** **

**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, 2008**                                                  |
| ** **                                                                                         |
| **or**                                                                                             |
| ** **                                                                                         |
| **o****TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition periodfrom                         to**

** **

**Commission file number: 000-25571**

 

**TORREYPINESTHERAPEUTICS, INC.**

(Exactname of registrant as 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 check markwhether 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, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o  No x .

 

As of May 9, 2008, therewere 15,745,127 shares of our Common Stock outstanding.

 

 

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**TorreyPines Therapeutics, Inc.**

 

**INDEX**

 
|  PART I. |   | FINANCIAL  INFORMATION                                                                                      |   |
|---------------|--------|-------------------------------------------------------------------------------------------------------------|--------|
|          |   |                                                                                                        |   |
| Item 1.       |   | Financial  Statements                                                                                       |   |
|          |   |                                                                                                        |   |
|          |   | Consolidated Balance Sheets as of March 31, 2008  (Unaudited) and December 31, 2007                         |   |
|          |   |                                                                                                        |   |
|          |   | Consolidated Statements of Operations for the three  months ended March 31, 2008 and 2007 (Unaudited)       |   |
|          |   |                                                                                                        |   |
|          |   | Consolidated Statements of Cash Flows for the three  months ended March 31, 2008 and 2007  (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 4T.      |   | 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. FINANCIALINFORMATION**

 

 **ITEM1.  Financial Statements**

 

**TorreyPines Therapeutics, Inc.Consolidated Balance Sheets**

 

(in thousands,except share and per share data)

 
| ** **                                                                                                                                                                               | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                               | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                                               |       |                     |       |                        |       |
| Current assets                                                                                                                                                                           |       |                     |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                |       | $                        | 25,665     |                        | $          | 32,500 |   |
| Prepaid expenses                                                                                                                                                                         |       | 462                      |       | 746                         |       |
| Other current assets                                                                                                                                                                     |       | 81                       |       | 89                          |       |
| Total current assets                                                                                                                                                                     |       | 26,208                   |       | 33,335                      |       |
|                                                                                                                                                                                     |       |                     |       |                        |       |
| Property and equipment, net                                                                                                                                                              |       | 698                      |       | 774                         |       |
| Purchased patents, net                                                                                                                                                                   |       | 3,417                    |       | 3,515                       |       |
| Investment in OXIS International, Inc.                                                                                                                                              |       | 1,678                    |       | 979                         |       |
| Other assets                                                                                                                                                                             |       | 53                       |       | 49                          |       |
|                                                                                                                                                                                     |       |                     |       |                        |       |
| Total assets                                                                                                                                                                             |       | $                        | 32,054     |                        | $          | 38,652 |   |
|                                                                                                                                                                                     |       |                     |       |                        |       |
| **Liabilities and stockholders’ equity**                                                                                                                                            |       |                     |       |                        |       |
| Current liabilities                                                                                                                                                                      |       |                     |       |                        |       |
| Accounts payable and accrued liabilities                                                                                                                                                 |       | $                        | 4,468      |                        | $          | 5,462 |   |
| Long-term debt, current portion                                                                                                                                                          |       | 3,674                    |       | 3,574                       |       |
| Total current liabilities                                                                                                                                                                |       | 8,142                    |       | 9,036                       |       |
|                                                                                                                                                                                     |       |                     |       |                        |       |
| Long-term debt, net of current portion                                                                                                                                                   |       | 30                       |       | 954                         |       |
| Deferred revenue                                                                                                                                                                         |       | 900                      |       | 2,183                       |       |
| Deferred rent                                                                                                                                                                            |       | 17                       |       | 19                          |       |
| Total liabilities                                                                                                                                                                        |       | 9,089                    |       | 12,192                      |       |
|                                                                                                                                                                                     |       |                     |       |                        |       |
| Commitments and contingencies                                                                                                                                                            |       |                     |       |                        |       |
|                                                                                                                                                                                     |       |                     |       |                        |       |
| Stockholders’ equity                                                                                                                                                                |       |                     |       |                        |       |
| Preferred stock, $0.001 par value, 15,000,000 shares authorized, 0  shares outstanding at March 31, 2008 and December 31, 2007,  respectively                                  |       | —                   |       | —                      |       |
| Common stock, $0.001 par value, 150,000,000 shares authorized,  15,745,127 and 15,738,496 shares issued and outstanding at March 31,  2008 and December 31, 2007, respectively |       | 16                       |       | 16                          |       |
| Additional paid-in capital                                                                                                                                                               |       | 122,547                  |       | 122,359                     |       |
| Accumulated other comprehensive income                                                                                                                                                   |       | 696                      |       | 486                         |       |
| Accumulated deficit                                                                                                                                                                      |       | (100,294                 | )          | (96,401                     | )          |
| Total stockholders’ equity                                                                                                                                                          |       | 22,965                   |       | 26,460                      |       |
|                                                                                                                                                                                     |       |                     |       |                        |       |
| Total liabilities and stockholders’ equity                                                                                                                                          |       | $                        | 32,054     |                        | $          | 38,652 |   |

 

*Seeaccompanying notes.*

 

1

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**TorreyPines Therapeutics, Inc.Consolidated Statements of Operations**

 

(in thousands,except share and per share data)

 

 (Unaudited)

 
| ** **                                                                               | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                               | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Revenue                                                                                  |       |                                             |       |   |   |
| License and option fees                                                                  |       | $                                                | 1,283      |   | $ | 1,700 |   |
| Research funding                                                                         |       | 763                                              |       | 763 |   |
| Total revenue                                                                            |       | 2,046                                            |       | 2,463 |   |
|                                                                                     |       |                                             |       |   |   |
| Operating expenses                                                                       |       |                                             |       |   |   |
| Research and development                                                                 |       | 5,260                                            |       | 5,177 |   |
| General and administrative                                                               |       | 1,448                                            |       | 1,395 |   |
| Total operating expenses                                                                 |       | 6,708                                            |       | 6,572 |   |
|                                                                                     |       |                                             |       |   |   |
| Loss from operations                                                                     |       | (4,662                                           | )          | (4,109 | ) |
|                                                                                     |       |                                             |       |   |   |
| Other income (expense)                                                                   |       |                                             |       |   |   |
| Interest income                                                                          |       | 217                                              |       | 608 |   |
| Interest expense                                                                         |       | (147                                             | )          | (238 | ) |
| Equity in loss of OXIS International, Inc.                                          |       | —                                           |       | (226 | ) |
| Fair value adjustment to Investment in OXIS International, Inc.                     |       | 699                                              |       | — |   |
| Warrant valuation adjustment                                                             |       | —                                           |       | 684 |   |
| Total other income                                                                       |       | 769                                              |       | 828 |   |
|                                                                                     |       |                                             |       |   |   |
| Net loss                                                                                 |       | (3,893                                           | )          | (3,281 | ) |
|                                                                                     |       |                                             |       |   |   |
| Basic and diluted net loss per share                                                     |       | $                                                | (0.25      | ) | $ | (0.21 | ) |
|                                                                                     |       |                                             |       |   |   |
| Weighted average shares used in the computation of basic and diluted  net loss per share |       | 15,739,646                                       |       | 15,688,079 |   |

 

*Seeaccompanying notes.*

 

2

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**TorreyPines Therapeutics, Inc.Consolidated Statements of Cash Flows**

 

(in thousands)

 

(Unaudited)

 
| ** **                                                                   | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| **Operating activities**                                                     |       |                                             |       |   |   |
| Net loss                                                                     |       | $                                                | (3,893     | ) | $ | (3,281 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities: |       |                                             |       |   |   |
| Depreciation                                                                 |       | 76                                               |       | 101 |   |
| Stock-based compensation                                                     |       | 180                                              |       | 142 |   |
| Amortization of debt discount                                                |       | 33                                               |       | 33 |   |
| Amortization of purchased patents                                            |       | 98                                               |       | 98 |   |
| Deferred rent                                                                |       | (2                                               | )          | 3 |   |
| Deferred revenue                                                             |       | (1,283                                           | )          | 3,300 |   |
| Equity in loss of OXIS International, Inc.                              |       | —                                           |       | 226 |   |
| Change in fair value of investment in OXIS International, Inc.          |       | (699                                             | )          | — |   |
| Change in warrant valuation                                                  |       | —                                           |       | (684 | ) |
| Changes in operating assets and liabilities:                                 |       |                                             |       |   |   |
| Contracts receivable                                                         |       | —                                           |       | (1,000 | ) |
| Prepaid expenses and other current assets                                    |       | 296                                              |       | (334 | ) |
| Other assets                                                                 |       | (4                                               | )          | — |   |
| Accounts payable and accrued liabilities                                     |       | (995                                             | )          | (689 | ) |
| Net cash used in operating activities                                        |       | (6,193                                           | )          | (2,085 | ) |
|                                                                         |       |                                             |       |   |   |
| **Investing activities**                                                     |       |                                             |       |   |   |
| Purchases of property and equipment                                          |       | —                                           |       | (41 | ) |
| Net cash used in investing activities                                        |       | —                                           |       | (41 | ) |
|                                                                         |       |                                             |       |   |   |
| **Financing activities**                                                     |       |                                             |       |   |   |
| Issuance of common stock                                                     |       | 7                                                |       | 20 |   |
| Payments on long-term debt                                                   |       | (857                                             | )          | (767 | ) |
| Net cash used in financing activities                                        |       | (850                                             | )          | (747 | ) |
|                                                                         |       |                                             |       |   |   |
| Effect of exchange rate changes on cash                                      |       | 208                                              |       | 33 |   |
|                                                                         |       |                                             |       |   |   |
| Net decrease in cash and cash equivalents                                    |       | (6,835                                           | )          | (2,840 | ) |
|                                                                         |       |                                             |       |   |   |
| Cash and cash equivalents at beginning of period                             |       | 32,500                                           |       | 55,383 |   |
|                                                                         |       |                                             |       |   |   |
| Cash and cash equivalents at end of period                                   |       | $                                                | 25,665     |   | $ | 52,543 |   |
|                                                                         |       |                                             |       |   |   |
| **Supplemental disclosure of cash flow information**                         |       |                                             |       |   |   |
| Cash paid for interest                                                       |       | $                                                | 184        |   | $ | 205 |   |

 

*Seeaccompanying notes.*

 

3

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**TorreyPines Therapeutics, Inc.  Notes to Consolidated FinancialStatements**

**March 31,2008**

(Unaudited)

 

**(1) Basis of 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 December 31,2007 included in our Annual Report on Form 10-K filed with the Securitiesand Exchange Commission (the “SEC”) on March 31, 2008.  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 the information and disclosuresrequired by GAAP for complete financial statements.  In the opinion of ourmanagement, the accompanying financial statements reflect all adjustments(consisting of normal recurring adjustments) that are necessary for a fairpresentation of the financial position, results of operations and cash flowsfor the interim periods presented.  Interim results are not necessarilyindicative of results for a full year. References in this report to “TorreyPines,” “Company,” “we,” “us” and “our”refer to TorreyPines Therapeutics, Inc. and its subsidiaries.

 

The preparation of financialstatements in conformity with GAAP requires management to make estimates andassumptions that affect the amounts reported in the financial statements andthe accompanying notes.  Actual results could differ from those estimates.

 

Certain reclassificationshave been made to prior period amounts to conform to current periodpresentation.

 

**(2) Adoption of New AccountingStandards**

 

OnJanuary 1, 2008 we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 157, *Fair Value Measurements*, which provides asingle definition of fair value, a framework for measuring fair value, andexpanded disclosures concerning fair value. Previously, different definitionsof fair value were contained in various accounting pronouncements creating inconsistenciesin measurement and disclosures. SFAS No. 157 applies under those previously issuedpronouncements that prescribe fair value as the relevant measure of value,except Statement No. 123R and related interpretations andpronouncements that require or permit measurement similar to fair value but arenot intended to measure fair value.

 

OnJanuary 1, 2008, we adopted the provisions of SFAS No. 159,*The Fair Value Option for FinancialAssets and Financial 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. Under SFAS No. 159, we elected to apply the fair value option toour investment in OXIS International, Inc. (“investment in OXIS”).

 

See Note 5 for moreinformation regarding this investment and the election of SFAS No. 157 andSFAS No. 159.

 

** (3) Comprehensive Loss**

 

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 (amounts in thousands):

 
| ** **                               | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                               | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
|                                     |       |                                             |       |   |   |
| Net loss                                 |       | $                                                | (3,893     | ) | $ | (3,281 | ) |
|                                     |       |                                             |       |   |   |
| Foreign currency translation adjustments |       | 210                                              |       | 33 |   |
|                                     |       |                                             |       |   |   |
| Comprehensive loss                       |       | $                                                | (3,683     | ) | $ | (3,248 | ) |

 

4

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**(4) Net Loss Per Share**

 

We calculate net loss pershare in accordance with SFAS No. 128, *EarningsPer Share*.  Net loss per share is computed on the basis of theweighted-average number of shares of common stock outstanding during theperiods presented.  Net loss per share assuming dilution is computed onthe basis of the weighted-average number of common shares outstanding and thedilutive effect of all common stock equivalents.  For the three-monthperiods ended March 31, 2008 and 2007, there is no difference betweenbasic and diluted net loss per share attributable to common stockholdersbecause the effect of common stock equivalents outstanding during the periods,including stock options, restricted stock units and warrants, is antidilutive.

 

**(5) Investment in OXIS**

 

Ourinvestment in OXIS consists of approximately 14 million shares of OXIS commonstock and represents approximately 30% of the outstanding voting stock ofOXIS.  As indicated in Note 2, we electedto apply the fair value option for our investment in OXIS.  Prior to this election, we accounted for ourinvestment in OXIS under the equity method of accounting following Accounting PrinciplesBulletin No. 18.  We believe fairvalue provides a more objective measurement of the value of this investmentthan the equity method of accounting.   The investment in OXIS is a Level 1 assetwithin the fair value hierarchy established by SFAS No. 157 because theinvestment has a quoted price in an active market, the Over-The-CounterBulletin Board.

 

Asof December 31, 2007 our investment in OXIS was carried at fair valuebecause we determined that an other-than-temporary impairment of value had occurred.  As such, there was no cumulative-effectadjustment to the opening balance of retained earnings as a result of ourelecting to apply the fair value option for our investment in OXIS.  All unrealized gains and losses associated with thisinvestment will be included in current period earnings or loss in the statementof operations.

 

Asof March 31, 2008 the quoted price of OXIS common stock on theOver-The-Counter Bulletin Board was $0.12. For the threemonths ended March 31, 2008, the total increase in fair value of theinvestment in OXIS was $699,000 and was recorded in the statement of operationsas a fair value adjustment to investment in OXIS International, Inc.  If we had continued to follow the equitymethod of accounting, the equity in the net loss of OXIS would have beenapproximately $327,000.  The adoption of SFASNo. 159 for our investment in OXIS has no effect on our deferred taxassets and liabilities.

 

**(6) Commitments andContingencies**

 

Several lawsuits werefiled against us in February 2005 in the U.S. District Court for theSouthern District of New York asserting claims under Sections 10(b) and 20(a) ofthe Securities Exchange Act of 1934, as amended, or the Exchange Act and Rule 10b-5thereunder on behalf of a class of purchasers of Axonyx common stock during theperiod from June 26, 2003, through and including February 4, 2005,referred to as the class period. Dr. Marvin S. Hausman, M.D., a formerdirector and our former Chief Executive Officer, and Dr. Gosse B.Bruinsma, M.D., also a former director and our 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 actionplaintiffs allege generally that the Company’s Phase III phenserine developmentprogram was subject to alleged errors of design and execution which resulted inthe failure of the first Phase III phenserine trial to show efficacy.Plaintiffs allege the defendants’ failure to disclose the alleged defectsresulted in the artificial inflation of the price of the Company’s sharesduring the class period.

 

There is also ashareholder derivative suit pending in New York Supreme Court, New York County,against our current and former directors and officers. The named defendants areMarvin S. Hausman, M.D., Gosse B. Bruinsma, M.D., S. ColinNeill, Louis G. Cornacchia, Steven H. Ferris, Ph.D., Gerard J. Vlak,Ralph Snyderman, M.D. and Michael A. Griffith. Defendants are alleged tohave breached their duties to the Company and misused inside informationregarding clinical trials of phenserine. This action has been stayed pendingfurther developments in the federal class action.

 

The complaints seekunspecified damages. Management believes the claims are without merit and plansto defend the claims vigorously. The Company has determined that a loss inconnection with these matters is possible, but not probable. Accordingly, theCompany has not recorded any liability relating to these matters.

 

5

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

 

*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 ended December 31,2007 included with the our Annual Report on Form 10-K filed with theSecurities and Exchange Commission, or SEC, on March 31, 2008. Operatingresults are not necessarily indicative of results that may occur in futureperiods.*

 

*Thefollowing discussion of our financial condition contains certain statementsthat are not strictly historical and are “forward-looking” statements withinthe meaning of the Private Securities Litigation Reform Act of 1995 and involvea high degree of risk and uncertainty. Our actual results may differ materiallyfrom those projected in the forward-looking statements due to risks anduncertainties that exist in our operations, development efforts and businessenvironment, including those set forth under the Section entitled “RiskFactors” in Part II, Item 1A, and other documents we file with the SEC.All forward-looking statements included in this report are based on informationavailable to us as of the date hereof, and, unless required by law, we assumeno obligation to update any such forward-looking statement.*

 

**Overview**

 

***Company Overview***

 

We are a biopharmaceutical company committed toproviding patients with better alternatives to existing therapies through theresearch, development and commercialization of small molecule compounds.  Our goal is to develop versatile productcandidates each capable of treating a number of acute and chronic diseases anddisorders such as migraine, chronic pain, muscle spasticity and rigidity,xerostomia and cognitive disorders.  Weare currently developing four product candidates, two ionotropic glutamate receptorantagonists and two muscarinic receptor agonists.

 

Our two ionotropic glutamate receptor antagonists,tezampanel and NGX426, are currently in clinical development.  Tezampanel and NGX426 competitively block thebinding of glutamate at the AMPA and kainate receptor subtypes. While normalglutamate production is essential, excess glutamate has been implicated in anumber of diseases and disorders. Tezampanel and NGX426 are the first glutamatereceptor antagonists with this combined binding activity to be tested inhumans. In October 2007, we released the results of a Phase IIb clinicaltrial of tezampanel, our most advanced product candidate.  In thisclinical trial, a single dose of tezampanel given by injection wasstatistically significant compared to placebo in treating acute migraineheadache. This was the sixth Phase II trial in which tezampanel has been shownto have analgesic activity.  We intend tohold an end of Phase II meeting with the FDA in the second half of 2008 todiscuss the scope of a Phase III program for tezampanel in acute migraine.  Assuming a successful outcome of thismeeting, and additional financial resources, we plan to move forward with aPhase III program with tezampanel for the treatment of acute migraine.  Also, in the second half of 2008 we plan toinitiate a small, Phase II trial of tezampanel for the treatment of musclespasticity and rigidity, a disorder commonly associated with spinal cordtrauma, stroke, and multiple sclerosis.  If initiated, this will be ourfirst clinical trial of tezampanel in a non-pain indication.

 

NGX426 is an oral prodrug of tezampanel.  In clinical trials, NGX426 has been shown torapidly convert to tezampanel.  We arecurrently conducting a Phase I clinical trial to identify the maximum toleratedsingle dose of NGX426 when given to healthy adults.  We have completed dosing of subjects up to210 mg, the maximum dose allowable under the protocol.  We intend to analyze the data and, ifpermissive, amend the clinical trial protocol to continue dosing to allow us toreach the maximum tolerated dose.  Once this study is completed and themaximum tolerated dose has been identified, we intend to initiate a Phase Itrial to evaluate multiple doses of NGX426 given to healthy adults. Also in thesecond quarter of 2008, we plan to initiate a clinical trial in healthy adultsto determine the analgesic effect of NGX426.

 

Our muscarinic receptor agonist currently in clinicaldevelopment is NGX267.  We have completedthree Phase I clinical trials evaluating single and multiple doses of NGX267given to healthy adults.  In March 2008, we initiated a Phase IIclinical trial in patients to evaluate NGX267 for the treatment of xerostomia,or dry mouth, secondary to Sjogren’s syndrome. Additionally, based on its mechanism of action, we believe NGX267 mayalso be developed to treat cognitive disorders such as Alzheimer’s disease andcognitive impairment associated with schizophrenia, or CIAS.  However, we have no plans to initiate anyclinical trials of NGX267 in Alzheimer’s disease or CIAS in 2008.  NGX292, our other muscarinic receptoragonist, is structurally similar to NGX267 and is in preclinical development.

 

We also have two drugdiscovery programs, a gamma-secretase modulator, or GSM, program and anAlzheimer’s disease genetics program. These programs are focused on discovering and validating novel smallmolecule compounds and molecular targets for Alzheimer’s disease.  Our genetics program is undertaken incollaboration with Eisai Co., Ltd.

 

 We have incurred net losses since inception aswe have devoted substantially all of our resources to research and development,including early-stage clinical trials. As of March 31, 2008, ouraccumulated deficit was $100.3 million. We expect to incur substantial andincreasing losses for the next several years as we continue to expendsubstantial resources seeking to successfully research, 

 

6

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develop, manufacture, obtain regulatory approval for,market and sell our product candidates. We expect that in the near term, wewill incur substantial losses relating primarily to costs and expenses in ourefforts to advance the development of tezampanel, NGX426, and NGX267.

 

We have not generated anyrevenue from product sales since inception and do not expect to generate anyrevenue from product sales for the next several years. Because our productcandidates are at an early stage of clinical and preclinical development andthe outcome of these efforts is uncertain, we cannot estimate the actualamounts necessary to successfully complete the development andcommercialization of our product candidates or whether, or when, we may achieveprofitability.

 

We believe that ouravailable cash and cash equivalents at March 31, 2008 will provide sufficientfunds to enable us to meet our on-going working capital requirements at leastthrough December 31, 2008.

 

**FinancialOverview**

 

***Revenue***

 

All of our revenue todate 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:

 

·       license and option fees from partners;

 

·  research funding from partners;

 

·  milestone payments from partners;

 

·  royalties 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.

 

***Research and Development Expense***

 

Since inception, we havefocused on discovery and development of novel small molecule compounds to treata number of acute and chronic diseases and disorders. We are currentlydeveloping four product candidates, three of which are in clinical trials:

 

·       Tezampanel, for the treatment of migraine, has beenstudied in three Phase I clinical trials and six Phase II clinical trials;

 

·  NGX426 has been studied in onePhase I clinical trial and is being studied in an on-going Phase Iclinical trial; and

 

·  NGX267 has been studied in threePhase I clinical trials and is being studied in an on-going Phase IIclinical trial for the treatment of xerostomia.

 

We expense research anddevelopment costs as incurred. Research and development expense consists ofexpenses incurred in identifying, researching, developing and testing productcandidates. These expenses primarily consist of the following:

 

·       compensation of personnel and consultants associatedwith research and development activities;

 

·  fees paid to contract researchorganizations and professional service providers for independent monitoringanalysis and regulatory services for our clinical trials;

 

·  laboratory supplies and materials;

 

·  manufacturing of productcandidates for use in our preclinical testing and clinical trials;

 

·  preclinical studies;

 

·  depreciation of equipment; and

 

·  allocated costs of facilities andinfrastructure.

 

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Because of the risksinherent in research and development, we cannot reasonably estimate or know thenature, timing and estimated costs of the efforts necessary to complete thedevelopment of our programs, the anticipated completion dates of theseprograms, or the period in which material net cash inflows are expected tocommence, if at all, from the programs described above and any potential futureproduct candidates. If either we or any of our partners fail to complete anystage of the development of any potential products in a timely manner, it couldhave a material adverse effect on our operations, financial position andliquidity.

 

***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 andprofessional fees for legal and accounting services.

 

**Results of Operations**

 

***Fluctuations inOperating Results***

 

Our results of operationshave fluctuated significantly from period to period in the past and are likelyto continue to do so in the future. We anticipate that our quarterly and annualresults of operations will be affected for the foreseeable future by severalfactors, including the timing and amount of payments received pursuant to ourcurrent research agreements and future strategic alliance agreements, as wellas the progress and timing of expenditures related to our development anddiscovery efforts.  Due to these fluctuations, we believe that theperiod-to-period comparisons of our operating results are not a good indicationof our future performance.

 

***Comparison of theThree Months Ended March 31, 2008 and 2007***

 

The following tablesummarizes the significant components of our results of operations for thethree months ended March 31, 2008 and 2007, in thousands, together withthe change in such items in dollars and as a percentage.

 
| ** **                         | ** ** | **For the Three Months Ended March 31,** | ** ** |
|------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                         | ** ** | **2008**                                                               | ** ** | **2007** | ** ** | **$  Change** | ** ** | **% Change** | ** ** |
| Revenue                            |       | $                                                                      | 2,046      |   | $ | 2,463 |   | $ | (417 | ) | (17 | )% |
| Research and development expense   |       | 5,260                                                                  |       | 5,177 |   | 83 |   | 2 | % |
| General and administrative expense |       | 1,448                                                                  |       | 1,395 |   | 53 |   | 4 | % |
| Interest income                    |       | 217                                                                    |       | 608 |   | (391 | ) | (64 | )% |
| Interest expense                   |       | 147                                                                    |       | 238 |   | (91 | ) | (39 | )% |
|                                    |            |                                                                        |            |  |  |  |  |  |  |  |  |  |

 

*Revenue.  * Revenue decreased to $2.0 million forthe three months ended March 31, 2008 from $2.4 million for the sameperiod in 2007.  The decrease of $0.4million was due to the conclusion of our discovery-phase GSM collaboration withEisai in February 2008.   During2008 in connection with this collaboration, we recognized revenue for twomonths of the quarter ended March 31, 2008, compared to three months ofrevenue recognized during the quarter ended March 31, 2007.

 

*Researchand development expense.  * Research and development increased to $5.3 millionfor the three months ended March 31, 2008 from $5.2 million for the sameperiod in 2007. The $83,000 increase was attributable to an increase inresearch expense of $29,000 and an increase in development expense of $54,000.

 

*Generaland administrative expense.  * General and administrative expense was largelyunchanged at $1.4 million for the three months ended March 31, 2008compared to $1.4 million for the same period in 2007.

 

*Interestincome.  *Interest income decreased to $217,000 for the three months ended March 31,2008 from $608,000 for the same period in 2007. The decrease of $391,000 wasdue to a lower average cash and cash equivalents balance during the firstquarter of 2008 compared to the first quarter of 2007.

 

*Interestexpense.  *Interest expense decreased to $147,000 for the three months ended March 31,2008 from $238,000 for the same period in 2007. The $91,000 decrease isattributable to a lower average debt balance during the first quarter of 2008compared to the first quarter of 2007.

 

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**Liquidity and Capital Resources**

 

Since inception we havefunded our operations primarily through sales of our equity securities,payments under our research agreements, debt financings and interestincome.  Through March 31, 2008, we had received approximately $67.5million in net proceeds from the sale of equity securities, $44.4 million inpayments under our research agreements, $18.7 million from debt issuances, and$5.5 million in interest income.  In addition, as a result of a businesscombination we completed in October 2006, we received $46.5 million ofcash.

 

At March 31, 2008,we had cash and cash equivalents of $25.7 million as compared to $32.5 millionat December 31, 2007. The cash balance at March 31, 2008 is$6.8 million lower than the balance at December 31, 2007 due largelyto the current quarter operating loss, repayments of debt, offset by proceedsfrom 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 therisks related to the availability of cash to fund our future operations, pleasesee “Risk Factors.”

 

We expect to continue tofund our operations with existing cash resources that were primarily generatedfrom equity financings, cash payments under our research agreements, and debtfinancing arrangements until we can generate significant cash from ouroperations. In addition, we may finance future cash needs through the sale ofequity securities, entering into strategic collaboration agreements and debtfinancing. However, we may not be successful in entering into strategiccollaboration agreements, or in receiving research funding under currentagreements or milestone or royalty payments under future agreements. In addition,we cannot be sure that our existing funds will be adequate or that additionalfinancing will be available when needed or that, if available, financing willbe obtained on terms favorable to us or our stockholders. Having insufficientfunds may require us to delay, scale back or eliminate some or all of ourresearch or development programs or to relinquish greater or all rights toproduct 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 raise additionalcapital by issuing equity securities, our existing stockholders’ ownership willbe diluted. Any debt financing we enter into may involve covenants thatrestrict our operations. These restrictive covenants may include limitations onadditional borrowing, specific restrictions on the use of our assets as well asprohibitions on our ability to create liens, pay dividends, redeem our stock ormake investments. In addition, if we raise additional funds throughcollaboration and licensing arrangements, we may be required to relinquishpotentially valuable rights to our product candidates or proprietarytechnologies, or grant licenses on terms that are not favorable to us.

 

**Off-BalanceSheet Arrangements**

 

We do not have anyoff-balance sheet arrangements.

 

**Critical Accounting Policies andEstimates**

 

Ourdiscussion and analysis of our financial condition and results of operationsare based on our financial statements, which have been prepared in accordancewith accounting principles generally accepted in the United States, or GAAP.The preparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during thereporting periods. We review our estimates on an ongoing basis, including thoserelated to revenue, accrued expenses and stock-based compensation. We base ourestimates on historical experience, known trends and events, and various otherfactors that we believe to be reasonable under the circumstances, the resultsof which form our basis for making judgments about the carrying values ofassets and liabilities that are not readily apparent from other sources. Actualresults may differ from these estimates under different assumptions orconditions.

 

Ourmanagement believes the following accounting policies and estimates are mostcritical to aid you in understanding and evaluating our reported financialresults.

 

***Revenue Recognition***

 

Werecognize revenue in accordance with the SEC’s Staff Accounting Bulletin, orSAB, 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.

 

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Werecognize revenue from up-front non-refundable license and option fees on astraight-line basis over the contracted or estimated period of performance,which is typically the research term. Amounts received for research funding fora specific 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***

 

Aspart of the process of preparing financial statements, we are required toestimate accrued expenses. This process involves identifying services whichhave been performed on our behalf, and estimating the level of serviceperformed and the associated cost incurred for such service as of each balancesheet date in our financial statements. Examples of services for which we mustestimate accrued expenses include contract service fees paid to contractmanufacturers in conjunction with the production of clinical drug supplies andto contract research organizations in connection with preclinical studies andclinical trials. In connection with such service fees, our estimates are mostaffected by our understanding of the status and timing of services provided.The majority of our service providers invoice us in arrears for servicesperformed. In the event that we do not identify certain costs which have beenincurred, or we under- or over-estimate the level of services performed or thecosts of such services in a given period, our reported expenses for such periodwould be too low or too high. The date on which certain services commence, thelevel of services performed on or before a given date, and the cost of suchservices are often determined based on subjective judgments. We make thesejudgments based upon the facts and circumstances known to us. To date, we havebeen able to reasonably estimate these costs; however, as we increase the levelof services performed on our behalf, it will become increasingly more difficultfor us to estimate these costs, which could result in our reported expenses forfuture periods being too high or too low.

 

***Stock-BasedCompensation***

 

We estimate the fair value of stock options grantedusing the Black-Scholes option valuation model and the fair value of restrictedstock units granted using a Monte-Carlo simulation option-pricing model. Thefair values of stock option and restricted stock unit awards are amortized overthe requisite service periods of the awards. Both the Black-Scholes optionvaluation model and the Monte-Carlo simulation option-pricing model require theinput of highly subjective assumptions, including the option or restrictedstock unit’s expected life, price volatility of the underlying stock, risk freeinterest rate and expected dividend rate. As stock-based compensation expenserelated to stock options is based on awards ultimately expected to vest, thestock-based compensation expense has been reduced for estimated forfeitures ofstock options. Statement of Financial Accounting Standards, or SFAS, No. 123R, *Share-Based Payment*, requires forfeituresto be estimated at the time of grant and revised, if necessary, in subsequentperiods if actual forfeitures differ from those estimates. Stock optionforfeitures were estimated based on historical experience. We may elect to usedifferent assumptions under both the Black-Scholes option valuation model orthe Monte-Carlo simulation option-pricing model in the future, which couldmaterially affect our net income or loss and net income or loss per share.

 

**Item 3.Quantitative and Qualitative Disclosures About Market Risk**

 

We are exposed to marketrisk related to changes in interest rates. Our current investment policy is tomaintain an investment portfolio consisting mainly of U.S. money market andhigh-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, 2008 and 2007, 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 foreign currencyaccounts that are exposed to currency exchange risk. The functional currency ofour European subsidiary, which is based in Belgium, is the local currency.Accordingly, the accounts of this subsidiary are translated from the local currencyto the U.S. dollar using the current exchange rate at the balance sheet datefor the balance sheet accounts, and using the average exchange rate during theperiod for revenue and expense accounts. The effects of translation arerecorded in accumulated other comprehensive loss as a separate component ofstockholders’ deficit. Because we did not have any transactions denominated inforeign currencies during the three months ended March 31, 2008 and 2007,we did not record exchange gains and losses in operations for those periods. Ifthe foreign currency rates were to fluctuate by 10% from exchange rates at March 31,2008 and 2007, the effect on our financial statements would not be material.However, there can be no assurance there will be not be a material impact inthe future.

 

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**Item 4T. Controls and Procedures.**

 

We maintain disclosurecontrols and procedures that are designed to ensure that information requiredto be disclosed in our Exchange Act reports is recorded, processed, summarizedand reported within the time periods specified in the SEC’s rules andforms, and that such information is accumulated and communicated to ourmanagement, including our principal executive officer and principal financialofficer, as appropriate, to allow timely decisions regarding required disclosure.

 

Under the supervision andwith the participation of our management, including our principal executiveofficer and principal financial officer, we conducted an evaluation of ourdisclosure controls and procedures, as such term is defined under Rule 13a-15(e)promulgated under the Exchange Act. Based on this evaluation, our principalexecutive officer and our principal financial officer concluded that ourdisclosure controls and procedures were designed and operating effectively asof the end of the period covered by this Quarterly Report on Form 10-Q.

 

Our management, includingour principal executive officer and our principal financial officer, does notexpect that our disclosure controls and procedures or our internal controlswill prevent all errors and all fraud. A control system, no matter how wellconceived 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.

 

**Changesin Internal Control Over Financial Reporting**

 

There has been no changein our internal control over financial reporting during the quarter ended March 31,2008 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PART II. OTHER INFORMATION**

 

**Item 1.Legal Proceedings**

 

Several lawsuits werefiled against us in February 2005 in the U.S. District Court for theSouthern District of New York asserting claims under Sections 10(b) and 20(a) ofthe Securities Exchange Act of 1934, as amended, or the Exchange Act and Rule 10b-5thereunder on behalf of a class of purchasers of our common stock during theperiod from June 26, 2003, through and including February 4, 2005,referred to as the class period. Dr. Marvin S. Hausman, M.D., a formerdirector and our former Chief Executive Officer, and Dr. Gosse B.Bruinsma, M.D., also a former director and our 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 actionplaintiffs allege generally that our Phase III phenserine development programwas subject to alleged errors of design and execution which resulted in thefailure of the first Phase III phenserine trial to show efficacy. Plaintiffsallege the defendants’ failure to disclose the alleged defects resulted in theartificial inflation of the price of our shares during the class period.

 

There is also ashareholder derivative suit pending in New York Supreme Court, New York County,against our current and former directors and officers. The named defendants areMarvin S. Hausman, M.D., Gosse B. Bruinsma, M.D., S. ColinNeill, Louis G. Cornacchia, Steven H. Ferris, Ph.D., Gerard J.Vlak, Ralph Snyderman, M.D. and Michael A. Griffith. Defendants arealleged to have breached their duties to the company and misused insideinformation regarding clinical trials of phenserine. This action has beenstayed pending further developments in the federal class action.

 

The complaints seekunspecified damages. We believe the complaints are without merit and we intendto defend these lawsuits vigorously. However, we cannot make assurances that wewill prevail in these actions, and, if the outcome is unfavorable to us, ourreputation, operations and 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 tous as 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.  Inthese circumstances, the market price of our common stock could decline, andyou may lose all or part of the money you paid to buy our common stock. The risk factors set forth below with an asterisk (*) next to the title are newrisk factors or risk factors containing changes, including any material changesfrom the risk factors set forth in our annual report on Form 10-K for thefiscal year ended December 31, 2007, as filed with the Securities andExchange Commission on March 31, 2008.*

 

**RisksRelated to Our Business**

 

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

 

We have incurred netoperating losses every year since our inception. As of March 31, 2008, wehad an accumulated deficit of approximately $100.3 million. Over the nextseveral years we expect a significant increase in our operating losses as weconduct additional discovery, development, clinical testing and regulatorycompliance activities. All of our revenue to date has been payments received inconnection with our collaboration and licensing agreements. We cannot becertain that we will generate additional revenue through licensing activitiesor that we will receive any of the milestone or royalty payments associatedwith our current collaboration and licensing agreements. Given the risksassociated with discovery, development, clinical testing, manufacturing andmarketing of drug products, we may never be successful in commercializing adrug product that will enable us to be profitable. Our ability to generatesignificant continuing revenue depends on a number of factors, including:

 

·  successful completion of on-goingand future clinical trials for our product candidates;

 

·  achievement of regulatory approvalfor our product candidates;

 

·  successful completion of currentand future strategic collaborations; and

 

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

 

We do not anticipate thatwe will generate significant continuing revenue for several years. Even if wedo achieve profitability, we may not be able to sustain or increaseprofitability.

 

***All of our product candidates are at an early stage ofdevelopment. We cannot be certain that any of our product candidates will besuccessfully developed, receive regulatory approval, or be commercialized.***

 

Ourproduct candidates are at an early stage of development and we do not have anyproducts that are commercially available. Our product candidates, ionotropicglutamate receptor antagonists tezampanel and NGX426 and muscarinic receptoragonist NGX267, are currently in clinical development. Our product candidate,NGX292, is in preclinical development. We will need to perform additionaldevelopment work and conduct further clinical trials for all of our productcandidates before we can seek the regulatory approvals necessary to begincommercial sales.

 

Successin preclinical testing and early clinical trials does not mean that laterclinical trials will be successful. Companies frequently suffer significantsetbacks in later stage clinical trials, even after earlier clinical trialshave shown promising results. In future clinical trials with larger or somewhatdifferent populations, results from early clinical trials may not be reproducedand analysis of new or additional data may not demonstrate sufficient safetyand efficacy to support regulatory approval of a product candidate.

 

Additionally,preclinical testing 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 FDA or other regulatory agencies.

 

Thereis no certainty that the safety and efficacy results of our Phase IIb clinical trialfor tezampanel in acute migraine announced in October 2007 are predictiveof results in subsequent trials of tezampanel or are meaningful indicators ofthe efficacy of tezampanel.  We will berequired to perform additional clinical testing in order to obtain regulatoryapproval of tezampanel and the results of such additional clinical testing maynot replicate what has been demonstrated to date regarding the safety andefficacy oftezampanel.  Additionally, further testing oftezampanel may not result in data sufficient to support regulatory approval.

 

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We donot anticipate that any of our current product candidates will be eligible to receiveregulatory approval and begin commercialization for a number of years, if atall. Even if we were to ultimately receive regulatory approval for one or moreof our product candidates, we may be unable to successfully commercialize themfor a variety of reasons including:

 

·  the availability of alternative treatments;

 

·  the product not being cost effective tomanufacture and sell;

 

·  limited acceptance in the marketplace; and

 

·  the effect of competition with other marketedproducts.

 

Thesuccess of our product candidates may also be limited by the incidence andseverity of any adverse events or undesirable side effects. Additionally, anyregulatory approval to market a product may be subject to the imposition bysuch regulatory agency of limitations on the indicated uses. These limitationsmay reduce the size of the market for the product. If we fail to commercializeone or more of our current product candidates, our business, results ofoperations, financial condition, and prospects for future growth will bematerially and adversely affected.

 

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

 

Wewill need to raise substantial additional capital in the future and additionalfunding requirements will depend on, and could increase significantly as aresult of, many factors, including:

 

·      the rate of progress and cost of clinicaltrials;

 

·      the scope of our clinical trials andother discovery and development activities;

 

·      the prioritization and number of clinicaldevelopment and discovery programs we pursue;

 

·      the terms and timing of anycollaborative, licensing and other arrangements that we may establish;

 

·      the costs of filing, prosecuting,defending and enforcing any patent claims and other intellectual propertyrights;

 

·      the costs and timing of regulatoryapprovals;

 

·      the costs of goods and manufacturingexpenses; and

 

·      the costs of establishing or contractingfor sales and marketing capabilities.

 

We donot anticipate 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. We cannotbe certain that additional funding will be available on acceptable terms, or atall. If adequate funds are not available, we may be required to delay, reducethe scope of, or eliminate one or more of our discovery and developmentprograms or commercialization efforts.

 

***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.***

 

Wecannot predict whether we will encounter problems with any of our plannedclinical trials that will cause us or regulatory authorities to delay orsuspend our clinical trials, or delay the analysis of data from such clinicaltrials. Any of the following factors could delay the clinical development ofour product candidates:

 

·  on-going discussions with the FDA orcomparable foreign authorities regarding the scope or design of one or moreclinical trials;

 

·  delays in receiving, or the inability toobtain, required approvals from institutional review boards or other reviewingentities at clinical trial sites selected for participation in a clinicaltrial;

 

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·      delays or slower than anticipatedenrollment of participants into clinical trials;

 

·      lower than anticipated retention rate ofparticipants in clinical trials;

 

·      need to repeat clinical trials as aresult of inconclusive or negative results or unforeseen complications intesting;

 

·      inadequate supply or deficient quality ofproduct candidate materials or other materials necessary to conduct ourclinical trials;

 

·      unfavorable FDA inspection and review ofa clinical trial site or records of any clinical or preclinical investigation;

 

·      serious, unexpected adverse events orundesirable side effects experienced by participants in the clinical trialsthat delay or preclude regulatory approval or limit the commercial use ormarket acceptance if approved;

 

·      findings that the clinical trialparticipants are being exposed to unacceptable health risks;

 

·      placement by the FDA of a clinical holdon a clinical trial;

 

·      restrictions on or post-approvalcommitments with regard to any regulatory approval we ultimately obtain thatrenders a product candidate not commercially viable; and

 

·      unanticipated cost overruns inpreclinical studies and clinical trials.

 

Inaddition, once a clinical trial has started, it may be suspended or terminatedby us or the FDA or other regulatory authorities due to a number of factors,including:

 

·      failure to conduct the clinical trial inaccordance with regulatory requirements;

 

·      inspection of the clinical trialoperations or clinical trial site by the FDA or other regulatory authoritiesresulting in the imposition of a clinical hold;

 

·      negative clinical trial results;

 

·      adverse events or negative side-effectsexperienced by the clinical trial participants; or

 

·      lack of adequate funding to continue theclinical trial.

 

Beforewe can demonstrate adequate safety and efficacy we will need to reach agreementwith the FDA on the endpoints for some of our Phase III clinical trials whereendpoints have not been validated and we may work with the FDA to potentiallydesign and validate one or more endpoints. The FDA may not accept any or all ofthe endpoints and they may ultimately decide that the endpoints are inadequateto demonstrate the safety and efficacy levels required for regulatory approval.Our failure to adequately demonstrate the safety and efficacy of our productcandidates would jeopardize our ability to achieve regulatory approval for, andultimately to commercialize, the product candidates.

 

Clinicaltrials require sufficient participant enrollment, which is a function of manyfactors, including the size of the target population, the nature of theclinical trial protocol, the proximity of participants to clinical trial sites,the availability of effective treatments for the relevant disorder or disease,the eligibility criteria for our clinical trials and the number of 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 or other applicable regulatory authorities may suspend clinical trialsof a product candidate at any time if we or they believe the participants insuch clinical trials, or in independent third-party clinical trials for productcandidates based on similar 

 

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technologies, are beingexposed to unacceptable health risks or for other reasons. In addition, it isimpossible to predict whether legislative changes will be enacted, or whetherFDA regulations, guidance or interpretations will be changed, or what theimpact of such changes, if any, may be.

 

If weexperience any such problems, we may not have the financial resources tocontinue development of the product candidate that is affected or thedevelopment of any of our other product candidates. If we experiencesignificant delays in the commencement or completion of clinical testing,financial results and the commercial prospects for the product candidates willbe harmed and costs will increase. Additionally, any significant delays in the commencement or completionof clinical testing will delay our ability to generate significant revenue.

 

***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.***

 

Werely on, and intend to continue to rely on, third parties, such as contractresearch organizations, medical institutions, clinical investigators andcontract laboratories, to conduct clinical trials of our product candidates.Our reliance on these third parties for development activities reduces ourcontrol over these activities. If these third parties do not successfully carryout their contractual duties or obligations or meet expected deadlines, or ifthe quality 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.***

 

In April 2003,we entered into an agreement with Eli Lilly to obtain an exclusive license fromEli Lilly to their ionotropic glutamate receptor antagonist assets tezampaneland NGX426. Pursuant to the license agreement we have obligations to makepayments to Eli Lilly under the agreement and to use commercially reasonableefforts to develop and commercialize the product candidates, includingachievement of specified development events within specified timeframes. EliLilly may terminate the agreement for uncured material breach of the agreementby us, including any breach of our development and commercializationobligations. If Eli Lilly were to terminate the agreement, we would lose rightsto the ionotropic glutamate receptor antagonist product candidates, and ourbusiness would be adversely affected.

 

***We have licensed rights to product candidates NGX267 andNGX292 from Life Science Research Israel, or LSRI.  LSRI has rights of termination under thelicense agreement, which if exercised would adversely affect our business.***

 

In May 2004,we entered into an agreement with LSRI to obtain an exclusive license from LSRIto their muscarinic receptor agonist assets NGX267 and NGX292. We haveobligations to make payments to LSRI under the agreement and to usecommercially reasonable efforts to develop and commercialize the productcandidates subject to the agreement, including achievement of specifieddevelopment events within specified timeframes. LSRI may terminate theagreement for uncured material breach of the agreement by us, including anybreach of our development and commercialization obligations. If LSRI were toterminate the agreement, we would lose rights to the muscarinic receptoragonist product candidates, and our business would be adversely affected.

 

***We depend on Eisai Co. Ltd., or Eisai, for funding for ourAlzheimer’s disease genetics discovery program. Eisai has the first right toobtain rights to gene targets resulting from this program, which could delay orlimit our ability to develop and commercialize these gene targets.***

 

In October 2005,we entered into an agreement with Eisai to discover gene targets useful intreating or preventing Alzheimer’s disease in humans. This agreement had aninitial two-year term which Eisai elected to extend for an additional12 months. This agreement will conclude on October 1, 2008.  We depend upon Eisai to provide funding forthe research we conduct under this agreement. If Eisai were to cease fundingthis program for any reason, we would need to provide our own funding for theprogram, seek a strategic partner for further work on the program, raiseadditional funding, or curtail or abandon the program.  In connection with the conclusion of ourcollaboration agreement with Eisai for our GSM program in February 2008,we streamlined our operations by reducing our work force.

 

Duringthe term of the agreement for our Alzheimer’s disease genetics discoveryprogram, Eisai has exclusive first rights of negotiation and refusal withregard to a license, collaboration or other arrangement regarding gene targetsdiscovered and validated in the course of the Alzheimer’s disease geneticsresearch program. These rights held by Eisai may delay or limit our ability toenter into 

 

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a license, collaborationor other arrangement with a third party for any gene targets resulting from theAlzheimer’s disease genetic research program.

 

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

 

Ourstrategy for developing, manufacturing, and commercializing potential productsincludes establishing 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.

 

***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 mayenter into collaborations with other strategic partners with respect to ourproduct candidates. If we enter into any such collaborations, we may havelimited or no control over the amount and timing of resources that our partnersdedicate to the development of our product candidates. Our ability tocommercialize products we develop with our partners and generate royalties fromproduct sales will depend on the partner’s ability to assist us in establishingthe safety and efficacy of our product candidates, obtaining regulatoryapprovals and achieving market acceptance of products. Our partners may electto delay or terminate development of a product candidate, independently developproducts that could compete with our products, or not commit sufficientresources to the marketing and distribution of products under thecollaboration. If our partners fail to perform as expected under thecollaborative agreements, our potential for revenue from the related productcandidates will be dramatically reduced. In addition, revenue from our futurecollaborations may consist of contingent payments, such as payments forachieving development and commercialization milestones and royalties payable onsales of any successfully developed drugs. The milestone, royalty or otherrevenue that we may receive under these collaborations will depend upon bothour ability and our partner’s ability to successfully develop, introduce,market and sell new products. In some cases, we will not be involved in theseprocesses and, accordingly, will depend entirely on our partners.

 

***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.***

 

Ourability to develop and commercialize our products depends in part on ourability to manufacture, or arrange for future collaborators or other thirdparties to manufacture, our products at a competitive cost, in accordance withregulatory requirements and in sufficient quantities for clinical testing andeventual commercialization. None of our current product candidates have beenmanufactured on a commercial scale. We and our third-party manufacturers mayencounter difficulties with the small- and large-scale formulation andmanufacturing processes required to manufacture our product candidates,resulting in delays in clinical trials and regulatory submissions, in thecommercialization of product candidates or, if any product candidate isapproved, in the recall or withdrawal of the product from the market. Ourinability to enter into or maintain agreements with capable third-partymanufacturers on acceptable terms could delay or prevent the commercializationof our products, which would adversely affect our ability to generate revenueand could prevent us from achieving profitability.

 

Webelieve that we have sufficient supplies of tezampanel, NGX426 and NGX267 forour current clinical trials. We will need to identify and reach agreement withthird parties for the supply of our product candidates for future clinicaltrials. We do not have long-term supply agreements with third parties, and wemay not be able to enter into supply agreements with them in a timely manner oron acceptable terms, if at all. These third parties may also be subject tocapacity constraints that would cause them to limit the amount of our productcandidates they can produce or the chemicals that we can purchase. Anyinterruption or delay we experience in the supply of our product candidates mayimpede or delay such product candidates’ clinical development and cause us toincur increased expenses associated with identifying and qualifying one or morealternate suppliers.

 

Inaddition, we, our future collaborators or other third-party manufacturers ofour products must comply with cGMP requirements enforced by the FDA through itsfacilities inspection program. These requirements include quality control,quality assurance and the maintenance of records and documentation. Inaddition, product manufacturing facilities in California are subject tolicensing requirements of the California Department of Health Services and maybe inspected by the California Department of Health Services 

 

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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 mayelect to commercialize some of the products we are developing on our own, withor without a partner, where those products can be effectively marketed and soldin concentrated markets that do not require a large sales force to becompetitive. We currently have no sales, marketing or distributioncapabilities. To be able to commercialize our own products, we will need toestablish our own specialized sales force and marketing organization withtechnical expertise and with supporting distribution capabilities. Developingsuch an organization is expensive and time consuming and could delay or limitour ability to commercialize products.

 

Tocommercialize any product candidate that we decide not to market on our own, wewill depend on collaborations with third parties that have establisheddistribution systems and direct sales forces. If we are unable to enter intosuch collaborations on acceptable terms, we may not be able to successfullycommercialize those products.

 

To theextent that we enter into arrangements with collaborators or other thirdparties to perform sales and marketing services, our product revenue is likelyto be lower than if we directly marketed and sold our product candidates. If weare unable to establish adequate sales and marketing capabilities,independently or with others, we may not be able to generate significantrevenue and may not become profitable and the price of our common stock may benegatively affected.

 

***Tezampanel and NGX426 belong to a new class of compounds.There are no compounds in this class that have received regulatory approval forany indication. Therefore, we do not know whether our product candidates willyield commercially viable products or receive regulatory approval.***

 

Tezampaneland NGX426 are ionotropic glutamate receptor antagonists of the AMPA andkainite subtype. They are part of a new class of compounds that block thebinding of glutamate to AMPA and kainite receptors and, in turn, stop thetransmission of pain signals. Tezampanel and NGX426 may represent a novelapproach to the treatment of numerous pain and non-pain diseases and disorders.There are currently no approved products that are ionotropic glutamate receptorantagonists of the AMPA and kainite subtype. As a result, we cannot be certainthat tezampanel and NGX426 will result in commercially viable drugs.

 

****NGX267is being developed to treat xerostomia, or dry mouth.  There are currently two muscarinic receptoragonists approved to treat xerostomia. We do not know if NGX267 will yield a commercially viable product orreceive regulatory approval.***

 

NGX267is a muscarinic receptor agonist with functionally specific M1 receptoractivity that we intend to develop for the treatment of xerostomia, or dry mouth.  There are currently two muscarinic receptoragonists marketed in the United States for the treatment of xerostomia.  We do not know whether or not NGX267 willhave any advantages over the currently marketed products or will be safe andefficacious.  Failure to demonstrate anadvantage over the currently marketed products or a failure to be safe andefficacious will prevent us from commercializing NGX267 or generatingsignificant revenue.  NGX292, our secondmuscarinic receptor agonist, has demonstrated a biological profile similar tothe profile of NGX267 and may be developed for the treatment of xerostomia inthe future.

 

***NGX267and NGX292 may be developed in the future for Alzheimer’s disease or CIAS,indications for which there are no products approved by the FDA, and for whichno regulatory precedents have been established. ******Therefore, we do not know whether ourproduct candidates will yield commercially viable products or receiveregulatory approval.***

 

NGX267and NGX292 are muscarinic receptor agonists with functionally specific M1receptor activity that we may develop in the future for the treatment ofAlzheimer’s disease or CIAS. There are currently no approved therapies for thetreatment of Alzheimer’s disease or CIAS. Therefore, in order to successfullycommercialize NGX267 and NGX292, we will need to agree with the FDA and otherapplicable regulatory agencies on clinical trial endpoints regarding safety andefficacy. Given the lack of current treatments for each of these indications,we may be unable to agree on the endpoints or successfully complete clinicaltrials that demonstrate that such endpoints, if agreed to, have been met. Anydelay in agreeing to clinical trial endpoints or in achieving those endpointscould delay commercialization thereby damaging our ability to generatesignificant revenue from NGX267 and NGX292, or prevent us from commercializingNGX267 and NGX292 altogether.

 

***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.***

 

Thedegree of market acceptance of any of our approved product candidates amongphysicians, patients, health care payors and the medical community will dependon a number of factors, including:

 

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·      acceptable evidence of safety andefficacy;

 

·      relative convenience and ease ofadministration;

 

·      the prevalence and severity of anyadverse side effects;

 

·      availability of alternative treatments;

 

·      pricing and cost effectiveness;

 

·      effectiveness of sales and marketingstrategies; and

 

·      ability to obtain sufficient third-partycoverage or reimbursement.

 

If weare unable to achieve market acceptance for our product candidates, then suchproduct candidates will not be commercially successful and 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.***

 

Oursuccess depends 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 team 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.

 

Competitionfor qualified personnel in the drug development industry is intense. We may notbe able to 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.***

 

Licensingour product candidates from other companies, universities or individuals doesnot always prevent them from developing non-identical but competitive productsfor their own commercial purposes, nor from pursuing patent protection in areasthat are competitive with us. Our partners who created these product candidatesare experienced 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 discoveryprogram is likely to attract additional research by our licensors in additionto other investigators who have experience in drug development. By virtue ofthe previous research that led to the discovery of the drugs or productcandidates 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.***

 

Accountingmethods and policies for biopharmaceutical companies, including policiesgoverning revenue recognition, expenses, accounting for stock options andin-process research and development costs are subject to further review,interpretation and guidance from relevant accounting authorities, including theSEC. Changes to, or interpretations of, accounting methods or policies in thefuture may result in unfavorable accounting charges or may require us to changeour compensation policies to avoid such charges.

 

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

 

As apublic company, we will incur significant legal, accounting and other expenses.In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as wellas rules 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.

 

Inaddition, the Sarbanes-Oxley Act requires, among other things, that we maintaineffective internal 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 

 

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substantial accountingand related expense and expend significant management efforts. We will need tohire additional accounting and financial staff to satisfy the on-goingrequirements of Section 404. Moreover, if we are not able to comply withthe requirements of Section 404, or if we or our independent registeredpublic accounting firm identifies deficiencies in our internal controls overfinancial reporting that are deemed to be material weaknesses, the market priceof our stock could decline and we could be subject to sanctions orinvestigations by the Nasdaq Global Market, SEC or other regulatoryauthorities.

 

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

 

Aclass action securities lawsuit and a stockholder derivative lawsuit was filedagainst us, as described under “Part II, Item 1–Legal Proceedings.” We aredefending against these actions vigorously; however, we do not know what theoutcome of these proceedings will be and, if we do not prevail, we may berequired to pay substantial damages or settlement amounts. Furthermore,regardless of the outcome, we may incur significant defense costs, and the timeand attention of our management may be diverted from normal businessoperations. If we are ultimately required to pay significant defense costs,damages or settlement amounts, such payments could materially and adverselyaffect our operations and results. We have purchased liability insurance,however, if any costs or expenses associated with the litigation exceed theinsurance coverage, we may be forced to bear some or all of these costs andexpenses directly, which could be substantial and may have an adverse effect onour business, financial condition, results of operations and cash flows. In anyevent, publicity surrounding the lawsuits and/or any outcome unfavorable to uscould adversely affect our reputation and stock price. The uncertaintyassociated with substantial unresolved lawsuits could harm our business,financial condition and reputation.

 

Wehave certain obligations to indemnify our officers and directors and to advanceexpenses to such officers and directors. Although we have purchased liabilityinsurance for our directors and officers, if our insurance carriers should denycoverage, or if the indemnification costs exceed the insurance coverage, we maybe forced to bear some or all of these indemnification costs directly, whichcould be substantial 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.***

 

Wecurrently have operations in Belgium and are conducting clinical trials inEurope. Costs resulting from our operations in Europe are denominated primarilyin local currencies, including the Euro, and are subject to fluctuations incurrency exchange rates. Further, we incur other operating expenses, includingexpenses related to clinical trials, which are denominated in Euros and otherlocal currencies. Significant fluctuations in the currency exchange rates andgeneral economic conditions in the countries in which we do business, couldharm our operating results.

 

****Fluctuations in the quoted price of OXIS commons stock mayadversely affect the fair value of our investment in OXIS International andcause variations in our operating results.***

 

EffectiveJanuary 1, 2008 we elected to apply the fair value option for ourinvestment in OXIS under SFAS No. 159, *The Fair Value Option forFinancial Assets and Liabilities-Including an Amendment of FASB Statement No. 115*.  Prior to this election, we accounted for ourinvestment in OXIS under the equity method of accounting following accountingprinciples bulletin (APB) No. 18. Increases or decreases in the fair valueof our investment in OXIS are recorded in the statement of operations as a fairvalue adjustment in OXIS International, Inc.  Historically, OXIS common stock has hadlimited trading volume and the quoted price can fluctuate from time totime.  Fluctuations in the quoted priceof OXIS common stock may cause variations in our operating results.

 

**Risks Related to Our IntellectualProperty**

 

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

 

Ourcommercial success depends on obtaining and maintaining patent protection andtrade secret protection of our product candidates, proprietary technologies andtheir uses, as well as successfully defending our patents against third-partychallenges. 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.

 

Thepatent positions of pharmaceutical and biotechnology companies can be highlyuncertain and involve complex legal and factual questions for which importantlegal principles remain unresolved. No consistent policy regarding the breadthof claims 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.

 

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Thedegree of future protection for our proprietary rights is uncertain becauselegal means afford only limited protection and may not adequately protect ourrights or permit us to gain or keep our competitive advantage. For example:

 

·      we or our licensors might not have beenthe first to make the inventions covered by each of its pending patentapplications and issued patents;

 

·      we or our licensors might not have beenthe first to file patent applications for these inventions;

 

·      others may independently develop similaror alternative technologies or duplicate any of our technologies;

 

·      it is possible that none of our pendingpatent applications will result in issued patents;

 

·      our issued patents may not provide abasis for commercially viable products, may not provide us with any competitiveadvantages, or may be challenged by third parties;

 

·      our issued patents may not be valid orenforceable;

 

·      we may not develop additional proprietarytechnologies that are patentable; and

 

·      the patents of others may have an adverseeffect on our business.

 

Proprietarytrade secrets 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 trade secretsor unpatented know-how is expensive and time consuming, and the outcome isunpredictable. 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.***

 

Ourcommercial success depends upon our ability and the ability of any of ourcollaborators to develop, manufacture, market, and sell our product candidatesand use our proprietary technologies without infringing the proprietary rightsof third parties. 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 maybe exposed to future litigation by the companies holding these patents or otherthird parties 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 proprietary technologiesunless we obtained a license to the patent. A license to these patents may notbe available to us or our collaborators on acceptable terms, if at all.

 

Thereis a substantial 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:

 

·      infringement and other intellectualproperty claims which, with or without merit, may be expensive andtime-consuming to litigate and may divert management’s attention from its corebusiness;

 

·      substantial damages for infringement,including treble damages and attorneys’ fees, as well as damages for productsdevelopment using allegedly infringing drug discovery tools or methods which wemay have to pay if a court decides that the product or proprietary technologyat issue infringes on or violates the third party’s rights;

 

·      a court prohibiting us from selling or licensingthe product or using the proprietary technology unless the third party licensesits technology to us, which it is not required to do;

 

·      if a license is available from the thirdparty, we may have to pay substantial royalties, fees and/or grant crosslicenses to its technology; and

 

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·      redesigning our products or processes sothey do not infringe, which may not be possible or may require substantialfunds and time.

 

We mayalso be subject to claims that we or our employees, who were previouslyemployed at universities or other biotechnology or pharmaceutical companies,have inadvertently or otherwise used or disclosed trade secrets or otherproprietary information of their former employers. Litigation may be necessaryto defend against these claims. If we fail in defending such claims, inaddition to paying monetary damages, we may lose valuable intellectual propertyrights or personnel. A loss of key research personnel or their work product couldhamper or prevent our ability to commercialize certain potential drugs, whichcould severely harm our business. Even if we are successful in defendingagainst these claims, litigation could result in substantial costs and be adistraction to management.

 

**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, futureadvertising, promotion, export, marketing and distribution of our productcandidates are subject to extensive regulation by the FDA and other regulatoryagencies in the U.S. and by comparable foreign governmental authorities. Theprocess of obtaining these approvals is expensive, often takes many years, andcan vary substantially based upon the type, complexity and novelty of theproducts involved. Approval policies or regulations may change. In addition,although members of our management have drug development and regulatoryexperience, as a company we have not previously filed the marketingapplications necessary to gain regulatory approvals for any product. This lackof experience may impede our ability to obtain FDA marketing approval in atimely manner, if at all, for the product candidates we are developing andcommercializing. We will not be able to commercialize our product candidates inthe U.S. until we obtain FDA approval and in other countries until we obtainapproval by comparable governmental authorities. Any delay in obtaining, orinability to obtain, these approvals would prevent us from commercializing ourproduct candidates.

 

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

 

If anyof our product candidates receive regulatory approval, the FDA and foreignregulatory authorities may still impose significant restrictions on the uses ormarketing of the product candidates or impose on-going requirements forpost-approval studies. In addition, regulatory agencies subject a product, itsmanufacturer and the manufacturer’s facilities to continuing review andperiodic inspections. If previously unknown problems with a product or itsmanufacturing facility are discovered, a regulatory agency may imposerestrictions on that product, us, or our partners, including requiringwithdrawal of the product from the market. Our candidates will also be subjectto on-going FDA requirements for submission of safety and other post-marketinformation. If our product candidates fail to comply with applicableregulatory requirements, a regulatory agency may:

 

·      issue warning letters;

 

·      impose civil or criminal penalties;

 

·      suspend regulatory approval;

 

·      suspend any on-going clinical trials;

 

·      refuse to approve pending applications orsupplements to approved applications filed by us or our collaborators;

 

·      impose restrictions on operations,including costly new manufacturing requirements; or

 

·      seize or detain products or require aproduct recall.

 

Inorder to market any products outside of the U.S., we and our partners mustestablish and comply with numerous and varying regulatory requirements of othercountries regarding safety and efficacy. Approval procedures vary amongcountries and can involve additional product testing and additionaladministrative review periods. The time required to obtain approval in othercountries might differ from that required to obtain FDA approval. Theregulatory approval process in other countries may include all of the risksdetailed above regarding FDA approval in the U.S. Regulatory approval in onecountry does not ensure regulatory approval in another, but a failure or delayin obtaining regulatory approval in one country may negatively impact theregulatory process in others. Failure to obtain regulatory approval in othercountries or any delay or setback in obtaining such approval could have thesame adverse effects 

 

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described above regardingFDA approval in the U.S., including the risk that our product candidates maynot be approved for all indications requested, which could limit the uses ofour product candidates and adversely impact potential royalties and productsales, and that such approval may be subject to limitations on the indicateduses for which the product may be marketed or require costly, post-marketingfollow-up studies.

 

If weand our partners fail to comply with applicable foreign regulatoryrequirements, we and our partners may be subject to fines, suspension orwithdrawal of regulatory approvals, product recalls, seizure of products,operating restrictions and criminal 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.***

 

Thebiotechnology and biopharmaceutical industries are characterized by rapidlyadvancing technologies, intense competition and a strong emphasis onproprietary products. We face competition from many different sources,including commercial pharmaceutical and biotechnology enterprises, academicinstitutions, government agencies and private and public research institutions.Due to the high demand for treatments in the areas in which we are competing,research is intense and new treatments are being sought out and developed byour competitors.

 

Inaddition, many other competitors are developing products for the treatment ofthe diseases we are targeting and if successful, these products could competewith our products. 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.

 

Manyof our competitors have significantly greater financial resources and expertisein research and development, manufacturing, preclinical testing, clinicaltrials, regulatory approvals and marketing approved products than we do.Smaller or early-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.***

 

Thecontinuing efforts of the government, insurance companies, managed careorganizations and other payors of health care costs to contain or reduce costsof health care may adversely affect our:

 

·      ability to set a price we believe is fairfor our products;

 

·      ability to generate revenues and achieveprofitability;

 

·      future revenues and profitability ofpotential customers, suppliers and collaborators; and

 

·      the availability of capital.

 

Incertain foreign markets, the pricing of prescription drugs is subject togovernment control. In the U.S., given recent federal and state governmentinitiatives directed at lowering the total cost of health care, Congress andstate legislatures will likely continue to focus on health care reform, thecost of prescription drugs and the reform of the Medicare and Medicaid systems.For example, a new Medicare prescription drug benefit program began in 2006.While we cannot predict the full outcome of the implementation of thislegislation or whether any future legislative or regulatory proposals affectingour business will be adopted, the announcement or adoption of these proposalscould materially and adversely affect our business, financial condition, andresults of operations.

 

Ourability to commercialize our product candidates successfully will depend inpart on the extent to which governmental authorities, private health insurersand other organizations establish appropriate reimbursement levels for the costof our products 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 significantly influencethe purchase of health care services and products, as well as legislativeproposals to reform health care or reduce government insurance programs, mayresult in lower prices for our product candidates or exclusion of its productcandidates from reimbursement programs. The cost containment measures thathealth care payors and providers are instituting and the effect of any healthcare reform could materially and adversely affect our results of operations.

 

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

 

Weface an inherent risk of product liability exposure related to the testing ofour product candidates in human clinical trials, and will face an even greaterrisk if 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 are unable to successfully defendourselves against any such product liability claim, we will incur substantialliabilities. Regardless of merit or eventual outcome, liability claims mayresult in:

 

·      decreased demand for our productcandidates;

 

·      injury to our reputation;

 

·      withdrawal of clinical trialparticipants;

 

·      costs of related litigation;

 

·      substantial monetary awards to patientsor other claimants;

 

·      loss of revenues; and

 

·      the inability to commercialize ourproduct candidates.

 

Wehave product liability insurance that covers our clinical trials, up to anannual aggregate limit of $5.0 million. We intend to expand our insurancecoverage to include the sale of commercial products if marketing approval isobtained for any of our product candidates. However, insurance coverage isincreasingly expensive. We may not be able to maintain insurance coverage at areasonable cost and we may not be able to obtain insurance coverage that willbe adequate to 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 researchand development processes involve the controlled use of hazardous materials,including chemicals, radioactive and biological materials. Our operationsproduce hazardous 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.***

 

Themarket price of our common stock could be subject to significant fluctuations.Market prices for securities of early-stage pharmaceutical, biotechnology andother life sciences companies have historically been particularly volatile.Some of the factors that may cause the market price of our common stock tofluctuate include:

 

·      the results of our current and any futureclinical trials of our product candidates;

 

·      the results of on-going preclinicalstudies and planned clinical trials of our preclinical product candidates;

 

·      the entry into, or termination of, keyagreements, including key strategic alliance agreements;

 

·      the results and timing of regulatoryreviews relating to the approval of our product candidates;

 

·      the initiation of, material developmentsin, or conclusion of litigation to enforce or defend any of our intellectualproperty rights;

 

·      general and industry-specific economicconditions that may affect our research and development expenditures;

 

·      the results of clinical trials conductedby others on drugs that would compete with our product candidates;

 

·      issues in manufacturing our productcandidates or any approved products;

 

·      the loss of key employees;

 

·      the introduction of technologicalinnovations or new commercial products by our competitors;

 

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

 

·      changes in estimates or recommendationsby securities analysts, if any, who cover our common stock;

 

·      future sales of our common stock;

 

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·      changes in the structure of health carepayment systems; and

 

·      period-to-period fluctuations in ourfinancial results.

 

Moreover,the stock markets in general have experienced substantial volatility that hasoften been unrelated to the operating performance of individual companies.These broad market fluctuations may also adversely affect the trading price ofour common stock.

 

In thepast, following periods of volatility in the market price of a company’ssecurities, stockholders have often instituted class action securitieslitigation against those companies. Such litigation, if instituted, couldresult in substantial costs and diversion of management attention andresources, which could significantly 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 area party to a stockholder rights plan, also referred to as a poison pill, whichis intended to deter a hostile takeover of us by making such proposedacquisition more expensive and less desirable to the potential acquirer. Thestockholder rights plan and our certificate of incorporation and bylaws, asamended, contain provisions that may discourage, delay or prevent a merger,acquisition or other change in control that stockholders may considerfavorable, including transactions in which stockholders might otherwise receivea premium for their shares. These provisions could limit the price thatinvestors might be willing to pay in the future for shares of our common stock.

 

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

 

Asmall number of our stockholders hold a significant amount of our outstandingstock. These stockholders may support competing transactions and have intereststhat are different from yours. In addition, the average number of shares of ourstock that trade each day is generally low. As a result, sales of a largenumber of shares of our stock by these large stockholders or other stockholderswithin a short 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.***

 

Ourmanagement has significant flexibility in applying our cash resources and coulduse these resources for corporate purposes that do not increase our marketvalue, or in ways with which our stockholders may not agree. We may use ourcash resources for corporate purposes that do not yield a significant return orany return at all for our stockholders, which may cause our stock price todecline.

 

***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 mayraise additional funds through public or private equity offerings, debtfinancings or corporate collaboration and licensing arrangements. To the extentthat we raise additional capital by issuing equity securities, our existingstockholders’ ownership will be diluted. Any debt financing we enter into mayinvolve covenants that restrict our operations. These restrictive covenants mayinclude limitations on additional borrowing, specific restrictions on the useof our assets as well as prohibitions on our ability to create liens, paydividends, redeem stock or make investments. In addition, if we raiseadditional funds through collaboration and licensing arrangements, it may benecessary to relinquish potentially valuable rights to our potential productsor proprietary technologies, or grant licenses on terms that are not favorableto us.

 

***There is only a limited trading market for our common stockand it is possible that investors may not be able to sell their shares easily.***

 

Thereis currently only a limited trading market for our common stock. Our commonstock trades on the Nasdaq Global Market under the symbol “TPTX” with verylimited trading volume. We cannot assure investors that a substantial tradingmarket will be sustained 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 Quarterly  Report on Form 10-Q filed on August 14, 2007).                                                                                                                                                                                                          |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 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 the 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 Registrant’s Annual  Report on Form 10-KSB, filed on March 13, 2000).                                                                                                                                                                                                               |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.5        |       | Form of Warrant issued to Stonegate Securities  (incorporated by reference to the corresponding exhibit to the 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 the Registrant’s Current Report on  Form 8-K filed on December 13, 2001).                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.7        |       | Form of Warrant issued to SCO Financial Group,  LLC (incorporated by reference to Exhibit 4.5 to the Registrant’s  Registration Statement on Form S-3 (File No. 333-76234) filed on  January 3, 2002).                                                                                                                                                                      |

 

25

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| **Number** | ** ** | **Exhibits**                                                                                                                                                                                                                                                                                  |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                          |
| 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 to the 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 to the 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 to the 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,  filed 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 to the Registrant’s Current Report on  Form 8-K, filed 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.                                                                                       |
|       |       |                                                                                                                                                                                                                                                                                          |
| 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.                                                                                                                |

 

26

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|  Date:  May 13, 2008 |                                                      |
|--------------------------------|-----------------------------------------------------------|
|                           |                                                      |
|                           | 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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