**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

** **
| **x** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------------------|

 

 

**For thequarterly period ended September 30, 2007.**

 

**or**

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

 

 

**For thetransition periodfrom                      to                     .**

 

**CommissionFile Number 000-51171**

 

**SIRTRISPHARMACEUTICALS, INC.**

(Exact name of registrantas specified in its charter)

 

| **Delaware**                              | **20-1410189**                        |
|-------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of          | (IRS Employer  Identification Number) |
| incorporation or  organization)           |                                  |
|                                      |                                  |
| **790  Memorial Drive**                   | ** **                            |
| **Cambridge,  Massachusetts**             | **02139**                             |
| (Address of Principal  Executive Offices) | (Zip Code)                            |

 

**(617) 252-6920**

(Registrant’s telephonenumber, including area code)

 

**None**

(Former name, formeraddress and former fiscal year, if changes since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes   x  No   o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. Please see definition of “accelerated and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.

 

Large AcceleratedFiler: o                   AcceleratedFiler: o             Non-Accelerated Filer: x

 

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

 

Number of shares of theregistrant’s Common Stock, $0.001 par value per share, outstanding as ofNovember 8, 2007: 28,699,429 shares

 

 

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**SIRTRISPHARMACEUTICALS, INC.**

**QUARTERLYREPORT**

**ONFORM 10-Q**

 

**INDEX**

** **
| PART I  | FINANCIAL INFORMATION                                                                       |   |
|--------------|---------------------------------------------------------------------------------------------|--------|
| Item 1.      | Financial  Statements (Unaudited)                                                           | 1      |
| Item 2.      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 10     |
| Item 3.      | Quantitative  and Qualitative Disclosures About Market Risk                                 | 12     |
| Item 4.      | Controls and  Procedures                                                                    | 13     |
|         |                                                                                        |   |
| PART II | OTHER INFORMATION                                                                           | 14     |
| Item 1.      | Legal Proceedings                                                                           | 14     |
| Item 1A.     | Risk  Factors                                                                               | 14     |
| Item 2.      | Unregistered  Sales of Equity Securities and Use of Proceeds from Registered Securities     | 27     |
| Item 3.      | Defaults upon  Senior Securities                                                            | 27     |
| Item 4.      | Submission of  Matters To a Vote of Security Holders                                        | 27     |
| Item 5.      | Other Information                                                                           | 27     |
| Item 6.      | Exhibits                                                                                    | 27     |
| SIGNATURES   |                                                                                        | 28     |

 

 

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**PART I**

 

**FORWARD-LOOKING STATEMENTS**

 

This quarterly report onForm 10-Q contains forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995 that involve risks anduncertainties, as well as assumptions that, if they never materialize or proveincorrect, could cause the results of Sirtris to differ materially from thoseexpressed or implied by such forward-looking statements. All statements otherthan statements of historical fact are statements that could be deemedforward-looking statements, including any projections of financing needs,revenue, expenses, earnings or losses from operations, or other financialitems; any statements of the plans, strategies and objectives of management forfuture operations; any statements concerning product research, development andcommercialization plans and timelines; any statements regarding safety andefficacy of product candidates, any statements of expectation or belief; andany statements of assumptions underlying any of the foregoing. In addition,forward looking statements may contain the words “believe,” “anticipate,” “expect,”“estimate,” “intend,” “plan,” “project,” “will be,” will continue,” “willresult,” “seek,” “could,” “may,” “might,” or any variations of such words orother words with similar meanings.

 

The risks, uncertaintiesand assumptions referred to above include risks that are described in ”RiskFactors” and elsewhere in this quarterly report and that are otherwisedescribed from time to time in our Securities and Exchange Commission reportsfiled after this report.

 

The forward-lookingstatements included in this quarterly report represent our estimates as of thedate of this quarterly report. We specifically disclaim any obligation toupdate these forward-looking statements in the future. These forward-lookingstatements should not be relied upon as representing our estimates or views asof any date subsequent to the date of this quarterly report.

 

**Item 1. Financial Statements - Unaudited**

 

The financial informationset forth below should be read in conjunction with our “Management’s Discussionand Analysis of Financial Condition and Results of Operations” appearingelsewhere in this Quarterly Report on Form 10-Q.

 

 

 

1

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**SirtrisPharmaceuticals, Inc.**

**(Adevelopment-stage company)**

 

**Consolidated Balance Sheets**

 

(in thousands, except pershare amounts)

 (Unaudited)
| ** **                                                                                                                                                                  | ** ** | ** **             | ** ** | ** **            | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                  | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **                                                                                                                                                                  | ** ** | **2007**               | ** ** | **2006**              | ** ** |
|                                                                                                                                                                        |       |                   |       |                  |       |
| **Assets**                                                                                                                                                                  | ** ** | ** **             | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                                                             |       |                   |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                  |       | $                      | 27,995     |                  | $          | 7,513 |   |
| Short-term  investments                                                                                                                                                     |       | 99,132                 |       | 42,497                |       |
| Prepaid expenses  and other current assets                                                                                                                                  |       | 1,489                  |       | 346                   |       |
| Restricted cash                                                                                                                                                             |       | 26                     |       | 26                    |       |
| Total current  assets                                                                                                                                                       |       | 128,642                |       | 50,382                |       |
|                                                                                                                                                                        |       |                   |       |                  |       |
| Property and  equipment, net                                                                                                                                                |       | 2,228                  |       | 1,481                 |       |
| Other assets                                                                                                                                                                |       | 185                    |       | 223                   |       |
| Restricted cash                                                                                                                                                             |       | 2,100                  |       | —                |       |
| Total assets                                                                                                                                                                |       | $                      | 133,155    |                  | $          | 52,086 |   |
|                                                                                                                                                                        |       |                   |       |                  |       |
| **Liabilities  and stockholders’ equity**                                                                                                                              | ** ** | ** **             | ** ** | ** **            | ** ** |
| Current  liabilities:                                                                                                                                                       |       |                   |       |                  |       |
| Accounts payable                                                                                                                                                            |       | $                      | 2,391      |                  | $          | 829 |   |
| Accrued expenses                                                                                                                                                            |       | 1,755                  |       | 1,197                 |       |
| Current portion  of notes payable                                                                                                                                           |       | 2,436                  |       | 1,018                 |       |
| Total current  liabilities                                                                                                                                                  |       | 6,582                  |       | 3,044                 |       |
|                                                                                                                                                                        |       |                   |       |                  |       |
| Warrants to  purchase shares subject to redemption                                                                                                                          |       | —                 |       | 438                   |       |
| Notes payable,  net of current portion and discount                                                                                                                         |       | 7,361                  |       | 9,425                 |       |
|                                                                                                                                                                        |       |                   |       |                  |       |
| Redeemable  convertible preferred stock, at liquidation value                                                                                                               |       | —                 |       | 66,813                |       |
|                                                                                                                                                                        |       |                   |       |                  |       |
| Stockholders’  (deficit) equity:                                                                                                                                       |       |                   |       |                  |       |
| Preferred stock,  $0.001 par value; 20,000 shares authorized; none issued                                                                                                   |       | —                 |       | —                |       |
| Common stock,  $0.001 par value: 206,575 shares authorized; 28,699 and 1,345 shares issued  and outstanding at September 30, 2007 and December 31, 2006,  respectively |       | 29                     |       | 1                     |       |
| Additional  paid-in capital                                                                                                                                                 |       | 169,599                |       | 916                   |       |
| Accumulated  other comprehensive income                                                                                                                                     |       | 195                    |       | 22                    |       |
| Deficit  accumulated during the development stage                                                                                                                           |       | (50,611                | )          | (28,573               | )          |
| Total  stockholders’ equity (deficit)                                                                                                                                  |       | 119,212                |       | (27,634               | )          |
| Total  liabilities, redeemable convertible preferred stock and stockholders’  (deficit) equity                                                                         |       | $                      | 133,155    |                  | $          | 52,086 |   |
|                                                                                                                                                                             |            |                        |            |                       |            |  |  |  |

 

 

2

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**SirtrisPharmaceuticals, Inc.**

**(Adevelopment-stage company)**

 

** ConsolidatedStatements of Operations**

 (in thousands, except share and per shareamounts)

 (Unaudited)
| ** **                                                                       | ** ** | **Three months ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** | **Period from March 25, 2004 (date of inception) through** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2007**                                                 | ** ** | **2006**                                           | ** ** | **2007**                                                   | ** ** | **2006** | ** ** | **September 30, 2007** | ** ** |
| ** **                                                                       | ** ** | ** **                                               | ** ** | ** **                                         | ** ** | ** **                                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                                          |       | $                                                        | —     |                                               | $          | —                                                     |       | $ | — |   | $ | — |   | $ | 68 |   |
|                                                                             |       |                                                     |       |                                               |       |                                                       |       |   |   |   |   |
| Operating  expenses:                                                             |       |                                                     |       |                                               |       |                                                       |       |   |   |   |   |
| Research and  development (1)                                                    |       | 9,454                                                    |       | 4,236                                              |       | 20,749                                                     |       | 10,595 |   | 43,243 |   |
| General and  administrative (1)                                                  |       | 1,584                                                    |       | 1,070                                              |       | 4,135                                                      |       | 3,266 |   | 13,039 |   |
| Total operating  expenses                                                        |       | 11,038                                                   |       | 5,306                                              |       | 24,884                                                     |       | 13,861 |   | 56,282 |   |
|                                                                             |       |                                                     |       |                                               |       |                                                       |       |   |   |   |   |
| Loss from  operations                                                            |       | (11,038                                                  | )          | (5,306                                             | )          | (24,884                                                    | )          | (13,861 | ) | (56,214 | ) |
| Interest income                                                                  |       | 1,717                                                    |       | 717                                                |       | 3,905                                                      |       | 1,746 |   | 7,540 |   |
| Interest expense                                                                 |       | (331                                                     | )          | (295                                               | )          | (1,059                                                     | )          | (519 | ) | (1,937 | ) |
| Net loss                                                                         |       | $                                                        | (9,652     | )                                                  | $          | (4,884                                                     | )          | $ | (22,038 | ) | $ | (12,634 | ) | $ | (50,611 | ) |
|                                                                             |       |                                                     |       |                                               |       |                                                       |       |   |   |   |   |
| Net loss per  share - basic and diluted                                          |       | $                                                        | (0.34      | )                                                  | $          | (5.57                                                      | )          | $ | (1.54 | ) | $ | (15.32 | ) |   |   |
| Weighted average  number of common shares used in net loss per basic and diluted |       | 28,522,615                                               |       | 877,313                                            |       | 14,328,095                                                 |       | 824,588 |   |   |   |
|                                                                             |       |                                                     |       |                                               |       |                                                       |       |   |   |   |   |
| (1) Amounts  include stock-based compensation expense, as follows:               |       |                                                     |       |                                               |       |                                                       |       |   |   |
| Research and  development                                                        |       | $                                                        | 1,147      |                                               | $          | 133                                                        |       | $ | 2,214 |   | $ | 374 |   |
| General and  administrative                                                      |       | $                                                        | 194        |                                               | $          | 66                                                         |       | $ | 414 |   | $ | 125 |   |
|                                                                                  |            |                                                          |            |                                                    |            |                                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

 

 

3

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**SirtrisPharmaceuticals, Inc.**

**(Adevelopment-stage company)**

 

** ConsolidatedStatements of Cash Flow**

 (in thousands)

 (Unaudited)

 
| ** **                                                                   | ** ** | **Nine months ended September 30,** | ** ** | **Period from March 25, 2004 (date of inception) through** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2007**                                           | ** ** | **2006**                                                   | ** ** | **September 30, 2007** | ** ** |
|                                                                         |       |                                               |       |                                                       |       |   |   |
| **Operating  activities**                                                    | ** ** | ** **                                         | ** ** | ** **                                                 | ** ** | ** ** | ** ** |
| Net loss                                                                     |       | $                                                  | (22,038    | )                                                          | $          | (12,634 | ) | $ | (50,611 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                               |       |                                                       |       |   |   |
| Depreciation and  amortization                                               |       | 432                                                |       | 202                                                        |       | 857 |   |
| Stock-based  compensation expense                                            |       | 2,628                                              |       | 499                                                        |       | 3,521 |   |
| Issuance of  common stock in exchange for licenses and services              |       | —                                             |       | —                                                     |       | 82 |   |
| Non-cash rent  expense                                                       |       | 72                                                 |       | —                                                     |       | 97 |   |
| Non-cash  interest expense                                                   |       | 177                                                |       | —                                                     |       | 269 |   |
| Change in  operating assets and liabilities:                                 |       |                                               |       |                                                       |       |   |   |
| Prepaid expenses  and other current assets                                   |       | (1,143                                             | )          | (157                                                       | )          | (1,489 | ) |
| Other assets                                                                 |       | 38                                                 |       | (236                                                       | )          | (219 | ) |
| Accounts payable                                                             |       | 1,562                                              |       | 337                                                        |       | 2,391 |   |
| Accrued expenses                                                             |       | 558                                                |       | 641                                                        |       | 1,755 |   |
| Net cash used in  operating activities                                       |       | (17,714                                            | )          | (11,348                                                    | )          | (43,347 | ) |
|                                                                         |       |                                               |       |                                                       |       |   |   |
| **Investing  activities**                                                    | ** ** | ** **                                         | ** ** | ** **                                                 | ** ** | ** ** | ** ** |
| Purchases of  property and equipment                                         |       | (1,179                                             | )          | (717                                                       | )          | (3,084 | ) |
| Purchases of  short-term investments                                         |       | (147,873                                           | )          | (32,434                                                    | )          | (257,300 | ) |
| Sales and  maturities of short-term investments                              |       | 91,412                                             |       | 31,075                                                     |       | 158,364 |   |
| Increase in  restricted cash                                                 |       | (2,100                                             | )          | —                                                     |       | (2,126 | ) |
| Net cash (used  in) provided by investing activities                         |       | (59,740                                            | )          | (2,076                                                     | )          | (104,146 | ) |
|                                                                         |       |                                               |       |                                                       |       |   |   |
| **Financing  activities**                                                    | ** ** | ** **                                         | ** ** | ** **                                                 | ** ** | ** ** | ** ** |
| Proceeds from  issuance of redeemable convertible preferred stock            |       | 35,890                                             |       | 21,968                                                     |       | 102,565 |   |
| Proceeds from  issuance of common stock                                      |       | 62,540                                             |       | 20                                                         |       | 62,620 |   |
| Proceeds from  note payable                                                  |       | —                                             |       | 10,797                                                     |       | 10,797 |   |
| Repayment of  note payable                                                   |       | (494                                               | )          | —                                                     |       | (494 | ) |
| Net cash  provided by financing activities                                   |       | 97,936                                             |       | 32,785                                                     |       | 175,488 |   |
|                                                                         |       |                                               |       |                                                       |       |   |   |
| Net increase in  cash and cash equivalents                                   |       | 20,482                                             |       | 19,361                                                     |       | 27,995 |   |
|                                                                         |       |                                               |       |                                                       |       |   |   |
| Cash and cash  equivalents at beginning of the period                        |       | 7,513                                              |       | 7,836                                                      |       | — |   |
| **Cash  and cash equivalents at end of the period**                          |       | $                                                  | 27,995     |                                                       | $          | 27,197 |   | $ | 27,995 |   |
| ** **                                                                   | ** ** | ** **                                         | ** ** | ** **                                                 | ** ** | ** ** | ** ** |
| **Supplemental  disclosure of non-cash financing activities:**               | ** ** | ** **                                         | ** ** | ** **                                                 | ** ** | ** ** | ** ** |
| Accretion of redeemable  convertible preferred stock to redemption value     |       | $                                                  | 36         |                                                       | $          | 54 |   | $ | 174 |   |
| Discount to note  payable for warrant valuation                              |       | $                                                  | 191        |                                                       | $          | 413 |   | $ | 604 |   |
|                                                                         |       |                                               |       |                                                       |       |   |   |
|                                                                              |            |                                                    |            |                                                            |            |  |  |  |  |  |  |

 

 

4

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**SirtrisPharmaceuticals, Inc.**

**(Adevelopment-stage company)**

 

**Notes to Consolidated Financial Statements**

(*in thousands, except share and per share amounts*)

*(Unaudited)*

 

**1. Basis of Presentation**

 

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States (“GAAP”) forinterim financial reporting and as required by Regulation S-X, Rule 10-01.Accordingly, they do not include all of the information and footnotes requiredby GAAP for complete financial statements. In the opinion of management, alladjustments (including those which are normal and recurring) considerednecessary for a fair presentation of the interim financial information havebeen included. When preparing financial statements in conformity with GAAP, theCompany must make estimates and assumptions that affect the reported amounts ofassets, liabilities, revenues, expenses and related disclosures at the date ofthe financial statements. Actual results could differ from those estimates.Additionally, operating results for the three and nine months ended September30, 2007 are not necessarily indicative of the results that may be expected forany other interim period or for the fiscal year ending December 31, 2007.

 

The accompanyingunaudited consolidated financial statements and notes thereto should be read inconjunction with the audited consolidated financial statements for the yearended December 31, 2006 included in the Company’s Registration Statement onForm S-1(as amended), which was declared effective by the Securities andExchange Commission (“SEC”) on May 22, 2007.

 

**2. Recent Accounting Pronouncements**

 

In September 2006,the FASB issued FASB Statement No. 157, Fair Value Measurements, or SFAS 157,which defines fair value, establishes a framework for measuring fair valueunder GAAP, and expands disclosures about fair value measurements.SFAS 157 applies to other accounting pronouncements that require or permitfair value measurements. The new guidance is effective for financial statementsissued for fiscal years beginning after November 15, 2007, and for interimperiods within those fiscal years. The Company is currently evaluating therequirements of SFAS 157; however, it does not believe that the adoptionwill have a material effect on its consolidated financial statements.

 

In February 2007, theFASB released SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities,” or SFAS No. 159.  SFAS No. 159 permits entities tochoose to measure many financial instruments and certain other items at fairvalue. The objective is to improve financial reporting by providing entitieswith the opportunity to mitigate volatility in reported earnings caused bymeasuring related assets and liabilities differently without having to applycomplex hedge accounting provisions. SFAS No. 159 is effective for fiscal yearsbeginning after November 15, 2007.  The Company is currently analyzing theeffect, if any, SFAS No. 159 will have on its consolidated financial positionand results of operations.

 

In June 2007, the FASBissued EITF Issue No. 07-3, “Accounting for Nonrefundable Advance Payments forGoods or Services to Be Used in Future Research and Development Activities,” orEITF 07-3.  EITF 07-3 requires that nonrefundable advance payments forgoods or services to be received in the future for use in research anddevelopment activities should be deferred and capitalized.  Thecapitalized amounts should be expensed as the related goods are delivered orthe services are performed.  EITF 07-3 is effective for new contractsentered into during fiscal years beginning after December 15, 2007.  TheCompany is currently analyzing the effect, if any, EITF 07-3 will have on itsconsolidated financial position and results of operations.

 

The Company adopted theprovisions of Financial Standards Accounting Board Interpretation No. 48Accounting for Uncertainty in Income Taxes (“FIN 48”) an interpretation of FASBStatement No. 109 (“SFAS 109”) on January 1, 2007. As a result of theimplementation of FIN 48, it recorded no adjustment for unrecognized income taxbenefits. At the adoption date of FIN 48, January 1, 2007 and also atSeptember 30, 2007, the Company had no unrecognized tax benefits.

 

The Company recognizesinterest and penalties related to uncertain tax positions in income taxexpense. As of September 30, 2007, it had no accrued interest or penaltiesrelated to uncertain tax positions.

 

The tax years 2004through 2006 remain open to examination by the major taxing jurisdictions towhich the Company is subject.

 

At December 31,2006, the Company had federal and state net operating loss (“NOL”)carryforwards of $7,272 and $10,031, respectively, available to reduce futuretaxable income, which expire at various dates beginning in 2010 through2027.  The Company also had federal andstate research and development tax credit carryforwards of $352 and $266,respectively, available to reduce future tax liabilities and which expire atvarious dates beginning in 2020 through 2027. Utilization of the NOL and tax credit carryforwards may be subject to asubstantial annual limitation due to ownership change limitations that haveoccurred previously or that could occur in the future provided bySection 382 of the Internal Revenue Code of 1986, as well as similar stateand foreign provisions. These ownership changes may limit the amount of NOL andtax credit carryforwards that can be utilized 

 

5

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**SirtrisPharmaceuticals, Inc.**

**(Adevelopment-stage company)**

 

**Notes to Consolidated Financial Statements (Continued)**

(*in thousands, except share and per share amounts*)

*(Unaudited)*

 

annually to offset futuretaxable income and tax, respectively. In general, an ownership change, asdefined by Section 382, results from transactions increasing the ownershipof certain shareholders or public groups in the stock of a corporation by morethan 50 percentage points over a three-year period. Since the Company’sformation, the Company has raised capital through the issuance of capital stockon several occasions which, combined with the purchasing shareholders’subsequent disposition of those shares, may have resulted in a change ofcontrol, as defined by Section 382, or could result in a change of controlin the future upon subsequent disposition. The Company has not currentlycompleted a study to assess whether a change of control has occurred or whetherthere have been multiple changes of control since the Company’s formation dueto the significant complexity and cost associated with such study and thatthere could be additional changes in control in the future. If the Company hasexperienced a change of control at any time since Company formation,utilization of its NOL or tax credit carryforwards would be subject to anannual limitation under Section 382. Further, until a study is completedand any limitation known, no amounts are being presented as an uncertain taxposition under FIN 48.

 

In addition touncertainties surrounding the use of NOL carryforwards in a change of control,the Company has identified research and development credits as materialcomponents of its deferred tax asset. The uncertainties in these componentsarise from judgments in the allocation of costs utilized to calculate thesecredits. The Company has not conducted studies to analyze these credits tosubstantiate the amounts due to the significant complexity and cost associatedwith such study. Any limitation may result in expiration of a portion of theNOL or tax credits before utilization. Further, until a study is completed andany limitation known, no amounts are being presented as an uncertain taxposition under FIN 48.

 

**3. Cash and cash equivalents**

 

Cash equivalents includeall highly liquid investments maturing within 90 days from the date ofpurchase. Cash equivalents consist of money market funds, certificates ofdeposit, U.S. agency notes, corporate bonds and commercial paper.

 

**4. Short-term investments**

 

Short-term investmentsconsist primarily of investments with original maturities greater than ninetydays and less than one year when purchased. The Company classifies theseinvestments as available-for-sale as defined by SFAS No. 115,***Accounting for Certain Investmentsin Debt and Equity Securities*. Unrealized gains and losses are included in othercomprehensive income (loss).

 

Short-term investmentsincluded the following at September 30, 2007 and December 31, 2006:

 
| ** **                 | ** ** | ** ** | ** ** | **Gross**      | ** ** | **Gross**      | ** ** | ** ** | ** ** |
|----------------------------|------------|------------|------------|----------------|------------|----------------|------------|------------|------------|
| ** **                 | ** ** | ** ** | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Fair**   | ** ** |
| **September 30, 2007**     | ** ** | **Cost**   | ** ** | **Gains**      | ** ** | **Losses**     | ** ** | **Value**  | ** ** |
| Commercial paper           |       | $          | 53,595     |           | $          | 169            |       | $          | —     |   | $ | 53,764 |   |
| Asset-backed  securities   |       | 24,490     |       | 20             |       | —         |       | 24,510     |       |
| Corporate debt  securities |       | 20,852     |       | 12             |       | (6             | )          | 20,858     |       |
|                       |       | $          | 98,937     |           | $          | 201            |       | $          | (6         | ) | $ | 99,132 |   |

 

 
| ** **                 | ** ** | ** ** | ** ** | **Gross**      | ** ** | **Gross**      | ** ** | ** ** | ** ** |
|----------------------------|------------|------------|------------|----------------|------------|----------------|------------|------------|------------|
| ** **                 | ** ** | ** ** | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Fair**   | ** ** |
| **December 31, 2006**      | ** ** | **Cost**   | ** ** | **Gains**      | ** ** | **Losses**     | ** ** | **Value**  | ** ** |
| Commercial paper           |       | $          | 33,980     |           | $          | 17             |       | $          | —     |   | $ | 33,997 |   |
| Asset-backed  securities   |       | 3,876      |       | 1              |       | —         |       | 3,877      |       |
| Corporate debt  securities |       | 4,619      |       | 4              |       | —         |       | 4,623      |       |
|                       |       | $          | 42,475     |           | $          | 22             |       | $          | —     |   | $ | 42,497 |   |

 

All short-terminvestments have contractual maturities of less than one year. Investments withunrealized losses were in an unrealized loss position for less than a year. Asof September 30, 2007, the Company held 3 investments that were in anunrealized loss position.  The Companyreviewed its investments with unrealized losses and has concluded that noother-than-temporary impairment existed at September 30, 2007 andDecember 31, 2006 as the Company has the ability and intent to hold theseinvestments to anticipated recovery.

 

**5. Comprehensive Loss**

 

The Company’s totalcomprehensive loss consists of the following:

 
| ** **                                  | ** ** | **Three months ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|---------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                  | ** ** | **2007**                                                 | ** ** | **2006**                                                | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net loss  applicable to common stockholders |       | $                                                        | (9,652     | )                                                       | $          | (4,903 | ) | $ | (22,074 | ) | $ | (12,688 | ) |
| Other  comprehensive loss:                  |       |                                                     |       |                                                    |       |   |   |   |   |
| Unrealized gain  on investments             |       | 157                                                      |       | 29                                                      |       | 174 |   | 58 |   |
| Comprehensive  loss                         |       | $                                                        | (9,495     | )                                                       | $          | (4,874 | ) | $ | (21,900 | ) | $ | (12,630 | ) |

 

6

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**SirtrisPharmaceuticals, Inc.**

**(Adevelopment-stage company)**

 

**Notes to Consolidated Financial Statements (Continued)**

(*in thousands, except share and per share amounts*)

*(Unaudited)*

 

**6.Accounting for Stock-Based Compensation**

 

The Company follows theprovisions of  Statement of FinancialAccounting Standards No. 123 (revised 2004), “Share Based Payment” (“SFAS123R”) . Under SFAS 123R, the Company is required to recognize, as expense, theestimated fair value of all share based payments to employees.  For thethree and nine months ended September 30, 2007, the Company recordedstock-based compensation expense of approximately $302 and $649, respectively,in connection with its share-based payment awards to employees.

 

Equity instruments issuedto non-employees are recorded at their fair value as determined in accordancewith SFAS 123(R) and EITF Issue No. 96-18, Accounting for EquityInstruments That are Issued to Other Than Employees for Acquiring, or inConjunction with Selling Goods and Services (“EITF 96-18”) and are periodicallyrevalued as the equity instruments vest and are recognized as expense over therelated service period.

 

*StockPlans*

 

The Company’s 2004 StockOption Plan (“Plan”), as amended, provides for the issuance of a total of  4,047,157 shares of common stock in theform of incentive stock options, awards of stock, and direct stock purchaseopportunities to directors,  officers,employees and consultants of the Company.  Generally, stock options granted to employees pursuant to the Plan fullyvest four years from the grant date, with 25% of the award vesting after oneyear and 6.25% of the award vesting quarterly thereafter. Stock options have aterm of 10 years. The Plan includes an “evergreen provision” that allowsfor an annual increase in the number of shares of common stock available forissuance under the Plan.  The annualincrease will be added on the first day of each fiscal year from 2008 through2013, inclusive, and will be equal to the lesser of (i) 1,904,762 shares; (ii)3.5% of the number of then-outstanding shares of stock; and (iii) a number asdetermined by the board of directors.

 

As of September 30, 2007,there were 451,043 shares available for future issuance under the plan.

 

A summary of the statusof our stock option plan at September 30, 2007 and changes during the ninemonths then ended is presented in the table and narrative below:

 
| ** **                                        | ** ** | ** **  | ** ** | ** **              | ** ** | **Weighted**    | ** ** | ** **               | ** ** |
|---------------------------------------------------|------------|-------------|------------|-------------------------|------------|-----------------|------------|--------------------------|------------|
| ** **                                        | ** ** | ** **  | ** ** | ** **              | ** ** | **Average**     | ** ** | ** **               | ** ** |
| ** **                                        | ** ** | ** **  | ** ** | **Weighted-**           | ** ** | **Remaining**   | ** ** | ** **               | ** ** |
| ** **                                        | ** ** | ** **  | ** ** | **Average**             | ** ** | **Contractual** | ** ** | **Aggregate**            | ** ** |
| ** **                                        | ** ** | **Options** | ** ** | **Exercise Price** | ** ** | **Term**        | ** ** | **Intrinsic Value** | ** ** |
| Options  outstanding at December 31, 2006    |       | 2,538,141   |       | $                       | 0.84       |            | 9.02       |                     | $          | 9,634 |   |
| Options granted                                   |       | 526,579     |       | $                       | 7.01       |            |       |                     |       |   |
| Options  exercised                                |       | (179,118    | )          | $                       | 0.39       |            |       |                     |       |   |
| Options  forfeited or expired                     |       | (56,071     | )          | $                       | 5.06       |            |       |                     |       |   |
|                                              |       |        |       |                    |       |            |       |                     |       |
| Options  outstanding at September 30, 2007        |       | 2,829,531   |       | $                       | 1.92       |            | 8.51       |                     | $          | 42,902 |   |
| Vested or  expected to vest at September 30, 2007 |       | 2,596,152   |       | $                       | 1.89       |            | 8.50       |                     | $          | 39,424 |   |
| Options  exercisable at September 30, 2007        |       | 802,857     |       | $                       | 0.60       |            | 8.16       |                     | $          | 13,233 |   |

 

The aggregate intrinsicvalue in the table above represents the value (the difference between theCompany’s closing common stock price on September 30, 2007 and the exerciseprice of the options, multiplied by the number of in-the-money options) thatwould have been received by the option holders had all option holders exercisedtheir options on September 30, 2007. As of September 30, 2007, there was $3.1million of total unrecognized stock-based compensation expense related to stockoptions granted under the Plan. The expense is expected to be recognized over aweighted-average period of 2.54 years. The weighted-average grant date fairvalue of options granted during the three and nine months ended September 30,2007 was $7.76 and $4.50, respectively. The intrinsic value of stock optionsexercised for the three and nine months ended September 30, 2007 was $50 and$605, respectively, and represents the difference between the exercise price ofthe option and the market price of the Company’s common stock on the datesexercised.

 

The Company values stockoptions using a Black-Scholes method of valuation and has applied theweighted-average assumptions set forth in the following table. The resultingfair value is recorded as compensation cost on a straight line basis over therequisite service period, which generally equals the option vesting period.Since the Company completed its initial public offering in May 2007, it did nothave sufficient history as a publicly traded company to evaluate its volatilityfactor and expected term. As such, the Company analyzed the volatilities andexpected terms of a group of peer companies to support the assumptions used inits calculations for the three and nine months ended September 30, 2007. TheCompany averaged the volatilities and expected terms of 

 

7

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**SirtrisPharmaceuticals, Inc.**

**(Adevelopment-stage company)**

 

**Notes to Consolidated Financial Statements (Continued)**

(*in thousands, except share and per share amounts*)

*(Unaudited)*

 

the peer companies with in-the-moneyoptions, sufficient trading history and similar vesting terms to generate theassumptions detailed above. The risk free interest rates are based on theUnited States Treasury yield curve in effect for periods corresponding with theexpected life of the stock option.

 
| ** **                     | ** ** | **Three Months ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|--------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                     | ** ** | **2007**                                                 | ** ** | **2006**                                                | ** ** | **2007** | ** ** | **2006** | ** ** |
| Expected term  (life in years) |       | 6.04                                                     |       | 5.69                                                    |       | 5.71 |   | 5.69 |   |
| Interest rate                  |       | 4.53                                                     | %          | 4.75                                                    | %          | 4.79. | % | 4.75 | % |
| Volatility                     |       | 61.1                                                     | %          | 72.3                                                    | %          | 69.7 | % | 72.3 | % |
| Dividend yield                 |       | —                                                   |       | —                                                  |       | — |   | — |   |

 

*RestrictedStock*

 

A summary of the statusof nonvested restricted stock as of September 30, 2007 and changes during thenine months ended September 30, 2007 are as follows:

 
| ** **                           | ** ** | **Shares** | ** ** |
|--------------------------------------|------------|------------|------------|
| Nonvested at  December 31, 2006 |       | 164,166    |       |
| Granted                              |       | —     |       |
| Vested                               |       | (57,146    | )          |
| Canceled                             |       | (11,784    | )          |
| Nonvested at  September 30, 2007     |       | 95,236     |       |

 

*StockOptions Granted to Non-Employees*

 

The Company granted stockoptions to purchase 7,619 shares of common stock to non-employees at exercisesprices of $5.99 to $6.51 in the nine months ended September 30, 2007.  No stock options were granted tonon-employees in the three months ended September 30, 2007.  The stock options vest over periods of one tofour years. The Company has recorded the estimated fair value of thenonemployee options on an accelerated basis under FASB InterpretationNo. 28 (FIN 28), Accounting for Stock Appreciation Rights and OtherVariable Stock Options or Award Plans (an interpretation of APB OpinionNo. 15 and 25 ). The assumptions used in the calculations were as follows:(i) risk-free interest rate of 4.67%, (ii) contractual life of tenyears, (iii) volatility of 82.7% and (iv) no expected dividends. TheCompany recognized stock-based compensation expense relating to the estimatedfair value of non-employee options of $1,039 and $1,979 for the three and ninemonths ended September 30, 2007, respectively. The unvested stock options aresubject to remeasurement over the remaining service period.

 

**7. Net Loss Per Share**

 

The Company calculatesnet loss per share in accordance with SFAS No. 128,*Earnings Per Share*. Basic and diluted netloss per common share was determined by dividing net loss applicable to commonstockholders by the weighted average common shares outstanding during theperiod. The Company’s potentially dilutive shares, which include outstandingcommon stock options, unvested restricted stock, convertible preferred stock,redeemable convertible preferred stock, and warrants, have not been included inthe computation of diluted net loss per share for all periods as the resultwould be anti-dilutive.

 
| ** **                                                                             | ** ** | **Three Months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                             | ** ** | **2007**                                             | ** ** | **2006**                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net loss                                                                               |       | $                                                    | (9,652     | )                                                   | $          | (4,884 | ) | $ | (22,038 | ) | $ | (12,634 | ) |
| Accretion of  redeemable convertible preferred stock issuance costs                    |       | —                                               |       | (19                                                 | )          | (36 | ) | (54 | ) |
| Net loss  applicable to common stockholders                                            |       | $                                                    | (9,652     | )                                                   | $          | (4,903 | ) | $ | (22,074 | ) | $ | (12,688 | ) |
| Weighted-average  number of common shares used in net loss per share-basic and diluted |       | 28,522,615                                           |       | 877,313                                             |       | 14,328,095 |   | 824,588 |   |
| Net loss per  share applicable to common stockholders—basic and diluted           |       | $                                                    | (0.34      | )                                                   | $          | (5.59 | ) | $ | (1.54 | ) | $ | (15.39 | ) |

 

The following commonshare equivalents, prior to the use of the treasury stock method, have beenexcluded from the computation of diluted weighted average shares outstanding asof September 30, 2007 and 2006, as they would be anti-dilutive.

 

8

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**SirtrisPharmaceuticals, Inc.**

**(Adevelopment-stage company)**

 

**Notes to Consolidated Financial Statements (Continued)**

(*in thousands, except share and per share amounts*)

*(Unaudited)*

 
| ** **                                                  | ** ** | **Three and Nine months Ended  September 30,** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2007**                                                 | ** ** | **2006** | ** ** |
| Redeemable  convertible preferred stock                     |       | —                                                   |       | 16,212,871 |   |
| Options outstanding                                         |       | 2,829,531                                                |       | 2,520,406 |   |
| Unvested  restricted stock under the 2004 Stock Option Plan |       | 95,236                                                   |       | 184,522 |   |
| Unvested  restricted stock issued to founders               |       | 51,211                                                   |       | 111,919 |   |
| Warrants  outstanding                                       |       | 99,465                                                   |       | 99,465 |   |

 

**8.Commitments**

 

On June  22, 2007, the Company entered into a leaseagreement for approximately 44,000 square feet of office and laboratory spacelocated in Cambridge, Massachusetts. The target commencement date (CommencementDate) of the lease is December 1, 2007 and extends for a period of tenyears at an initial annual rental rate of $58.50 per square foot and a minimumaverage annual rate of $68.63 per square foot over the lease term.  The lease contains annual rent escalationprovisions and the Company will record rent expense on a straight-line basisover the effective lease term.  TheCompany has the option to extend the lease for two consecutive additionalfive-year periods.  The Company’s currentlease of approximately 11,500 square feet located at 790 Memorial Drive inCambridge, Massachusetts has been amended to terminate on the CommencementDate, subject to certain written notifications.

The Company’s paymentobligations under the lease are secured by a $1.9 million standby letterof credit. The certificate of deposit that secures the letter of credit isincluded in long-term restricted cash on the balance sheet at September 30,2007.

The Company signed alease amendment effective October 30, 2007 for an additional 3,786 square feetof space at the same location and on the same terms as the June 22, 2007 leaseagreement.  In connection with the leaseamendment, the standby letter of credit and corresponding certificate ofdeposit were increased to $2.1 million.

**9. Common Stock**

***Reverse Stock Split***

OnApril 11, 2007, the Company’s Board of Directors and stockholders approved a1-for-5.25 reverse stock split.  Allshare and per share amounts in the consolidated financial statements have beenretroactively adjusted for all periods presented to give effect to the reversestock split, including reclassifying an amount equal to the reduction in parvalue to additional paid-in capital.

***Initial Public Offering***

InMay 2007, the Company raised $69.0 million in gross proceeds from the saleof 6,900,000 shares of its common stock in an initial public offering(IPO) at $10.00 per share. The net offering proceeds after deductingapproximately $6.5 million in offering related expenses and underwriters’discounts were approximately $62.5 million.  All outstanding shares of the Company’sredeemable convertible preferred stock were converted into 20,287,131 shares ofcommon stock upon the completion of the IPO.

In connection with the initial public offering, theCompany revalued the warrants for shares subject to repurchase and recordedadditional interest expense of $63. Warrants for shares subject to repurchase was then reclassified toadditional paid-in capital upon the warrants converting from warrants for thepurchase of shares of redeemable convertible preferred stock to warrants forthe purchase of common stock.  Theremaining value of the warrants will be recorded in interest expense and rentexpense, as appropriate, over the remaining term of the notes payable and thelease in connection with which they were issued.

 

9

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

 

*Thefollowing discussion contains forward-looking statements, which involve risksand uncertainties. Our actual results could differ materially from thoseanticipated in these forward-looking statements as a result of various factors,including those set forth below under Part II, Item 1A, “RiskFactors.” The interim financial statements and this Management’s Discussion andAnalysis of Financial Condition and Results of Operations should be read inconjunction with the financial statements and notes thereto for the year endedDecember 31, 2006 and the related Management’s Discussion and Analysis ofFinancial Condition and Results of Operations, both of which are contained inour Prospectus filed pursuant to Rule 424(b) under the Securities Act with theSecurities and Exchange Commission on May 22, 2007. Except as required by law,we assume no obligation to update these forward-looking statements, whether asa result of new information, future events or otherwise.*

 

**Overview**

 

We are abiopharmaceutical company focused on discovering and developing proprietary,orally available, small molecule drugs with the potential to treat diseasesassociated with aging, including metabolic diseases such as Type 2 Diabetes.Our goal is to successfully develop therapeutics for diseases of aging bymodulating sirtuins, a recently discovered class of enzymes, and their relatedpathways. To date, we have devoted substantially all of our resources to ourdrug discovery efforts and the development of our drug candidates, includingconducting preclinical studies and clinical trials and seeking protection forour intellectual property. Since our inception in March 2004, we have hadno revenue from product sales, and have funded our operations principallythrough private and public sales of equity securities and debt financings.

 

We have never beenprofitable and, as of September 30, 2007, we have an accumulated deficit of $50.6 million.We had net losses of $1.8 million for the period from March 25, 2004 (dateof inception) through December 31, 2004, $9.7 million for the yearended December 31, 2005, $17.0 million for the year ended December 31,2006 and $22.0 million for the nine months ended September 30, 2007. Weexpect to incur significant and increasing operating losses for the foreseeablefuture as we advance our product candidates from discovery through preclinicalstudies and clinical trials and seek regulatory approval and eventualcommercialization. In addition to these increasing research and developmentexpenses, we expect general and administrative costs to increase as we addpersonnel and continue to operate as a public company. We will need to generatesignificant revenues to achieve profitability and may never do so.

 

**CriticalAccounting Policies**

 

We believe that severalaccounting policies are important to understanding our historical and futureperformance. We refer to these policies as “critical” because these specificareas generally require us to make judgments and estimates about matters thatare uncertain at the time we make the estimate, and different estimates - whichalso would have been reasonable - could have been used, which would haveresulted in different financial results.  It is important that thediscussion of our operating results that follows be read in conjunction withthe critical accounting policies disclosed in our Prospectus filed pursuant toRule 424(b) under the Securities Act with the Securities and ExchangeCommission on May 22, 2007.  There were no changes to such criticalaccounting policies in the three months ended September 30, 2007.

 

**Resultsof Operations**

 

***Comparison of the Three Months ended September 30, 2007 andSeptember 30, 2006***

 

*Revenue.     *We did not record any revenue for thethree months ended September 30, 2007 (2007 Quarter) or the three months endedSeptember 30, 2006 (2006 Quarter).

 

*Researchand development.*     Researchand development expense for the 2007 Quarter was $9.5 million compared to$4.2 million for the 2006 Quarter. The $5.3 million increase from the 2006Quarter to the 2007 Quarter principally resulted from an increase of $1.7million in preclinical studies, an increase of $1.1 million in external clinicaltrial costs, an increase of $1.0 million in stock-based compensation expense,an increase of $598,000 in formulation costs for our product candidates, anincrease of $325,000 in sponsored research costs, an increase of $241,000 inoccupancy and information technology (IT) costs and an increase of $225,000 forpersonnel costs related principally to an increase in research and developmentheadcount.

 

*Generaland administrative*.     Generaland administrative expense for the 2007 Quarter was $1.6 million comparedto $1.1 million for the 2006 Quarter. The $514,000 increase from the 2006Quarter to the 2007 Quarter was primarily due to an increase of $219,000 inprofessional fees primarily as a result of being a public company, an increaseof $128,000 in stock-based compensation expense, an increase of $90,000 inpersonnel costs and an increase of $27,000 in occupancy and IT costs.

 

*Interestincome*.     Interestincome increased to $1.7 million for the 2007 Quarter from $717,000 for the2006 Quarter. The increase in interest income was caused by an increase in theaverage fund balances available for investment and an 

 

10

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increase in interest rates earned on investments. Theincrease in the average fund balances for investment was primarily due to thesale of redeemable convertible preferred stock in January and February of 2007and the completion of our initial public offering in May 2007.

 

*Interestexpense.*     Interestexpense increased to $331,000 for the 2007 Quarter from $295,000 for the 2006Quarter. The increase in interest expense from the 2006 Quarter to the 2007Quarter was primarily the result of the drawdown of $10.0 million under aloan agreement and $797,000 under an equipment loan agreement in April 2006 andJuly 2006, respectively.  We also recorded $39,000 of non-cash interestexpense related to warrants for the purchase of redeemable convertiblepreferred stock that converted into warrants for the purchase of common stockupon our initial public offering.

 

***Comparison of the Nine Months ended September 30, 2007 andJune 30, 2006***

 

*Revenue.     *We did not record any revenue for thenine months ended September 30, 2007 (2007 Period) or the nine months endedSeptember 30, 2006 (2006 Period).

 

*Researchand development.*     Researchand development expense for the 2007 Period was $20.7 million compared to $10.6 millionfor the 2006 Period. The $10.1 million increase from the 2006 Period to the2007 Period principally resulted from an increase of $1.8 million instock-based compensation expense, an increase of $1.8 million in externalclinical trial costs,  an increase of$1.5 million in preclinical studies, an increase of $1.0 million for personnelcosts primarily related to an increase in research and development headcount,an increase of $927,000 in occupancy and IT costs, an increase of $820,000 inexternal chemistry and biology costs, an increase of $802,000 in formulationcosts for our product candidates, an increase of $735,000 in sponsored researchcosts, an increase of $157,000 in depreciation, and $153,000 in license fees.

 

*Generaland administrative*.     Generaland administrative expense for the 2007 Period was $4.1 million comparedto $3.3 million for the 2006 Period. The $870,000 increase from the 2006Period to the 2007 Period was primarily due to an increase of $289,000 instock-based compensation expense, an increase of $187,000 in personnel costs,an increase of $99,000 in occupancy and IT costs, an increase of $81,000 inprofessional fees primarily as a result of being a public company, and anincrease of $81,000 of bank fees primarily due to fees for a standby letter ofcredit related to a new facility and $48,000 in temporary help costs.

 

*Interestincome.*     Interestincome increased to $3.9 million for the 2007 Period from $1.7 million for the2006 Period. The increase in interest income was caused by an increase in theaverage fund balances available for investment and an increase in interestrates earned on investments. The increase in the average fund balances forinvestment was primarily due to the sale of redeemable convertible preferredstock in January and February of 2007 and the completion of our initial publicoffering in May 2007.

 

*Interestexpense.*     Interestexpense increased to $1.1 million for the 2007 Period from $519,000 from the2006 Period. The increase in interest expense from the 2006 Period to the 2007Period was primarily the result of the drawdown of $10.0 million under aloan agreement and $797,000 under an equipment loan agreement in April 2006 andJuly 2006, respectively.  We also recorded $177,000 of non-cash interestexpense related to warrants for the purchase of redeemable convertiblepreferred stock that converted into warrants for the purchase of common stock uponour initial public offering.

 

***Liquidity and Capital Resources***

 

Since our inception inMarch 2004, we have funded our operations principally through the privateplacement of equity securities, which provided aggregate net cash proceeds ofapproximately $102.6 million and the completion of an initial publicoffering that provided net proceeds of approximately $62.5 million. We havealso generated funds from debt financing and interest income. As ofSeptember 30, 2007, we had cash, cash equivalents and short-terminvestments of approximately $127.1 million. Our funds are currentlyinvested in investment grade and United States government securities.

 

During the 2007 Periodand 2006 Period, our operating activities used cash of $17.7 million and$11.3 million, respectively. The use of cash in both periods primarily resultedfrom our net losses and changes in our working capital accounts. The increasein cash used in operations in the 2007 Period was due primarily to an increasein research and development activities as noted above.

 

During the 2007 Periodand 2006 Period, our investing activities used cash of $59.7 million and$2.1 million, respectively. The use of cash in both periods is a result ofpurchases of investment grade securities, partially offset by maturities ofsuch short-term investments.  The 2007Period also used cash for additions to restricted cash to secure a standbyletter of credit for our new facility lease.  We expect to have anincrease in capital expenditures of approximately $600,000 during the fourthquarter of 2007 related to our new facility.

 

Our financing activitiesprovided $97.9 million and $32.8 million for the 2007 Period and the2006 Period, respectively. The cash provided in the 2007 Period resulted fromthe sale and issuance of 21.4 million shares of Series C-1 redeemableconvertible preferred stock in January and February 2007 that provided netproceeds of $35.9 million and from the sale and issuance of 6.9 million sharesof common stock in our initial public offering in May 2007 that provided netproceeds of $62.5

 

11

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million.  The cashprovided in the 2006 Period resulted from the sale and issuance of19.7 million shares of Series C redeemable convertible preferredstock in March and April 2006 that provided net proceeds of$22.0 million and $10.0 million of proceeds from a note payable to afinancial institution.

 

In April 2006, weobtained a loan from a financial institution which permitted borrowings of upto $15.0 million, $10.0 million of which was available immediatelyand an additional $5.0 million was available during the third quarter of2007 when certain clinical milestones were achieved. The additional $5.0million was not drawn down during the third quarter so there is no remainingamount available under this loan. We are obligated to make interest-only paymentsthrough July 2007 followed by forty-five equal monthly payments ofprincipal and interest. The loan is secured by essentially all our assetsexcept for intellectual property and bears interest at 10.60% per annum. InApril 2006, we borrowed $10.0 million under the loan. As of September30, 2007, there was $9.6 million outstanding and no remaining amount availableunder the loan. In connection with the loan, the lender received a warrant topurchase up to 127,551 shares of our common stock depending upon the amountactually borrowed at an exercise price of $5.88 per share. The warrant iscurrently exercisable for up to 85,034 shares of our common stock and noadditional shares of our common stock can become exercisable as we cannot makeadditional borrowings under this loan. This warrant has not been exercised.

 

In May 2006, weentered into an equipment loan agreement with a bank to borrow up to$1.5 million through March 2007. Amounts borrowed under the facilityare repayable over 36 months beginning in April 2007 and bearinterest at prime plus 0.25% per annum. As of September 30, 2007, there was$665,000 outstanding and no remaining amount available under the equipmentloan. In connection with the financing, the lender received a warrant to purchaseup to 4,749 shares of our common stock depending upon the amount actuallyborrowed at an exercise price of $4.20 per share. The warrant is currentlyexercisable for up to 2,526 shares of our common stock while the remaining2,223 additional shares of our common stock were cancelled since we did notmake any additional borrowings under this loan before March 2007.  Thiswarrant has not been exercised.

 

We expect our existingresources to be sufficient to fund our planned operations until at least theend of 2009.

 

**ContractualObligations**

 

On June 22, 2007, weentered into a commercial lease agreement for approximately 44,000 square feetof office and laboratory space located in Cambridge, Massachusetts. The targetcommencement date (Commencement Date) of the lease is December 1, 2007 andit extends for a period of ten years at an initial annual rental rate of $58.50per square foot and a minimum average annual rate of $68.63 per square footover the lease term.  The lease contains annual rent escalation provisions. We have the option to extend the lease for two consecutive additional five-yearperiods.  Our payment obligations under the lease are secured by a$1.9 million standby letter of credit. The certificate of deposits that secures the letter of credit isincluded in long-term restricted cash on the consolidated balance sheet atSeptember 30, 2007.  Our current lease of approximately 11,500 squarefeet located at 790 Memorial Drive in Cambridge, Massachusetts has been amendedto terminate on the Commencement Date, subject to certain writtennotifications. Our President and Chief Executive Officer, Christoph Westphal,performs consulting services for an affiliate of the landlord.

 

We signed a leaseamendment effective October 30, 2007 for an additional 3,786 square feet ofspace at the same location and on the same terms as the June 22, 2007 leaseagreement.  In connection with the leaseamendment, the standby letter of credit and corresponding certificate ofdeposit were increased to $2.1 million.

 

There are no otheradditional material obligations incurred by us that materially change thedisclosure of our contractual obligations in our Prospectus filed pursuant toRule 424(b) under the Securities Act with the Securities and ExchangeCommission on May 22, 2007.

 

**Off-BalanceSheet Arrangements**

 

We do not have anyoff-balance sheet arrangements or relationships with unconsolidated entities offinancial partnerships, such as entities often referred to as structuredfinance or special purpose entities.

 

**Item 3. Quantitative and Qualitative Disclosure about MarketRisk**

 

We are exposed to marketrisk related to changes in interest rates. As of September 30, 2007, we hadcash, cash equivalents and short-term investments of $127.1 million consistingof cash and highly liquid short-term investments.   Our primary exposure to market risk isinterest income sensitivity, which is affected by changes in the general levelof U.S. interest rates, particularly because our investments are in short-termmarketable securities.  Due to theshort-term duration of our investment portfolio and the low risk profile of ourinvestments, an immediate 10% change in interest rates would not have amaterial effect on the fair market value of our portfolio.  Our outstanding notes payable are at fixedinterest rates and therefore have minimal exposure to changes in interestrates.

 

12

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**Item 4. Controls and Procedures**

**Evaluationof Disclosure Controls and Procedures**

 

As required byRule 13a—15(b) of the 1934 Act our management, including theprincipal executive officer and the principal financial officer, conducted anevaluation as of the end of the period covered by this Quarterly Report onForm 10-Q of the effectiveness of the design and operation of ourdisclosure controls and procedures. Based on that evaluation, our principalexecutive officer and principal financial officer concluded that our disclosurecontrols and procedures are effective at the reasonable assurance level inensuring that information required to be disclosed by us in the reports that wefile or submit under the 1934 Act is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules andforms.  Disclosure controls andprocedures include, without limitation, controls and procedures designed toensure that information required to be disclosed by us in the reports we fileunder the Securities and Exchange Act is accumulated and communicated to ourmanagement, including our principal executive officer and principal financialofficer, as appropriate to allow timely decisions regarding requireddisclosure.

 

**Changesin Internal Control**

 

As required byRule 13a-15(d) of the 1934 Act, our management, including theprincipal executive officer and the principal financial officer, conducted anevaluation of the internal control over financial reporting to determinewhether any changes occurred during the period covered by this Quarterly Reporton Form 10-Q that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting. Based on thatevaluation, the principal executive officer and principal financial officerconcluded no such changes during the fiscal quarter covered by this QuarterlyReport on Form 10-Q materially affected, or were reasonably likely tomaterially affect, our internal control over financial reporting.

 

13

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**PART II**

 

**Item 1. Legal Proceedings**

 

 We are currentlynot a party to any material legal proceedings.

 

**Item 1a. Risk Factors**

 

**RISKFACTORS THAT MAY AFFECT FUTURE RESULTS**

 

*Investment in our common stockinvolves a high degree of risk and uncertainty. You should carefully considereach of the risks and uncertainties described below before you decide to investin our common stock. You should also refer to the other information in thisquarterly report, including our financial statements and related notes. If anyof the following risks and uncertainties actually occurs, our business, financialcondition, and results of operations could be severely harmed. This could causethe trading price of our common stock to decline, and you could lose all orpart of your investment.*

 

**Risks related to our discovery,development and commercialization of new medicines**

 

***Our results to dateprovide no basis for predicting whether any of our product candidates will besafe or effective, or receive regulatory approval.***

 

Our only clinical candidate, SRT501, is in an early stage ofdevelopment and its risk of failure is high. To date, the data supporting ourdrug discovery and development programs, including SRT501 and new chemicalentities, are derived solely from laboratory and preclinical studies andlimited early stage clinical trials. Results in animal studies of SRT501 werefavorable and all of the reported adverse side effects in our early stageclinical trials were reversible and none were serious. However, additionalclinical trials in humans may not show that our current formulation of SRT501is safe and effective, in which event we may need to reformulate or abandondevelopment of SRT501. Reformulation of SRT501 could result in delays andadditional costs. It is impossible to predict when or if SRT501 or any of ourNCEs will prove effective or safe in humans or will receive regulatoryapproval. These compounds may not demonstrate in patients the chemical andpharmacological properties ascribed to them in laboratory studies, or earlystage clinical trials, and they may interact with human biological systems orother drugs in unforeseen, ineffective or harmful ways. Neither we nor anyother company has received regulatory approval to market therapeutics thattarget sirtuins. If we are unable to discover or successfully develop drugsthat are effective and safe in humans, we will not have a viable business.

 

***We may not be ableto initiate and complete preclinical studies and clinical trials for ourproduct candidates which could adversely affect our business.***

 

We have completed two Phase 1a trials with respect to our only clinicalproduct candidate, SRT501, both of which were conducted outside of the UnitedStates, and have not commenced any clinical trials for our NCEs. We mustsuccessfully initiate and complete extensive preclinical studies and clinical trialsfor our product candidates before we can receive regulatory approval.Preclinical studies and clinical trials are expensive and will take severalyears to complete and may not yield results that support further clinicaldevelopment or product approvals. Conducting clinical studies for any of ourdrug candidates for approval in the United States requires filing an IND andreaching agreement with the FDA on clinical protocols, finding appropriateclinical sites and clinical investigators, securing approvals for such studiesfrom the institutional review board at each such site, manufacturing clinicalquantities of drug candidates, supplying drug product to clinical sites andenrolling sufficient numbers of participants. Currently, the IND that we filedfor SRT501 in August 2006 is on hold with the FDA, and we cannot conductclinical studies in the Unites States until we satisfactorily respond torequests from the FDA for certain additional information. In order to commenceclinical trials in the United States, we must reach agreement with the FDA on asecond animal species for preclinical toxicity studies, conduct such studiesand satisfy the FDA with the results of such studies. We cannot guarantee thatwe will be able to successfully accomplish these activities or all of the otheractivities necessary to initiate and complete clinical trials. As a result, ourpreclinical studies and clinical trials may be extended, delayed or terminated,and we may be unable to obtain regulatory approvals or successfully commercializeour products.

 

***None of our productcandidates has received regulatory approvals. If we are unable to obtainregulatory approvals to market one or more of our product candidates, ourbusiness may be adversely affected.***

 

All of our product candidates are in early stages of development, andwe do not expect our product candidates to be commercially available forseveral years, if at all. Our product candidates are subject to strictregulation by regulatory authorities in the United States and in othercountries. We cannot market any product candidate until we have completed allnecessary preclinical studies and clinical trials and have obtained thenecessary regulatory approvals. We do not know whether regulatory agencies willgrant approval for any of our product candidates. Even if we completepreclinical studies and clinical trials successfully, we may not be able toobtain regulatory approvals or we may not receive approvals to make claimsabout our products that we believe to be necessary to effectively market ourproducts. Data obtained from preclinical studies and clinical trials aresubject to varying interpretations that could delay, 

 

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limit or prevent regulatory approval, and failure to comply withregulatory requirements or inadequate manufacturing processes are examples ofother problems that could prevent approval. In addition, we may encounterdelays or rejections due to additional government regulation from futurelegislation, administrative action or changes in the FDA policy. Even if theFDA approves a product, the approval will be limited to those indicationscovered in the approval.

 

Outside the United States, our ability to market any of our potentialproducts is dependent upon receiving marketing approvals from the appropriateregulatory authorities. These foreign regulatory approval processes include allof the risks associated with the FDA approval process described above. If weare unable to receive regulatory approvals, we will be unable to commercializeour product candidates, and our business may fail.

 

***We may not be ableto gain market acceptance of our product candidates, which would prevent usfrom becoming profitable.***

 

We cannot be certain that any of our product candidates will gainmarket acceptance among physicians, patients, healthcare payers, pharmaceuticalcompanies or others. Demonstrating the safety and efficacy of our productcandidates and obtaining regulatory approvals will not guarantee futurerevenue. Sales of medical products largely depend on the reimbursement ofpatients’ medical expenses by government healthcare programs and private healthinsurers. Governments and private insurers closely examine medical products todetermine whether they should be covered by reimbursement and if so, the levelof reimbursement that will apply. We cannot be certain that third party payerswill sufficiently reimburse sales of our products, or enable us to sell ourproducts at profitable prices. Similar concerns could also limit thereimbursement amounts that health insurers or government agencies in othercountries are prepared to pay for our products. In many countries where we planto market our products, including Europe, Japan and Canada, the pricing ofprescription drugs is controlled by the government or regulatory agencies.Regulatory agencies in these countries could determine that the pricing for ourproducts should be based on prices of other commercially available drugs forthe same disease, rather than allowing us to market our products at a premiumas new drugs.

 

Sales of medical products also depend on physicians’ willingness toprescribe the treatment, which is likely to be based on a determination bythese physicians that the products are safe, therapeutically effective andcost-effective. We cannot predict whether physicians, other healthcareproviders, government agencies or private insurers will determine that ourproducts are safe, therapeutically effective and cost effective relative tocompeting treatments.

 

***Our current productcandidates are SIRT1 activators. Resveratrol, a SIRT1 activator, is marketed byother companies as a dietary supplement. As a result, any products wesuccessfully develop may be subject to substitution and competition.***

 

SRT501, a proprietary formulation of resveratrol, and our NCEs activateSIRT1. Resveratrol, a naturally occurring substance currently marketed byothers as a dietary supplement, also activates SIRT1. We believe that ourproduct candidates will have a significantly superior therapeutic profile toresveratrol based on preclinical data regarding the level of resveratrol in theblood and the effectiveness of these product candidates in reducing fastedglucose levels and fed insulin levels in animals. However, we cannot be surethat physicians will view our product candidates as superior to currentlyavailable dietary supplements. To the extent that the price of any productcandidate we successfully develop is significantly higher than the prices ofcommercially available resveratrol as marketed by other companies as dietarysupplements, physicians may recommend this commercially available resveratrolinstead of writing prescriptions for our products or patients may elect ontheir own to take commercially available resveratrol, and this may limit how weprice our product.

 

***We may not be ableto manufacture our product candidates in clinical or commercial quantities,which would prevent us from commercializing our product candidates.***

 

To date, our product candidates have been manufactured in smallquantities by us and third party manufacturers for preclinical studies andclinical trials. If any of our product candidates is approved by the FDA orother regulatory agencies for commercial sale, we will need to manufacture itin larger quantities and we intend to use third party manufacturers forcommercial quantities. Our third party manufacturers may not be able tosuccessfully increase the manufacturing capacity for any of our productcandidates in a timely or efficient manner, or at all. If we are unable tosuccessfully increase the manufacturing capacity for a product candidate, theregulatory approval or commercial launch of that product candidate may bedelayed or there may be a shortage in the supply of the product candidate. Ourfailure or the failure of our third party manufacturers to comply with the FDA’sgood manufacturing practices and to pass inspections of the manufacturingfacilities by the FDA or other regulatory agencies could seriously harm ourbusiness.

 

***We may not be ableto obtain and maintain the third party relationships that are necessary todevelop, commercialize and manufacture some or all of our product candidates.***

 

We expect to depend on collaborators, partners, licensees, clinicalresearch organizations, manufacturers and other third parties to support ourdiscovery efforts, to formulate product candidates, to conduct clinical trialsfor some or all of our product candidates, to manufacture clinical andcommercial scale quantities of our product candidates and products and tomarket, sell, and distribute any products we successfully develop.

 

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We cannot guarantee that we will be able to successfully negotiateagreements for or maintain relationships with collaborators, partners,licensees, clinical investigators, manufacturers and other third parties onfavorable terms, if at all. If we are unable to obtain or maintain theseagreements, we may not be able to clinically develop, formulate, manufacture,obtain regulatory approvals for or commercialize our product candidates, whichwill in turn adversely affect our business.

 

We expect to expend substantial management time and effort to enterinto relationships with third parties and, if we successfully enter into suchrelationships, to manage these relationships. In addition, substantial amountsof our expenditures will be paid to third parties in these relationships.However, we cannot control the amount or timing of resources our contractpartners will devote to our research and development programs, productcandidates or potential product candidates, and we cannot guarantee that theseparties will fulfill their obligations to us under these arrangements in atimely fashion, if at all.

 

In particular, we currently have approximately 40 contract scientistsperforming research and development services for us in a contract researchorganization in China. The loss of this contractual relationship could resultin a significant delay and additional costs for our discovery and developmentactivities. In addition, we are less knowledgeable about the reputation andquality of third party contractors in countries outside of the United Stateswhere we conduct discovery and clinical development programs and, therefore,enter into these relationships with less information than if these thirdparties were in the United States and may not choose the best parties for theserelationships.

 

***We have noexperience in sales, marketing and distribution and may have to enter intoagreements with third parties to perform these functions, which could preventus from successfully commercializing our product candidates.***

 

We currently have no sales, marketing or distribution capabilities. Tocommercialize our product candidates, we must either develop our own sales,marketing and distribution capabilities, which will be expensive and timeconsuming, or make arrangements with third parties to perform these servicesfor us. If we decide to market any of our products on our own, we will have tocommit significant resources to developing a marketing and sales force andsupporting distribution capabilities. If we decide to enter into arrangementswith third parties for performance of these services, we may find that they arenot available on terms acceptable to us, or at all. If we are not able toestablish and maintain successful arrangements with third parties or build ourown sales and marketing infrastructure, we may not be able to commercialize ourproduct candidates which would adversely affect our business and financialcondition.

 

***If we were to electto commercialize SRT501 as a dietary supplement, we may not be able tosuccessfully market one or more of our NCEs as a therapy for disease, ifapproved, and our results may be adversely affected.***

 

Resveratrol is currently available for sale by other companies asdietary supplements. If we were to elect to market SRT501 as a dietarysupplement, which we may do if we discontinue development of SRT501 as atherapeutic drug, we believe we could do so without the need to completelengthy and costly clinical trials. If we were to obtain regulatory approvalfor one of our NCEs, we anticipate that we would price the NCE at aconsiderably higher level than SRT501 would be priced if we were selling SRT501as a dietary supplement. While our NCEs are chemical entities distinct fromSRT501 and resveratrol, patients suffering from diseases for which our NCEs maybe approved for treatment may choose to use the lower priced SRT501 dietarysupplement, since it also activates SIRT1, rather than the higher pricedapproved NCE prescription product. As a result, if we choose to commercializeSRT501 as a dietary supplement, our ability to successfully commercialize NCEactivators of SIRT1 may be adversely affected.

 

***We may fail toselect or capitalize on the most scientifically, clinically or commerciallypromising or profitable product candidates.***

 

We have limited technical, managerial and financial resources todetermine which of our product candidates should proceed to initial clinicaltrials, later stage clinical development and potential commercialization. Wemay make incorrect determinations. Our decisions to allocate our research anddevelopment, management and financial resources toward particular productcandidates or therapeutic areas may not lead to the development of viablecommercial products and may divert resources from better opportunities.Similarly, our decisions to delay or terminate drug development programs mayalso be incorrect and could cause us to miss valuable opportunities.

 

***If we are not ableto retain our current senior management team and our scientific advisors orcontinue to attract and retain qualified scientific, technical and businesspersonnel, our business will suffer.***

 

We are dependent on the members of our management team and ourscientific advisors for our business success. An important element of ourstrategy is to take advantage of the research and development expertise of ourcurrent management and to utilize the unique expertise of our scientificadvisors in the sirtuin field. We currently have employment agreements with allof our executive officers. Our employment agreements with our executiveofficers are terminable on short notice or no notice and provide for severanceand change of control benefits. The loss of any one of our executive officersor key scientific consultants, including, in particular, Dr. ChristophWestphal, our Chief Executive Officer, could result in a significant loss inthe knowledge and experience that we, as an organization, possess and couldcause significant delays, or outright failure, in the development and furthercommercialization of our product candidates.

 

 

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To grow, we will need to hire a significant number of qualifiedcommercial, scientific and administrative personnel. However, there is intensecompetition for human resources, including management in the technical fieldsin which we operate, and we may not be able to attract and retain qualifiedpersonnel necessary for the successful development and commercialization of ourproduct candidates. Our inability to attract new employees or to retainexisting employees could limit our growth and harm our business.

 

***Disputes under keyagreements or conflicts of interest with our scientific advisors or clinicalinvestigators could delay or prevent development or commercialization of ourproduct candidates.***

 

Any agreements we have or may enter into with third parties, such ascollaboration, license, formulation supplier, manufacturing, clinical researchorganization or clinical trial agreements, may give rise to disputes regardingthe rights and obligations of the parties. Disagreements could develop overrights to ownership or use of intellectual property, the scope and direction ofresearch and development, the approach for regulatory approvals orcommercialization strategy. We intend to conduct research programs in a rangeof therapeutic areas, but our pursuit of these opportunities could result inconflicts with the other parties to these agreements who may be developing orselling pharmaceuticals or conducting other activities in these sametherapeutic areas. Any disputes or commercial conflicts could lead to thetermination of our agreements, delay progress of our product developmentprograms, compromise our ability to renew agreements or obtain futureagreements, lead to the loss of intellectual property rights or result incostly litigation.

 

We collaborate with outside scientific advisors and collaborators at academicand other institutions that assist us in our research and development efforts.Our scientific advisors are not our employees and may have other commitmentsthat limit their availability to us. If a conflict of interest between theirwork for us and their work for another entity arises, we may lose theirservices.

 

***We may encounterdifficulties in managing our growth, which could adversely affect ouroperations.***

 

Since our inception in 2004, we have grown to approximately 50employees. We have experienced a period of rapid growth that has placed astrain on our administrative and operational infrastructure. We expect thisstrain to continue as we continue to grow and seek to obtain and managerelationships with third parties. Our ability to manage our operations andgrowth effectively depends upon the continual improvement of our procedures,reporting systems, and operational, financial, and management controls. We maynot be able to implement improvements in an efficient or timely manner and maydiscover deficiencies in existing systems and controls. If we do not meet thesechallenges, we may be unable to take advantage of market opportunities, executeour business strategies or respond to competitive pressures which in turn mayslow our growth or give rise to inefficiencies that would increase our losses.

 

We may acquire additional technology and complementary businesses inthe future. Acquisitions involve many risks, any one of which could materiallyharm our business, including the diversion of management’s attention from corebusiness concerns, failure to exploit acquired technologies, or the loss of keyemployees from either our business or the acquired business.

 

**Risks related to our financialresults and need for additional financing**

 

***We have a historyof operating losses, expect to incur significant and increasing operatinglosses and may never be profitable.***

 

We were incorporated in March 2004 and have a very limitedoperating history for you to evaluate our business. We have no approved productsand have generated no product revenue. We have incurred operating losses sinceour inception in 2004. As of September 30, 2007, we had an accumulated deficitof $50.6 million.  We have spent,and expect to continue to spend, significant resources to fund research anddevelopment of our product candidates. We expect to incur substantial andincreasing operating losses over the next several years as our research,development, preclinical testing, and clinical trial activities increase. As aresult, our accumulated deficit will also increase significantly.

 

Our product candidates are in the early stages of development and maynever result in any revenue. We will not be able to generate product revenueunless and until one of our product candidates successfully completes clinicaltrials and receives regulatory approval. As our most advanced productcandidates are at an early proof-of-concept stage, we do not expect to receiverevenue from any product candidate for the foreseeable future. We may seek toobtain revenue from collaboration or licensing agreements with third parties.We currently have no such agreements which will provide us with material,ongoing future revenue and we may never enter into any such agreements.  Even if we eventually generate revenues, wemay never be profitable, and if we do achieve profitability, we may not be ableto sustain or increase profitability on a quarterly or annual basis.

 

***We may be unable toraise the substantial additional capital that we will need to sustain ouroperations.***

 

We will need substantial additional funds to support our plannedoperations. Based on our current operating plans, we expect our existingresources to be sufficient to fund our planned operations until at least theend of 2009. We may, however, need to raise additional funds before that dateif our research and development expenses exceed our current expectations. Thiscould occur for many reasons, including:

 

•                  some or all of our product candidates fail in clinical or preclinicalstudies and we are forced to seek additional product candidates;

 

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•                  our product candidates require more extensive clinical or preclinicaltesting than we currently expect;

 

•                  we advance more of our product candidates than expected into costlylater stage clinical trials;

 

•                  we advance more preclinical product candidates than expected into earlystage clinical trials;

 

•                  we are required, or consider it advisable, to acquire or license rightsfrom one or more third parties; or

 

•                  we acquire or license rights to additional product candidates or newtechnologies.

 

While we expect to seek additional funding through public or privatefinancings, we may not be able to obtain financing on acceptable terms, or atall. In addition, the terms of our financings may be dilutive to, or otherwiseadversely affect, holders of our common stock. We may also seek additionalfunds through arrangements with collaborators or other third parties. Thesearrangements would generally require us to relinquish rights to some of ourtechnologies, product candidates or products, and we may not be able to enterinto such agreements, on acceptable terms, if at all. These arrangements alsomay include issuances of equity, which may also be dilutive to, or otherwiseadversely affect, holders of our common stock. If we are unable to obtain additional funding on a timely basis, we maybe required to curtail or terminate some or all of our research or developmentprograms, including some or all of our product candidates.

 

**Risks related to regulatory approvals**

 

***Our productcandidates must undergo rigorous clinical trials and regulatory approvals,which could delay or prevent commercialization of our product candidates.***

 

All of our product candidates will be subject to rigorous and extensiveclinical trials and extensive regulatory approval processes implemented by theFDA and similar regulatory bodies in other countries. The approval process istypically lengthy and expensive, and approval is never certain. We or our collaborators,if any, may delay, suspend or terminate clinical trials at any time for reasonsincluding:

 

•                  ongoing discussions with the FDA or comparable foreign authoritiesregarding the scope or design of our clinical trials;

 

•                  delays or the inability to obtain required approvals from institutionalreview boards or other governing entities at clinical sites selected forparticipation in our clinical trials;

 

•                  delays in enrolling patients and volunteers into clinical trials;

 

•                  lower than anticipated retention rates of patients and volunteers inclinical trials;

 

•                  the need to repeat clinical trials as a result of inconclusive ornegative results or poorly executed testing;

 

•                  insufficient supply or deficient quality of product candidate materialsor other materials necessary to conduct our clinical trials;

 

•                  unfavorable FDA inspection and review of a clinical trial site orrecords of any clinical or preclinical investigation;

 

•                  serious and unexpected drug-related side effects or adverse deviceeffects experienced by participants in our clinical trials; or

 

•                  the placement of a clinical hold on a trial.

 

The use of commercially available resveratrol could adversely affectour development or the approval of SRT501, which is our proprietary formulationof resveratrol, if any adverse side effects become associated with suchcommercially available resveratrol products. Such use could also adverselyaffect our ability to market and commercialize our product candidates.

 

Positive or timely results from preclinical studies and early clinicaltrials do not ensure positive or timely results in late stage clinical trialsor product approval by the FDA or any other regulatory authority. Productcandidates that show positive preclinical or early clinical results often failin later stage clinical trials. Data obtained from preclinical and clinicalactivities is susceptible to varying interpretations, which could delay, limit,or prevent regulatory approvals.

 

We have limited experience in conducting the clinical trials requiredto obtain regulatory approval. We may not be able to conduct 

 

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clinical trials at preferred sites, enlist clinical investigators,enroll sufficient numbers of participants, or begin or successfully completeclinical trials in a timely fashion, if at all. Any failure to perform maydelay or terminate the trials. Our current clinical trials may be insufficientto demonstrate that our potential products will be active, safe, or effective.Additional clinical trials may be required if clinical trial results arenegative or inconclusive, which will require us to incur additional costs andsignificant delays. If we do not receive the necessary regulatory approvals, wewill not be able to generate product revenues and may not become profitable.

 

***The regulatoryapproval process is costly and lengthy and we may not be able to successfullyobtain all required regulatory approvals.***

 

The preclinical development, clinical trials, manufacturing, marketingand labeling of pharmaceuticals are all subject to extensive regulation bynumerous governmental authorities and agencies in the United States and othercountries. We must obtain regulatory approval for each of our productcandidates before marketing or selling any of them. It is not possible topredict how long the approval processes of the FDA or any other applicablefederal or foreign regulatory authority or agency for any of our products willtake or whether any such approvals ultimately will be granted. The FDA andforeign regulatory agencies have substantial discretion in the drug approvalprocess, and positive results in preclinical testing or early phases ofclinical studies offer no assurance of success in later phases of the approvalprocess. Generally, preclinical and clinical testing of products can take manyyears and require the expenditure of substantial resources, and the dataobtained from these tests and trials can be susceptible to varyinginterpretations that could delay, limit or prevent regulatory approval. If weencounter significant delays in the regulatory process that result in excessivecosts, this may prevent us from continuing to develop our product candidates.Any delay in obtaining, or failure to obtain, approvals could adversely affectthe marketing of our products and our ability to generate product revenue. Therisks associated with the approval process include:

 

•                  failure of our product candidates to meet a regulatory agency’srequirements for safety, efficacy and quality;

 

•                  limitation on the indicated uses for which a product may be marketed;

 

•                  unforeseen safety issues or side effects; and

 

•                  governmental or regulatory delays and changes in regulatoryrequirements and guidelines.

 

We filed for Orphan Drug status for SRT501 for MELAS in the UnitedStates and the European Union. The FDA and the European Union regulatoryauthorities grant Orphan Drug designation to drugs intended to treat a raredisease or condition, which is generally a disease or condition that affectsfewer than 200,000 individuals in the United States and fewer than 5 in 10,000individuals in the European Union. In the United States, a product that hasOrphan Drug designation and receives the first FDA approval for the disease,for which it has such designation, is entitled to market exclusivity, except invery limited circumstances, for seven years. However, if a competitor hasOrphan Drug status for its own product and is first to obtain approval of thesame drug, as defined by the FDA, for the Orphan Drug indication, or if ourproduct candidate is determined to be contained within the competitor’s productfor the same indication or disease, then that competitor would have marketexclusivity and approval of our product for that indication or disease couldpotentially be blocked for seven years. Orphan Drug designation does not conveyany advantage in, or shorten the duration of, the regulatory review andapproval process. Obtaining Orphan Drug designation may not provide us with amaterial commercial advantage.

 

***Even if we receiveregulatory approvals for marketing our product candidates, if we fail to complywith continuing regulatory requirements, we could lose our regulatoryapprovals, and our business would be adversely affected.***

 

The FDA and other regulatory authorities continue to review productseven after they receive initial approval. If we receive approval tocommercialize any product candidates, the manufacturing, testing, marketing,sale and distribution of these drugs will be subject to continuing regulation,including compliance with quality systems regulations, good manufacturingpractices, adverse event requirements, and prohibitions on promoting a productfor unapproved uses. Enforcement actions resulting from our failure to complywith government and regulatory requirements could result in fines, suspensionof approvals, withdrawal of approvals, product recalls, product seizures,mandatory operating restrictions, criminal prosecution, civil penalties andother actions that could impair the manufacturing, testing, marketing, sale anddistribution of our potential products and our ability to conduct our business.

 

***Even if we are ableto obtain regulatory approvals for any of our product candidates, if theyexhibit harmful side effects after approval, our regulatory approvals could berevoked or otherwise negatively impacted, and we could be subject to costly anddamaging product liability claims.***

 

Even if we receive regulatory approval for SRT501 or any of our NCEs,we will have tested them in only a small number of patients during our clinicaltrials. If our applications for marketing are approved and more patients beginto use our product, new risks and side effects associated with our products maybe discovered. As a result, regulatory authorities may revoke their approvals;we may be required to conduct additional clinical trials, make changes inlabeling of our product, reformulate our product or make changes and obtain newapprovals for our and our suppliers’ manufacturing facilities. We might have towithdraw or recall our products from the 

 

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marketplace. We may also experience a significant drop in the potentialsales of our product if and when regulatory approvals for such product areobtained, experience harm to our reputation in the marketplace or becomesubject to lawsuits, including class actions. Any of these results coulddecrease or prevent any sales of our approved product or substantially increasethe costs and expenses of commercializing and marketing our product.

 

***Healthcare reformmeasures could adversely affect our business.***

 

The efforts of governmental and third-party payers to contain or reducethe costs of healthcare may adversely affect the business and financialcondition of pharmaceutical companies. In the United States and in foreignjurisdictions there have been, and we expect that there will continue to be, anumber of legislative and regulatory proposals aimed at changing the healthcaresystem. For example, in some countries other than the United States, pricing ofprescription drugs is subject to government control, and we expect proposals toimplement similar controls in the United States to continue. The pendency orapproval of such proposals could result in a decrease in our common stock priceor limit our ability to raise capital or to enter into collaborations orlicense rights to our products.

 

***New federallegislation may increase the pressure to reduce prices of pharmaceuticalproducts paid for by Medicare, which could adversely affect our revenues, ifany.***

 

The Medicare Prescription Drug Improvement and Modernization Act of2003, or MMA, expanded Medicare coverage for drug purchases by the elderly anddisabled beginning in 2006. The new legislation uses formularies, preferreddrug lists and similar mechanisms that may limit the number of drugs that willbe covered in any therapeutic class or reduce the reimbursement for some of thedrugs in a class.

 

As a result of the expansion of legislation and the expansion offederal coverage of drug products, we expect that there will be additionalpressure to contain and reduce costs. Indeed, legislation that would permit thefederal government to negotiate drug prices directly with manufacturers underthe Medicare prescription drug programs is currently under consideration. Thesecost reduction initiatives could decrease the coverage and price that wereceive for our products in the future and could seriously harm our business.While the MMA applies only to drug benefits for Medicare beneficiaries, privatepayers often follow Medicare coverage policy and payment limitations in settingtheir own reimbursement systems, and any limits on or reductions inreimbursement that occur in the Medicare program may result in similar limitson or reductions in payments from private payers.

 

***New federal laws orregulations on drug importation could make lower cost versions of our futureproducts available, which could adversely affect our revenues, if any.***

 

The prices of some drugs are lower in other countries than in theUnited States because of government regulation and market conditions. Undercurrent law, importation of drugs into the United States is generally notpermitted unless the drugs are approved in the United States and the entitythat holds that approval consents to the importation. Various proposals havebeen advanced to permit the importation of drugs from other countries toprovide lower cost alternatives to the products available in the United States.In addition, the MMA requires the Secretary of Health and Human Services topromulgate regulations for drug reimportation from Canada into the UnitedStates under some circumstances, including when the drugs are sold at a lowerprice than in the United States.

 

If the laws or regulations are changed to permit the importation ofdrugs into the United States in circumstances that are currently not permitted,such a change could have an adverse effect on our business by making availablelower priced alternatives to our future products.

 

***Failure to obtainregulatory and pricing approvals in foreign jurisdictions could delay orprevent commercialization of our products abroad.***

 

If we succeed in developing any products, we intend to market them inthe European Union and other foreign jurisdictions. In order to do so, we mustobtain separate regulatory approvals and comply with numerous and varyingregulatory requirements. The approval procedure varies among countries and caninvolve additional testing. The time required to obtain approval abroad maydiffer from that required to obtain FDA approval. The foreign regulatoryapproval process may include all of the risks associated with obtaining FDAapproval and additional risks associated with requirements particular to thoseforeign jurisdictions where we will seek regulatory approval of our products.We may not obtain foreign regulatory approvals on a timely basis, if at all.Approval by the FDA does not ensure approval by regulatory authorities in othercountries, and approval by one foreign regulatory authority does not ensureapproval by regulatory authorities in other foreign countries or by the FDA. Weand our collaborators may not be able to file for regulatory approvals and maynot receive necessary approvals to commercialize our products in any marketoutside the United States. The failure to obtain these approvals couldmaterially adversely affect our business, financial condition and results ofoperations.

 

**Risks related to our intellectualproperty**

 

***Our success dependsupon our ability to obtain and maintain intellectual property protection forour products and technologies.***

 

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Our success will depend on our ability to obtain and maintain adequateprotection of our intellectual property covering any products or productcandidates we plan to develop. In addition to taking other steps to protect ourintellectual property, we intend to apply for patents with claims covering ourtechnologies, processes, products and product candidates when and where we deemit appropriate to do so. We have applied for patent protection, with claimsdirected at mechanism and methods relating to our product candidates, SRT501formulations, our NCEs and several of our drug discovery tools in the UnitedStates, and in some, but not all, foreign countries. Any changes we make to theSRT501 formulations may not be covered by our existing patent applicationswhich would require us to file new applications or seek other forms ofprotection. In addition, resveratrol, the active ingredient in SRT501, our mostadvanced product candidate, cannot be protected by a patent covering itschemical composition of matter since resveratrol has long been in the publicdomain. Consequently, we are relying on method of use and formulation patentprotection for SRT501, which may not provide the same level of protection ascomposition of matter patent protection. In countries where we have not and donot seek patent protection, third parties may be able to manufacture and sellour products without our permission, and we may not be able to stop them fromdoing so.

 

Similar to other biotechnology companies, our patent position isgenerally uncertain and involves complex legal and factual questions. Inaddition, the laws of some foreign countries do not protect proprietary rightsto the same extent as the laws of the United States, and other biotechnologycompanies have encountered significant problems in protecting and defendingtheir proprietary rights in foreign jurisdictions. Whether filed in the UnitedStates or abroad, our patent applications may be challenged or may fail toresult in issued patents. In addition, our existing patents and any futurepatents we obtain may not be sufficiently broad to prevent others frompracticing our technologies or from developing or commercializing competingproducts. Furthermore, others may independently develop or commercializesimilar or alternative technologies or drugs, or design around our patents. Ourpatents may be challenged, invalidated or fail to provide us with anycompetitive advantages.

 

We have licensed some patents on a non-exclusive basis which means suchpatents could, now or in the future, potentially be licensed to our competitorsas well, and we may not be able to control or influence the prosecution orenforcement of such patents. We also may not have unilateral control over theprosecution and enforcement of our exclusively licensed patents, and ourability to protect our products using such patents may depend to some extent onthe cooperation of our licensors.

 

If we do not obtain or we are unable to maintain adequate patent ortrade secret protection for our products in the United States, competitorscould duplicate them without repeating the extensive testing that we will berequired to undertake to obtain approval of the products by the FDA. Regardlessof any patent protection, under the current statutory framework the FDA isprohibited by law from approving any generic version of any of our products forthree years after it has approved our product. Upon the expiration of thatperiod, or if that time period is altered, the FDA could approve a genericversion of our product unless we have patent protection sufficient for us toblock that generic version. Without sufficient patent protection, the applicantfor a generic version of our product would be required only to conduct arelatively inexpensive study to show that its product is bioequivalent to ourproduct and would not have to repeat the studies that we conducted todemonstrate that the product is safe and effective. In the absence of adequatepatent protection in other countries, competitors may similarly be able toobtain regulatory approval in those countries of products that duplicate ourproducts.

 

A significant portion of our discovery and development efforts isperformed in China and other countries outside of the United States throughthird party contractors. We may not be able to effectively monitor and assessintellectual property developed by these contractors and may therefore notappropriately protect this intellectual property and lose valuable intellectualproperty rights. In addition, the legal protection afforded to inventors andowners of intellectual property in countries outside of the United States maynot be as protective of intellectual property rights as in the United States,and we may, therefore, be unable to acquire and protect intellectual propertydeveloped by these contractors to the same extent as if these discovery anddevelopment activities were being conducted in the United States.

 

***We may be unable toin-license intellectual property rights or technology necessary to develop andcommercialize our products.***

 

Several third parties are actively researching and seeking patents andhave obtained issued patents in the sirtuin field. Such patents being sought bythird parties include published applications that are directed to the use ofactivators of SIRT1, which include claims that, if issued as published, couldencompass SRT501. Although we do not believe that these applications supportpatentable claims that would cover our product candidates, including SRT501, wecannot assure you that such claims will be denied by the patent office.  In addition, we are aware of one issuedpatent covering the composition of matter of resveratrol and which may coverSRT501.  Depending on what patentsultimately issue and depending on the ultimate formulation and method of use ofour product candidates, including SRT501 and whether the validity of the issuedpatent of which we are aware is maintained, we may need to obtain a licenseunder such patents or other intellectual property rights. There can be noassurance that such licenses will be available on commercially reasonableterms, or at all. If a third party does not offer us a necessary license oroffers a license only on terms that are unattractive or unacceptable to us, wemight be unable to develop and commercialize one or more of our productcandidates.

 

Moreover, if we fail to meet our obligations under our license agreements,or our agreements are terminated for any other reasons, we may lose our rightsto in-licensed technologies.

 

 

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***Confidentialityagreements with employees and others may not adequately prevent disclosure oftrade secrets and other proprietary information.***

 

In our activities, we rely substantially upon proprietary materials,information, trade secrets and know-how to conduct our research and developmentactivities, and to attract and retain collaborators, licensees and customers.Our scientific advisors and collaborators gain access to valuable proprietaryknowledge through their activities in collaboration with us. We take steps toprotect our proprietary rights and information, including the use ofconfidentiality and other agreements with our employees and consultants and inour academic and commercial relationships. However, these steps may beinadequate, agreements may be violated, or there may be no adequate remedyavailable for a violation of an agreement. We cannot assure you that ourproprietary information will not be disclosed or that we can meaningfullyprotect our trade secrets. Our competitors may independently developsubstantially equivalent proprietary information or may otherwise gain accessto our trade secrets, which could adversely affect our ability to compete inthe market.

 

***Litigation or thirdparty claims of intellectual property infringement could require substantialtime and money to resolve. Unfavorable outcomes in these proceedings couldlimit our intellectual property rights and our activities.***

 

We may need to resort to litigation to enforce or defend ourintellectual property rights, including any patents issued to us. If acompetitor or collaborator files a patent application claiming technology alsoinvented by us, in order to protect our rights, we may have to participate inan expensive and time consuming interference proceeding before the UnitedStates Patent and Trademark Office. We cannot guarantee that our productcandidates will be free of claims by third parties alleging that we haveinfringed their intellectual property rights. Third parties may assert that weare employing their proprietary technologies without authorization and they mayresort to litigation to attempt to enforce their rights. Third parties may haveor obtain patents in the future and claim that the use of our technology or anyof our product candidates infringes their patents. We may not be able todevelop or commercialize product candidates because of patent protection othershave. Our business will be harmed if we cannot obtain a necessary or desirablelicense, can obtain such a license only on terms we consider to be unattractiveor unacceptable, or if we are unable to redesign our product candidates orprocesses to avoid actual or potential patent or other intellectual propertyinfringement. Obtaining, protecting and defending patent and other intellectualproperty rights can be expensive and may require us to incur substantial costs,including the diversion of management and technical personnel. An unfavorableruling in patent or intellectual property litigation could subject us tosignificant liabilities to third parties, require us to cease developing,manufacturing or selling the affected products or using the affected processes,require us to license the disputed rights from third parties, or result inawards of substantial damages against us.

 

There can be no assurance that we would prevail in any intellectualproperty infringement action, will be able to obtain a license to any thirdparty intellectual property on commercially reasonable terms, successfullydevelop non-infringing alternatives on a timely basis, or licensenon-infringing alternatives, if any exist, on commercially reasonable terms.Any significant intellectual property impediment to our ability to develop andcommercialize our products could seriously harm our business and prospects.

 

***Patent litigationor other litigation in connection with our intellectual property rights maylead to publicity that may harm our reputation and the market price of ourcommon stock may decline.***

 

During the course of any patent litigation, there may be public announcementsof the results of hearings, motions, and other interim proceedings ordevelopments in the litigation. If securities analysts or investors regardthese announcements as negative, the market price of our common stock maydecline. General proclamations or statements by key public figures may alsohave a negative impact on the perceived value of our intellectual property.

 

**Risks related to our industry**

 

***Our competitors andpotential competitors may develop products and technologies that make ours lessattractive or obsolete.***

 

Many companies, universities, and research organizations developingcompeting product candidates have greater resources and significantly greaterexperience in financial, research and development, manufacturing, marketing,sales, distribution, and technical regulatory matters than we have. Inaddition, many competitors have greater name recognition and more extensivecollaborative relationships. Our competitors could commence and completeclinical testing of their product candidates, obtain regulatory approvals, andbegin commercial-scale manufacturing of their products faster than we are ableto for our products. They could develop products that would render our productcandidates, and those of our collaborators, obsolete and noncompetitive. If weare unable to compete effectively against these companies, then we may not beable to commercialize our product candidates or achieve a competitive positionin the market. This would adversely affect our ability to generate revenues.

 

***Competition in thebiotechnology and pharmaceutical industries may result in competing products,superior marketing of other products and lower revenues or profits for us.***

 

There are many companies that are seeking to develop products andtherapies for the treatment of diabetes and other metabolic disorders. Ourcompetitors include multinational pharmaceutical and chemical companies, specializedbiotechnology firms and

 

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universities and other research institutions. A number ofpharmaceutical companies, including Abbott, AstraZeneca, Bayer, Bristol-MyersSquibb, GlaxoSmithKline, Johnson & Johnson, Lilly, Merck, Novartis,Novo Nordisk, Pfizer, Roche, Sanofi-Aventis, Takeda and Wyeth, as well as largeand small biotechnology companies such as Amgen, Amylin, Genentech andMannKind, are pursuing the development or marketing of pharmaceuticals thattarget the same diseases that we are targeting, and it is possible that thenumber of companies seeking to develop products and therapies for the treatmentof diabetes and other metabolic disorders will increase. We are also aware ofother companies, including Elixir Pharmaceuticals and Pharmion Corp that areseeking to develop drugs that modulate sirtuins. Many of our competitors havesubstantially greater financial, technical, human and other resources than wedo and may be better equipped to develop, manufacture and markettechnologically superior products. In addition, many of these competitors havesignificantly greater experience than we do in undertaking preclinical testingand human clinical studies of new pharmaceutical products and in obtainingregulatory approvals of human therapeutic products. Accordingly, ourcompetitors may succeed in obtaining FDA approval for superior products.

 

Other products are currently in development or exist in the market thatmay compete directly with the products that we are developing or marketing.Various other products to treat Type 2 Diabetes are available or are indevelopment, including:

 

•                  Biguanides;

 

•                  Sulfonylureas;

 

•                  Thiazolidinediones (TZDs);

 

•                  Alpha-glucosidase inhibitors (AGIs);

 

•                  Dipeptidyl peptidase 4 (DPP4) inhibitors;

 

•                  Glucagon-like peptide-1 (GLP-1) analogues; and

 

•                  Insulins, including injectable and inhaled versions.

 

In addition, several companies are developing various approaches toimprove treatments for Type 1 and Type 2 Diabetes. We cannot predict whetherany products we successfully develop will have sufficient advantages to causehealth care professionals to adopt them over our competitors’ products or thatour products will offer an economically feasible alternative to our competitors’products. Our potential products could become obsolete before we recoverexpenses incurred in developing them.

 

***We may havesignificant product liability exposure which may harm our business and ourreputation.***

 

We face exposure to product liability and other claims if our productcandidates, products or processes are alleged to have caused harm. These risksare inherent in the testing, manufacturing, and marketing of human therapeuticproducts. Although we currently maintain product liability insurance in theamount of $3.0 million, we may not have sufficient insurance coverage, andwe may not be able to obtain sufficient coverage at a reasonable cost, if atall. Our inability to obtain product liability insurance at an acceptable costor to otherwise protect against potential product liability claims couldprevent or inhibit the commercialization of any products or product candidatesthat we develop. If we are sued for any injury caused by our products, productcandidates or processes, our liability could exceed our product liabilityinsurance coverage and our total assets. Claims against us, regardless of theirmerit or potential outcome, may also generate negative publicity or hurt ourability to obtain physician endorsement of our products or expand our business.

 

***We use and generatematerials that may expose us to expensive and time-consuming legal claims.***

 

Our research and development programs involve the use of hazardousmaterials, chemicals and radioactive and biological materials. We are subjectto foreign, federal, state and local environmental and health and safety lawsand regulations governing, among other matters, the use, manufacture, handling,storage, and disposal of hazardous materials and waste products. We may incursignificant costs to comply with these current or future environmental andhealth and safety laws and regulations. In addition, we cannot completelyeliminate the risk of contamination or injury from hazardous materials and mayincur material liability as a result of such contamination or injury. In theevent of an accident, an injured party may seek to hold us liable for anydamages that result. Any liability could exceed the limits or fall outside thecoverage of our workers’ compensation, property and business interruptioninsurance and we may not be able to maintain insurance on acceptable terms, ifat all. We currently carry no insurance specifically covering environmentalclaims.

 

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**Risks related to an investment in ourCommon Stock**

 

***Our common stockmay have a volatile public trading price and a low trading volume.***

 

The market prices for securities of companies comparable to us havebeen highly volatile. Often, these stocks have experienced significant priceand volume fluctuations for reasons unrelated to the operating performance ofthe individual companies. The market price of our stock may be similarlyvolatile.  Factors giving rise to thisvolatility may include:

 

•                  disclosure of actual or potential results with respect to productcandidates we are developing;

 

•                  regulatory developments in both the United States and abroad;

 

•                  developments concerning proprietary rights, including patents andlitigation matters;

 

•                  public concern about the safety or efficacy of our product candidatesor technology, or related technology, or new technologies generally;

 

•                  public announcements by our competitors or others; and

 

•                  general market conditions and comments by securities analysts andinvestors.

 

***Fluctuations in ouroperating losses could adversely affect the price of our common stock.***

 

Our operating losses may fluctuate significantly on a quarterly basis.Some of the factors that may cause our operating losses to fluctuate on aperiod-to-period basis include the status of our preclinical and clinicaldevelopment programs, level of expenses incurred in connection with ourpreclinical and clinical development programs, implementation or termination ofcollaboration, licensing, manufacturing or other material agreements with thirdparties, non-recurring revenue or expenses under any such agreement, andcompliance with regulatory requirements. Period-to-period comparisons of ourhistorical and future financial results may not be meaningful, and investorsshould not rely on them as an indication of future performance. Our fluctuatinglosses may fail to meet the expectations of securities analysts or investors.Our failure to meet these expectations may cause the price of our common stockto decline.

 

***Because of expectedvolatility in our trading price and trading volume, we may incur significantcosts from class action litigation.***

 

Our stock price may fluctuate for many reasons, including as a resultof public announcements regarding the progress of our development efforts, theaddition or departure of our key personnel, variations in our quarterlyoperating results and changes in market valuations of pharmaceutical,biotechnology or other life science companies. Recently, when the market priceof a stock has been volatile, as our stock price may be, holders of that stockhave occasionally brought securities class action litigation against thecompany that issued the stock. If any of our stockholders were to bring alawsuit of this type against us, even if the lawsuit is without merit, we couldincur substantial costs defending the lawsuit. A stockholder lawsuit could alsodivert the time and attention of our management, which could adversely affectour business.

 

***Future sales of ourcommon stock may cause the market price of our common stock to decline.***

 

The market price of our common stock may decline if our stockholders orwe sell shares of our common stock.  A smallnumber of stockholders own a significant number of shares that they will beable to sell in the public market in the near future.  Sales by our current stockholders of asubstantial number of shares, or the expectation that such sales may occur,could significantly reduce the market price of our common stock.  Moreover, the holders of a substantial numberof shares of common stock have rights, subject to certain conditions, torequire us to file registration statements to permit the resale of their sharesin the public market or to include their shares in registration statements thatwe may file for ourselves or other stockholders.

 

We have filed a registration statement ninety days following ourinitial public offering to permit the sale of shares of our common stock thatwe may issue under our stock option plan. As a result, these shares may be freely sold in the public market uponissuance, subject to restrictions under the securities laws and lock-upagreements.  In connection with ourinitial public offering, most of our stockholders have agreed, subject tocertain limited exceptions, not to sell any shares of our common stock owned bythem, for a period of 180 days after the closing of this offering unlessthey first obtain the written consent of J.P. Morgan Securities Inc.

 

***Our management teammay invest or spend the proceeds from our initial public offering in ways withwhich our stockholders may not agree or in ways which may not yield asignificant return.***

 

We may allocate the proceeds from our initial public offering in waysthat stockholders may not support. Our management has considerable discretionin the application of the net proceeds of our initial public offering.  We may use the net proceeds for corporatepurposes that do not increase our profitability or our stock price. Until thenet proceeds are used, we intend to invest them in accordance with ourinvestment policy, which includes investments in short-term, interest-bearing,investment-grade securities or guaranteed obligations of the United States orother governments or their agencies.

 

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***We will incursignificant increased costs as a result of operating as a public company, andour management will be required to devote substantial time to new complianceinitiatives.***

 

As a public company, we are incurring and will continue to incursignificant legal, accounting and other expenses that we did not incur as aprivate company.  In addition, theSarbanes-Oxley Act, as well as rules adopted or proposed by the United StatesSecurities and Exchange Commission, or SEC, and by The NASDAQ Global Market,have imposed various requirements on public companies, including establishmentand maintenance of effective disclosure and financial controls and changes incorporate governance practices.  Ourmanagement and other personnel will need to devote a substantial amount of timeto these new compliance initiatives. Moreover, these rules and regulations have already and will continue toincrease our legal and financial compliance costs and will make some activitiesmore time-consuming and costly.  Forexample, we expect these laws and regulations will make it more difficult andmore costly for us to obtain certain types of insurance, including director andofficer liability insurance, and we may be forced to accept reduced policylimits and coverage or incur substantially higher costs to obtain the same orsimilar coverage. The impact of these events could also make it more difficultfor us to attract and retain qualified persons to serve on our board ofdirectors, our board committees or as executive officers. We cannot estimatethe amount or timing of additional costs we may incur as a result of these lawsand regulations.

 

***Section 404 ofthe Sarbanes-Oxley Act of 2002 will require us to document and test ourinternal control over financial reporting for fiscal year 2008 and beyond andwill require an independent registered public accounting firm to report on ourassessment as to the effectiveness of these controls. Any delays or difficultyin satisfying these requirements could adversely affect our future results ofoperations and our stock price.***

 

Section 404 of the Sarbanes-Oxley Act of 2002 will require us todocument and test the effectiveness of our internal control over financialreporting in accordance with an established internal control framework and toreport on our conclusion as to the effectiveness of our internal controls. Itwill also require an independent registered public accounting firm to test ourinternal control over financial reporting and report on the effectiveness ofsuch controls for our fiscal year ending December 31, 2008 and subsequentyears. An independent registered public accounting firm will also be requiredto test, evaluate and report on the completeness of our assessment. Inaddition, we are required under the Securities Exchange Act of 1934 to maintaindisclosure controls and procedures and internal control over financialreporting. Moreover, it may cost us more than we expect to comply with thesecontrol- and procedure-related requirements.

 

We may in the future discover areas of our internal controls that needimprovement. We cannot be certain that any remedial measures we take willensure that we implement and maintain adequate internal controls over ourfinancial processes and reporting in the future. Any failure to implementrequired new or improved controls, or difficulties encountered in theirimplementation, could harm our operating results or cause us to fail to meetour reporting obligations. If we are unable to conclude that we have effectiveinternal control over financial reporting, or if our independent registeredpublic accounting firm is unable to provide us with an unqualified opinionregarding the effectiveness of our internal control over financial reporting asof December 31, 2008 and in future periods as required bySection 404, investors could lose confidence in the reliability of ourconsolidated financial statements, which could result in a decrease in thevalue of our common stock. Failure to comply with Section 404 couldpotentially subject us to sanctions or investigations by the SEC, the NASD orother regulatory authorities.

 

***Anti-takeoverprovisions in our charter documents and provisions of Delaware law may make anacquisition more difficult.***

 

We are incorporated in Delaware. Anti-takeover provisions of Delawarelaw and our charter documents may make a change in control more difficult.Also, under Delaware law, our board of directors may adopt additionalanti-takeover measures.

 

Our charter authorizes our board of directors to issue up to 20,000,000shares of preferred stock and to determine the terms of those shares of stockwithout any further action by our stockholders. If the board of directors exercisesthis power to issue preferred stock, it could be more difficult for a thirdparty to acquire a majority of our outstanding voting stock.

 

Our charter also provides staggered terms for the members of our boardof directors. Under Section 141 of the Delaware General Corporation Law, ourdirectors may be removed by stockholders only for cause and only by a vote ofthe holders of a majority of voting shares then outstanding.  These provisions may prevent stockholdersfrom replacing the entire board in a single proxy contest, making it moredifficult for a third party to acquire control of us without the consent of ourboard of directors.  These provisionscould also delay the removal of management by the board of directors with ourwithout cause.  In addition, our bylawslimit the ability of  our stockholders tocall special meetings of stockholders.

 

Our stock option plan generally permits our board of directors toprovide for acceleration of vesting of options granted under the plan in theevent of certain transactions that result in a change of control. If our boardof directors uses its authority to accelerate vesting of options, this actioncould make an acquisition more costly, and it could prevent an acquisition fromgoing forward.

 

Under Section 203 of the Delaware General Corporation Law, acorporation may not engage in a business combination with any holder of 15% ormore of its capital stock until the holder has held the stock for three yearsunless, among other possibilities, the board

 

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of directors approves the transaction. Our board of directors could usethis provision to prevent changes in management. The existence of the foregoingprovisions could limit the price that investors might be willing to pay in thefuture for shares of our common stock.

 

***Our officers anddirectors and other affiliates may be able to exert significant control overthe company.***

 

Currently, our executive officers, directors, and other affiliatescontrol approximately 24% of our outstanding common stock. Therefore, ourexecutive officers, directors and other affiliates have the ability toinfluence the company through this ownership position.

 

These stockholders, if they act together, may be able to influence allmatters requiring stockholder approval, including the election of directors,amendments of our organizational documents, or approval of any merger, sale ofassets, or other major corporation transaction. This may prevent or discourageunsolicited acquisition proposals or offers for our common stock that you mayfeel are in your best interest as one of our stockholders.

 

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**Item 2. Unregistered Sales of Equity Securities and Useof Proceeds**

 

***Unregistered Sales of Equity Securities***

 

Duringthe period from July 1, 2007 until September 30, 2007, we issued 4,046 sharesof common stock upon option exercises for an aggregate sale price ofapproximately $2,000.

 

***Use of Proceeds from Registered Securities***

 

Our initial publicoffering of common stock was effected through a Registration Statement onForm S-1 (File No. 333-140979), that was declared effective by theSecurities and Exchange Commission on May 22, 2007, which registered anaggregate of 5,750,000 shares of our common stock.   On May 22, 2007, an additional 1,150,000shares of our common stock were registered through a Registration Statementfiled pursuant to Rule 462(b) (File No. 333-143174).  On May 29, 2007, we completed an initialpublic offering of 6,000,000 shares of our common stock at a price to thepublic of $10.00 per share.  J.P. MorganSecurities Inc, CIBC World Markets Corp., Piper Jaffray & Co., JMPSecurities LLC and Rodman & Renshaw, LLC were the managing underwriters ofthe initial public offering.   Inaddition, on May 29, 2007 in connection with the exercise of the underwriters’over-allotment option, 900,000 additional shares of common stock were sold onour behalf at the initial public offering price of $10.00 per share, foraggregate gross proceeds of $9.0 million. There were no selling stockholders in the offering.

 

We paid $4.8 million inunderwriting discounts to the underwriters in connection with theoffering.  In addition, we incurredadditional costs of approximately $1.7 million in connection with the offering,which then added to the underwriting discounts paid by us, amounts to totalexpenses of approximately $6.5 million. Thus the net offering proceeds to us, after deducting underwritingdiscounts and offering expenses, were approximately $62.5 million.  No offering expenses were paid directly orindirectly to any of our directors or officers (or their associates) or personsowning ten percent or more of any class of our equity securities or to anyother affiliates.

 

We have used approximately$11.4 million of the net proceeds from the initial public offering to fund theclinical development of SRT501, to advance and expand our preclinicaldevelopment of additional product candidates targeting SIRT1, other sirtuinsand related pathways, and for working capital, capital expenditures and othergeneral corporate purposes. We have invested the unused proceeds from theoffering in short-term interest-bearing, investment grade securities.

 

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

 

None.

 

**Item 4. Submission of Matters To a Vote of Security Holders.**

 

None.

 

**Item 5. Other Information.**

 

The description of thelease amendment for 200 Technology Square, Cambridge, Massachusetts, isdescribed in Form 8-K filed November 9, 2007 with the Securities and ExchangeCommission and above in Part 1, Item 2 under “Contractual Obligations”.

 

**Item 6. Exhibits.**

 

(a) **Exhibits.**

 

The Exhibits listed inthe Exhibit Index immediately preceding the Exhibits are filed as a partof this Quarterly Report on Form 10-Q.

 

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|   |   | SIRTRIS PHARMACEUTICALS, INC.         |
|--------|--------|---------------------------------------|
|   |   |                                  |   |
|   | By:    | /s/ Christoph Westphal                |   |
|   |   | Christoph Westphal                    |   |
|   |   | President and Chief Executive Officer |   |
|   |   | (principal executive officer)         |   |
|   |   |                                  |   |
|   | By:    | /s/ Garen Bohlin                      |   |
|   |   | Garen Bohlin                          |   |
|   |   | Chief Operating Officer               |   |
|   |   | (principal financial officer)         |   |

 

 

Date: November 14, 2007

 

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**EXHIBITINDEX**

 

** **
| **Exhibit** | ** ** | ** **                                                                                                                                                                    |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **No.**     | ** ** | **Description**                                                                                                                                                               |
| 10.1        |       | Amended Lease Agreement, dated as of October 30,  2007, by and between ARE-Tech Square, L.L.C. and the Company.                                                               |
|        |       |                                                                                                                                                                          |
| 31.1        |       | Certification of Chief Executive Officer pursuant to  Exchange Act rules 13a-14 or 15d-14.                                                                               |
|        |       |                                                                                                                                                                          |
| 31.2        |       | Certification of Chief Operating Officer pursuant to  Exchange Act rules 13a-14 or 15d-14.                                                                               |
|        |       |                                                                                                                                                                          |
| 32.1        |       | Certifications of Chief Executive Officer and Chief  Operating Officer pursuant to Exchange Act rules 13a-14(b) or  15d-14(b) and 18 U.S.C. Section 1350. |

 

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