UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission file number 0-20713
 ENTREMED, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    58-1959440(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 (Address of principal executive offices)
 (Zip code)
 (Registrants telephone number, including area code)
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ
  Class
    
    Outstanding at July17, 2009Common Stock $.01 Par Value
    
    88,651,143




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##### 



PAGEPART I. FINANCIAL INFORMATION
    
    
    3Item 1   Financial Statements
    
    
    3Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Operations for the Six Months Ended June 30, 2009 and 2008
    
    
    4Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2   Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3   Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4    Controls and Procedures
    
    
    24Part II. OTHER INFORMATION
    
    
    24Item 1   Legal Proceedings
    
    
    24Item 1A   Risk Factors
    
    
    25Item 2   Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3   Defaults upon Senior Securities
    
    
    25Item 4   Submission of Matters to a Vote of Security Holders
    
    
    25Item 5   Other Information
    
    
    26Item 6   Exhibits
    
    
    26SIGNATURES
    
    
    27
  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
  www.sec.gov
 2




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##### 



June 30, 2009
    
    
    December 31, 2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,581,650
    
    
    $
    16,743,129Short-term investments
    
    
    4,573,323
    
    
    
    7,548,044Accounts receivable, net of allowance for doubtful accounts of
$72,145 at June 30, 2009 and $54,145 at December 31, 2008
    
    
    17,806
    
    
    
    3,880,108Interest receivable
    
    
    25,449
    
    
    
    37,402Prepaid expenses and other
    
    
    224,012
    
    
    
    383,538Total current assets
    
    
    15,422,240
    
    
    
    28,592,221Property and equipment, net
    
    
    197,958
    
    
    
    263,715Other assets
    
    
    41,031
    
    
    
    67,459Total assets
    
    $
    15,661,229
    
    
    $
    28,923,395LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,749,891
    
    
    $
    3,496,198Accrued liabilities
    
    
    1,131,038
    
    
    
    2,584,327Current portion of loan payable
    
    
    8,120,894
    
    
    
    7,708,451Current portion of deferred rent
    
    
    
    
    
    
    20,763Total current liabilities
    
    
    11,001,823
    
    
    
    13,809,739Loan payable, less current portion
    
    
    5,075,215
    
    
    
    9,191,490Total liabilities
    
    
    16,077,038
    
    
    
    23,001,229Stockholders (deficit) equity:Convertible preferred stock, $1.00 par value; 5,000,000 shares
authorized and 3,350,000 shares issued and
outstanding at June 30, 2009 and December 31, 2008
(liquidation value  $33,500,000 at June 30, 2009 and December 31, 2008)
    
    
    3,350,000
    
    
    
    3,350,000Common stock, $.01 par value: 170,000,000 shares
authorized at June 30, 2009 and December 31, 2008: 88,651,143
and 88,489,278 shares issued and outstanding
at June 30, 2009 and December 31, 2008, respectively
    
    
    886,511
    
    
    
    884,893Additional paid-in capital
    
    
    367,922,625
    
    
    
    367,689,943Treasury stock, at cost: 874,999 shares held at June 30, 2009 and
December 31, 2008
    
    
    (8,034,244
    )
    
    
    (8,034,244
    )Accumulated other comprehensive income
    
    
    (62,718
    )
    
    
    (58,391
    )Accumulated deficit
    
    
    (364,477,983
    )
    
    
    (357,910,035
    )Total stockholders (deficit) equity
    
    
    (415,809
    )
    
    
    5,922,166Total liabilities and stockholders deficit equity
    
    $
    15,661,229
    
    
    $
    28,923,395
  3




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##### 



Three Months Ended
    
    
    Six Months EndedJune 30, 2009
    
    
    June 30, 2008
    
    
    June 30, 2009
    
    
    June 30, 2008Revenues:Royalties
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Costs and expenses:Research and development
    
    
    1,659,474
    
    
    
    5,484,857
    
    
    
    3,612,934
    
    
    
    11,672,060General and administrative
    
    
    1,010,733
    
    
    
    1,739,691
    
    
    
    2,170,454
    
    
    
    3,722,685In-Process R&D
    
    
    
    
    
    
    2,000,000
    
    
    
    
    
    
    
    2,000,0002,670,207
    
    
    
    9,224,548
    
    
    
    5,783,388
    
    
    
    17,394,745Investment income
    
    
    18,744
    
    
    
    229,451
    
    
    
    68,931
    
    
    
    628,238Interest expense
    
    
    (399,730
    )
    
    
    (575,046
    )
    
    
    (853,491
    )
    
    
    (1,150,092
    )Net Loss
    
    
    (3,051,193
    )
    
    
    (9,570,143
    )
    
    
    (6,567,948
    )
    
    
    (17,916,599
    )Dividends on Series A convertible preferred stock
    
    
    (251,250
    )
    
    
    (251,250
    )
    
    
    (502,500
    )
    
    
    (502,500
    )Net loss attributable to common shareholders
    
    $
    (3,302,443
    )
    
    $
    (9,821,393
    )
    
    $
    (7,070,448
    )
    
    $
    (18,419,099
    )Net loss per share (basic and diluted)
    
    $
    (0.04
    )
    
    $
    (0.11
    )
    
    $
    (0.08
    )
    
    $
    (0.22
    )Weighted average number of common shares
outstanding (basic and diluted)
    
    
    87,740,079
    
    
    
    85,535,426
    
    
    
    87,734,393
    
    
    
    85,217,169
  4




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##### 



SIX MONTH PERIOD ENDEDJUNE 30,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (6,567,948
    )
    
    $
    (17,916,599
    )Adjustments to reconcile net loss to net cash used by operating
activities:Depreciation and amortization
    
    
    65,757
    
    
    
    163,639Write-off of in-process R&D
    
    
    
    
    
    
    2,000,000Amortization of discount on short-term investments
    
    
    (31,665
    )
    
    
    (433,966
    )Stock-based compensation expense
    
    
    240,450
    
    
    
    518,919Non-cash interest
    
    
    76,516
    
    
    
    103,092Changes in operating assets and liabilities:Accounts receivable
    
    
    3,862,302
    
    
    
    3,893,000Interest receivable
    
    
    11,953
    
    
    
    103,298Prepaid expenses and other
    
    
    159,527
    
    
    
    156,451Deferred rent
    
    
    (20,763
    )
    
    
    (57,306
    )Accounts payable
    
    
    (1,746,308
    )
    
    
    13,326Accrued liabilities
    
    
    (1,453,289
    )
    
    
    (319,702
    )Net cash used in operating activities
    
    
    (5,403,468
    )
    
    
    (11,775,848
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchases of short term investments
    
    
    (6,993,512
    )
    
    
    (41,599,387
    )Maturities of short term investments
    
    
    10,000,000
    
    
    
    40,275,000Unrealized loss on short term investments
    
    
    (4,429
    )
    
    
    Purchases of furniture and equipment
    
    
    
    
    
    
    (116,910
    )Net cash provided by (used in) investing activities
    
    
    3,002,059
    
    
    
    (1,441,297
    )CASH FLOWS FROM FINANCING ACTIVITIESStock issuance costs
    
    
    (6,150
    )
    
    
    (36,128
    )Repayment of loan
    
    
    (3,753,920
    )
    
    
    Net cash used in financing activities
    
    
    (3,760,070
    )
    
    
    (36,128
    )Net decrease in cash and cash equivalents
    
    
    (6,161,479
    )
    
    
    (13,253,273
    )Cash and cash equivalents at beginning of period
    
    
    16,743,129
    
    
    
    29,675,899Cash and cash equivalents at end of period
    
    $
    10,581,650
    
    
    $
    16,422,626Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    776,975
    
    
    $
    1,047,000
  5




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##### 



ENTREMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009 (unaudited)
     Employers Accounting for Postemployment Benefits Accounting
for Costs Associated with Exit or Disposal Activities
  R&D
    
    
    G&AExpenses
    
    
    ExpensesBalance at December 31, 2008
    
    
    
    
    
    
    
    
    
    $
    1,748,634Termination benefits incurred
    
    $
    42,768
    
    
    $
    
    
    
    
    42,768Cash payments
    
    
    (651,091
    )
    
    
    (482,018
    )
    
    
    (1,133,109
    )Balance at June 30, 2009
    
    
    
    
    
    
    
    
    
    $
    658,293
 6




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Accounting for Non-Refundable Advance
Payments for Goods or Services to be Used in Future Research and Development Activities,
 Business Combinations Accounting and Reporting of Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
 The Hierarchy of Generally Accepted
Accounting Principles The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles.
 Determining Whether an Instrument (or Embedded
Feature) Is Indexed to an Entitys Own Stock Accounting For Derivative Instruments and Hedging Activities Accounting For Derivative Financial Instruments Indexed to, and Potentially Settled
in, a Companys Own Stock
 Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies
 7




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Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly Fair Value Measurements
   Subsequent Events Note 1.
 Recognition and Presentation of Other-Than-Temporary Impairments,
 Interim Disclosures
about Fair Value of Financial Instruments
 8




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The FASB Accounting Standards CodificationTM and
the Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No.
162
  Accounting for Certain Investments in Debt and Equity Securities
  Available-for-Sale SecuritiesEstimated FairGross
    
    Gross
    
    Value (NetAmortized
    
    Unrealized
    
    Unrealized
    
    CarryingCost
    
    Gains
    
    Losses
    
    Amount)Commercial Paper
    
    $
    1,734,424
    
    
    $
    15,523
    
    
    $
    
    
    
    $
    1,749,947Government-sponsored
Enterprise
Obligations
    
    
    2,773,666
    
    
    
    3,064
    
    
    
    (14,270
    )
    
    
    2,762,460Equity Securities
    
    
    125,000
    
    
    
    
    
    
    
    (64,084
    )
    
    
    60,916Total
    
    $
    4,633,090
    
    
    $
    15,587
    
    
    $
    (78,354
    )
    
    $
    4,573,323
  pro rata
 9




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##### 



Fair Value Measurements
 10




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##### 



Fair Value Measurements at June 30, 2009SignificantTotal Carrying
    
    Quoted prices in
    
    Significant other
    
    unobservableValue at
    
    active markets
    
    observable inputs
    
    inputsJune 30, 2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Cash equivalents
    
    $
    8,570,627
    
    
    $
    8,570,627
    
    
    $
    
    
    
    $
    Available for sale securities*
    
    
    4,573,323
    
    
    
    60,916
    
    
    
    4,512,407
    
    
    
    
 
 *
    
    Unrealized gains and losses related to available for sale securities are reported as
accumulated other comprehensive income (loss), as disclosed in footnote 5.  11




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##### 



The Fair Value Option for
Financial Assets and Financial Liabilities.
   Share-Based Payment Share-Based Payment
  SIX MONTHS ENDEDJUNE 30,2009
    
    
    2008Research and development
    
    $
    80,793
    
    
    $
    121,467General and administrative
    
    
    159,657
    
    
    
    397,449Share-based compensation expense
    
    $
    240,450
    
    
    $
    518,916Net share-based compensation expense, per
common share:Basic and diluted
    
    $
    0.003
    
    
    $
    0.006
  12




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##### 



SIX MONTH PERIOD ENDEDJUNE 30,2009
    
    2008Expected volatility
    
    
    78.02
    %
    
    
    72.84
    %Risk-free interest rate
    
    
    2.08
    %
    
    
    4.69
    %Expected term of option
    
    5 years
    
    5 yearsForfeiture rate*
    
    
    5.00
    %
    
    
    5.00
    %Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
 
 *
    -
    SFAS 123R 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
six-month periods ended June 30, 2009 and June 30, 2008, forfeitures were estimated at 5%.   WeightedAverageNumber of
    
    
    ExerciseOptions
    
    
    PriceOutstanding at January 1, 2009
    
    
    8,345,928
    
    
    $
    6.60Granted
    
    
    1,313,500
    
    
    $
    0.16Exercised
    
    
    (62,500
    )
    
    $
    0.16Expired
    
    
    (1,829,408
    )
    
    $
    6.89Forfeited
    
    
    (6,050
    )
    
    $
    1.34Outstanding at June 30, 2009
    
    
    7,761,470
    
    
    $
    5.50Vested and expected to vest at June 30, 2009
    
    
    7,710,291
    
    
    $
    5.54Exercisable at June 30, 2009
    
    
    6,737,900
    
    
    $
    6.27
    13




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Accounting for Uncertainty in Income Taxes,
   
   ®
  ®
 14




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®
 ®
      15




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-
    
    Revenue Recognition  We recognize revenue in accordance with the provisions of Staff
Accounting Bulletin No. 104, Revenue Recognition, 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 2009 revenues will be from royalties on the sale of
Thalomid®, which we expect to begin to recognize in the third quarter.
In 2004 certain provisions of a purchase agreement dated June 14, 2001 by and
between Bioventure Investments kft (Bioventure) and the Company were satisfied,
and, as a result, beginning in 2005 we became entitled to share in the royalty
payments received by Royalty Pharma Finance Trust, successor to Bioventure, on
annual Thalomid® sales above a certain threshold. Based on the
licensing agreement royalty formula, annual royalty sharing commences with
Thalomid® annual sales of approximately $225 million.
 16




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##### 



-
    
    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 pre-clinical testing and clinical trials of our
product candidates, including the costs of manufacturing the product candidates, and
facilities expenses. Research and development costs are expensed as incurred.-
    
    Expenses for Clinical Trials  Expenses for clinical trials are incurred from planning
through patient enrollment to reporting of the underlying 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 enrollment. 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. Information about
patient enrollment can become available significantly after we report our expenses for
clinical trials, in which case we would change our estimate of the remaining cost of a
trial. Costs that are based on clinical data collection and management are recognized based
on estimates of unbilled goods and services received in the reporting period. 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  Issued in December 2004, Statement of Financial Accounting
Standards No. 123R (SFAS 123R) requires companies to recognize expense associated with
share-based compensation arrangements, including employee stock options and stock purchase
plans, using a fair value-based option pricing model, and eliminates the alternative to use
the intrinsic value method of accounting for share-based payments. SFAS 123R was effective
beginning January 1, 2006. Adoption of the expense provisions of SFAS 123R has a material
impact on our results of operations. We have applied the modified prospective transition
method; accordingly, compensation expense is reflected in the financial statements
beginning January 1, 2006 with no restatement of prior periods. Compensation expense is
recognized for awards that are granted, modified, repurchased or cancelled on or after
January 1, 2006, as well as for the portion of awards previously granted that have not
vested as of January 1, 2006. For the adoption of SFAS 123R, we have selected the
straight-line expense attribution method, whereas our previous expense attribution method
was the graded-vesting method, an accelerated method, described by FIN 28. Our results of
operations are impacted by the recognition of non-cash expense related to the fair value of
our share-based compensation awards.
   17




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##### 



For the Three and Six Months Ended June 30, 2009 and June 30, 2008.
 Revenues. ® ® ®
 Research and Development Expenses ® ®
 ® ®
 ® ®
  ®
 18




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®
  CLINICAL PHASE
    
    ESTIMATED COMPLETION PERIODPhase I
    
    1 YearPhase II
    
    1-2 YearsPhase III
    
    2-4 Years
  -
    
    the number of patients that ultimately participate in the trial;-
    
    the duration of patient participation in the study and follow-up that seems
appropriate in view of the results;-
    
    the number of clinical sites included in the trials; and-
    
    the length of time required to enroll suitable patient subjects.
   19




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##### 



-
    
    Outside Services  We utilize outsourcing to conduct our product development
activities. Larger-scale small molecule synthesis, in vivotesting and data analysis are
examples of the services that we outsource. In the three-month period ended June 30, 2009,
we expended $136,000 on these activities versus $378,000 in the same 2008 period. For the
six-month period ended June 20, 2009 outside services were $321,000 compared to $773,000
for the same 2008 period. The decrease primarily reflects the absence in 2009 of
analytical testing and preclinical support services in 2ME2 (2-methoxyestradiol) and
ENMD-1198 studies.
 20




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##### 



-
    
    Clinical Trial Costs  Clinical trial costs decreased to $565,000 in the three
months ended June 30, 2009 from $1,094,000 in the three-month period ended June 30, 2008.
Clinical trial costs for the six-month period ended June 30, 2009 decreased to $1,008,000
from $2,838,000 for the comparable 2008 period. The decrease is primarily related to the
Companys restructuring and the recent reprioritization of our clinical programs, focusing
on the clinical development of ENMD-2076. The six-month period ended June 30, 2008
included expenses associated with expansion of our MKC-1 clinical program and also the
initial clinical expenses related to ENMD-2076. Costs of such trials include the
clinical site fees, monitoring costs and data management costs.-
    
    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, and product
release costs. Contract manufacturing costs for the three months ended June 30, 2009
decreased to $66,000 from $1,381,000 during the same period in 2008. For the six-month
period ended June 30, 2009, manufacturing costs decreased to $223,000 from $2,795,000 for
the comparable 2008 period. The decrease reflects the absence of contract manufacturing
activities for ENMD-1198 and Panzem®NCD. Fluctuations in our
contract manufacturing costs from period to period result from the timing of manufacturing
activities.
  General and Administrative Expenses
  Interest expense
 Investment income
 21




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##### 



Dividends on Series A convertible preferred stock
     22




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##### 



® ®
 ® ® ® ®
  .
 23




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Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  
  
   24




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)
 Year TermExpires
    
    Name
    
    Votes For
    
    Votes Withheld2012
    
    Michael M. Tarnow
    
    
    86,566,248
    
    
    
    3,578,1452012
    
    Dwight L. Bush
    
    
    88,073,372
    
    
    
    2,071,021
   VotesFor
    
    
    42,928,419Against
    
    
    4,694,090Abstain
    
    
    131,050Broker Non-Votes
    
    
    42,390,835
 25




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##### 



VotesFor
    
    
    88,903,001Against
    
    
    1,151,857Abstain
    
    
    89,532Broker Non-Votes
    
    
    0
  
   
  31.1
    
    Rule 13a-14(a) Certification of Executive Chairman31.2
    
    Rule 13a-14(a) Certification of Principal Accounting Officer32.1
    
    Section 1350 Certification of Executive Chairman32.2
    
    Section 1350 Certification of Principal Accounting Officer
 26




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##### 



SIGNATURES
  ENTREMED, INC.(Registrant)Date: August 6, 2009
    
    /s/ Michael M. Tarnow

          Michael M. TarnowExecutive ChairmanDate: August 6, 2009
    
    /s/ Kathy R. Wehmeir-Davis

         Kathy R. Wehmeir-DavisPrincipal Accounting Officer
 27




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##### 



31.1
    
    Rule 13a-14(a) Certification of Executive Chairman31.2
    
    Rule 13a-14(a) Certification of Principal Accounting Officer32.1
    
    Section 1350 Certification of Executive Chairman32.2
    
    Section 1350 Certification of Principal Accounting Officer
 28