UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549





FORM 10-Q





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





For the quarterly period ended March 31, 2011





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





For the transition period from ___________ to _____________.





Commission file number0-20713





ENTREMED, INC.


(Exact name of registrant as specified in its charter)





Delaware

58-1959440(State or other jurisdiction of

(I.R.S. Employer Identification No.)incorporation or organization)


9640 Medical Center Drive


Rockville, Maryland


(Address of principal executive offices)





20850


(Zip code)





(240) 864-2600


(Registrant’s telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.





YES   x     NO    ̈





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





YES   ̈     NO   ̈





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


Large accelerated filer  ̈

Accelerated filer  ̈

Non-accelerated filer þ

Smaller reporting

company  ̈


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




YES    ̈    NO   x





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





Class

Outstanding at May 12, 2011Common Stock $.01 Par Value

11,578,973





ENTREMED, INC.


Table of Contents





PAGEPART I.
FINANCIAL INFORMATIONItem 1 —
Consolidated Financial StatementsConsolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010
4Consolidated Statements of Operations for theThree Months Ended March 31, 2011 and 2010 (unaudited)
5Consolidated Statements of Cash Flows for theThree Months Ended March 31, 2011 and 2010 (unaudited)
6Notes to Consolidated Financial Statements (unaudited)
7Item 2 —
Management’s Discussion and Analysis of Financial Condition and Results of Operations
14Item 3 —
Quantitative and Qualitative DisclosuresAbout Market Risk
23Item 4 —
Controls and Procedures
23Part II.  OTHER INFORMATIONItem 1 —
Legal Proceedings
24Item 1A –
Risk Factors
24Item 2 —
Unregistered Sales of Equity Securities and Use of Proceeds
24Item 3 —
Defaults upon Senior Securities
24Item 4 —
Removed and Reserved
24Item 5 —
Other Information
24Item 6 —
Exhibits
24SIGNATURES
25


2





SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS





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





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





Actual results could differ materially from those currently anticipated due to a number of factors, including: the risk that we may be unable to continue as a going concern as a result of our inability to raise sufficient capital for our operational needs; ; our reliance on a single product candidate, ENMD-2076; the volatility of our common stock; our history of losses and expectation of incurring continued losses;  risks relating to the need for additional capital and the uncertainty of securing additional funding on favorable terms; the failure to consummate a transaction to monetize our Thalomid® royalty stream for any reason, including our inability to obtain the required third-party consents; our dependence on royalty sharing agreement based on sales of a product, Thalomid®, that we do not have control; declines in actual sales of Thalomid® resulting in materially reduced royalty payments; risks associated with our product candidates; results in preclinical models that are not necessarily indicative of clinical results; uncertainties relating to preclinical and clinical trials, including delays to the commencement of such trials;  any lack of progress of our research and development (including the results of our clinical trials);; dependence on third parties;  risks relating to the commercialization, if any, of our  proposed products (such as marketing, safety, regulatory, patent, product liability, supply and other risks); and our ability to compete with larger, better financed biotechnology companies that may develop new approaches to the treatment of our targeted diseases.  Additional information about the factors and risks that could affect our business, financial condition and results of operations, are contained in our filings with the U.S. Securities and Exchange Commission (SEC), which are available at www.sec.gov.


3


PART I.  FINANCIAL INFORMATION




ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS





EntreMed, Inc.


Consolidated Balance Sheets


(Unaudited)





March 31, 2011


December 31, 2010(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
4,800,690


$
4,885,972Short-term investments


28,203



25,816Accounts receivable, net of allowance for doubtful accounts of$72,145 at March 31, 2011 and December 31, 2010


-



2,750,447Prepaid expenses and other


171,689



265,683Total current assets


5,000,582



7,927,918Property and equipment, net


96,850



104,729Other assets


4,584



4,584Total assets

$
5,102,016


$
8,037,231LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
1,397,949


$
1,351,004Accrued liabilities


314,002



595,341Current portion of loan payable


-



757,471Total current liabilities


1,711,951



2,703,816Commitments and contingencies


-



-Stockholders' equity :Convertible preferred stock, $1.00 par  value;5,000,000 shares authorized and 3,350,000 shares issued andoutstanding at March 31, 2011 and December 31, 2010(liquidation value - $33,500,000 at March 31, 2011 and December 31, 2010)


3,350,000



3,350,000Common stock, $.01 par value:170,000,000 shares authorized at March 31, 2011 and December 31, 2010:11,578,576 and 11,517,566 shares issued and outstandingat March 31, 2011 and December 31, 2010, respectively


115,786



115,176Additional paid-in capital


384,780,043



384,130,011Treasury stock, at cost:  79,545 shares held at March 31, 2011 and December 31, 2010


(8,034,244
)


(8,034,244
)Accumulated other comprehensive income


2,387



-Accumulated deficit


(376,823,907
)


(374,227,528
)Total stockholders' equity


3,390,065



5,333,415Total liabilities and stockholders' equity

$
5,102,016


$
8,037,231





See accompanying notes.


4


EntreMed, Inc.


Consolidated Statements of Operations


(Unaudited)





Three Months EndedMarch 31, 2011


March 31, 2010Revenues:Royalties


-



-Other


-



--



-Costs and expenses:Research and development


1,398,274



843,953General and administrative


1,253,105



1,051,2252,651,379



1,895,178Interest expense


-



(220,965
)Other income


55,000



-Other expense


-



(10,001
)Net loss


(2,596,379
)


(2,126,144
)Dividends on Series A convertible preferred stock


(251,250
)


(251,250
)Net loss attributable to common shareholders

$
(2,847,629
)

$
(2,377,394
)Net loss per share (basic and diluted)

$
(0.25
)

$
(0.28
)Weighted average number of common sharesoutstanding (basic and diluted)


11,444,711



8,540,812





See accompanying notes.


5


EntreMed, Inc.


Consolidated Statements of Cash Flows


(Unaudited)





THREE MONTH PERIOD ENDED

MARCH 31,2011


2010CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(2,596,379
)

$
(2,126,144
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation and amortization


12,088



19,557Stock-based compensation expense


491,988



211,890Gain on sale of assets


(55,000
)


-Non-cash interest


-



20,471Investment impairment loss


-



10,001Changes in operating assets and liabilities:Accounts receivable


2,750,447



3,284,786Prepaid expenses and other


93,995



61,062Accounts payable


46,945



(340,107
)Accrued liabilities


(281,340
)


(408,157
)Net cash provided by operating activities


462,744



733,359CASH FLOWS FROM INVESTING ACTIVITIESPurchases of  furniture and equipment


(4,209
)


-Proceeds from sale of assets


55,000



-Net cash provided by investing activities


50,791



-CASH FLOWS FROM FINANCING ACTIVITIESRepayment of loan


(757,471
)


(2,055,268
)Net proceeds from sale of common stock or exercise of options and warrants


158,654



4,657,491Net cash provided by (used in) financing activities


(598,817
)


2,602,223Net increase (decrease) in cash and cash equivalents


(85,282
)


3,335,582Cash and cash equivalents at beginning of period


4,885,972



6,312,182Cash and cash equivalents at end of period

$
4,800,690


$
9,647,764Supplemental disclosure of cash flow information:Cash paid during the period for interest

$
7,145


$
200,494





See accompanying notes.


6





ENTREMED, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2011 (unaudited)





1.
Basis of Presentation





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





The accompanying unaudited consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, such consolidated financial statements do not include all of the information and disclosures required by U. S. generally accepted accounting principles for complete consolidated financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to our audited consolidated financial statements and footnotes thereto included in our Form 10-K for the year ended December 31, 2010.





On July 1, 2010, the Company affected a reverse split of its common stock, which was approved by the Company’s stockholders on June 3, 2010, and authorized by its Board of Directors on June 9, 2010 with a ratio of 1-for-11. The primary objective in affecting the reverse split was to better enable the Company to maintain the listing of its common stock on the NASDAQ Capital Market.  As a result of the reverse stock split, each eleven shares of the common stock that was issued and outstanding or held in treasury on July 1, 2010 at 8:00 am. Eastern time were automatically combined into one share.   The reverse stock split reduced the number of issued and outstanding shares of common stock as of July 1, 2010 from approximately 105.9 million shares to approximately 9.6 million shares.  No fractional shares were issued in connection with the reverse stock split.  Stockholders who were entitled to fractional shares instead became entitled to receive a cash payment in lieu of receiving fractional shares equal to the fractional share interest multiplied by $0.40 (the per share closing price of the Company’s common stock as last reported on the NASDAQ Stock Market on June 30, 2010).  The reverse stock split affected all of the holders of common stock uniformly. Shares of common stock underlying outstanding options and warrants were proportionately reduced and the exercise price of outstanding options and warrants was proportionately increased in accordance with the terms of the agreements governing such securities.  All common stock share and per share information in the unaudited interim consolidated financial statements and notes thereto included in this report have been restated to reflect retrospective application of the reverse stock split, except for par value per share and the number of authorized shares, which were not affected by the reverse stock split.





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


7





Liquidity Risks and Management’s Plans





The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.  As of March 31, 2011, the Company has operating and liquidity concerns.  Since inception, the Company has incurred significant losses from operations and has incurred an accumulated deficit of $376.8 million.  The Company expects to continue to incur expenses, resulting in operating losses, for the foreseeable future due to, among other factors, its continuing clinical activities.  During the year ended December 31, 2010, the Company raised $12.1 million from the sale of its common stock.  Based on current plans, the Company expects its current available cash and cash equivalents will be sufficient to meet its cash requirements into the fourth quarter of fiscal 2011.  To augment the Company’s cash position, the Company will continue to pursue opportunities to raise additional capital to support ENMD-2076 and fund its operating needs.





The Company’s ability to continue as a going concern is dependent on its success at raising additional capital sufficient to meet its obligations on a timely basis, the ongoing receipt of royalty payments and its ability to ultimately attain profitability.  As the amount of the royalty payments to be received cannot be reasonably estimated, there is no assurance that the Company will not be required to raise additional capital sufficient to enable the Company to continue its operations through fiscal 2011 and the next 12 months.  If additional funds are raised by issuing equity securities, dilution to existing shareholders may result.  There can be no assurance that adequate additional financing will be available to the Company on terms that it deems acceptable, if at all.  In the event the Company is unable to successfully raise additional capital, it is unlikely that the Company will have sufficient cash flows and liquidity to finance its business operations and ENMD-2076 development program, as currently contemplated.  Accordingly, in the event new financing is not obtained, the Company will likely reduce general and administrative expenses and delay, scale back, or interrupt the clinical development of ENMD-2076 until it is able to obtain sufficient financing to do so.





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





2.
Revenue Recognition





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





3.
Comprehensive Loss





The Company presents comprehensive loss and its components as part of the consolidated financial statements. Comprehensive loss is comprised of net loss and unrealized gain and loss on investments as follows:


8





THREE MONTHS ENDED

MARCH 31,2011


2010Net loss

$
(2,596,379
)

$
(2,126,144
)Other comprehensive income


2,387



-Comprehensive loss

$
(2,593,992
)

$
(2,126,144
)





4.
New Accounting Pronouncements





In April 2010, the FASB issued an amendment to existing authoritative guidance regarding the milestone method of revenue recognition. The amendment provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate along with providing for expanded disclosures. This amendment is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010 with early adoption permitted. The Company’s adoption of this amendment in January 2011 did not have a material impact on its consolidated financial position and consolidated results of operations.





5.
Short-Term Investments





Short-term investments at March 31, 2011 consist of equity securities.  The Company has classified these investments as available for sale.  Such securities are carried at fair market value. The cost of securities sold is calculated using the specific identification method.  Realized gains and losses and declines in value judged to be other than temporary on securities available for sale, if any, are included in operations. As a result of a decline in value during the three months ended March 31, 2010 that was considered to be other than temporary, realized losses of $10,001 were recorded for the three months ended March 31, 2010.  There were no realized gains or losses for the three months ended March 31, 2011.  Net unrealized gains of $2,387 were recorded for the three months ended March 31, 2011 as other comprehensive income.  Short-term investments are principally uninsured and subject to normal credit risk.




The following is a summary of available-for-sale securities at March 31, 2011:




Available-for-Sale SecuritiesAmortized


Gross

Unrealized


Gross

Realized


Estimated Fair

Value (Net

CarryingCost


Gains


Losses


Amount)Equity Securities

$
125,000


$
2,387


$
(99,184
)

$
28,203Total

$
125,000


$
2,387


$
(99,184
)

$
28,203


9





The following is a summary of available-for-sale securities at December 31, 2010:




Available-for-Sale SecuritiesAmortized


Gross

Unrealized


Gross

Realized


Estimated Fair

Value (Net

CarryingCost


Gains


Losses


Amount)Equity Securities

$
125,000


$
-


$
(99,184
)

$
25,816Total

$
125,000


$
-


$
(99,184
)

$
25,816





6.
Loan Payable




On September 12, 2007, EntreMed, Inc. and Miikana Therapeutics, Inc., its wholly owned subsidiary, entered into a Loan and Security Agreement (“Loan Agreement”) with General Electric Capital Corporation (“GECC”), as agent, Merrill Lynch Capital and Oxford Finance Corporation (collectively, “the Lenders”).  The Loan Agreement provided for (i) a term loan (“Term Loan”) issued by the Lenders to the Company in the aggregate amount of $20,000,000 and (ii) the issuance and sale to the Lenders of stock purchase warrants evidencing the Lenders’ right to acquire their respective pro rata share of 22,727 shares of common stock of the Company (“Warrants”).  The Term Loan accrued interest in arrears at a fixed annual interest rate of 10.47% , was used for general corporate purposes and was secured by the personal property owned by the Company, except for any intellectual property owned by the Company.  In January 2011, the Company made its final payment to the Lenders.  With the Term Loan fully repaid and satisfied, the Lenders have released its security interest on the Company’s assets.





The Warrants are exercisable by the Lenders until September 12, 2012 at an exercise price of $22.00 per share.  The fair value of the Warrants issued was $190,000, calculated using a Black-Scholes-Merton value of $8.36 with an expected and contractual life of 5 years, an assumed volatility of 98%, and a risk-free interest rate of 4.11%.  The value of the Warrants, and an upfront underwriting fee of $100,000 paid to one of the Lenders, were recorded as a discount on the loan and amortized as interest expense over the life of the loan.  The Company also incurred certain debt issuance costs that were deferred and have been fully amortized as of December 31, 2010.  Amortization of these fees and the discount resulted in an effective interest rate of 11.40%.  Non-cash interest expense related to the amortization of debt issuance costs and debt discount was $20,471 for the three months ended March 31, 2010.





The Term Loan accrued interest in arrears at a fixed annual interest rate of 10.47% until the Term Loan was fully repaid.  The Company paid interest of $7,145 and $200,494 during the three months ended March 31, 2011 and 2010, respectively.





7.
Fair Value Measurement





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


10





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





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





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





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





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





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





In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value as of March 31, 2011 and December 31, 2010:





Fair Value Measurements at March 31, 2011Total Carrying

Value at


Quoted prices in

active markets


Significant other

observable inputs


Significant

unobservable

inputsMarch 31, 2011


(Level 1)


(Level 2)


(Level 3)Cash equivalents

$
105,868


$
105,868


$
—


$
—Available for sale securities*


28,203



28,203



—



—




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


11





Fair Value Measurements at December 31, 2010Total Carrying

Value at


Quoted prices in

active markets


Significant other

observable inputs


Significant

unobservable

inputsDecember 31, 2010


(Level 1)


(Level 2)


(Level 3)Cash equivalents

$
1,105,868


$
105,868


$
—


$
—Available for sale securities*


25,816



25,816



—



—








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





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





8.
Share-Based Compensation





The Company has adopted incentive and nonqualified stock option plans for executive, scientific and administrative personnel of the Company as well as outside directors and consultants, of which 132,889 shares remain available for grant under the Company’s 2001 Long-Term Incentive Plan as of March 31, 2011.  There are 751,875 shares issuable under options previously granted under the plans and currently outstanding, with exercise prices ranging from $1.76 to $522.50.  Options granted under the plans vest over periods varying from immediately to three years, are not transferable and generally expire ten years from the date of grant.





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




The Company’s net loss for the three months ended March 31, 2011 and March 31, 2010 includes compensation expense of $491,988 and $211,890, respectively, related to the Company’s share-based compensation awards.  The compensation expense related to the Company’s share-based compensation arrangements is recorded as components of general and administrative expense and research and development expense, as follows:




THREE MONTHS ENDED

MARCH 31,2011


2010Research and development

$
76,526


$
9,766General and administrative


415,462



202,124Share-based compensation expense

$
491,988


$
211,890Net share-based compensation expense, per common share:Basic and diluted

$
0.04


$
0.02




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


12




Following are the weighted-average assumptions used in valuing the stock options granted to employees during the three-month periods ended March 31, 2011 and 2010:





THREE MONTH PERIOD ENDED

MARCH 31,2011


2010Expected volatility


94.09
%


97.50
%Risk-free interest rate


2.04
%


2.38
%Expected term of option

5.49 years


5 yearsForfeiture rate*


5.00
%


5.00
%Expected dividend yield


0.00
%


0.00
%




* - Authoritative guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  During the three-month periods ended March 31, 2011 and 2010, forfeitures were estimated at 5%.




The weighted average fair value of stock options granted during the three-month periods ended March 31, 2011 and 2010 was $4.56 and $0.50, respectively.




A summary of the Company’s stock option plans and of changes in options outstanding under the plans for the three months ended March 31, 2011, is as follows:




Number of

Options


Weighted

Average

Exercise

PriceOutstanding at January 1, 2011


590,009


$
38.94Granted


181,750


$
6.22Exercised


(12,863
)

$
1.76Expired


(6,502
)

$
170.54Forfeited


(519
)

$
8.31Outstanding at March 31, 2011


751,875


$
30.55Vested and expected to vest at March 31, 2011


747,203


$
30.71Exercisable at March 31, 2011


658,463


$
34.11




Cash received from option exercises under all share-based payment arrangements for the three months ended March 31, 2011 and March 31, 2010 was $22,639 and $10,340, respectively.




9.
Income Taxes




At December 31, 2010, the Company has $3.1 million unrecognized tax benefit. The Company has recorded a full valuation allowance on the net deferred tax asset recognized in the consolidated financial statements as of December 31, 2010.


13





During the three months ended March 31, 2011, there were no material changes to the measurement of unrecognized tax benefits in various taxing jurisdictions.  The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense.





The tax returns for all years in the Company’s major tax jurisdictions are not settled as of January 1, 2011; no changes in settled tax years have occurred through March 31, 2011.  Due to the existence of tax attribute carryforwards (which are currently offset by a full valuation allowance), the Company treats all years’ tax positions as unsettled due to the taxing authorities’ ability to modify these attributes.





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





OVERVIEW





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





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





ENMD-2076 is our only program currently under active clinical evaluation.  This prioritization allows us to direct the majority of our resources to the clinical development of ENMD-2076.  However, we also own or have exclusive rights to intellectual property for our other therapeutic candidates.  So that we can continue to accelerate the development of ENMD-2076, we do not intend to initiate additional new studies for these programs unless additional significant financing becomes available to us.  Our other therapeutic candidates include MKC-1, an oral cell-cycle inhibitor with activity against the mTOR pathway that has completed multiple Phase 2 clinical trials for cancer, and ENMD-1198, a novel anti-mitotic agent that has completed a Phase 1 study in advanced cancers.  We also have an approved Investigational New Drug Application (IND) for the use of Panzem® in rheumatoid arthritis (RA) treatment.  All of our candidates are multi-mechanism and affect multiple pathways necessary for tumor growth.


14


We have incurred substantial operating losses since our inception due in large part to expenditures for our research and development activities.  At March 31, 2011, we had an accumulated deficit of $376.8 million. We expect to continue to incur expenses, resulting in operating losses, for the foreseeable future due to, among other factors, our continuing clinical trials, planned future clinical trials, and other anticipated research and development activities.  Based on current plans, we expect our current available cash and cash equivalents to meet our cash requirements into the fourth quarter of fiscal 2011.  Therefore, there exists substantial doubt about our ability to continue as a going concern.  We will require significant additional funding prior to January 1, 2012 to fund operations until such time, if ever, we become profitable.  We intend to augment our cash and cash equivalent balances as of March 31, 2011 by pursuing other forms of capital infusion, including strategic alliances or collaborative development opportunities with organizations that have capabilities and/or products that are complementary to our capabilities and products in order to continue the development of our product candidate that we intend to pursue to commercialization.  However, there can be no assurance that adequate additional financing under such arrangements will be available to us on terms that we deem acceptable, if at all.





We completed four private placements of our common stock in 2010.  On January 11, 2010, we sold 284,090 shares of our common stock, par value $0.01 per share, to an institutional investor for an aggregate purchase price of $2,500,000, or $8.80 per share.  On February 3, 2010, we sold 349,650 shares of our common stock to the same institutional investor for an aggregate purchase price of $2,500,000, or $7.15 per share.  On April 16, 2010, we sold 526,500 shares of common stock to the same institutional investor for an aggregate purchase price of $3,000,000 or $5.70 per share.  On September 7, 2010, we sold 1,886,662 shares of common stock to a group of strategic investors for an aggregate purchase price of $5,094,000, or $2.70 per share.  Our net proceeds from these four offerings were approximately $12.1 million.  Concurrently on September 7, 2010, the Company entered into a rights agreement with Selected Value Therapeutics I, LLC, a Delaware limited liability company (“SVT”) and an entity in which the investors have an interest, pursuant to which SVT has an option to exercise, on behalf of the investors, certain license, development and commercialization rights for ENMD-2076 in China.   If the option is exercised, we will enter into a license agreement with SVT and pursuant to the terms of such license agreement, we will be entitled to receive development milestone payments and royalties on future product sales within the geographic market.   The option is exercisable by SVT at any time until December 31, 2011.





Additional funds raised by issuing equity securities may result in dilution to existing shareholders.  If we fail to obtain additional capital in 2011, or enter into collaboration agreements with development partners to finance our clinical trials, we may be required to delay, scale back, or eliminate our clinical program.





CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES





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


15


-
Going Concern - A fundamental principle of the preparation of financial statements in accordance with GAAP is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business.  This principle is applicable to all entities except for entities in liquidation or entities for which liquidation appears imminent.  In accordance with this requirement, our policy is to prepare our consolidated financial statements on a going concern basis unless we intend to liquidate or have no other alternative but to liquidate.  As a result of our operational losses and the potential that we may be unable to meet our cash requirements for the next twelve months, there is substantial doubt about our ability to continue as a going concern.  While we have prepared our consolidated financial statements on a going concern basis, if we do not receive additional funding, our ability to continue as a going concern may be impacted.  Our consolidated financial statements included in this Quarterly Report on Form 10-Q do not reflect any adjustments that might specifically result from the outcome of this uncertainty.





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





-
Royalty Revenue – Royalties from licenses are based on third-party sales and recorded as earned in accordance with contract terms, when third-party results are reliably measured and collectibility is reasonably assured. We expect that the majority of our 2011 revenues will be from royalties on the sale of Thalomid®, which we will recognize when earned. In 2004, certain provisions of a purchase agreement dated June 14, 2001 by and between Bioventure Investments kft (“Bioventure”) and the Company were satisfied and, as a result, beginning in 2005 we became entitled to share in the royalty payments received by Royalty Pharma Finance Trust, successor to Bioventure, on annual Thalomid® sales above a certain threshold.  Based on the licensing agreement royalty formula, annual royalty sharing commences when net royalties received by Royalty Pharma exceeds $15,375,000, which equates to approximately $225 million in Thalomid® annual sales.





-
The Company is also eligible to receive royalties from Oxford Biomedica, PLC based on a portion of the net sales of products developed for the treatment of ophthalmic (eye) diseases based in part on Endostatin.  We received our first royalty in the amount of $368,000 under this agreement in 2009, a portion of which was paid to Children’s Medical Center Corporation under the Company’s original Endostatin license agreement with Children’s.  We did not receive any additional payment from Oxford Biomedica, PLC in 2010.  We do not expect to receive additional payments from Oxford Biomedica, PLC in 2011.





-
Royalty payments, if any, are recorded as revenue when received and/or when collectibility is reasonably assured.





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


16




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





-
Stock-Based Compensation – All share-based payment transactions are recognized in the financial statements at their fair values.  Using the straight-line expense attribution method over the requisite service period, which is generally the option vesting term of three years, share-based compensation expense recognized for the three months ended March 31, 2011 and 2010 totaled approximately $492,000 and $212,000, respectively.





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





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





RESULTS OF OPERATIONS





For the Three Months Ended March 31, 2011 and March 31, 2010.





Revenues.There were no revenues recorded during the quarters ended March 31, 2011 or March 31, 2010.  We do not expect to record revenue in 2011 until the fourth quarter.  Our 2011 revenues, if any, will result from Celgene’s sale of Thalomid®.  We earn royalties once sales of Thalomid exceed approximately $225 million annually, pursuant to a 2001 agreement with Royalty Pharma, as noted above.  Thalomid® is distributed and sold by Celgene Corporation and/or its affiliates, and thus, we have no control over sales of Thalomid® or the amount, if any, of royalty payments we will receive.





Research and Development Expenses.  Our research and development expenses totaled $1,398,000 for the three months ended March 31, 2011 and $844,000 for the corresponding 2010 period.  Reflected in our R&D expenses for the three-month period ended March 31, 2011 are direct project costs of $1,089,000 for ENMD-2076, $26,000 for Panzem®, $10,500 for ENMD-1198, and $9,000 for MKC-1.   The 2010 research and development expenses for the comparable period included $803,000 for ENMD-2076, $29,000 direct project costs for Panzem® and $12,000 for ENMD-1198.Additionally, during the period ended March 31, 2010, we wrote off approximately $268,000 of costs previously accrued for patients enrolled in MKC-1 clinical trials that wound down before all cycles of treatment were completed.  The overall increase in research and development costs in the three-month period ended March 31, 2011, as compared to same period in 2010, reflects increased costs associated with the clinical development of ENMD-2076 as we continued to enroll patients during the three months ended March 31, 2011, in addition to the MKC-1 cost write off of $268,000 during the three months ended March 31, 2010.


17





At March 31, 2011, accumulated direct project expenses for Panzem® oncology were $54,386,000; direct ENMD-1198 project expenses totaled $13,215,000; and, since acquired, accumulated direct project expenses for ENMD-2076 totaled $19,273,000 and for MKC-1, accumulated project expenses totaled $10,148,000.  Our research and development expenses also include non-cash stock-based compensation totaling $77,000 for the three months ended March 31, 2011 and $10,000 for the corresponding 2010 period.  The increase in stock-based compensation expense is related to an increase in stock options granted in the three months ending March 31, 2011.  The balance of our research and development expenditures includes facility costs and other departmental overhead, and expenditures related to the non-clinical support of our programs.





We expect our research and development expenses in 2011 to be primarily for the ENMD-2076 program.  We expect our ENMD-2076 expenses in 2011 to remain consistent or increase depending on the availability of additional financial resources and our clinical development plan.  Additional financial resources would enable us to accelerate and expand the breadth of our ENMD-2076 Phase 2 program.  We will continue to conduct research on ENMD-2076 in order to comply with stipulations made by the FDA, as well as to increase understanding of the mechanism of action and toxicity parameters of ENMD-2076 and its metabolites.  Completion of clinical development may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.





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





CLINICAL

PHASE

ESTIMATED

COMPLETION

PERIODPhase I

1-2 YearsPhase II

2-3 YearsPhase III

2-4 Years





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





-
the number of patients that ultimately participate in the trial;





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





-
the number of clinical sites included in the trials; and





-
the length of time required to enroll suitable patient subjects.


18





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





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





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





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





Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, research collaborations, costs associated with internal and contract preclinical testing and clinical trials of our product candidates, including the costs of manufacturing drug substance and drug product, regulatory maintenance costs, and facilities expenses. Research and development expenses increased to $1,398,000 during the quarter ended March 31, 2011 from $844,000 for the corresponding period in 2010.





The increase in research and development expenses during the quarter ended March 31, 2011 was specifically impacted by the following:





-
Outside Services – In the three-month period ended March 31, 2011, we expended $36,000 on outside service activities versus $5,000 in the same 2010 period.  The increase in 2011 as compared to 2010 reflects an increase in outsourced services related to the development of ENMD-2076.


19


-
Clinical Trial Costs – Clinical trial costs, which include clinical site fees, monitoring costs and data management costs, increased to $435,000 in the three months ended March 31, 2011 from $21,000 in the three-month period ended March 31, 2010.  The increase relates primarily to our focus on the increase in clinical development of ENMD-2076 in the 2011 period, in addition to the reduction of patient costs for cycles of treatment that were not completed in trials that have wound down in discontinued programs in the 2010 period.





-
Contract Manufacturing Costs – The costs of manufacturing the material used in clinical trials for our product candidates is reflected in contract manufacturing. These costs include bulk manufacturing, encapsulation and fill and finish services, product release costs and storage fees. Contract manufacturing costs for the three months ended March 31, 2011 increased to $202,000 from $169,000 during the same period in 2010.





-
Personnel Costs — Personnel costs increased to $391,000 in the three months ended March 31, 2011 from $345,000 in the three-month period ended March 31, 2010.  The increase is primarily attributed to the $67,000 increase in non-cash stock-based compensation expense related to stock options granted in 2011.




-
Also reflected in our 2011 research and development expenses for the three-month period ended March 31, 2011 are patent costs of $161,000 and facility and related expenses of $53,000.  In the corresponding 2010 period, these expenses totaled $103,000 and $57,000, respectively.




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




General and administrative expenses increased to $1,253,000 in the three-month period ended March 31, 2011 from $1,051,000 in the corresponding 2010 period.  This increase is primarily attributable to the $213,000 increase in non-cash stock-based compensation expense related to stock options granted in 2011.





Interest Expense.  Our term loan from General Electric Capital Corporation, pursuant to a transaction in September 2007, was fully paid on January 3, 2011, and accordingly there was no interest expense recorded for the period ended March 31, 2011.   Interest expense for the three month period ended March 31, 2010 was approximately $221,000 (including $20,471 of non-cash interest).




Dividends on Series A Convertible Preferred Stock.  The Consolidated Statement of Operations for the periods ended March 31, 2011 and 2010 reflect a dividend of $251,250 relating to Series A Convertible Preferred Stock held by Celgene pursuant to a Securities Purchase Agreement dated December 31, 2002. The holders of Series A Preferred Stock accumulate dividends at an annual rate of 6% and will participate in dividends declared and paid on our common stock, if any. All accumulated dividends must be paid before any dividends may be declared or paid on the common stock.  The Company has no plans to pay any dividends in the foreseeable future.


20




LIQUIDITY AND CAPITAL RESOURCES


To date, we have been engaged primarily in research and development activities.  As a result, we have incurred and expect to continue to incur operating losses in 2011 and the foreseeable future before we commercialize any products.  Based on our current plans, we expect our current available cash and cash equivalents to meet our cash requirements into the fourth quarter of fiscal 2011.





As of March 31, 2011, the Company has operating and liquidity concerns and plans to continue to pursue opportunities to raise additional capital to fund its operating needs.  We did not include any adjustments to the consolidated financial statements included in this Quarterly Report on Form 10-Q to reflect the possible future effects that may result from the uncertainty of our ability to continue as a going concern because we believe that we will continue to be a financially sound and viable business, continuing to conduct clinical trials for, and further development of, ENMD-2076 and provide value to our shareholders.





We will require significant additional funding prior to January 1, 2012 to fund operations until such time, if ever, we become profitable.  We intend to augment our cash and cash equivalent balances by pursuing other methods of raising capital, including strategic alliances or collaborative development opportunities with organizations that have capabilities and/or products that are complementary to our capabilities and products in order to continue the development of our potential product candidates that we intend to pursue to commercialization.  If we seek strategic alliances, licenses, or other alternative arrangements, such as arrangements with collaborative partners or others, to raise further financing, we may need to relinquish rights to certain of our existing product candidates, or products we would otherwise seek to develop or commercialize on our own, or to license the rights to our product candidates on terms that are not favorable to us.





We intend to explore one or more of the following alternatives to raise additional capital so that the Company can continue as a going concern through 2011:





·
selling additional equity securities;


·
out-licensing product candidates to one or more corporate partners;


·
monetizing our Thalomid® royalty payment stream;


·
completing an outright sale of non-priority assets; and/or


·
engaging in one or more strategic transactions.





We also will consider additional actions to reduce our expenses.





There can be no assurance that adequate additional financing under such arrangements will be available to us on terms that we deem acceptable, if at all.  If additional funds are raised by issuing equity securities, dilution to existing shareholders may result, or the equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock.  If we fail to obtain additional capital when needed, we may be required to delay or scale back our Phase 2 plans for ENMD-2076.





At March 31, 2011, we had cash and short-term investments of $4,828,893 with working capital of $3,288,631.


21


In January 2006, we acquired Miikana Therapeutics, a private biotechnology company.  We acquired certain drug candidates in connection with the acquisition, including the lead molecule in the Aurora Kinase Program, ENMD-2076, which advanced into clinical development in 2008.  ENMD-2076 is a kinase inhibitor with activity towards Aurora A and multiple other kinases linked to promoting cancer.  Dosing of the first patient in ENMD-2076 trials triggered a milestone payment of $2 million to the former Miikana stockholders payable in stock or cash, at the Company’s discretion.  In June 2008, 233,100 shares of common stock were issued to the former Miikana stockholders as consideration for the satisfaction of the milestone payment.  Under the terms of the merger agreement, dosing of the first patient in a Phase 2 trial in April 2010 triggered an additional purchase price adjustment milestone payment of $3 million, which we paid by issuing 403,550 shares of our common stock.  Under the terms of the merger agreement, the former shareholders if Miikana may, upon the satisfaction of certain milestones primarily relating to ENMD-2076, receive up to $13 million of potential payments.  We do not expect any further milestones to be achieved in 2011.   Through the Miikana acquisition, we also acquired rights to MKC-1, a Phase 2 clinical candidate licensed from Roche by Miikana in April 2005.  Under the terms of the agreement, Roche may be entitled to receive future payments upon successful attainment of certain clinical, regulatory and commercialization milestones; however, since ENMD-2076 is the only program currently under active clinical evaluation, we do not expect to trigger any of these milestone payments during fiscal 2011.




We expect that the majority of our 2011 revenues will continue to be from royalties on the sales of Thalomid®.  Thalomid® is sold by a third-party and is subject to competition from other products and generic drugs, and we have no control over such party’s sales efforts or the resources devoted to Thalomid® sales.  In 2010 and 2009, we received royalty-sharing revenue in the amount of $3,449,000 and $4,990,000, respectively.  There can be no assurance as to future sales trends of Thalomid® and the amount of revenue we will receive and record in 2011.  Based upon the trend of declining sales over the past two years, together with recent publicly disclosed information from Celgene Corporation regarding sales of Thalomid®, we expect annual sales of Thalomid®in 2011 to continue to decrease, which will result in a reduction in our revenues in 2011.   As we continue to incur costs for the clinical investigation and development activities of ENMD-2076 during the remainder of fiscal 2011, such a reduction in our royalty revenue would have a material adverse effect on both our short-term and long-term liquidity if we are unable to obtain other financial resources to replace the anticipated decrease in Thalomid® royalty revenues.




In addition, under our licensing agreement with Oxford BioMedica, PLC and Oxford BioMedica (UK) Limited Oxford, we are entitled to receive payments upon the achievement of certain milestones with respect to the development of gene therapies for ophthalmic (eye) diseases.  In connection with the announced 2009 collaboration between Oxford BioMedica and Sanofi Aventis which included certain compounds (RetinoStat® and EncorStat®) that are governed by our licensing agreement, we received $368,000 from Oxford BioMedica in 2009, $74,000 of which we paid to Children’s Medical Center Corporation under our agreement with Children’s Medical Center Corporation.  The $368,000 payment represented the Company’s share of the upfront payment received by Oxford BioMedica after division among third-party product technologies.  No payments were received in 2010 from this licensing agreement and we do not expect to receive any payments in 2011.  However, we do not control the drug development efforts of Oxford or Sanofi and have no information or control over when or whether any milestones will be reached that would result in additional payments to us.





Our estimated future capital requirements are uncertain and could change materially as a result of many factors, including the progress of our research, development and clinical activities.  If adequate funds are not available through either the capital markets, strategic alliances, or collaborators, we may be required to delay, reduce the scope of or eliminate our research, development or clinical program efforts relating to ENMD-2076, effect additional changes to our facilities or personnel, or obtain funds through other arrangements that may require us to relinquish some of our assets or rights to certain of our existing or future technologies, product candidates, or products on terms not favorable to us.


22





INFLATION AND INTEREST RATE CHANGES





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





ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





The primary objective of our investment activities is to preserve our capital until it is required to fund operations while at the same time maximizing the income we receive from our investments without incurring investment market volatility risk.  Our investment income is sensitive to the general level of U.S. interest rates.  In this regard, changes in the U.S. interest rates affect the interest earned on our cash and cash equivalents.  Due to the short-term nature of our cash and cash equivalent holdings, a 10% movement in market interest rates would not materially impact on the total fair market value of our portfolio as of March 31, 2011.





ITEM 4.   CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures





Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s Executive Chairman and Principal Accounting Officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) were effective as of March 31, 2011 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its Executive Chairman and Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.





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





Changes in Internal Control Over Financial Reporting





There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2011 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.


23


PART II.         OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS





We are subject in the normal course of business to various legal proceedings in which claims for monetary or other damages may be asserted.  Management does not believe such legal proceedings, except as otherwise disclosed herein, are material.





ITEM 1A.  RISK FACTORS




For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors discussion set forth in Item 1A of EntreMed’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and the information under “Special Note Regarding Forward-Looking Statements” included in this report.  There have been no material changes to our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.





ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





Not applicable.





ITEM 3. DEFAULTS UPON SENIOR SECURITIES





Not applicable.





ITEM 4. REMOVED AND RESERVED





ITEM 5. OTHER INFORMATION





Not applicable.





ITEM 6. EXHIBITS





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


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


32.1 Section 1350 Certification of Executive Chairman


32.2 Section 1350 Certification of Principal Accounting Officer


24





SIGNATURES





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





ENTREMED, INC.(Registrant)Date: May 16, 2011
/s/ Michael M. TarnowMichael M. TarnowExecutive ChairmanDate: May 16, 2011
/s/ Sara B. CapitelliSara B. CapitelliPrincipal Accounting Officer


25


EXHIBIT INDEX





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


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


32.1 Section 1350 Certification of Executive Chairman


32.2     Section 1350 Certification of Principal Accounting Officer


26