**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM10-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, 2007**                                                 |
| ** **                                                                                         |
| **or**                                                                                             |
| ** **                                                                                         |
| **o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |

 

**Forthe transition periodfrom                         to                         **

**Commissionfile number: 000-25571**

**TORREYPINESTHERAPEUTICS, INC.**

(Exact name of registrantas specified in its charter)
| **Delaware**                                                     | ** ** | **86-0883978**          |
|------------------------------------------------------------------|------------|-------------------------|
| (State or other  jurisdiction of  incorporation or organization) |       | (IRS Employer  Id. No.) |
|                                                             |       |                    |
| **11085  North Torrey Pines Road, Suite 300**                    |       |                    |
| ** La Jolla, CA**                                           |       | **92037**               |
| (Address of  principal executive offices)                        |       | (Zip code)              |

 

Registrant’stelephone number, including area code:**(858-623-5665)**

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes  x  No  o 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.
| Large Accelerated filer o | Accelerated Filer o | Non-accelerated filer x |
|--------------------------------|--------------------------|------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o Nox.

As of May 7, 2007, therewere 15,700,839 shares of our Common Stock outstanding.

 

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**TorreyPinesTherapeutics, Inc.**

**INDEX**
| PART I.    |   | FINANCIAL  INFORMATION                                                                                       |   |   |
|------------|--------|--------------------------------------------------------------------------------------------------------------|--------|--------|
|       |   |                                                                                                         |   |   |
| Item 1.    |   | Financial  Statements                                                                                        |   |   |
|       |   |                                                                                                         |   |   |
|       |   | Consolidated  Balance Sheets as of March 31, 2007 (Unaudited) and December 31, 2006                          |   |   |
|       |   |                                                                                                         |   |   |
|       |   | Consolidated  Statements of Operations for the three months ended March 31, 2007 and 2006  (Unaudited)       |   |   |
|       |   |                                                                                                         |   |   |
|       |   | Consolidated  Statements of Cash Flows for the three months ended March 31, 2007 and  2006  (Unaudited) |   |   |
|       |   |                                                                                                         |   |   |
|       |   | Notes to  Consolidated Financial Statements                                                                  |   |   |
|       |   |                                                                                                         |   |   |
| Item 2.    |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                  |   |   |
|       |   |                                                                                                         |   |   |
| Item 3.    |   | Quantitative  and Qualitative Disclosures About Market Risk                                                  |   |   |
|       |   |                                                                                                         |   |   |
| Item 4.    |   | Controls and  Procedures                                                                                     |   |   |
|       |   |                                                                                                         |   |   |
| PART II.   |   | OTHER INFORMATION                                                                                            |   |   |
|       |   |                                                                                                         |   |   |
| Item 1.    |   | Legal Proceedings                                                                                            |   |   |
|       |   |                                                                                                         |   |   |
| Item  1A.  |   | Risk  Factors                                                                                                |   |   |
|       |   |                                                                                                         |   |   |
| Item  6.   |   | Exhibits                                                                                                     |   |   |
|       |   |                                                                                                         |   |   |
| Signatures |   |                                                                                                         |

 

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**PART I. FINANCIAL INFORMATION**

**ITEM 1.  Financial Statements**

**TorreyPinesTherapeutics, Inc.Consolidated Balance Sheets**
| ** **                                                                                                                                                                           | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                           | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                                           | ** ** | ** **               |       |                        |       |
| Current assets                                                                                                                                                                       |       |                     |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                           |       | $                        | 52,542,835 |                        | $          | 55,382,962 |   |
| Contracts  receivable                                                                                                                                                                |       | 1,000,000                |       | —                      |       |
| Prepaid expenses  and other current assets                                                                                                                                           |       | 916,349                  |       | 581,491                     |       |
| Total current  assets                                                                                                                                                                |       | 54,459,184               |       | 55,964,453                  |       |
|                                                                                                                                                                                 |       |                     |       |                        |       |
| Property and equipment,  net                                                                                                                                                         |       | 735,615                  |       | 795,902                     |       |
| Purchased patents, net                                                                                                                                                               |       | 3,807,769                |       | 3,905,478                   |       |
| Investment in OXIS  International, Inc.                                                                                                                                         |       | 2,493,561                |       | 2,719,342                   |       |
| Other assets                                                                                                                                                                         |       | 49,396                   |       | 49,696                      |       |
|                                                                                                                                                                                 |       |                     |       |                        |       |
| Total assets                                                                                                                                                                         |       | $                        | 61,545,525 |                        | $          | 63,434,871 |   |
| ** **                                                                                                                                                                           | ** ** | ** **               | ** ** | ** **                  | ** ** |
| **Liabilities and stockholders’  equity**                                                                                                                                       |       |                     |       |                        |       |
| Liabilities                                                                                                                                                                          |       |                     |       |                        |       |
| Current liabilities                                                                                                                                                                  |       |                     |       |                        |       |
| Accounts payable  and accrued liabilities                                                                                                                                            |       | $                        | 3,565,907  |                        | $          | 4,254,265 |   |
| Long-term debt,  current portion                                                                                                                                                     |       | 3,290,348                |       | 3,200,826                   |       |
| Common stock  warrant liability                                                                                                                                                      |       | 4,131,000                |       | 4,815,000                   |       |
| Total current  liabilities                                                                                                                                                           |       | 10,987,255               |       | 12,270,091                  |       |
|                                                                                                                                                                                 |       |                     |       |                        |       |
| Long-term debt, net of  current portion                                                                                                                                              |       | 3,572,631                |       | 4,396,649                   |       |
| Deferred revenue                                                                                                                                                                     |       | 5,483,333                |       | 2,183,333                   |       |
| Deferred rent                                                                                                                                                                        |       | 18,729                   |       | 15,824                      |       |
| Total liabilities                                                                                                                                                                    |       | 20,061,948               |       | 18,865,897                  |       |
|                                                                                                                                                                                 |       |                     |       |                        |       |
| Commitments and  contingencies                                                                                                                                                       |       |                     |       |                        |       |
|                                                                                                                                                                                 |       |                     |       |                        |       |
| Stockholders’ equity                                                                                                                                                            |       |                     |       |                        |       |
| Preferred stock,  $0.001 par value, 15,000,000 shares authorized, 0 shares outstanding at March  31, 2007 and December 31, 2006, respectively                                   |       | —                   |       | —                      |       |
| Common stock,  $0.001 par value, 150,000,000 shares authorized, 15,700,839 and 15,676,964  shares issued and outstanding at March 31, 2007 and December 31, 2006,  respectively |       | 15,701                   |       | 15,677                      |       |
| Additional  paid-in capital                                                                                                                                                          |       | 117,578,999              |       | 117,417,003                 |       |
| Accumulated  other comprehensive income                                                                                                                                              |       | 201,723                  |       | 168,301                     |       |
| Accumulated  deficit                                                                                                                                                                 |       | (76,312,846              | )          | (73,032,007                 | )          |
| Total stockholders’ equity                                                                                                                                                      |       | 41,483,577               |       | 44,568,974                  |       |
|                                                                                                                                                                                 |       |                     |       |                        |       |
| Total liabilities and stockholders’ equity                                                                                                                                      |       | $                        | 61,545,525 |                        | $          | 63,434,871 |   |

 

*Seeaccompanying notes.*

1

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**TorreyPinesTherapeutics, Inc.Consolidated Statements of Operations**

(Unaudited)
| ** **                                                                                                                    | ** ** | **Three months ended  March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                                    | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Revenue                                                                                                                       |       |                                             |       |   |   |
| License and option fees                                                                                                       |       | $                                                | 1,700,000  |   | $ | 1,700,000 |   |
| Research funding                                                                                                              |       | 762,500                                          |       | 762,500 |   |
| Total revenue                                                                                                                 |       | 2,462,500                                        |       | 2,462,500 |   |
|                                                                                                                          |       |                                             |       |   |   |
| Operating  expenses                                                                                                           |       |                                             |       |   |   |
| Research and development                                                                                                      |       | 5,177,401                                        |       | 5,659,000 |   |
| General and administrative                                                                                                    |       | 1,394,496                                        |       | 672,261 |   |
|  Total  operating expenses                                                                                               |       | 6,571,897                                        |       | 6,331,261 |   |
|                                                                                                                          |       |                                             |       |   |   |
| Loss from  operations                                                                                                         |       | (4,109,397                                       | )          | (3,868,761 | ) |
|                                                                                                                          |       |                                             |       |   |   |
| Other income  (expense)                                                                                                       |       |                                             |       |   |   |
| Interest income                                                                                                               |       | 607,754                                          |       | 223,359 |   |
| Interest expense                                                                                                              |       | (237,415                                         | )          | (157,484 | ) |
| Equity in loss of OXIS International, Inc.                                                                               |       | (225,781                                         | )          | — |   |
| Warrant valuation adjustment                                                                                                  |       | 684,000                                          |       | — |   |
| Gain on asset disposal                                                                                                        |       | —                                           |       | 2,584 |   |
| Total other  income (expense)                                                                                                 |       | 828,558                                          |       | 68,459 |   |
|                                                                                                                          |       |                                             |       |   |   |
| Net loss                                                                                                                      |       | (3,280,839                                       | )          | (3,800,302 | ) |
|                                                                                                                          |       |                                             |       |   |   |
| Dividends and  accretion to redemption value of redeemable convertible preferred stock                                        |       | —                                           |       | (1,147,737 | ) |
|                                                                                                                          |       |                                             |       |   |   |
| Net loss  attributable to common stockholders                                                                                 |       | $                                                | (3,280,839 | ) | $ | (4,948,039 | ) |
|                                                                                                                          |       |                                             |       |   |   |
| Basic and  diluted net loss per share attributable to common stockholders                                                     | ** ** | $                                                | (0.21)     |   | $ | (9.24 | ) |
|                                                                                                                          |       |                                             |       |   |   |
| Weighted average shares  used in the computation of basic and diluted net loss per share attributable  to common stockholders |       | 15,688,079                                       |       | 535,581 |   |

 

*Seeaccompanying notes.*

2

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**TorreyPinesTherapeutics, Inc.Consolidated Statements of Cash Flows**

(Unaudited)
| ** **                                                                   | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **Operating  activities**                                                    |       |                                             |       |   |   |
| Net loss                                                                     |       | $                                                | (3,280,839 | ) | $ | (3,800,302 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                             |       |   |   |
| Depreciation                                                                 |       | 101,291                                          |       | 175,482 |   |
| Stock-based compensation                                                     |       | 142,206                                          |       | 29,511 |   |
| Amortization of debt discount                                                |       | 32,912                                           |       | 15,190 |   |
| Amortization of purchased patents                                            |       | 97,708                                           |       | — |   |
| Deferred rent                                                                |       | 2,904                                            |       | 2,877 |   |
| Deferred revenue                                                             |       | 3,300,000                                        |       | (1,700,000 | ) |
| Gain on disposal of assets                                                   |       | —                                           |       | (2,584 | ) |
| Equity in loss of OXIS International, Inc.                              |       | 225,781                                          |       | — |   |
| Change in warrant valuation                                                  |       | (684,000                                         | )          | — |   |
| Changes in operating assets and liabilities:                                 |       |                                             |       |   |   |
| Contracts receivable                                                         |       | (1,000,000                                       | )          | — |   |
| Prepaid expenses and other current assets                                    |       | (333,987                                         | )          | (293,401 | ) |
| Other assets                                                                 |       | 298                                              |       | (25,585 | ) |
| Accounts payable and accrued liabilities                                     |       | (689,364                                         | )          | (774,225 | ) |
| Net cash used in  operating activities                                       |       | (2,085,090                                       | )          | (6,373,037 | ) |
| ** **                                                                   | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Investing  activities**                                                    |       |                                             |       |   |   |
| Purchases of  property and equipment                                         |       | (41,003                                          | )          | (51,105 | ) |
| Net cash used in  investing activities                                       |       | (41,003                                          | )          | (51,105 | ) |
| ** **                                                                   | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Financing  activities**                                                    |       |                                             |       |   |   |
| Issuance of  common stock                                                    |       | 19,814                                           |       | 1,000 |   |
| Proceeds from  long-term debt                                                |       | —                                           |       | 5,000,000 |   |
| Payments on  long-term debt                                                  |       | (767,407                                         | )          | — |   |
| Net cash  provided by (used in) financing activities                         |       | (747,593                                         | )          | 5,001,000 |   |
|                                                                         |       |                                             |       |   |   |
| Effect of  exchange rate changes on cash                                     |       | 33,559                                           |       | 65,916 |   |
|                                                                         |       |                                             |       |   |   |
| Net decrease in  cash and cash equivalents                                   |       | (2,840,127                                       | )          | (1,357,226 | ) |
|                                                                         |       |                                             |       |   |   |
| Cash and cash  equivalents at beginning of period                            |       | 55,382,962                                       |       | 28,756,888 |   |
|                                                                         |       |                                             |       |   |   |
| Cash and cash  equivalents at end of period                                  |       | $                                                | 52,542,835 |   | $ | 27,399,662 |   |
| ** **                                                                   | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Supplemental  disclosure of cash flow information**                        |       |                                             |       |   |   |
| Cash paid for  interest                                                      |       | $                                                | 204,504    |   | $ | 142,294 |   |
| Warrant issued  in conjunction with debt                                     |       | $                                                | —     |   | $ | 212,665 |   |
| Noncash purchases of  property and equipment                                 |       | $                                                | —     |   | $ | 2,584 |   |

 

*Seeaccompanying notes.*

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**TorreyPines Therapeutics, Inc.Notes to Consolidated Financial Statements**

**March31, 2007**

(Unaudited)

**(1) Basisof Presentation**

The accompanyingunaudited consolidated financial statements of TorreyPines Therapeutics, Inc.(together with our wholly-owned subsidiaries, TPTX, Inc. and TorreyPinesTherapeutics Europe NV) should be read in conjunction with the auditedfinancial statements and notes thereto as of, and for the year ended December31, 2006 included in our Annual Report on Form 10-K filed with the Securitiesand Exchange Commission (the “SEC”).  Theaccompanying financial statements have been prepared in accordance with UnitedStates generally accepted accounting principles (“GAAP”) and with the rules andregulations of the SEC related to a quarterly report on Form 10-Q.  Accordingly, they do not include all of theinformation and disclosures required by GAAP for complete financial statements.  In the opinion of our management, theaccompanying financial statements reflect all adjustments (consisting of normalrecurring adjustments) that are necessary for a fair presentation of thefinancial position, results of operations and cash flows for the interimperiods presented.  Interim results arenot necessarily indicative of results for a full year.

The preparation offinancial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the amounts reported in the financialstatements and the accompanying notes. Actual results could differ from those estimates. .

Prior to October3, 2006 we were known as Axonyx Inc. On October 3, 2006, we completed abusiness combination, referred to as the Merger, with TorreyPines Therapeutics,Inc. (now known as TPTX, Inc.).  Foraccounting purposes, we were deemed to be the acquired entity in the Merger,and the Merger was accounted for as a reverse acquisition. In connection withthe Merger, we changed our name to TorreyPines Therapeutics, Inc. and effectedan 8-for-1 reverse stock split of our Common Stock. Our financial statementsreflect the historical results of TPTX, Inc. prior to the Merger and that ofthe combined company following the Merger, and do not include the historicalresults of Axonyx Inc. prior to the completion of the Merger. All share and pershare disclosures have been retroactively adjusted to reflect the exchange ofshares in the Merger, and the 8-for-1 reverse split of our common stock onOctober 3, 2006.  References in thisreport to “TorreyPines,” “Company,” “we,” “us” and “our” refer to TorreyPinesTherapeutics, Inc. and its subsidiaries.

**(2) Comprehensive Loss**

Statement ofFinancial Accounting Standards (“SFAS”) No. 130, *Reporting Comprehensive Income,* requiresthat all components of comprehensive income, including net income or loss andforeign currency translation adjustments, be reported in the financialstatements in the period in which they are recognized. Comprehensive income orloss is defined as the change in equity during a period from transactions andother events and circumstances from non-owner sources. Our comprehensive lossis as follows:

|                                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                      |       |                                             |       |   |   |
| Net loss                                  |       | $                                                | (3,280,839 | ) | $ | (3,800,302 | ) |
|                                      |       |                                             |       |   |   |
| Foreign currency  translation adjustments |       | 33,422                                           |       | 65,779 |   |
|                                      |       |                                             |       |   |   |
| Comprehensive  loss                       |       | $                                                | (3,247,417 | ) | $ | (3,734,523 | ) |

 

**(3) Net Loss Per Share**

We calculate netloss per share in accordance with SFAS No. 128, *Earnings Per Share*. Net loss per share is computed on the basis of the weighted-averagenumber of shares of common stock outstanding during the periods presented.  Net loss per share assuming dilution iscomputed on the basis of the weighted-average number of common sharesoutstanding and the dilutive effect of all common stock equivalents.  For the three-month periods ended March 31,2007 and 2006, there is no difference between basic and diluted net loss pershare attributable to common stockholders because the effect of common stockequivalents outstanding during the periods, including stock options, warrantsand redeemable convertible preferred stock, is antidilutive.

4

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**(4) Commitmentsand Contingencies**

Several lawsuits were filed against us inFebruary 2005 in the U.S. District Court for the Southern District of NewYork asserting claims under Sections 10(b) and 20(a) of theSecurities Exchange Act of 1934, as amended, or the Exchange Act andRule 10b-5 thereunder on behalf of a class of purchasers of Axonyx commonstock during the period from June 26, 2003, through and includingFebruary 4, 2005, referred to as the class period. Dr. Marvin S.Hausman, M.D., a current director and our former Chief Executive Officer, andDr. Gosse B. Bruinsma, M.D., also a former Chief Executive Officer,were also named as defendants in the lawsuits. These actions were consolidatedinto a single class action lawsuit in January 2006. On April 10,2006, the class action plaintiffs filed an amended consolidated complaint. TheCompany filed its answer to that complaint on May 26, 2006. The Company’smotion to dismiss the consolidated amended complaint was filed on May 26,2006 and was submitted to the court for a decision in September 2006. Themotion to dismiss is pending.

The class action plaintiffs allege generally that theCompany’s Phase III phenserine development program was subject to allegederrors of design and execution which resulted in the failure of the first PhaseIII phenserine trial to show efficacy. Plaintiffs allege the defendants’failure to disclose the alleged defects resulted in the artificial inflation ofthe price of the Company’s shares during the class period.

There is also a shareholder derivative suit pending inNew York Supreme Court, New York County, against our current and formerdirectors and officers. The named defendants are Marvin S.Hausman, M.D., Gosse B. Bruinsma, M.D., S. Colin Neill, Louis G.Cornacchia, Steven H. Ferris, Ph.D., Gerard J. Vlak, RalphSnyderman, M.D. and Michael A. Griffith. Defendants are alleged to havebreached their duties to the Company and misused inside information regardingclinical trials of phenserine. This action has been stayed pending furtherdevelopments in the federal class action.

The complaints seek unspecified damages. Managementbelieves the claims are without merit and plans to defend the claimsvigorously. The Company has determined that a loss in connection with thesematters is possible, but not probable. Accordingly, the Company has notrecorded any liability relating to these matters.

**(5) IncomeTaxes**

Effective January 1, 2007, the Company adoptedthe provisions of Financial Accounting Standards Board (“FASB”) InterpretationNo. 48, *Accounting for Uncertainty in Income Taxes –an Interpretation of FASB Statement No. 109* (“FIN 48”). FIN 48prescribes a recognition threshold and measurement attribute criteria for thefinancial statement recognition and measurement of tax positions taken orexpected to be taken in a tax return. For those benefits to be recognized, atax position must be more-likely-than-not to be sustained upon examination bytaxing authorities.

The Company has unrecognized tax benefits ofapproximately $711,000 which did not change significantly during the threemonths ended March 31, 2007. The application of FIN 48 would have resulted in acharge to retained earnings of $603,000, except that the charge was fullyoffset by the application of a valuation allowance. In addition, future changesin the unrecognized tax benefits will have no impact on the effective tax ratedue to the existence of the valuation allowance.

As of the date of adoption of FIN 48, no interest orpenalties associated with any unrecognized tax benefits were accrued, nor wasany interest expense recognized during the quarter. The Company’s policy is torecord interest and penalties related to tax positions in income tax expense.

The Company is subject to taxation in the UnitedStates and various states and foreign jurisdictions. The Company’s tax yearsfor 2000 and forward are subject to examination by the United States andvarious state taxing authorities due to the carryforward of unutilized netoperating losses and credits. Tax years 2004 and forward remain open toexamination by foreign taxing jurisdictions.

5

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**Item 2. Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

*Thisdiscussion and analysis should be read in conjunction with our unauditedfinancial statements and notes included in this Quarterly Report on Form 10-Qand the audited financial statements and notes as of and for the year endedDecember 31, 2006 included with the our Annual Report on Form 10-K filedwith the Securities and Exchange Commission, or SEC, on March 29, 2007.Operating results are not necessarily indicative of results that may occur infuture periods.*

*The following discussion of ourfinancial condition contains certain statements that are not strictlyhistorical and are “forward-looking” statements within the meaning of thePrivate Securities Litigation Reform Act of 1995 and involve a high degree ofrisk and uncertainty. Our actual results may differ materially from thoseprojected in the forward-looking statements due to risks and uncertainties thatexist in our operations, development efforts and business environment,including those set forth under the Section entitled “Risk Factors” inPart II, Item 1A, and other documents we file with the Securities and ExchangeCommission. All forward-looking statements included in this report are based oninformation available to us as of the date hereof, and, unless required by law,we assume no obligation to update any such forward-looking statement.*

**Overview**

***Company Overview***

We are abiopharmaceutical company committed to the discovery, development andcommercialization of novel small molecules to treat diseases and disorders ofthe central nervous system, or CNS. Our therapeutic focus is in two areas:chronic pain, including migraine and neuropathic pain; and cognitive disorders,including cognitive impairment associated with schizophrenia, and Alzheimer’sdisease. Through our in-house discovery programs and strategic in-licensing, wehave built a robust pipeline of eight product candidates for these indications.

We currently havetwo product candidates in clinical trials for chronic pain. We initiated aPhase IIb clinical trial of tezampanel, our lead product candidate for chronicpain, in October 2006. This clinical trial will evaluate the use oftezampanel for the abortive treatment of migraine. We expect to have top lineresults from this clinical trial in the second half of 2007. We are currentlyconducting a Phase I clinical trial for our follow-on product candidate forchronic pain, NGX426.

We currently haveone product candidate in clinical trials for cognitive disorders. NGX267 is ourlead product candidate for the treatment of cognitive impairment associatedwith schizophrenia, or CIAS. We have completed two Phase I clinical trials ofNGX267. We initiated an additional Phase I clinical trial of NGX267 inMarch 2007. Assuming favorable results, we intend to initiate a Phase IIclinical trial in the second half of 2007. The Phase II clinical trial wouldevaluate NGX267 for the treatment of CIAS. We expect that NGX267 would be usedas adjunctive therapy to current antipsychotic therapy to treat schizophrenia.Our second product candidate for the treatment of CIAS, NGX292, is currently inpreclinical development. In addition, although not the primary targetedindication, we may also evaluate NGX267 and NGX292 for the potential treatmentof Alzheimer’s disease.

We also have fourproduct candidates in development and two discovery programs focused oncognitive disorders. Phenserine, Posiphen, bisnorcymserine and NGX555 are invarious stages of development for the treatment of Alzheimer’s disease. We havecompleted Phase III clinical trials of phenserine and are currently pursuingout-licensing opportunities. Phase I clinical trials have been completed onPosiphen. Bisnorcymserine and NGX555 are currently in preclinical development.Our two drug discovery programs are focused on discovering and validating smallmolecules and novel molecular targets for Alzheimer’s disease, and we areconducting both programs in collaboration with Eisai Co., Ltd., or Eisai, aleader in Alzheimer’s disease research.

***FinancialOverview***

We have incurrednet losses since inception as we have devoted substantially all of ourresources to research and development, including early-stage clinical trials.As of March 31, 2007, our accumulated deficit was $76.3 million. We expect toincur substantial and increasing losses for the next several years as wecontinue to expend substantial resources seeking to successfully research,develop, manufacture, obtain regulatory approval for, market and sell ourproduct candidates. We expect that in the near term, we will incur substantiallosses relating primarily to costs and expenses in our efforts to advance thedevelopment of tezampanel, NGX426, and NGX267.

We have notgenerated any revenue from product sales since inception and do not expect togenerate any revenue from product sales for the next several years. Because ourproduct candidates are at an early stage of clinical and preclinicaldevelopment and the outcome of these efforts is uncertain, we cannot estimate theactual amounts necessary to successfully complete the development andcommercialization of our product candidates or whether, or when, we may achieveprofitability.

6

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*Revenue*

All of our revenueto date has been derived from license and option fees and research funding fromour strategic alliance agreements. We will continue to seek partners for someor all of our product candidates and drug discovery programs. In the future, wewill seek to generate revenue from some or all of the following sources:

·         licenseand option fees from partners;

·         researchfunding from partners;

·         milestonepayments from partners;

·         royaltypayments from partners; and

·         product sales.

We expect that anyrevenue we generate will fluctuate from quarter to quarter as a result of thetiming and amount of payments received under our strategic alliance agreements,and the amount and timing of payments we receive upon the sale of our products,to the extent any are successfully commercialized. If we fail to complete thedevelopment of our product candidates in a timely manner or obtain regulatoryapproval, our ability to generate future revenue, and our financial conditionand results of operations, would be materially adversely affected.

*Researchand Development Expense*

Since inception, wehave focused on discovery and development of novel small molecules to treat CNSdiseases and disorders. We currently have five compounds with openInvestigational New Drug applications, or INDs, three of which are in clinicaltrials:

·         Tezampanel,for the treatment of migraine, which has been studied in two Phase I clinicaltrials and five Phase IIa clinical trials and for which we began a Phase IIbclinical trial in October 2006;

·         NGX426,for the treatment of migraine, which has been studied in one Phase I clinicaltrial and for which we began a Phase I clinical trial inFebruary 2007;

·         NGX267,for the treatment of CIAS, which has been studied in two Phase I single doseclinical trials and for which we began a Phase I multiple dose clinical trialin March 2007;

·        Phenserine,for the treatment of Alzheimer’s disease, which has been studied in three PhaseIII clinical trials and for which we are currently seeking developmentpartners; and

·         Posiphen, for thetreatment of Alzheimer’s disease, which has been studied in two Phase Iclinical trials.

We expenseresearch and development costs as incurred. Research and development expenseconsists of expenses incurred in identifying, researching, developing andtesting product candidates. These expenses primarily consist of the following:

·         compensationof personnel associated with research and development activities, includingconsultants;

·         feespaid to contract research organizations and professional service providers forindependent monitoring and analysis of our clinical trials;

·         laboratorysupplies and materials;

·         manufacturingof product candidates for use in our preclinical testing and clinical trials;

·         preclinicalcosts, including toxicology studies;

·         depreciationof equipment; and

·         allocated costs offacilities and infrastructure.

Because of therisks inherent in research and development, we cannot reasonably estimate orknow the nature, timing and estimated costs of the efforts necessary tocomplete the development of our programs, the anticipated completion dates ofthese programs, or the period in which material net cash inflows are expectedto commence, if at all, from the programs described above and any potentialfuture product candidates. If either we or any of our partners fail to completeany stage of the development of any potential products in a timely manner, itcould have a material adverse effect on our operations, financial position andliquidity.

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*General and Administrative Expense*

General andadministrative expense consists primarily of salaries and other related costsfor personnel in executive, finance, accounting, business development,information technology and human resource functions. Other costs includefacility costs not otherwise included in research and development expense and professionalfees for legal and accounting services.

**Critical Accounting Policies andEstimates**

Our discussion andanalysis of our financial condition and results of operations are based on ourfinancial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States, or GAAP. The preparation ofthese financial statements requires us to make estimates and judgments thataffect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenue and expenses during the reporting periods. Wereview our estimates on an ongoing basis, including those related to revenue,accrued expenses and stock-based compensation. We base our estimates onhistorical experience, known trends and events, and various other factors thatwe believe to be reasonable under the circumstances, the results of which formour basis for making judgments about the carrying values of assets andliabilities that are not readily apparent from other sources. Actual resultsmay differ from these estimates under different assumptions or conditions.

Our managementbelieves the following accounting policies and estimates are most critical toaid you in understanding and evaluating our reported financial results.

***Revenue Recognition***

We recognizerevenue in accordance with the SEC’s Staff Accounting Bulletin, or SAB,No. 104,*Revenue Recognition*,and Emerging Issues Task Force, or EITF, No. 00-21,*Revenue Arrangements with Multiple Deliverables*.To date we have recorded license and option fee revenue and research fundingrevenue from four research agreements with Eisai. The terms of the agreementstypically include up-front payments to us of non-refundable license and/oroption fees and, in some cases, payments for research efforts. Futureagreements could also include milestone payments and royalty payments.

We recognizerevenue from up-front non-refundable license and option fees on a straight-linebasis over the contracted or estimated period of performance, which istypically the research term. Amounts received for research funding for aspecific number of full-time researchers are recognized as revenue as theservices are provided, as long as the amounts received are not refundableregardless of the results of the research project. Milestone payments, if any,will be recognized on achievement of the milestone, unless the amounts receivedare creditable against royalties or we have ongoing performance obligations.Royalty payments, if any, will be recognized on sale of the related product,provided the royalty amounts are fixed and determinable, and collection of therelated receivable is probable.

***Accrued Expenses***

As part of theprocess of preparing financial statements, we are required to estimate accruedexpenses. This process involves identifying services which have been performedon our behalf, and estimating the level of service performed and the associatedcost incurred for such service as of each balance sheet date in our financialstatements. Examples of services for which we must estimate accrued expensesinclude contract service fees paid to contract manufacturers in conjunctionwith the production of clinical drug supplies and to contract researchorganizations in connection with preclinical studies and clinical trials. Inconnection with such service fees, our estimates are most affected by ourunderstanding of the status and timing of services provided. The majority ofour service providers invoice us in arrears for services performed. In theevent that we do not identify certain costs which have been incurred, or weunder- or over-estimate the level of services performed or the costs of suchservices in a given period, our reported expenses for such period would be toolow or too high. The date on which certain services commence, the level ofservices performed on or before a given date, and the cost of such services areoften determined based on subjective judgments. We make these judgments basedupon the facts and circumstances known to us. To date, we have been able toreasonably estimate these costs; however, as we increase the level of servicesperformed on our behalf, it will become increasingly more difficult for us toestimate these costs, which could result in our reported expenses for futureperiods being too high or too low.

***Stock-Based Compensation***

We estimate thefair value of stock options granted using the Black-Scholes option valuationmodel and the fair value of restricted stock units granted using a Monte-Carlosimulation option-pricing model. The fair values of stock option and restricted

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stock unit awards areamortized over the requisite service periods of the awards. Both theBlack-Scholes option valuation model and the Monte-Carlo simulationoption-pricing model require the input of highly subjective assumptions,including the option or restricted stock unit’s expected life, price volatilityof the underlying stock, risk free interest rate and expected dividend rate. Asstock-based compensation expense related to stock options is based on awardsultimately expected to vest, the stock-based compensation expense has beenreduced for estimated forfeitures of stock options. Statement of FinancialAccounting Standards, or SFAS, No. 123R,*  Share-Based Payment*, requiresforfeitures to be estimated at the time of grant and revised, if necessary, insubsequent periods if actual forfeitures differ from those estimates. Stockoption forfeitures were estimated based on historical experience. We may electto use different assumptions under both the Black-Scholes option valuationmodel or the Monte-Carlo simulation option-pricing model in the future, whichcould materially affect our net income or loss and net income or loss per share.

**Recently Issued Accounting Pronouncements**

InFebruary 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities—Including an Amendment of FASB Statement No. 115.*This standard permits an entity to choose to measure many financial instrumentsand certain other items at fair value. Most of the provisions in SFASNo. 159 are elective; however, the amendment to SFAS No. 115, *Accounting for Certain Investments in Debt and EquitySecurities,* applies to all entities with available-for-sale andtrading securities. The fair value option established by SFAS No. 159permits all entities to choose to measure eligible items at fair value atspecified election dates. A business entity will report unrealized gains andlosses on items for which the fair value option has been elected in earnings(or another performance indicator if the business entity does not reportearnings) at each subsequent reporting date. The fair value option:(a) may be applied instrument by instrument, with a few exceptions, suchas investments otherwise accounted for by the equity method; (b) isirrevocable (unless a new election date occurs); and (c) is applied onlyto entire instruments and not to portions of instruments. SFAS No. 159 iseffective as of the beginning of an entity’s first fiscal year that beginsafter November 15, 2007. The Company does not expect the adoption of SFASNo. 159 to have a material impact on its consolidated financialstatements.

**Results of Operations**

***Fluctuations in Operating Results***

Our results ofoperations have fluctuated significantly from period to period in the past andare likely to continue to do so in the future. We anticipate that our quarterlyand annual results of operations will be affected for the foreseeable future byseveral factors, including the timing and amount of payments received pursuantto our current research agreements and future strategic alliance agreements, aswell as the progress and timing of expenditures related to our development anddiscovery efforts.  Due to thesefluctuations, we believe that the period-to-period comparisons of our operatingresults are not a good indication of our future performance.

***Comparison of the Three Months Ended March 31, 2007 and2006***

The followingtable summarizes the significant components of our results of operations forthe three months ended March 31, 2007 and 2006, in thousands, togetherwith the change in such items in dollars and as a percentage.
|                                     | ** ** | **For the Three Months Ended March 31,** | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                          | ** ** | **2007**                                                               | ** ** | **2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Revenue                             |       | $                                                                      | 2,463      |   | $ | 2,463 |   | $ | — |   | — | % |
| Research and  development expense   |       | 5,177                                                                  |       | 5,659 |   | (482 | ) | (9 | )% |
| General and  administrative expense |       | 1,394                                                                  |       | 672 |   | 722 |   | 107 | % |
| Interest income                     |       | 608                                                                    |       | 223 |   | 385 |   | 173 | % |
| Interest expense                    |       | 237                                                                    |       | 157 |   | 80 |   | 51 | % |
|                                     |            |                                                                        |            |  |  |  |  |  |  |  |  |  |

 

*Revenue.  *Revenue for the three months ended March 31, 2007 was unchanged from the sameperiod in 2006.  There were no currentquarter changes in our strategic alliance agreements that affected our revenuefrom license and option fees or research funding.

*Researchand development expense.  * Research and developmentexpense decreased to $5.2 million for the three months ended March 31, 2007from $5.7 million for the same period in 2006. The $0.5 million decrease wasattributable to a decrease in research expense of $0.8 million, offset by anincrease in development expense of $0.3 million.

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The $0.8 milliondecrease in research expense was primarily due to lower costs incurred under aresearch agreement with Eisai.  Specifically,lower usage of certain lab supplies accounted for most of the decrease.  The $0.3 million increase in developmentexpense was due to increased clinical trial activity and increases in personnelcosts and related expenses.

*Generaland administrative expense.  *General and administrative expense increasedto $1.4 million for the three months ended March 31, 2007 from $0.7 million for the same period in 2006. The $0.7million increase was attributable to increased professional services costs,including increased audit and legal costs, and increased insurance costs.Additionally, personnel costs and related expenses increased for the threemonths ended March 31, 2007 compared to the same period in 2006.

*Interestincome.  * Interest income increased to $608,000 forthe three months ended March 31, 2007 from $223,000 for the same period in2006. The increase of $385,000 was due to a higher average cash and cashequivalents balance during the first quarter of 2007 compared to the firstquarter of 2006.

*Interestexpense.  * Interest expense increased to $237,000for the three months ended March 31, 2007 from $157,000 for the same period in2006. The $80,000 increase is attributable to a higher average debt balanceduring the first quarter of 2007 compared to the first quarter of 2006. InMarch 2006 we drew down the remaining $5.0 million of a $10 million debtfacility.

**Liquidity and Capital Resources**

Since inception wehave funded our operations primarily through sales of our equity securities,payments under our research agreements, debt financings and interestincome.  Through March 31, 2007, wehad received approximately $67.4 million in net proceeds from the sale ofequity securities, $38.6 million in payments under our research agreements,$18.7 million from debt issuances, and $3.9 million in interest income.  In addition, we received $46.5 million ofcash in connection with the Merger in October 2006.

At March 31,2007, we had cash and cash equivalents of $52.5 million as compared to$55.4 million at December 31, 2006. The cash balance atMarch 31, 2007 is $2.9 million lower than the balance atDecember 31, 2006 due largely to the current quarter operating loss,repayments of debt and capital equipment purchases, offset by proceeds fromlicense and option fee payments and research funding payments.

We believe we havesufficient funds to enable us to meet our ongoing working capital requirementsthrough at least December 31, 2008. For a further discussion of the risks related to the availability ofcash to fund our future operations, please see “Risk Factors.”

We expect tocontinue to fund our operations with existing cash resources that wereprimarily generated from equity financings, cash payments under our researchagreements, and debt financing arrangements until we can generate significantcash from our operations. In addition, we may finance future cash needs throughthe sale of equity securities, entering into strategic collaboration agreementsand debt financing. However, we may not be successful in entering intostrategic collaboration agreements, or in receiving research funding undercurrent agreements or milestone or royalty payments under future agreements. Inaddition, we cannot be sure that our existing funds will be adequate or thatadditional financing will be available when needed or that, if available,financing will be obtained on terms favorable to us or our stockholders. Havinginsufficient funds may require us to delay, scale back or eliminate some or allof our research or development programs or to relinquish greater or all rightsto product candidates at an earlier stage of development or on less favorableterms than we would otherwise choose. Failure to obtain adequate financing alsomay adversely affect our ability to operate as a going concern.

If we raiseadditional capital by issuing equity securities, our existing stockholders’ownership will be diluted. Any debt financing we enter into may involvecovenants that restrict our operations. These restrictive covenants may includelimitations on additional borrowing, specific restrictions on the use of ourassets as well as prohibitions on our ability to create liens, pay dividends,redeem our stock or make investments. In addition, if we raise additional fundsthrough collaboration and licensing arrangements, we may be required torelinquish potentially valuable rights to our product candidates or proprietarytechnologies, or grant licenses on terms that are not favorable to us.

**Off-Balance Sheet Arrangements**

We do not have any off-balance sheet arrangements.

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**Item 3. Quantitative and Qualitative Disclosures About MarketRisk**

We are exposed tomarket risk related to changes in interest rates. Our current investment policyis to maintain an investment portfolio consisting mainly of U.S. money marketand high-grade corporate securities, directly or through managed funds, withmaturities of one and a half years or less. We do not enter into investmentsfor trading or speculative purposes. Our cash is deposited in and investedthrough highly rated financial institutions in North America. Our marketablesecurities are subject to interest rate risk and will fall in value if marketinterest rates increase. If market interest rates were to increase immediatelyand uniformly by 10% from levels at March 31, 2007 and 2006, we estimatethat the fair value of our investment portfolio would decline by an immaterialamount. We have the ability to hold our fixed income investments until maturitytherefore we would not expect our operating results or cash flows to beaffected to any significant degree by the effect of a change in market interestrates on its investments.

We have foreigncurrency accounts that are exposed to currency exchange risk. The functionalcurrency of our European subsidiary, which is based in Belgium, is the localcurrency. Accordingly, the accounts of this subsidiary are translated from thelocal currency to the U.S. dollar using the current exchange rate at thebalance sheet date for the balance sheet accounts, and using the average exchangerate during the period for revenue and expense accounts. The effects oftranslation are recorded in accumulated other comprehensive loss as a separatecomponent of stockholders’ deficit. Because we did not have any transactionsdenominated in foreign currencies during the three months ended March 31,2007 and 2006, we did not record exchange gains and losses in operations forthose periods. If the foreign currency rates were to fluctuate by 10% fromexchange rates at March 31, 2007 and 2006, the effect on our financialstatements would not be material. However, there can be no assurance there willbe not be a material impact in the future.

**Item 4. Controls and Procedures.**

We maintaindisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in our Exchange Act reports is recorded, processed,summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicatedto our management, including our principal executive officer and principalfinancial officer, as appropriate, to allow timely decisions regarding requireddisclosure.

Under thesupervision and with the participation of our management, including ourprincipal executive officer and principal financial officer, we conducted anevaluation of our disclosure controls and procedures, as such term is definedunder Rule 13a-15(e) promulgated under the Exchange Act. Based onthis evaluation, our principal executive officer and our principal financialofficer concluded that our disclosure controls and procedures were designed andoperating effectively as of the end of the period covered by this QuarterlyReport on Form 10-Q.

Our management,including our principal executive officer and our principal financial officer,does not expect that our disclosure controls and procedures or our internalcontrols will prevent all errors and all fraud. A control system, no matter howwell conceived and operated, can provide only reasonable, not absolute, assurancethat the objectives of the control system are met. Further, the design of acontrol system must reflect the fact that there are resource constraints, andthe benefits of controls must be considered relative to their costs. Because ofthe inherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud, ifany, within the company have been detected.

**Changes in Internal Control OverFinancial Reporting**

There has been nochange in our internal control over financial reporting during the quarterended March 31, 2007 that has materially affected, or is reasonably likelyto materially affect, our internal control over financial reporting.

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**PART II.  OTHERINFORMATION**

**Item 1. Legal Proceedings**

Several lawsuits were filed against us inFebruary 2005 in the U.S. District Court for the Southern District of NewYork asserting claims under Sections 10(b) and 20(a) of theSecurities Exchange Act of 1934, as amended, or the Exchange Act andRule 10b-5 thereunder on behalf of a class of purchasers of our commonstock during the period from June 26, 2003, through and includingFebruary 4, 2005, referred to as the class period. Dr. Marvin S.Hausman, M.D., a current director and our former Chief Executive Officer, andDr. Gosse B. Bruinsma, M.D., also a former Chief Executive Officer,were also named as defendants in the lawsuits. These actions were consolidatedinto a single class action lawsuit in January 2006. On April 10,2006, the class action plaintiffs filed an amended consolidated complaint. Wefiled our answer to that complaint on May 26, 2006. Our motion to dismissthe consolidated amended complaint was filed on May 26, 2006 and wassubmitted to the court for a decision in September 2006. The motion todismiss is pending.

The class action plaintiffs allege generally that ourPhase III phenserine development program was subject to alleged errors ofdesign and execution which resulted in the failure of the first Phase IIIphenserine trial to show efficacy. Plaintiffs allege the defendants’ failure todisclose the alleged defects resulted in the artificial inflation of the priceof our shares during the class period.

There is also a shareholder derivative suit pending inNew York Supreme Court, New York County, against our current and formerdirectors and officers. The named defendants are Marvin S.Hausman, M.D., Gosse B. Bruinsma, M.D., S. Colin Neill, Louis G.Cornacchia, Steven H. Ferris, Ph.D., Gerard J. Vlak, RalphSnyderman, M.D. and Michael A. Griffith. Defendants are alleged to havebreached their duties to the company and misused inside information regardingclinical trials of phenserine. This action has been stayed pending furtherdevelopments in the federal class action.

The complaints seek unspecified damages. We believethe complaints are without merit and we intend to defend these lawsuitsvigorously. However, we cannot make assurances that we will prevail in theseactions, and, if the outcome is unfavorable to us, our reputation, operationsand share price could be adversely affected.

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**Item 1A.****   Risk Factors**

*Youshould consider carefully the following information about the risks describedbelow, together with the other information contained in this quarterly reporton Form 10-Q and in our other filings with the Securities and ExchangeCommission, before you decide to buy or maintain an investment in our commonstock. We believe the risks described below are the risks that are material to usas of the date of this quarterly report. If any of the following risks actuallyoccur, our business financial condition, results of operations and futuregrowth prospects would likely be materially and adversely affected.  In these circumstances, the market price ofour common stock could decline, and you may lose all or part of the money youpaid to buy our common stock.  The riskfactors set forth below with an asterisk (*) next to the title are new riskfactors or risk factors containing changes, including any material changes fromthe risk factors set forth in our annual report on Form 10-K for the fiscalyear ended December 31, 2006, as filed with the Securities and ExchangeCommission.*

**Risks Related to Our Business**

****We expect to continue to incur net operating losses for thenext several years and may never achieve profitability.***

We have incurrednet operating losses every year since our inception. As of March 31, 2007, wehad an accumulated deficit of approximately $76.3 million. Over the next severalyears we expect a significant increase in our operating losses as we conductadditional research, development, clinical testing and regulatory complianceactivities. All of our revenue to date has been payments received in connectionwith our collaboration and licensing agreements. We cannot be certain that wewill generate additional revenue through licensing activities or that we willreceive any of the milestone or royalty payments associated with our currentcollaboration and licensing agreements. Given the risks associated withdiscovery, development, clinical testing, manufacturing and marketing of drugproducts, we may never be successful in commercializing a drug product thatwill enable us to be profitable. Our ability to generate significant continuingrevenue depends on a number of factors, including:

·         successfulcompletion of ongoing and future clinical trials for our product candidates;

·         achievementof regulatory approval for our product candidates;

·         successfulcompletion of current and future strategic collaborations; and

·         successful manufacturing,sales, distribution and marketing of our products.

We do notanticipate that we will generate significant continuing revenue for severalyears. Even if we do achieve profitability, we may not be able to sustain orincrease profitability.

***Substantially all of our product candidates are at an earlystage of development and only a portion of these are in clinical development.We cannot be certain that any of our product candidates will be successfullydeveloped, receive regulatory approval, or be commercialized.***

Our productcandidates, other than phenserine, are at an early stage of development and wedo not have any products that are commercially available. Our productcandidates, tezampanel and NGX426 for migraine, phenserine and Posiphen forAlzheimer’s disease, and NGX267 for CIAS are currently in clinical development.Our other product candidates, NGX292, a muscarinic agonist, bisnorcymserine, orBNC, a butyrylcholinesterase inhibitor and NGX555, a gamma-secretase modulator,are in preclinical development. We will need to perform additional developmentwork and conduct further clinical trials for all of our product candidatesbefore we can seek the regulatory approvals necessary to begin commercialsales.

Success inpreclinical testing and early clinical trials does not mean that later clinicaltrials will be successful. Companies frequently suffer significant setbacks inadvanced clinical trials, even after earlier clinical trials have shown promisingresults. In future clinical trials with larger or somewhat differentpopulations, results from early clinical trials may not be reproduced andanalysis of new or additional data may not demonstrate sufficient safety andefficacy to support regulatory approval of a product candidate.

Additionally,preclinical studies and clinical trials are expensive, can take many years, andhave an uncertain outcome. Product candidates may not be successful in clinicaltrials for a number of reasons, including, but not limited to, the failure of aproduct candidate to be safe and efficacious, the results of later stageclinical trials not confirming earlier clinical results, or clinical trialresults not being acceptable to the United States Food and Drug Administration,or FDA, or other regulatory agencies.

We do notanticipate that any of our current product candidates will be eligible toreceive regulatory approval and begin commercialization for a number of years,if at all. Even if we were to ultimately receive regulatory approval for one ormore of our 

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product candidates, wemay be unable to successfully commercialize them for a variety of reasonsincluding:

·         theavailability of alternative treatments;

·         theproduct not being cost effective to manufacture and sell;

·         limitedacceptance in the marketplace; and

·         the effect of competitionwith other marketed products.

The success of ourproduct candidates may also be limited by the incidence and severity of anyadverse side effects. Additionally, any regulatory approval to market a productmay be subject to the imposition by such regulatory agency of limitations onthe indicated uses. These limitations may reduce the size of the market for theproduct. If we fail to commercialize one or more of our current productcandidates, our business, results of operations, financial condition, andprospects for future growth will be materially and adversely affected.

***Delays in the commencement or completion of clinical testingof our product candidates could result in increased costs to us and delay ourability to generate significant revenues.***

We cannot predictwhether we will encounter problems with any of our planned clinical trials thatwill cause us or regulatory authorities to delay or suspend our clinicaltrials, or delay the analysis of data from our ongoing clinical trials. Any ofthe following factors could delay the clinical development of our productcandidates:

·         ongoingdiscussions with the FDA or comparable foreign authorities regarding the scopeor design of one or more clinical trials;

·     delaysin receiving, or the inability to obtain, required approvals from institutionalreview boards or other reviewing entities at clinical trial sites selected forparticipation in a clinical trial;

·         delaysor slower than anticipated enrollment of participants into clinical trials;

·         lowerthan anticipated retention rate of participants in clinical trials;

·         needto repeat clinical trials as a result of inconclusive or negative results orunforeseen complications in testing;

·         inadequatesupply or deficient quality of product candidate materials or other materialsnecessary to conduct our clinical trials;

·         unfavorableFDA inspection and review of a clinical trial site or records of any clinicalor preclinical investigation;

·         serious,unexpected or undesirable side effects experienced by participants in theclinical trials that delay or preclude regulatory approval or limit thecommercial use or market acceptance if approved;

·         findingsthat the clinical trial participants are being exposed to unacceptable healthrisks;

·         placementby the FDA of a clinical hold on a clinical trial;

·         restrictionson or post-approval commitments with regard to any regulatory approval weultimately obtain that renders a product candidate not commercially viable; and

·         unanticipated costoverruns in preclinical and clinical trials.

In addition, oncea clinical trial has started, it may be suspended or terminated by us or theFDA or other regulatory authorities due to a number of factors, including:

·         failureto conduct the clinical trial in accordance with regulatory requirements;

·         inspectionof the clinical trial operations or clinical trial site by the FDA or otherregulatory authorities resulting in the imposition of a clinical hold;

·         negativeclinical trial results;

·         adverseevents or negative side-effects experienced by the clinical trial participants;or

·         lack of adequate fundingto continue the clinical trial.

We will need toreach agreement with the FDA on the targeted endpoints for our clinical trials.In some cases, the FDA may not have validated endpoints established, and we maywork with the FDA to potentially design and validate one or more endpoints. TheFDA may not approve any or all of the endpoints and they may ultimately decide thatthe endpoints are inadequate to demonstrate the safety and efficacy levelsrequired for regulatory approval. Our failure to adequately demonstrate thesafety and efficacy of our product candidates would jeopardize our ability toachieve regulatory approval for, and ultimately to commercialize, the productcandidates.

Clinical trialsrequire sufficient participant enrollment, which is a function of many factors,including the size of the target 

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population, the nature ofthe clinical trial protocol, the proximity of participants to clinical trialsites, the availability of effective treatments for the relevant disorder ordisease, the eligibility criteria for our clinical trials and competingclinical trials. Delays in enrollment can result in increased costs and longerdevelopment times. Failure to enroll participants in our clinical trials coulddelay the completion of the clinical trials beyond current expectations. Inaddition, the FDA could require us to conduct clinical trials with a largernumber of participants than we may project for any of our product candidates.As a result of these factors, we may not be able to enroll a sufficient numberof participants in a timely or cost-effective manner.

Additionally,enrolled participants may drop out of clinical trials, which could impair thevalidity or statistical significance of the clinical trials. A number offactors can lead participants in a clinical trial to discontinue participatingin the clinical trial, including, but not limited to: the inclusion of aplacebo arm in the clinical trial; possible lack of effect of the productcandidate being tested at one or more of the dose levels being tested; adverseside effects experienced by the participant, whether or not related to theproduct candidate; and the availability of alternative treatment options.

We, the FDA orother applicable regulatory authorities may suspend clinical trials of aproduct candidate at any time if we or they believe the participants in suchclinical trials, or in independent third-party clinical trials for productcandidates based on similar technologies, are being exposed to unacceptablehealth risks or for other reasons. In addition, it is impossible to predictwhether legislative changes will be enacted, or whether FDA regulations,guidance or interpretations will be changed, or what the impact of suchchanges, if any, may be.

If we experienceany such problems, we may not have the financial resources to continuedevelopment of the product candidate that is affected or the development of anyof our other product candidates. If we experience significant delays in thecommencement or completion of clinical testing, financial results and thecommercial prospects for the product candidates will be harmed, costs willincrease and our ability to generate revenue will be delayed.

***We expect to complete a Phase IIb clinical trial oftezampanel in 2007, and our stock price could decline significantly if theresults are not favorable or are not viewed favorably.***

In the second half2007, we expect to complete a Phase IIb clinical trial currently in progressfor tezampanel. The results of this clinical trial may not be favorable orviewed favorably by us or third parties, including investors and analysts.Biopharmaceutical company stock prices have declined significantly in certaininstances where clinical results were not favorable, were perceived negativelyor otherwise did not meet expectations. Unfavorable results or negativeperceptions regarding the results of our clinical trials of tezampanel, or anyof our other product candidates, could cause our stock price to declinesignificantly.

***We rely on third parties to assist us in conducting clinicaltrials. If these third parties do not successfully carry out their contractualduties or meet expected deadlines, we may not be able to obtain regulatoryapproval for or commercialize our product candidates.***

We rely on, andintend to continue to rely on, third parties, such as contract researchorganizations, medical institutions, clinical investigators and contractlaboratories, to conduct clinical trials of our product candidates. Ourreliance on these third parties for development activities reduces our controlover these activities. If these third parties do not successfully carry outtheir contractual duties or obligations or meet expected deadlines, or if thequality or accuracy of the clinical data they obtain is compromised due to thefailure to adhere to our clinical protocols or for other reasons, our clinicaltrials may be extended, delayed or terminated. If these third parties do notsuccessfully carry out their contractual duties or meet expected deadlines, wemay be required to replace them. Although we believe there are a number ofthird-party contractors we could engage to continue these activities, replacinga third-party contractor may result in a delay of the affected trial.Accordingly, we may not be able to obtain regulatory approval for orsuccessfully commercialize our product candidates.

***We have licensed rights to product candidates tezampanel andNGX426 from Eli Lilly and Company, or Eli Lilly. Eli Lilly has rights oftermination under the license agreement, which if exercised would adverselyaffect our business.***

InApril 2003, we entered into an agreement with Eli Lilly to obtain anexclusive license from Eli Lilly to their AK antagonist assets includingtezampanel, as well as NGX426. Pursuant to the license agreement we haveobligations to make payments to Eli Lilly under the agreement and to usecommercially reasonable efforts to develop and commercialize the productcandidates, including achievement of specified development events withinspecified timeframes. Eli Lilly may terminate the agreement for uncuredmaterial breach of the agreement by us, including any breach of our diligenceobligations. If Eli Lilly were to terminate the agreement, we would lose rightsto the AK antagonist product candidates, and our business would be adverselyaffected.

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***We have licensed rights to product candidates NGX267 andNGX292 from Life Science Research Israel, or LSRI, and LSRI has rights oftermination under the license agreement, which if exercised would adverselyaffect our business.***

In May 2004,we entered into an agreement with LSRI to obtain an exclusive license from LSRIto their muscarinic agonist assets NGX267 and NGX292. We have obligations tomake payments to LSRI under the agreement and to use commercially reasonableefforts to develop and commercialize the product candidates subject to theagreement, including achievement of specified development events withinspecified timeframes. LSRI may terminate the agreement for uncured materialbreach of the agreement by us, including any breach of our diligenceobligations. If LSRI were to terminate the agreement, we would lose rights to themuscarinic agonist product candidates, and our business would be adverselyaffected.

***We depend on Eisai Co. Ltd., or Eisai, for funding for ourgamma-secretase modulator program and Alzheimer’s disease genetics researchprogram. Eisai has the first right to obtain rights to gene targets andcompounds resulting from these programs, which could delay or limit our abilityto develop and commercialize these gene targets and compounds.***

InFebruary 2005, we entered into an agreement with Eisai to discover smallmolecule gamma-secretase modulator compounds useful in the treating Alzheimer’sdisease in humans. The agreement had an initial two-year term which Eisaielected to extend for an additional 12 months. In October 2005, weentered into an agreement with Eisai to discover gene targets useful intreating or preventing Alzheimer’s disease in humans. This agreement also has atwo-year term and may be extended by Eisai for up to an additional12 months. We depend upon Eisai to provide funding for the research we conductunder each of these agreements. If Eisai were to cease funding these programsfor any reason, we would need to provide our own funding for the programs, seeka strategic partner for further work on the programs, raise additional funding,or curtail or abandon the programs.

During the term ofthe respective agreements, Eisai has exclusive first rights of negotiation andrefusal with regard to a license, collaboration or other arrangement regardingcompounds discovered and validated in the course of the gamma-secretasemodulator program or gene targets discovered and validated in the course of theAlzheimer’s disease genetics research program, as applicable. These rights heldby Eisai may delay or limit our ability to enter into a license, collaborationor other arrangement with a third party for any compounds resulting from thegamma-secretase modulator program or gene targets resulting from the Alzheimer’sdisease genetic research program.

***We have an agreement providing Johnson & JohnsonDevelopment Corporation, or JJDC, the first right to obtain rights to our M1agonist program, which could delay or limit our ability to develop andcommercialize these product candidates.***

We have anagreement with JJDC regarding our research and development work into theeffects of using M1 agonists, such as NGX267 and NGX292, in the treatment ofCNS diseases and disorders. Upon completion of a specified level of developmentof our lead M1 agonist, we are obligated to provide results for the compound toJJDC.

For a specifiedperiod following receipt of the results, or at an earlier time as agreed to byboth parties, JJDC has the exclusive right of first negotiation with usregarding our intellectual property rights or products related to our M1agonist program. These rights held by JJDC may delay or limit our ability toenter into a transaction with a third party for our M1 agonist productcandidates.

***If we fail to enter into and maintain collaborations for ourproduct candidates, we may have to reduce or delay product development orincrease expenditures.***

Our strategy fordeveloping, manufacturing, and commercializing potential products includesestablishing and maintaining collaborations with pharmaceutical andbiotechnology companies to advance some of our programs and share expenditureswith partners on those programs. We may not be able to negotiate futurecollaborations on acceptable terms, if at all. If we are not able to establishand maintain collaborative arrangements, we may have to reduce or delay furtherdevelopment of some programs or undertake the development activities at our ownexpense. If we elect to increase capital expenditures to fund developmentprograms on our own, we will need to obtain additional capital, which may notbe available on acceptable terms or at all. Even if we do succeed in securingsuch collaborations, we may not be able to maintain them if, for example,objectives under the agreement are not met, the agreement is terminated or notrenewed, development or approval of a product candidate is delayed or sales ofan approved drug are disappointing. Furthermore, any delay in entering intocollaborations could delay the development and commercialization of our productcandidates and reduce their competitiveness, even if they reach the market. Anysuch delay related to our collaborations could adversely affect our business.

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***If our strategic partners do not devote adequate resourcesto the development and commercialization of our product candidates, we may notbe able to commercialize our products and achieve revenues.***

We may enter intocollaborations with other strategic partners with respect to our productcandidates. If we enter into any such collaborations, we may have limited or nocontrol over the amount and timing of resources that our partners dedicate tothe development of our product candidates. Our ability to commercializeproducts we develop with our partners and generate royalties from product saleswill depend on the partner’s ability to assist us in establishing the safetyand efficacy of our product candidates, obtaining regulatory approvals andachieving market acceptance of products. Our partners may elect to delay orterminate development of a product candidate, independently develop productsthat could compete with our products, or not commit sufficient resources to themarketing and distribution of products under the collaboration. If our partnersfail to perform as expected under the collaborative agreements, our potentialfor revenue from the related product candidates will be dramatically reduced.In addition, revenue from our future collaborations may consist of contingentpayments, such as payments for achieving development and commercializationmilestones and royalties payable on sales of any successfully developed drugs.The milestone, royalty or other revenue that we may receive under thesecollaborations will depend upon both our ability and our partner’s ability tosuccessfully develop, introduce, market and sell new products. In some cases,we will not be involved in these processes and, accordingly, will dependentirely on our partners.

***We will need substantial additional funding and may beunable to raise capital when needed, which would force us to delay, reduce oreliminate our research and development programs or commercialization efforts.***

We will need toraise substantial additional capital in the future and additional fundingrequirements will depend on, and could increase significantly as a result of,many factors, including:

·         therate of progress and cost of clinical trials;

·    thescope of our clinical trials and other research and development activities;

·         theprioritization and number of clinical development and research programs wepursue;

·         theterms and timing of any collaborative, licensing and other arrangements that wemay establish;

·         thecosts of filing, prosecuting, defending and enforcing any patent claims andother intellectual property rights;

·         thecosts and timing of regulatory approvals;

·         thecosts of goods and manufacturing expenses; and

·         the costs of establishingor contracting for sales and marketing capabilities.

We do notanticipate that we will generate significant continuing revenue for severalyears, if at all. Until we can generate significant continuing revenue, ifever, we expect to satisfy our future cash needs through public or privateequity offerings, debt financings or corporate collaboration and licensingarrangements, as well as through interest income earned on cash balances. Wecannot be certain that additional funding will be available on acceptableterms, or at all. If adequate funds are not available, we may be required todelay, reduce the scope of, or eliminate one or more of its research anddevelopment programs or commercialization efforts.

***We do not have internal manufacturing capabilities. If wefail to develop and maintain supply relationships with collaborators or otherthird-party manufacturers, we may be unable to develop or commercialize ourproducts.***

Our ability todevelop and commercialize our products depends in part on our ability tomanufacture, or arrange for future collaborators or other third parties tomanufacture, our products at a competitive cost, in accordance with regulatoryrequirements and in sufficient quantities for clinical testing and eventual commercialization.None of our current product candidates have been manufactured on a commercialscale. We and our third-party manufacturers may encounter difficulties with thesmall- and large-scale formulation and manufacturing processes required tomanufacture our product candidates, resulting in delays in clinical trials andregulatory submissions, in the commercialization of product candidates or, ifany product candidate is approved, in the recall or withdrawal of the productfrom the market. Our inability to enter into or maintain agreements withcapable third-party manufacturers on acceptable terms could delay or preventthe commercialization of our products, which would adversely affect our abilityto generate revenue and could prevent us from achieving profitability.

We have suppliesof tezampanel, NGX426 and NGX267 that we expect to need for current clinicaltrials. We will need to identify and reach agreement with third parties for thesupply of our product candidates for future clinical trials. We do not havelong-term supply agreements with third parties, and we may not be able to enterinto supply agreements with them in a timely manner or on acceptable terms, ifat all. These third parties may also be subject to capacity constraints thatwould cause them to limit the amount of our product candidates they can produceor the chemicals that we can purchase. Any interruption or delay we experiencein the supply 

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of our product candidatesor the chemicals may impede or delay such product candidates’ clinicaldevelopment and cause us to incur increased expenses associated withidentifying and qualifying one or more alternate suppliers.

In addition, we,our future collaborators or other third-party manufacturers of our productsmust comply with cGMP requirements enforced by the FDA through its facilitiesinspection program. These requirements include quality control, qualityassurance and the maintenance of records and documentation. In addition,product manufacturing facilities in California are subject to licensingrequirements of the California Department of Health Services and may beinspected by the California Department of Health Services at any time. We, ourcollaborators or other third-party manufacturers of our products may be unableto comply with these cGMP requirements and with other FDA, state and foreignregulatory requirements. A failure to comply with these requirements may resultin fines and civil penalties, suspension or delay in product approval, productseizure or recall, or withdrawal of product approval.

***We currently have no marketing or sales staff. If we areunable to enter into or maintain collaborations with marketing partners or ifwe are unable to develop our own sales and marketing capabilities, we may notbe successful in commercializing our potential products and we may be unable togenerate significant revenues.***

We may elect tocommercialize some of the products we are developing on our own, with orwithout a partner, where those products can be effectively marketed and sold inconcentrated markets that do not require a large sales force to be competitive.We currently have no sales, marketing or distribution capabilities. To be ableto commercialize our own products, we will need to establish our ownspecialized sales force and marketing organization with technical expertise andwith supporting distribution capabilities. Developing such an organization isexpensive and time consuming and could delay or limit our ability tocommercialize products.

To commercializeany product candidate that we decide not to market on our own, we will dependon collaborations with third parties that have established distribution systemsand direct sales forces. If we are unable to enter into such collaborations onacceptable terms, we may not be able to successfully commercialize thoseproducts.

To the extent thatwe enter into arrangements with collaborators or other third parties to performsales and marketing services, our product revenue is likely to be lower than ifwe directly marketed and sold our product candidates. If we are unable toestablish adequate sales and marketing capabilities, independently or withothers, we may not be able to generate significant revenue and may not becomeprofitable and the price of our common stock may be negatively affected.

***Many of our product candidates are new therapies for chronicpain, CIAS and Alzheimer’s disease, and we do not know whether these productcandidates will yield commercially viable products or receive regulatoryapproval.***

Tezampanel andNGX426 are antagonists of the AK receptors. They are part of a new class ofcompounds that block the AK receptors and, in turn, stop the transmission ofpain signals. These product candidates may represent a novel approach to themanagement of chronic pain, including migraine and neuropathic pain. There arecurrently no approved products for chronic pain that are AK antagonists. As aresult, we cannot be certain that our product candidates will result incommercially viable drugs that safely and effectively treat chronic painindications such as migraine or neuropathic pain.

NGX267 and NGX292are muscarinic agonists with functionally specific M1 receptor activity that weintend to develop for the treatment of CIAS. There are currently no approvedtherapies for the treatment of CIAS. Therefore, in order to successfullycommercialize our product candidates, we will need to agree with the FDA andother applicable regulatory agencies on clinical trial endpoints regardingsafety and efficacy. Given the lack of current treatments for CIAS, we may beunable to agree on the endpoints or successfully complete clinic trials thatdemonstrate that such endpoints, if agreed to, have been met. Any delay inagreeing to clinical trial endpoints or in achieving those endpoints willprevent us from commercializing our product candidates.

NGX267 and NGX292as well as NGX555, a gamma-secretase modulator, are product candidates forAlzheimer’s disease. These product candidates belong to classes of compoundsthat have been or are being studied as a treatment for Alzheimer’s disease, butthere are no approved muscarinic agonist products or gamma-secretase modulatorproducts for Alzheimer’s disease. As a result, we cannot be certain that ourproduct candidates will safely and effectively improve the symptoms ofAlzheimer’s disease or modify the progression of the disease or result incommercially viable drugs.

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***If our product candidates do not achieve market acceptanceamong physicians, patients, health care payors and the medical community, theywill not be commercially successful and our business will be adverselyaffected.***

The degree ofmarket acceptance of any of our approved product candidates among physicians,patients, health care payors and the medical community will depend on a numberof factors, including:

·         acceptableevidence of safety and efficacy;

·         relativeconvenience and ease of administration:

·         theprevalence and severity of any adverse side effects;

·         availabilityof alternative treatments;

·         pricingand cost effectiveness;

·         effectivenessof sales and marketing strategies; and

·         ability to obtainsufficient third-party coverage or reimbursement.

If we are unableto achieve market acceptance for our product candidates, then such productcandidates will not be commercially successful and our business will beadversely affected.

***If our efforts to discover new product candidates do notsucceed, and product candidates that we recommend for clinical development donot actually begin clinical trials, our business will suffer.***

We intend to useour proprietary technologies and expertise in Alzheimer’s disease and relatedneurodegenerative diseases and disorders to discover, develop and commercializenew products for the treatment and prevention of these diseases and disorders.Once recommended for development, a product candidate undergoes drug substancescale up, preclinical testing, including toxicology tests, and formulationdevelopment. If this work is successful, an IND would need to be prepared,filed, and approved by the FDA and the product candidate would then be readyfor human clinical testing.

The process ofresearching, discovering, and conducting preclinical testing on productcandidates is expensive, time-consuming and unpredictable. If we are unable toadvance our product candidates to clinical trials our business will beadversely affected.

***If we fail to attract and keep key management and scientificpersonnel, we may be unable to develop or commercialize our product candidatessuccessfully.***

Our successdepends on our continued ability to attract, retain and motivate highlyqualified management and scientific personnel. The loss of the services of anyprincipal member of our senior management could delay or prevent thecommercialization of our product candidates. We employ these individuals on anat-will basis and their employment can be terminated by us or them at any time,for any reason and with or without notice, subject to the terms contained intheir respective employment agreements and offer letters.

Competition forqualified personnel in the biotechnology field is intense. We may not be ableto attract and retain quality personnel on acceptable terms given thecompetition for such personnel among biotechnology, pharmaceutical and othercompanies.

***Companies and universities that have licensed productcandidates to us for research, clinical development and marketing aresophisticated competitors that could develop similar products to compete withour products.***

Licensing ourproduct candidates from other companies, universities or individuals does notalways prevent them from developing non-identical but competitive products fortheir own commercial purposes, nor from pursuing patent protection in areasthat are competitive with us. Our partners who created these technologies aresophisticated scientists and business people who may continue to do researchand development and seek patent protection in the same areas that led to thediscovery of the product candidates that they licensed to us. The developmentand commercialization of successful new drug products from our research programis likely to attract additional research by our licensors in addition to otherinvestigators who have experience in developing products for the CNS market. Byvirtue of the previous research that led to the discovery of the drugs orproduct candidates that they licensed to us, these companies, universities, orindividuals may be able to develop and market competitive products in less timethan might be required to develop a product with which they have no priorexperience.

***Changes in, or interpretations of, accounting rules andregulations could result in unfavorable accounting charges or require us tochange our compensation policies.***

Accounting methodsand policies for biopharmaceutical companies, including policies governingrevenue recognition, expenses, accounting for stock options and in-processresearch and development costs are subject to further review, interpretationand guidance from relevant accounting authorities, including the Securities andExchange Commission, or SEC. Changes to, or interpretations of, accountingmethods or policies in the future may result in unfavorable accounting chargesor may require us to change our compensation policies to avoid such charges.

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***Our management will be required to devote substantial timeto comply with public company regulations.***

As a publiccompany, we will incur significant legal, accounting and other expenses. Inaddition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well asrules subsequently implemented by the SEC and the Nasdaq Global Market,impose various requirements on public companies, including corporate governancepractices. Our management and other personnel will have to meet theserequirements. Moreover, these rules and regulations will increase ourlegal and financial compliance costs and will make some activities moretime-consuming and costly.

In addition, theSarbanes-Oxley Act requires, among other things, that we maintain effectiveinternal controls for financial reporting and disclosure controls andprocedures. In particular, we must perform system and process evaluation andtesting of our internal controls over financial reporting to allow managementto report on the effectiveness of its internal controls over financialreporting, as required by Section 404 of the Sarbanes-Oxley Act. Ourcompliance with Section 404 will require that we incur substantialaccounting and related expense and expend significant management efforts. Wewill need to hire additional accounting and financial staff to satisfy theongoing requirements of Section 404. Moreover, if we are not able tocomply with the requirements of Section 404, or if we or our independentregistered public accounting firm identifies deficiencies in our internalcontrols over financial reporting that are deemed to be material weaknesses,the market price of our stock could decline and we could be subject tosanctions or investigations by the Nasdaq Global Market, SEC or otherregulatory authorities.

***We are a defendant in a class action lawsuit and astockholder derivative lawsuit which, if determined adversely, could have amaterial adverse affect on us.***

A class actionsecurities lawsuit and a stockholder derivative lawsuit was filed against us,as described under “Part II, Item 1—Legal Proceedings.” We are defendingagainst these actions vigorously; however, we do not know what the outcome ofthese proceedings will be and, if we do not prevail, we may be required to paysubstantial damages or settlement amounts. Furthermore, regardless of theoutcome, we may incur significant defense costs, and the time and attention ofour management may be diverted from normal business operations. If we areultimately required to pay significant defense costs, damages or settlementamounts, such payments could materially and adversely affect our operations andresults. We have purchased liability insurance, however, if any costs orexpenses associated with the litigation  exceed the insurance coverage, wemay be forced to bear some or all of these costs and expenses directly, whichcould be substantial and may have an adverse effect on our business, financialcondition, results of operations and cash flows. In any event, publicitysurrounding the lawsuits and/or any outcome unfavorable to us could adverselyaffect our reputation and share price. The uncertainty associated withsubstantial unresolved lawsuits could harm our business, financial conditionand reputation.

We have certainobligations to indemnify our officers and directors and to advance expenses tosuch officers and directors. Although we have purchased liability insurance forour directors and officers, if our insurance carriers should deny coverage, orif the indemnification costs exceed the insurance coverage, we may be forced tobear some or all of these indemnification costs directly, which could besubstantial and may have an adverse effect on our business, financialcondition, results of operations and cash flows. If the cost of our liabilityinsurance increases significantly, or if this insurance becomes unavailable, wemay not be able to maintain or increase our levels of insurance coverage forour directors and officers, which could make it difficult to attract or retainqualified directors and officers.

***Fluctuations in currency exchange rates may negativelyimpact our business.***

We currently haveoperations in Belgium and are conducting clinical trials in Europe. Costsresulting from our operations in Europe are denominated primarily in localcurrencies, including the Euro, and are subject to fluctuations in currencyexchange rates. Further, we incur other operating expenses, including expensesrelated to clinical trials, which are denominated in Euros and other localcurrencies. Significant fluctuations in the currency exchange rates and generaleconomic conditions in the countries in which we do business, could harm ouroperating results.

***The carrying value of our investment in OXIS Internationalmay face future impairment.***

We account for ourinvestment in OXIS under the equity method of accounting following accountingprinciples bulletin (APB) No. 18. Any impairment charge would be requiredif we determined that any reduction in the OXIS market value over the carryingvalue was permanent.

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**Risks Related to Our IntellectualProperty**

***Our success depends upon our ability to protect ourintellectual property and proprietary technologies.***

Our commercialsuccess depends on obtaining and maintaining patent protection and trade secretprotection of our product candidates, proprietary technologies and their uses,as well as successfully defending our patents against third-party challenges.We will only be able to protect our product candidates, proprietarytechnologies and their uses from unauthorized use by third parties to theextent that valid and enforceable patents or trade secrets cover them.

The patentpositions of pharmaceutical and biotechnology companies can be highly uncertainand involve complex legal and factual questions for which important legalprinciples remain unresolved. No consistent policy regarding the breadth ofclaims allowed in biotechnology patents has emerged to date in the U.S. Thebiotechnology patent situation outside the U.S. is even more uncertain. Changesin either the patent laws or in interpretations of patent laws in the U.S. andother countries may diminish the value of our intellectual property.Accordingly, we cannot predict the breadth of claims that may be allowed orenforced in our patents or in third-party patents.

The degree of futureprotection for our proprietary rights is uncertain because legal means affordonly limited protection and may not adequately protect our rights or permit usto gain or keep our competitive advantage. For example:

·         weor our licensors might not have been the first to make the inventions coveredby each of its pending patent applications and issued patents;

·         weor our licensors might not have been the first to file patent applications forthese inventions;

·         othersmay independently develop similar or alternative technologies or duplicate anyof our technologies;

·         itis possible that none of our pending patent applications will result in issuedpatents;

·         ourissued patents may not provide a basis for commercially viable products, maynot provide us with any competitive advantages, or may be challenged by thirdparties;

·         ourissued patents may not be valid or enforceable;

·         wemay not develop additional proprietary technologies that are patentable; and

·         the patents of others mayhave an adverse effect on our business.

Proprietary tradesecrets and unpatented know-how are also very important to our business.Although we have taken steps to protect our trade secrets and unpatentedknow-how, including entering into confidentiality agreements with third partiesand proprietary information and inventions agreements with employees,consultants and advisors, third parties may still obtain this information.Enforcing a claim that a third party illegally obtained and is using our tradesecrets or unpatented know-how is expensive and time consuming, and the outcomeis unpredictable. In addition, courts outside the U.S. may be less willing toprotect this information. Moreover, our competitors may independently developequivalent knowledge, methods and know-how.

***If we are sued for infringing intellectual property rightsof third parties, it will be costly and time consuming, and an unfavorableoutcome in that litigation would have a material adverse effect on ourbusiness.***

Our commercialsuccess depends upon our ability and the ability of any of our collaborators todevelop, manufacture, market, and sell our product candidates and use ourproprietary technologies without infringing the proprietary rights of thirdparties. Numerous U.S. and foreign issued patents and pending patentapplications, which are owned by third parties, exist in the fields in which weare developing products. Because patent applications can take many years toissue, there may be currently pending applications, unknown to us, which maylater result in issued patents that our product candidates or proprietarytechnologies may infringe. We have not conducted a complete search of existingpatents to identify existing patents that our product candidates or proprietarytechnologies may inadvertently infringe.

We may be exposedto future litigation by the companies holding these patents or other thirdparties based on claims that our product candidates and/or proprietarytechnologies infringe their intellectual property rights. If one of thesepatents was found to cover our product candidates, proprietary technologies ortheir uses, we or our collaborators could be required to pay damages and couldbe unable to commercialize our product candidates or use our proprietarytechnologies unless we obtained a license to the patent. A license to thesepatents may not be available to us or our collaborators on acceptable terms, ifat all.

There is asubstantial amount of litigation involving patent and other intellectualproperty rights in the biotechnology and biopharmaceutical industriesgenerally. If a third party claims that we or our collaborators infringe on itstechnology, it may face a number of issues, including:

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·         infringementand other intellectual property claims which, with or without merit, may beexpensive and time-consuming to litigate and may divert management’s attentionfrom its core business;

·         substantialdamages for infringement, including treble damages and attorneys’ fees, as wellas damages for products development using allegedly infringing drug discoverytools or methods which we may have to pay if a court decides that the productor proprietary technology at issue infringes on or violates the third party’srights;

·         acourt prohibiting us from selling or licensing the product or using theproprietary technology unless the third party licenses its technology to us,which it is not required to do;

·         ifa license is available from the third party, we may have to pay substantialroyalties, fees and/or grant cross licenses to its technology; and

·         redesigning our productsor processes so they do not infringe, which may not be possible or may requiresubstantial funds and time.

We may also besubject to claims that we or our employees, who were previously employed atuniversities or other biotechnology or pharmaceutical companies, haveinadvertently or otherwise used or disclosed trade secrets or other proprietaryinformation of their former employers. Litigation may be necessary to defendagainst these claims. If we fail in defending such claims, in addition topaying monetary damages, we may lose valuable intellectual property rights orpersonnel. A loss of key research personnel or their work product could hamperor prevent our ability to commercialize certain potential drugs, which could severelyharm our business. Even if we are successful in defending against these claims,litigation could result in substantial costs and be a distraction tomanagement.

**Risks Related to Our Industry**

***Our product candidates are subject to extensive regulation,which can be costly and time consuming, cause unanticipated delays or preventthe receipt of the required approvals to commercialize our product candidates.***

The clinicaldevelopment, manufacturing, labeling, storage, record-keeping, advertising,promotion, export, marketing and distribution of our product candidates aresubject to extensive regulation by the FDA and other regulatory agencies in theU.S. and by comparable foreign governmental authorities. The process ofobtaining these approvals is expensive, often takes many years, and can varysubstantially based upon the type, complexity and novelty of the productsinvolved. Approval policies or regulations may change. In addition, althoughmembers of our management have drug development and regulatory experience, as acompany we have not previously filed the marketing applications necessary togain regulatory approvals for any product. This lack of experience may impedeour ability to obtain FDA marketing approval in a timely manner, if at all, forthe product candidates we are developing and commercializing. We will not beable to commercialize our product candidates in the U.S. until we obtain FDAapproval and in other countries until we obtain approval by comparablegovernmental authorities. Any delay in obtaining, or inability to obtain, theseapprovals would prevent us from commercializing our product candidates.

***Even if any of our product candidates receive regulatoryapproval, they may still face future development and regulatory difficulties.***

If any of ourproduct candidates receive regulatory approval, the FDA and foreign regulatoryauthorities may still impose significant restrictions on the uses or marketingof the product candidates or impose ongoing requirements for post-approvalstudies. In addition, regulatory agencies subject a product, its manufacturerand the manufacturer’s facilities to continuing review and periodicinspections. If previously unknown problems with a product or its manufacturingfacility are discovered, a regulatory agency may impose restrictions on thatproduct, us, or our partners, including requiring withdrawal of the productfrom the market. Our candidates will also be subject to ongoing FDArequirements for submission of safety and other post-market information. If ourproduct candidates fail to comply with applicable regulatory requirements, aregulatory agency may:

·         issuewarning letters;

·         imposecivil or criminal penalties;

·         suspendregulatory approval;

·         suspendany ongoing clinical trials;

·         refuseto approve pending applications or supplements to approved applications filedby us or our collaborators;

·         imposerestrictions on operations, including costly new manufacturing requirements; or

·         seize or detain productsor require a product recall.

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In order to marketany products outside of the U.S., we and our partners must establish and complywith numerous and varying regulatory requirements of other countries regardingsafety and efficacy. Approval procedures vary among countries and can involve additionalproduct testing and additional administrative review periods. The time requiredto obtain approval in other countries might differ from that required to obtainFDA approval. The regulatory approval process in other countries may includeall of the risks detailed above regarding FDA approval in the U.S. Regulatoryapproval in one country does not ensure regulatory approval in another, but afailure or delay in obtaining regulatory approval in one country may negativelyimpact the regulatory process in others. Failure to obtain regulatory approvalin other countries or any delay or setback in obtaining such approval couldhave the same adverse effects described above regarding FDA approval in theU.S., including the risk that our product candidates may not be approved forall indications requested, which could limit the uses of our product candidatesand adversely impact potential royalties and product sales, and that suchapproval may be subject to limitations on the indicated uses for which the productmay be marketed or require costly, post-marketing follow-up studies.

If we and ourpartners fail to comply with applicable foreign regulatory requirements, we andour partners may be subject to fines, suspension or withdrawal of regulatoryapprovals, product recalls, seizure of products, operating restrictions andcriminal prosecution.

***If our competitors have products that are approved faster,marketed more effectively or demonstrated to be more effective than ourproducts, then our commercial opportunity will be reduced or eliminated.***

The biotechnologyand biopharmaceutical industries are characterized by rapidly advancingtechnologies, intense competition and a strong emphasis on proprietaryproducts. We face competition from many different sources, including commercialpharmaceutical and biotechnology enterprises, academic institutions, governmentagencies and private and public research institutions. Due to the high demandfor treatments for CNS diseases and disorders, research is intense and new treatmentsare being sought out and developed by our competitors.

In addition, manyother competitors are developing products for the treatment of the diseases weare targeting and if successful, these products could compete with ourproducts. If we receive approval to market and sell any of our productcandidates, we may compete with these companies and their products as well asothers in varying stages of development.

Many of ourcompetitors have significantly greater financial resources and expertise in researchand development, manufacturing, preclinical testing, clinical trials,regulatory approvals and marketing approved products than we do. Smaller orearly-stage companies may also prove to be significant competitors,particularly through collaborative arrangements with large and establishedcompanies. Our competitors may succeed in developing technologies and therapiesthat are more effective, better tolerated or less costly than ours, or thatwould render our product candidates obsolete and noncompetitive. Ourcompetitors may succeed in obtaining approvals from the FDA and foreignregulatory authorities for their products sooner than we do. We will also facecompetition from these third parties in recruiting and retaining qualifiedscientific and management personnel, establishing clinical trial sites andpatient registration for clinical trials, and in acquiring and in-licensingtechnologies and products complementary to our programs or advantageous to ourbusiness.

***We are subject to uncertainty relating to health care reformmeasures and reimbursement policies which, if not favorable to our productcandidates, could hinder or prevent the commercial success of our productcandidates.***

The continuingefforts of the government, insurance companies, managed care organizations andother payors of health care costs to contain or reduce costs of health care mayadversely affect our:

·         abilityto set a price we believe is fair for our products;

·         abilityto generate revenues and achieve profitability;

·         futurerevenues and profitability of potential customers, suppliers and collaborators;and

·         the availability ofcapital.

In certain foreignmarkets, the pricing of prescription drugs is subject to government control. Inthe U.S., given recent federal and state government initiatives directed atlowering the total cost of health care, Congress and state legislatures willlikely continue to focus on health care reform, the cost of prescription drugsand the reform of the Medicare and Medicaid systems. For example, a newMedicare prescription drug benefit program began in 2006. While we cannotpredict the full outcome of the implementation of this legislation or whetherany future legislative or regulatory proposals affecting our business will beadopted, the announcement or adoption of these proposals could materially andadversely affect our business, financial condition, and results of operations.

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Our ability tocommercialize our product candidates successfully will depend in part on theextent to which governmental authorities, private health insurers and otherorganizations establish appropriate reimbursement levels for the cost of ourproducts and related treatments. Third-party payors are increasinglychallenging the prices charged for medical products and services. Also, thetrend toward managed health care in the U.S., which could significantlyinfluence the purchase of health care services and products, as well aslegislative proposals to reform health care or reduce government insuranceprograms, may result in lower prices for our product candidates or exclusion ofits product candidates from reimbursement programs. The cost containmentmeasures that health care payors and providers are instituting and the effectof any health care reform could materially and adversely affect our results ofoperations.

***Product liability claims may harm our business if ourinsurance coverage for those claims is inadequate.***

We face aninherent risk of product liability exposure related to the testing of ourproduct candidates in human clinical trials, and will face an even greater riskif we sell our product candidates commercially. An individual may bring aliability claim against us if one of our product candidates causes, or merelyappears to have caused, an injury. If we cannot successfully defend ourselfagainst the product liability claim, we will incur substantial liabilities.Regardless of merit or eventual outcome, liability claims may result in:

·         decreaseddemand for our product candidates;

·         injuryto our reputation;

·         withdrawalof clinical trial participants;

·         costsof related litigation;

·         substantialmonetary awards to patients or other claimants;

·         lossof revenues; and

·         the inability tocommercialize our product candidates.

We have productliability insurance that covers our clinical trials, up to an annual aggregatelimit of $5.0 million. We intend to expand our insurance coverage toinclude the sale of commercial products if marketing approval is obtained forany of our product candidates. However, insurance coverage is increasinglyexpensive. We may not be able to maintain insurance coverage at a reasonablecost and we may not be able to obtain insurance coverage that will be adequateto satisfy any liability that may arise.

***We use hazardous chemicals and radioactive and biologicalmaterials in our business. Any claims relating to improper handling, storage ordisposal of these materials could be time-consuming and costly.***

Our research anddevelopment processes involve the controlled use of hazardous materials, includingchemicals, radioactive and biological materials. Our operations producehazardous waste products. We cannot eliminate the risk of accidentalcontamination or discharge and any resultant injury from those materials.Federal, state and local laws and regulations govern the use, manufacture,storage, handling and disposal of hazardous materials. We may be sued for anyinjury or contamination that results from our use or the use by third partiesof these materials. Compliance with environmental laws and regulations may beexpensive, and current or future environmental regulations may impair ourresearch, development and production efforts.

**Risks Related to our Common Stock**

***Our stock price has been, and is expected to continue to be,volatile.***

The market priceof our common stock could be subject to significant fluctuations. Market pricesfor securities of early-stage pharmaceutical, biotechnology and other lifesciences companies have historically been particularly volatile. Some of thefactors that may cause the market price of our common stock to fluctuateinclude:

·         theresults of our current and any future clinical trials of our productcandidates;

·         theresults of ongoing preclinical studies and planned clinical trials of ourpreclinical product candidates;

·         theentry into, or termination of, key agreements, including key strategic allianceagreements;

·         theresults and timing of regulatory reviews relating to the approval of ourproduct candidates;

·         theinitiation of, material developments in, or conclusion of litigation to enforceor defend any of our intellectual property rights;

·         generaland industry-specific economic conditions that may affect our research anddevelopment expenditures;

·         theresults of clinical trials conducted by others on drugs that would compete withour product candidates;

·         issuesin manufacturing our product candidates or any approved products;

·         theloss of key employees;

·         the introduction oftechnological innovations or new commercial products by our competitors;

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·   failureof any of our product candidates, if approved, to achieve commercial success;

·   changesin estimates or recommendations by securities analysts, if any, who cover ourcommon stock;

·   futuresales of our common stock;

·   changesin the structure of health care payment systems; and

·   period-to-period fluctuationsin our financial results.

Moreover, thestock markets in general have experienced substantial volatility that has oftenbeen unrelated to the operating performance of individual companies. These broadmarket fluctuations may also adversely affect the trading price of our commonstock.

In the past,following periods of volatility in the market price of a company’s securities,stockholders have often instituted class action securities litigation againstthose companies. Such litigation, if instituted, could result in substantialcosts and diversion of management attention and resources, which couldsignificantly harm our profitability and reputation.

***Anti-takeover provisions in our stockholder rights plan andin our certificate of incorporation and bylaws may prevent or frustrateattempts by stockholders to change the board of directors or current managementand could make a third-party acquisition difficult.***

We are a party toa stockholder rights plan, also referred to as a poison pill, which is intendedto deter a hostile takeover of us by making such proposed acquisition moreexpensive and less desirable to the potential acquirer. The stockholder rightsplan and our certificate of incorporation and bylaws, as amended, containprovisions that may discourage, delay or prevent a merger, acquisition or otherchange in control that stockholders may consider favorable, includingtransactions in which stockholders might otherwise receive a premium for their shares.These provisions could limit the price that investors might be willing to payin the future for shares of our common stock.

***Our largest stockholders may take actions that are contraryto your interests, including selling their stock.***

A small number ofour stockholders hold a significant amount of our outstanding stock. Thesestockholders may support competing transactions and have interests that aredifferent from yours. In addition, the average number of shares of our stockthat trade each day is generally low. As a result, sales of a large number ofshares of our stock by these large stockholders or other stockholders within ashort period of time could adversely affect our stock price.

***Our management has broad discretion over the use of our cashand we may not use our cash effectively, which could adversely affect ourresults of operations.***

Our management hassignificant flexibility in applying our cash resources and could use theseresources for corporate purposes that do not increase our market value, or inways with which our stockholders may not agree. We may use our cash resourcesfor corporate purposes that do not yield a significant return or any return atall for our stockholders, which may cause our stock price to decline.

***Raising additional funds by issuing securities or throughcollaboration and licensing arrangements may cause dilution to existingstockholders, restrict operations or require us to relinquish proprietaryrights.***

We may raiseadditional funds through public or private equity offerings, debt financings orcorporate collaboration and licensing arrangements. To the extent that we raiseadditional capital by issuing equity securities, our existing stockholders’ownership will be diluted. Any debt financing we enter into may involvecovenants that restrict our operations. These restrictive covenants may includelimitations on additional borrowing, specific restrictions on the use of ourassets as well as prohibitions on our ability to create liens, pay dividends,redeem stock or make investments. In addition, if we raise additional fundsthrough collaboration and licensing arrangements, it may be necessary torelinquish potentially valuable rights to our potential products or proprietarytechnologies, or grant licenses on terms that are not favorable to us.

***There is only a limited trading market forour common stock and it is possible that investors may not be able to selltheir shares easily.***

There is currentlyonly a limited trading market for our common stock. Our common stock trades onthe Nasdaq Global Market under the symbol “TPTX” with very limited tradingvolume. We cannot assure investors that a substantial trading market will besustained for our common stock.

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**Item 6.Exhibits**
| Number     | ** ** | **Exhibits**                                                                                                                                                                                                                                                                                                                                                                                              |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                |
| 2.1        |       | Agreement and Plan of Merger and Reorganization,  dated as of June 7, 2006, by and among Axonyx Inc., Autobahn  Acquisition, Inc. and TorreyPines Therapeutics, Inc. (incorporated  by reference to Annex A to Registration Statement No. 333-136018 filed  with the Securities and Exchange Commission on July 25, 2006).                                                       |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 2.2        |       | Amendment No. 1 to Agreement and Plan of Merger  and Reorganization, dated as of August 25, 2006, by and among Axonyx  Inc., Autobahn Acquisition, Inc. and TorreyPines Therapeutics, Inc.  (incorporated by reference to Annex A to Amendment No. 1 to Registration  Statement No. 333-136018 filed with the Securities and Exchange  Commission on August 25, 2006). |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.1        |       | Certificate of Incorporation of the Registrant  (incorporated by reference to Exhibit 3.1 to the Registrant’s Current  Report on Form 8-K, filed on October 10, 2006).                                                                                                                                                                                                                |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.2        |       | Bylaws of the Registrant (incorporated by reference  to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K,  filed on October 10, 2006).                                                                                                                                                                                                                                      |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.3        |       | Certificate of Amendment filed with the Secretary of  State of the State of Nevada effecting an 8-for-1 reverse stock of the  Registrant’s common stock and changing the name of the Registrant from Axonyx  Inc. to TorreyPines Therapeutics, Inc. (incorporated by reference to  Exhibit 3.3 to the Registrant’s Current Report on Form 8-K, filed  on October 10, 2006). |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.4        |       | Articles of Conversion filed with the Secretary of  State of the State of Nevada changing the state of incorporation of the  Registrant (incorporated by reference to Exhibit 3.4 to the Registrant’s  Current Report on Form 8-K, filed on October 10, 2006).                                                                                                                        |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.5        |       | Certificate of Conversion filed with the Secretary  of State of the State of Delaware (incorporated by reference to  Exhibit 3.5 to the Registrant’s Current Report on Form 8-K, filed  on October 10, 2006).                                                                                                                                                                         |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.6        |       | Amendment to Bylaws of the Registrant (incorporated  by reference to Exhibit 3.6 to the Registrant’s Annual Report on Form 10-K,  filed on March 29, 2007).                                                                                                                                                                                                                                          |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.1        |       | Specimen common stock certificate of the Registrant  (incorporated by reference to Exhibit 4.1 to the Registrant’s filing on  Form S-8 filed on October 30, 2006).                                                                                                                                                                                                                    |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.2        |       | Form of Warrant to Purchase Common Stock issued  to previous holders of TPTX, Inc. redeemable convertible preferred stock  in connection with the business combination between TorreyPines  Therapeutics, Inc. and Axonyx, Inc. (incorporated by reference to  Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K, filed on March  29, 2007).                            |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.3        |       | Form of Common Stock Purchase Warrant  (incorporated by reference to exhibit 4.3 to Registrant’s Annual Report on  Form 10-KSB filed on March 13, 2000).                                                                                                                                                                                                                              |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.4        |       | Form of Registration Rights Agreement 1999  (incorporated by reference to Exhibit 4.4 to the March 13, 2000  10-KSB)                                                                                                                                                                                                                                                                            |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.5        |       | Form of Warrant issued to Stonegate Securities  (incorporated by reference to the corresponding exhibit to Registrant’s  Annual Report on Form 10-KSB filed on March 22, 2001).                                                                                                                                                                                                       |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.6        |       | Form of Common Stock Purchase Warrant issued to  purchasers in a private placement on December 6, 2001 (incorporated by  reference to Exhibit 10.2 to Registrant’s Current Report on  Form 8-K filed on December 13, 2001).                                                                                                                                                 |

 

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| Number | ** ** | **Exhibits**                                                                                                                                                                                                                                                                                  |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.7    |       | Form of Warrant issued to SCO Financial Group,  LLC (incorporated by reference to exhibit 4.5 to Registrant’s  Registration Statement on Form S-3 (File No. 333-76234) filed on  January 3, 2002).                                                              |
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.8    |       | Form of Common Stock Purchase Warrant issued to  purchasers in a private placement on January 6, 2003 (incorporated by  reference to Exhibit 10.2 in Registrant’s Current Report on  Form 8-K filed on January 8, 2003).                                        |
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.9    |       | Form of Warrant issued to AFO Advisors, LLC  (incorporated by reference to Exhibit 4.2 in Registrant’s registration  statement on Form S-3 (File No. 333-103130) filed on  February 12, 2003).                                                                  |
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.10   |       | Form of Common Stock Purchase Warrant issued to  purchasers in a private placement on September 12, 2003 (incorporated by  reference to Exhibit 10.2 in Registrant’s Current Report on Form 8-K  filed on September 16, 2003).                                  |
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.11   |       | Form of Common Stock Purchase Warrant issued to  purchasers in a private placement on January 8, 2004 (incorporated by  reference to Exhibit 4.3 in Registrant’s Current Report on Form 8-K  filed on January 12, 2004).                                        |
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.12   |       | Registration Rights Agreement dated as of  January 8, 2004 between Axonyx Inc. and certain investors (incorporated  by reference to Exhibit 4.2 in the current report on Form 8-K  previously filed by Axonyx Inc. on January 12, 2004)                                   |
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.13   |       | Registration Rights Agreement dated as of  May 3, 2004, between Axonyx Inc. and certain investors (incorporated by  reference to Exhibit 4.2 in the current report on Form 8-K  previously filed by Axonyx Inc. on May 5, 2004)                                           |
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.14   |       | Form of Warrant issued to Comerica Bank on  July 1, 2003 (incorporated by reference to Exhibit 4.14 to the  Registrant’s Annual Report on Form 10-K, filed on March 29, 2007).                                                                                                 |
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.15   |       | Form of Warrant issued to Silicon Valley Bank  on December 8, 2000 (incorporated by reference to Exhibit 4.15 to the  Registrant’s Annual Report on Form 10-K, filed on March 29, 2007).                                                                                       |
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.16   |       | Form of Warrant issued to Oxford Financial and  Silicon Valley Bank on September 27, 2005 (incorporated by reference to  Exhibit 4.16 to the Registrant’s Annual Report on Form 10-K, filed on March  29, 2007).                                                               |
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.17   |       | Rights Agreement, dated as of May 13, 2005,  between the Registrant and The Nevada Agency and Trust Company, as Rights  Agent (incorporated by reference to Exhibit 99.2 to the Registrant’s  Current Report on Form 8-K, filed on May 16, 2005).                    |
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.18   |       | Amendment to Rights Agreement, dated as of  June 7, 2006, between the Registrant and The Nevada Agency and  Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.1  to the Registrant’s Current Report on Form 8-K, filed on June 12,  2006). |
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.19   |       | Amendment to Rights Agreement, dated as of  October 3, 2006, between the Registrant and The Nevada Agency and Trust  Company, as Rights Agent (incorporated by reference to Exhibit 4.19 to the  Registrant’s Annual Report on Form 10-K, filed on March 29, 2007).                 |
|   |       |                                                                                                                                                                                                                                                                                          |
| 4.20   |       | Reference is made to Exhibits 3.1 through 3.6.                                                                                                                                                                                                                                                |
|   |       |                                                                                                                                                                                                                                                                                          |
| 31.1   |       | Certification of Principal Executive Officer  pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                     |
|   |       |                                                                                                                                                                                                                                                                                          |
| 31.2   |       | Certification of Principal Financial and Accounting  Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                      |

 

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| Number | ** ** | **Exhibits**                                                                                                                                                         |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |       |                                                                                                                                                                 |
| 32.1   |       | Certification of Principal Executive Officer  pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                |
|   |       |                                                                                                                                                                 |
| 32.2   |       | Certification of Principal Financial and Accounting  Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
| Date: May 14, 2007 |   |                                                                                                                                                   |
|--------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |   |                                                                                                                                                   |
|               |   | TorreyPines Therapeutics, Inc.                                                                                                                         |
|               |   |                                                                                                                                                   |
|               |   | By: /s/ Neil M. Kurtz, M.D.                                                                                                                       |   |
|               |   |                                                                                                                                                   |
|               |   | Neil M. Kurtz, M.D.  President and Chief Executive Officer   (Principal Executive Officer)                                                   |
|               |   |                                                                                                                                                   |
|               |   | By: /s/ Craig Johnson                                                                                                                             |   |
|               |   |                                                                                                                                                   |
|               |   | Craig Johnson   Vice President, Finance   Chief Financial Officer, and   Secretary   (Principal Financial and Accounting  Officer) |
|                    |        |                                                                                                                                                        |  |  |

 

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