U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




[mark
      one]


x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the quarterly period ended:  September 30,
  2010




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the transition period from ______________ to
  ______________




Commission
File Number 333-119366








NOVELOS
THERAPEUTICS, INC.


(Exact name of registrant as
specified in its charter)




DELAWARE
            
            04-3321804(State or other jurisdiction of
              incorporation or
      organization)
            
            (IRS
      Employer
              Identification
      No.)





One
Gateway Center, Suite 504, Newton, Massachusetts 02458


(Address of principal executive
offices)





(617)
244-1616


(Registrant’s telephone number,
including area code)





(Former name, former address and
former fiscal year, if changed since last report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes xNo o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes oNo o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the 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                                  (Do
not check if a smaller reporting company)  Smaller reporting company
x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes oNo x





Number of
shares outstanding of the issuer’s common stock as of the latest practicable
date: 111,931,182 shares of common stock, $0.00001 par value per share, as of
November 17, 2010.












NOVELOS
THERAPEUTICS, INC.




FORM
10-Q INDEX




PART
      I.  FINANCIAL INFORMATIONItem
      1.
              Financial
      Statements
              
              
              3Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              
              15Item
      4.
              Controls
      and Procedures
              
              
              18PART
      II. OTHER INFORMATIONItem
      1.
              Legal
      Proceedings
              
              
              19Item
      1A.
              Risk
      Factors
              
              
              19Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              
              20Item
      3.
              Defaults
      Upon Senior Securities
              
              
              20Item
      5.
              Other
      Information
              
              
              20Item
      6.
              Exhibits
              
              
              21





2





PART
I.  FINANCIAL INFORMATION




Item
1. Financial Statements




NOVELOS
THERAPEUTICS, INC.


BALANCE
SHEETS




September
      30,2010
              (unaudited)
            
            
            December
      31,
              2009ASSETSCURRENT
      ASSETS:Cash
      and equivalents
            
            $
            3,365,741
            
            
            $
            8,769,529Prepaid
      expenses and other current assets
            
            
            99,771
            
            
            
            102,923Total
      current assets
            
            
            3,465,512
            
            
            
            8,872,452FIXED
      ASSETS, NET
            
            
            11,222
            
            
            
            44,097DEPOSITS
            
            
            15,350
            
            
            
            15,350TOTAL
      ASSETS
            
            $
            3,492,084
            
            
            $
            8,931,899LIABILITIES, REDEEMABLE PREFERRED STOCK AND
      STOCKHOLDERS’ DEFICIENCYCURRENT
      LIABILITIES:Accounts
      payable and accrued liabilities
            
            $
            770,748
            
            
            $
            3,299,217Accrued
      compensation
            
            
            146,790
            
            
            
            245,711Accrued
      liquidated damages (see Note 4)
            
            
            819,000
            
            
            
            —Accrued
      dividends
            
            
            4,088,067
            
            
            
            2,902,963Derivative
      liability (see Note 2)
            
            
            507,126
            
            
            
            10,486,594Deferred
      revenue – current
            
            
            33,333
            
            
            
            33,333Total
      current liabilities
            
            
            6,365,064
            
            
            
            16,967,818DEFERRED
      REVENUE – NONCURRENT
            
            
            375,000
            
            
            
            400,000COMMITMENTS
      AND CONTINGENCIESREDEEMABLE
      PREFERRED STOCK:Series
      E convertible preferred stock, $0.00001 par value; 735 shares designated;
      408.264045 and 548.26078125 shares issued and outstanding at September 30,
      2010 and December 31, 2009, respectively (liquidation preference
      $23,424,150 at September 30, 2010)
            
            
            13,770,026
            
            
            
            18,459,619STOCKHOLDERS’
      DEFICIENCY:Preferred
      Stock, $0.00001 par value; 7,000 shares authorized: Series C cumulative
      convertible preferred stock; 272 shares designated; 204 shares issued and
      outstanding at September 30, 2010 and December 31, 2009 (liquidation
      preference $3,525,120 at September 30, 2010)
            
            
            —
            
            
            
            —Common
      stock, $0.00001 par value; 225,000,000 shares
      authorized;  111,931,182 and 69,658,002 shares issued and
      outstanding at September 30, 2010 and December 31, 2009,
      respectively
            
            
            1,119
            
            
            
            697Additional
      paid-in capital
            
            
            56,359,557
            
            
            
            49,175,853Accumulated
      deficit
            
            
            (73,378,682
            )
            
            
            (76,072,088
            )Total
      stockholders’ deficiency
            
            
            (17,018,006
            )
            
            
            (26,895,538
            )TOTAL
      LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’
      DEFICIENCY
            
            $
            3,492,084
            
            
            $
            8,931,899




See notes to financial
statements.




3




NOVELOS
THERAPEUTICS, INC.


STATEMENTS
OF OPERATIONS


(Unaudited)




Three
      Months Ended
                  September
      30,
                
                
                Nine
      Months Ended
                  September
      30,2010
                
                
                2009
                
                
                2010
                
                
                2009REVENUE
                
                $
                8,333
                
                
                $
                13,702
                
                
                $
                25,000
                
                
                $
                76,983COSTS
      AND EXPENSES:Research
      and development
                
                
                374,822
                
                
                
                1,765,664
                
                
                
                2,482,728
                
                
                
                5,137,955General
      and administrative
                
                
                542,544
                
                
                
                545,883
                
                
                
                1,930,464
                
                
                
                1,528,826Total
      costs and expenses
                
                
                917,366
                
                
                
                2,311,547
                
                
                
                4,413,192
                
                
                
                6,666,781LOSS
      FROM OPERATIONS
                
                
                (909,033
                )
                
                
                (2,297,845
                )
                
                
                (4,388,192
                )
                
                
                (6,589,798
                )OTHER
      INCOME (EXPENSE):Interest
      income
                
                
                1,300
                
                
                
                —
                
                
                
                1,300
                
                
                
                1,012Gain
      (loss) on derivatives
                
                
                (2,860
                )
                
                
                (446,685
                )
                
                
                7,899,298
                
                
                
                (2,830,274
                )Liquidated
      damages (see Note 4)
                
                
                (315,000
                )
                
                
                —
                
                
                
                (819,000
                )
                
                
                —Miscellaneous
                
                
                —
                
                
                
                1,500
                
                
                
                —
                
                
                
                6,233Total
      other income (expense)
                
                
                (316,560
                )
                
                
                (445,185
                )
                
                
                7,081,598
                
                
                
                (2,823,029
                )NET
      INCOME (LOSS)
                
                
                (1,225,593
                )
                
                
                (2,743,030
                )
                
                
                2,693,406
                
                
                
                (9,412,827
                )PREFERRED
      STOCK DIVIDENDS
                
                
                (581,697
                )
                
                
                (842,996
                )
                
                
                (1,820,029
                )
                
                
                (2,495,902
                )PREFERRED
      STOCK DEEMED DIVIDENDS
                
                
                (586,050
                )
                
                
                —
                
                
                
                (586,050
                )
                
                
                (714,031
                )NET
      INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
                
                $
                (2,393,340
                )
                
                $
                (3,586,026
                )
                
                $
                287,327
                
                
                $
                (12,622,760
                )BASIC
      NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS PER COMMON
      SHARE
                
                $
                (0.02
                )
                
                $
                (0.07
                )
                
                $
                0.00
                
                
                $
                (0.27
                )SHARES
      USED IN COMPUTING BASIC NET INCOME (LOSS) ATTRIBUTABLE TO
                  COMMON
      STOCKHOLDERS PER COMMON SHARE
                
                
                105,642,361
                
                
                
                49,653,675
                
                
                
                92,109,358
                
                
                
                45,944,799DILUTED
      NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS PER COMMON
      SHARE
                
                $
                (0.02
                )
                
                $
                (0.07
                )
                
                $
                0.00
                
                
                $
                (0.27
                )SHARES
      USED IN COMPUTING DILUTED NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
      STOCKHOLDERS PER COMMON SHARE
                
                
                105,642,361
                
                
                
                49,653,675
                
                
                
                95,193,685
                
                
                
                45,944,799




See
notes to financial statements.




4




NOVELOS
THERAPEUTICS, INC.


STATEMENTS
OF CASH FLOWS


(Unaudited)


Nine
      months ended
                September
      30,2010
              
              
              2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
              
              $
              2,693,406
              
              
              $
              (9,412,827
              )Adjustments
      to reconcile net income (loss) to cash used in operating
      activities:Depreciation
      and amortization
              
              
              32,875
              
              
              
              22,423Stock-based
      compensation
              
              
              191,762
              
              
              
              503,161(Gain)
      loss on derivative warrants
              
              
              (7,899,298
              )
              
              
              2,830,274Changes
      in:Prepaid
      expenses and other current assets
              
              
              3,152
              
              
              
              (230,184
              )Accounts
      payable and accrued liabilities
              
              
              (2,528,469
              )
              
              
              (1,965,443
              )Accrued
      compensation
              
              
              (98,921
              )
              
              
              (53,375
              )Accrued
      liquidated damages
              
              
              819,000
              
              
              
              —Deferred
      revenue
              
              
              (25,000
              )
              
              
              (24,999
              )Cash
      used in operating activities
              
              
              (6,811,493
              )
              
              
              (8,330,970
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of fixed assets
              
              
              —
              
              
              
              (18,000
              )Cash
      used in financing activities
              
              
              —
              
              
              
              (18,000
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of common stock, net
              
              
              1,249,138
              
              
              
              3,449,101Proceeds
      from issuance of Series E convertible preferred stock and warrants,
      net
              
              
              —
              
              
              
              9,204,531Proceeds
      from exercise of stock options
              
              
              158,567
              
              
              
              —Cash
      provided by financing activities
              
              
              1,407,705
              
              
              
              12,653,632INCREASE
      (DECREASE) IN CASH AND EQUIVALENTS
              
              
              (5,403,788
              )
              
              
              4,304,662CASH
      AND EQUIVALENTS AT BEGINNING OF PERIOD
              
              
              8,769,529
              
              
              
              1,262,452CASH
      AND EQUIVALENTS AT END OF PERIOD
              
              $
              3,365,741
              
              
              $
              5,567,114SUPPLEMENTAL
      DISCLOSURES OF NON-CASH FINANCING ACTIVITIESDividends
      accumulated on shares of Series E preferred stock exchanged or converted
      into shares of common stock
              
              $
              634,925
              
              
              $
              1,773,666Fair
      value of derivative warrants upon adoption of new accounting
      principle
              
              $
              —
              
              
              $
              998,945Fair
      value of derivative warrants reclassified to additional paid-in capital
      upon cashless exercise or exchange
              
              $
              2,584,397
              
              
              $
              1,741,043Carrying
      value of redeemable preferred stock converted into common
      stock
              
              $
              4,689,593
              
              
              $
              1,290,865Exchange
      of Series D for Series E preferred stock
              
              $
              —
              
              
              $
              13,904,100Relative
      fair value of warrants issued to stockholders in financing
      transactions
              
              $
              504,227
              
              
              $
              3,659,692Fair
      value of warrants issued to preferred stockholders in exchange for their
      consent
              
              $
              586,050
              
              
              $
              —




See
notes to financial statements.




5





Novelos
Therapeutics, Inc.


Notes
to Financial Statements





1.            NATURE
OF BUSINESS, BASIS OF PRESENTATION





Novelos
Therapeutics, Inc. (“Novelos” or the “Company”) is a biopharmaceutical company
developing oxidized glutathione-based compounds for the treatment of cancer.
Novelos is also seeking to expand its product pipeline by licensing or acquiring
clinical stage compounds or technologies for oncology
indications.  Novelos owns exclusive worldwide intellectual property
rights (excluding Russia and other states of the former Soviet Union (the
“Russian Territory”), but including Estonia, Latvia and Lithuania) related to
certain clinical compounds and other pre-clinical compounds based on oxidized
glutathione.





The
Company is subject to a number of risks similar to those of other small
biopharmaceutical companies.  Principal among these risks are
dependence on key individuals, competition from substitute products and larger
companies, the successful development and marketing of its products in a highly
regulated environment and the need to obtain additional financing necessary to
fund future operations.





On
February 24, 2010, the Company announced that its Phase 3 clinical trial for
NOV-002 in non-small cell lung cancer (“NSCLC”) (the “Phase 3 Trial”) did not
meet its primary endpoint of a statistically significant increase in median
overall survival.  Following evaluation of the detailed trial data, on
March 18, 2010, the Company announced that the secondary endpoints had also not
been met in the Phase 3 Trial and that it had discontinued development of
NOV-002 for NSCLC in combination with first-line paclitaxel and carboplatin
chemotherapy, although development for other indications is
continuing.





The
Company has generated insignificant revenues and has incurred operating losses
since inception in devoting substantially all of its efforts toward research and
development. The Company expects that it will continue to generate operating
losses for the foreseeable future.  On October 29, 2010, the Company
received notification from the Internal Revenue Service that it had been awarded
a cash grant of approximately $245,000 as a Qualifying Therapeutic Discovery
Project Credit under the Patient Protection and Affordable Care Act, H.R.
3590.  The Company believes that it has adequate cash, after including
the proceeds of this grant, to fund its operations through the first quarter of
2011.  The Company’s ability to operate beyond the first quarter of
2011 is dependent on its ability to obtain additional funding via the sale of
equity and/or debt securities, a strategic transaction or
otherwise.  The negative outcome of the Phase 3 Trial, as well as
continuing difficult conditions in the capital markets globally, may adversely
affect the ability of the Company to obtain funding in a timely
manner.  If the Company is unable to obtain new funding, it would
begin to wind down operations in March 2011. The Company plans to continue to
actively pursue financing alternatives, but there can be no assurance that it
will obtain the funding necessary to continue its operations.  In the
interim, the Company is continuously evaluating measures to reduce costs to
conserve its limited cash resources.





The
accompanying unaudited financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States
(“GAAP”) for interim financial information and with the instructions to Form
10-Q.  Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for the fair presentation of these financial statements have been
included. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Interim results are
not necessarily indicative of results to be expected for other quarterly periods
or for the entire year ending December 31, 2010. These unaudited financial
statements should be read in conjunction with the audited financial statements
and related notes thereto included in the Company’s latest annual report for the
year ended December 31, 2009 on Form 10-K, which was filed with the Securities
and Exchange Commission (“SEC”) on March 30, 2010. The report from the
Company’s independent registered public accounting firm dated March 23, 2010 and
included with its annual report on Form 10-K indicated that factors exist that
raised substantial doubt about the Company’s ability to continue as a going
concern.





Comprehensive Income (Loss)–
The Company had no components of comprehensive income (loss) other than the net
income (loss) in all periods presented.




6





Derivative Instruments– The
Company generally does not use derivative instruments to hedge exposures to cash
flow or market risks.  However, certain warrants to purchase common
stock that do not meet the requirements for classification as equity, in
accordance with the Derivatives and Hedging Topic of the Financial Accounting
Standards Board Accounting Standards Codification (“FASB ASC”),are classified as
liabilities.  In such instances, net-cash settlement is assumed for
financial reporting purposes, even when the terms of the underlying contracts do
not provide for a net-cash settlement. These warrants are considered derivative
instruments because the agreements contain “down-round” provisions whereby the
number of shares for which the warrants are exercisable and/or the exercise
price of the warrants are subject to change in the event of certain issuances of
stock at prices below the then-effective exercise price of the
warrants.  The number of such warrants was 21,207,625 at September 30,
2010.  The primary underlying risk exposure pertaining to the warrants
is the change in fair value of the underlying common stock.  Such
financial instruments are initially recorded at fair value, or relative fair
value, when issued with other instruments, with subsequent changes in fair value
recorded as a component of gain or loss on derivatives in each reporting period.
If these instruments subsequently meet the requirements for equity
classification, the Company reclassifies the fair value to equity.  At
September 30, 2010, these warrants represented the only outstanding derivative
instruments issued or held by the Company.  As a result of the
significant decline in the Company’s stock price following the announcement of
the results of the Phase 3 Trial, the Company recorded a gain of approximately
$7,899,000 during the nine months ended September 30, 2010 in connection with
the revaluation of the derivative liability balance at September 30,
2010.





2.           FAIR
VALUES OF ASSETS AND LIABILITIES





In
accordance with Fair Value Measurements and Disclosures Topic of the FASB ASC,
the Company groups its financial assets and financial liabilities generally
measured at fair value in three levels, based on the markets in which the assets
and liabilities are traded and the reliability of the assumptions used to
determine fair value.





·
            Level
      1: Input prices quoted in an active market for identical financial assets
      or liabilities.


·
            Level
      2: Inputs other than prices quoted in Level 1, such as prices quoted for
      similar financial assets and liabilities in active markets, prices for
      identical assets and liabilities in markets that are not active or other
      inputs that are observable or can be corroborated by observable market
      data.


·
            Level
      3: Input prices quoted that are significant to the fair value of the
      financial assets or liabilities which are not observable or supported by
      an active market.





Assets
and liabilities measured at fair value on a recurring basis are summarized
below:




September
      30, 2010Level
      1
              
              
              Level
      2
              
              
              Level
      3
              
              
              Fair
      ValueLiabilities:Warrants
              
              $
              -
              
              
              $
              507,126
              
              
              $
              -
              
              
              $
              507,126




December
      31, 2009Level
      1
              
              
              Level
      2
              
              
              Level
      3
              
              
              Fair
      ValueLiabilities:Warrants
              
              $
              -
              
              
              $
              10,486,594
              
              
              $
              -
              
              
              $
              10,486,594




The fair value of warrants has been
estimated using the Black-Scholes option pricing model based on the closing
price of the common stock at the valuation date, estimated volatility of 90%,
terms ranging from five months to 4.8 years at September 30, 2010 and three to
fourteen months at December 31, 2009 and risk-free interest rates ranging from
0.19% to 1.27% at September 30, 2010 and 0.04% to 0.47% at December 31, 2009.




7




3.           COLLABORATION
AGREEMENTS





2007
Collaboration Agreement with Lee’s Pharmaceutical (HK) Ltd.




In
December 2007 the Company entered into a Collaboration Agreement with Lee’s
Pharmaceutical (HK) Ltd. (“Lee’s Pharm”).  Pursuant to this agreement,
Lee’s Pharm obtained an exclusive license to develop, manufacture and
commercialize NOV-002 and NOV-205 in China, Hong Kong, Taiwan and Macau (the
“Chinese Territory”).  The Company has suspended further development
of NOV-205; however, this suspension will not impact the development strategy of
Lee’s Pharm.  Under the terms of the agreement the Company received a
license fee of $500,000 in March 2008 and is entitled to receive up to
$1,700,000 in future milestone payments upon the completion of development and
marketing milestones by Lee’s Pharm.  This initial $500,000 payment
received is being amortized over the estimated term of this agreement, 15
years.  Accordingly, $8,000 and $25,000 of license revenue was
recognized in each of the three- and nine-month periods, respectively, ended
September 30, 2010 and 2009.




The Lee’s
Pharm agreement provides that the Company receive royalty payments of 20-25% of
net sales of NOV-002 in the Chinese Territory and receive royalty payments of
12-15% of net sales of NOV-205 in the Chinese Territory.  Lee’s Pharm
is obligated to reimburse the Company for the manufacturing cost of
pharmaceutical products provided to Lee’s Pharm in connection with the
agreement.  Lee’s Pharm has committed to spend a minimum amount on
development in the first four years of the agreement.  The agreement
expires upon the expiration of the last patent covering any of the licensed
products, or twelve years from the date of the first commercial sale in China,
whichever occurs later.




2009
Collaboration Agreement with Mundipharma





On
February 11, 2009, Novelos entered into a collaboration agreement (the
“Collaboration Agreement”) with Mundipharma International Corporation Limited
(“Mundipharma”) to develop, manufacture and commercialize, on an exclusive
basis, Licensed Products (as defined in the Collaboration Agreement), which
includes the Company’s lead compound, NOV-002, in Europe (other than the Russian
Territory), Asia (other than the Chinese Territory) and Australia (collectively
referred to as the “Mundipharma Territory”).  Mundipharma is an independent
associated company of Purdue Pharma, L.P. (“Purdue”).  The
Collaboration Agreement provides for Mundipharma to pay the Company royalties
and fixed milestone payments based on sales and commercial launches in the
licensed territories.





For
countries in which patents are held, the Collaboration Agreement expires on a
country-by-country basis within the Mundipharma Territory on the earlier of (1)
expiration of the last applicable Novelos patent within the country or (2) the
determination that any patents within the country are invalid, obvious or
otherwise unenforceable.  For countries in which no patents are held,
the Collaboration Agreement expires the earlier of 15 years from its effective
date or upon generic product competition in the country resulting in a 20% drop
in Mundipharma’s market share.  Novelos may terminate the
Collaboration Agreement upon breach or default by Mundipharma.  Mundipharma
may terminate the Collaboration Agreement upon breach or default, filing of
voluntary or involuntary bankruptcy by Novelos, the termination of certain
agreements with companies associated with the originators of the licensed
technology, or 30-day notice for no reason.  If any regulatory
approval within the Mundipharma Territory is suspended as a result of issues
related to the safety of the Licensed Products, then Mundipharma’s obligations
under the Collaboration Agreement will be suspended until the regulatory
approval is reinstated.  If that reinstatement does not occur within
12 months of the suspension, then Mundipharma may terminate the Collaboration
Agreement.





Concurrently
with the execution of the Collaboration Agreement, Novelos completed a private
placement of Series E preferred stock and common stock purchase warrants to
Purdue.





The
Company expects that the negative results of its Phase 3 Trial will adversely
affect development and commercialization of NOV-002 under the collaboration
agreements with Lee’s Pharm and Mundipharma.




4.
          STOCKHOLDERS’
DEFICIENCY





July
2010 Direct Offering





On July
27, 2010, pursuant to securities purchase agreements entered into with
institutional investors on July 21, 2010, the Company completed the sale, in an
offering registered under the Securities Act of 1933, as amended, of an
aggregate of 21,428,576 shares of its common stock and five-year warrants to
purchase up to an aggregate of 16,071,434 shares of its common stock at an
exercise price of $0.07 per share, for gross proceeds of $1,500,000 and net
proceeds of $1,249,000 after deducting transaction costs.  The warrant
exercise price is subject to adjustment in certain circumstances and therefore,
the relative fair value of the warrants at the date of issuance, $504,000, has
been bifurcated from the proceeds and recorded as a derivative liability (see
Note 1).  The fair value has been estimated using the Black-Scholes
option pricing model based on the closing price of the common stock at the
valuation date, a volatility of 90%, risk-free interest rate of 1.76% and a term
of five years.




8





Since the
securities in this financing were issued at a price less than $0.66 per share,
the Company obtained the consent of its preferred stockholders pursuant to a
consent and waiver dated July 6, 2010, as amended on July 21,
2010.  In connection with obtaining this consent, the Company issued
five-year warrants (the “Incentive Warrants”) to its preferred stockholders for
the purchase of up to an aggregate of 16,071,434 shares of common stock at an
exercise price of $0.105 per share. No adjustments to the conversion price of
the preferred stock or warrants held by preferred stockholders were made in
connection with the financing.  The fair value of the Incentive
Warrants at date of issuance, $586,000, is shown as a deemed dividend to the
preferred stockholders on the statement of operations for the three and nine
months ended September 30, 2010.  The fair value of the warrants has
been estimated using the Black-Scholes option pricing model based on the closing
price of the common stock at the valuation date, a volatility of 90%, risk-free
interest rate of 1.76% and a term of five years.





The
financing resulted in adjustments to certain warrants pursuant to their
terms.  Warrants issued in 2005 that were exercisable for 243,476
shares at an exercise price of $0.65 per share as of immediately prior to the
transaction became exercisable for 2,260,845 shares at an exercise price of
$0.07 per share, and warrants issued in 2006 that were exercisable for 4,557,461
shares at an exercise price of $1.72 per share as of immediately prior to the
transaction became exercisable for 5,136,191 shares at an exercise price of
$1.53 per share.  The 2005 warrants expired unexercised on August 9,
2010, and the 2006 warrants will expire in March 2011.




Registration
Rights Agreements





Simultaneous
with the execution of the Series E preferred stock purchase agreement in 2009,
the Company entered into a registration rights agreement (the “Series E
Registration Agreement”) with Purdue and the investors in the Company’s Series D
preferred stock (the “Series D Investors”).  The Series E Registration
Agreement replaced a prior agreement dated April 11, 2008 between Novelos and
the Series D Investors.  The Series E Registration Agreement required
Novelos to file with the SEC no later than 5 business days following the
six-month anniversary of the execution of the Series E purchase agreement (the
“Filing Deadline”), a registration statement covering the resale of (i) a number
of shares of common stock equal to 100% of the shares issuable upon conversion
of the Series E preferred stock (excluding 12,000,000 shares of common stock
issuable upon conversion of the Series E preferred stock issued in exchange for
shares of outstanding Series D preferred stock during 2008 that are included on
a prior registration statement) and (ii) an aggregate of 21,096,150 shares of
common stock issuable upon exercise of warrants issued in connection with Series
B, Series D and Series E preferred stock.  Novelos was required to use
its best efforts to have the registration statement declared effective and to
keep the registration statement continuously effective under the Securities Act
until the earlier of the date when all the registrable securities covered by the
registration statement have been sold or the second anniversary of the closing
of the Series E purchase agreement.  Purdue and the Series D Investors
consented to extend the Filing Deadline to September 15, 2009.  The
registration statement was filed on that date. The Series E Registration
Agreement was amended on January 21, 2010 principally to consent to a reduction
in the number of shares offered. The registration statement covering the resale
of a total of 19,000,000 shares of the Company’s common stock was declared
effective on February 12, 2010 and a post-effective amendment was declared
effective on May 3, 2010.  The use
of the registration statement may be suspended for not more than 15 consecutive
days or for a total of not more than 30 days in any 12-month
period.  The Company will use its reasonable best efforts to register
the shares excluded from the registration statement as may be permitted by the
SEC until such time as all of these shares either have been registered or may be
sold without restriction in reliance on Rule 144 under the Securities
Act.





As part
of a common stock private placement in August 2009, the Company entered into a
registration rights agreement with Purdue (the “Purdue Registration
Agreement”).  The Purdue Registration Agreement requires the Company
to have filed with the SEC no later than May 17, 2010, a registration statement
covering the resale of all the shares of common stock issued pursuant to the
August 2009 purchase agreement and all shares of common stock issuable upon
exercise of the warrants issued pursuant to the August 2009 purchase
agreement.  The Company is required to use its best efforts to have
the registration statement declared effective and to keep the registration
statement continuously effective under the Securities Act until the earlier of
the date when all the registrable securities covered by the registration
statement have been sold or the second anniversary of the final
closing.  The Company will be allowed to suspend the use of the
registration for not more than 15 consecutive days or for a total of not more
than 30 days in any 12-month period.  The Company failed to timely
file the registration statement and as of September 30, 2010, and through the
date of this filing, the registration statement has not been filed. The
registration rights agreement provides for liquidated damages equal to 1.5% per
month (pro-rated on a daily basis for any period of less than a full month) of
the aggregate purchase price of the common stock until the delinquent
registration statement is filed.  The
Company has undertaken to renegotiate the terms of the Purdue Registration
Agreement and reach an alternative settlement for the accumulated
damages.  The Company has accrued $819,000 in the nine months ended
September 30, 2010 which represents management’s best estimate of the probable
total liquidated damages that may be settled. This amount has been included as a
component of other income (expense).




9





Conversions of
Preferred Stock –During the nine months ended September 30, 2010, 140
shares of the Company’s Series E preferred stock, having an aggregate stated
value of $7,000,000, and accumulated dividends thereon, were converted at a
conversion price of $0.65 per share of common stock into 11,745,779 shares of
common stock.  The associated carrying value of the converted shares
totaling approximately $4,690,000 was reclassified to permanent equity from
temporary equity.





Common
Stock Warrants—The
following table summarizes information with regard to outstanding warrants
issued in connection with equity and debt financings as of September 30,
2010:




Offering
            
            Outstanding
              (as adjusted)
            
            
            Exercise
              Price
              (as adjusted)
            
            Expiration Date2006
      Issuance of Common Stock
            
            
            5,136,191
            
            
            $
            1.53
            
            March
      7, 2011Series
      B Preferred Stock – placement agents
            
            
            825,000
            
            
            $
            1.25
            
            May
      2, 2012Series
      C Exchange
            
            
            1,250,000
            
            
            $
            1.25
            
            May
      2, 2012Series
      E Preferred Stock
            
            
            9,230,769
            
            
            $
            0.65
            
            December
      31, 2015August
      2009 Private Placement
            
            
            4,772,730
            
            
            $
            0.66
            
            December
      31, 2015July
      2010 Direct Offering
            
            
            16,071,434
            
            
            $
            0.07
            
            July
      27, 2015Preferred
      Incentive Warrants
            
            
            16,071,434
            
            
            $
            0.105
            
            July
      27, 2015Total
            
            
            53,357,558





During
the three months ended September 30, 2010, warrants to purchase 2,260,845 shares
of common stock at $0.07 and 909,090 shares of common stock at $0.65 expired
unexercised.





During
the nine months ended September 30, 2010, 8,182,158 shares of the Company’s
common stock were issued upon the cashless exercise of warrants to purchase
13,732,580 shares of the Company’s common stock.  The Company
reclassified $2,584,000 from derivative liability to additional paid-in capital
upon the exercise of warrants.  The following is a summary of the
exercises:




Original
      private placement
            
            Shares
      of Common Stock Issued
            
            Warrants
              Exercised
            
            
            Exercise
              Price2005
      Bridge Financing
            
            314,982
            
            
            400,000
            
            
            $
            0.6252005
      Issuance of Common Stock – placement agents
            
            226,544
            
            
            317,350
            
            
            $
            0.652006
      Issuance of Common Stock
            
            366,492
            
            
            991,516
            
            
            $
            1.72Series
      B Preferred Stock – purchasers
            
            4,545,447
            
            
            7,500,000
            
            
            $
            0.65Series
      B Preferred Stock – placement agents
            
            35,106
            
            
            75,000
            
            
            $
            1.25Series
      D Preferred Stock
            
            2,645,685
            
            
            4,365,381
            
            
            $
            0.65Series
      C Exchange
            
            47,902
            
            
            83,333
            
            
            $
            1.25Total
            
            8,182,158
            
            
            13,732,580




10




5.           STOCK-BASED
COMPENSATION




The
following table summarizes amounts charged (credited) to expense for stock-based
compensation related to employee and director stock option grants and
stock-based compensation recorded in connection with stock options granted to
non-employee consultants:




Three
      Months Ended
                September
      30,
              
              
              Nine
      Months Ended
                September
      30,2010
              
              
              2009
              
              
              2010
              
              
              2009Employee
      and director stock option grants:Research
      and development
              
              $
              58,198
              
              
              $
              34,953
              
              
              $
              172,789
              
              
              $
              106,500General
      and administrative
              
              
              92,448
              
              
              
              62,130
              
              
              
              267,290
              
              
              
              219,449150,646
              
              
              
              97,083
              
              
              
              440,079
              
              
              
              325,949Non-employee
      consultant stock option grants:Research
      and development
              
              
              (4,729
              )
              
              
              32,825
              
              
              
              (220,370
              )
              
              
              111,658General
      and administrative
              
              
              (645
              )
              
              
              13,163
              
              
              
              (27,947
              )
              
              
              65,554(5,374
              )
              
              
              45,988
              
              
              
              (248,317
              )
              
              
              177,212Total
      stock-based compensation
              
              $
              145,272
              
              
              $
              143,071
              
              
              $
              191,762
              
              
              $
              503,161





There
were no stock option grants during the three or nine months ended September 30,
2010 or 2009.





A summary
of stock option activity is as follows:




Options
              Outstanding
            
            
            Weighted
              Average
              Exercise Price
            
            
            Weighted
              Average
              Remaining
              Contracted
              Term in
              Years
            
            
            Aggregate
              Intrinsic
              ValueOutstanding
      at January 1, 2010
            
            
            9,219,825
            
            
            $
            0.63
            
            
            
            7.5
            
            
            $
            17,650,255Options
      exercised
            
            
            (916,667
            )
            
            $
            0.17Options
      cancelled
            
            
            (171,426
            )
            
            $
            1.99Outstanding
      at September 30, 2010
            
            
            8,131,732
            
            
            $
            0.65
            
            
            
            7.2
            
            
            $
            49,684Exercisable
      at September 30, 2010
            
            
            5,390,039
            
            
            $
            0.68
            
            
            
            6.5
            
            
            $
            49,684




The
aggregate intrinsic value of options outstanding is calculated based on the
positive difference between the closing market price of the Company’s common
stock at the end of the respective period and the exercise price of the
underlying options.  During the nine months ended September 30, 2010,
the total intrinsic value of options exercised was $663,000 and the total amount
of cash received from exercise of these options was $158,600.





As of
September 30, 2010, there was approximately $794,000 of total unrecognized
compensation cost related to unvested stock-based compensation arrangements. Of
this total amount, 18%, 57% and 25% is expected to be recognized during 2010,
2011 and 2012, respectively.  The Company expects 2,741,693 in
unvested options to vest in the future.  The weighted-average
grant-date fair value of both vested and unvested options outstanding at
September 30, 2010 was $0.42 and $0.41, respectively.





6.
          NET INCOME (LOSS)
PER SHARE





Basic net
income (loss) per share is computed by dividing net income (loss) attributable
to common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted net income per share is computed by
dividing net income attributable to common stockholders by the sum of the
weighted average number of shares of common stock and the dilutive potential
common stock equivalents then outstanding. Potential common stock equivalents
consist of stock options, warrants and convertible preferred stock and
accumulated dividends.  Since the Company has a net loss for the three
and nine months ended September 30, 2009 and the three months ended September
30, 2010, the inclusion of common stock equivalents in the computation for those
periods would be antidilutive. Accordingly, basic and diluted net loss per share
were the same for those periods.




11




The
following table sets forth the shares and net income used in the diluted
earnings per share computation for the nine months ended September 30,
2010:




Numerator:Net
      income available to common stockholders used in basic earnings per share
      calculation
            
            $
            287,327Derivative
      gain recorded on dilutive warrants
            
            
            (24,040
            )Net
      income available to common stockholders used in diluted earnings per share
      calculation
            
            $
            263,287Denominator:Weighted
      average shares of common stock used in the computation of basic earnings
      per share
            
            
            92,109,358Dilutive
      effect of stock options
            
            
            1,391,653Dilutive
      effect of warrants to purchase common stock
            
            
            1,692,674Shares
      used in computation of diluted earnings per share
            
            
            95,193,685




The
following potentially dilutive securities have been excluded from the
computation of diluted net income (loss) per share since their inclusion would
be antidilutive:




Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September
      30,2010
            
            
            2009
            
            
            2010
            
            
            2009Stock
      options
            
            
            8,131,732
            
            
            
            7,279,825
            
            
            
            3,984,721
            
            
            
            7,279,825Warrants
            
            
            53,357,558
            
            
            
            33,197,725
            
            
            
            53,357,558
            
            
            
            33,197,725Conversion
      of preferred stock
            
            
            41,460,413
            
            
            
            53,589,726
            
            
            
            41,460.413
            
            
            
            53,589,726




7.           INCOME
TAXES





The
Company accounts for income taxes in accordance with the Income Taxes Topic of
the FASB ASC. Under this guidance, deferred tax assets or liabilities are
computed based on the difference between the financial statement and income tax
basis of assets and liabilities, and net operating loss carryforwards, using the
enacted tax rates. Deferred income tax expense or benefit is based on changes in
the asset or liability from period to period. The Company did not record a
provision or benefit for federal, state or foreign income taxes for the three
and nine months ended September 30, 2010 because the Company has experienced
losses on a tax basis since inception. The net income reported for the nine
months ended September 30, 2010 is a result of the gain recorded on the
revaluation of derivative warrant liability during that period, which is a
nontaxable item. The Company has not recorded deferred tax assets as their
realization is uncertain.





8.           LITIGATION





A
purported class action complaint was filed on March 5, 2010 in the United States
District Court for the District of Massachusetts by an alleged shareholder of
the Company, on behalf of himself and all others who purchased or otherwise
acquired the Company’s common stock in the period between December 14, 2009 and
February 24, 2010, against the Company and its President and Chief Executive
Officer, Harry S. Palmin.  On October 1, 2010, the court appointed
lead plaintiffs (Boris Urman and Ramona Mc Donald) and appointed lead
plaintiffs’ counsel.  On October 22, an amended complaint was
filed.  The amended complaint claims that the Company violated Section
10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder in connection with alleged disclosures related to the
Phase 3 clinical trial of NOV-002 for non-small cell lung cancer.  The
Company expects to file its initial responsive pleading by December 6,
2010.  The Company believes the allegations are without merit and
intends to defend vigorously against the allegations.




12





On June
28, 2010, the Company received a letter from counsel to ZAO BAM and ZAO BAM
Research Laboratories (collectively, “BAM”) alleging that the Company modified
the chemical composition of NOV-002 without prior notice to or approval from
BAM, constituting a material breach of a technology and assignment agreement the
Company had entered into with BAM on June 20, 2000 (the “June 2000
Agreement”).  The letter references the Company’s amendment, submitted
to the FDA on August 30, 2005, to its investigational new drug application dated
August 1999 as the basis for BAM’s claims and demands the transfer of all
intellectual property rights concerning NOV-002 to BAM.  Mark
Balazovsky, a director of Novelos from June 1996 until November 2006 and a
shareholder of Novelos through at least June 25, 2010, is, to the Company’s
knowledge, still the general director and principal shareholder of ZAO
BAM.  The Company believes the allegations are without merit and
intends to defend vigorously against any proceedings that BAM may initiate as to
these allegations. On September 24, 2010, the Company filed a request for
declaratory judgment in Suffolk Superior Court.  The action seeks to
obtain a judgment by the court that the June 2000 Agreement has been replaced by
a subsequent agreement between the parties dated April 1, 2005 (the “April 2005
Agreement”), that the Company’s obligations to BAM are governed solely by the
April 2005 Agreement and that the obligations of the June 2000 agreement have
been performed and fully satisfied.





9. COMMITMENTS





Retention
Agreements





On May
14, 2010, the Company entered into retention agreements with each of its four
vice-president executive officers other than its Chief Executive Officer, Harry
S. Palmin.  The agreements provide for the lump-sum payment of six
months’ base salary and benefits to each such officer following a termination
without cause or a resignation with good reason occurring on or before November
14, 2011.  The agreements further provide that if the executives
remain employed with the Company as of October 1, 2010, they will receive a
payment of two months’ base salary as a retention bonus on that date. The
retention bonus, an aggregate of $140,000, was paid in October 2010 and will be
deducted from the severance amounts that may become payable upon a subsequent
involuntary termination. The agreements expire November 14, 2011.  The
total remaining amounts that may become payable to the Company’s Named Executive
Officers pursuant to the retention agreements are approximately $78,000 to
Christopher Pazoles and $75,000 to Elias Nyberg. Concurrently with the execution
of the retention agreements, the employment agreement between the Company and
Christopher Pazoles dated July 15, 2005 was
terminated.   Following the voluntary resignation of the
Company’s Vice President of Clinical Development and Operations in November
2010, her retention agreement is no longer in effect.





On May
14, 2010, the Company also entered into retention agreements with each of its
three non-executive employees. The agreements provide for the lump-sum payment
of six months’ base salary and benefits to each employee following a termination
without cause or a resignation with good reason occurring on or before November
14, 2011.  The agreements expire November 14, 2011.





10. SUBSEQUENT
EVENTS





Increase
in Authorized Shares of Common Stock





On
October 18, 2010 the Company held a special meeting in lieu of annual meeting of
stockholders.  At the meeting, the Company’s stockholders approved an
amendment to the certificate of incorporation to increase the total number of
authorized shares of the Company’s common stock by 525 million shares, from 225
million to 750 million.  Following the adjournment of the meeting, the
amendment was filed with the Secretary of State of Delaware, and it went into
effect on October 18, 2010.





Class
Action Litigation





As more
fully described in Note 8, on October 22, 2010, an amended complaint was filed
amending the purported class action complaint initially filed on March 5, 2010
in the United States District Court for the District of
Massachusetts.




Government
Grant




On
October 29, 2010, the Company received notification from the Internal Revenue
Service that it had been awarded a cash grant of approximately $245,000 as a
Qualifying Therapeutic Discovery Project Credit.




13




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




Forward-Looking
Statements




This
quarterly report on Form 10-Q includes forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which
we refer to as the Exchange Act. For this purpose, any statements contained
herein regarding our strategy, future operations, financial position, future
revenues, projected costs, prospects, plans and objectives of management, other
than statements of historical facts, are forward-looking statements. The words
“anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,”
“projects,” “will,” “would” and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
these identifying words. We cannot guarantee that we actually will achieve the
plans, intentions or expectations disclosed in our forward-looking statements.
There are a number of important factors that could cause actual results or
events to differ materially from those disclosed in the forward-looking
statements we make. These important factors include our significant accounting
estimates, such as those for unbilled contract service fees and amounts due to
clinical research organizations, clinical investigators and contract
manufacturers, the risk factors set forth below under the caption “Risk Factors”
and the risk factors set forth in Item 1A of our annual report for the year
ended December 31, 2009 on Form 10-K, which was filed with the SEC on March 30,
2010.  Although we may elect to update forward-looking statements in
the future, we specifically disclaim any obligation to do so, even if our
estimates change, and readers should not rely on those forward-looking
statements as representing our views as of any date subsequent to the date of
this quarterly report.




Overview





We are a
biopharmaceutical company developing oxidized glutathione-based compounds for
the treatment of cancer.  We are also seeking to expand our product
pipeline by licensing or acquiring clinical stage compounds or technologies for
oncology indications.




NOV-002,
our lead compound, is a small-molecule compound based on a proprietary
formulation of oxidized glutathione that has been administered to approximately
1,000 cancer patients in clinical trials and is in Phase 2 development for solid
tumors in combination with chemotherapy.  According to Cancer Market
Trends (2008-2012, URCH Publishing), Datamonitor (July 3, 2006) and PharmaLive
(October 9, 2009), the global market for cancer pharmaceuticals reached an
estimated $66 billion in 2007, nearly doubling from $35 billion in 2005, and is
expected to grow to $80 billion by 2012.





From
November 2006 through January 2010, we conducted a pivotal Phase 3 trial of
NOV-002 plus first-line chemotherapy in advanced non-small cell lung cancer
(“NSCLC”).  The Phase 3 trial enrolled 903 patients, 452 of whom
received NOV-002.  On February 24, 2010, we announced that the primary
endpoint of improvement in overall survival compared to first-line chemotherapy
alone was not met in this trial.  Following evaluation of the detailed
trial data, we announced on March 18, 2010 that the secondary endpoints also
were not met in the trial and that adding NOV-002 to paclitaxel and carboplatin
chemotherapy was not statistically or meaningfully different in terms of
efficacy-related endpoints or recovery from chemotherapy toxicity versus
chemotherapy alone. However, NOV-002 was safe and did not add to the overall
toxicity of chemotherapy.  Based on the results from the Phase 3
trial, we have determined to discontinue development of NOV-002 for advanced
NSCLC in combination with first-line paclitaxel and carboplatin
chemotherapy.





NOV-002
is being developed to treat breast cancer in combination with chemotherapy. In
June 2007 we commenced enrollment in a U.S. Phase 2 neoadjuvant breast cancer
trial, which is ongoing at The University of Miami to evaluate the ability of
NOV-002 to enhance the effectiveness of chemotherapy in HER-2 negative
patients.  On July 12, 2010, we announced the 12th pathologic
complete response (pCR), which is the minimum number of pCRs required in order
for NOV-002 to be declared active, in the first 31 patients (39%) who completed
chemotherapy and underwent surgery.  The historical control pCR rate
is in the range of 10-20%.  We submitted the trial results for
presentation to the AACR Breast Cancer Symposium taking place in San Antonio,
TX, in December 2010.




NOV-002
is also being developed to treat chemotherapy-resistant ovarian
cancer.  In a U.S. Phase 2 chemotherapy-resistant ovarian cancer trial
at Massachusetts General Hospital and Dana-Farber Cancer Institute from July
2006 through May 2008, NOV-002, in combination with carboplatin, slowed
progression of the disease in 60% of evaluable patients (nine out of 15
women).  The median progression-free survival was 15.4 weeks, almost
double the historical control of eight weeks.  Furthermore, patients
experienced decreased hematologic toxicities.  These results were
presented at the American Society of Clinical Oncology in May 2008.




14





NOV-205,
our second glutathione-based compound, acts as a hepatoprotective agent with
immunomodulating and anti-inflammatory properties.  NOV-205 has been
administered to approximately 200 hepatitis patients in clinical trials and is
in Phase 2 development for chronic hepatitis C non-responders.  An
Investigational New Drug Application (“IND”) for NOV-205 as a monotherapy for
chronic hepatitis C was accepted by the FDA in 2006.  A U.S. Phase 1b
clinical trial with NOV-205 in patients who previously failed treatment with
pegylated interferon plus ribavirin was completed in December
2007.  Based on favorable safety results of that trial, in March 2010
we initiated a multi-center U.S. Phase 2 trial evaluating NOV-205 as monotherapy
in up to 40 chronic hepatitis C genotype 1 patients who previously failed
treatment with pegylated interferon plus ribavirin.  Safety was
established in twenty patients receiving either 30mg or 60mg of NOV-205 daily
for 49 days; however, no viral load reduction was observed.  Due to
NOV-205’s lack of clinical activity as a monotherapy and our limited financial
resources, we intend to put NOV-205 development on hold and focus efforts on
expanding our oncology product pipeline and further developing NOV-002 in
combination with immunogenic chemotherapy.





As
evidenced by our Phase 3 trial in NSCLC, although promising Phase 2 results may
advance the clinical development of compounds, such results are not necessarily
determinative that the efficacy and safety of the compounds will be successfully
demonstrated in a Phase 3 clinical trial.





Both
compounds have completed clinical trials in humans and have been approved for
use in Russia, where they were originally developed.  We own all
intellectual property rights worldwide (excluding Russia and other states of the
former Soviet Union (the “Russian Territory”), but including Estonia, Latvia and
Lithuania) related to compounds based on oxidized glutathione, including NOV-002
and NOV-205.  Our patent portfolio includes six U.S. issued patents,
two European issued patents and one Japanese issued patent.




We
entered into a collaboration agreement with Mundipharma International
Corporation Limited (“Mundipharma”) to develop, manufacture and commercialize
NOV-002 in Europe, excluding the Russian Territory, most of Asia (other than
China, Hong Kong, Taiwan and Macau, the “Chinese Territory”) and
Australia.  We have a collaboration agreement with Lee’s
Pharmaceutical (HK) Ltd. (“Lee’s Pharm”) to develop, manufacture and
commercialize NOV-002 and NOV-205 in the Chinese Territory.  We expect
that the negative results of our Phase 3 trial in advanced NSCLC will adversely
affect development and commercialization of NOV-002 under these collaboration
agreements.




Results
of Operations





Revenue.Revenue consists of amortization of license fees received in connection
with partner agreements and income received from a grant from the U.S.
Department of Health and Human Services.





Research
and development
expense.  Research and development expense consists of costs
incurred in identifying, developing and testing product candidates, which
primarily consist of salaries and related expenses for personnel, fees paid to
professional service providers for independent monitoring and analysis of our
clinical trials, costs of contract research and manufacturing and costs to
secure intellectual property.  We have been developing two proprietary
compounds, NOV-002 and NOV-205.  To date, most of our research and
development costs have been associated with our NOV-002
compound.





General and
administrative expense.  General and administrative expense
consists primarily of salaries and other related costs for personnel in
executive, finance and administrative functions.  Other costs include
facility costs, insurance, costs for public and investor relations, directors’
fees and professional fees for legal and accounting services.





Quarters
Ended September 30, 2010 and 2009





Revenue.During
each of the three months ended September 30, 2010 and 2009, we recognized $8,000
in license fees in connection with our collaboration agreement with Lee’s
Pharm.  During the three months ended September 30, 2009, we also
recognized $5,000 in grant revenue related to a grant received from the U.S.
Department of Health and Human Services.  The related costs are
included as a component of research and development expense in that
period.




Research and
Development.  Research and development expense for the three
months ended September 30, 2010 was $375,000, compared to $1,766,000 for the
same period in 2009.  The $1,391,000, or 79%, decrease in research and
development expense was due to a combination of factors.  In February
2010, we completed our Phase 3 trial in NSCLC.  Following the
completion of that trial, contract research costs related to the trial decreased
$1,204,000 in the three months ended September 30, 2010 as compared to the three
months ended September 30, 2009.  This reduction in Phase 3 clinical
research costs includes the effect of a $254,000 reduction in the accrual of
estimated amounts due to a large vendor, following a negotiated payment
settlement during the three months ended September 30,
2010.  Preclinical research and drug manufacturing costs decreased by
$292,000.  Stock-based compensation decreased $14,000 as a result of
the decline in our stock price following the Phase 3 trial results. These
decreases were partially offset by a $119,000 increase in clinical development
costs for NOV-205 as a result of the commencement, in March 2010, of a Phase 2
trial evaluating NOV-205 in chronic hepatitis patients.




15





General and
Administrative.  General and administrative expense for the
three months ended September 30, 2010 was $543,000 compared to $546,000 in the
same period in 2009.  Although costs were basically flat, there were
some notable changes in expenses. First, professional fees decreased by $28,000
principally due to a decrease in professional fees associated with partnering
activities. Stock-based compensation costs increased by
$17,000.  Overhead costs increased by $8,000 principally resulting
from an increase in liability insurance premium costs.





Gain (Loss) on Derivative
Warrants.  We recorded a loss on derivative warrants of $3,000
during the three months ended September 30, 2010 compared to a loss of $447,000
in the same period of the previous year. This amount represents the change in
fair value, during the respective periods, of outstanding warrants which contain
“down-round” anti-dilution provisions whereby the number of shares for which the
options are exercisable and/or the exercise price of the warrants is subject to
change in the event of certain issuances of stock at prices below the
then-effective exercise prices of the warrants.





Liquidated
Damages.During the three months ended September 30, 2010, we
accrued $315,000 in estimated liquidated damages as a result of our failure to
file, on a timely basis, a registration statement covering the resale of shares
of common stock sold pursuant to the August 2009 purchase agreement with Purdue
Pharma, L.P. (the “August 2009 Purchase Agreement”) and all shares of common
stock issuable upon exercise of the warrants issued pursuant to the August 2009
Purchase Agreement.  The accrual of $315,000 was required to adjust
the recorded liability to our best estimate of liquidated damages that may be
settled under the applicable registration rights agreement.





Preferred Stock
Dividends.  During the three months ended September 30, 2010
and 2009, we accrued $582,000 and $843,000, respectively, in dividends
accumulating on our Series C and E preferred stock.  No dividends were
paid during those periods.





Nine
Months Ended September 30, 2010 and 2009





Revenue.During
each of the nine months ended September 30, 2010 and 2009, we recognized $25,000
in license fees in connection with our collaboration agreement with Lee’s
Pharm.  During the nine months ended September 30, 2009, we also
recognized $52,000 in grant revenue related to a grant received from the U.S.
Department of Health and Human Services.  The related costs are
included as a component of research and development expense in that
period.




Research and
Development.  Research and development expense for the nine
months ended September 30, 2010 was $2,483,000, compared to $5,138,000 for the
same period in 2009.  The $2,655,000, or 52%, decrease in research and
development expense was due to a combination of factors.  In February
2010, we completed our Phase 3 trial in NSCLC.  Following the
completion of that trial, contract research costs related to the trial decreased
$3,272,000 in the nine months ended September 30, 2010 as compared to the nine
months ended September 30, 2009.  This reduction in Phase 3 clinical
research costs includes the effect of a $772,000 reduction in the accrual of
estimated amounts owed to two large vendors, following negotiated payment
settlements during the nine months ended September 30,
2010.  Stock-based compensation also decreased $266,000 as a result of
the decline in our stock price following the Phase 3 trial
results.  Salaries and overhead costs decreased by $52,000 as a result
of efforts to contain costs.  These decreases were partially offset by
a $531,000 increase in consulting costs related to preclinical and manufacturing
work. In anticipation of the results of our Phase 3 clinical trial of NOV-002 in
advanced NSCLC, announced in February 2010, we increased certain preclinical
research and manufacturing activities in preparation of a possible filing of a
new drug application later in 2010. There was also a $404,000 increase in
clinical development costs for NOV-205 as a result of the commencement, in March
2010, of a Phase 2 trial evaluating NOV-205 in chronic hepatitis
patients.





General and
Administrative.  General and administrative expense for the
nine months ended September 30, 2010 was $1,930,000 compared to $1,529,000 in
the same period in 2009.  The $401,000, or 26%, increase is due to a
number of factors. First, professional fees increased by $302,000 principally
due to increased corporate legal costs relating to the resale and registration
of our securities and legal defense costs.  Overhead costs increased
by $145,000 principally resulting from an increase in liability insurance
premium costs.  These increases were offset in part by a $46,000
decrease in stock-based compensation as a result of the decline in our stock
price following the Phase 3 trial results.




16





Gain (Loss) on Derivative
Warrants.  We recorded a gain on derivative warrants of
$7,899,000 during the nine months ended September 30, 2010 and recorded a loss
on derivative warrants of $2,830,000 in the same period of the previous year.
This amount represents the change in fair value, during the respective periods,
of outstanding warrants which contain “down-round” anti-dilution provisions
whereby the number of shares for which the options are exercisable and/or the
exercise price of the warrants is subject to change in the event of certain
issuances of stock at prices below the then-effective exercise prices of the
warrants.  The large decrease in value of the liability during the
nine months ended September 30, 2010 is a result of the significant drop in our
stock price following the announcement of negative Phase 3 Trial results on
February 24, 2010. This gain is not taxable; accordingly, no tax provision has
been recorded.





Liquidated
Damages.During the nine months ended September 30, 2010, we
accrued $819,000 in estimated liquidated damages as a result of our failure to
file, on a timely basis, a registration statement covering the resale of shares
of common stock, and the shares of common stock underlying warrants, sold
pursuant to the August 2009 purchase agreement with Purdue Pharma,
L.P.  The accrual of $819,000 represents our best estimate of
liquidated damages that may be settled under the applicable registration
rights agreement.





Preferred Stock
Dividends.  During the nine months ended September 30, 2010 and
2009, we accrued $1,820,000 and $2,496,000, respectively, in dividends
accumulating on our Series C, D and E preferred stock.  No dividends
were paid during those periods.  On February 11, 2009, all shares of
Series D preferred stock and accrued dividends thereon totaling $1,597,000
(including $202,000 that accrued during 2009 prior to the exchange) were
exchanged for approximately 445.5 shares of Series E preferred stock. During the
nine months ended September 30, 2010, we recorded deemed dividends on preferred
stock totaling $586,000.  This amount was recorded in connection with
the financing that occurred in July 2010 and represents the fair value
attributed to warrants that were issued to preferred stockholders in exchange
for their consent for the financing transaction. During the nine months ended
September 30, 2009, we also recorded deemed dividends on preferred stock
totaling $714,000.  This amount was recorded in connection with the
financing that occurred in February 2009 and represents the value attributed to
the modification of certain warrants less the net adjustment required to record
the newly issued shares of Series E preferred stock at fair value.





Liquidity
and Capital Resources





We have
financed our operations since inception via the sale of securities and the
issuance of debt (which was subsequently paid off or converted into
equity).  As of September 30, 2010, we had approximately $3,366,000 in
cash and equivalents.




During
the nine months ended September 30, 2010, approximately $6,811,000 in cash was
used in operations.  During this period we reported $2,693,000 in net
income.  However, this included the following non-cash items: a
$7,899,000 gain on derivative warrants, $192,000 in stock-based compensation and
$33,000 in depreciation and amortization expense. After adjustment for these
non-cash items, we used $2,627,000 in cash for the payment of accounts payable
and accrued liabilities and accrued $819,000 in estimated liquidated damages for
registration rights penalties.  Other changes in working capital used
cash of $22,000.




During
the nine months ended September 30, 2010, we received net proceeds of $1,249,000
from the sale of our common stock and warrants and received $159,000 upon the
exercise of stock options.





On
February 24, 2010, we announced that our Phase 3 clinical trial for NOV-002 in
NSCLC (the “Phase 3 Trial”) did not meet its primary endpoint of a statistically
significant increase in median overall survival.  On March 18, 2010,
we announced that the secondary endpoints had also not been met in the Phase 3
Trial and that we had discontinued development of NOV-002 for NSCLC in
combination with first-line paclitaxel and carboplatin
chemotherapy.




We are
continuing development of NOV-002 in cancer indications other than NSCLC and are
seeking to expand our product pipeline by acquiring or licensing clinical stage
compounds or technologies for oncology indications.  We expect that we
will generate operating losses for the foreseeable future.





In the
recently passed Patient Protection and Affordable Care Act, H.R. 3590, a new
incentive for biotechnology companies like ours was provided: the Qualifying
Therapeutic Discovery Project Credit, or Therapeutic Credit.  The
Therapeutic Credit allows small businesses to apply for a grant in an amount
equal to 50% of their investment in qualifying therapeutic discovery projects
for 2009 and 2010.  Qualifying therapeutic discovery projects, among
others include those designed to treat or prevent diseases or conditions by
conducting pre-clinical or clinical activities for the purpose of securing FDA
approval of a product.  We applied for certification of approximately
$8.0 million of expenditures during 2009 and 2010 under this
program.  On October 29, 2010, the Company received notification from
the Internal Revenue Service that it had been awarded a cash grant of
approximately $245,000 as a Therapeutic Credit.




17





We
believe that we have adequate cash, after including the proceeds of this grant,
to fund our operations through the first quarter of 2011. Our ability to operate
beyond the first quarter of 2011 is dependent on our ability to obtain
additional funding via the sale of equity and/or debt securities, a strategic
transaction, or otherwise.  The negative outcome of the Phase 3 Trial,
as well as continuing difficult conditions in the capital markets globally, may
adversely affect our ability to obtain funding in a timely
manner.   If we are unable to obtain new funding, we would begin
to wind down operations in March 2011.  We plan to continue to
actively pursue financing alternatives, but there can be no assurance that we
will obtain the necessary capital. In the interim, we are continuously
evaluating measures to reduce our costs to conserve our limited cash
resources.





Item
4. Controls and Procedures





Evaluation of Disclosure
Controls and Procedures





Our
management, with the participation of our Chief Executive Officer and our Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of September 30, 2010.  Disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, are controls and procedures that are designed to ensure
that information required to be disclosed in our reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and
forms and that such information is accumulated and communicated to our
management, including our principal executive and financial officers, to allow
timely decisions regarding required disclosures.





Based on
the evaluation of our disclosure controls and procedures as of September 30,
2010, our Chief Executive Officer and our Chief Financial Officer concluded
that, as of such date, our disclosure controls and procedures were operating
effectively.





Change in Internal Control
over Financial Reporting





The
Company’s management, in connection with its evaluation of internal controls
(with the participation of the Company’s principal executive officer and
principal financial officer), did not identify any change in internal control
over the financial reporting process that occurred during the Company’s third
quarter of 2010 that would have materially affected, or would have been
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





Limitations on Effectiveness
of Controls





In
designing and evaluating our disclosure controls and procedures, our management
recognizes that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
on certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of control systems, there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote.





18




PART
II. OTHER INFORMATION




Item
1. Legal Proceedings




A
purported class action complaint was filed on March 5, 2010 in the United States
District Court for the District of Massachusetts by an alleged shareholder on
behalf of himself and all others who purchased or otherwise acquired our common
stock in the period between December 14, 2009 and February 24, 2010, against
Novelos and our President and Chief Executive Officer, Harry S.
Palmin.  On October 1, 2010, the court appointed lead plaintiffs
(Boris Urman and Ramona Mc Donald) and appointed lead plaintiffs’
counsel.  On October 22, 2010, an amended complaint was
filed.  The amended complaint claims that we violated Section 10(b) of
the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated
thereunder in connection with alleged disclosures related to the Phase 3
clinical trial for NOV-002 in non-small cell lung cancer (“NSCLC”) (the “Phase 3
Trial”).  We believe the allegations are without merit and intend to
defend vigorously against the allegations.  The Company expects to
file its initial responsive pleading by December 6, 2010.





On June
28, 2010, we received a letter from counsel to ZAO BAM and ZAO BAM Research
Laboratories (collectively, “BAM”) alleging that we modified the chemical
composition of NOV-002 without prior notice to or approval from BAM,
constituting a material breach of a technology and assignment agreement we had
entered into with BAM on June 20, 2000.  The letter references our
amendment, submitted to the FDA on August 30, 2005, to our investigational new
drug application dated August 1999 as the basis for BAM’s claims and demands the
transfer of all intellectual property rights concerning NOV-002 to
BAM.  Mark Balazovsky, a director of Novelos from June 1996 until
November 2006 and a shareholder of Novelos through at least June 25, 2010, is,
to our knowledge, still the general director and principal shareholder of ZAO
BAM.  We believe the allegations are without merit and intend to
defend vigorously against any proceedings that BAM may initiate as to these
allegations.  On September 24, 2010, the Company filed a request for
declaratory judgment in Suffolk Superior Court.  The action seeks to
obtain a judgment by the court that the June 2000 Agreement has been replaced by
a subsequent agreement between the parties dated April 1, 2005 (the “April 2005
Agreement”), that the Company’s obligations to BAM are governed solely by the
April 2005 Agreement and that the obligations of the June 2000 agreement have
been performed and fully satisfied.




Item
1A.  Risk Factors





We
will require additional capital to continue operations beyond March
2011.




On
February 24, 2010, we announced that our Phase 3 Trial did not meet its primary
endpoint of a statistically significant increase in median overall
survival.  On March 18, 2010, we announced that the secondary
endpoints had not been met in the Phase 3 Trial and that we had discontinued
development of NOV-002 for NSCLC in combination with first-line paclitaxel and
carboplatin chemotherapy.  We are continuing development of NOV-002 in
cancer indications other than NSCLC and are seeking to expand our product
pipeline by acquiring or licensing clinical stage compounds or technologies for
oncology indications.  We expect that we will continue to generate
operating losses for the foreseeable future. On October 29, 2010, we received
notification from the Internal Revenue Service that we had been awarded a cash
grant of approximately $245,000 as a Qualifying Therapeutic Discovery Project
Credit under the Patient Protection and Affordable Care Act, H.R.
3590.  We believe that we have adequate cash, after including the
proceeds of this grant, to fund operations through the first quarter of
2011.  Our ability to operate beyond the first quarter of 2011 is
dependent on our ability to obtain additional funding, via the sale of equity
and/or debt securities, a strategic transaction or otherwise.  The
negative outcome of the Phase 3 Trial, as well as continuing difficult
conditions in the capital markets globally, may adversely affect our ability to
obtain funding in a timely manner. If we are unable to obtain new funding, we
would begin to wind down operations in March 2011.  We plan to
actively pursue financing alternatives, but there can be no assurance that we
will obtain the necessary capital.  In the interim, we are
continuously evaluating measures to reduce our costs to conserve our limited
cash resources.




19





Our
common stock could be diluted as the result of the issuance of the additional
525 million shares of common stock, or securities convertible into or
exercisable or exchangeable for shares of common stock, that were authorized by
amendment to our certificate of incorporation on October 18, 2010.





On
October 18, 2010 the Company held a special meeting in lieu of annual meeting of
stockholders.  At the meeting, the Company’s stockholders approved an
amendment to the certificate of incorporation to increase the total number of
authorized shares of the Company’s common stock by 525 million shares, from 225
million to 750 million.  Following the adjournment of the meeting, the
amendment was filed with the Secretary of State of Delaware, and it went into
effect on October 18, 2010.  The issuance of the additional shares of
common stock authorized under our certificate of incorporation could result in
substantial dilution to our existing or future stockholders.





Item
2. Unregistered Sales of Equity Securities and Use of Proceeds





On July
27, 2010, we issued five-year warrants (the “Incentive Warrants”) to our
preferred stockholders for the purchase of up to an aggregate of 16,071,434
shares of common stock at an exercise price of $0.105 per share pursuant to a
consent and waiver dated July 6, 2010, as amended on July 21,
2010.  The Incentive Warrants were issued in connection with an
offering registered under the Securities Act of 1933, as amended, of an
aggregate of 21,428,576 shares of its common stock and five-year warrants to
purchase up to an aggregate of 16,071,434 shares of its common stock, for gross
proceeds of $1,500,000.





Item
3. Defaults Upon Senior Securities





During the three months ended September 30, 2010,
no dividends were paid or converted into common stock, dividends of $459,297
accrued with respect to our Series E Convertible Preferred Stock and dividends
of $122,400 accrued with respect to our Series C Convertible Preferred
Stock.  As of September 30, 2010, there is a total of $3,010,947 in
accumulated unpaid dividends with respect to our Series E Convertible Preferred
Stock and a total of $1,077,120 in accumulated unpaid dividends with respect to
our Series C Convertible Preferred Stock.




Item
5. Other Information





Change
in Executive Officers





On
November 18, 2010, Kristin Schuhwerk, our Vice President of Clinical Development
and Operations, resigned to pursue another opportunity. On that same date,
Kimberly Hawkins was appointed to the position of Vice President of Clinical
Development.  Ms. Hawkins previously held the position of Senior
Director of Clinical Development with Novelos.




20




Item
6.  Exhibits




Filed
      with
                  
                  Incorporated
      by ReferenceExhibit
    No.
                  
                  Description
                  
                  this
                    Form
      10-Q
                  
                  Form
                  
                  Filing
      Date
                  
                  Exhibit
      No.2.1
                  
                  Agreement
      and plan of merger among Common Horizons, Inc., Nove Acquisition, Inc. and
      Novelos Therapeutics, Inc. dated May 26, 2005
                  
                  
                  
                  8-K
                  
                  June
      2, 2005
                  
                  99.22.2
                  
                  Agreement
      and plan of merger between Common Horizons and Novelos Therapeutics, Inc.
      dated June 7, 2005
                  
                  
                  
                  10-QSB
                  
                  August
      15, 2005
                  
                  2.23.1
                  
                  Amended
      and Restated Certificate of Incorporation filed as Exhibit A to the
      Certificate of Merger merging Nove Acquisition, Inc. with and into Novelos
      Therapeutics, Inc. dated May 26, 2005
                  
                  
                  
                  10-QSB
                  
                  August
      10, 2007
                  
                  3.13.2
                  
                  Certificate
      of Merger merging Common Horizons, Inc. with and into Novelos
      Therapeutics, Inc. dated June 13, 2005
                  
                  
                  
                  10-QSB
                  
                  August
      10, 2007
                  
                  3.23.3
                  
                  Certificate
      of Correction dated March 3, 2006
                  
                  
                  
                  10-QSB
                  
                  August
      10, 2007
                  
                  3.33.4
                  
                  Certificate
      of Amendment to Amended and Restated Certificate of Incorporation dated
      July 16, 2007
                  
                  
                  
                  10-QSB
                  
                  August
      10, 2007
                  
                  3.43.5
                  
                  Certificate
      of Designations of Series C  cumulative convertible preferred
      stock
                  
                  
                  
                  10-QSB
                  
                  August
      10, 2007
                  
                  3.63.6
                  
                  Certificate
      of Designations of Series E  convertible preferred
      stock
                  
                  
                  
                  8-K
                  
                  February
      18, 2009
                  
                  4.13.7
                  
                  Certificate
      of Amendment to Amended and Restated Certificate of Incorporation dated
      November 3, 2009
                  
                  
                  
                  10-Q
                  
                  November
      16, 2009
                  
                  3.73.8
                  
                  Certificate
      of Amendment to Amended and Restated Certificate of Incorporation dated
      October 18, 2010
                  
                  
                  
                  8-K
                  
                  October
      19, 2010
                  
                  3.13.9
                  
                  Amended
      and Restated By-Laws
                  
                  
                  
                  8-K
                  
                  August
      26, 2009
                  
                  3.110.1
                  
                  Written
      Consent and Waiver of Holders of Series C Convertible Preferred Stock and
      Series E Convertible Preferred Stock dated July 7, 2010
                  
                  
                  
                  S-1
                  
                  July
      7, 2010
                  
                  10.5210.2
                  
                  Form
      of Securities Purchase Agreement dated July 21, 2010
                  
                  
                  
                  8-K
                  
                  July
      22, 2010
                  
                  10.110.3
                  
                  Amendment
      to Consent and Waiver of Holders of Series C Convertible Preferred Stock
      and Series E Convertible Preferred Stock dated July 21,
    2010
                  
                  
                  
                  8-K
                  
                  July
      22, 2010
                  
                  10.231.1
                  
                  Certification
      of the chief executive officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
                  
                  X31.2
                  
                  Certification
      of the chief financial officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
                  
                  X32.1
                  
                  Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
                  
                  X




21




SIGNATURES




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




NOVELOS THERAPEUTICS,
      INC.Date:  November
      19, 2010
              By:
              /s/ Harry
      S. PalminHarry
      S. PalminPresident
      and Chief Executive Officer




22




EXHIBIT
INDEX


Filed
      with
                    
                    Incorporated
      by ReferenceExhibit
    No.
                    
                    Description
                    
                    this
                      Form
      10-Q
                    
                    Form
                    
                    Filing
      Date
                    
                    Exhibit
      No.2.1
                    
                    Agreement
      and plan of merger among Common Horizons, Inc., Nove Acquisition, Inc. and
      Novelos Therapeutics, Inc. dated May 26, 2005
                    
                    
                    
                    8-K
                    
                    June
      2, 2005
                    
                    99.22.2
                    
                    Agreement
      and plan of merger between Common Horizons and Novelos Therapeutics, Inc.
      dated June 7, 2005
                    
                    
                    
                    10-QSB
                    
                    August
      15, 2005
                    
                    2.23.1
                    
                    Amended
      and Restated Certificate of Incorporation filed as Exhibit A to the
      Certificate of Merger merging Nove Acquisition, Inc. with and into Novelos
      Therapeutics, Inc. dated May 26, 2005
                    
                    
                    
                    10-QSB
                    
                    August
      10, 2007
                    
                    3.13.2
                    
                    Certificate
      of Merger merging Common Horizons, Inc. with and into Novelos
      Therapeutics, Inc. dated June 13, 2005
                    
                    
                    
                    10-QSB
                    
                    August
      10, 2007
                    
                    3.23.3
                    
                    Certificate
      of Correction dated March 3, 2006
                    
                    
                    
                    10-QSB
                    
                    August
      10, 2007
                    
                    3.33.4
                    
                    Certificate
      of Amendment to Amended and Restated Certificate of Incorporation dated
      July 16, 2007
                    
                    
                    
                    10-QSB
                    
                    August
      10, 2007
                    
                    3.43.5
                    
                    Certificate
      of Designations of Series C  cumulative convertible preferred
      stock
                    
                    
                    
                    10-QSB
                    
                    August
      10, 2007
                    
                    3.63.6
                    
                    Certificate
      of Designations of Series E  convertible preferred
      stock
                    
                    
                    
                    8-K
                    
                    February
      18, 2009
                    
                    4.13.7
                    
                    Certificate
      of Amendment to Amended and Restated Certificate of Incorporation dated
      November 3, 2009
                    
                    
                    
                    10-Q
                    
                    November
      16, 2009
                    
                    3.73.8
                    
                    Certificate
      of Amendment to Amended and Restated Certificate of Incorporation dated
      October 18, 2010
                    
                    
                    
                    8-K
                    
                    October
      19, 2010
                    
                    3.13.9
                    
                    Amended
      and Restated By-Laws
                    
                    
                    
                    8-K
                    
                    August
      26, 2009
                    
                    3.110.1
                    
                    Written
      Consent and Waiver of Holders of Series C Convertible Preferred Stock and
      Series E Convertible Preferred Stock dated July 7, 2010
                    
                    
                    
                    S-1
                    
                    July
      7, 2010
                    
                    10.5210.2
                    
                    Form
      of Securities Purchase Agreement dated July 21, 2010
                    
                    
                    
                    8-K
                    
                    July
      22, 2010
                    
                    10.110.3
                    
                    Amendment
      to Consent and Waiver of Holders of Series C Convertible Preferred Stock
      and Series E Convertible Preferred Stock dated July 21,
    2010
                    
                    
                    
                    8-K
                    
                    July
      22, 2010
                    
                    10.231.1
                    
                    Certification
      of the chief executive officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
                    
                    X31.2
                    
                    Certification
      of the chief financial officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
                    
                    X32.1
                    
                    Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
                    
                    X
  23