**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

 

**FORM 10-Q**

 

**x**** Quarterly Report Under Section 13 or 15(d) of the SecuritiesExchange Act of 1934**

 

**For the quarterly period ended March 31, 2008**

 

**o**** Transition Report pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934**

 

**For the transition period from                                      to                                    .**

 

**Commission file number 001-15070**

 

**REGENERX BIOPHARMACEUTICALS, INC.**

(Exact Name of Registrant as Specified in its Charter)

 

| **Delaware**             | ** ** | **52-1253406**             |
|--------------------------|------------|----------------------------|
| (State of Incorporation) |       | (IRS Employer I.D. Number) |

 

**3 Bethesda Metro Center**

**Suite 630**

**Bethesda, Maryland 20814**

(Address of Principal Executive Offices)

 

**(301) 280-1992**

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.                                    Yes  x        No  o

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).    Yes  o    No x

 

51,553,527****shares of RegeneRx Biopharmaceuticals, Inc.Common Stock, par value $0.001 per share, were outstanding as of May 6,2008.

 

 

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**RegeneRx Biopharmaceuticals, Inc.**

**Form 10-Q**

**Quarterly Period Ended March 31, 2008**

 

### **INDEX**

### ** **

|          |                   |                                                                                                                       | **Page No.** |
|---------------|------------------------|----------------------------------------------------------------------------------------------------------------------------|-------------------|
| Part I.  | Financial  Information |                                                                                                                       |
|          |                   |                                                                                                                       |              |
|          | Item 1.                | Financial  Statements                                                                                                      | 3                 |
|          |                   |                                                                                                                       |              |
|          |                   | Balance Sheets at March 31, 2008 (unaudited) and December 31, 2007                                               | 3                 |
|          |                   |                                                                                                                       |              |
|          |                   | Statements of Operations for the three  months ended March 31, 2008  (unaudited) and March 31, 2007  (unaudited) | 4                 |
|          |                   |                                                                                                                       |              |
|          |                   | Statements of Cash  Flows for the three months ended March 31,  2008 (unaudited) and March 31,  2007 (unaudited) | 5                 |
|          |                   |                                                                                                                       |              |
|          |                   | Notes to Financial  Statements (unaudited)                                                                                 | 6-10              |
|          |                   |                                                                                                                       |              |
|          | Item 2.                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                | 11                |
|          |                   |                                                                                                                       |              |
|          | Item 3.                | Quantitative  and Qualitative Disclosures About Market Risk                                                                | 16                |
|          |                   |                                                                                                                       |              |
|          | Item 4                 | Controls and  Procedures                                                                                                   | 16                |
|          |                   |                                                                                                                       |              |
| Part II. | Other Information      |                                                                                                                       |
|          |                   |                                                                                                                       |              |
|          | Item 1.                | Legal Proceedings                                                                                                          | 17                |
|          |                   |                                                                                                                       |              |
|          | Item 1A.               | Risk  Factors                                                                                                              | 17                |
|          |                   |                                                                                                                       |              |
|          | Item 2.                | Unregistered  Sales of Equity Securities and Use of Proceeds                                                               | 34                |
|          |                   |                                                                                                                       |              |
|          | Item 3.                | Defaults  Upon Senior Securities                                                                                           | 34                |
|          |                   |                                                                                                                       |              |
|          | Item 4.                | Submission  of Matters to a Vote of Security Holders                                                                       | 34                |
|          |                   |                                                                                                                       |              |
|          | Item 5.                | Other Information                                                                                                          | 34                |
|          |                   |                                                                                                                       |              |
|          | Item 6.                | Exhibits                                                                                                                   | 35                |
|          |                   |                                                                                                                       |              |
|          | Signatures             | 36                                                                                                                         |

 

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# ** **

# **PART I –FINANCIAL INFORMATION**

# ** **

**Item 1.            Financial Statements**

 

**RegeneRx Biopharmaceuticals, Inc.Balance Sheets**

 
| ** **                                                                                                                 | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                 | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| ** **                                                                                                                 | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
| ASSETS                                                                                                                     |       |               |       |                  |       |
| Current assets                                                                                                             |       |               |       |                  |       |
| Cash and cash  equivalents                                                                                                 |       | $                  | 9,959,033  |                  | $          | 3,696,878 |   |
| Short-term  investments                                                                                                    |       | —             |       | 4,579,592             |       |
| Accounts  receivable                                                                                                       |       | 32,167             |       | 26,951                |       |
| Prepaid expenses  and other current assets                                                                                 |       | 263,382            |       | 268,244               |       |
| Total current  assets                                                                                                      |       | 10,254,582         |       | 8,571,665             |       |
| Fixed assets,  net of accumulated depreciation of $67,405 and $62,227                                                      |       | 39,258             |       | 44,435                |       |
| Other  non-current assets                                                                                                  |       | 5,693              |       | 5,693                 |       |
| Total assets                                                                                                               |       | $                  | 10,299,533 |                  | $          | 8,621,793 |   |
|                                                                                                                       |       |               |       |                  |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                  |       |               |       |                  |       |
| Current  liabilities                                                                                                       |       |               |       |                  |       |
| Accounts payable                                                                                                           |       | $                  | 513,934    |                  | $          | 273,561 |   |
| Accrued expenses                                                                                                           |       | 999,711            |       | 2,195,508             |       |
| Total current  liabilities                                                                                                 |       | 1,513,645          |       | 2,469,069             |       |
| Commitments                                                                                                                |       | —             |       | —                |       |
|                                                                                                                       |       |               |       |                  |       |
| Stockholders’  equity                                                                                                 |       |               |       |                  |       |
| Preferred stock,  $.001 par value per share, 1,000,000 authorized; no shares issued                                        |       | —             |       | —                |       |
| Common stock,  par value $.001 per share, 100,000,000 shares authorized; 51,553,527 and  46,553,527 issued and outstanding |       | 51,554             |       | 46,554                |       |
| Additional  paid-in capital                                                                                                |       | 78,718,254         |       | 73,513,292            |       |
| Accumulated  other comprehensive loss                                                                                      |       | —             |       | (1,543                | )          |
| Accumulated  deficit                                                                                                       |       | (69,983,920        | )          | (67,405,579           | )          |
| Total  stockholders’ equity                                                                                           |       | 8,785,888          |       | 6,152,724             |       |
| Total  liabilities and stockholders’ equity                                                                           |       | $                  | 10,299,533 |                  | $          | 8,621,793 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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**RegeneRx Biopharmaceuticals, Inc.**

**Statements of Operations**

** **
| ** **                                            | ** ** | **Three-Months ended March 31,** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                            | ** ** | **2008**                                        | ** ** | **2007** | ** ** |
| Revenues                                              |       | $                                               | 32,167     |   | $ | — |   |
|                                                  |       |                                            |       |   |   |
| Operating  expenses:                                  |       |                                            |       |   |   |
| Research and  development                             |       | 1,634,466                                       |       | 2,431,856 |   |
| General and  administrative                           |       | 1,074,897                                       |       | 781,459 |   |
| Total operating  expenses                             |       | 2,709,363                                       |       | 3,213,315 |   |
| Loss from  operations                                 |       | (2,677,196                                      | )          | (3,213,315 | ) |
| Interest income                                       |       | 63,855                                          |       | 210,548 |   |
| Net loss                                              |       | $                                               | (2,613,341 | ) | $ | (3,002,767 | ) |
|                                                  |       |                                            |       |   |   |
| Basic and  diluted net loss per common share          |       | $                                               | (0.05      | ) | $ | (0.06 | ) |
| Weighted average  number of common shares outstanding |       | 48,696,819                                      |       | 46,254,341 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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**RegeneRx Biopharmaceuticals, Inc.**

**Statements of Cash Flows**

 
| ** **                                                                   | ** ** | **For the Three Months ended March 31,** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                                                               | ** ** | **2007** | ** ** |
|                                                                         |       |                                                                   |       |   |   |
| Operating  activities:                                                       |       |                                                                   |       |   |   |
| Net loss                                                                     |       | $                                                                      | (2,613,341 | ) | $ | (3,002,767 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                                                   |       |   |   |
| Depreciation and  amortization                                               |       | 5,177                                                                  |       | 5,013 |   |
| Non-cash  share-based compensation                                           |       | 262,202                                                                |       | 257,749 |   |
| Changes in  operating assets and liabilities:                                |       |                                                                   |       |   |   |
| Accounts  receivable                                                         |       | (5,216                                                                 | )          | 272,491 |   |
| Prepaid expenses  and other current assets                                   |       | 39,862                                                                 |       | (20,425 | ) |
| Other  non-current assets                                                    |       | —                                                                 |       | 6,056 |   |
| Accounts payable                                                             |       | 240,373                                                                |       | 279,910 |   |
| Accrued expenses                                                             |       | (1,195,797                                                             | )          | (430,331 | ) |
| Net cash used in  operating activities                                       |       | (3,266,740                                                             | )          | (2,632,304 | ) |
|                                                                         |       |                                                                   |       |   |   |
| Investing  activities:                                                       |       |                                                                   |       |   |   |
| Purchase of  short-term, available-for-sale investments                      |       | —                                                                 |       | (8,901,030 | ) |
| Proceeds from  sales/maturities of short-term investments                    |       | 4,581,135                                                              |       | — |   |
| Purchase of  fixed assets                                                    |       | —                                                                 |       | (6,026 | ) |
| Net cash  provided by (used in) investing activities                         |       | 4,581,135                                                              |       | (8,907,056 | ) |
|                                                                         |       |                                                                   |       |   |   |
| Financing  activities:                                                       |       |                                                                   |       |   |   |
| Net proceeds  from issuance of common stock                                  |       | 4,947,760                                                              |       | — |   |
| Preceeds from  exercise of warrants                                          |       | —                                                                 |       | 45,706 |   |
| Net cash  provided by financing activities                                   |       | 4,947,760                                                              |       | 45,706 |   |
| Net increase  (decrease) in cash and cash equivalents                        |       | 6,262,155                                                              |       | (11,493,654 | ) |
| Cash and cash  equivalents:                                                  |       |                                                                   |       |   |   |
| Beginning of  period                                                         |       | 3,696,878                                                              |       | 13,052,308 |   |
| End of period                                                                |       | $                                                                      | 9,959,033  |   | $ | 1,558,654 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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**RegeneRx Biopharmaceuticals, Inc.**

**Notes to Financial Statements**

**For the three-months ended March 31, 2008 and2007 (Unaudited)**

 

A.      ORGANIZATION &BASIS OF PRESENTATION

 

RegeneRx Biopharmaceuticals, Inc. (the “Company”, “we”, “us”, “our”or “RegeneRx”), is a biopharmaceutical company focused on the discovery anddevelopment of novel molecules to promote tissue and organ repair. Currently, we have formulated three drug products based on Thymosin beta 4 (“Tb4” ), a 43 amino acid peptide.  Currentresearch suggests that these drug products may prove efficacious for multiplemedical indications when administered either topically or systemically. Therefore, we are developing several Tb4-based therapeutic drug candidates: RGN-137, a topically applied gel product for hard-to-heal chronic dermalwounds; RGN-259, a sterile, preservative-free topical eye drop for ophthalmicwounds; and RGN-352, a parenteral (injectable) formulation for systemicdelivery for treatment of patients with an acute myocardial infarction (“AMI”)or heart attack. We have applied for or hold over sixty world-wide patents onpeptide compositions, uses and formulations related to dermal, ophthalmic, andother organ and tissue repair, as well as for cosmetic and consumer productapplications.  Under three Investigational New Drug Applications (“INDs”),cleared by the U.S. Food and Drug Administration (“FDA”), we are sponsoring, inparallel, three Phase II dermal wound healing clinical trials for RGN-137, aPhase II ophthalmic wound healing trial for RGN-259 and a Phase I clinicaltrial utilizing RGN-352 in support of our cardiovascular clinicalprogram.  Under one of our INDs and with European regulatory approval, anaffiliate of Sigma-Tau Finanziaria S.p.A., or Sigma-Tau, our largeststockholder and a leading international pharmaceutical company, is conductingone of the Phase II dermal wound healing clinical trials in venous stasisulcers in Italy and Poland.  Sigma-Tau has assumed all costs associatedwith that trial.

 

The accompanying unaudited interim financial statements reflect, in theopinion of management, all adjustments (consisting only of normal recurringadjustments) necessary for a fair presentation of our financial position,results of operations and cash flows for each period presented.  These statements have been prepared inaccordance with U. S. generally accepted accounting principles (“GAAP”) andwith the rules and regulations of the Securities and Exchange Commission (“SEC”),for interim financial statements. Accordingly, they do not include all of the information and footnotesrequired by GAAP.  These interimfinancial statements should be read in conjunction with the audited financialstatements as of and for the year ended December 31, 2007, and relatednotes thereto, included in our Annual Report on Form 10-K for the yearended December 31, 2007 (the “Annual Report”).

 

The accompanying December 31, 2007 financial information wasderived from our audited financial statements.  Operating results for the three-month periodended March 31, 2008 are not necessarily indicative of the results to beexpected for the year ending December 31, 2008 or any other future period.

 

B.      NETLOSS PER SHARE

 

Net loss per share is based on the weighted average number of commonshares outstanding during the three-month periods ended March 31, 2008 and2007.  During these periods, certainsecurities were not included in the calculation as their effect would beanti-dilutive.  Securities that could potentiallydilute basic net loss per share in the future, and that were not included inthe calculation of diluted net loss per share, are as follows:

 

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| ** **                                                                          | ** ** | **March 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                                          | ** ** | **2008**           | ** ** | **2007** | ** ** |
|                                                                                |       |               |       |   |   |
| Outstanding stock  options                                                          |       | 3,545,000          |       | 3,505,000 |   |
| Warrants                                                                            |       | 3,837,320          |       | 3,522,544 |   |
| Total potential  common shares excluded from diluted net loss per share computation |       | 7,382,320          |       | 7,027,544 |   |

 

C.     STOCK BASED COMPENSATION

 

Wehave a share-based compensation plan under which employees, consultants,advisors, and non-employee directors may be granted options to purchase sharesof our common stock at the fair market value at the time of grant.  We recognize the fair value of share-basedcompensation in net loss on a straight-line basis over the requisite serviceperiod.

 

Thefollowing table provides amounts of share-based compensation cost recorded inthe statement of operations:

 
| ** **                              | ** ** | **Three months ended** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|
| ** **                              | ** ** | **March 31,**               | ** ** |
| ** **                              | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                                    |       |                             |       |   |   |
| Employees                               |       | $                                | 162,209    |   | $ | 161,735 |   |
| Non-employees                           |       | 99,993                           |       | 96,014 |   |
|                                    |       |                             |       |   |   |
| Total  share-based compensation expense |       | $                                | 262,202    |   | $ | 257,749 |   |
|                                    |       |                             |       |   |   |
| Research and  development               |       | $                                | 105,534    |   | $ | 106,381 |   |
| General and  administrative             |       | 156,668                          |       | 151,368 |   |
|                                    |       |                             |       |   |   |
| Total  share-based compensation expense |       | $                                | 262,202    |   | $ | 257,749 |   |

 

Duringthe first three months of 2008 and 2007, we granted options to purchase zeroshares of our common stock and 820,000 shares of our common stock,respectively. The weighted average fair value of options granted for the firstthree months of 2008 and 2007 was $-0- and $1.79 per option, respectively, andwas determined using the following assumptions:

 
| ** **                | ** ** | **2008**  | ** ** | **2007**   | ** ** |
|---------------------------|------------|-----------|------------|------------|------------|
|                      |       |      |       |       |       |
| Dividend yield            |       | 0.0       | %          | 0.0        | %          |
| Risk free rate  of return |       | 0.0 - 0.0 | %          | 4.5 - 4.7  | %          |
| Expected life in  years   |       | 0.0 - 0.0 |       | 4.71 - 5.0 |       |
| Volatility                |       | 0.0       | %          | 71 - 75    | %          |

 

AtMarch 31, 2008, there was approximately $1,773,000 of total unrecognizedcompensation expense related to nonvested stock options which will berecognized over a weighted average period of 1.4 years.

 

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D.    EQUITYTRANSACTIONS

 

On February 29,2008, we closed agreements with two affiliates of Sigma-Tau, who are bothaccredited investors, with respect to the sale of 5,000,000 shares of common stockat a price per share of $1.00 for gross proceeds of $5,000,000.  Inconnection with the offering, we also issued warrants to purchase an additional1,000,000 shares of common stock with an exercise price of $1.60 pershare.  Under the terms of the offering, we may, in our sole discretion,repurchase the shares sold in the offering at any time until December 31,2009, for $2.00 per share or, at any time between January 1, 2010 and December 31,2010, for $2.50 per share.  Our repurchase right terminates after December 31,2010.  In addition, the purchasers have agreed to vote the shares sold inthe offering, and any additional shares issued pursuant to the exercise of thewarrants, at the direction of our Board of Directors until December 31,2010.  The warrants have a term of three years.  One-third of thewarrants vested upon the closing of the offering, one-third is scheduled tovest on December 31, 2008, and one-third is scheduled to vest on December 31,2009.  However, should we repurchase all of the shares subject to theoffering prior to December 31, 2009, any unvested warrants would terminateas of the date we completes the repurchase.

 

On December 31,2007, we amended the terms of certain warrants held by Sigma-Tau and otherinvestors which were scheduled to expire between December 31, 2007 and January 7,2008 to extend the expiration date of each warrant to March 31, 2008 andto eliminate the cashless exercise provisions of these warrants.  On March 31,2008, we again amended the terms of such warrants to extend the expiration dateof each warrant to December 31, 2009. None of the warrant holders paid anyadditional consideration for these amendments. While a related non-cash dividend should be reflected in the financialstatements for this transaction, its value was not material and therefore noassociated amounts were recorded.  We estimated the value of this non-cashdividend by using the Black-Scholes pricing model with the followingassumptions: warrants to purchase 444,250 shares of common stock were extendedwhile warrants to purchase 18,558 shares of common stock expired by their termson March 31, 2008; dividend yield of zero percent; expected volatility of70%; risk free interest rate of 1.62% and expected life 1.38 years.

 

At March 31,2008, we had issued and outstanding warrants to purchase 3,837,320 shares ofour common stock at a weighted average purchase price of $3.11 per share aftergiving effect to the March 31, 2008 warrant extension and includingwarrants to purchase 333,334 shares of our common stock that were issued on February 29,2008 to certain affiliates of Sigma-Tau, each as described above.

 

E. PRONOUNCEMENTS IMPLEMENTED

 

On January 1, 2008,we adopted Emerging Issues Task Force (“EITF”) Issue No. 07-3, “Accounting for Advance Payments for Goods orServices Received for Use in Future Research and Development Activities”**(“EITF 07-3”), which is beingapplied prospectively for new contracts. EITF 07-3 addresses nonrefundableadvance payments for goods or services that will be used or rendered for futureresearch and development activities. EITF 07-3 requires these payments bedeferred and capitalized and recognized as an expense as the related goods aredelivered or the related services are performed. The effect of adoption of EITF07-3 on our financial position and results of operations was to record acumulative, catch-up adjustment to increase prepaid expenses and decrease theaccumulated deficit by $35,000.  Thisadjustment was recorded as of January 1, 2008.

 

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In September 2006,the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157(“SFAS No. 157”), “Fair Value Measurements,” which defines fair value,establishes guidelines for measuring fair value and expands disclosuresregarding fair value measurements. SFAS 157 does not require any new fair valuemeasurements but rather eliminates inconsistencies in guidance found in variousprior accounting pronouncements and is effective for fiscal years beginning afterNovember 15, 2007. In February 2008, the FASB issued FASB FSP 157-2which delays the effective date of SFAS 157 for all nonfinancial assets andnonfinancial liabilities, except those that are recognized or disclosed at fairvalue in the financial statements on a recurring basis (at least annually),until fiscal years beginning after November 15, 2008, and interim periodswithin those fiscal years. These nonfinancial items include assets andliabilities such as reporting units measured at fair value in a goodwillimpairment test and nonfinancial assets acquired and liabilities assumed in abusiness combination. We currently do not have any financial assets andliabilities requiring fair value measurement. Therefore, the partial adoptionof SFAS 157 for financial assets and liabilities did not have a material impacton our financial position, results of operations or cash flows.

 

In February 2007,the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option forFinancial Assets and Financial Liabilities”. Under SFAS 159, companies mayelect to measure certain financial instruments and certain other items at fairvalue. The standard requires that unrealized gains and losses on items forwhich the fair value option has been elected be reported in earnings. SFAS 159was effective for us beginning in the first quarter of fiscal 2008. Wecurrently do not have any instruments eligible for election of the fair valueoption. Therefore, the adoption of SFAS 159 in the first quarter of fiscal 2008did not impact our financial position, results of operations or cash flows.

 

F. PRONOUNCEMENTS NOT YET IMPLEMENTED

 

In December 2007,the FASB ratified the consensus reached by the EITF on Issue No. 07-1 (“EITF07-1”), “Accounting for Collaborative Arrangements”. EITF 07-1 is effectivebeginning January 1, 2009 and will be applied retrospectively to all priorperiods presented for all collaborative arrangements existing as of theeffective date. EITF 07-1 defines collaborative arrangements and establishesreporting requirements for transactions between participants in a collaborativearrangement and between participants in the arrangement and third parties. Weare assessing the impact of adoption of EITF 07-1 on our financial position andresults of operations.

 

In December 2007,the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS No. 141(R) establishesprinciples and requirements for how the acquirer in a business combinationrecognizes and measures identifiable assets acquired, liabilities assumed,non-controlling interest in the acquiree and goodwill acquired, and expandsdisclosures about business combinations. SFAS No. 141(R) requires the acquirerto recognize changes in valuation allowances on acquired deferred tax assets tobe recognized in operations. These changes in deferred tax benefits werepreviously recognized through a corresponding reduction to goodwill. With theexception of the provisions regarding acquired deferred taxes, which areapplicable to all business combinations, SFAS No. 141(R) applies prospectivelyto business combinations for which the acquisition date is on or after thebeginning of the first annual reporting period beginning on or after December 15,2008. Early adoption is not permitted. We do not expect the adoption of SFAS No. 141(R) to have a materialimpact on our financial condition or results of operations.

 

In December 2007,the FASB issued SFAS No. 160, “Non-controlling Interests in ConsolidatedFinancial Statements—an amendment of ARB No. 51.” SFAS No. 160establishes accounting and reporting standards that require:

 

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·    The ownership interests in subsidiaries held byparties other than the parent be clearly identified, labeled, and presented inthe consolidated balance sheet within equity, but separate from the parent’sequity;

 

·    The amount of consolidated net income attributableto the parent and to the non-controlling interest be clearly identified andpresented on the face of the consolidated statement of income;

 

·    Changes in a parent’s ownership interest while theparent retains its controlling financial interest in its subsidiary beaccounted for consistently;

 

·    When a subsidiary is deconsolidated, any retainednon-controlling equity investment in the former subsidiary be initiallymeasured at fair value;

 

·    Entities provide sufficient disclosures thatclearly identify and distinguish between the interests of the parent and theinterests of the non-controlling owners.

 

SFAS No. 160 iseffective for fiscal years, and interim periods within those fiscal years,beginning on or after December 15, 2008. Early adoption is not permitted.SFAS No. 160 shall be applied prospectively as of the beginning of thefiscal year in which it is initially applied, except for the presentation anddisclosure requirements. The presentation and disclosure requirements shall beapplied retrospectively for all periods presented. We do not expect theadoption of SFAS No. 160 to have a material impact on our financialcondition or results of operations.

 

In March 2008, theFASB issued SFAS No. 161, “Disclosures about Derivative Instruments andHedging Activities — an amendment of FASB Statement No. 133.” SFAS No. 161enhances the current disclosure framework in SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities,” by requiring entities toprovide detailed disclosures about how and why an entity uses derivativeinstruments, how derivative instruments and related hedged items are accountedfor under SFAS No. 133 and its related interpretations and how derivativeinstruments and related hedged items affect an entity’s financial condition,results of operations and cash flows. SFAS No. 161 is effective forfinancial statements issued for fiscal years beginning after November 15,2008. We do not expect the adoption of SFAS No. 161 to have a materialimpact on our financial condition or results of operations.

 

G. INCOME TAXES

 

As of March 31,2008, there have been no material changes to our uncertain tax positionsdisclosures as provided in Note 8 of the Annual Report. We do not anticipatethat total unrecognized tax benefits will significantly change prior to March 31,2009.

 

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**ITEM 2.        Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

*This Quarterly Report on Form 10-Q, including the sectionentitled “Management’s Discussion and Analysis of Financial Condition andResults of Operations,” contains forward-looking statements regarding us andour business, financial condition, results of operations and prospects withinthe meaning of the Private Securities Litigation Reform Act of 1995.Forward-looking statements may be identified by the words “project,” “believe,”“anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,”“will,” “may” or other similar expressions. In addition, any statements thatrefer to projections of our future financial performance, our clinicaldevelopment programs and schedules, our anticipated growth and trends in ourbusiness, and othercharacterizations of future events or circumstances are forward-lookingstatements. We cannot guarantee that we will achieve the plans, intentions orexpectations expressed or implied in our forward-looking statements.  There are a number ofimportant factors that could cause actual results, levels of activity, performanceor events to differ materially from those expressed or implied in theforward-looking statements we make, including those described under “RiskFactors” set forth below. In addition, any forward-looking statements we makein this document speak only as of the date of this document, and we do notintend to update any such forward-looking statements to reflect events orcircumstances that occur after that date.*

 

**Overview**

 

Our operations consist primarily of pre-clinicalstudies and clinical trials related to the development of product candidatesbased on Thymosin beta 4(“Tb4”), a 43 amino acid peptide.Currently, we are developing three Tb4-baseddrug formulations including:RGN-137, a topically applied gel product candidate for chronic dermal wounds;RGN-259, a sterile eye drop for ophthalmic injuries; and RGN-352, a parenteral(injectable) formulation for systemic delivery anticipated to be used in ourplanned Phase II acute myocardialinfarction (“AMI”), or heart attack, trial.  We are currently sponsoring, in parallel,three Phase II dermal wound healing clinical trials using RGN-137, a Phase IIophthalmic wound healing trial using RGN-259, and a Phase IA clinical trialutilizing RGN-352 to support our cardiovascular clinical program.  Under our Phase II Investigational New Drug Applications (“IND”), an affiliate ofour largest stockholder, Sigma-Tau, is conducting one of the Phase II dermalwound healing clinical trials in the European Union and has assumed allassociated costs.  We are primarilyresponsible for the costs associated with the other four trials.

 

We have never generated revenues from product sales,and we do not expect to generate significant revenues until the FDA approvesone of our product candidates, if ever, and we are able to successfullycommercialize such product. We expect to invest significant amounts infurtherance of our current clinical programs and may add additionalpre-clinical studies and new clinical trials as we explore the potential of ourcurrent product candidates in other indications and/or explore new formulationsof Tb4-basedproduct candidates.  Consequently, weexpect to incur substantial and increasing losses for at least the next severalyears.  Accordingly, we will need togenerate significant revenues to achieve and then maintain profitability.  We cannot assure you that we will be able togenerate revenue sufficient to achieve and maintain profitability or at all.Also, we expect that we will need to raise substantial additional outsidecapital in order to meet our current and future capital requirements.  We cannot assure you that such capital willbe available when needed, on acceptable terms, or at all.

 

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Most of our expendituresto date have been for Research and Development (“R&D”) activities andGeneral and Administrative (“G&A”) activities.  R&D costs include all of thewholly-allocable costs associated with our various clinical programs passedthrough to us by our outsourced vendors. Those costs include: manufacturing Tb4; formulation of Tb4into the various product candidates; stability for both Tb4and the various formulations; pre-clinical toxicology, safety andpharmacokinetic studies; clinical trial management; patient care and studyparticipation, medical oversight; laboratory evaluations; statistical dataanalysis, regulatory compliance, quality assurance, and other relatedactivities.  R&D also includes cashand non-cash compensation, employee benefits, travel and other miscellaneouscosts of our internal R&D personnel, seven persons in total, who are whollydedicated to R&D efforts.  R&Dalso includes a pro-ration of our common infrastructure costs for office space,and communications.  We expense ourR&D costs as they are incurred.

 

R&D expenditures aresubject to the risks and uncertainties associated with clinical trials and theFDA review and approval process. As a result, these expenses could exceed ourexpectations, possibly materially. We are uncertain as to what we expect toincur in future research and development costs for our pre-clinical studies asthese amounts are subject to the outcome of current pre-clinical studies,management’s continuing assessment of the economics of each individual researchand development project and the internal competition for project funding.

 

G&A costs include outside professional fees forlegal, audit and accounting services, including the costs to maintain ourintellectual property portfolio; review, draft and negotiate various financing,manufacturing and other corporate documents; research and conclude onappropriate financial reporting issues, Sarbanes-Oxley compliance, andfinancial audits required by the Securities and Exchange Commission.  G&A also includes cash and non-cashcompensation, employee benefits, travel and other miscellaneous costs of ourinternal G&A personnel, three in total, who are wholly dedicated to G&Aefforts.  G&A includes a proration ofour common infrastructure costs for office space, and communications.

 

Critical AccountingPolicies.  We prepare our financial statements in conformity withaccounting principles generally accepted in the United States. Such accountingprinciples require that our management make estimates and assumptions thataffect the amounts reported in our financial statements and accompanying notes.Our actual results could differ materially from those estimates. The items inour financial statements that have required us to make significant estimatesand judgments are as follows:

 

·      Share-based payment.  Effective January 1,2006, we adopted the fair value recognition provisions Statement of FinancialAccounting Standards No. 123R (“SFAS No. 123R”), using the modifiedprospective transition method, and therefore have not restated results forprior periods. Under the fair value recognition provisions of SFAS No. 123R,we recognize stock-based compensation net of an estimated forfeiture rate andonly recognize compensation cost for those shares expected to vest on astraight-line basis over the requisite service period of the award.

 

Determining theappropriate fair value model and calculating the fair value of share-basedpayment awards require the input of highly subjective assumptions, includingthe expected life of the share-based payment awards and stock price volatility.Since our historical data is limited, we determined the expected life inaccordance with Staff Accounting Bulletin No. 107 guidance for “plainvanilla” options.  Since our historical trading volume is relatively low,we estimated the expected volatility based on monthly closing prices for aperiod consistent with the expected life of the option.  The assumptionsused in calculating the fair value of share-based payment awards representmanagement’s best estimates, but these estimates involve inherent uncertaintiesand the application of management judgment. As a result, if factors change andwe use different assumptions, our stock-based compensation expense could bematerially different in the future. In addition, we are required to estimatethe expected forfeiture rate and only recognize expense for those sharesexpected to vest. If our actual forfeiture rate is materially different fromour estimate, the stock-based compensation expense could be significantly differentfrom what we have recorded in the current period.

 

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·                  Costs of pre-clinical studies andclinical trials.  We accrue estimatedcosts for pre-clinical studies and clinical trials conducted by contractresearch organizations and participating hospitals.  These costs are a significant component ofresearch and development expenses.  Weaccrue costs for pre-clinical studies and clinical trials performed by contractresearch organizations based on estimates of work performed under thecontracts.  Costs of setting up hospitalsites for participation in trials are accrued immediately.  Hospital costs related to patient enrollmentare accrued as patients are entered in the trial.

 

·                  Recentaccounting pronouncements.  In March 2008,the FASB issued Statement No. 161, “Disclosures about DerivativeInstruments and Hedging Activities” (“FAS 161”), which is effective January 1,2009. FAS 161 requires enhanced disclosures about derivative instruments andhedging activities to allow for a better understanding of their effects on anentity’s financial position, financial performance, and cash flows. Among otherthings, FAS 161 requires disclosure of the fair values of derivativeinstruments and associated gains and losses in a tabular format. Since FAS 161requires only additional disclosures about our derivatives and hedgingactivities, the adoption of FAS 161 will not affect our financial position orresults of operations.

 

In December 2007,the FASB ratified the consensus reached by the EITF on Issue No. 07-1 (“EITF07-1”), “Accounting for Collaborative Arrangements”. EITF 07-1 is effective forus beginning January 1, 2009 and will be applied retrospectively to allprior periods presented for all collaborative arrangements existing as of theeffective date. EITF 07-1 defines collaborative arrangements and establishesreporting requirements for transactions between participants in a collaborativearrangement and between participants in the arrangement and third parties. Weare assessing the impact of adoption of EITF 07-1 on our financial position andresults of operations.

 

In December 2007, the FASB issued Statements No. 141R, “BusinessCombinations” (“FAS 141R”), and No. 160, “Noncontrolling Interests inConsolidated Financial Statements—an amendment of ARB No. 51” (“FAS 160”).FAS 141R expands the scope of acquisition accounting to all transactions underwhich control of a business is obtained. Among other things, FAS 141R requiresthat contingent consideration as well as contingent assets and liabilities berecorded at fair value on the acquisition date, that acquired in-processresearch and development be capitalized and recorded as intangible assets atthe acquisition date, and also requires transaction costs and costs torestructure the acquired company be expensed. FAS 160 requires, among otherthings, that noncontrolling interests be recorded as equity in the consolidatedfinancial statements. FAS 141R and FAS 160 are both effective January 1,2009. We are assessing the impacts of these standards on our financial positionand results of operations.

 

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**Results of Operations**

** **

***Comparison of quarters ended March 31,2008 and 2007***

*** ***

*Revenues*.  For the quarter ended March 31, 2008,our revenue totaled approximately $32,000. We did not generate any revenue in the first quarter of 2007.  Our revenue in the first quarter of 2008consisted entirely of costs recoverable as revenue through our grant from theNational Institutes of Health (“NIH”) for the orphan indication Epidermolysis Bullosa (“EB”).  These grant funds were exhausted in the firstquarter of 2008.

 

*R&D Expenses*.  For the quarter ended March 31, 2008,our R&D expenses decreased by approximately $0.8 million, or 33%, toapproximately $1.6 million, as compared to approximately $2.4 million for thequarter ended March 31, 2007.  Thedifference was attributable to a $0.9 million decrease in our outsourcedR&D expenditures, those costs incurred to make and formulate our drugcandidates and manage our pre-clinical and clinical activities, partly offsetby an approximately $0.1 million increase in R&D-related personnelcosts.  The decrease in outsourcedR&D expenses resulted from our purchase of a supply of Tb4during the first quarter of 2007 without a corresponding purchase in the firstquarter of 2008.  We do not currentlyplan on making another purchase of Tb4 during calendar2008.

 

*G&A Expenses.*  For the quarter ended March 31, 2008,our G&A expenses increased by approximately $0.3 million, or 38%, toapproximately $1.1 million, as compared to approximately $0.8 million for thequarter ended March 31, 2007. This difference was attributable toincreased legal costs related to the continued expansion of our intellectualproperty portfolio and other business development matters.

 

**Liquidity and Capital Resources**

** **

***Sources of Liquidity***

 

As of March 31,2008, we had cash and cash equivalents of approximately $10.0 million.  This compares to cash, cash equivalents andshort-term investments of approximately $8.3 million at December 31, 2007.Our cash position increased in the first quarter of 2008, as compared to thefourth quarter of 2007, as a result of our issuance of approximately $5.0million in securities in connection with our private placement on February 29,2008, offset by net cash used in operating activities of $3.3 million in thesame period.

 

***CashFlows***

*** ***

**Net Cash Used in OperatingActivities. **Net cashused in operating activities was approximately $3.3 million for the quarterended March 31, 2008, as compared to net cash used in operating activitiesof approximately $2.6 million for the quarter ended March 31, 2007.  Our net loss in the first quarter of 2008 wasapproximately $0.7 million less than our net cash used in operating activitiesin the same period since we had purchased and expensed approximately $0.9million of Tb4in the fourth quarter of 2007, but used cash to settle that liability in thefirst quarter of 2008.  The $0.2 millionoffsetting difference was comprised of non-cash compensation expenses.  Our net loss in the first quarter of 2007 wasapproximately $0.4 million more than our net cash used in operating activitiesin the same period, primarily due to non-cash compensation expenses.

 

**Net Cash Provided By/Used InInvesting Activities. **Netcash provided by investing activities was approximately $4.6 million for thequarter ended March 31, 2008, as compared to net cash used in investingactivities of $8.9 million for the quarter ended March 31, 2007.  Our investing activities provided net cash ofapproximately $4.6 million in the first quarter of 2008 from the maturity ofvarious short-term investments which were re-invested in a U.S.Treasury-backed, cash-equivalent money market. By contrast, in the first quarter of 2007 we invested approximately $8.9million of cash proceeds from our December 21, 2006 private placement ofsecurities in to short-term, investment-grade securities.

 

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** **

**Net Cash Provided by FinancingActivities. **Net cashprovided by financing activities totaled approximately $5.0 million for thequarter ended March 31, 2008 as a result of our private placement ofsecurities on February 29, 2008.  Bycontrast, net cash provided by financing activities totaled approximately$45,000 in the quarter ended March 31, 2007, which amount consistedentirely of the proceeds from the exercise of warrants to purchase our commonstock.

 

***FutureFunding Requirements***

* *

As of the date of this report, we believe we havesufficient liquidity and capital resources to fund our operations through theremainder of 2008.  However, theexpenditures that will be necessary to execute our business plan are subject tonumerous uncertainties, which may adversely affect our liquidity and capitalresources. As of March 31, 2008, we had three proprietary productcandidates in clinical trials, development of which is primarily accomplishedthrough cancellable third-party contracts. We are party to an office space lease that expires on December 31,2009 that requires monthly rental payments of $7,072, which payments arescheduled to increase by 3% in January 2009.  We also expect our R&D expenses tocontinue to trend higher as our product candidates advance through the variousstages of clinical development. The length of time required for clinical trialsvaries substantially according to the type, complexity, novelty and intendeduse of a product candidate. Some of the factors that could impact our liquidityand capital needs include, but are not limited to:

 

·                  the progress of our clinical trials,

·                  the progress of our researchactivities,

·                  the number and scope of our researchprograms,

·                  the progress of our pre-clinicaldevelopment activities,

·                  the costs involved in preparing,filing, prosecuting, maintaining, enforcing and defending patent and otherintellectual property claims,

·                  the costs related to development andmanufacture of pre-clinical, clinical and validation lots for regulatorypurposes and commercialization of drug supply associated with our productcandidates,

·                  our ability to enter into corporatecollaborations and the terms and success of these collaborations,

·                  the costs and timing of regulatoryapprovals, and

·                  the costs of establishingmanufacturing, sales and distribution capabilities.

 

We have not commercialized any of our productcandidates to date and, to the extent that our capital resources may beinsufficient to meet our future capital requirements, we may need to finance ourfuture cash needs through public or private equity offerings, debt financingsor corporate collaboration and licensing arrangements. However, we do notcurrently have any commitments for future external funding and additionalequity or debt financing may not be available on a timely basis, on acceptableterms, or at all.  We may also beeligible to receive milestone payments under our collaboration agreement withan affiliate of Sigma-Tau.  However, theachievement of the milestones that are required to trigger the milestonepayments and the timing of any such milestone payments is uncertain, and we maynever receive a milestone payment.

 

If adequate funds are not available, we may berequired to delay, reduce the scope of or eliminate our research and developmentprograms or obtain funds through arrangements with collaborators or others thatmay require us to relinquish rights to certain product candidates that we mightotherwise seek to develop or commercialize independently. In addition, if weraise funds by selling additional shares of our common stock or securitiesconvertible into our common stock, the ownership interest of our existingstockholders may be significantly diluted. If additional funds are raisedthrough the issuance of preferred stock or debt securities, these securitiesare likely to have rights, preferences and privileges senior to our commonstock and may involve significant fees, interest expense, restrictive covenantsand the granting of security interests in our assets.

 

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** **

**OffBalance Sheet Arrangements.**

* *

We do not have anyoff-balance sheet arrangements, as such term is defined in Item 303(a)(4) ofRegulation S-K.

 

**Item 3. Quantitative and QualitativeDisclosures About Market Risk.**

** **

At March 31, 2008, our cash equivalents, whichtotaled $10.0 million, were comprised entirely of money-market investmentsbacked  by U.S. government obligations,U.S. government agency obligations and investment-grade corporate bonds.  All of these securities are subject todefault, changes in credit ratings and changes in market value.  We limit our default risk by investing inmoney markets backed by U.S. government obligations, U.S. government agencyobligations and investment-grade corporate bonds. Our exposure to market risksassociated with changes in interest rates relates primarily to the increase ordecrease in the amount of interest income earned on our investmentportfolio.  Due to the short-term natureof these investments, if market interest rates were to increase by 10% fromlevels as of March 31, 2008, the decline in fair value would not bematerial.

 

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

*** ***

**a) Evaluation of****Disclosure Controls andProcedures**

 

Our management, under the supervision and with theparticipation of our Chief Executive Officer and Chief Financial Officer,performed an evaluation of the effectiveness of the design and operation of our“disclosure controls and procedures” (as defined in Rule 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934) as of March 31,2008. Based upon this evaluation, management has concluded that, as of March 31,2008, our disclosure controls and procedures were effective to providereasonable assurance that the information required to be disclosed is recorded,processed, summarized and reported within the time periods specified underapplicable rules of the Securities and Exchange Commission, and that suchinformation  is accumulated andcommunicated to management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosures.

 

**b)Changes in Internal Controls**

 

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

 

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# **PART II – OTHER INFORMATION**

# ** **

#### **Item 1.**        LegalProceedings

 

None.

 

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

 

Set forth below and elsewhere in this report and inother documents we file with the Securities and Exchange Commission are risksand uncertainties that could cause actual results to differ materially from theresults contemplated by the forward-looking statements contained in thisreport. The descriptions below include any material changes to and supersedethe description of the risk factors affecting our business previously disclosedin “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-Kfor the year ended December 31, 2007.

 

**RisksRelated to Our Business**

 

***We have incurred losses since inception and expect to incur significantlosses in the foreseeable future and may never become profitable.***

 

Wehave sustained operating losses since our inception in 1982. We believe theselosses will continue for the foreseeable future as we pursue our productdevelopment efforts related to Tb4. As of March 31, 2008, our accumulateddeficit totaled approximately $70.0 million and our cash and cash equivalentstotaled approximately $10.0 million.

 

Weanticipate substantial and increasing operating losses over the next severalyears as we continue our research and development efforts and seek to obtainregulatory approval of our product candidates to make them commercially viable.Our ability to generate additional revenues and potential to become profitablewill depend largely on our ability, alone or through the efforts of third-partylicensees, to efficiently and successfully complete the development of ourproduct candidates, obtain necessary regulatory approvals forcommercialization, scale-up commercial quantity manufacturing capabilitieseither internally or through third-party suppliers, and market our productcandidates. There can be no assurance that these objectives will occur or thatwe will ever become profitable or be able to maintain profitability. Even if wedo achieve profitability, we cannot predict the level of such profitability. Ifwe sustain losses over an extended period of time and are not otherwise able toraise necessary funds to continue our development efforts and maintain ouroperations, we may be forced to cease operations.

 

***We will need substantial additional capital to develop our productcandidates and for our future operations. If we are unable to obtain such fundswhen needed, we may have to delay, scale back or terminate our productdevelopment efforts or our business.***

*** ***

Weanticipate that substantial new capital resources will be required to continueour independent development efforts, including any and all follow-on trialsthat will result from our current clinical programs, and increasingly scaled-upmanufacturing processes for RGN-137, RGN-259 and RGN-352. The actual amount offunds that we will need will be determined by many factors, some of which arebeyond our control. These factors include, without limitation;

 

·                  the scope of our clinical trials, which issignificantly influenced by the quality of clinical data achieved as trialscomplete and the requirements established by regulatory authorities,

 

·                  the speed with which we complete our clinicaltrials complete, which depends on the speed with which we can attract andenroll qualifying patients and the quality of the work performed by ourclinical investigators,

 

·                  the time required to prosecute, enforce anddefend our intellectual property rights, which depends on evolving patent legalregimes and claims/infringement assertions that may arise between us andthird-parties,

 

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·                  the ability to manufacture at scalessufficient to supply commercial quantities of any of our product candidatesthat receive regulatory approval, which may require levels of effort not currentlyanticipated, and

 

·                  the successful commercialization of our drugcandidates, which will depend on our ability to either create or partner withan effective commercialization organization and which could be delayed orprevented by the emergence of equal or more effective therapies.

 

Potentialsources of outside capital include entering into strategic businessrelationships, public or private sales of shares of our capital stock, or debt,or other similar financial instruments. While we recently closed a privateplacement of $5 million in common stock and warrants to purchase common stockinvolving certain of our existing investors, we do not have any other committedsources of outside capital at this time. Consequently, there can be noassurance that we will be able to obtain capital in sufficient amounts, or on acceptableterms, or at times critical to the uninterrupted execution of our businessstrategy.

 

Onepotential source of capital often capitalized on by emerging biotechnologycompanies similar to RegeneRx is through licensing certain intellectualproperty rights to other biotechnology or pharmaceutical enterprises, i.e. a “strategicpartner.”  If we raise additional capital through such a strategicbusiness relationship, we may have to give up valuable short- and/or long-termrights to intellectual property.  In addition and as the businesspriorities of the strategic partner change over time, the possibility existsthat the interests of the strategic partner may shift causing a materialnegative impact on the value of our interest in the licensed products. If weraise funds by selling additional shares of our common stock or securitiesconvertible into our common stock, the ownership interest of our existingstockholders may be significantly diluted. In addition, if additional funds areraised through the issuance of preferred stock or debt securities, thesesecurities are likely to have rights, preferences and privileges senior to ourcommon stock and may involve significant fees, interest expense, restrictivecovenants and the granting of security interests in our assets.

 

Ourfailure to successfully address ongoing liquidity requirements would have amaterial negative impact on our business, including:  the possibly ofsurrendering our rights to some technologies or product opportunities, delayingour clinical trials, or ceasing operations.

 

***Our business prospects are difficult to evaluate because we aredeveloping complex and novel medical product candidates.***

*** ***

Sinceour product candidates rely on complex technologies, it may be difficult foryou to assess our growth, partnering and earnings potential. It is likely wewill face many of the difficulties that new technology companies often face.These include, among others:

 

·                  limited financial resources,

 

·                  developing novel, commercial grade drugsubstances,

 

·                  testing and evaluating a new chemical entityand its effects in highly-complex biological systems,

 

·                  marketing new products for which a market isnot yet established and may never become established,

 

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·                  challenges related to the approval andacceptance of drug candidates by Federal and International regulatoryauthorities,

 

·                  delays inherent in and increasingly morecommon in the execution of clinical trials,

 

·                  high product development costs that resultfrom all of these factors; competition from other therapies and drug candidatespromoted by entities with significantly more capital resources and marketingexpertise and

 

·                  difficulty recruiting qualified employees formanagement and other positions.

 

Wewill likely face these and other difficulties in the future, some of which maybe beyond our control. If we are unable to successfully address thesedifficulties as they arise, our future growth and earnings will be negativelyaffected. We cannot be certain that our product candidates will prove safe andefficacious, that our business strategies will be successful or that we willsuccessfully address any and all problems that may arise.

 

***We may not successfully establish and maintain development and testingrelationships with third parties, which could adversely affect our ability todevelop our product candidates.***

*** ***

Wehave only limited resources, experience with and capacity to conduct requisitetesting and clinical trials of our drug candidates. As a result, we rely andexpect to continue to rely on third-party service providers and collaborators,including corporate partners, licensors and contract research organizations (“CROs”),to perform a number of activities relating to the development of our drug candidates,including the design and conduct of clinical trials, and potentially theobtaining of regulatory approvals.  For example, we currently rely onseveral third-party contractors to manufacture Tb4; formulate RGN-137, RGN-259 and RGN-352into the drug candidates RGN-137, RGN-259 and RGN-352; develop requisite assaysto assess Tb4’s affect in complex biological systems,recruit investigators and sites to participate in our trials; manage theclinical trial process; and collect, evaluate and report clinical results.

 

Wemay not be able to maintain or expand our current arrangements with thirdparties or maintain such relationships on favorable terms.  Our agreementswith these third parties may also contain provisions that restrict our abilityto develop and test our product candidates or that give third parties rights tocontrol aspects of our product development and clinical programs. In addition,conflicts may arise with our collaborators, such as conflicts concerning theinterpretation of clinical data, the achievement of milestones, theinterpretation of financial provisions or the ownership of intellectualproperty developed during the collaboration. If any conflicts arise with ourexisting or future collaborators, they may act in their self-interest, whichmay be adverse to our best interests.  Any failure to maintain ourcollaborative agreements and any conflicts with our collaborators could delayor prevent us from developing our product candidates.  We and ourcollaborators may fail to develop products covered by our present and futurecollaborations if, among other things:

 

·                  we do not achieve our objectives under ourcollaboration agreements;

 

·                  we or our collaborators are unable to obtainpatent protection for the products or proprietary technologies we develop inour collaborations;

 

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·                  we are unable to manage multiple simultaneousproduct discovery and development collaborations;

 

·                  our collaborators become competitors of oursor enter into agreements with our competitors;

 

·                  we or our collaborators encounter regulatoryhurdles that prevent commercialization of our product candidates; or

 

·                  we develop products and processes or enterinto additional collaborations that conflict with the business objectives ofour other collaborators.

 

Wealso have less control over the timing and other aspects of our clinical trialsthan if we conducted the monitoring and supervision entirely on our own. Thirdparties may not perform their responsibilities for our clinical trials on ouranticipated schedule or consistent with a clinical trial protocol or applicableregulations. We also rely on clinical research organizations to perform much ofour data management and analysis. They may not provide these services asrequired or in a timely manner. If any of these parties do not meet deadlinesor follow proper procedures, including procedures required by law, thepre-clinical studies and clinical trials may take longer than expected, may bedelayed or may be terminated, which would have a materially negative impact onour product development efforts. If we were forced to find a replacement entityto perform any of our pre-clinical studies or clinical trials, we may not beable to find a suitable entity on favorable terms or at all. Even if we wereable to find a replacement, resulting delays in the tests or trials may resultin significant additional expenditures and delays in obtaining regulatoryapproval for drug candidates, which could have a material adverse impact on ourresults of operations and business prospects.

 

***We are subject to intense government regulation and we may not receiveregulatory approvals for our new drug candidates.***

*** ***

Ourproduct candidates will require regulatory approvals prior to sale. In particular,therapeutic agents are subject to stringent approval, prior to commercialmarketing, by the FDA and by comparable agencies in most foreigncountries.  The process of obtaining FDA and corresponding foreignapprovals is costly and time consuming and we cannot assure you that suchapprovals will be granted.  Also, the regulations we are subject to changefrequently, and such changes could cause delays in the development of ourproduct candidates.  In addition, the timing of clinical trials is dependenton, among other things, FDA and investigational review board (“IRB”) reviews,clinical site approvals, successful manufacturing of clinical materials,sufficient funding and other factors outside of our control. There can be noassurance that our clinical trials will in fact demonstrate, to thesatisfaction of the FDA and others, that our product candidates aresufficiently safe or effective. The FDA or we may also restrict or suspend ourclinical trials at any time if either believes that we are exposing thesubjects participating in the trials to unacceptable health risks.

 

Asa consequence, we may need to perform more or larger clinical trials thanplanned, for reasons such as the following:

 

·                  the FDA or other health regulatoryauthorities, or institutional review boards, do not approve a clinical trialprotocol or place a clinical trial on hold;

 

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·                  suitable patients do not enroll in a clinicaltrial in sufficient numbers or at the expected rate, or data is adverselyaffected by trial conduct or patient drop out;

 

·                  patients experience serious adverse events,including adverse side effects of our drug candidates;

 

·                  patients die during a clinical trial for avariety of reasons that may or may not be related to our product candidates,including the advanced stage of their disease and medical problems;

 

·                  patients in the placebo or untreated controlgroup exhibit greater than expected improvements or fewer than expected adverseevents;

 

·                  third-party clinical investigators do notperform the clinical trials on the anticipated schedule or consistent with theclinical trial protocol and good clinical practices, or other third-partyorganizations do not perform data collection and analysis in a timely or accuratemanner;

 

·                  service providers, collaborators orco-sponsors do not adequately perform their obligations in relation to theclinical trial or cause the trial to be delayed or terminated;

 

·                  regulatory inspections of manufacturingfacilities, which may, among other things, require us or a co-sponsor toundertake corrective action or suspend the clinical trials;

 

·                  the interim results of the clinical trial areinconclusive or negative;

 

·                  the clinical trial, although approved andcompleted, generates data that is not considered by the FDA or others to besufficient to demonstrate safety and efficacy; and

 

·                  changes in governmental regulations oradministrative actions affect the conduct of the clinical trial or theinterpretation of its results.

 

Anyfailure to obtain or any delay in obtaining regulatory approvals would have amaterial adverse impact on our ability to develop and commercialize our productcandidates.

 

***We may not be able to enter into strategicrelationships with third parties related to the development andcommercialization of our product candidates***

*** ***

Oneof our strategic focuses is to enter into relationships with one or morethird-party pharmaceutical companies to license our technology and to help uscontinue the development of our product candidates.  We believe thathaving such partners would enable us to both defray the costs associated withthe development of our product candidates and accelerate the speed with whichwe may be able to complete development of and obtain regulatory approval forour product candidates and commercialize such products.  However, we canoffer no assurance that we will be able to enter into license and developmentagreements with third-party pharmaceutical companies or that any suchrelationships would in fact decrease our costs or accelerate our productdevelopment efforts. If we are unable to enter into such relationships, ourproduct development efforts may be slowed or related costs mayincrease.  In addition, any such relationships would require us to give upsignificant rights in our product candidates, which rights may, over time, havebeen worth more to us if we had been able to commercialize such productcandidates without entering into third-party agreements.

 

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***Mauro Bove, a member of our Board, is also a director and officer ofSigma-Tau, our largest stockholder, which could give rise to a conflict ofinterest involving Mr. Bove.***

*** ***

MauroBove, a member of our board of directors, or our Board, is also a director andofficer of Sigma-Tau, our largest stockholder and our partner in Europe withrespect to the development of certain of our drug candidates.  We recentlyissued shares of common stock and common stock warrants to certain affiliatesof Sigma-Tau in a private placement that gave us the right to repurchase theshares under certain circumstances.  Also, in 2004, we licensed Tb4 to Defiante Farmaceutica S.p.A., awholly-owned subsidiary of Sigma-Tau, for internal and external wound healingfor the European Union.  Upon the successful completion of a Phase IItrial Defiante is obligated to either make a $5 million milestone payment orinitiate and pay for a Pivotal Phase III trial.  As a result of Mr. Bove’srelationship with Sigma-Tau, there could be a conflict of interest between Mr. Boveand our stockholders other than Sigma-Tau with respect to these and otheragreements and circumstances that may require the exercise of the Board’sdiscretion with respect to Sigma-Tau.

 

***We are heavily reliant on our license from the National Institutes ofHealth and may be unable to maintain our license.***

*** ***

Wehave received an exclusive world-wide license to intellectual propertydiscovered at the National Institutes of Health, or NIH, pertaining to woundhealing and tissue repair. This license terminates upon the last to expire ofthe patent applications that are filed in connection with the license. Thislicense requires us to pay a minimum annual royalty to the NIH, regardless ofthe success of our product development efforts, plus certain other royaltiesupon the sale of products created by the intellectual property granted underthe license. We rely on this license for a significant portion of our business.This license may be terminated for a number of reasons, including non-paymentof the royalty or lack of continued product development, among others. The loss of this license would have a material adverse effect on our businessand business prospects and may require us to cease development of our currentline of product candidates.

 

***All of our drug candidates are based on a single compound that has yetto be proven effective.***

*** ***

Ourcurrent primary business focus is the development of Tb4, and its analogues, derivatives andfragments, for the treatment of non-healing wounds and other conditions. Whilewe have in the past explored and may in the future explore the use of othercompounds for the treatment of other medical conditions, we presently have noimmediate plans to develop products for such purposes. Unlike many pharmaceuticalcompanies that have a number of unique chemical entities in development, we aredependent on a single molecule, formulated for different administrations, forthe success of our company. As a result, any common safety or efficacy concernsfor Tb4-based products that cross formulations,would have a much greater impact on our business prospects than if we were morediversified.

 

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Ournew drug candidates are still in research and development, and we do not expectthem to be commercially available for the foreseeable future, if at all. Only asmall number of research and development programs ultimately result incommercially successful drugs. Potential products that appear to be promisingat early stages of development may not reach the market for a number ofreasons. These reasons include the possibility that the potential products may:

 

·                  be found ineffective or cause harmful sideeffects during pre-clinical studies or clinical trials,

 

·                  fail to receive necessary regulatoryapprovals,

 

·                  be precluded from commercialization byproprietary rights of third parties,

 

·                  be difficult to manufacture on a large scaleor

 

·                  be uneconomical or otherwise fail to achievemarket acceptance.

 

Ifany of these potential problems occurs, we may never successfully market Tb4-based products.

 

***We have no manufacturing or formulation capabilities and are dependentupon third-party suppliers to provide us with our product candidates. If thesesuppliers do not manufacture our product candidates in sufficient quantities,at acceptable quality levels and at acceptable cost and if we are unable toidentify suitable replacement suppliers, our clinical development efforts couldbe delayed, prevented or impaired.***

*** ***

Wedo not own or operate manufacturing facilities and have little experience inmanufacturing pharmaceutical products. We currently rely, and expect tocontinue to rely, primarily on one of the leading peptide manufacturers tosupply us with Tb4 for further formulation into our productcandidates.  We have engaged three separate smaller drug formulationcontractors for the formulation of clinical grade product candidates, one eachfor RGN-137, RGN-259 and RGN-352.  We currently do not have an alternativesource of supply for either Tb4 or the individual drug candidates. If thesesuppliers, together or individually, are not able to supply us with either Tb4 or individual product candidates on atimely basis, in sufficient quantities, at acceptable levels of quality and at acompetitive price; and, if we are unable to identify a replacement manufacturerto perform these functions on acceptable terms, our development programs,collectively or individually, could be seriously jeopardized.

 

Therisks of relying solely on single suppliers for our product candidates include:

 

·                  Their respective abilities to ensure qualityand compliance with regulations relating to the manufacture of pharmaceuticals;

 

·                  Their manufacturing capacity may not besufficient or available to produce the required quantities of our productcandidates based on our planned clinical development schedule, if at all;

 

·                  They may not have access to the capitalnecessary to expand their manufacturing facilities in response to our needs;

 

·                  Commissioning replacement suppliers would bedifficult and time consuming;

 

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·                  Individual suppliers may have usedsubstantial proprietary know-how relating to the manufacture of our productcandidates and, in the event we must find a replacement or supplementalsupplier, our ability to transfer this know-how to the new supplier could be anexpensive and/or time consuming process;

 

·                  An individual supplier may experience events,such as a fire or natural disaster, that force it to stop or curtail productionfor an extended period;

 

·                  An individual supplier could encountersignificant increases in labor, capital or other costs that would make itdifficult for them to produce our products cost-effectively;

 

·                  An individual supplier may not be able toobtain the raw materials or validated drug containers in sufficient quantities,at acceptable costs or in sufficient time to complete the manufacture,formulation and delivery of our product candidates.

 

***If any of our key executives discontinue their services with us, ourefforts to develop our business may be delayed.***

*** ***

Weare highly dependent on the principal members of our management team and theloss of our chairman, Allan Goldstein, or chief executive officer,J.J. Finkelstein, could prevent or significantly delay the achievement ofour goals. We have employment agreements with Dr. Goldstein and Mr. Finkelstein.However, we cannot assure you that such agreements would prevent them fromterminating their employment with or without good reason.  In addition, wedo not maintain a key man life insurance policy with respect to Dr. Goldsteinor Mr. Finkelstein. In the future, we anticipate that we will need to addadditional management and other personnel. Competition for qualified personnelin our industry is intense, and our success will depend in part on our abilityto attract and retain highly skilled personnel. We cannot assure you that ourefforts to attract or retain such personnel will be successful.

 

***We are subject to intense competition from companies with greaterresources and more mature products.***

*** ***

Weare engaged in a business that is highly competitive. Research and developmentactivities for the development of drugs to treat indications within our focusare being sponsored or conducted by private and public institutions and bymajor pharmaceutical companies located in the United States and a number offoreign countries. Most of these companies and institutions have financial andhuman resources that are substantially greater than our own, and that haveextensive experience in conducting research and development activities andclinical trials and in obtaining the regulatory approvals necessary to marketpharmaceutical products. With respect to wound healing, Johnson &Johnson is marketing RegranexTM for this purpose in patients with diabetic footulcers. Other companies, such as Novartis, are developing and marketingartificial skins which could compete with our product candidates in certainwound healing areas. Moreover, wound healing is a large and highly fragmentedmarketplace attracting many companies, large and small, to develop products fortreating acute and chronic wounds, for example honey-based ointments and lowfrequency cavitational ultrasound. Additionally, most large pharmaceuticalcompanies and many smaller biomedical companies are vigorously pursuingtherapeutics to treat patients after heart attacks and other cardiovascularindications.

 

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***We face the risk of product liability claims, which could adverselyaffect our business and financial condition.***

*** ***

Wemay be subject to product liability claims as a result of our testing,manufacturing, and marketing of drugs. In addition, the use of our productcandidates, when and if developed and sold, will expose us to the risk ofproduct liability claims. Product liability may result from harm to patientsusing our product candidates, such as a complication that was either notcommunicated as a potential side effect or was more extreme than communicated.We will require all patients enrolled in our clinical trials to sign consents,which explain various risks involved with participating in the trial. However,patient consents provide only a limited level of protection, and it may be allegedthat the consent did not address or did not adequately address a risk that thepatient suffered. Additionally, we will generally be required to indemnify theclinical product manufacturers, clinical trial centers, medical professionalsand other parties conducting related activities in connection with losses theymay incur through their involvement in the clinical trials.

 

Ourability to reduce our liability exposure for human clinical trials andcommercial sales of Tb4 is dependent in part on our ability toobtain sufficient product liability insurance or to collaborate with corporatepartners that have adequate insurance. Although we intend to obtain productliability insurance coverage, we cannot guarantee that product liabilityinsurance will continue to be available to us on acceptable terms, or at all,or that its coverage will be sufficient to cover all claims against us. Aproduct liability claim, even one without merit or for which we havesubstantial coverage, could result in significant legal defense costs, therebypotentially exposing us to expenses significantly in excess of our revenues.

 

***Governmental and third-party payers may subject any product candidateswe develop to sales and pharmaceutical pricing controls that could limit ourproduct revenues and delay profitability.***

*** ***

Thesuccessful commercialization of our product candidates will likely depend onour ability to obtain reimbursement for the cost of the product and treatment.Government authorities, private health insurers and other organizations, suchas health maintenance organizations, are increasingly seeking to lower theprices charged for medical products and services. Also, the trend towardmanaged health care in the United States, the growth of healthcareorganizations such as HMOs, and legislative proposals to reform healthcare andgovernment insurance programs could have a significant influence on thepurchase of healthcare services and products, resulting in lower prices andreducing demand for our product candidates. The cost containment measures thathealthcare providers are instituting and any healthcare reform could reduce ourability to sell our product candidates and may have a material adverse effecton our operations. We cannot assure you that reimbursement in the United Statesor foreign countries will be available for any of our product candidates, orthat any reimbursement granted will be maintained, or that limits onreimbursement available from third-party payors will not reduce the demand for,or the price of, our product candidates. The lack or inadequacy of third-partyreimbursements for certain of our product candidates would decrease thepotential profitability of our operations. We cannot forecast what additionallegislation or regulation relating to the healthcare industry or third-partycoverage and reimbursement may be enacted in the future, or what effect thelegislation or regulation would have on our business.

 

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***Clinical trials could be delayed or fail to show efficacy, resulting inadditional cost or failure to commercialize our technology platform.***

*** ***

Allof our drug candidates are currently in the clinical stage and we cannot becertain that a collaborator or we will successfully complete the clinical trialsnecessary to receive regulatory product approvals. This process is lengthy,unpredictable and expensive. To obtain regulatory approvals, a collaborativepartner or we must ultimately demonstrate to the satisfaction of the FDA andothers that our product candidates are sufficiently safe and effective fortheir proposed use.  Many factors, known and unknown, can adversely impactclinical trials and the ability to evaluate a product candidate’s safety andefficacy, including unexpected delays in the initiation of clinical sites,slower than projected enrollment, competition with ongoing clinical trials andscheduling conflicts with participating clinicians, regulatory requirements,limits on manufacturing capacity and failure of a product candidate to meet requiredstandards for administration to humans. Such factors may have a negative impacton our business by making it difficult to advance product candidates or byreducing or eliminating their potential or perceived value. Further, if we areforced to contribute greater financial and clinical resources to a study,valuable resources will be diverted from other areas of our business.

 

Clinicaltrials for product candidates such as ours are often conducted with patientswho have more advanced forms of a particular condition and/or other unrelatedconditions. For example, in clinical trials for our lead product candidateRGN-137, we expect to study patients who are not only suffering from chronicepidermal wounds but are also older and much more likely to have other seriousadverse conditions. During the course of treatment, these patients could die orsuffer other adverse events for reasons that may or may not be related to thedrug candidate being tested. Furthermore, and as a consequence that all of ourdrug candidates are based on Tb4 cross-over risk exists, that is a patientin one trial may be adversely impacted by one drug candidate and that adverseevent may have implications to our other trials and other drug candidates.However, even if unrelated to our product candidates, such events cannevertheless adversely impact our clinical trials. As a result, our businessand ability to ultimately develop and market the product candidates and obtainrevenues would suffer.

 

Ourability to complete clinical trials depends on many factors, includingobtaining adequate clinical supplies and having a sufficient rate of patientrecruitment. For example, patient recruitment is a function of many factors,including: the size of the patient population; the proximity of patients toclinical sites; the eligibility criteria for the trial; the perceptions ofinvestigators and patients regarding safety; and the availability of othertreatment options. Even if patients are successfully recruited, we cannot besure they will complete the treatment process. Delays in patient enrollment ortreatment in clinical trials may result in increased costs, program delays, orfailure, any of which can substantially affect our business or perceived value.

 

Anumber of factors, including unexpected delays in the initiation of clinicalsites, slower than projected enrollment, competition with ongoing clinicaltrials and scheduling conflicts with participating clinicians, regulatoryrequirements, limits on manufacturing capacity and failure of a productcandidate to meet required standards for administration to humans may causesignificant delays in the completion of our clinical trials. In addition, itmay take longer than we expect to achieve study endpoints and complete dataanalysis for a trial. We may not complete our clinical trials when or asprojected or commence or complete clinical trials involving any of our otherproduct candidates as projected or may not conduct them successfully.

 

Ifwe fail to complete or if we experience material delays in completing the PhaseII trials as currently planned, or we otherwise fail to commence or complete,or experience delays in, any of our other present or planned clinical trials,including as a result of the actions of third parties upon which we rely forthese functions, our ability to conduct our business as currently planned couldmaterially suffer. Development costs will increase if we experience any futuredelays in our clinical trials or if we need to perform more or larger clinicaltrials than we currently plan. If the delays or costs are significant, ourfinancial results and our ability to commercialize our product candidates willbe adversely affected.

 

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***We have no marketing experience, sales force or distributioncapabilities. If our product candidates are approved, and we are unable torecruit key personnel to perform these functions, we may not be able tocommercialize them successfully.***

*** ***

Althoughwe do not currently have any marketable products, our ability to producerevenues ultimately depends on our ability to sell our product candidates ifand when they are approved by the FDA and other regulatory authorities. Wecurrently have no experience in marketing or selling pharmaceutical productsand we do not have a marketing and sales staff or distribution capabilities.Developing a marketing and sales force is also time consuming and could delaythe launch of new products or expansion of existing product sales. In addition,we will compete with many companies that currently have extensive andwell-funded marketing and sales operations. If we fail to establish successfulmarketing and sales capabilities or fail to enter into successful marketingarrangements with third parties, our ability to generate revenues will suffer.

 

***Even if approved for marketing, our technologies and product candidatesare relatively novel and unproven and they may fail to gain market acceptance.***

*** ***

Ourdrug candidates which are all based on the molecule Tb4 are new and rapidly evolving and have notbeen shown to be effective on a widespread basis.  Our product candidates,and the technology underlying them, are new and unproven and there is noguarantee that health care providers or patients will be interested in ourproduct candidates even if they are approved for use. Our success will dependin part on our ability to demonstrate sufficient clinical benefits,reliability, safety, and cost effectiveness of our product candidates and technologyrelative to other approaches, as well as on our ability to continue to developour product candidates to respond to competitive and technological changes. Ifthe market does not accept our product candidates or product candidates, whenand if we are able to commercialize them, then we may never become profitable.Factors that could delay or inhibit market acceptance of our product candidatesmay include:

 

·                  the timing and receipt of marketingapprovals;

 

·                  the safety and efficacy of the products;

 

·                  the emergence of equivalent or superiorproducts;

 

·                  the cost-effectiveness of the products; and

 

·                  effective marketing.

 

Itis difficult to predict the future growth of our business, if any, and the sizeof the market for our product candidates because the market and technology arecontinually evolving. There can be no assurance that our technologies andproduct candidates will prove superior to technologies and products that maycurrently be available or may become available in the future or that our technologiesor research and development activities will result in any commerciallyprofitable products.

 

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***Our technologies and product candidates may have unacceptable sideeffects that could delay or prevent product approval.***

*** ***

Possibleside effects of therapeutic technologies may be serious and life threatening.The occurrence of any unacceptable side effects with our product candidates,during or after pre-clinical studies and clinical trials, or the perception orpossibility that our product candidates cause or could cause such side effects,could delay or prevent approval of our product candidates and negatively impactour business.

 

***Our suppliers use hazardous and biological materials in our business.Any claims relating to improper handling, storage or disposal of thesematerials could be time consuming and costly, and we are not insured againstsuch claims.***

*** ***

Ourproduct candidates and processes involve the controlled storage, use anddisposal by our suppliers of certain hazardous and biological materials andwaste products. We and our suppliers and other collaborators are subject tofederal, state and local regulations governing the use, manufacture, storage,handling and disposal of materials and waste products. Even if we and thesesuppliers and collaborators comply with the standards prescribed by law andregulation, the risk of accidental contamination or injury from hazardousmaterials cannot be completely eliminated. In the event of an accident, wecould be held liable for any damages that result, and we do not carry insurancefor this type of claim. We may also incur significant costs to comply withcurrent or future environmental laws and regulations.

 

***To the extent we enter markets outside the United States our businesswill be subject to political, economic, legal and social risks in thosemarkets, which could adversely affect our business.***

*** ***

Thereare significant regulatory and legal barriers in markets outside the UnitedStates that we must overcome to the extent we enter or attempt to enter marketsin countries other than the United States. We currently intend to market anyapproved products in the United States, Europe, Japan, India andterritories surrounding the Pacific Rim. We will be subject to the burden ofcomplying with a wide variety of national and local laws, including multipleand possibly overlapping and conflicting laws. We also may experiencedifficulties adapting to new cultures, business customs and legal systems. Anysales and operations outside the United States would be subject to political,economic and social uncertainties including, among others:

 

·                  changes and limits in import and exportcontrols;

 

·                  increases in custom duties and tariffs;

 

·                  changes in currency exchange rates;

 

·                  economic and political instability;

 

·                  changes in government regulations and laws;

 

·                  absence in some jurisdictions of effectivelaws to protect our intellectual property rights; and

 

·                  currency transfer and other restrictions andregulations that may limit our ability to sell certain product candidates orrepatriate profits to the United States.

 

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Anychanges related to these and other factors could adversely affect our businessto the extent we enter markets outside the United States.

*** ***

***We may not be able to obtain orphan drug exclusivity for our productcandidates. If our competitors are able to obtain orphan drug exclusivity for aproduct that is competitive with one or more of our product candidates and wecannot show that our product candidate is clinically superior, we may not beable to have competing products approved by the applicable regulatory authorityfor a significant period of time.***

*** ***

Regulatoryauthorities in some jurisdictions, including Europe and the United States, maydesignate drugs that target relatively small patient populations as orphandrugs. In June 2004, we received Orphan Drug designation from the FDA forTb4 for the treatment of Epidermolysis Bullosa,or EB, a rare genetic disease characterized by the presence of extremelyfragile skin and other tissues, resulting in recurrent blisters from minormechanical friction or trauma, and we may pursue orphan drug designation foradditional product candidates. Generally, if a product with an orphan drugdesignation subsequently receives the first marketing approval for theindication for which it has such designation, the product is entitled to aperiod of marketing exclusivity. The exclusivity applies only to the indicationfor which the drug has been designated and approved. The applicable exclusivityperiod is seven years in the United States, but this period may be interruptedif a sponsor of a competitive product that is otherwise the same drug for thesame use can show that its drug is clinically superior to our orphan drugcandidate. The European exclusivity period is ten years, but may be reduced tosix years if a drug no longer meets the criteria for orphan drug designation,including where it is shown that the drug is sufficiently profitable so thatmarket exclusivity is no longer justified. In addition, European regulationsestablish that a competitor’s marketing authorization for a similar productwith the same indication may be granted if there is an insufficient supply ofthe product or if another applicant can establish that its product is safer,more effective or otherwise clinically superior. If a competitor obtains orphandrug exclusivity for a product competitive with EB before we do and if thecompetitor’s product is the same drug with the same indication as ours, wewould be excluded from the market, unless we can show that our drug is safer,more effective or otherwise clinically superior. Even if we obtain orphan drugexclusivity for EB for these indications, we may not be able to maintain it ifa competitor with a product that is otherwise the same drug can establish thatits product is clinically superior.

 

**RisksRelated To Our Intellectual Property**

 

***If we are not able to maintain adequate patent protection for ourproduct candidates and product candidates, we may be unable to prevent ourcompetitors from using our technology or technology that we license.***

*** ***

Oursuccess also will depend in substantial part on our ability to obtain, defendand enforce patents, maintain trade secrets and operate without infringing uponthe proprietary rights of others, both in the United States and abroad.Pursuant to a research agreement with The George Washington University, we haverights to two U.S. patents relating to the treatment of septic shock. We alsoown patents related to the use of Tb4, among other thymic peptides, for thestimulation of hair growth. Pursuant to an exclusive world-wide license fromthe NIH, we have exclusive rights under a patent application filed by the NIHfor the use of Tb4 in the treatment of non-healing wounds.While this patent has issued in certain countries, we cannot guarantee whetheror when the patent will be issued or as to the scope of the patent issued inother countries.  We have attempted to create a substantial intellectualproperty portfolio, submitting patent applications for various compositions ofmatter, methods of use and fragments and derivatives of Tb4.  We have also in-licensed otherintellectual property rights from third parties that could be subject to thesame risks as our own patents.  If any of these patent applications do notissue, or do not issue in certain countries, or are not enforceable, theability to commercialize Tb4 in various medical indications could besubstantially limited or eliminated.

 

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Inaddition, the patent positions of the technologies being developed by us andour collaborators involve complex legal and factual uncertainties. As a result,we cannot assure you that any patent applications filed by us, or by othersunder which we have rights, will result in patents being issued in the UnitedStates or foreign countries. In addition, there can be no assurance that (i) anypatents will be issued from any pending or future patent applications of oursor our collaborators; (ii) the scope of any patent protection will besufficient to provide us with competitive advantages; (iii) any patentsobtained by us or our collaborators will be held valid if subsequently challenged;or (iv) others will not claim rights in or ownership of the patents andother proprietary rights we or our collaborators may hold. Unauthorized partiesmay try to copy aspects of our product candidates and technologies or obtainand use information we consider proprietary. Policing the unauthorized use ofour proprietary rights is difficult. We cannot guarantee that no harm or threatwill be made to our or our collaborators’ intellectual property. In addition,changes in, or different interpretations of, patent laws in the United Statesand other countries may also adversely affect the scope of our patentprotection and our competitive situation.

 

Dueto the significant time lag between the filing of patent applications and thepublication of such patents, we cannot be certain that our licensors were thefirst to file the patent applications we license or, even if they were thefirst to file, also were the first to invent, particularly with regards topatent rights in the United States. In addition, a number of pharmaceutical andbiotechnology companies and research and academic institutions have developedtechnologies, filed patent applications or received patents on varioustechnologies that may be related to our operations. Some of these technologies,applications or patents may conflict with our or our licensors’ technologies orpatent applications. A conflict could limit the scope of the patents, if any,that we or our licensors may be able to obtain or result in denial of our orour licensors’ patent applications. If patents that cover our activities areissued to other companies, we may not be able to develop or obtain alternativetechnology.

 

Additionally,there is certain subject matter that is patentable in the United States but notgenerally patentable outside of the United States. Differences in whatconstitutes patentable subject matter in various countries may limit theprotection we can obtain outside of the United States. For example, methods oftreating humans are not patentable in many countries outside of the UnitedStates. These and other issues may prevent us from obtaining patent protectionoutside of the United States, which would have a material adverse effect on ourbusiness, financial condition and results of operations.

 

***Changes to U.S. patent laws could materially reduce any value ourpatent portfolio may have.***

*** ***

Thevalue of our patents depends in part on their duration. A shorter period ofpatent protection could lesson the value of our rights under any patents thatmay be obtained and may decrease revenues derived from its patents. The UnitedStates patent laws were amended in 1995 to change the term of patent protection17 years from patent issuance to 20 years from the earliest effective filingdate of the application. Because the time from filing to issuance ofbiotechnology applications may be more than three years depending on thesubject matter, a 20-year patent term from the filing date may result insubstantially shorter patent protection. This would shorten our period ofpatent exclusivity and may decrease the revenues that we might derive from thepatents and the value of our patent portfolio.

 

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***We may not have adequate protection for our unpatented proprietaryinformation, which could adversely affect our competitive position.***

*** ***

Inaddition to our patents, we also rely on trade secrets, know-how, continuingtechnological innovations and licensing opportunities to develop and maintainour competitive position. However, others may independently developsubstantially equivalent proprietary information and techniques or otherwisegain access to our trade secrets or disclose our technology. To protect ourtrade secrets, we may enter into confidentiality agreements with employees,consultants and potential collaborators. However, we may not have suchagreements in place with all such parties and, where we do, these agreementsmay not provide meaningful protection of our trade secrets or adequate remediesin the event of unauthorized use or disclosure of such information. Also, ourtrade secrets or know-how may become known through other means or beindependently discovered by our competitors. Any of these events could preventus from developing or commercializing our product candidates.

 

***We may be subject to claims that we or our employees have wrongfullyused or disclosed alleged trade secrets of former employers.***

*** ***

Asis commonplace in the biotechnology industry, we employ now, and may hire inthe future, individuals who were previously employed at other biotechnology orpharmaceutical companies, including competitors or potential competitors.Although there are no claims currently pending against us, we may be subject toclaims that we or certain employees have inadvertently or otherwise used ordisclosed trade secrets or other proprietary information of former employers.Litigation may be necessary to defend against these claims. Even if we aresuccessful in defending against these claims, litigation could result insubstantial costs and would be a significant distraction to management.

 

**RisksRelated To Our Securities**

 

***Our common stock price is volatile, our stock is highly illiquid, andany investment in our stock could decline substantially in value.***

*** ***

Duringthe quarter ended March 31, 2008, our closing stock price has ranged from$0.80 to $1.10 with an average daily trading volume of 16,255 shares. In lightof our small size and limited resources, as well as the uncertainties and risksthat can affect our business and industry, our stock price is expected tocontinue to be highly volatile and can be subject to substantial drops, with oreven in the absence of news affecting our business. The following factors, inaddition to the other risk factors described in this prospectus, and thepotentially low volume of trades in our common stock, may have a significantimpact on the market price of our common stock, some of which are beyond ourcontrol:

 

·                  results of pre-clinical studies and clinicaltrials;

 

·                  commercial success of approved products;

 

·                  corporate partnerships;

 

·                  technological innovations by us orcompetitors;

 

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·                  changes in laws and government regulationsboth in the U.S. and overseas;

 

·                  changes in key personnel at our company;

 

·                  developments concerning proprietary rights,including patents and litigation matters;

 

·                  public perception relating to the commercialvalue or safety of any of our product candidates;

 

·                  future sales of our common stock;

 

·                  future issuance of our common stock causingdilution;

 

·                  anticipated or unanticipated changes in ourfinancial performance; and

 

·                  general trends related to thebiopharmaceutical and biotechnological industries; and general conditions inthe stock market.

 

Thestock market in general has recently experienced relatively large price andvolume fluctuations. In particular, the market prices of securities of smallerbiotechnology companies have experienced dramatic fluctuations that often havebeen unrelated or disproportionate to the operating results of these companies.Continued market fluctuations could result in extreme volatility in the priceof the common stock, which could cause a decline in the value of the commonstock. You should also be aware that price volatility may be worse if thetrading volume of the common stock remains limited or declines.

 

***We have never paid dividends on our common stock.***

*** ***

Wehave paid no cash dividends on any of our classes of capital stock to date, andwe currently intend to retain our future earnings, if any, to fund thedevelopment and growth of our business. In addition, the terms of any futuredebt or credit facility may preclude or limit our ability to pay any dividends.As a result, capital appreciation, if any, of our common stock will be yoursole source of potential gain for the foreseeable future.

 

***Our principal stockholders have significant voting power and may takeactions that may not be in the best interests of our other stockholders.***

*** ***

Asof April 30, 2008, our officers, directors and principal stockholderstogether control approximately 53% of our outstanding common stock. Included inthis group is Sigma-Tau and its affiliates which together hold outstandingshares representing approximately 41% of our outstanding common stock.  Certainshares of common stock held by Sigma-Tau and its affiliates, representingapproximately 13% of our outstanding common stock, are subject to votingagreements under which our Board controls the voting power of such stock. We cannot assure you that such voting agreements would prevent Sigma-Tau andits affiliates from taking actions not in your best interests and effectivelyexercising control over us.  In addition, these voting agreements expirewith respect to securities representing approximately 10% of our outstandingcommon stock on December 31, 2010, and with respect to securitiesrepresenting 3% of our outstanding common stock on June 23, 2010. After such time, we will have no control over the voting of these securities,including with respect to the election of directors and approval of significantcorporate transactions. This concentration of ownership may have the effect ofdelaying or preventing a change in control and might adversely affect themarket price of our common stock. This concentration of ownership may not be inthe best interest of our other stockholders.

 

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*** ***

***Our rights to repurchase certain shares of stock held by Sigma-Tauexpire over time and we may never be able or elect to exercise such rights.***

*** ***

UntilJune 23, 2010, we have the right to repurchase at a price of $5.00 pershare a number of shares of common stock issued to Sigma-Tau equal to thelesser of the shares sold to Sigma-Tau in connection with our private placementof securities on June 22, 2005, or the number of shares necessary toreduce Sigma-Tau’s ownership of our outstanding capital stock to an aggregateof 30.1% at the time of such repurchase. In addition, we have the right to repurchase at any time until December 31,2009, for $2.00 per share or, at any time between January 1, 2010 and December 31,2010, for $2.50 per share, up to5,000,000 shares of common stock issued to Sigma-Tau in connection with aprivate placement of securities on February 29, 2008.  After December 31, 2010, our rights torepurchase common stock held  bySigma-Tau expire.  These provisionscould, under certain circumstances, allow us to reduce dilution by repurchasingthese shares at prices lower than the then-prevailing market price of our commonstock.  However, we cannot assure youthat our share price will increase sufficiently to make such repurchaseseconomically feasible or that we would avail ourselves of the opportunity tomake such repurchases even if our share price had risen to such a level.

 

***A sale of a substantial number of shares of our common stock may causethe price of our common stock to decline.***

*** ***

Currently,we are authorized to issue up to 100,000,000 shares of our common stock, and asof April 30, 2008, there were issued and outstanding 51,553,527 shares ofour common stock. The authorized but unissued shares may be issued by us insuch transactions and at such times as our Board considers appropriate, whetherin public or private offerings, as stock splits or dividends or in connectionwith mergers and acquisitions or otherwise. Sales of a substantial number ofshares of our common stock in the public market could harm the market price ofour common stock. As of April 30, 2008, directors, officers and10% stockholders hold 27,456,290 shares of our common stock and may sellsuch shares at their discretion subject to certain contractual and regulatorylimitations.

 

*** ******The exercise of options andwarrants and other issuances of shares of common stock or securitiesconvertible into common stock will dilute your interest.***

*** ***

Asof April 30, 2008, there were outstanding options to purchase an aggregateof 3,900,000 shares of our common stock at prices ranging from $0.28 per shareto $3.80 per share, of which options to purchase 2,363,415 shares wereexercisable as of such date. As of April 30, 2008, there were outstandingwarrants to purchase 3,837,320 shares of our common stock, at a weightedaverage exercise price of $3.11.  The exercise of options and warrants atprices below the market price of our common stock could adversely affect theprice of shares of our common stock. Additional dilution may result from theissuance of shares of our capital stock in connection with collaborations ormanufacturing arrangements or in connection with other financing efforts.

 

Anyissuance of our common stock that is not made solely to then-existingstockholders proportionate to their interests (as in a stock dividend or stocksplit) will result in dilution to each stockholder by reducing his or her percentageownership of the total outstanding shares.  Moreover, to the extent thatwe issue options or warrants to purchase our common stock in the future andthose options or warrants are exercised or we issue restricted stock,stockholders may experience further dilution. Holders of shares of our commonstock have no preemptive rights that entitle them to purchase their pro ratashare of any offering of shares of any class or series.

 

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Inaddition, certain warrants to purchase shares of our common stock currentlycontain an exercise price above the current market price for the common stock,or above-market warrants.  As a result,these warrants may not be exercised prior to their expiration and we may notrealize any proceeds from their exercise. On March 31, 2008, our board of directors elected to extend theexpiration date to December 31, 2009, of certain above-marketwarrants.  However, we cannot assure youthat our board will elect to extend the expiration dates of these or any otherabove-market warrants in the future. Accordingly, these and other above-market warrants may expireunexercised and we may never realize proceeds from them.

 

***Our certificate of incorporation, our rights agreement and Delaware lawcontain provisions that could discourage a takeover, even if such a transactionwould be in your best interests.***

*** ***

Ourcertificate of incorporation provides our Board with the power to issue sharesof preferred stock without stockholder approval. In addition, under our rightsagreement, our Board has the discretion to issue certain rights to purchase ourcapital stock when a person acquires in excess of 25% of our outstanding commonshares.  These provisions may make it more difficult for stockholders totake corporate actions and may have the effect of delaying or preventing achange in control, even if such actions or change in control would be in yourbest interests. In addition, we are subject to the anti-takeover provisions of Section 203of the Delaware General Corporation Law, or DGCL. Subject to specifiedexceptions, this section provides that a corporation may not engage in anybusiness combination with any interested stockholder during the three-yearperiod following the time that such stockholder becomes an interestedstockholder. This provision could have the effect of delaying or preventing achange of control of our company. The foregoing factors could reduce the pricethat investors or an acquirer might be willing to pay in the future for sharesof our common stock.

 

#### **Item 2.**        UnregisteredSales of Equity Securities and Use of Proceeds

 

Not Applicable.

 

#### **Item 3.**        Defaults Upon Senior Securities

 

None.

 

#### **Item 4.**        Submission of Matters to a Vote of SecurityHolders

 

None.

 

#### **Item 5.**        OtherInformation

 

The American Stock Exchange has approved ourapplication to list up to 6,000,000 additional shares our common stock inconnection with our private placement of securities on February 29, 2008.  As a result, we have resolved the listingdeficiency identified by the exchange on March 27, 2008.

 

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#### **Item 6.**        Exhibits

 
| **Exhibit No.**  | ** ** | **Description  of Exhibit**                                                                                                                                     | ** ** | **Reference**                                                                                                                                        |
|-----------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 3.1                   |       | Restated Certificate of Incorporation of the Company                                                                                                            |       | Exhibit 3.1 to the Company’s Registration  Statement, File No. 33-9370, Amendment No. 1 (filed  November 26, 1986)          |
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 3.2                   |       | Amendment to  Restated Certificate of Incorporation of Company                                                                                                  |       | Exhibit 3.2  to the Company’s Transitional Report on Form 10-K (filed March 18,  1991)                                           |
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 3.3                   |       | Amendment to Restated Certificate of Incorporation  of Company                                                                                                  |       | Exhibit 3.3 to the Company’s Form 10-KSB  (filed April 2, 2001)                                                                  |
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 3.4                   |       | Amended and  Restated Bylaws of Company                                                                                                                         |       | Exhibit 3.4  to the Company’s Quarterly Report on Form 10Q (filed August 14,  2006)                                              |
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 4.1                   |       | Form of  Stock Certificate                                                                                                                                 |       | Exhibit 4.1  to the Company’s Registration Statement, File No. 33-9370, Amendment  No. 1 (filed November 26, 1986)          |
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 4.2                   |       | Rights  Agreement, dated as of April 29, 1994, between the Company and American  Stock Transfer & Trust Company, as Rights Agent                  |       | Exhibit 1  to the Company’s Current Report on Form 8-K (filed May 2, 1994)                                                       |
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 4.3                   |       | Amendment  No. 1 to Rights Agreement, dated March 4, 2004, between the Company  and American Stock Transfer & Trust Company, as Rights Agent |       | Exhibit 4.3  to the Company’s Annual Report on Form 10-KSB (filed March 31,  2006)                                               |
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 10.1                  |       | Form of  Amendment to Warrant                                                                                                                              |       | Exhibit 99.1  to the Company Current Report on Form 8-K (filed January 7, 2008)                                                       |
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 10.2                  |       | Form of  Securities Purchase Agreement                                                                                                                     |       | Exhibit 99.1  to the Company Current Report on Form 8-K (filed February 27, 2008)                                                     |
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 10.3                  |       | Form of  Securities Purchase Agreement                                                                                                                     |       | Exhibit 99.2  to the Company Current Report on Form 8-K (filed February 27, 2008)                                                     |
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 10.4                  |       | Form of  Warrant                                                                                                                                           |       | Exhibit 4.1  to the Company Current Report on Form 8-K (filed February 27, 2008)                                                      |
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 10.5                  |       | Form of  Warrant                                                                                                                                           |       | Exhibit 4.2  to the Company Current Report on Form 8-K (filed February 27, 2008)                                                      |
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 31.1 &  31.2 |       | Certifications  dated May 15, 2008                                                                                                                         |       | Certifications  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed  herewith)                                                     |
|                  |       |                                                                                                                                                            |       |                                                                                                                                                 |
| 32.1 &  32.2 |       | Certifications  dated May 15, 2008                                                                                                                         |       | Certifications  Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |

 

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**SIGNATURES**

** **

In accordance withthe requirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 

 
|   |              | RegeneRx Biopharmaceuticals, Inc.                                      |
|--------|-------------------|-----------------------------------------------------------------------------|
|   |              | (Registrant)                                                                |
|   |              |                                                                        |
|   |              |                                                                        |
| Date:  | May 15, 2008 |                                                                        | /s/J.J. Finkelstein |
|   |              |        J.J.  Finkelstein                      |
|   |              |        President  and Chief Executive Officer |
|   |              |                                                                        |
|   |              |                                                                        |
|   |              | /s/C. Neil Lyons                                                            |
|   |              |     C.  Neil Lyons                                           |
|   |              |           Chief Financial Officer   |
|        |                   |                                                                             |  |

 

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