’s bond financing agreement), discount rate determined using an appropriate risk-free rate plus a credit spread, success factor probabilities for key product candidates at each phase of development and the likelihood that bond holders will allow for reinvestment in an alternative product upon occurrence of a product material adverse event (“MAE”). Contingent mandatory redemption amounts approximate the remaining budgeted research spending in the period in which a product MAE on a primary product is determined to have occurred. The fair value of the embedded derivative declines as product development proceeds over time. Changes in the product development timeline would also have an effect on the fair value of the embedded derivative as potential repayments on the bond declines with the passage of time. In evaluating the assumptions utilized in the valuation model, the Company considered the progress and results of clinical trials conducted on its primary products and potential alternative products in the Company’s pipeline in the event of a product MAE. The Company has assigned success factor probabilities ranging from 78%-100% and deems that it is highly unlikely that: (1) a product MAE would occur in the time periods outlined in the bond financing agreement; and (2) bond holders would not allow for reinvestment of budgeted research spending in alternative products in the case of a product MAE. The Company had no purchases, sales, issuances, or settlements that would otherwise have an impact on the fair value of the embedded derivative. In light of the ongoing discussions with the Bond holders concerning the restructuring of the Company’s debt obligations, including discussions as to plans for the development of the Company’s product pipeline, management has determined that it is unlikely that a product MAE would be triggered. Accordingly, the valuation of the embedded derivative as at September 30, 2010 has been reduced to zero.

These valuation techniques may be based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

•

Level 1 — Quoted prices for identical instruments in active markets.

•

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

•

Level 3 — Instruments whose significant value drivers are unobservable.

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents the Company’s assets and liabilities that are measured at fair value and their related hierarchy levels:


	Fair Value Measurements at Reporting Date Using
	September 30, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Measured at Fair Value on a Recurring Basis
Assets:
Cash equivalents	$	22,701,829	$	22,701,829	$	—	$	—
Liabilities:
Embedded derivative	$	—	$	—	$	—	$	—


	Fair Value Measurements at Reporting Date Using
	December 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Measured at Fair Value on a Recurring Basis
Assets:
Cash equivalents	$	14,826,040	$	14,826,040	$	—	$	—
Available-for-sale securities (U.S. Treasury Bills)	$	48,514,855	$	48,514,855	$	—	$	—
Liabilities:
Embedded derivative	$	50,000	$	—	$	—	$	50,000

Measured at Fair Value on a Non-Recurring Basis
Long-lived assets	$	1,799,544	$	—	$	—	$	1,799,544

The table below provides a reconciliation of the fair value of the embedded derivative measured on a recurring basis for which the Company used Level 3:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2009		2010			2009		2010
Balance, beginning of period	$	50,000	$	50,000		$	50,000	$	50,000
Realized gain included in other income		—		(50,000	)		—		(50,000	)
Purchases, issuances and settlements		—		—			—		—
Transfers in/out of Level 3		—		—			—		—

Balance, end of period	$	50,000	$	—		$	50,000	$	—

4. NET LOSS PER SHARE

Basic and diluted net loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share, because the effects of potentially dilutive securities are anti-dilutive for all periods presented.

Net loss per share amounts have been computed based on the weighted-average number of common shares outstanding during each period. For the three and nine months ended September 30, 2009 and 2010, options to purchase 4,217,580 and 3,806,232 shares of common stock, respectively, non-vested shares of 32,907 and warrants to purchase 6,604,840 were not included in the computation of net loss per share, because the effect would be anti-dilutive.

5. STOCK-BASED COMPENSATION

Pursuant to the annual automatic increase provisions of the Amended and Restated 2006 Equity Incentive Plan (“2006 Plan”), an additional 1,010,733 shares have been reserved in 2010 to allow for a total of 5,311,635 shares issuable for share awards.

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Employees and directors — The estimated fair value of stock options granted was determined using the Black-Scholes option pricing model. In using the Black-Scholes option pricing model, the Company makes certain assumptions with respect to the estimated lives of the awards, expected volatility of the common stock consistent with the expected option life, risk free interest rates, and dividend rates.

There were no awards granted during the three and nine months ended September 30, 2010 other than the annual automatic grants of 150,000 options to non-employee directors which vest over a one-year period as provided in the Company’s 2006 Plan.

The Company used the following assumptions in estimating the fair value of stock options granted for the nine months ended September 30, 2009 and 2010:


	2009			2010
Risk free interest rates		1.75-3.01	%		2.61	%
Expected dividend yield		0	%		0	%
Expected life (non-performance-based options)		5.50-6.25 years			5.50 years
Expected life (performance-based options)		4.0 years			—
Expected volatility		84-101	%		95	%

Information concerning stock option activity granted under the Company’s Amended and Restated 2006 Equity Incentive Plan (the “Plan”) for the nine months ended September 30, 2010 is summarized as follows:


	Number of Shares			Weighted Average Exercise Price per Share		Weighted Remaining Contractual Life (Years)
Options outstanding at beginning of period		4,114,853		$	5.16		7.44
Granted		150,000			1.85
Exercised		—			—
Forfeitures		(458,621	)		6.53

Options outstanding at end of period		3,806,232			4.87		6.81

Options exercisable		2,442,577			4.92		5.87

Options vested and expected to vest		3,238,597			4.90		6.51

Options available for grant		2,416,100

Weighted average fair value of options granted				$	1.39

Information concerning unvested restricted stock activity for the nine months ended September 30, 2010 is summarized as follows:


	Number of Shares		Grant Date Fair Value
Nonvested shares at beginning of period		32,907	$	7.78
Granted		—		—
Vested		—		—
Forfeited		—		—

Nonvested shares at end of period		32,907	$	7.78

Certain of the Company’s option agreements provide that in the event of a change in control of the Company, as defined, any unvested options will become immediately vested and exercisable.

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock-based compensation expense, including awards granted to non-employees for each period presented in the accompanying consolidated statements of operations is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2010		2009		2010
Stock-based compensation charged to:
Research and development	$	526,522	$	131,923	$	1,269,018	$	1,032,764
General and administrative		1,348,689		161,135		2,076,967		688,354

Stock-based compensation expense	$	1,875,211	$	293,058	$	3,345,985	$	1,721,118

As of September 30, 2010, the unamortized compensation expense of all employee stock option and restricted stock awards granted under the Company’s Plan, net of estimated forfeitures were $1,537,594 and $60,761, respectively. These amounts will be amortized over an estimated weighted average period of 1.66 and 1.64 years, respectively.

6. CASH EQUIVALENTS AND INVESTMENTS

Cash Equivalents and Investments — Cash equivalents were money market accounts invested in U.S. Treasury bills and purchased with maturities less than 90 days. The Company’s investments were held in U.S. Treasury bills with maturities over 90 days. These investments were recorded at fair value and accounted for as available-for-sale securities with any unrealized gains or losses reported as a separate component of stockholders’ deficit. The Company uses the specific identification method in determining gains and losses reclassified out of accumulated other comprehensive income into earnings. Cash and cash equivalents, and investments are held at two financial institutions, of which substantially all amounts were held in one institution.

The amortized cost, gross unrealized gains and losses, and fair value of short-term investments are as follows:


	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
December 31, 2009	$	48,502,133	$	18,458	$	5,736	$	48,514,855

No realized gains or losses were recognized in other income or expense for the three and nine months ended September 30, 2010 and 2009.

7. ACCRUED EXPENSES

Accrued expenses consist of the following:


	December 31, 2009		September 30, 2010
Payroll, bonuses, severance and vacation	$	2,327,866	$	1,737,713
Clinical trials		2,120,123		2,855,879
Manufacturing		650,104		348,060
Professional fees		2,355,322		2,374,841
Sponsored research and license agreements		385,680		80,025
Other		202,035		190,627

Total accrued expenses	$	8,041,130	$	7,587,145

8. DEBT

Debt consists of the Senior Secured Floating Rate Bonds, due 2012, and has the following carrying amounts:


	December 31, 2009			September 30, 2010
Bond principal	$	150,000,000		$	150,000,000
PIK interest		36,533,644			48,571,543
Bond discount		(11,695,261	)		(8,742,338	)

	$	174,838,383		$	189,829,205

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of September 30, 2010, future payments of principal and PIK (“paid-in-kind”) interest on all existing debt due in November 2012 were $198,571,543. The Bonds have a five-year maturity date and bear a coupon interest rate equivalent to the three month LIBOR (London Inter-Bank Offer Rate) plus 8%, determined on a quarterly basis beginning on November 16, 2007. The average interest rate was 8.66% and 8.43% for the three months ended September 30, 2009 and 2010, respectively, and 9.19% and 8.33% for the nine months ended September 30, 2009 and 2010, respectively. Interest accrued on the Bonds on any quarterly interest payment date between and including November 16, 2007 and November 16, 2010, shall be payable through the issuance of PIK Bonds. Such PIK Bonds shall be part of the same class, and shall have the same terms and rights, as the original Bonds except that interest on such PIK Bonds shall begin to accrue from the date of issuance of such PIK Bond. Interest accrued on the Bonds shall be paid in cash after November 16, 2010. All of the Company’s assets are pledged as security for the obligations of the Company under the Bond Indenture.

Redemption of Bonds

The Bond Indenture requires mandatory redemption of some or all of the Bonds upon defined events, such as the disposition of certain assets or property, disposition of or sale of any non-primary product, disposition of any product consisting of outbound licensing arrangements, the issuance of indebtedness (other than the PIK Bonds), the sale of securities in an equity financing, receipt by the Company of funds constituting extraordinary receipts, in the event of excess free cash flow over specified levels, and in the event of a product material adverse event (as defined in the Bond Indenture).

The contingent mandatory redemption feature related to a product material adverse event is an embedded derivative. The Company valued the derivative financial instrument at date of issue and will continue to re-measure it at each reporting period at its fair value. Based on a periodic evaluation of input assumptions to the valuation model utilized in determining the initial fair value of the embedded derivative, the Company has determined a remaining fair value of $50,000 and $0 at December 31, 2009 and September 30, 2010, respectively. The embedded derivative is classified in accrued expenses in the consolidated balance sheets. Changes in fair value are recorded as either a gain or loss in the consolidated statement of operations in other income (expense).

The Bonds become subject to redemption upon a change in control (defined as a person acquiring 30% or more of the voting securities of the Company). The Company may redeem the Bonds at its option and with a premium, beginning November 16, 2007. If redeemed at the following dates, the redemption price would be equal to the following:


From	To	Price
November 1, 2010	October 31, 2011	102% of principal plus unpaid interest
Thereafter		100% of principal plus unpaid interest

Debt Covenants

The Bond Indenture contains various covenants with which the Company must comply, including, without limitation, the timely payment of interest and principal when due, the provisions of quarterly and annual financial statements and other reports, the maintenance of a minimum liquidity level and a requirement that capital expenditures not exceed certain annual amounts. The provisions of the Bond Indenture also require that the report on the audit of the Company’s consolidated financial statements by the Company’s independent registered public accounting firm not be subject to a “going concern” or like qualification or exception. The Company is also prohibited from paying cash dividends on its common stock.

Under the Bond Indenture, the Company is required to maintain a Minimum Liquidity (as defined in the Bond Indenture and which substantially represents all of the Company’s cash, cash equivalents and investments) of at least the sum of $25.7 million for the period ended September 30, 2010 and any contingent mandatory redemption amounts due in the case of a product material adverse event less any amounts already paid with respect to such mandatory redemption amounts and amounts not held on deposit with the Trustee. The minimum amount increases on a quarterly basis to $41.9 million for the period from April 1, 2011 to June 30, 2011; after which the amount increases to $45.0 million for the period from July 1, 2011 and through the maturity date. The Company failed to comply with this covenant at September 30, 2010 which default was temporarily waived under the terms of a waiver agreement with the Bond holders and Bond Indenture trustee, as amended (see Note 1).

The financial covenants in the Bond Indenture also set limits on the Company’s capital expenditures in any year. Under the Bond Indenture, capital expenditures may not exceed $3.0 million in year 2010, $5.0 million in year 2011, and $6.0 million in 2012. These maximum capital expenditure limits may be adjusted upwards in any given year, up to an additional $1.5 million, if the preceding year’s capital expenditures were less than the maximum level. In any year when a cyclotron is purchased, the maximum capital expenditure level is increased by the cost of the cyclotron, up to a maximum of $10.0 million.

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A failure to comply with the covenants of the Bond Indenture which is not cured within applicable cure or grace periods would constitute an event of default under the Bond Indenture. Such events of default would include the failure to pay interest and principal when due, the failure to provide financial statements and other required reports when due, the failure to maintain Minimum Liquidity levels, and the failure to limit annual capital expenditures to the maximum levels permitted under the Bond Indenture. Because of the covenant violations described in Note 1, the Company has classified the bonds payable and related issuance costs as current in the consolidated balance sheets as at December 31, 2009 and at September 30, 2010.

As described in Note 1, the report of the independent registered public accounting firm on the Company’s financial statements as of and for the year ended December 31, 2009 included an explanatory paragraph relating to substantial doubt about whether the Company can continue as a going concern. Consequently, the inclusion of such a “going concern” paragraph resulted in a default under the terms of the Bond Indenture. On November 3, 2010, the Company received a further extension of a waiver agreement executed on March 15, 2010 with the holders of the Bonds and the Bond Indenture trustee. The waiver has been extended until 11:59PM Eastern Standard Time on November 19, 2010, subject to earlier termination by the Bond holders upon certain circumstances. Under the terms of the waiver agreement and subsequent amendments thereto, the Bond holders and Bond Indenture trustee temporarily waived a default arising from the inclusion of the “going concern” paragraph in the report of the independent registered public accounting firm on the Company’s financial statements as of and for the year ended December 31, 2009, any default arising from the Company’s failure to comply with the minimum liquidity requirements set forth in the Bond Indenture and other technical defaults under the Bond Indenture.

The waiver continues to be subject to a number of terms and conditions. The Company cannot be assured that any further extension of the waiver will be obtained from the Bond holders and Bond Indenture trustee. In the event that the waiver expires or terminates prior to the successful restructuring of the Company’s outstanding debt, then the Company will be in default of its obligations under the Bond Indenture, and the Bond holders may choose to accelerate the debt obligations under the Bond Indenture and demand immediate repayment in full and seek to foreclose on the collateral supporting such obligations. If the Company’s debt obligations under the Bond Indenture are accelerated or are not restructured on acceptable terms, it is likely the Company will be unable to repay such obligations and may seek protection under the U.S. Bankruptcy Code or similar relief. Even if a consensual restructuring occurs, the restructuring will most likely occur through a U.S. Bankruptcy Code Chapter 11 proceeding or similar proceeding.

9. COMMITMENTS AND CONTINGENCIES

As of September 30, 2010, the Company is not a party to any material legal proceedings. There were no material changes in commitments from December 31, 2009 except as disclosed below:

On March 30, 2010, the Company entered into an amendment to its lease agreement for the lease of office space located in Cambridge, Massachusetts to reduce the aggregate rentable premises and extend the term of its lease agreement through September 30, 2011 subject to early termination upon 90 days’ written notice to the landlord. The monthly base rent from April 1, 2010 to December 31, 2010 is $34,466 and from January 1, 2011 to September 30, 2011 is $35,462.

10. COMPLIANCE WITH NASDAQ LISTING REQUIREMENTS

On October 7, 2010, the Company received a letter from the NASDAQ Stock Market (“NASDAQ”) notifying that for the 30 consecutive business days preceding the date of the letter, the Company failed to maintain the minimum $15 million Market Value of Publicly Held Shares (“MVPHS”) requirement for continued listing on the NASDAQ Global Market pursuant to NASDAQ Listing Rule 5450(b)(2)(C). Also on October 6, 2010, NASDAQ notified the Company that for the 30 consecutive business days preceding the date of the letter, the Company’s listed securities did not maintain a minimum bid price of $1.00 per share, as required by Listing Rule 5450(a)(1). In accordance with NASDAQ Marketplace Rules, the Company has a grace period of 180 calendar days to regain compliance. NASDAQ will deem the Company to have regained compliance with the minimum MVPHS requirement if the Company’s MVPHS closes at $15 million or more for a minimum of 10 consecutive business days prior to April 5, 2011. Similarly, the Company will regain compliance with the Minimum Bid Price Rule if the Company’s security closes at $1.00 per share or more for at least 10 consecutive business days prior to April 4, 2011.

Previously, on June 24, 2010, the Company received a letter from the NASDAQ notifying that for the 30 consecutive business days preceding the date of the letter, the Company failed to maintain the minimum $50 million Market Value of Listed Securities (“MVLS”) requirement for continued listing on the NASDAQ Global Market pursuant to NASDAQ Listing Rule 5450(b)(2)(A) (the “MVLS Rule”). The Company has a grace period of 180 calendar days, or until December 21, 2010, to regain compliance with the MVLS Rule. NASDAQ will deem the Company to have regained compliance with the MVLS Rule if at any time during this grace period the Company’s MVLS closes at $50,000,000 or more for a minimum of ten consecutive business days.

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company is actively monitoring the market value of its publicly held share price and the bid price. In the event that the Company is unable to regain compliance with these rules, the Company’s securities will be subject to delisting.

11. BIOMEDICA COLLABORATION AGREEMENT

In September 2009, the Company entered into a Territory License Agreement (“License Agreement”) with BioMedica Life Sciences, S.A. (“BioMedica”) to sub-license its Onalta™ 90-Y edotreotide radiotherapeutic in certain countries in Europe, the Middle East, North Africa, Russia and Turkey. The License Agreement also provides that during the term of the License Agreement, BioMedica will purchase all of its requirements for Onalta exclusively and solely from the Company, a Company-designated third party manufacturer, and/or a BioMedica-designated third party manufacturer approved by the Company, the terms and conditions of which are outlined in a definitive supply agreement executed in October 2009 (“Supply Agreement”).

Concurrent with the Supply Agreement entered into with BioMedica in October 2009, the Company also entered into a ten (10) year Facility Setup and Contract Manufacturing Agreement with Eckert & Ziegler Nuclitec GmbH (“EZN”), a company with a licensed radiopharmaceutical manufacturing facility in Braunschweig, Germany. Under the terms of the agreement, EZN will manufacture and supply Onalta for use in named patient programs and registration clinical trials within the BioMedica territories, and for commercial sales, upon the EMA marketing authorization approval of Onalta. The agreement also provides for EZN to establish an exclusive suite for the manufacture and supply of Onalta which will be funded by the Company and estimated at a cost of €1.3 million (approximately $1.7 million), including estimated costs of €0.3 million associated with decommissioning of the dedicated suite upon termination. The Company is also required to make fixed monthly payments to EZN aggregating €2.7 million (approximately $3.6 million) for the initial five (5) years following the effective date of the agreement in addition to product costs.

On April 28, 2010, the Company entered into an Amendment to the License and Supply Agreements (the “Amendment”) with BioMedica to modify the Supply Agreement with respect to certain product transfer pricing provisions for the supply of Onalta during the period from April 1, 2010 through September 30, 2011 and the timing of certain advance payments on inventory; and to modify the Territory License Agreement with respect to the timing of a milestone payment after a first sale of Onalta. The effective date of the Amendment was April 1, 2010.

On September 13, 2010, the Company formally notified BioMedica that it had materially breached a number of provisions of the License Agreement and Supply Agreement (the “Agreements”), as amended, and invoked a sixty (60) day period for BioMedica to cure its defaults. To date, BioMedica has not cured any of the specified defaults and has contested the Company’s allegations of breach. If BioMedica fails to cure the defaults at the end of the specified cure period, the Company may exercise its right to terminate the Agreements. The Company also notified BioMedica that the Company reserves its right to terminate these Agreements immediately in connection with any incurable breaches by BioMedica.

Notwithstanding any potential termination of these Agreements with BioMedica, the Company continues to be obligated for all costs and monthly payments due to EZN pursuant to the Facility Setup and Contract Manufacturing Agreement. The Company believes there are alternatives to the BioMedica Agreements if the breach by BioMedica is not satisfactorily resolved. Accordingly, no losses are probable nor have any losses been recorded related to the EZN Agreement as of and for the period ended September 30, 2010.

12. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires a gross presentation of activities within the Level 3 roll forward, and adds a new requirement to disclose transfers in and out of Level 1 and 2 measurements. It also clarifies two existing disclosure requirements of ASC 820-10, Fair Value Measurements and Disclosures – Overall, to require fair value disclosures by class of assets and liabilities rather than by major category; and requires that reporting entities must disclose the valuation technique used and the inputs used in determining the fair values of each class of assets and liabilities for Level 2 and Level 3 measurements. The ASU is effective for the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 roll forward, which is required for annual reporting periods beginning after December 15, 2010 and for interim reporting periods within those years. Early application is permitted and comparative disclosures are not required in the period of initial adoption. The adoption of this ASU did not have a significant impact on the Company’s financial statements.

In April 2010, the FASB issued ASU 2010-17, Revenue Recognition – Milestone Method of Revenue Recognition. ASU 2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases in a drug study or achieving a specific result from the research or development efforts. Consideration that is contingent on achievement of a milestone in its entirety may be recognized as revenue in the period in which the milestone is achieved only if the milestone is judged to meet certain criteria to be considered substantive. Milestones should be considered substantive in their entirety and may not be bifurcated. An arrangement may contain both substantive and non-substantive milestones that should be evaluated individually. The ASU is effective for fiscal years beginning after June 15, 2010. The adoption of this ASU will not have a significant impact on the Company’s financial statements.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements and Risk Factors

When you read this section of this Form 10-Q, it is important that you also read the financial statements and related notes and the Risk Factors section included in our Annual Report on Form 10-K as of, and for the year ended December 31, 2009, as well as the Risk Factors section in this Form 10-Q.

Statements in this interim report on Form 10-Q that are not strictly historical in nature are forward-looking statements. These statements include, but are not limited to, statements about our financial performance, our corporate strategy, our business operations, our negotiations with our Bond holders and the consequences of the failure to reach agreement with the Bond holders in regard to avoiding acceleration of the debt obligations under the Bond Indenture and restructuring such debt on acceptable terms, our ability to meet our obligations under the Bond Indenture, our potential insolvency and other consequences caused by a default under the Bond Indenture, our clinical trials of Azedra ^™ , Onalta ^™ , Trofex ^™ , Solazed ^™ and Zemiva ^™ and anticipated regulatory requirements and the timing of launches of such products, our business development strategy regarding the European rights to Onalta™ and anticipated use in named patient programs and clinical trials in the licensed territories, anticipated revenues from product supply to BioMedica, from regulatory milestone payments and from milestone and tiered royalties on sales, our capital requirements and our needs for additional financing, potential severe dilution or subordination of our stock ownership, and potential delisting of our stock. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “continuing,” “ongoing,” “should,” “could,” “goal,” and similar expressions intended to identify forward-looking statements. These statements are only predictions based on current information and expectations and involve a number of risks and uncertainties. The underlying information and expectations are likely to change over time. Actual events or results may differ materially from those projected in the forward-looking statements due to various factors, including, but not limited to, those set forth in the Risk Factors section of our annual report on Form 10-K and those set forth in the Risk Factors section in this Form 10-Q. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Recent Developments

On November 16, 2007, we sold $150,000,000 in Senior Secured Floating Rate Bonds due 2012 (“Bonds”) and warrants to purchase 6,021,247 shares of common stock at an exercise price of $5.87 per share (“Bond Warrants”) under an Indenture (“Bond Indenture”). As of September 30, 2010, we failed to comply with the minimum liquidity covenant under our Bond Indenture which default was temporarily waived under the terms of a waiver agreement with the Bond holders and Bond Indenture trustee as discussed in the following paragraph. Additionally, under the Bond Indenture, we are required to deliver audited annual financial statements to Bond holders which are not subject to a “going concern” or like qualification or exception from our auditors. As described in Note 1 to the financial statements for the period ended September 30, 2010 included in this Quarterly Report on Form 10-Q, in the report of our independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2009, our independent auditors included an explanatory paragraph relating to substantial doubt about whether we can continue as a going concern. Consequently, the inclusion of such a “going concern” paragraph resulted in a default under the terms of the Bond Indenture which was also temporarily waived by the Bond holders.

On November 3, 2010, we received a further extension of a waiver agreement executed on March 15, 2010 with the holders of the Bonds and the Bond Indenture trustee. The waiver has been extended until 11:59PM Eastern Standard Time on November 19, 2010, subject to earlier termination by the Bond holders upon certain circumstances. Under the terms of the waiver agreement and subsequent amendments thereto, the Bond holders and Bond Indenture trustee temporarily waived a default arising from the inclusion of the “going concern” paragraph in the report of the independent registered public accounting firm on the Company’s financial statements as of and for the year ended December 31, 2009, any default arising out of our failure to comply with the minimum liquidity requirements set forth in the Bond Indenture and other technical defaults under the Bond Indenture. The waiver continues to be subject to a number of terms and conditions. We cannot assure that any further extension of the waiver will be obtained from the Bond holders and Bond Indenture trustee. In the event that the waiver grace period (or any extension thereof) expires or terminates prior to the successful restructuring of the outstanding debt, then we will be in default of our obligations under the Bond Indenture, and the Bond holders may choose to accelerate the debt obligations under the Bond Indenture and demand immediate repayment in full and seek to foreclose on the collateral supporting such obligations. If our indebtedness under the Bond Indenture is accelerated or is not restructured on acceptable terms, it is likely that we will be unable to repay our debt obligations and we may seek protection under the U.S. Bankruptcy Code or similar relief. Even if a consensual restructuring occurs, the restructuring will most likely occur through a U.S. Bankruptcy Code Chapter 11 proceeding or similar proceeding.

We are continuing to discuss with the Bond holders various proposals. There is no assurance that such discussions will be successful or that we will reach such an agreement on terms favorable to us, or at all. The terms of any restructuring, if consummated, are uncertain and would likely have a significant impact on our Company and our existing equity. In the event that we are able to successfully restructure our outstanding indebtedness, we will also need to actively pursue financing strategies to raise additional funds through private sales of equity, incurrence of indebtedness and other strategic collaborative arrangements. However, unless the amount of our senior secured indebtedness is significantly reduced or restructured, it may prove difficult for us to obtain such additional financing.

Company Overview

We are a clinical-stage biopharmaceutical company and a pioneer in the emerging field of molecular medicine. We are focused on the discovery, development and commercialization of targeted therapeutic and imaging radiopharmaceuticals for use in oncology.

We have five clinical-stage candidates in development. The Company’s product candidates and their stages of development as of September 30, 2010 are summarized below:


Program	Primary Indication(s)	Stage of Development
Oncology
Azedra (Ultratrace iobenguane I 131)	Pheochromocytoma ( and paraganglioma; together referred to singly as “pheochromocytoma”)	In Pivotal Phase 2b
	Neuroblastoma	In Phase 2a
Onalta (Yttrium-90 edotreotide)	Metastatic carcinoid and pancreatic neuroendocrine tumors	Pre-Phase 3 (Europe)
Trofex (Iofolastat I123)	Metastatic prostate cancer	In Phase 1
Solazed (Ioflubenzamide I 131)	Metastatic melanoma	In Phase 1

Non-Oncology
Zemiva (Iodofiltic acid I 123)	Acute cardiac ischemia	Completed Phase 2

Clinical Developments Regarding our Product Candidates

Oncology Product Candidates

Azedra

Azedra is our lead radiotherapeutic oncology product candidate. We have received a Special Protocol Assessment (“SPA”) letter stating that the FDA has reached agreement with the Company regarding the design of the pivotal Phase 2 trial for pheochromocytoma leading to the registration of Azedra™ (Ultratrace™ iobenguane I 131, formerly known as Ultratrace MIBG). Currently, patients are being enrolled in this study (IB-12b).

In June 2010, we presented positive data from our Azedra™ Phase 2a clinical trial in neuroblastoma at the Advances in Neuroblastoma Research Conference in Stockholm, Sweden. The primary aim of this Phase 2a study was to establish the maximum tolerated dose of Azedra™ with autologous hematopoietic stem cell support. The study defined safety, toxicity and response data and supported proceeding to a pivotal Phase 2 trial utilizing 18 mC/i/kg administered dose.

In September 2010, we announced that we have notified clinical trial investigators that we have suspended patient enrollment in our pivotal Phase 2 clinical trial for Azedra™ (IB-12b). This action reflects the decision to seek a partner willing to fund further enrollment to complete the study's intended sample size. There are no known safety or efficacy issues based on the data available from the study at the present time and all patients currently enrolled will be followed up by clinicians in accordance with the current study protocol.

Onalta

In May, 2009, we reached an agreement with the European Medicines Agency (“EMA”) on a proposed Phase 3 protocol design for Onalta that would be suitable to support registration provided the trial meets its endpoints. In September 2009, we sub-licensed Onalta™ Y-90 edotreotide to BioMedica. Under this License Agreement, BioMedica is expected to perform clinical studies and market, distribute and commercialize Onalta in certain countries in Europe, the Middle East, North Africa, Russia and Turkey and secure all regulatory approvals within the BioMedica territories. In October 2009, we entered into an exclusive Supply Agreement with BioMedica. Certain amendments were made to both Agreements in April 2010.

In September 2010, we formally notified BioMedica that it had materially breached a number of provisions of the License Agreement and Supply Agreement (the “Agreements”), as amended, and invoked a sixty (60) day period for BioMedica to cure its defaults. To date, BioMedica has not cured any of the specified defaults and has contested our allegations of breach. If BioMedica fails to cure the defaults at the end of the specified cure period, we may exercise our right to terminate the Agreements. We also notified BioMedica that we reserve our right to terminate these Agreements immediately in connection with any incurable breaches by BioMedica.

Trofex

We have completed the Phase 1 (TX-P101), proof of concept study for Trofex in men with documented prostate cancer and confirmed metastatic disease. Based on our initial results of clinical data in men with prostate cancer, we initiated a second Phase 1 (TX-P102) Trofex imaging study in August 2009 in normal men. We have completed the study and the clinical study report. In November 2009, an additional exploratory Phase 1 (TX-P103) was initiated for the detection of metastatic prostate cancer that will inform development of further clinical trials and could support a fast track designation for approval by the FDA, for Trofex as a diagnostic agent. Data from our two completed Phase 1 studies and preliminary data from our ongoing TX-P103 demonstrated that Trofex rapidly detected prostate cancer localized in the prostate bed, soft tissues and bone within four hours post injection. In contrast, ProstaScint® (111In-capromab pendetide), required five days before imaging, was unable to detect metastatic disease in bone. Finally, we expect an important collaborative study (TX-P104) with the National Cancer Institute/National Institute of Health to begin in the latter half of 2010 where patients with known prostate cancer scheduled for surgery will be evaluated with Trofex prior to surgery.

Solazed

Solazed is our targeted radiotherapeutic drug candidate for treatment of malignant metastatic melanoma. We initiated a Phase 1 clinical trial of Solazed and dosed our first patient in March 2010. The Phase 1 proof-of-concept study is being conducted with the University of Pennsylvania and is funded by a two-year grant from the National Cancer Institute.

Our Non-Oncology Product Candidate

Zemiva

We are currently in discussions with the FDA regarding the design of the Phase 3 protocol and continue to explore opportunities to out-license Zemiva in conjunction with our strategic focus on oncology.

On-Going Clinical Programs

Clinical trial costs are a significant component of our research and development expenses. We contract with third parties to perform certain clinical trial activities on our behalf in the on-going development of our product candidates. As of September 30, 2010, we have three (3) active clinical trials in the area of oncology excluding our grant-funded clinical trial for Solazed. Our on-going clinical trials and estimated future remaining costs to be incurred on these clinical trials based on the financial terms of our contracts with clinical sites and contract research organizations are as follows:


Clinical Trial	Indication	Estimated Future Remaining Costs			Estimated Period of Expenditure
Pivotal Phase 2b for Azedra or IB12b	Malignant pheochromocytoma in adults	$	5.6 million	⁽³⁾	Through the End of 2014
Phase 2a for Azedra or IB13	Neuroblastoma in children	$	0.1 million		Through the End of 2010 ⁽¹⁾
Phase 1 Trofex or TX-P103 ⁽²⁾	Prostate cancer imaging	$	0.6 million		Through the End of 2010

(1)	Estimated completion of clinical trial has been pushed out due to delays in patient enrollment.

(2)	The number of estimated patient enrollment has increased.

(3)	Remaining costs based on the study’s intended sample size.

Financial Operations Overview

Revenue

Licensing Agreement.

In September 2009, we entered into a Territory License Agreement (“Agreement”) with BioMedica to sub-license our Onalta™ Y-90 edotreotide radiotherapeutic in certain countries in Europe, the Middle East, North Africa, Russia and Turkey. This Agreement provides BioMedica an exclusive sub-license to ours and Novartis’ intellectual property rights and know-how with respect to Onalta. We had licensed the rights to edotreotide, the parent compound of Onalta, from Novartis in November 2006. Under this Agreement, BioMedica is expected to perform clinical studies and market, distribute and commercialize Onalta in the specified territories and secure all regulatory approvals. We agreed to provide forty (40) hours of compound radiolabeling technical transfer support services without charge in addition to providing reasonable levels of training, technical and regulatory support services on a time and materials basis at BioMedica’s request.

Under the terms of this Agreement, we received an initial, nonrefundable payment of $4.4 million, two option grants to have BioMedica assign, transfer and convey to us, a minority shareholder interest in BioMedica, each for 1.5% of the total non-diluted interest in all classes of any issued and authorized outstanding share capital in BioMedica at the time of each exercise, exercisable upon execution of this Agreement and upon the EMA marketing authorization approval of Onalta and will be eligible to receive more than $10 million in total regulatory milestone payments, net of license payments to Novartis. We will also be eligible to receive milestone and tiered royalties on Onalta sales. We have not received any royalty revenue to date under this Agreement.

This Agreement also provides that during the term of the Agreement, BioMedica will purchase all of its requirements for Onalta exclusively and solely from us, a third party manufacturer designated by us, and/or a BioMedica designated third-party manufacturer approved by us, the terms and conditions of which are outlined in a definitive supply agreement executed in October 2009 (“Supply Agreement”). The term of the Supply Agreement is for ten (10) years and provides for guaranteed monthly minimum purchases within a defined period of time by BioMedica.

Research and Development Grants.

Our grant revenue to date has been derived from National Institutes of Health, or NIH, grants. We have not had any significant product sales. In the future, we expect our revenue to consist of product sales and payments from collaborative or strategic relationships, as well as from additional grants. Funding of government grants is competitive and subject to annual Congressional appropriations, and all of our government contracts contain provisions which make them terminable at the convenience of the government. The government could terminate, reduce or delay the funding under any of our grants at any time. Accordingly, there is no assurance that we will receive funding of any grants that we may be awarded. As of September 30, 2010, gross proceeds of $2.7 million remained to be received under our various NIH grants, which include potential reimbursements for our employees’ time and benefits and other expenses related to performance under the various contracts. In the event we are not successful in obtaining any new government grants or extensions to existing grants, we may have to reduce the scope of some of our programs.

The status of our research and development grants is as follows:


Program Title	Agency	Program Total		Total Received Through September 30, 2010		Remaining Amounts to be Earned as of September 30, 2010		Contract/ Grant Expiration
Early Clinical Testing for Melanin Targeting Radio-therapeutic Agent in Melanoma ^(2)(4)(5)	NCI ⁽¹⁾	$	783,000	$	414,000	$	369,000		2012
Targeting Tumor Microenvironment with Radiolabeled Inhibitors of Seprase ⁽²⁾	NCI ⁽¹⁾		181,000		181,000		—		2010
Nanodosing: A Path to Higher Sensitivity and Lower Toxicity Pharmaceuticals ⁽⁴⁾	NCI ⁽¹⁾		982,000		705,000		277,000		2011
Systematic Radiotherapy for Metastatic Melanoma: Innovation of a Novel Radiopharma	NCI ⁽¹⁾		1,243,000		492,000		751,000		2011
Development of a Molecular Targeting Agent for PSMA to Diagnose Metastatic Prostate Cancer ⁽²⁾⁽⁵⁾	NCI ⁽¹⁾		1,290,000		507,000		783,000		2011
Targeting Tumor Hypoxia with Radiohalogenated Inhibitors of Carbonic Anhydrase IX ⁽³⁾	NCI ⁽¹⁾		111,000		58,000		53,000		2012
A Molecular Targeting Agent for Systematic Radiotherapy of Metastatic Prostate Cancer ⁽⁶⁾	NCI ⁽¹⁾		243,000		—		243,000		2011
Development of a Kit-Based PET Molecular Imaging Agent: Edotreotide Ga 68 ⁽⁶⁾	NCI ⁽¹⁾		263,000		—		263,000		2011

Total		$	5,096,000	$	2,357,000	$	2,739,000

(1)	National Cancer Institute (“NCI”), part of the National Institutes of Health.

(2)	New contracts awarded in the third quarter of 2009.

(3)	New contract awarded in the first quarter of 2010.

(4)	Contract term extended by NCI through the expiration date stated in the table above.

(5)	Program total increased in support of ongoing projects in the second quarter of 2010.

(6)	New contracts awarded in the third quarter of 2010.

Cost of Product Revenues.

Concurrent with the Supply Agreement entered into with BioMedica in October 2009, we also entered into a ten (10) year Facility Setup and Contract Manufacturing Agreement with Eckert & Ziegler Nuclitec GmbH (“EZN”), a company with a licensed radiopharmaceutical manufacturing facility in Braunschweig, Germany. Under the terms of the agreement, EZN will manufacture and supply Onalta for use in named patient programs and registration clinical trials within the BioMedica territories, and for commercial sales, upon the EMA marketing authorization approval of Onalta. The agreement also provides for EZN to establish an exclusive suite for the manufacture and supply of Onalta which will be funded by us and estimated at a cost of €1.3 million (approximately $1.7 million), including estimated costs of €0.3 million associated with decommissioning of the dedicated suite upon termination. We are also required to make fixed monthly payments to EZN aggregating €2.7 million (approximately $3.6 million) for the initial five (5) years following the effective date of the agreement in addition to product costs.

The monthly payments to EZN are expensed as incurred and recognized as “Cost of product revenues” in the Consolidated Statements of Operations.

Research and Development Expense.

Research and development expense consists of expenses incurred in developing and testing product candidates. These expenses consist primarily of salaries and related expenses for employees, as well as fees from contract research organizations, independent clinical investigators, fees paid to third-party professional service providers for monitoring our clinical trials and for acquiring and evaluating clinical trial data, costs of contract manufacturing services and materials used in clinical trials, depreciation of capital assets used to develop our product candidates, and facilities operating costs. We expense research and development costs as incurred. Certain research and development activities are partially funded by NIH grants described above. All costs related to such grants are included in research and development costs. We believe that significant investment in product development is necessary and plan to continue these investments as we seek to develop our product candidates and proprietary technologies.

We do not know if we will be successful in developing our drug candidates. While we expect that expenses associated with the completion of our current clinical programs could be substantial, we believe that such expenses are not reasonably certain at this time. The future timing and amount of these development expenses is dependent upon the costs associated with potential future clinical trials of our drug candidates, and the related expansion of our research and development organization, regulatory requirements, the advancement of our preclinical programs and product manufacturing costs, many of which cannot be determined with accuracy at this time based on our stage of development. This is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, including regulatory requirements for government approvals, which can vary significantly over the life of a project as a result of unanticipated events arising during clinical development, including:

•

the number of clinical sites included in the trial;

•

the length of time required to enroll suitable subjects;

•

the number of subjects that ultimately participate in the trials;

•

the efficacy and safety results of our clinical trials; and

•

the number of additional clinical trials that may be required as part of the government approval process.

Our expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals and expenses related to filing, prosecuting, defending or enforcing any patent claims or other intellectual property rights. In addition, we may obtain unexpected or unfavorable results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some drug candidates or focus on others. A change in the outcome of any of the foregoing variables in the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate. For example, if the FDA or other regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Additionally, future commercial and regulatory factors beyond our control will evolve over time, which will impact our clinical development programs and plans.

Beyond our lead drug candidates, we could select additional drug candidates and research projects for further development in response to the preclinical and clinical success, as well as the commercial potential of such drug candidates.

As our product candidates advance to late-stage clinical trials, we anticipate incurring increased costs as expanded, larger-scale studies of patients with the target disease or disorder are conducted to obtain more definitive statistical evidence of efficacy and safety of the proposed product and dosing regimen. In particular, we expect to incur increased development costs in connection with our ongoing development efforts and clinical trials. We may incur additional costs to pursue the identification and development of other product candidates, which can be funded through our own resources or through strategic collaborations.

We own a radiopharmaceutical manufacturing facility located in Denton, Texas and have obtained a radioactive materials license from the State of Texas for this facility that expires in May 2018. The facility has more than 80,000 square feet of pharmaceutical manufacturing, warehouse, clean room and administrative office space.

As of September 30, 2010, the facility was not yet placed in service. In the fourth quarter of 2009, we recognized an impairment charge of $1.2 million to reflect the outcome of an impairment review that was undertaken which indicated a decline in the fair value of building facility. We conduct a review of our long-lived assets for possible impairment when events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets as determined by valuation techniques appropriate in the circumstances.

In early January 2010, we also announced a strategic decision to re-align and re-balance personnel to further reduce operating costs and support the efficient development of our oncology product candidates. We also recognized a charge of approximately $0.2 million in the first quarter of 2010 as a result of this reduction in research and development personnel.

General and Administrative Expense.

General and administrative expense consists primarily of salaries and other related costs for personnel in executive, finance, accounting, information technology and human resource functions. Other costs include facility costs not otherwise included in research and development expense, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

Stock-Based Compensation Expense.

Operating expenses include stock-based compensation expense, which results from the issuance of stock-based awards, such as options and restricted stock to employees, members of our Board of Directors and consultants in lieu of cash consideration for services received. The measurement and recognition of compensation expense for service-based awards made to employees under our Equity Incentive Plans are based on their estimated grant date fair values and compensation costs are recognized over the requisite service period using the straight-line attribution method. Fair values for performance-based awards made to employees are estimated based on the date the performance conditions are established and assessed as probable of being achieved and compensation costs are recognized on a straight-line basis through the period of achievement of the performance conditions. The probability of vesting is reassessed by the Company at each reporting period and compensation costs are adjusted based on its probability assessment. Compensation costs recognized reflect the number of awards that are expected to vest and adjusted to reflect those awards that do ultimately vest.

The estimated fair value of the stock options granted is estimated using the Black-Scholes valuation model. The use of the Black-Scholes option-pricing model requires us to make assumptions with respect to the expected life of the option, the expected volatility of the common stock consistent with the expected life of the option, risk free interest rates and expected dividend yields of our common stock. Higher estimates of volatility and expected life of the option increase the value of an option and the resulting expense.

All stock-based awards to non-employees are accounted for at their fair values and recognized over the period of expected service by the nonemployees (which is generally the vesting period). As the service is performed, we are required to update these assumptions and periodically revalue unvested options and make adjustments to the stock-based compensation expense using the new valuation. These adjustments are recognized in the consolidated statements of operations in the periods of re-measurement. Ultimately, the final compensation charge for each option grant to nonemployees is unknown until the performance of services is completed. We account for transactions in which services are received in exchange for equity instruments based either on the fair value of such services received from nonemployees or of the equity instruments issued, whichever is more reliably measured. The two factors which most effect charges or credits to operations related to stock-based compensation for nonemployee awards are the fair value of the common stock underlying stock options for which such stock-based compensation is recorded and the volatility of such fair value.

Compensation expense for options and restricted stock granted to employees and nonemployees is classified either as research and development expense or general and administrative expense based on the job function of the individual receiving the grant.

Other (Expense) Income, Net.

Other (expense) income, net includes interest income, interest expense and the change in fair value of the bond derivative. Interest income consists of interest earned on our cash, cash equivalents and investments. Interest expense consists of interest incurred on debt instruments. Interest expense is a non-cash expense relating to the Bond interest, which includes the paid-in-kind Bonds issued to the Bond holders in lieu of cash interest payments, the amortization of Bond financing expenses and discount.

Critical Accounting Policies

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect our reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our judgments and estimates, including those related to revenue recognition, the fair value of our Denton Texas facility, establishing amounts of accrued expenses, fair valuation of stock-based awards, valuation of the bond, common stock warrants and derivative financial instruments. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no significant changes in our critical accounting policies since December 31, 2009 as described in the discussion of critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2009.

Recent Accounting Pronouncements

Results of Operations

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2010

Revenue — Research and Development Grants.

Revenue increased by approximately $0.4 million or 351%, to approximately $0.5 million for the three months ended September 30, 2010 from approximately $0.1 million for the three months ended September 30, 2009. The Company receives funding under various Research and Development grants. The increase is primarily due to four new grants received in the third and first quarters of 2009 and 2010, respectively, and timing of grant-related activities.

Cost of Product Revenues.

For the three months ended September 30, 2010, we have recognized cost of product revenues of approximately $0.1million under our agreement entered into with EZN in October 2009 for the manufacture and supply of Onalta to BioMedica.

Notwithstanding any potential termination of our License and Supply Agreements (“Agreements”) with BioMedica, we continue to be obligated for all costs and monthly payments due under our agreement with EZN. We believe that there are alternatives to the BioMedica Agreements if the breach by BioMedica is not satisfactorily resolved. Accordingly, no losses are probable nor have any losses been recorded related to our agreement with EZN.

Research and Development Expense.

For the periods indicated, research and development expenses for our programs in the development of Azedra, Onalta, Solazed, Trofex, Zemiva and other general R&D programs were as follows (in thousands):


	Three months ended September 30,				Increase / (Decrease)
Program	2009		2010		Increase / (Decrease)
Azedra and Ultratrace platform	$	3,536	$	2,478	$	(1,058	)
Onalta		430		141		(289	)
Solazed		21		7		(14	)
Trofex		1,353		554		(799	)
Zemiva		546		72		(474	)
Other Platform and general R&D programs		3,078		2,220		(858	)

Total R&D expenses, including related party R&D	$	8,964	$	5,472	$	(3,492	)

Research and development expense decreased approximately $3.5 million or 39%, to $5.5 million for the three months ended September 30, 2010 from $9.0 million for the three months ended September 30, 2009. This spending decrease is attributed primarily to: (1) a decrease in our Azedra program costs of $1.1 million due to decreased compensation costs and as a results of costs being substantially incurred in the prior year for the build-out and validation of our manufacturing process and facility at MDS Nordion; (2) a decrease in our Trofex program costs of $0.8 million due to reduction in preclinical costs as we advanced our program into Phase 1 studies; (3) completion of our Zemiva clinical trial; and (4) reduced costs of $0.9 million in other platform and general research and development costs due to decreased compensation costs as a result of a reduction in headcount offset by an increase in costs attributable to grant-related activities.

General and Administrative Expense.


	Three months ended September 30,				Increase / (Decrease)
General and Administrative Expenses	2009		2010		Increase / (Decrease)
	(in thousands)
Compensation and personnel-related expense	$	1,371	$	905	$	(466	)
Professional services		4,107		6,085		1,978
Insurance		158		415		257
Depreciation and facility costs		365		143		(222	)
Stock-based compensation expense		1,349		154		(1,195	)
Other		105		28		(77	)

Total general and administrative expenses	$	7,455	$	7,730	$	275

General and administrative expense increased $0.2 million or 4%, to $7.7 million for the three months ended September 30, 2010 from $7.5 million for the three months ended September 30, 2009. This increase is due primarily to an increase of $2.0 million in professional services and increase of $0.3 million in business insurance expenses. The increase in professional services is attributable to increased legal of $3.0 million incurred in connection with our ongoing discussions and negotiations with our Bond holders regarding the restructuring of our debt obligations offset by lower consulting and corporate marketing fees of $1.0 million. These increases were offset by decreases in compensation, personnel-related expenses and stock-based compensation of $1.7 million due to a reduction in headcount as compared to prior year and the absence of an annual grant in 2010. The reduction in aggregate rentable premises for our office lease space at the end of March 2010 also contributed a decrease of $0.2 million in our depreciation and facility costs.

Other (Expense) Income, Net.

Other expense, net, increased $0.4 million to $5.5 million for the three months ended September 30, 2010 from other expense, net of $5.1 million for the three months ended September 30, 2009. The net increase was due to a decrease in interest income of $0.2 million in the current period as a result of lower yields on our investments as well as a decrease in investment balances. The investments and associated income are utilized to fund current operations. Interest expense increased $0.3 million in the three months ended September 30, 2010 as compared to the three months ended September 30, 2009. The average interest rate was 8.66% and 8.43% for the three months ended September 30, 2009 and 2010, respectively. The effect of lower LIBOR interest rates on our $150 million Senior Secured Floating Rate Bonds (“Bonds”) and PIK bonds was offset by the increase in the principal base on which interest is accrued. Interest accrued on the Bonds for the first three years from issuance date shall be payable through the issuance of PIK Bonds and shall begin to accrue interest from the date of issuance of such PIK Bonds.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2010

Revenue — Research and Development Grants.

Revenue increased by approximately $0.9 million or 200%, to approximately $1.4 million for the nine months ended September 30, 2010 from approximately $0.5 million for the nine months ended September 30, 2009. The Company receives funding under various Research and Development grants. The increase is primarily due to four new grants received in the third and first quarters of 2009 and 2010, respectively, and timing of grant-related activities.

Cost of Product Revenues.

For the nine months ended September 30, 2010, we have recognized cost of product revenues of approximately $0.3 million under our agreement entered into with EZN in October 2009 for the manufacture and supply of Onalta to BioMedica.

Research and Development Expense.


	Nine months ended September 30,				Increase / (Decrease)
Program	2009		2010		Increase / (Decrease)
Azedra and Ultratrace platform	$	7,974	$	8,049	$	75
Onalta		1,402		463		(939	)
Solazed		86		64		(22	)
Trofex		2,832		2,052		(780	)
Zemiva		509		226		(283	)
Other Platform and general R&D programs		9,273		8,811		(462	)

Total R&D expenses, including related party R&D	$	22,076	$	19,665	$	(2,411	)

Research and development expense decreased approximately $2.4 million or 11%, to $19.7 million for the nine months ended September 30, 2010 from $22.1 million for the nine months ended September 30, 2009. Key components of this spending decrease were attributed to reduced clinical activities and costs of $0.9 million for Onalta and $0.8 million for Trofex as we plan the next phases of our clinical trials for these programs. Total research and development expenses for the nine months ended September 30, 2009 included a $1.8 million reduction in costs due to true-ups of estimates for various program costs primarily related to Zemiva and Azedra of $0.9 million and $0.5 million, respectively. Excluding the true-ups of estimates for program costs, the Azedra program had a net decrease of $0.5 million due to decreases in compensation and manufacturing costs due to lower headcount and as a result of costs being substantially incurred in the prior year for the build-out and validation of our manufacturing process and facility at MDS Nordion offset by an increase in costs incurred for our ongoing pivotal Phase 2b clinical trial.

General and Administrative Expense.


	Nine months ended September 30,				Increase / (Decrease)
General and Administrative Expenses	2009		2010		Increase / (Decrease)
	(in thousands)
Compensation and personnel-related expense	$	4,145	$	3,076	$	(1,069	)
Professional services		8,525		12,961		4,436
Insurance		464		1,166		702
Depreciation and facility costs		1,054		446		(608	)
Stock-based compensation expense		2,077		681		(1,396	)
Other		280		289		9

Total general and administrative expenses	$	16,545	$	18,619	$	2,074

General and administrative expense increased $2.1 million or 13%, to $18.6 million for the nine months ended September 30, 2010 from $16.5 million for the nine months ended September 30, 2009. This increase is due primarily to an increase of $4.4 million in professional services and an increase of $0.7 million in business insurance expenses. The increase in professional services is attributable to increased legal and consulting fees of $5.4 million incurred in connection with our ongoing discussions and negotiations with our Bond holders regarding the restructuring of our debt obligations offset by lower corporate marketing fees of $1.1 million. These increases were further offset by decreases in compensation, personnel-related expenses and stock-based compensation expense due to a reduction in headcount as compared to prior year and the absence of an annual grant in 2010. The reduction in our aggregate rentable premises for our office lease space at the end of March 2010 also contributed a decrease of $0.6 million in our depreciation and facility costs.

Other (Expense) Income, Net.

Other expense, net, increased $0.9 million to $16.0 million for the nine months ended September 30, 2010 from other expense, net of $15.1 million for the nine months ended September 30, 2009. The net increase was due to a decrease in interest income of $0.9 million in the current period was the result of lower yields on our investments as well as a decrease in investments. The investments and associated income are utilized to fund current operations. Interest expense remained consistent in the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009. The average interest rate was 9.19% and 8.33% for the nine months ended September 30, 2009 and 2010, respectively. The effect of lower LIBOR interest rates on our $150 million Senior Secured Floating Rate Bonds (“Bonds”) and PIK bonds was offset by an increase in the principal base on which interest is accrued. Interest accrued on the Bonds for the first three years from issuance date shall be payable through the issuance of PIK Bonds and shall begin to accrue interest from the date of issuance of such PIK Bonds.

Liquidity and Capital Resources

We have funded our operations from inception on January 10, 1997 through September 30, 2010 mainly through the issuance of bonds and warrants, common stock, redeemable convertible preferred stock, convertible notes and other notes, research funding from government grants and upfront license payments from collaborations.

We have incurred significant net losses and negative operating cash flows since inception. At September 30, 2010, we had an accumulated deficit of $346.0 million including the $53.2 million net losses incurred for the nine months ended September 30, 2010. We currently have five clinical stage product candidates in development and will need to spend significant capital to fulfill planned operating goals and continue to conduct clinical and non-clinical trials, achieve regulatory approvals and, subject to such approvals, successfully produce products for commercialization. As such, we expect to continue to incur significant net losses and negative operating cash flows in the foreseeable future.

As of September 30, 2010, we have approximately $198.6 million of Senior Secured Bonds and accrued and unpaid interest. The terms of our Bond Indenture include various covenants, including among others, financial covenants that require us to maintain a minimum liquidity level on a quarterly basis. The minimum liquidity covenant (as defined in the Bond Indenture and which substantially represents all of our cash, cash equivalents and investments) requires us to maintain a minimum amount of $25.7 million and $29.2 million at September 30, 2010 and December 31, 2010, respectively. We failed to comply with this covenant as of September 30, 2010, which default was temporarily waived under the terms of a waiver agreement with the Bond holders and Bond Indenture trustee as discussed below. Additionally, under the Bond Indenture, we are required to deliver audited annual financial statements to Bond holders which are not subject to a “going concern” or like qualification or exception from our independent auditors. In the report of the independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2009, our independent auditors included an explanatory paragraph relating to substantial doubt about whether we can continue as a going concern. Consequently, the inclusion of such a “going concern” paragraph resulted in a default under the terms of the Bond Indenture which was also temporarily waived (and currently remains subject to waiver) by the Bond holders.

On November 3, 2010, we received a further extension to the waiver agreement executed on March 15, 2010 with the holders of the Bonds and the Bond Indenture trustee. The waiver has been extended until 11:59 PM Eastern Standard Time on November 19, 2010, subject to earlier termination by the Bond holders upon certain circumstances. Under the terms of the waiver agreement and subsequent amendments thereto, the Bond holders and Bond Indenture trustee temporarily waived a default arising from the inclusion of the “going concern” paragraph in the report of the independent registered public accounting firm on the Company’s financial statements as of and for the year ended December 31, 2009, any default arising from the Company’s failure to comply with the minimum liquidity requirements set forth in the Bond Indenture and other technical defaults under the Bond Indenture. The waiver continues to be subject to a number of terms and conditions. We cannot assure that any further extension of the waiver will be obtained from the Bond holders and Bond Indenture trustee. Consequently, the long-term bond obligations and related debt issuance costs have been classified as current liabilities and current assets, respectively, at December 31, 2009 and at September 30, 2010. We cannot guarantee our ability to continue as a going concern or meet the minimum liquidity requirement in the future unless we can restructure our debt and raise additional capital, of which there can be no assurance. If the Bond Indenture is restructured in a transaction required to be accounted for as an extinguishment or the outstanding balance of the bond obligations is demanded by the Bond holders, unamortized debt issue costs of $3.4 million at September 30, 2010 would be required to be expensed at the restructuring or demand date.

In order to continue operations in the short and long term, we must restructure the terms of our outstanding Bonds and raise additional capital. Our failure to restructure the Bonds and raise capital when needed will have a significant negative impact on our financial condition and our ability to continue our operations.

The accompanying unaudited consolidated financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to our ability to continue as a going concern.

We are continuing to discuss with the Bond holders various proposals. Any transaction as a result of discussions with the Bond holders, if consummated, will be substantially dilutive to the holders of our shares of common stock and may result in our existing equity becoming effectively subordinated to newly-issued securities in the transaction as the newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. Debt issued as a result of a restructuring transaction may be secured and issued on terms that differ from the current indebtedness under the Bond Indenture. Such transaction, if consummated, may also result in our Company ceasing to list our securities on any securities exchange or bulletin board and ceasing to be a public reporting company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), may result in a change in the composition of our board of directors and other governance matters, and may result in other changes to our capital structure. There is no assurance that such discussions will be successful or that we will reach such an agreement on terms favorable to us, or at all. The terms of any restructuring, if consummated, are uncertain and would likely have a significant impact on our Company and our existing equity. Moreover, in connection with our discussions with the Bond holders to reach such an agreement, the Bond holders may impose additional operational or financial restrictions on us or modify the terms of our existing Bond Indenture. These restrictions may limit our ability, among other things, to make necessary capital expenditures or incur additional indebtedness. In addition, the Bond holders may require us to pay additional fees, prepay a portion of our indebtedness, accelerate the amortization schedule for our indebtedness or agree to higher interest rates on our outstanding indebtedness or take other actions that could adversely affect our business. The Bond holders may also require us to raise additional capital concurrently with any restructuring or thereafter which will be substantially dilutive to the holders of our existing shares of common stock and may include securities or debt with rights, preferences or privileges senior to those of existing stockholders. If the waiver grace period (or any extension thereof) expires or terminates, and we are unable to reach an agreement with Bond holders regarding an additional extension period or an agreement regarding the restructuring of our outstanding debt, we will be in default of our obligations under the Bond Indenture, and the Bond holders may choose to accelerate our debt obligations under the Bond Indenture and demand immediate repayment in full and seek to foreclose on the collateral supporting such obligations. If our indebtedness under the Bond Indenture is accelerated or is not restructured on acceptable terms, it is likely that we will be unable to repay our debt obligations and we may be forced to seek protection under the U.S. Bankruptcy Code or similar relief. Even if a consensual restructuring occurs, the restructuring will most likely occur through a U.S. Bankruptcy Code Chapter 11 proceeding or similar proceeding.

We may also seek to raise additional funds through private sales of equity, incurrence of indebtedness and other strategic collaborative arrangements which are limited under the provisions of the Indenture. If we raise additional funds through the issuance of new equity securities, our stockholders will experience substantial dilution, or the new equity securities may have rights, preferences or privileges senior to those of existing stockholders. To the extent that we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or our product candidates or grant licenses on terms that are not favorable to us. Debt incurred will have rights senior to our equity. We have no current commitments from any persons that they will provide any additional financing. Given the current market conditions and the status of our product development pipeline, obtaining financing may be difficult and may not be available on commercially acceptable terms, or at all.

Cash Flows


	Nine Months Ended September 30,						Increase/ (Decrease)
Summary Cash Flow Information	2009			2010			2010 vs. 2009
				(in thousands)
Net cash (used in) provided by:
Operating activities	$	(33,350	)	$	(39,489	)	$	(6,139	)
Investing activities		25,539			47,185			21,646
Financing activities		572			—			(572	)
Exchange rate effect on cash and cash equivalents		(2	)		(9	)		(7	)

Net increase (decrease) in cash and cash equivalents	$	(7,241	)	$	7,687		$	14,928

Cash and cash equivalents		18,254			23,154			4,900
Short-term investments		53,565			—			(53,565	)

Cash, cash equivalents and short-term investments	$	71,819		$	23,154		$	(48,665	)

Nine Months Ended September 30, 2009, Compared to the Nine Months Ended September 30, 2010

Net cash used in operating activities increased by $6.1 million to $39.5 million for the nine months ended September 30, 2010, compared to $33.4 million for the nine months ended September 30, 2009. The increase in cash used in operations was primarily due to an increase of $3.9 million in payments to vendors for prepaid expenses and other current assets, accounts payable and accrued expenses, a decrease of $0.6 million in accounts receivable, and an increase in our net loss from operations of $1.6 million after the exclusion of non-cash items for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009. Increases in cash outflows from operations were substantially attributable to payments made for professional services in connection with our ongoing discussions and negotiations with our Bond holders concerning the restructuring of our debt obligations. Net cash provided by investing activities increased by $21.6 million to $47.2 million for the nine months ended September 30, 2010, compared to $25.5 million for the nine months ended September 30, 2009. The increase was primarily due to liquidation of investments as such are utilized to fund operations offset by purchases of property and equipment and amounts escrowed for the payment of our EZN commitments. Net cash provided by financing activities in the prior period related primarily to the exercise of common stock options, there were no exercises of stock options in the current period.

Contractual Obligations

Contractual obligations, as of September 30, 2010, are not significantly different than that shown on page 69 of our Annual Report filed on Form 10-K for December 31, 2009 except as discussed under Note 9, Commitment and Contingencies, in the “Notes to the Unaudited Consolidated Financial Statements” for the period ended September 30, 2010.

Off-Balance Sheet Arrangements

We do not engage in nor have any off-balance sheet financing arrangements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk due to Variable Interest Rates on Bonds

We are exposed to interest rate risk from changes in the three month LIBOR (London Inter-Bank Offer Rate) rate that is the base rate of our $150,000,000 outstanding Bonds. The Bonds have a five-year maturity date and bear an interest rate equivalent to the LIBOR plus 8%, determined on a quarterly basis. The interest rate at September 30, 2010 was 8.47%. A 1% (100 basis points) increase in the three month LIBOR interest rate could add approximately $2.0 million in annual interest expense on the principal amount of the bonds that includes the paid-in-kind interest at September 30, 2010. During the first three years that the Bonds are outstanding, interest payments not paid in cash may be paid by issuing additional bonds. The Company has opted to issue additional bonds in lieu of cash payments for interest, which increases the Company’s overall debt levels. An increase in the LIBOR rate on our debt levels could adversely affect operating results as well as our financial position and cash flows.

Although we have not at the present time employed derivative financial instruments to limit the impact on cash flows of the volatility in the LIBOR interest rate, we may in the future employ derivative financial instruments such as swaps, collars, forwards, options or other instruments to limit the volatility to earnings and cash flows generated by this exposure. Derivative financial instruments will be executed solely as risk management tools and not for trading or speculative purposes. We may employ derivative contracts in the future which are not designated for hedge accounting treatment, which may result in volatility to earnings depending upon fluctuations in the underlying markets.

We principally invest our cash in money market instruments and securities issued by the US government and its agencies. These investments are subject to interest rate risk and could decline in value if interest rates fluctuate.

Foreign Currency Risk

We have entered into agreements with suppliers that require payment in foreign currencies. As a result, our financial position, results of operations and cash flows can be affected by market fluctuations in foreign exchange rates, primarily with respect to the Euro and Canadian dollar. We have not entered into any hedging agreements relating to this risk. We do not believe that a 10% change in foreign currency exchange rates would have a material impact on our financial position, results of operations and cash flows.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-l5(e) and l5d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report. The term “disclosure controls and procedures” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2010.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2010 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1A.

RISK FACTORS

During the period covered by this Quarterly Report on Form 10-Q, there have not been any material changes from the risk factors previously disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, except as noted below:

Risks Related to Our Ability to Continue as a Going Concern and Our Noncompliance with Covenants under Our Bond Indenture

We may not be able to continue as a going concern.

On November 16, 2007, we sold $150,000,000 in Senior Secured Floating Rate Bonds due 2012 (“Bonds”) and warrants to purchase 6,021,247 shares of common stock at an exercise price of $5.87 per share (“Bond Warrants”) under an Indenture (“Bond Indenture”). The terms of our Bond Indenture include various covenants, including, among others, a financial covenant that requires us to maintain a minimum liquidity level on a quarterly basis. The minimum liquidity covenant (as defined in the Bond Indenture and which substantially represents all of our cash, cash equivalents and investments) requires us to maintain a minimum amount of $25.7 million and $29.2 million at September 30, 2010 and December 31, 2010, respectively. We failed to comply with this covenant as of September 30, 2010, which default was temporarily waived under the terms of a waiver agreement with the Bond holders and Bond Indenture trustee received on November 3, 2010. Additionally, under the Bond Indenture, we are required to deliver audited annual financial statements to Bond holders which are not subject to a “going concern” or like qualification or exception from our independent auditors. In the report of the independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2009, our independent auditors included an explanatory paragraph relating to substantial doubt about whether we can continue as a going concern. We cannot guarantee our ability to continue as a going concern or meet the minimum liquidity requirement unless we can restructure our debt and raise additional capital, of which there can be no assurance.

Our obligations under our Bond Indenture may be accelerated due to our noncompliance with the covenants in our Bond Indenture if we are unable to reach an agreement with Bond holders regarding the restructuring of our outstanding debt when the grace period (or any extension thereof) of the waiver granted by our Bond holders expires.

As discussed above, our noncompliance with the minimum liquidity covenant and the inclusion of such a “going concern” paragraph in the report of the independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2009 resulted in defaults by us under the terms of the Bond Indenture which were temporarily waived by the Bond holders and Bond Indenture trustee.

Pursuant to a waiver agreement executed on March 15, 2010 with the holders of at least a majority of the Bonds and the Bond Indenture trustee and subsequent amendments thereto, the Bond holders and Bond Indenture trustee temporarily waived a default arising from the inclusion of the “going concern” paragraph in the report of the independent registered public accounting firm on the Company’s financial statements as of and for the year ended December 31, 2009, any default arising from our failure to comply with the minimum liquidity requirements set forth in our Bond Indenture and other technical defaults under the Bond Indenture. On November 3, 2010, we received a further extension to our waiver agreement pursuant to which the waiver has been extended until 11:59 PM Eastern Standard Time on November 19, 2010, subject to earlier termination by the Bond holders upon certain circumstances. The waiver continues to be subject to a number of terms and conditions. We cannot assure that any further extension of the waiver will be obtained from the Bond holders and Bond Indenture trustee. In the event that the waiver grace period (or any extension thereof) expires or terminates prior to the successful restructuring of the outstanding debt, then we will be in default of our obligations under the Bond Indenture, and the Bond holders may choose to accelerate the debt obligations under the Bond Indenture, demand immediate repayment in full, and seek to foreclose on the collateral supporting such obligations.

We are continuing to discuss with the Bond holders various proposals. Any transaction as a result of discussions with the Bond holders, if consummated, will be substantially dilutive to the holders of our shares of common stock and may result in our existing equity becoming effectively subordinated to newly-issued securities in the transaction as the newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. Debt issued as a result of a restructuring transaction may be secured and issued on terms that differ from the current indebtedness under the Bond Indenture. Such transaction, if consummated, may also result in our Company ceasing to list our securities on any securities exchange or bulletin board and ceasing to be a public reporting company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), may result in a change in the composition of our board of directors and other governance matters, and may result in other changes to our capital structure. There is no assurance that such discussions will be successful or that we will reach such an agreement on terms favorable to us, or at all. The terms of any restructuring, if consummated, are uncertain and would likely have a significant impact on our Company and our existing equity. Moreover, in connection with our discussions with the Bond holders to reach such an agreement, the Bond holders may impose additional operational or financial restrictions on us or modify the terms of our existing Bond Indenture. These restrictions may limit our ability, among other things, to make necessary capital expenditures or incur additional indebtedness. In addition, the Bond holders may require us to pay additional fees, prepay a portion of our indebtedness, accelerate the amortization schedule for our indebtedness or agree to higher interest rates on our outstanding indebtedness or take other actions that could adversely affect our business. The Bond holders may also require us to raise additional capital concurrently with any restructuring or thereafter which will be substantially dilutive to the holders of our existing shares of common stock and may include securities or debt with rights, preferences or privileges senior to those of existing stockholders. Any restructuring of the debt obligations could require a significant change in our plans and could require us to undergo a realignment of our cost structure, including a reduction in workforce. Further, we expect that any restructuring of the Bonds will require the approval of holders of more than a majority of the outstanding Bonds and, in some circumstances, unanimous approval will be required. Consequently, there is no assurance that we will be able to obtain such approval on satisfactory terms or at all. If the waiver grace period (or any extension thereof) expires or terminates, and we are unable to reach an agreement with Bond holders regarding an additional extension period or an agreement regarding the restructuring of our outstanding debt, the Bond holders may choose to accelerate our debt obligations under the Bond Indenture and demand immediate repayment in full and seek to foreclose on the collateral supporting such obligations. If our indebtedness under the Bond Indenture is accelerated or is not restructured on acceptable terms, it is likely that we will be unable to repay our debt obligations and we may be forced to seek protection under the U.S. Bankruptcy Code or similar relief. Even if a consensual restructuring occurs, the restructuring will most likely occur through a U.S. Bankruptcy Code Chapter 11 proceeding or similar proceeding.

We have been in discussions with the Bond holders since the early part of this year. As the discussions and negotiations with our Bond holders regarding the restructuring of our outstanding debt are further prolonged, the amount of any additional capital that the Company needs to raise may increase, requiring us to issue even more debt or equity securities, which will result in our stockholders experiencing further dilution.

Our outstanding Bonds are secured by all of our assets, and a default could result in our Bond holders taking title to all of our assets in order to satisfy our obligations to them, which could render our common stock valueless, as our debt holders may foreclose on our assets in an effort to be repaid amounts due under the Bonds and force us into bankruptcy.

Our obligations under our existing Bonds are secured by a first priority security interest in all of our assets including our intellectual property. If we are unable to make the payments due on the Bonds, if we default on any of the conditions, restrictions or covenants of the Bonds, or if we become insolvent, the holders of the Bonds have a right to foreclose on, take possession of and liquidate all of our assets. Any such default and the related foreclosure and liquidation could irreparably harm our financial condition and our ability to operate. As such, our Bond holders could force us into bankruptcy at any time, which could result in the complete failure of our business. Consequently, if our outstanding debt cannot be restructured on acceptable terms and if the Bond holders choose to accelerate our debt obligations under the Bond Indenture and demand immediate repayment in full, we may seek protection under the U.S. Bankruptcy Code or similar relief. We currently have very limited assets that would most likely not be sufficient to cover existing debts if we have to liquidate, and consequently, stockholders would most likely lose their entire investment in our Company.

Any uncertainty relating to our ability to restructure our debt could impair our ability to implement our business plan and our ability to continue our operations.

As we continue our discussions with the Bond holders regarding a restructuring of our outstanding debt obligations, we will also need to continue to operate our business, maintain our relationships with our key employees, vendors and other third parties. Our key employees may seek opportunities elsewhere due to a lack of certainty regarding our financial situation. Vendors may be reluctant to extend credit as a result of our current financial situation. Similarly, our ability to grow our relationships with our current licensees and potential licensees may be significantly impaired due to the uncertainty regarding our financial situation. If we are unable to maintain our relationships with our key employees and vendors and our relationships with our current licensees and potential licensees, our ability to continue to operate our business could be materially impaired.

Risks Related to Our Common Stock

Our stock price has resulted in our failure to meet NASDAQ Global Market continued listing requirements, which could result in NASDAQ delisting of our common stock.

Our common stock is listed on the NASDAQ Global Market. On October 7, 2010, we received a letter from the NASDAQ Stock Market (“NASDAQ”) notifying that for the 30 consecutive business days preceding the date of the letter, we failed to maintain the minimum $15 million Market Value of Publicly Held Shares (“MVPHS”) requirement for continued listing on the NASDAQ Global Market pursuant to NASDAQ Listing Rule 5450(b)(2)(C). Also on October 6, 2010, NASDAQ notified us that for the 30 consecutive business days preceding the date of the letter, our listed securities did not maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Rule”), as required by Listing Rule 5450(a)(1). In accordance with NASDAQ Marketplace Rules, we have a grace period of 180 calendar days to regain compliance. NASDAQ will deem us to have regained compliance with the minimum MVPHS requirement if our MVPHS closes at $15 million or more for a minimum of 10 consecutive business days prior to April 5, 2011. Similarly, we will regain compliance with the Minimum Bid Price Rule if the our common stock closes at $1.00 per share or more for at least 10 consecutive business days prior to April 4, 2011.

Previously, on June 24, 2010, we received a letter from the NASDAQ notifying us that for the 30 consecutive business days preceding the date of the letter, we failed to maintain the minimum $50 million Market Value of Listed Securities (“MVLS”) requirement for continued listing on the NASDAQ Global Market pursuant to NASDAQ Listing Rule 5450(b)(2)(A) (the “MVLS Rule”). We have a grace period of 180 calendar days, or until December 21, 2010, to regain compliance with the MVLS Rule. NASDAQ will deem us to have regained compliance with the MVLS Rule if at any time during the 180-day grace period our MVLS closes at $50,000,000 or more for a minimum of 10 consecutive business days.

Given current economic conditions and the volatility of our stock price, there can be no assurance that we will be able to maintain compliance with the applicable NASDAQ Listing Rules for continued listing on the NASDAQ Global Market. If we were to be delisted, the market liquidity of our common stock and the value of our stock would likely be adversely affected. Although our common stock may be traded over-the-counter or on pink sheets, these types of listings involve more risk and trade less frequently and in smaller volumes than securities traded on NASDAQ. A delisting could also adversely affect our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by our investors, business partners and employees. If we are not listed on The NASDAQ Stock Market and/or if our public float remains below $75 million, we will be limited in our ability to file new shelf registration statements on Form S-3 and/or to fully use one or more registration statements on Form S-3 that have been filed with the SEC. Any such limitations might have a material adverse effect on our ability to raise the capital we need for the continuation of our operations.

We are actively monitoring the market value of our publicly held share price and the bid price and will consider available options to resolve the deficiencies and regain compliance with the applicable NASDAQ Listing Rules.

Our stock is subject to short selling, which could cause trading in our common stock and our stock price to be volatile, and the anticipation of a volatile stock price could cause greater volatility.

There has been active shorting on our stock in substantial amount recently, which has caused significant fluctuations in our stock price. Short selling and possible market price manipulation of our common stock may cause trading in our common stock to be volatile and has a negative effect on the trading price of our common stock. The anticipation of a volatile stock price could cause even greater volatility in our stock trading and could further adversely affect our stock price. The short selling and volatility of our stock may cause the value of a stockholder’s investment to decline rapidly.

Risks Related to Our Business

We have out-licensed Onalta to BioMedica for further development and commercialization. If BioMedica fails in its development or commercialization efforts or defaults under our agreements with it, we will be harmed.

We out-licensed Onalta to BioMedica in September 2009 for development in certain countries in Europe, the Middle East, North Africa, Russia and Turkey. Our revenue from licensing payments from BioMedica will depend on whether BioMedica is ultimately successful in the development and commercialization of Onalta in the licensed territories. Additionally, if BioMedica fails to perform its obligations under our agreements, or has financial difficulties which impair its capacity to carry out its business plan, our expected licensing payments will be significantly reduced or possibly eliminated entirely. In September 2010, we formally notified BioMedica that it had materially breached a number of provisions under our agreements, and invoked a sixty (60) day period for BioMedica to cure such defaults. BioMedica has not cured any of its defaults as of the date of filing of this quarterly report and has contested our allegations of breach. If BioMedica fails to cure the defaults at the end of the specified cure period, we may exercise our right to terminate our agreements with it, in which case we may not receive, short of pursuing and resolving possible litigation, more than $10 million in total regulatory milestone payments from BioMedica, net of license payments to Novartis, and may not receive future milestone and tiered royalties on Onalta sales. In addition, BioMedica may choose to bring litigation against us, which would require us to incur significant legal expenses. There is no assurance that BioMedica will be able to cure its defaults and pay the amounts it owes us now or in the future.

In connection with our agreements with BioMedica, we entered into a ten year Facility Setup and Contract Manufacturing Agreement (the “EZN Agreement”) with Eckert & Ziegler Nuclitec GmbH (“EZN”), under which EZN will manufacture and supply Onalta for use by BioMedica within the BioMedica territories. The EZN Agreement also provides for EZN to establish an exclusive suite for the manufacture and supply of Onalta which will be funded by us and estimated at a cost of €1.3 million (approximately $1.7 million), including estimated costs of €0.3 million associated with decommissioning of the dedicated suite upon termination. We are also required to make fixed monthly payments to EZN aggregating €2.7 million (approximately $3.6 million) for the initial five (5) years following the effective date of the agreement in addition to product costs. Notwithstanding any potential termination of our agreements with BioMedica, we continue to be obligated for all costs and monthly payments due to EZN pursuant to the EZN Agreement. If we are unable to make payments when due, we may risk breaching the EZN Agreement.

ITEM 6.

EXHIBITS

See Exhibit Index on the page immediately preceding the exhibits for a list of the exhibits filed as a part of this quarterly report which is incorporated by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on November 4, 2010.


MOLECULAR INSIGHT PHARMACEUTICALS, INC.

By:		/ S / D ANIEL L. P ETERS
		Daniel L. Peters
		President and Chief Executive Officer

By:		/ S / C HARLES H. A BDALIAN , J R .
		Charles H. Abdalian, Jr.
		Chief Financial Officer

Exhibit Index


Exhibit Number		Description of Exhibit

31.1		Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

31.2		Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

32		Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002