UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 FORM
10-Q xQUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the
quarterly period ended September 30, 2006 or oTRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the
transition period
from                         to                         . Commission
file number: 000-25571 TORREYPINES THERAPEUTICS, INC. (Exact name of
registrant as specified in its charter) Delaware

86-0883978(State or other
  jurisdiction of

(IRS Employer Id. No.)incorporation or
  organization)11085
  North Torrey Pines Road,Suite
  300, La Jolla, CA

92037(Address of principal executive offices)

(Zip code) Registrants
telephone number, including area code: (858-623-5665) Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No
o. Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act. Large Accelerated filer o
Accelerated Filer x
Non-accelerated filer o Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No
x. As of November 4, 2006, there were 15,670,832 shares
of the registrants $.001 par value Common Stock outstanding.    TorreyPines
Therapeutics, Inc. (formerly Axonyx Inc.)

INDEX

PART 1.
FINANCIAL INFORMATIONItem 1.
Financial StatementsCondensed Consolidated Balance Sheets
  as of September 30, 2006 (unaudited) and December 31, 2005
1Condensed
  Consolidated Statements of Operations (unaudited) for the three and nine
  months ended September 30, 2006 and 2005
2Condensed
  Consolidated Statement of Changes in Stockholders Equity (unaudited) for the
  nine months ended September 30, 2006
3Condensed
  Consolidated Statements of Cash Flows (unaudited) for the nine months ended
  September 30, 2006 and 2005
4Notes to Condensed Consolidated
  Financial Statements
5Item 2.
Managements Discussion and Analysis
  of Financial Condition and Results of Operations
11Item 3.
Quantitative and Qualitative
  Disclosures About Market Risk
15Item 4.
Controls and Procedures
15PART II
OTHER INFORMATION
16Item 1.
Legal Proceedings
16Item 1A.
Risk Factors
16Item 4.
Submission of Matters to a Vote of Security Holders
29Item 6.
Exhibits
30Signatures

31PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TorreyPines
Therapeutics, Inc.
(formerly Axonyx Inc.)Condensed Consolidated Balance Sheets

September
  30,

December
  31,2006

2005(unaudited)ASSETSCurrent assets:Cash and cash
  equivalents

$
1,352,000


1,638,000Investments


45,300,000


56,700,000Other current
  assets


208,000


614,000Total current
  assets


46,860,000


58,952,000Property, plant
  and equipment, net


38,000


49,000Investment in
  Oxis


4,089,000


4,917,000Security and
  deposits


23,000


124,000$
51,010,000


64,042,000LIABILITIESCurrent liabilities:Accounts
payable

$
2,479,000


4,147,000Accrued
expenses


4,135,000


1,512,000Total current
  liabilities


6,614,000


5,659,000STOCKHOLDERS EQUITYPreferred stock
  - $.001 par value, 15,000,000 shares authorized; none issuedCommon Stock -
  $.001 par value, 150,000,000 authorized in 2006 and 2005 6,710,090 issued and
  outstanding


7,000


7,000Additional paid-in capital


150,801,000


149,513,000Unearned compensation - stock options





(15,000
)Accumulated deficit


(106,412,000
)

(91,122,000
)Total
  stockholders equity


44,396,000


58,383,000Total
  liabilities and stockholders equity

$
51,010,000


64,042,000See notes to the condensed consolidated financial
statements


1

TorreyPines
Therapeutics, Inc.
(formerly Axonyx Inc.)

Condensed Consolidated Statements of
Operations(unaudited)

Three
  months ended 
  September 30,

Nine
  months ended 
  September 30,2006

2005

2006

2005RevenueProduct
sales

$


$


$


$
403,000Cost of product sales











210,000Gross
profit











193,000Costs and expenses:Research and
  development


1,354,000


5,135,000


6,973,000


21,808,000General and
  administrative


884,000


1,018,000


4,437,000


3,894,000Merger
costs


5,346,000





5,346,000


7,584,000


6,153,000


16,756,000


25,702,000Loss from operations


(7,584,000
)

(6,153,000
)

(16,756,000
)

(25,509,000
)Other income (expense)Investment
  income


631,000


586,000


1,963,000


1,716,000Interest
expense











(2,000
)Gain (loss) on
  issuance of Oxis stock


84,000


2,000


162,000


(318,000
)Equity in loss
  of Oxis


(210,000
)

(108,000
)

(625,000
)

(255,000
)Foreign
exchange


(11,000
)

(14,000
)

(34,000
)

(95,000
)Total other income (expense)


494,000


466,000


1,466,000


1,046,000Net loss before
  minority interest in Oxis


(7,090,000
)

(5,687,000
)

(15,290,000
)

(24,463,000
)Outside
interest
  in loss of Oxis











164,000Net loss

$
(7,090,000
)
$
(5,687,000
)
$
(15,290,000
)
$
(24,299,000
)Net loss per
  common share - basic and diluted

$
(1.06
)
$
(0.85
)
$
(2.28
)
$
(3.62
)Weighted
average
  shares basic and diluted


6,710,000


6,709,000


6,710,000


6,708,000See notes to the condensed consolidated financial
statements


2

TorreyPines
Therapeutics, Inc.
(formerly Axonyx Inc.)Condensed Consolidated Statements of Changes in Stockholders
Equity(unaudited)

Common Stock



Unearned
  CompensationStock
  OptionsNumberof
  Shares

Amount

AdditionalPaid-in
  Capital


AccumulatedDeficit

TotalStockholders
  EquityBalance -
December 31, 2005


6,710,090

$
7,000

$
149,513,000

$
(15,000
)
$
(91,122,000
)
$
58,383,000Issuance of
common stock options and warrants for consulting services








18,000








18,000Issuance of
common stock options








1,270,000








1,270,000Amortization











15,000





15,000Net
loss














(15,290,000
)

(15,290,000
)Balance
 September 30, 2006


6,710,090

$
7,000

$
150,801,000

$


$
(106,412,000
)
$
44,396,000See notes to the condensed consolidated financial
statements


3

TorreyPines
Therapeutics, Inc.
(formerly Axonyx Inc.)

Condensed Consolidated Statements of Cash
Flows(unaudited)

Nine months ended
  September 30,2006

2005Cash flows from operating
  activities:Net
loss

$
(15,290,000
)
$
(24,299,000
)Adjustments to
  reconcile net loss to cash used in operating activities:Depreciation
and
  amortization


376,000


423,000Compensation
  related to common stock issued for services


1,303,000


319,000Minority
  interest in net loss of Oxis





(164,000
)Loss (gain) on
  issuance of Oxis stock


(162,000
)

318,000Equity in loss
  of Oxis


625,000


255,000Changes
in:Accounts
  receivable





(105,000
)Inventories





(1,000
)Other current
  assets


406,000


(91,000
)Other
assets


101,000


(6,000
)Accounts
payable


(1,668,000
)

(2,217,000
)Accrued
expenses


2,636,000


1,193,000Accrued stock
  based compensation


(13,000
)

(353,000
)Net cash used in
  operating activities


(11,686,000
)

(24,728,000
)Cash flows from investing
  activities:Purchase of
  equipment





(13,000
)Additions to
  patents





(48,000
)Reduction in
  cash due to deconsolidation of Oxis





(4,907,000
)Purchases of
  investments


(14,400,000
)

(49,750,000
)Proceeds from
  sales and maturities of investments


25,800,000


69,450,000Net cash provided
by
  investing activities


11,400,000


14,732,000Cash flows from financing
  activities:Net proceeds
  from issuance of common stock and warrants





20,000Collection of
  stock subscription receivable - Oxis





2,250,000Net proceeds
  from exercise of common stock options in Oxis





33,000Net cash provided
by
  financing activities





2,303,000Net decrease in cash and cash
  equivalents


(286,000
)

(7,693,000
)Cash and cash equivalents at beginning of period


1,638,000


10,091,000Cash and cash equivalents at end of
  period

$
1,352,000

$
2,398,000Supplemental cash flow disclosuresInterest
paid




$
2,000Supplemental disclosure of non-cash
  financing activity:Minority
  interest in Oxis equity transactions




$
22,000See notes to the condensed consolidated financial
statements


4

TorreyPines
Therapeutics, Inc. (formerly Axonyx Inc.)

Notes to Condensed Consolidated Financial
Statements(unaudited)

(1) Financial
Statement Presentation

The
financial statements presented in this Form 10-Q are for the periods through
September 30, 2006.  All common stock
issued and outstanding, per share amounts and option numbers and disclosures
reflect the 1-for-8 reverse stock split completed in connection with the
business combination between Axonyx Inc., or Axonyx, and TorreyPines
Therapeutics, Inc., as described in Note (8) below. The financial statements
presented in this Quarterly Report on Form 10-Q reflect the historical
financial statements of Axonyx Inc., which changed its name to TorreyPines
Therapeutics, Inc. in connection with the business combination, but do not
otherwise reflect the effect of the closing of the business combination which
occurred on October 3, 2006.

The
unaudited condensed consolidated financial statements herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC) and, in the opinion of management, reflect all adjustments necessary to
present fairly the financial position at September 30, 2006, and the results of
operations and cash flows for the quarterly and nine month periods presented.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations. However, management believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements and notes thereto should be read in conjunction with the financial
statements and the notes thereto for the year ended December 31, 2005, included
in the our Annual Report on Form 10-K, and Amendment No. 1 to the Form S-4
filed on August 25, 2006. The results for the interim periods are not
necessarily indicative of the results for the full fiscal year. Certain prior
year amounts have been reclassified to conform to current year presentation.

Principles
of consolidation

The
consolidated financial statements include the accounts of Axonyx Europe, B.V.,
a wholly owned subsidiary organized in The Netherlands. The financial
statements also include the accounts of OXIS International Inc. (OXIS) from the
acquisition date of January 15, 2004, when we acquired approximately 52% of the
common voting stock of OXIS, through February 28, 2005. Our ownership in OXIS
was reduced to 34% on December 31, 2004 as the result of a third party
financing by OXIS, however, the accounts of OXIS continued to be consolidated
as we controlled the board of directors through a majority of the OXIS board
seats. On February 28, 2005 OXIS announced that Mr. Steven T. Guillen had
joined OXIS as President and Chief Executive Officer and as a member of the
OXIS Board of Directors. Consequently we no longer had a majority of the seats
on the OXIS Board, and, beginning March 1, 2005, OXIS is no longer consolidated
but rather accounted for using the equity method.

(2) Investment
in OXIS International, Inc.

As
described above, since March 1, 2005, we account for our investment in OXIS
under the equity method of accounting, as prescribed by Accounting Principles
Board Opinion No. 18 The Equity Method of Accounting for Investments in Common
Stock.

We
own approximately 14 million common shares of OXIS International Inc.,
approximately 32% of the OXIS outstanding capital stock, with a carrying value
at September 30, 2006 of $4,089,000. OXIS is traded on the bulletin board
(OXIS.OB) with relatively little trading volume. At September 30, 2006, the
quoted market value of these shares was $0.21 per share ($2,940,000).

(3) Investments

We
invest in auction-rate securities (ARS) that are held as investments available
for sale. Auction rate securities are
instruments with long-term underlying maturities, but for which an auction is
conducted periodically, as specified, to reset the interest rate and allow
investors to buy or sell the instruments.
Because auctions generally occur more often than annually, and because
we hold these instruments in order to meet short-term liquidity needs, the
auction rate securities are classified as short-term investments in the
Condensed Consolidated Balance Sheet.
Consistent with our other securities that are classified as
available-for-sale, the Condensed Consolidated Statement


5

of Cash Flows reflects the gross amount of the
purchases of auction rate securities and the proceeds from sales of auction
rate securities.

(4) Stock-based
Compensation

In
2000, our Board of Directors and stockholders approved a Stock Option Plan (2000
Plan) which, as amended, provides for the granting of options to purchase up
to 250,000 shares of common stock and pursuant to which officers, directors,
advisors and consultants are eligible to receive incentive and/or non-statutory
stock options. Incentive stock options granted under the 2000 Plan are
exercisable for a period of up to 10 years from date of grant at an exercise
price which is not less than the fair value on date of grant, except that the
exercise period of options granted to a stockholder owning more than 10% of the
outstanding stock may not exceed five years and their exercise price may not be
less than 110% of the fair value of the common stock at date of grant. Vesting
of 2000 Plan options varies from fully vested at the date of grant to multiple
year apportionment of vesting as determined by the Board of Directors. Pursuant
to the 2000 Plan as amended, 93,750 options were added to the share reserve
effective January 1, 2003 and January 1, 2004. On March 30, 2004, we amended
the 2000 Plan to increase the aggregate number of shares from 437,500 to
937,500. Stockholder approval for the increase was received in June 2004.

Commencing
January 1, 2006 we adopted Statement of Financial Accounting Standard No. 123R,
Share Based Payment (SFAS 123R), which requires all share-based payments,
including grants of stock options, to be recognized in the statement of operations
as an operating expense, based on fair values.

Prior
to adopting SFAS 123R, we accounted for stock-based employee compensation under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. We have applied the modified prospective method in adopting SFAS
123R. Accordingly, periods prior to adoption have not been restated.

As
discussed in Note 9, we approved a 1-for-8 reverse stock split effective
October 3, 2006.  All common stock
issued and outstanding per share amounts and option numbers and disclosures
reflect the reverse split.

The
following table illustrates the effect on net loss and loss per share if the
fair value based method had been applied to all awards for the three and nine
months ended September 30, 2005 when APB opinion No. 25 was followed.

Three
  Months
  Ended September
  30, 2005

Nine
  Months 
  Ended September30, 2005Reported net
  loss attributable to common stockholders

$
(5,687,000
)
$
(24,299,000
)Stock-based
  employee compensation included in net loss


32,000


116,000Stock-based
  employee compensation determined under the fair value based method


(511,000
)

(1,821,000
)Pro forma net
  loss

$
(6,166,000
)
$
(26,004,000
)Loss per common
  share attributable to common stockholders (basic and diluted):As
reported

$
(0.85
)
$
(3.62
)Pro
forma

$
(0.92
)
$
(3.88
)As
of September 30, 2006, there was $1,365,000 of total unrecognized compensation
cost related to nonvested share-based compensation arrangements granted under
existing stock option plans. This cost is expected


6

to be recognized over a weighted-average period of 1.3
years. The total fair value of shares vested during the nine months ended
September 30, 2006 was $1,292,000.

We
use the Black-Scholes option pricing model to determine the weighted average
fair value of options. The fair value of options at date of grant and the
assumptions utilized to determine fair value are indicated in the following
table:

Nine
  Months EndedSeptember 30,2006

2005Weighted
average
  fair value at date of grant for options granted during the period

$
6.40

$
8.24Risk-free
  interest rates


4.57  4.82
%

3.77% - 4.33
%Expected option
  life in years


10


10Expected stock
  price volatility


.90  93


.94 - .97Expected
  dividend yield


-0-


-0-Under
SFAS 123R forfeitures are estimated at the time of valuation and reduce expense
ratably over the vesting period. This estimate is adjusted periodically based
on the extent to which actual forfeitures differ, or are expected to differ,
from the previous estimate. Under SFAS 123 and APB 25, we elected to account
for forfeitures when awards were actually forfeited, at which time all previous
pro-forma expense was reversed to reduce pro- forma expense for the period. As
of September 30, 2006, all outstanding options were expected to vest per
severance and change of control agreements.

The
following summarizes our stock option activity for the nine months ended September
30, 2006.

Shares

Weighted
  Average
  Exercise
  Price

Weighted
  Average
  Remaining
  Contractual
  Term
  (Years)

Aggregate
  Intrinsic
  ValueOutstanding at December 31, 2005


665,000

$
31.76





Granted


53,000


7.28





Exercised











Canceled or expired


(30,000
)

33.44





Outstanding at September 30, 2006


688,000

$
29.84


5.80

$
66,000Exercisable at September 30, 2006


556,000

$
32.40


5.05

$
55,000The
following summarizes the activity of our non-vested stock options for the nine
months ended September 30, 2006.

WeightedAverageShares

Fair ValueNonvested at December 31, 2005


129,000

$
23.04Granted


53,000

$
7.28Vested


(50,000
)
$
16.88Nonvested at September 30, 2006


132,000

$
19.04(5) Operating
Segments

Beginning
March 1, 2005, the OXIS segment reflects our share of OXIS losses under the
equity method. Prior to that date, we were organized into two reportable
segments: Axonyx and OXIS.

The
following table presents information about our two operating segments for the
quarter and nine months ended September 30, 2005:


7

OXISAxonyx
  Inc.

Intl Inc.

TotalQuarter ended September 30, 2005Segment Loss

$
(5,579,000
)
$
(108,000
)
$
(5,687,000
)Nine months ended September 30,
  2005Revenue including minority interest




$
403,000

$
403,000Segment loss

$
(23,865,000
)
$
(434,000
)
$
(24,299,000
)(6) Stockholder
Rights Plan

We
adopted a stockholder rights plan on May 16, 2005. The stockholder rights plan
is designed to protect stockholders in realizing fair value and equal treatment
in the event of an attempted takeover of the company and to protect us and our
stockholders against coercive takeover tactics. The plan was not adopted as a
result of any existing or proposed potential takeover threat.

Under
the terms of the plan, we distributed one purchase right for each share of
common stock outstanding to stockholders at the close of business on May 27,
2005.  We will not issue a separate
certificate for the rights unless and until they become exercisable.

Each
right entitles the holder to purchase from us one one-thousandth of a share of
a new series of participating preferred stock at an initial purchase price of
$15. The rights will become exercisable and will detach from the common stock
for a specified period after any person or group, without the approval of our
board of directors, has become the beneficial owner of, or commences a tender
offer or exchange offer for, 15% or more of the then outstanding shares of our
common stock (subject to certain exceptions).

(7) Reclassification

During
the quarter ended September 30, 2005 we reclassified the majority of what had
previously been classified as cash and cash equivalents to investments. We
follow FASB 115 in determining the appropriate classification for cash
equivalents and investments. We have invested in ARS that are held as
investments available-for-sale. After the initial issuance of these securities,
the interest rate is reset periodically. We have invested in ARS that reset as
to interest rate every 28 days.

We
have determined that auction rate securities should be classified as
investments because the stated or contractual maturities are generally 20
to 30 years. From an economic viewpoint, these securities are priced and traded
as short-term investments because of the interest rate reset feature. Accordingly,
we have reclassified all such ARS as investments for all periods presented.

(8) Business
Combination with TorreyPines Therapeutics, Inc.

On
October 3, 2006, we completed the business combination between Axonyx Inc. and
TorreyPines Therapeutics, Inc., a private company, or TPTX, in accordance with
the terms of the Agreements and Plan of Merger and Reorganization among Axonyx,
TPTX and Autobahn Acquisition, Inc., dated as of June 7, 2006 and amended as of
August 23, 2006.  Pursuant to the terms
of the merger agreement, TPTX merged with and into Autobahn Acquisition, Inc.,
became our wholly owned subsidiary and changed its name to TPTX, Inc.   In connection with the business combination
we effected a 1-for-8 reverse stock split of our common stock and changed our
state of incorporation from Nevada to Delaware.  We also changed our name to TorreyPines Therapeutics, Inc. and
changed our ticker symbol on the Nasdaq Global Market to TPTX.


8

Under
the terms of the merger agreement, we issued shares of our common stock to the
TPTX stockholders.  Holders of TPTX
preferred stock also received a warrant to purchase shares of our common
stock.  We assumed all of the stock
options and warrants of TPTX outstanding as of October 3, 2006, such that the
former TPTX stockholders, option holders and warrant holders owned, as of the
closing of the business combination, approximately 58% of our common stock on a
fully-diluted basis and the stockholders, options holders and warrant holders
of Axonyx prior to the business combination owned, as of the closing,
approximately 42% of our common stock on a fully-diluted basis.  Following completion of the business combination
and the reverse stock split, we now have approximately 15.7 million shares of
our common stock outstanding.

The
issuance of the shares of common stock to the former stockholders of TPTX was
registered with the Securities and Exchange Commission on a Registration
Statement on Form S-4 (Reg. No. 333-136018) which was originally filed on July
25, 2006 and amended on August 25, 2006.



With
the completion of the business combination, we will update and reassess our business plan
and drug candidate portfolio prioritization.


(9) Pro Forma Financial Information

We
filed a Current Report on Form 8-K on October 10, 2006 and will file an
amendment to that Current Report on Form 8-K on or before December 13, 2006
that will include the required pro forma financial information.  Unaudited pro forma condensed combined
financial statements for the six months ended June 30, 2006 and twelve months
ended December 31, 2005 were included in the Amendment No. 1 to the S-4
Registration Statement, filed on August 25, 2006.



9

(10)
Legal Proceedings

Several
lawsuits were filed against us in February, 2005, in the U.S. District Court of
the Southern District of New York asserting claims under Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder on
behalf of a class of purchasers of our common stock during the period from June
26, 2003, through and including February 4, 2005 referred to as the Class
Period.  Dr. Marvin S. Hausman (a
current director and former Chief Executive Officer), and Dr. Gosse B. Bruinsma
(former Chief Executive Officer) were also named as defendants in the lawsuits.  These actions were consolidated into a
single class action lawsuit in January 2006.
On April 10, 2006 the plaintiff filed an amended consolidated
complaint.  We filed our answer to that
complaint on May 26, 2006.  Our motion
to dismiss the consolidated amended complaint was filed on May 26, 2006 and will
be submitted to the court for a decision following the parties filing of their
legal briefs.  The class action
plaintiffs allege, generally, that our Phase III Phenserine development program
was subject to alleged errors of design and execution which resulted in the
failure of the first Phase III Phenserine trial to show efficacy.  Plaintiffs allege the defendants failure to
disclose the alleged defects resulted in the artificial inflation of the price
of our shares during the Class Period.

There
is also a stockholder derivative suit pending in New York Supreme Court (New
York County) against current and former directors and officers of the former
Axonyx. The named defendants are Marvin S. Hausman, Gosse B. Bruinsma, S. Colin
Neill, Louis G. Cornacchia, Steven H. Ferris, Gerald J. Vlak, Ralph Snyderman
and Michael A. Griffith. Defendants are alleged to have breached their duties
to us and misused inside information regarding clinical trials of Phenserine.
This action has been stayed pending further developments in the federal class
action.

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

(11) New Accounting Pronouncement

In
June 2006, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes 
an interpretation of FASB Statement No. 109 (FIN 48), which prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in
a tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. FIN 48 is effective for fiscal years beginning after December 15,
2006.  We do not expect the adoption of
FIN 48 to have a material impact on our financial reporting, and we are
currently evaluating the impact, if any, the adoption of FIN 48 will have on
our disclosure requirements.


10

Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations

This
Quarterly Report on Form 10-Q contains forward-looking statements, as defined
in the Private Securities Litigation Reform Act of 1995 that are based on
current expectations, estimates and projections. Statements that are not
historical facts, including statements about our beliefs and expectations, are
forward-looking statements. These statements involve potential risks and
uncertainties; therefore, actual results may differ materially. You are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date on which they were made. We do not undertake
any obligation to update any forward-looking statements, whether as a result of
new information, future events or otherwise.

Because
thebusiness combination of TPTX and Axonyx was not completed until October 3, 2006, the
discussion of historical financial condition and results of operations
addresses the interim financial statements of Axonyx and does not address the
financial condition or results of operations of TPTX.  For additional financial information on TPTX please see the
selected historical consolidated financial data of TPTX, the selected unaudited
pro forma condensed financial date of the combined company, and other materials
filed with, or incorporated by reference into, Amendment No. 1 to our Form S-4
filed on August 25, 2006 with the Securities and Exchange Commission, or SEC.

We
refer you to the Axonyx Inc. Annual Report on Form 10-K for the year ended
December 31, 2005 filed with the SEC, where the risks set forth below and others are more
fully described, as well as Amendment No. 1 to the Form S-4 filed on August 25,
2006.

Specifically,
with respect to our drug candidates, we cannot assure our stockholders that:
any preclinical studies or clinical trials will prove successful, and if successful, that the results could be replicated;
safety and efficacy profiles of any of our drug candidates will be established,
or if established, will remain the same, be better or worse in future clinical
trials, if any; any of our drug candidates will support a New Drug
Application, or NDA,  filing, will be
approved by the United States Food and Drug Administration, or FDA, or if
approved, will prove competitive in the market; we will be able to successfully
out-license any of our drug candidates; we will be able to successfully
in-license any additional compounds, or that we will obtain the necessary
financing to support our drug development program.

We
do not undertake to discuss matters relating to our ongoing clinical trials or
our regulatory strategies beyond those which have already been made public or
discussed herein.

Overview

The
description that follows refers to our compounds as
of September 30, 2006, prior to the combination with TPTX.

We
are a biopharmaceutical company, specializing in central nervous system, or
CNS, neurodegenerative diseases, engaged in the business of acquiring patent
rights to clinical stage compounds, compounds with strong proof of concept data
and compounds ready for proof of concept validation with convincing scientific
rationale, or potentially another company with similar rights. We further
develop and add value to these compounds and then seek to out-license or
partner them when we believe it business prudent. We have acquired patent
rights to three main classes of therapeutic compounds designed for the
treatment of Alzheimers disease, or AD, Mild Cognitive Impairment, and related
diseases. We have acquired patent rights to a class of potential therapeutic
compounds designed for the treatment of prion related diseases, which are
degenerative diseases of the brain that are thought to be caused by an
infectious form of a protein called a prion. Prions, unlike viruses, bacteria
and fungi, have no DNA and consist only of protein. Such diseases include
Creutzfeldt Jakob Disease, new variant in humans, Bovine Spongiform Encephalopathy
in cows, and Scrapies disease in sheep. We have licensed these patent rights
from New York University. We also have co-ownership rights to patent
applications regarding the therapeutic compound named Posiphen designed for
the treatment of AD progression and Bisnorcymserine, or BNC, in development for
the treatment of severe AD.

Our
mission is to be a leading biopharmaceutical company that develops products and
technologies to treat central nervous system disorders. Our initial business
strategy has been focused primarily on three compounds in development for AD.
These are:


11


  Phenserine  A symptomatic and disease progression
  treatment of mild to moderate AD
  Posiphen  A disease progression treatment for AD
  Bisnorcymserine (BNC)  A symptomatic and disease
  progression treatment for ADPhenserine
is an inhibitor of acetylcholinesterase for the potential treatment of mild to
moderate AD. Acetylcholinesterase is an enzyme active in the nerve synapse that
degrades the neurotransmitter acetylcholine in the brain and other tissues of
the body. Acetylcholinesterase inhibitors are drugs designed to selectively
inhibit acetylcholinesterase. Acetylcholine is a neurotransmitter or a chemical
substance that sends signals between neurons or nerve cells. Neurotransmitters
are secreted by neurons  into the space
between neurons called the synapse. Acetylcholine is a primary neurotransmitter
in the brain, and is associated with memory and cognition. Inhibition of its
breakdown in AD patients has been shown to improve memory and cognition.

Posiphen
is a compound that, in animal models, appears to decrease the formation of the
beta amyloid precursor protein, or beta-APP, and amyloid with potential
applications in the treatment of AD progression. Posiphen is the positive
isomer of Phenserine. As such, it appears to affect the messenger RNA of
beta-APP as well as inhibit beta secretase whereby levels of neurotoxic beta
amyloid, in preclinical animal models, are reduced.

Bisnorcymserine
is a butyrylcholinesterase inhibitor. Butyrylcholinesterase is found in high
concentration in the plaques taken from individuals who have died from AD.
Butyrylcholinesterase is an enzyme that is normally found widely in the body and
butyrylcholine appears to play a  role
in the progression of  AD. Inhibition of
the enzyme may prove valuable in the treatment of severe AD.

The
completion of the business combination on October 3, 2006 will allow us to
update and reassess our business plan, drug candidate portfolio prioritization
and liquidity needs.

RESULTS
OF OPERATIONS

Revenues

We
had no revenue for the quarters ended September 30, 2006 and 2005.  We had no revenue for the nine months ended
September 30, 2006 and $403,000 in revenue for the nine months ended September
30, 2005. Revenue in 2005 was derived exclusively from the sale of research
assays and fine chemicals at OXIS. The reduction in revenue in 2006 from prior
year levels results from the fact that OXIS operations are no longer being
consolidated with our results effective March 1, 2005 as discussed in Note 1
and 2 to the condensed consolidated financial statements.

Costs of
Sales

Our
costs of sales were entirely related to our subsidiary, OXIS. The percentage of
cost of sales for the nine months ended September 30, 2005 was 52%.

Research
and Development

Research
and development expenses were $1,354,000 and $5,135,000 for the quarters ended
September 30, 2006 and 2005, respectively. Research and development costs
declined by $3,781,000 from the prior years quarter ended September 30, 2005.
This reduction reflects a decline in Phenserine program expenditures of $2,794,000
due to the completion/curtailment of the Phenserine trials in late 2005.  In addition Posiphen and BNC program
expenditures for chemical, manufacturing costs and preclinical costs declined
by $1,307,000.  These reductions are
offset in part by $277,000 in non cash employee option charges incurred related
to the adoption of SFAS 123(R) as discussed in Note 4 in the notes to
consolidated financial statements. Additional research and development expense
reductions include research project costs, insurance and salary expenses.

Research
and development expenses were $6,973,000 and $21,808,000 for the nine months
ended September 30, 2006 and 2005, respectively.  Research and development costs declined by $14,835,000 from the
nine months ended September 30, 2005. This reduction reflects a decline in
Phenserine program expenditures of $15,097,000 due to the
completion/curtailment of the Phenserine trials in late 2005 and a reduction in
Posiphen program expenditures of $549,000. This reduction is offset, in part,
by increased expenditures of $345,000 in the BNC program and $804,000 in non
cash employee option charges incurred related to the adoption of SFAS 123(R).

General
and Administrative


12

General
and administrative expenses were $884,000 and $1,018,000 for the quarters ended
September 30, 2006 and 2005, respectively.
General and administrative expenses decreased $134,000 compared to the
prior years quarter ended September 30, 2005. This decrease is attributed to a
$379,000 decrease in professional fees and a decrease of $43,000 in state and
local franchise taxes.   These decreases
are offset in part by a $183,000 increase in non-cash charges related to
employee stock option grants related to the adoption of SFAS 123(R) as
discussed in Note 4 in the notes to consolidated financial statements and an
increase in salary costs of $127,000 primarily attributed to bonuses.

General
and administrative expenses were $4,437,000 and $3,894,000 for the nine months
ended September 30, 2006 and 2005, respectively.  General and administrative expenses increased $543,000 from the
nine months ended September 30, 2005. This increase is attributed to a $400,000
increase in patent acquisition costs and a $608,000 increase in non-cash
charges related to stock option grants to consultants and employees. These
increases are offset in part by a $130,000 reduction in investor relations
costs, a $332,000 reduction in OXIS expenses which are no longer consolidated
with our results effective March 1, 2005 as discussed in Notes 1 and 2 to the
condensed consolidated financial statements and various other reductions in
general and administrative expenses.

Merger
Costs

Costs
incurred as a result of the business combination of Axonyx Inc. and TorreyPines
Therapeutics, Inc., as discussed in Note 9, are comprised of $2,746,000 in
severance payments, $1,624,000 in financial advisor fees, $746,000 in legal
fees, $127,000 in proxy solicitation costs and $103,000 in miscellaneous
termination costs.

Other Income (Expense)

Investment
income was $631,000 and $586,000 for the quarters ending September 30, 2006 and
2005, respectively. Investment income was $1,963,000 and $1,716,000 for the
nine months ended September 30, 2006 and 2005, respectively. Investment income
reflects the decline in cash and investment balances offset by a rise in short
term interest rates.

Foreign
exchange losses for the quarters ended September 30, 2006 and 2005 were $11,000
and $14,000, respectively.  Foreign exchange
losses of $34,000 and $95,000 were incurred for the nine months ended September
30, 2006 and 2005, respectively.  The
decline in foreign exchange losses reflects more stable exchange rates and a
decline in the volume of Euro denominated transactions which reflects the
completion of Phenserine trials occurring in Europe in late 2005.

Gain
on issuance of subsidiary stock was $84,000 and $162,000 net for the three and nine months ended
September 30, 2006, respectively. This gain on issuance of subsidiary stock results from common
stock equity transactions in OXIS.

Equity
in loss of OXIS of $210,000 and $625,000 reflects our proportional share of
OXIS losses for the three and nine months ended September 30, 2006
respectively, under the equity method of accounting.

Net Loss

We
experienced net losses of $7,090,000 ($1.06 per share-basic and diluted) and
$5,687,000 ($0.85 per share-basic and diluted) for the quarters ended September
30, 2006 and 2005, respectively.  We
experienced net losses of $15,290,000 ($2.28 per share basic and diluted) and
$24,299,000 ($3.62 basic and diluted) for the nine months ended September 30,
2006 and 2005, respectively.  The
decrease in the loss for the nine month period is primarily attributed to
business combination costs incurred in 2006 related to the business combination
of Axonyx Inc. and TorreyPines Therapeutics, Inc., as discussed in Note 9.  These costs are offset in part by a decline
in Phenserine program expenditures due to the completion/curtailment of the
Phenserine program in late 2005. The increase in the loss for the quarter is
attributed to the business combination costs incurred offset in part by a
decline in research and development costs.

LIQUIDITY
AND CAPITAL RESOURCES

As
of September 30, 2006 we had $46,652,000 in cash, cash equivalents and
investments, and $40,246,000 in working capital. We do not have any available
lines of credit. Since inception we have financed our operations


13

from private placements
of equity securities, the exercise of common stock purchase warrants, license
fees, interest income and loans from a stockholder.

Net
cash used in operating activities for the nine months ended September 30, 2006
was $11,686,000 resulting principally from a net loss of $15,290,000 and a decline
of $1,668,000 in accounts payable. These declines are offset in part by
non-cash expenses of $376,000 in depreciation and amortization, $1,303,000 in
compensation related to options and warrants issued for services, $625,000 in
equity in loss of OXIS and $2,636,000 increase in accrued expenses.

Net
cash provided by investing activities for the nine month ended September 30,
2006 resulted from investment sales and maturities in excess of investment
purchases.

We
believe that we have sufficient capital resources to finance our plan of
operation at least through December 31, 2007. However, as this is a
forward-looking statement, and there may be changes that could consume
available resources significantly before such time including the impact of the
business combination of Axonyx Inc. and TorreyPines Therapeutics, Inc. (see Note
8 to Financial Statements above), our long term capital requirements may
change. The adequacy of our available funds will depend on many factors,
including portfolio development priorities, eventual contract costs of
undertaking large later stage clinical trials with any of our compounds under
development, the potential cost of acquiring or developing compounds that we
may license in, regulatory delays, patent costs for filing, prosecuting,
maintaining and defending our patent rights, and defending our current class
action securities litigation, among others.

We
may periodically seek potential equity financing, sub-licensing and other
collaborative arrangements that may generate additional capital for us in order
to support our research and development activities. We cannot assure you that
we will generate sufficient additional capital or revenues, if any, to fund our
operations beyond December 31, 2007, that any future equity financings will be
successful, or that other potential financings through bank borrowings, debt or
equity offerings, or otherwise, will be available on acceptable terms or at
all.

The
completion of the business combination on October 3, 2006 will allow us to
update and reassess our business plan, drug candidate portfolio prioritization
and liquidity needs.

Critical
Accounting Policies and Estimates

This
discussion and analysis of our financial condition and results of operations
are based on our financial statements that have been prepared under accounting
principles generally accepted in the United States of America. The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States of America requires our management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could materially differ from those
estimates. We have disclosed all significant accounting policies in note B to the
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2005. Our critical accounting policies are:

Principles
of consolidation: The consolidated financial statements
include the accounts of Axonyx Europe, B.V., a wholly owned subsidiary
organized in The Netherlands. The financial statements also include the
accounts of OXIS from the acquisition date of January 15, 2004 when we acquired
approximately 52% of the common voting stock of OXIS. Our ownership in OXIS was
reduced to 34% on December 31, 2004 as the result of a third party financing by
OXIS. Although we had less than a majority ownership at December 31, 2004, the
accounts of OXIS continued to be consolidated as we then controlled the board
of directors of OXIS. Effective March 1, 2005 we no longer controls the OXIS
board. Thus the financial statements of OXIS have been consolidated through
February 28, 2005 and equity method accounting has been applied beginning March
1, 2005. All intercompany balances and transactions have been eliminated in
consolidation.

Revenue
recognition: We defer recognition of revenue from fees
received in advance unless they represent the culmination of a separate
earnings process. Such deferred fees are recognized as revenue over the term of
the arrangement as they are earned, in accordance with the agreement. License
fees represent the culmination of a


14

separate earnings process
if they are sold separately without obligating us to perform research and
development activities or other services. Right to license fees are recognized
over the term of the arrangement. Nonrefundable, non-creditable license fees
that represent the culmination of a separate earnings process are recognized
upon execution of the license agreement. Revenue from the achievement of
milestone events stipulated in the agreements will be recognized when the
milestone is achieved. Royalties will be recognized as revenue when the amounts
earned become fixed and determinable.

Research,
development costs: Research and development costs are
expensed as incurred.

Stock-based
compensation: Commencing January 1, 2006 we adopted Statement
of Financial Accounting Standard No. 123R, Share Based Payment (SFAS 123R),
which requires all share-based payments, including grants of stock options, to
be recognized in the statement of operations as an operating expense, based on
fair values on grant date. Prior to adopting SFS 123R, we accounted for
stock-based employee compensation under Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees. We have applied the modified
prospective method in adopting SFAS 123R. Accordingly, periods prior to
adoption have not been restated.

Accounting
for Investment in OXIS: Beginning March 1, 2005, we account
for our investment in OXIS under the equity method of accounting, as prescribed
by Accounting Principles Board Opinion No. 18 The Equity Method of Accounting
for Investments in Common Stock.
Pursuant to APB No. 18 a loss in value of an investment which is other
than a temporary decline should be recognized the same as a loss in value of
other long-term assets.

Accounting
for stock sales by OXIS: We account for stock sales by
a OXIS in accordance with SEC Staff Accounting Bulletin No. 51. Sales
of shares by OXIS result in a change in the carrying value of the investment in
OXIS.

Subsequent Event

With the completion of the business
combination of TPTX and Axonyx on October 3, 2006, we will update and reassess our
business plan and drug candidate portfolio prioritization. In addition to the compounds
described in the Overview section above, the following describes our
additional development programs as a result of the business combination.


We
discover and develop novel small molecules to treat diseases and disorders of the central
nervous system, or CNS, including migraine, chronic pain, and cognitive disorders
including Alzheimers disease, or AD and cognitive impairment associated with
schizophrenia. Our migraine and chronic pain franchise is comprised of two product
candidates that were in-licensed from Eli Lilly and Company in 2003. Both product
candidates are in clinical development. The lead product candidate, tezampanel, has been
studied in two Phase I and five Phase IIa clinical trials. The five Phase IIa trials were
double-blind, placebo-controlled trials that evaluated the safety and efficacy of
tezampanel, given intravenously, in validated proof of concept models for migraine,
post-operative pain, and neuropathic pain. In all studies, tezampanel was shown to be more
effective than placebo. We initiated a Phase IIb study of tezampanel given subcutaneously
to patients with migraine in October 2006. Our second compound for pain is NGX426, an
orally administered form of tezampanel. NGX426 has been evaluated in preclinical studies,
and in October 2006, we reported results of a Phase I clinical study with NGX426. 
This Phase I study was a double blind, placebo-controlled, ascending-dose, sequential
cohort study designed to evaluate the safety, tolerability and pharmacokinetics of NGX426,
as well as to determine the rate and extent of conversion of the prodrug, NGX426, to the
active drug tezampanel.  The drug was shown to be safe and well tolerated at all
doses tested and pharmacokinetic analyses suggest rapid conversion of NGX426 to
tezampanel. Initially, we intend to develop NGX426 as a treatment for migraine with
additional development targeted toward chronic pain conditions such as neuropathic pain.


Our
franchise for cognitive disorders includes three product candidates. One product candidate
is in clinical development and the other two are in preclinical testing. We believe that
these product candidates will either improve cognition associated with Alzheimers
disease or schizophrenia or may delay the onset or slow the progression of AD by targeting
the underlying disease mechanism. The most advanced compound, NGX267, in development for
cognitive disorders is an orally administered muscarinic agonist that was in-licensed from
Life Science Research Israel, or LSRI, in 2004. We have completed one Phase I single dose
study of NGX267 in healthy adult males. A second study, of similar design, was conducted
in healthy elderly male and females. We currently expect to initiate a Phase I multiple
dose study of NGX267 by mid-2007. Our two additional product candidates in our cognitive
disorders franchise are in preclinical testing. NGX292, a follow-on muscarinic agonist, is
a metabolite of NGX267, was also in-licensed from LSRI and has a similar mechanism of
action to NGX267. NGX555 was discovered by our scientists. NGX555 is the lead compound in
a series of potent compounds, and it is targeted to be developed to delay the onset or to
slow the progression of AD.



Item
3. Quantitative and Qualitative Disclosures About Market Risk.


We
have foreign currency accounts that are exposed to currency exchange risk.
These foreign currency accounts have been utilized to fund the operations of
our wholly owned subsidiary, Axonyx Europe. We had a net foreign exchange loss
of $34,000 for the nine months ended September 30, 2006 and a loss of $95,000
for the nine months ended September 30, 2005. If the foreign currency rates
were to fluctuate by 10% from rates at September 30, 2006 and 2005, the effect
on our financial statements would not be material. However, there can be no
assurance there will not be a material impact in the future. Our policy is to
limit the purchase of foreign currencies to the amounts necessary to cover firm
contractual commitments in foreign currencies for the forward six months.
However, as long as we continue to fund our foreign operations and activities, we
will be exposed to some currency exchange risks. The majority of our ongoing
clinical trials are being conducted in Europe.

We
consider our investments in money market accounts, short term commercial paper
and time deposits as cash and cash equivalents. The carrying values of these
investments approximate fair value because of the short maturities (three
months or less) of these instruments and accounts. Therefore, changes in the
markets interest rates do not affect the value of the investments as recorded
by us.

We
do not enter into or trade derivatives or other financial instruments or
conduct any hedging activities.

Item
4. Controls and Procedures.

Evaluation
of Disclosure Controls and Procedures

Our
management, with the participation of our principal executive officer and
principal financial officer, has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our principal executive officer and principal
financial officer concluded that these disclosure controls and procedures are
effective and designed to ensure that the information required to be disclosed
in our reports filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the requisite time periods.

Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or
internal control over financial reporting will prevent all errors and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the system are
met and cannot detect all deviations. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud or deviations, if any, within
the company have been detected. While we believe that our disclosure


15

controls and procedures
have been effective, in light of the foregoing, we intend to continue to
examine and refine our disclosure controls and procedures to monitor ongoing
developments in this area.

Changes
in Internal Controls

There
was no change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as
amended) identified in connection with the evaluation of our internal control
performed during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

PART II
OTHER INFORMATION

Item 1.
Legal Proceedings

Several
lawsuits were filed against us in February, 2005, in the U.S. District Court of
the Southern District of New York asserting claims under Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder on
behalf of a class of purchasers of our common stock during the period from June
26, 2003, through and including February 4, 2005, referred to as the Class Period.  Dr. Marvin S. Hausman (a current director
and former Chief Executive Officer), and Dr. Gosse B. Bruinsma (former Chief
Executive Officer) were also named as defendants in the lawsuits.  These actions were consolidated into a
single class action lawsuit in January 2006.
On April 10, 2006 the Plaintiff filed an amended consolidated
complaint.  We filed our answer to that
complaint on May 26, 2006.  Our motion
to dismiss the consolidated amended complaint was filed on May 26, 2006 and
will be submitted to the court for a decision following the parties filing of
their legal briefs.  The class action
plaintiffs allege, generally, that our Phase III Phenserine development program
was subject to alleged errors of design and execution which resulted in the failure
of the first Phase III Phenserine trial to show efficacy.  Plaintiffs allege the defendants failure to
disclose the alleged defects resulted in the artificial inflation of the price
of our shares during the Class Period.

There
is also a stockholder derivative suit pending in New York Supreme Court (New
York County) against current and former directors and officers of the former
Axonyx. The named defendants are Marvin S. Hausman, Gosse B. Bruinsma, S. Colin
Neill, Louis G. Cornacchia, Steven H. Ferris, Gerald J. Vlak, Ralph Snyderman
and Michael A. Griffith. Defendants are alleged to have breached their duties
to us and misused inside information regarding clinical trials of Phenserine.
This action has been stayed pending further developments in the federal class
action.

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

Item 1A. Risk Factors.

You
should carefully consider the risks described below, together with the other
information contained in this Quarterly Report on Form 10-Q  and in our other public filings in
evaluating our business. If any of the following risks actually occur, our
business, operating results and financial condition could be adversely affected.
This could cause the price of our stock to decline. This Quarterly Report on
Form 10-Q contains, in addition to historical information, forward-looking
statements, including statements about future plans, objectives, and intentions
that involve risks and uncertainties. Our actual results may differ materially
from the results discussed in the forward-looking statements. Factors that
might cause or contribute to these differences include those discussed below
and elsewhere in this quarterly report.
References to we, us and our in these risk factors refer to our
operations following  the merger of TPTX
and Axonyx.

The risk
factors set forth below with an asterisk (*) next to the title are new risk
factors or risk factors containing changes, including any material changes,
from the risk factors previously disclosed in our report on Form 10-K for the
year ended December 31, 2005, as filed with the Securities and Exchange
Commission.


16

*Our stock price has
been, and is expected to be, volatile, and the market price of our common stock
may drop following the merger.

The
market price of our common stock could be subject to significant fluctuations
following the merger. Market prices for securities of early-stage
pharmaceutical, biotechnology and other life sciences companies have
historically been particularly volatile. Some of the factors that may cause the
market price of the companys post-merger common stock to fluctuate include:

 the
  results of our current and any future clinical trials of our product
  candidates; the
  results of ongoing preclinical studies and planned clinical trials of our
  preclinical product candidates; the entry
  into, or termination of, key agreements, including key strategic alliance
  agreements; the
  results and timing of regulatory reviews relating to the approval of our
  product candidates; the
  initiation of, material developments in, or conclusion of litigation to enforce
  or defend any of our intellectual property rights; failure of
  any of our product candidates, if approved, to achieve commercial success; general
  and industry-specific economic conditions that may affect our research and
  development expenditures; the
  results of clinical trials conducted by others on drugs that would compete
  with our product candidates; issues in
  manufacturing our product candidates or any approved products; the loss
  of key employees; the introduction
  of technological innovations or new commercial products by our competitors; changes in
  estimates or recommendations by securities analysts, if any, who cover our
  common stock; future
  sales of our common stock; changes in
  the structure of health care payment systems; and
  period-to-period fluctuations in our financial results.Moreover,
the stock markets in general have experienced substantial volatility that has
often been unrelated to the operating performance of individual companies.
These broad market fluctuations may also adversely affect the trading price of
our common stock.

In
the past, following periods of volatility in the market price of a companys
securities, stockholders have often instituted class action securities
litigation against those companies. Such litigation, if instituted, could
result in substantial costs and diversion of management attention and
resources, which could significantly harm our profitability and reputation.

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

As
a public company, we will incur significant legal, accounting and other
expenses that TPTX did not incur as a private company. In addition, the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules
subsequently implemented by the SEC and the NASDAQ Global Market, impose
various requirements on public companies, including with respect to corporate
governance practices. Our management and other personnel will


17

need to devote
a substantial amount of time to these requirements. Moreover, these rules and
regulations will increase our legal and financial compliance costs relative to
those of TPTX prior to the merger and will make some activities more
time-consuming and costly.

In
addition, the Sarbanes-Oxley Act requires, among other things, that we maintain
effective internal controls for financial reporting and disclosure controls and
procedures. In particular, we must perform system and process evaluation and
testing of its internal controls over financial reporting to allow management
to report on the effectiveness of its internal controls over financial
reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our compliance
with Section 404 will require that we incur substantial accounting and related
expense and expend significant management efforts. We will need to hire
additional accounting and financial staff to satisfy the ongoing requirements of
Section 404. Moreover, if we are not able to comply with the requirements of
Section 404, or if we or our independent registered public accounting firm
identifies deficiencies in our internal controls over financial reporting that
are deemed to be material weaknesses, the market price of our stock could
decline and we could be subject to sanctions or investigations by the NASDAQ
Global Market, SEC or other regulatory authorities.

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

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

*We may continue to
incur losses for the foreseeable future, and might never achieve profitability.

We
have incurred net operating losses every year since each of their respective
inceptions. We may never become profitable, even if we are able to
commercialize our products. We will need to conduct significant research,
development, testing and regulatory compliance activities that, together with
projected general and administrative expenses, is expected to result in
substantial increased operating losses for at least the next several years.
Even if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis.

*If we lose key
personnel or are unable to attract and retain additional personnel, we may be
unable to pursue collaborations or develop our own products.

The
loss of any key members of our scientific or management staff, or failure to
attract or retain other key scientific employees, could prevent us from
pursuing collaborations or developing our products and core technologies.
Recruiting and retaining qualified scientific personnel to perform research and
development work are critical to our success. There is intense competition for
qualified scientists and managerial personnel from numerous pharmaceutical and
biotechnology companies, as well as from academic and government organizations,
research institutions and other entities. In addition, we will rely on
consultants and advisors, including scientific and clinical advisors, to assist
us in formulating our research and development strategy. All of our consultants
and advisors will be employed by other employers or be self-employed, and will
have commitments to or consulting or advisory contracts with other entities
that may limit their availability to us.

*We may be required
to suspend, repeat or terminate our clinical trials if we do not meet
regulatory requirements, the results are negative or inconclusive, or if the
trials are not well designed.

Before
regulatory approval for any potential product can be obtained, we must
undertake extensive clinical testing in humans to demonstrate the tolerability
and efficacy of the product, both on its own terms, and as compared to the
other principal drugs on the market that have the same therapeutic indication.
We cannot assure investors that we will obtain authorization to permit product
candidates that are already in the preclinical development phase to enter the
human clinical testing phase. In addition, we cannot assure investors that we
will successfully complete any authorized preclinical or clinical testing
within any specified time period, or without significant additional resources
or expertise to those originally expected to be necessary. We cannot assure
investors that such testing will show potential products to be safe and
efficacious or that any such product will be approved for a specific
indication. Further, the results from preclinical studies and early clinical
trials may not be indicative of the results that will be obtained in
later-stage clinical trials. In addition, we, or regulatory authorities, may
suspend clinical trials at any time on the basis that the participants are
being exposed to unacceptable health risks.

Completion
of clinical tests depends on, among other things, the number of patients
available for testing, which is a function of many factors, including the
number of patients with the relevant conditions, the nature of the clinical
testing, the proximity of patients to clinical testing centers, the eligibility
criteria for tests as well as


18

competition with other clinical testing programs
involving the same patient profile but different treatments. We will rely on
third parties, such as contract research organizations and/or co-operative
groups, to assist it in overseeing and monitoring clinical trials as well as to
process the clinical results and manage test requests, which may result in
delays or failure to complete trials, if the third parties fail to perform or
to meet the applicable standards. A failure by us or such
third parties to keep to the terms of a product program development for any
particular product candidate or to complete the clinical trials for a product
candidate in the envisaged time frame could have significant negative
repercussions on our business and financial condition.

*If clinical trials
of our product candidates do not produce successful results, we will be unable
to commercialize resulting products and our business will be materially
adversely affected.

To
receive regulatory approval for the commercialization of any of our product
candidates, we must conduct clinical trials to demonstrate safety and efficacy
in humans. We cannot predict whether we will encounter problems with any of our
planned clinical trials that will cause us or regulatory authorities to delay
or suspend clinical trials, or delay the analysis of data from our ongoing
clinical trials. Any of the following factors could delay the clinical
development of our product candidates:

 ongoing
  discussions with the FDA or comparable foreign authorities regarding the
  scope or design of one or more clinical trials; delays in
  receiving, or the inability to obtain, required approvals from institutional
  review boards or other; reviewing entities at clinical trial sites selected
  for participation in a clinical trials; delays or
  slower than anticipated enrollment of participants into clinical trials; lower than
  anticipated retention rate of participants in clinical trials; need to
  repeat clinical trials as a result of inconclusive or negative results or
  unforeseen complications in testing; inadequate
  supply or deficient quality of product candidate materials or other materials
  necessary to conduct its clinical trials;
  unfavorable FDA inspection and review of a clinical trial site or records of
  any clinical or preclinical investigation; serious,
  unexpected or undesirable side effects experienced by participants in the
  clinical trials that delay or preclude regulatory approval or limit the
  commercial use or market acceptance if approved; findings
  that the trial participants are being exposed to unacceptable health risks; placement
  by the FDA of a clinical hold on a trial;
  restrictions on or post-approval commitments with regard to any regulatory
  approval we ultimately obtain that renders a product candidate not
  commercially viable; and
  unanticipated cost overruns in preclinical and clinical trials.Human
clinical testing is expensive, can take many years, and has an uncertain
outcome. Failure can occur at any stage of human clinical testing. We may
experience numerous unforeseen events during, or as a result of, the clinical
trial process that could delay or prevent commercialization of our current or
future product candidates.

Success
in preclinical testing and early clinical trials does not mean that later
clinical trials will be successful. Companies frequently suffer significant setbacks
in advanced clinical trials, even after earlier clinical trials have shown
promising results.

We
will need to reach agreement with the FDA on the targeted endpoints for its
efficacy clinical trials. In some cases, the FDA may not have validated
endpoints established and we may work with the FDA to potentially design and
validate one or more endpoints. The FDA may not approve any or all of the
endpoints and they may


19

ultimately
decide that the endpoints are inadequate to demonstrate the safety and efficacy
levels required for regulatory approval. Our failure to demonstrate the safety
and efficacy of its product candidates adequately would jeopardize our ability
to achieve regulatory approval for, and ultimately to commercialize the product
candidates.

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

Delays
in the commencement or completion of clinical testing could significantly
impact our product development costs. We do not know whether planned clinical
trials will begin on time or be completed on schedule, if at all. The
commencement of clinical trials can be delayed for a variety of reasons, including
delays in:

 obtaining
  regulatory approval to commence a clinical trial; reaching
  agreement on acceptable terms with prospective contract research
  organizations and clinical trial sites; obtaining
  sufficient quantities of clinical trial materials for any or all product
  candidates; obtaining
  institutional review board approval to conduct a clinical trial at a
  prospective site; and recruiting
  participants for a clinical trial.In
addition, once a clinical trial has begun, it may be suspended or terminated by
us or the FDA or other regulatory authorities due to a number of factors,
including:

 failure to
  conduct the clinical trial in accordance with regulatory requirements; inspection
  of the clinical trial operations or clinical trial site by the FDA or other
  regulatory authorities resulting in the imposition of a clinical hold; or lack of
  adequate funding to continue the clinical trial.Clinical
trials require sufficient participant enrollment, which is a function of many
factors, including the size of the target population, the nature of the trial
protocol, the proximity of participants to clinical trial sites, the
availability of effective treatments for the relevant disease, the eligibility
criteria for our clinical trials and competing trials. Delays in enrollment can
result in increased costs and longer development times. Our failure to enroll
participants in our clinical trials could delay the completion of the clinical
trials beyond current expectations. In addition, the FDA could require us to
conduct clinical trials with a larger number of participants than it may
project for any of its product candidates. As a result of these factors, we may
not be able to enroll a sufficient number of participants in a timely or
cost-effective manner.

Furthermore,
enrolled participants may drop out of clinical trials, which could impair the
validity or statistical significance of the clinical trials. A number of
factors can influence the discontinuation rate, including, but not limited to:
the inclusion of a placebo arm in a trial; possible lack of effect of the
product candidate being tested at one or more of the dose levels being tested;
adverse side effects experienced, whether or not related to the product
candidate; and the availability of numerous alternative treatment options that
may induce participants to discontinue from the trial.

We,
the FDA or other applicable regulatory authorities may suspend clinical trials
of a product candidate at any time if we or they believe the participants in
such clinical trials, or in independent third-party clinical trials for drugs
based on similar technologies, are being exposed to unacceptable health risks
or for other reasons.

We
cannot predict whether any of our product candidates will encounter problems
during clinical trials that will cause us or regulatory authorities to delay or
suspend these trials or delay the analysis of data from these trials. In addition,
it is impossible to predict whether legislative changes will be enacted, or
whether FDA regulations, guidance or interpretations will be changed, or what
the impact of such changes, if any, may be. If we experience any such problems,
we may not have the financial resources to continue development of the product
candidate that is affected or the development of any of our other product
candidates. If we experience significant delays in the


20

commencement
or completion of clinical testing, financial results and the commercial
prospects for the product candidates will be harmed, costs will increase and
our ability to generate revenues will be delayed.

*We may not complete
our clinical trials in the time expected, which could delay or prevent the
commercialization of our products.

Although
for planning purposes we forecast the commencement and completion of clinical
trials, the actual timing of these events can vary dramatically due to factors
such as delays, scheduling conflicts with participating clinicians and clinical
institutions and the rate of patient enrollment. Clinical trials involving our
product candidates may not commence nor be completed as forecasted. In certain
circumstances we will rely on academic institutions or clinical research
organizations to conduct, supervise or monitor some or all aspects of clinical
trials involving our products. We will have less control over the timing and
other aspects of these clinical trials than if we conducted them entirely on
our own. These trials may not commence or be completed as we expect. They may
not be conducted successfully. Failure to commence or complete, or delays in,
any of our planned clinical trials could delay or prevent the commercialization
of our products and harm our business.

*If we fail to
establish and maintain collaborations or if our partners do not perform, we may
be unable to develop and commercialize our product candidates.

We
have entered into collaborative arrangements with third parties to develop
and/or commercialize product candidates. Additional collaborations might be
necessary in order for us to fund our research and development activities and
third-party manufacturing arrangements, seek and obtain regulatory approvals
and successfully commercialize existing and future product candidates. If we
fail to maintain our existing collaborative arrangements or fail to enter into
additional collaborative arrangements, the number of product candidates from
which we could receive future revenues would decline.

Our
dependence on collaborative arrangements with third parties will subject it to
a number of risks that could harm our ability to develop and commercialize
products:


  collaborative arrangements might not be on terms favorable to us; disagreements
  with partners may result in delays in the development and marketing of
  products, termination of collaboration agreements or time consuming and
  expensive legal action; we cannot
  control the amount and timing of resources partners devote to product
  candidates or their prioritization of product candidates, and partners may
  not allocate sufficient funds or resources to the development, promotion or
  marketing of our products, or may not perform their obligations as expected; partners
  may choose to develop, independently or with other companies, alternative
  products or treatments, including products or treatments which compete with
  us; agreements
  with partners may expire or be terminated without renewal, or partners may
  breach collaboration agreements with us; business
  combinations or significant changes in a partners business strategy might
  adversely affect that partners willingness or ability to complete its
  obligations to us; and the terms
  and conditions of the relevant agreements may no longer be suitable.We
cannot assure you that we will be able to negotiate future collaboration
agreements or that those currently in existence will make it possible for us to
fulfill our objectives.

*If we fail to keep
pace with rapid technological change in the biotechnology and pharmaceutical
industries, our products could become obsolete.

Biotechnology
and related pharmaceutical technology have undergone and are subject to rapid
and significant change. We expect that the technologies associated with
biotechnology research and development will


21

continue to
develop rapidly. Our future will depend in large part on our ability to
maintain a competitive position with respect to these technologies. Any compounds,
products or processes that we develop may become obsolete before we recover any
expenses incurred in connection with developing these products.

We have had clinical
trial failures on our lead compound.

We
have not achieved statistical significance in the primary endpoints in the
Phase III trials conducted to date with our lead compound, Phenserine. We are
seeking a partner to continue the development of Phenserine, including
conducting additional Phase III trials. These trials are costly. We cannot
assure that we will be able to successfully conclude a deal with a partner. If
we do find a partner to continue developing Phenserine, we cannot assure that
they will successfully develop or commercialize Phenserine.

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

A
class action securities lawsuit and a stockholder derivative lawsuit have been
filed against us as described under Item 1Legal Proceedings. We are
defending against these actions vigorously; however, we do not know what the
outcome of these proceedings will be and, if we do not prevail, we may be
required to pay substantial damages or settlement amounts. Furthermore,
regardless of the outcome, we may incur significant defense costs, and the time
and attention of our management may be diverted from normal business
operations. If we are ultimately required to pay significant defense costs,
damages or settlement amounts, such payments could materially and adversely
affect our operations and results. In any event, publicity surrounding the
lawsuits and/or any outcome unfavorable to us could adversely affect our
reputation and share price. The uncertainty associated with substantial
unresolved lawsuits could harm our business, financial condition and
reputation.

We
have certain obligations to indemnify our officers and directors and to advance
expenses to such officers and directors. Although we have purchased liability
insurance for our directors and officers, if our insurance carriers should deny
coverage, or if the indemnification costs exceed the insurance coverage, we may
be forced to bear some or all of these indemnification costs directly, which
could be substantial and may have an adverse effect on our business, financial
condition, results of operations and cash flows. If the cost of our liability
insurance increases significantly, or if this insurance becomes unavailable, we
may not be able to maintain or increase our levels of insurance coverage for
our directors and officers, which could make it difficult to attract or retain
qualified directors and officers.

*We have licensed
rights to product candidates tezampanel and NGX426 from Eli Lilly &
Company, or Eli Lilly. Eli Lilly has rights to negotiate, which could delay or
limit our ability to develop and commercialize these product candidates, and
rights of termination under the license agreement, which if exercised would
adversely affect our business.

In
April 2003, we entered into an agreement with Eli Lilly to obtain an exclusive
license from Eli Lilly to their AMPA/kainate, or AK, antagonist assets
including our lead product candidate, tezampanel, as well as NGX426. Under the
agreement, if we decide to sublicense rights to commercialize either of the
product candidates licensed to us under the agreement in the U.S. or all of our
rights under the agreement worldwide, we are obligated


22

first to
provide Eli Lilly the opportunity to negotiate with us to obtain those rights.
These rights held by Eli Lilly may delay or limit our ability to enter into a
sublicense with a third party.

We
have obligations to make payments to Eli Lilly under the agreement and to use
commercially reasonable efforts to develop and commercialize the product
candidates subject to the agreement, including achievement of specified
development events within specified timeframes. Eli Lilly may terminate the
agreement for uncured material breach of the agreement by us, including any
breach of our diligence obligations, if we go into bankruptcy or makes a
general assignment of our assets to our creditors, or if we undergo a change of
control, unless the party acquiring us in the change of control undertakes all
of the obligations under the agreement. If Eli Lilly were to terminate the
agreement, we would lose rights to the AK antagonist product candidates, and
our business would be adversely affected.

*If we fail to
comply with the terms of our licensing agreements our licensors may terminate
certain licenses to patent rights, causing us to lose valuable intellectual
property assets.

Under
the terms of our licensing agreements with each of our patent licensors our
license to the patent rights covering certain of our drug candidates may be
terminated if we fail to meet our obligations to the licensors.

Under
our Research and License Agreement with New York University, as amended, we are
obligated to meet certain deadlines for the pre-clinical and clinical
development of the licensed AIP and PIP technology, payment of royalties, and
filing, maintenance and prosecution of the covered patent rights. NYU can
terminate the Research and License Agreement for cause: (a) if we do not cure
within 60 days of notice of a material breach or default in the performance or
observance of any of the provisions of the agreement or (b) if we fail to pay any
amounts due under the agreement, within 30 days after receiving notice from NYU
specifying such breach or default, or automatically and (c) immediately without
further action, if we discontinue our business or become insolvent or bankrupt.

We
are obligated, under the provisions of the License Agreement with CURE, LLC to
pay certain royalty payments, pay for the filing, prosecution and maintenance
of the patent rights covered by the agreement, meet certain development
timelines and comply with certain pass through provisions from the License
Agreement between CURE, LLC and the PHS. The reversionary rights provision of
the License Agreement sets certain deadlines by which we are to achieve certain
development milestones, including commencing clinical trials, for Phenserine.
If we fail to comply with the development benchmarks or the commercial
development plan, or pay the required penalty fees, then all rights to the
patents may, at CUREs election, revert to CURE, and the agreement will
terminate.

Certain
pass through provisions from the License Agreement between CURE, LLC and the
PHS are contained in our License Agreement with CURE, LLC. These pass through
provisions are binding on us as if we were a party to the License Agreement
with the PHS. Those provisions cover certain reserved government rights to the
licensed patents, obligations to meet certain benchmarks and perform a
commercial development plan, manufacturing restrictions, as well as
indemnification, termination and modification of rights. PHS reserves on behalf
of the U.S. government or any foreign government or international organization
pursuant to any existing or future treaty or agreement with the U.S. government
an irrevocable, nonexclusive, nontransferable, royalty free license for the
practice of all inventions licensed pursuant to the License Agreement between
CURE and PHS for research or other purposes. After making the first commercial
sale of licensed products until expiration of the agreement, we must use our
reasonable best efforts to make the licensed products and processes reasonably
accessible to the U.S. public. PHS reserves the right to terminate or modify
the License Agreement if it is determined that such action is necessary to meet
requirements for public use specified by federal regulations. We are also
obligated, under these pass through provisions, to manufacture licensed
products substantially in the U.S., unless a written waiver is obtained in
advance from the PHS. We undertook to develop and commercialize the licensed
products covered by the patents pursuant to a commercial development plan
contained in a pass through provision from the CURE-PHS license agreement. If
we fail to cure non-compliance with the commercial development plan after
notice from CURE within a reasonable period of time, we could be in material
breach of the agreement. We have not, as of this, received notice of default of
any of our obligations from CURE, LLC, or the PHS.


23

If
we receive written notice of our default or material breach of any of our
obligations under the licensing agreements, we must cure the default within
ninety days under the license with CURE or sixty days (or concerning payments,
30 days) under the license with New York University, or the relevant licensor
may terminate the license. After such termination, we would not be entitled to
make any further use whatsoever of the licensed patent rights, or any related
licensed know-how. Upon termination of our license agreements, we are required
to return the licensed technology to our licensors.

We
anticipate undertaking similar payment, development milestone, patent
prosecution costs, and termination obligations under applications currently
pending with NIH for certain patent rights to Posiphen and BNC, if such
licenses are granted. Our business and prospects could be adversely affected if
either or both of these licenses are not granted.

The
performance of our obligations to the licensors will require increasing
expenditures as the development of the licensed drug compounds proceeds. We
cannot guarantee that we will be capable of raising the funds necessary to meet
our obligations under the license agreements, sublicense part or all of our
licensed drug compounds to a third party capable of undertaking the
obligations, or fulfill additional licensing obligations.

*We have licensed
rights to product candidates NGX267 and NGX292 from Life Science Research
Israel, or LSRI, and LSRI has rights of termination under the license
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 LSRI to their muscarinic agonist assets NGX267 and NGX292. We have
obligations to make payments to LSRI under the agreement and to use
commercially reasonable efforts to develop and commercialize the product
candidates subject to the agreement, including achievement of specified
development events within specified timeframes. LSRI may terminate the
agreement for uncured material breach of the agreement by us, including any
breach of our diligence obligations, or if we go into bankruptcy, make a
general assignment of our assets to our creditors, or dissolve or wind up our
business. If LSRI were to terminate the agreement, we would lose rights to the
muscarinic agonist product candidates, and our business would be adversely
affected.

*We depend on Eisai Ltd., or Eisai,
for funding for our gamma-secretase modulator program and AD genetics research
program. Eisai has the first right to obtain rights to gene targets and
compounds resulting from these programs, which could delay or limit our ability
to develop and commercialize these gene targets and compounds.

In
February 2005, we entered into an agreement with Eisai to discover small
molecule gamma-secretase modulator compounds useful in the field of treatment
for AD in humans. The agreement has a two-year term and may be extended by
Eisai for up to an additional 12 months. In October 2005, we entered into an
agreement with Eisai to discover gene targets useful in the field of treatment
or prevention of AD in humans. The agreement has a two-year term and may be
extended by Eisai for up to an additional 12 months. We depend upon Eisai to
provide funding for the research we conduct under these agreements. If Eisai
were to cease funding these programs for any reason, we would need to provide
our own funding for the programs, seek a strategic partner for further work on
the programs, raise additional funding, or curtail or abandon the programs.

During
the term of the respective agreements, Eisai has exclusive first rights of
negotiation and refusal with regard to a license, collaboration or other
arrangement regarding gene targets discovered and validated in the course of the
AD genetics research program or compounds discovered and validated in the
course of the gamma-secretase modulator program, as applicable. These rights
held by Eisai may delay or limit our ability to enter into a license,
collaboration or other arrangement for any gene targets resulting from the AD
genetic research program or compounds resulting from the gamma-secretase
modulator program with a third party.

*We have an
agreement providing Johnson & Johnson Development Corporation the first
right to obtain rights to our M1 agonist program, which could delay or limit
our ability to develop and commercialize these product candidates.

We
have an agreement with Johnson & Johnson Development Corporation, or JJDC,
regarding our research and development work into the effects of using M1
agonists in the treatment of CNS diseases and disorders.


24

Upon
completion of a specified level of development of our lead M1 agonist, we are
obligated to provide results for the compound to JJDC.

For
a specified period following receipt of the results, or at an earlier time as
agreed to by JJDC and us, JJDC has the exclusive right to negotiate with us
regarding any sale, transfer, license or other distribution of any our
intellectual property rights or products related to our M1 agonist program,
referred to as an M1 agonist transaction. If, during the specified period after
the end of the period of negotiation with JJDC, we propose to enter in an
agreement with a third party regarding an M1 agonist transaction on terms that
are equivalent to or less favorable to us than the terms last proposed by JJDC,
we must first offer JJDC the right to enter into an agreement with us on the
terms proposed by the third party. If JJDC notifies us that it wishes to
complete an M1 agonist transaction on the terms offered by the third party
within a specified notice period, then the parties will negotiate an agreement
on those terms during a specified negotiation period. These rights held by JJDC
may delay or limit our ability to enter into an M1 agonist transaction

Third party
co-ownership concerning certain of our in-licensed patent rights could affect
any future decision to commercialize certain drug candidates.

There
are significant risks regarding the patent rights surrounding Bisnorcymserine,
our potential butyrylcholinesterase inhibitor drug candidate, and Posiphen, a
potential pharmaceutical compound for the treatment of AD that is the positive
isomer of Phenserine. Because we are not the sole owner of the patent rights,
future commercialization of Posiphen or Bisnorcymserine may be adversely
impacted by the patent rights held by a third party with whom we do not
currently have licensing agreements. We are currently seeking licenses from the
third party to reduce or eliminate the risks relating to our development and commercialization
efforts. Such licenses may not be available on acceptable terms or at all and
may impair our ability to commercialize Bisnorcymserine or Posiphen. A
decision not to commercialize these drug candidates could adversely affect our
business.

We do not currently
have the capability to undertake manufacturing, marketing, or sales of any
potential products and we have limited personnel to oversee out-sourced
clinical testing and the regulatory approval process.

We
have not invested in manufacturing, marketing or product sales resources. We
cannot assure you that we will be able to acquire such resources if and when
needed. It is likely that we will also need to hire additional personnel
skilled in the clinical testing and regulatory compliance process if we develop
additional product candidates with commercial potential. We have no history of
manufacturing or marketing. We cannot assure you that we will successfully
manufacture or market any product we may develop, either independently or under
manufacturing or marketing arrangements, if any, with other companies. We
currently do not have any arrangements with other companies, and we cannot
assure you that any arrangements with other companies can be successfully
negotiated or that such arrangements will be on commercially reasonable terms.
To the extent that we arrange with other companies to manufacture or market our
products, if any, the success of such products may depend on the efforts of
those other companies. We do not currently have the capability to conduct
clinical testing in-house and do not currently have plans to develop such a
capability. We out-source our clinical testing to contract research
organizations. We currently have one employee and certain other outside
consultants who oversee the contract research organizations involved in
clinical testing of our compounds. We cannot assure you that our limited
oversight of the contract research organizations will suffice to avoid
significant problems with the protocols and conduct of the clinical trials.

We depend on
contract research organizations to do much of our pre-clinical and all of our
clinical testing, and we are substantially dependent on outside manufacturers
to develop and manufacture drug product for our drug products.

We
have engaged and intend to continue to engage third party contract research
organizations, or CROs, and other third parties to help us develop our drug
candidates. Although we have designed the clinical trials for our drug
candidates, the CROs have conducted all of our clinical trials. As a result,
many important aspects of our drug development, pre-clinical and clinical
programs have been and will continue to be outside of our direct control. In
addition, the CROs may not perform all of their obligations under arrangements
with us. If the CROs do not perform clinical trials in a satisfactory manner or
breach their obligations to us, the development and commercialization of any
drug candidate may be delayed or precluded. We cannot control the amount and
timing of resources these CROs


25

devote to our
programs or product candidates. The failure of any of these CROs to comply with
any governmental regulations would substantially harm our development and
marketing efforts and delay or prevent regulatory approval of our drug
candidates. If we are unable to rely on clinical data collected by others, we
could be required to repeat, extend the duration of, or increase the size of
our clinical trials and this could significantly delay commercialization and require
significantly greater expenditures.

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

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

 the rate
  of progress and cost of clinical trials; the scope
  of our clinical trials and other research and development activities; the
  prioritization and number of clinical development and research programs we
  pursue; the terms
  and timing of any collaborative, licensing and other arrangements that we may
  establish; the costs
  of filing, prosecuting, defending and enforcing any patent claims and other
  intellectual property rights; the costs
  and timing of regulatory approvals; and the costs
  of establishing or contracting for sales and marketing capabilities.We
do not anticipate that we will generate significant continuing revenues for
several years, if at all. Until we can generate significant continuing
revenues, if ever, we expect to satisfy its future cash needs through public or
private equity offerings, debt financings or corporate collaboration and
licensing arrangements, as well as through interest income earned on cash
balances. We cannot be certain that additional funding will be available on
acceptable terms, or at all. If adequate funds are not available, we may be
required to delay, reduce the scope of, or eliminate one or more of our
research and development programs or commercialization efforts.

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

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

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

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

 we or our
  licensors might not have been the first to make the inventions covered by
  each of its pending patent applications and issued patents; we or our
  licensors might not have been the first to file patent applications for these
  inventions;26

 others may
  independently develop similar or alternative technologies or duplicate any of
  our technologies; it is
  possible that none of our pending patent applications will result in issued
  patents; our issued
  patents may not provide a basis for commercially viable products, may not
  provide us with any competitive advantages, or may be challenged by third
  parties; our issued
  patents may not be valid or enforceable; we may not
  develop additional proprietary technologies that are patentable; and the
  patents of others may have an adverse effect on our business.Proprietary
trade secrets and unpatented know-how are also very important to our business.
Although we have taken steps to protect its trade secrets and unpatented
know-how, including entering into confidentiality agreements with third parties
and 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
secrets or unpatented know-how is expensive and time consuming, and the outcome
is unpredictable. In addition, courts outside the U.S. may be less willing to
protect this information. Moreover, our competitors may independently develop
equivalent knowledge, methods and know-how.

If we are sued for
infringing intellectual property rights of third parties, it will be costly and
time consuming, and an unfavorable outcome in that litigation would have a
material adverse effect on our business.

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

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

There
is a substantial amount of litigation involving patent and other intellectual
property rights in the biotechnology and biopharmaceutical industries
generally. If a third party claims that we or our collaborators infringe on its
technology, we may face a number of issues, including:


  infringement and other intellectual property claims which, with or without
  merit, may be expensive and time-consuming to litigate and may divert
  managements attention from our core business;
  substantial damages for infringement, including treble damages and attorneys fees, as well as damages for products development using allegedly infringing
  drug discovery tools or methods which we may have to pay if a court decides
  that the product or proprietary technology at issue infringes on or violates
  the third partys rights; a court
  prohibiting us from selling or licensing the product or using the proprietary
  technology unless the third party licenses its technology to us, which it is
  not required to do;27

 if a
  license is available from the third party, we may have to pay substantial
  royalties, fees and/or grant cross licenses to its technology; and
  redesigning our products or processes so they do not infringe, which may not
  be possible or may require substantial funds and time,We
may also be subject to claims that we or our employees, who were previously
employed at universities or other biotechnology or pharmaceutical companies,
have inadvertently or otherwise used or disclosed trade secrets or other
proprietary information of their former employers. Litigation may be necessary
to defend against these claims. If we fail in defending such claims, in
addition to paying monetary damages, we may lose valuable intellectual property
rights or personnel. A loss of key research personnel or their work product
could hamper or prevent our ability to commercialize certain potential drugs,
which could severely harm its business. Even if we are successful in defending
against these claims, litigation could result in substantial costs and be a
distraction to management.

Companies and
universities that have licensed product candidates to us for clinical
development and marketing are sophisticated competitors that could develop
similar products to compete with our products.

Licensing
product candidates from other companies, universities or individuals does not
always prevent them from developing non-identical but competitive products for
their own commercial purposes, nor from pursuing patent protection in areas
that are competitive with us. The partners who created these technologies are
sophisticated scientists and business people who may continue to do research
and development and seek patent protection in the same areas that led to the
discovery of the product candidates that they licensed to us. The development
and commercialization of successful new drugs from our research program is
likely to attract additional research by our licensors in addition to other
investigators who have experience in developing products for the memory and
cognition market. By virtue of the previous research that led to the discovery
of the drugs or product candidates that they licensed to us, these companies,
universities, or individuals may be able to develop and market competitive
products in less time than might be required to develop a product with which
they have no prior experience.

Despite the use of
confidentiality agreements and/or proprietary rights agreements, which
themselves may be of limited effectiveness, it may be difficult for us to
protect our trade secrets.

We
rely on trade secrets to protect technology in cases when we believe patent
protection is not appropriate or obtainable. However, trade secrets are
difficult to protect. While we require certain of our academic collaborators,
contractors and consultants to enter into confidentiality agreements, we may
not be able to adequately protect our trade secrets or other proprietary
information.

We might face
intellectual property claims that may be costly to resolve and could divert
management attention.

We
may from time to time be subject to claims of infringement of other parties
proprietary rights. We could incur substantial costs in defending ourselves in
any suits brought against us claiming infringement of the patent rights of
others or in asserting our patent rights in a suit against another company.
Adverse determinations in any litigation could subject us to significant
liabilities to third parties, require us to seek costly licenses from third
parties and prevent us or our sublicensees from manufacturing and selling our
potential products.

Because we depend on
third parties for the acquisition and development of drug candidates, we may
not be able to successfully acquire additional drug candidates or commercialize
or develop our current drug candidates.

We
do not currently nor do we intend to engage in drug discovery for drug
candidate acquisition. Our strategy for obtaining additional drug candidates is
to utilize the relationships of our management team and scientific consultants
to identify drug candidates for in-licensing from companies, universities,
research institutions and other organizations. It is possible that we may not
succeed in acquiring additional drug candidates on acceptable terms or at all.

If our drug
candidates do not achieve market acceptance, our business may never achieve
profitability.


28

Our
success will depend on the market acceptance of any products we may develop.
The degree of market acceptance will depend upon a number of factors, including
the receipt and scope of regulatory approvals, the establishment and
demonstration in the medical community of the safety and effectiveness of our
products and their potential advantages over existing treatment methods,
generic competition and reimbursement policies of government and third party
payors. Physicians, patients, payors or the medical community in general may
not accept or utilize any product that we may develop.

The
carrying value of our investment in OXIS International may face future
impairment.

Effective
March 1, 2005, we accounted for our investment in OXIS under the equity method
of accounting following accounting principles bulletin (APB) No. 18. Any
impairment charge would be required if we determined that any reduction in the
OXIS market value over the carry value was permanent.

Item 4. Submission of Matters to a Vote of
Security Holders

At
Axonyx Inc.s 2006 Annual Meeting of Stockholders held on September 28, 2006,
the stockholders:

a)          Approved
the issuance of Axonyx common stock and the issuance of warrants to purchase
Axonyx common stock and the resulting change of control of Axonyx pursuant to
the Agreement and Plan of Merger and Reorganization, dated as of June 7, 2006,
by and among Axonyx, Autobahn Acquisition, Inc. and TorreyPines Therapeutics,
Inc.

For
  
  Against
  
  Abstain29,300,666
  
  1,140,315
  
  65,971b)          Approved
an amendment to Axonyxs articles of incorporation effecting the 1-for-8
reserve stock split.

For
  
  Against
  
  Abstain28,965,659
  
  1,483,853
  
  57,439c)          Approved
an amendment to Axonyxs articles of incorporation to change the name Axonyx
Inc. to TorreyPines Therapeutics, Inc.

For
  
  Against
  
  Abstain48,254,514
  
  1,259,985
  
  99,097d)          Approved
a change of Axonyxs state of incorporation from Nevada to Delaware

For
  
  Against
  
  Abstain29,470,479
  
  968,989
  
  67,484e)          Approved
the adoption of the Axonyx Inc. 2006 Equity Incentive Plan

For
  
  Against
  
  Abstain27,752,093
  
  2,641,952
  
  112,906f)          Voted
for the election of six directors

Director
  
  
  For
  
  
  AgainstGosse B.
  Bruinsma, M.D.
  
  
  48,366,999
  
  
  1,246,598Louis G.
  Cornacchia
  
  
  47,626,473
  
  
  1,987,124Steven H.
  Ferris, Ph.D.
  
  
  48,382,489
  
  
  1,231,108Marvin S.
  Hausman, M.D.
  
  
  48,357,265
  
  
  1,256,332Steven B.
  Ratoff
  
  
  47,525,352
  
  
  2,088,245Ralph
  Snyderman, M.D.
  
  
  47,618,169
  
  
  1,995,428On
October 3, 2006, as described in the Registration Statement on Form S-4, Gosse
B. Bruinsma, M.D. and Ralph Snyderman, M.D., resigned from our board of
directors effective as of the closing of the merger, and Neil M. Kurtz, M.D.,
William T. Comer, Ph.D., Peter Davis, Ph.D., Jean Deleage, Ph.D., Jason
Fisherman, M.D., and Patrick Van Beneden, each of whom previously served as a
director of TPTX, were appointed to our board of


29

directors
effective as of the closing of the merger. These resignations and appointments
were made pursuant to the terms of the merger agreement, as amended, which
provided TPTX with the authority to designate six individuals as directors.
Pursuant to the terms of the merger agreement, as amended, and as described in
the Registration Statement on Form S-4, Steven B. Ratoff, Marvin S. Hausman,
M.D., Steven Ferris, Ph.D. and Louis Cornacchia will continue to serve on our
board of directors.

Item 6.
Exhibits.

Number

Exhibits2.1

Amendment
  No. 1 to Agreement and Plan of Merger and Reorganization, dated as of August
  23, 2006, between Axonyx Inc. and TorreyPines Therapeutics, Inc.
  (incorporated by reference to Exhibit 2.1 to the current report on Form 8-K
  previously filed on August 23, 2006)3.1

Certificate
  of Incorporation of TorreyPines Therapeutics, Inc. dated October 3, 2006.
  (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K
  previously filed on October 10, 2006)3.2

Bylaws of
  TorreyPines Therapeutics, Inc. (incorporated by reference to Exhibit 3.2 to
  the current report on Form 8-K previously filed on October 10, 2006)4.1

Specimen
  common stock certificate (incorporated by reference to Exhibit 4.1 to the on
  Form S-8 previously filed on October 30, 2006)4.2

Rights
  Agreement, dated as of May 13, 2005, between Axonyx Inc. and The Nevada
  Agency and Trust Company, as Rights Agent (incorporated by reference to
  Exhibit 99.2 to the current report on Form 8-K previously filed by Axonyx
  Inc. on May 16, 2005)31.1

Certification of Chief 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 Chief Financial 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 Chief 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 Chief Financial Officer pursuant
to 18 U.S.C Section
  1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.30

SIGNATURES

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

Dated
  November 9, 2006.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 JohnsonCraig
  Johnson
  Vice President, Finance
  Chief Financial Officer, and
  Secretary 
  (Principal Financial and Accounting Officer)31