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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

OR



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

Commission File Number: 0-19410

POINT THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 04-3216862                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|155 FEDERAL STREET, BOSTON, MA                                 |  | 02110                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          

(617) 933-2130

Registrants Telephone Number, Including Area Code

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

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer  x            Non-accelerated
filer ̈

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

As of May 4, 2007, there was approximately
39,312,000 shares of the Registrants Common Stock, $0.01 par value per share, outstanding.



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POINT THERAPEUTICS, INC. AND SUBSIDIARY

(A Development Stage Company)

QUARTERLY REPORT ON FORM 10-Q

INDEX



|                              |  |                                                                                                                                                                                      |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --
|PART I. FINANCIAL INFORMATION |  |                                                                                                                                                                                     
|                              |  |                                                                                                                                                                                     
|Item 1.                       |  | Financial Statements (unaudited)                                                                                                                                                     |  |   
|                              |  |                                                                                                                                                                                     
|                              |  | Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006                                                                                                               |  | 3 
|                              |  |                                                                                                                                                                                     
|                              |  | Consolidated Statements of Operations for the Three Month Periods Ended March 31, 2007 and 2006 and for the Period From September 3, 1996 (Date of Inception) Through March 31, 2007 |  | 4 
|                              |  |                                                                                                                                                                                     
|                              |  | Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2007 and 2006 and for the Period From September 3, 1996 (Date of Inception) Through March 31, 2007 |  | 5 
|                              |  |                                                                                                                                                                                     
|                              |  | Notes to Consolidated Financial Statements                                                                                                                                           |  | 6 
|                              |  |                                                                                                                                                                                     
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                                |  | 10
|                              |  |                                                                                                                                                                                     
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                           |  | 15
|                              |  |                                                                                                                                                                                     
|Item 4.                       |  | Controls and Procedures                                                                                                                                                              |  | 15
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                                                                                     
|                              |  |                                                                                                                                                                                     
|Item 1A.                      |  | Risk Factors                                                                                                                                                                         |  | 16
|                              |  |                                                                                                                                                                                     
|Item 6.                       |  | Exhibits                                                                                                                                                                             |  | 24
|                              | 
|SIGNATURES                    |  | 25                                                                                                                                                                                  

In this report, Point, the Company, we, us and
our refer to Point Therapeutics, Inc. and Subsidiary.



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PART I. FINANCIAL INFORMATION



|Item 1. | FINANCIAL STATEMENTS
|------- | --------------------

POINT THERAPEUTICS, INC. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



|                                                                                                                                                                                                                                                                             |  |                |             |   |                  |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                                                                                                                             |  | March 31, 2007 |             |   | December 31,2006 |  
|Assets                                                                                                                                                                                                                                                                       |  |                |             |   |                  |   |             |  
|Current assets:                                                                                                                                                                                                                                                              |  |                |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                                                                                                                                                                    |  | $              | 8,789,696   |   |                  | $ | 9,797,930   |  
|Cash and cash equivalentsrestricted                                                                                                                                                                                                                                         |  |                | 300,000     |   |                  |   | 300,000     |  
|Unbilled receivable                                                                                                                                                                                                                                                          |  |                |            |   |                  |   | 2,904       |  
|Prepaid expenses and other current assets                                                                                                                                                                                                                                    |  |                | 1,828,748   |   |                  |   | 2,228,555   |  
|                                                                                                                                                                                                                                                                             |  |                |             |   |                  |   |             |  
|Total current assets                                                                                                                                                                                                                                                         |  |                | 10,918,444  |   |                  |   | 12,329,389  |  
|Office and laboratory equipment, net                                                                                                                                                                                                                                         |  |                | 210,912     |   |                  |   | 238,395     |  
|                                                                                                                                                                                                                                                                             |  |                |             |   |                  |   |             |  
|Total assets                                                                                                                                                                                                                                                                 |  | $              | 11,129,356  |   |                  | $ | 12,567,784  |  
|                                                                                                                                                                                                                                                                             |  |                |             |   |                  |   |             |  
|                                                                                                                                                                                                                                                                             |  |               
|Liabilities and stockholders equity                                                                                                                                                                                                                                         |  |                |             |   |                  |   |             |  
|Current liabilities:                                                                                                                                                                                                                                                         |  |                |             |   |                  |   |             |  
|Accounts payable                                                                                                                                                                                                                                                             |  | $              | 1,898,053   |   |                  | $ | 2,170,491   |  
|Accrued clinical trial costs & drug development                                                                                                                                                                                                                              |  |                | 1,201,550   |   |                  |   | 1,574,222   |  
|Accrued expenses                                                                                                                                                                                                                                                             |  |                | 732,410     |   |                  |   | 830,400     |  
|Short-term portion of capital lease                                                                                                                                                                                                                                          |  |                | 2,997       |   |                  |   | 4,723       |  
|                                                                                                                                                                                                                                                                             |  |                |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                                                                                                                                    |  |                | 3,835,010   |   |                  |   | 4,579,836   |  
|Patent liability, less current portion                                                                                                                                                                                                                                       |  |                | 36,601      |   |                  |   | 36,601      |  
|Stockholders equity:                                                                                                                                                                                                                                                        |  |                |             |   |                  |   |             |  
|Preferred stock, $0.01 par value, 1,000,000 shares authorized; no shares issued or outstanding                                                                                                                                                                               |  |                |            |   |                  |   |            |  
|Common stock, $0.01 par value; 75,000,000 shares authorized; 39,530,130 shares and 33,001,354 shares issued at March 31, 2007 and
December 31, 2006, respectively, 39,311,585 shares and 32,782,809 shares outstanding at March 31, 2007 and December 31, 2006, respectively |  |                | 395,302     |   |                  |   | 330,014     |  
|Treasury stock, 218,545 shares outstanding at March 31, 2007 and December 31, 2006, at cost                                                                                                                                                                                  |  |                | (978,290    | ) |                  |   | (978,290    | )
|Additional paid-in capital                                                                                                                                                                                                                                                   |  |                | 104,853,350 |   |                  |   | 100,333,199 |  
|Deficit accumulated during the development stage                                                                                                                                                                                                                             |  |                | (97,012,617 | ) |                  |   | (91,733,576 | )
|                                                                                                                                                                                                                                                                             |  |                |             |   |                  |   |             |  
|Total stockholders equity                                                                                                                                                                                                                                                   |  |                | 7,257,745   |   |                  |   | 7,951,347   |  
|                                                                                                                                                                                                                                                                             |  |                |             |   |                  |   |             |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                                   |  | $              | 11,129,356  |   |                  | $ | 12,567,784  |  
|                                                                                                                                                                                                                                                                             |  |                |             |   |                  |   |             |  



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POINT THERAPEUTICS, INC. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                                   |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|-------------------------------------------------- |  | ----------------------------------- | ---------- | - | ---------------------------------------------------------------- | - | ---------- | - |  | - | ----------- | -
|                                                   |  | Three Month Periods Ended March 31, |            |   | Period from Inception (September 3, 1996) through
March 31, 2007 |  
|                                                   |  | 2007                                |            |   | 2006                                                             |   |           
|Revenues                                           |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|License revenue                                    |  | $                                   |           |   |                                                                  | $ |           |   |  | $ | 5,115,041   |  
|Sponsored research revenue                         |  |                                     |           |   |                                                                  |   | 138,795    |   |  |   | 3,000,000   |  
|                                                   |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Total revenues                                     |  |                                     |           |   |                                                                  |   | 138,795    |   |  |   | 8,115,041   |  
|                                                   |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Operating expenses                                 |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Research and development                           |  |                                     | 3,752,150  |   |                                                                  |   | 6,318,363  |   |  |   | 78,252,490  |  
|General and administrative                         |  |                                     | 1,652,665  |   |                                                                  |   | 2,018,397  |   |  |   | 29,716,427  |  
|                                                   |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Total operating expenses                           |  |                                     | 5,404,815  |   |                                                                  |   | 8,336,760  |   |  |   | 107,968,917 |  
|                                                   |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Net loss from operations                           |  |                                     | (5,404,815 | ) |                                                                  |   | (8,197,965 | ) |  |   | (99,853,876 | )
|                                                   |  |                                     |           
|Interest income, net                               |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Interest income                                    |  |                                     | 125,774    |   |                                                                  |   | 341,352    |   |  |   | 2,923,911   |  
|Interest expense                                   |  |                                     |           |   |                                                                  |   |           |   |  |   | (82,652     | )
|                                                   |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Total interest income, net                         |  |                                     | 125,774    |   |                                                                  |   | 341,352    |   |  |   | 2,841,259   |  
|                                                   |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Net loss                                           |  | $                                   | (5,279,041 | ) |                                                                  | $ | (7,856,613 | ) |  | $ | (97,012,617 | )
|                                                   |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Net loss per common share                          |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Basic and diluted                                  |  | $                                   | (0.14      | ) |                                                                  | $ | (0.24      | ) |  |   |             |  
|                                                   |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Shares used in computing net loss per common share |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Basic and diluted                                  |  |                                     | 36,627,866 |   |                                                                  |   | 32,754,959 |   |  |   |             |  
|                                                   |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  

The accompanying notes are an integral part of these consolidated financial statements.



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POINT THERAPEUTICS, INC. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



|                                                                            |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|--------------------------------------------------------------------------- |  | ----------------------------------- | ---------- | - | ---------------------------------------------------------------- | - | ---------- | - |  | - | ----------- | -
|                                                                            |  | Three Month Periods Ended March 31, |            |   | Period from Inception (September
3, 1996) through March 31, 2007 |  
|                                                                            |  | 2007                                |            |   | 2006                                                             |   |           
|Operating activities                                                        |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Net loss                                                                    |  | $                                   | (5,279,041 | ) |                                                                  | $ | (7,856,613 | ) |  | $ | (97,012,617 | )
|                                                                            |  |                                     |           
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Stock-based compensation expense                                            |  |                                     | 190,608    |   |                                                                  |   | 552,598    |   |  |   | 3,245,575   |  
|Depreciation                                                                |  |                                     | 27,483     |   |                                                                  |   | 34,309     |   |  |   | 607,760     |  
|Common stock issued under license agreement                                 |  |                                     |           |   |                                                                  |   |           |   |  |   | 910,677     |  
|Accrued interest on convertible notes                                       |  |                                     |           |   |                                                                  |   |           |   |  |   | 82,652      |  
|Patent costs                                                                |  |                                     |           |   |                                                                  |   |           |   |  |   | 75,557      |  
|Changes in assets and liabilities:                                          |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Restricted cash                                                             |  |                                     |           |   |                                                                  |   | 5,834      |   |  |   | (300,000    | )
|Unbilled accounts receivable                                                |  |                                     | 2,904      |   |                                                                  |   | 128,198    |   |  |   |            |  
|Prepaid expenses and other current assets                                   |  |                                     | 399,807    |   |                                                                  |   | (21,968    | ) |  |   | (1,848,025  | )
|Deposits and other assets                                                   |  |                                     |           |   |                                                                  |   | 300,145    |   |  |   |            |  
|Accounts payable and accrued liabilities                                    |  |                                     | (743,100   | ) |                                                                  |   | 224,909    |   |  |   | 3,829,569   |  
|                                                                            |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Net cash used in operating activities                                       |  |                                     | (5,401,339 | ) |                                                                  |   | (6,632,588 | ) |  |   | (90,408,852 | )
|                                                                            |  |                                     |           
|Investing activities                                                        |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Purchase of property and equipment                                          |  |                                     |           |   |                                                                  |   | (19,577    | ) |  |   | (874,420    | )
|Proceeds from disposal of property and equipment                            |  |                                     |           |   |                                                                  |   | 7,100      |   |  |   | 55,105      |  
|Loss on sale of fixed assets                                                |  |                                     |           |   |                                                                  |   | 2,000      |   |  |   | 643         |  
|                                                                            |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Net cash used in investing activities                                       |  |                                     |           |   |                                                                  |   | (10,477    | ) |  |   | (818,672    | )
|                                                                            |  |                                     |           
|Financing activities                                                        |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Proceeds from issuance of common stock, net of issuance costs               |  |                                     | 4,390,831  |   |                                                                  |   |           |   |  |   | 78,040,886  |  
|Proceeds from exercise of common stock warrants                             |  |                                     |           |   |                                                                  |   |           |   |  |   | 4,512,425   |  
|Proceeds from exercise of common stock options                              |  |                                     | 4,000      |   |                                                                  |   | 8,000      |   |  |   | 482,085     |  
|Proceeds from issuance of convertible note                                  |  |                                     |           |   |                                                                  |   |           |   |  |   | 1,892,904   |  
|Proceeds from capital lease financing                                       |  |                                     |           |   |                                                                  |   |           |   |  |   | 13,082      |  
|Payments on capital leases                                                  |  |                                     | (1,726     | ) |                                                                  |   | (1,526     | ) |  |   | (10,085     | )
|Proceeds from merger between Point and HMSR Inc.                            |  |                                     |           |   |                                                                  |   |           |   |  |   | 14,335,285  |  
|Principal payments of patent liability                                      |  |                                     |           |   |                                                                  |   |           |   |  |   | (36,512     | )
|Dividend from investment in HemaSure A/S                                    |  |                                     |           |   |                                                                  |   |           |   |  |   | 787,150     |  
|                                                                            |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Net cash provided by financing activities                                   |  |                                     | 4,393,105  |   |                                                                  |   | 6,474      |   |  |   | 100,017,220 |  
|                                                                            |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Net increase (decrease) in cash and cash equivalents                        |  |                                     | (1,008,234 | ) |                                                                  |   | (6,636,591 | ) |  |   | 8,789,696   |  
|Cash and cash equivalents, beginning of period                              |  |                                     | 9,797,930  |   |                                                                  |   | 37,328,396 |   |  |   |            |  
|                                                                            |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  
|Cash and cash equivalents, end of period                                    |  | $                                   | 8,789,696  |   |                                                                  | $ | 30,691,805 |   |  | $ | 8,789,696   |  
|                                                                            |  |                                     |            |   |                                                                  |   |            |   |  |   |             |  

The accompanying notes are an integral part of these consolidated financial statements.



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POINT THERAPEUTICS, INC. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)



|1. | Nature of the Business
|-- | ----------------------

Point Therapeutics, Inc.
(Point or the Company) is a Boston-based biopharmaceutical company dedicated to developing a family of dipeptidyl peptidase (DPP) inhibitors for use in cancer and type 2 diabetes. DPPs are enzymes that appear to regulate
several different physiological processes, including those involved in tumor growth and host responses to cancer and type 2 diabetes. Point is currently studying its lead product candidate, talabostat, in two Phase 3 double-blind, placebo-controlled
trials in metastatic non-small cell lung cancer (NSCLC). The first Phase 3 trial is studying talabostat in combination with pemetrexed (Alimta®, Eli Lilly) and the second Phase 3 trial is studying talabostat in combination with docetaxel (Taxotere®, sanofi-aventis). Point is also currently studying talabostat in a Phase 2 trial in
combination with gemcitabine in Stage IV pancreatic cancer. In addition, Point has studied talabostat in several Phase 2 trials, including in combination with docetaxel in metastatic NSCLC, as a single-agent in metastatic melanoma, in combination
with cisplatin in metastatic melanoma and in combination with rituximab in advanced chronic lymphocytic leukemia (CLL).

The accompanying
consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, as shown in the financial statements, at
March 31, 2007, the Company has unrestricted cash of $8,790,000 and an accumulated deficit of $97,013,000. The Company also incurred a net loss of $5,279,000 and negative cash flows from operations of $5,401,000 during the first quarter of
2007. The Company has also incurred a net loss and negative cash flows from operations in each of the last five years. As a result, there exists substantial doubt about the Companys ability to continue as a going concern through at least
January 1, 2008 without additional financing. To date, the Company has principally raised capital through public and private placements of its equity securities. The Company will need to raise additional capital during 2007 in order to fund
future operations. If adequate funds are not available, the Company will be required to delay, reduce the scope of, or eliminate one or more of its clinical programs, or cease operations. No assurance can be given that the Company will be able to do
so when needed, on terms favorable to the Company, or at all. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of
liabilities, or any other adjustments that might be necessary should the Company be unable to continue as a going concern.



|2. | Significant Accounting Policies
|-- | -------------------------------

Unaudited Interim Financial
Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting
principles for the complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period
ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007.

The condensed consolidated balance sheet at December 31, 2006 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and
footnotes thereto included in the Companys annual report on Form 10-K for the year ended December 31, 2006.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.



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Net Loss Per Common Share

Basic and diluted net loss per common share amounts are presented in conformity with Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share, for all periods
presented. In accordance with SFAS No. 128, basic and diluted net loss per common share amounts have been computed using the weighted-average number of shares of common stock outstanding for the three month periods ended March 31, 2007 and
2006. Potentially dilutive securities, consisting of stock options of 4,747,603 and warrants of 3,962,492 outstanding at March 31, 2007 and stock options of 4,364,228 and warrants of 2,592,500 outstanding at March 31, 2006 have been
excluded from the diluted earnings per share calculations since their effect is antidilutive.

Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, Share-Based PaymentAn Amendment of
FASB Statements No. 123 and 95 (SFAS No. 123R), which requires all companies to measure compensation cost for all share-based payments, including employee stock options, at fair value. Generally, the approach in SFAS
No. 123R is similar to the approach described in SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). However, SFAS No. 123R requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on their fair value over the requisite service period. Pro forma disclosure is no longer an alternative. In March 2005, the SEC issued Staff Accounting Bulletin
(SAB) No. 107 (SAB No. 107), which expressed the views of the SEC regarding the interaction between SFAS No. 123R and certain rules and regulations of the SEC. SAB No. 107 provides guidance related to
the valuation of share-based payment arrangements for public companies, including assumptions such as expected volatility and expected term.

Prior to January 1, 2006, the Company applied the pro forma disclosure requirements under SFAS No. 123 and accounted for its stock-based employee compensation plans using the intrinsic value method under the recognition and
measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations.

Accordingly, no stock-based employee compensation cost was recognized in the statement of operations for the years prior to January 1, 2006, as all stock options granted under the Companys stock option
plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

Effective January 1, 2006,
the Company adopted the fair value recognition provisions of SFAS No. 123R, using the modified prospective transition method. Under this transition method, compensation cost recognized in the statement of operations for the three month
period ended March 31, 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original
provisions of SFAS No. 123; and (b) compensation cost for all share-based payments granted, modified or settled subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS
No. 123R. In accordance with the modified prospective transition method, results for prior periods have not been restated.

For
the three month period ended March 31, 2007, the Company recorded non-cash stock-based compensation expense in accordance with SFAS No. 123R of $191,000 for stock options granted to employees and outside directors under the Companys
stock option plans, of which $(115,000) was included in research and development expenses and $306,000 was included in general and administrative expenses. For the three month period ended March 31, 2006, the Company recorded non-cash
stock-based compensation expense in accordance with SFAS No. 123R of $527,000 for stock options granted to employees and outside directors under the Companys stock option plans, of which $234,000 was included in research and development
expenses and $293,000 was included in general and administrative expenses. No amounts relating to stock-based compensation have been capitalized.

The Companys stock option plans allow for the granting of incentive and nonqualified options and awards to purchase shares of the Companys common stock. Historically, incentive options granted to employees under the
Companys stock option plans generally vested over a four-year period, with 25% vesting on each anniversary date of the grant. Nonqualified options issued to non-employee directors and consultants under the Companys stock option plans
generally vest during their period of service with the Company. Options granted under the Companys stock option plans have a maximum term of ten years from the date of grant. At March 31, 2007, a total of 7,619,350 shares of common stock
were approved for issuance under the Companys stock option plans and 2,603,857 shares underlying options were available for future grant under the Companys stock option plans.

The Company uses the Black-Scholes option pricing model to calculate the fair value on the grant date of stock-based compensation for stock options
granted. The fair value of stock options granted during the three month periods ended March 31, 2007 and 2006 was calculated using the following estimated weighted-average assumptions:



|                        |  |      |   |  |         |  
|----------------------- |  | ---- | - |  | ------- | -
|                        |  | 2007 |   |  | 2006    |  
|Expected term (years)   |  | 4.0  |   |  | 4.0     |  
|Volatility              |  | 87   | % |  | 8393   | %
|Risk-free interest rate |  | 4.8  | % |  | 4.34.6 | %



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Expected termThe expected term of options granted represents the period of time for which
the options are expected to be outstanding and is derived from the Companys stock option exercise experience and option expiration data. The Company believes that this is currently the best estimate of the expected term of a new
option. In addition, for purposes of estimating the expected term, the Company has aggregated all individual option awards into one group as the Company does not expect substantial differences in exercise behavior among its employees.

Expected volatilityThe expected volatility is a measure of the amount by which the Companys stock price is expected to
fluctuate during the expected term of options granted. The Company determines the expected volatility based upon the historical volatility of the Companys common stock over a period commensurate with the options expected term, as
adjusted. The Company also reviewed the volatility of other similar stage companies in the biotechnology industry.

Risk-free
interest rateThe risk-free interest rate is the implied yield available on U.S. Treasury zero-coupon issues with a remaining term equal to the options expected term on the grant date.

Expected dividend yieldThe Company has never declared or paid any cash dividends on any of its common stock and does not expect to do so in
the foreseeable future. Accordingly, the Company uses an expected dividend yield of zero to calculate the grant date fair value of a stock option.

The Company recognizes compensation expense on a straight-line basis over the requisite service period based upon options that are ultimately expected to vest, and accordingly, such compensation expense has been
adjusted by an amount of estimated forfeitures. Forfeitures represent only the unvested portion of a surrendered option. SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. Prior to the adoption of SFAS No. 123R, the Company accounted for forfeitures upon occurrence as permitted under SFAS No. 123. During the three month periods ended
March 31, 2007 and 2006, the Company recorded forfeitures based on an analysis of historical data which it believes is a reasonable assumption to estimate forfeitures. The rates used for the periods ended March 31, 2007 and 2006 were 13.58% and
3.2%, respectively. The estimation of forfeitures requires significant judgment, and to the extent actual results or updated estimates differ from the Companys current estimates, such amounts will be recorded as a cumulative adjustment in the
period estimates are revised.

The weighted-average per share fair value of stock options granted under the Companys stock option
plans during the three month period ended March 31, 2007 and 2006 was $0.65 and $1.88, respectively.

Information regarding option
activity for the three month period ended March 31, 2007 under the Companys stock option plans is summarized below:



|                                                 |  |                    |   |  |                                        |      |                                                  |      |                         |   |  
|------------------------------------------------ |  | ------------------ | - |  | -------------------------------------- | ---- | ------------------------------------------------ | ---- | ----------------------- | - | -
|                                                 |  | OptionsOutstanding |   |  | Weighted-AverageExercisePrice PerShare |      | Weighted-AverageRemainingContractualTerm inYears |      | AggregateIntrinsicValue
|Options outstanding at December 31, 2006         |  | 5,038,228          |   |  | $                                      | 3.44 |                                                  |      |                         |   |  
|Granted                                          |  | 12,500             |   |  | $                                      | 1.00 |                                                  |      |                         |   |  
|Exercised                                        |  | (5,000             | ) |  | $                                      | 0.80 |                                                  |      |                         |   |  
|Forfeited                                        |  | (298,125           | ) |  | $                                      | 3.82 |                                                  |      |                         |   |  
|Expired                                          |  |                   |   |  |                                        |      |                                                  |      |                         |   |  
|                                                 |  |                    |   |  |                                        |      |                                                  |      |                         |   |  
|Options outstanding at March 31, 2007            |  | 4,747,603          |   |  | $                                      | 3.41 |                                                  | 5.88 |                         | $ | 
|                                                 |  |                    |   |  |                                        |      |                                                  |      |                         |   |  
|Options vested and exercisable at March 31, 2007 |  | 3,242,803          |   |  | $                                      | 3.40 |                                                  | 4.72 |                         | $ | 
|                                                 |  |                    |   |  |                                        |      |                                                  |      |                         |   |  

There is no aggregate intrinsic value in the table above which
would represent the total pre-tax intrinsic value (the difference between the closing price of the Companys common stock on March 31, 2007 of $0.39 and the exercise price of each in-the-money option) that would have been received by the
option holders had all option holders exercised their options



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##### Table of Contents

on March 31, 2007 due to the fact that all current stock options are priced above $0.39 per share. Total cash received for stock options exercised
during the three month period ended March 31, 2007 was $4,000. Total intrinsic value of stock options exercised under the Companys stock option plans for the three month period ended March 31, 2007 was $300.

As of March 31, 2007, there was $2,387,000 of total unrecognized compensation cost related to unvested share-based awards. That cost is
expected to be recognized over a period of 4.0 years with a weighted-average of 1.4 years.

Revenue Recognition

Revenue is deemed earned when all of the following have occurred: there is persuasive evidence of an arrangement, the fee is fixed or determinable and
collection of the receivable is reasonably assured, all obligations of the Company relating to the revenue have been met and the earning process is complete; the monies received or receivable are not refundable, irrespective of research results; and
there are neither future obligations nor future milestones to be met by the Company with respect to such revenue incurred.

Revenues from
corporate collaborations and government grants are earned based upon research expenses incurred and milestones achieved. Non-refundable payments upon initiation of contracts are deferred and amortized over the period which the Company is obligated
to participate on a continuing and substantial basis in the research and development activities outlined in each contract. Amounts received in advance of reimbursable expenses are recorded as deferred revenue until the related expenses are incurred.
Milestone payments are recognized as revenue in the period in which the parties agree that the milestone has been achieved.



|3. | Offering
|-- | --------

On February 2, 2007, the Company
announced it had priced a registered direct offering (the Offering) for the sale of 6,523,776 shares of its common stock at a price of $0.73 per share. The Offering closed on February 7, 2007. Gross proceeds from the Offering were
$4,762,000. After placement agent fees of approximately $286,000 and other expenses related to the offering totaling approximately $85,000, net proceeds to the Company were $4,391,000. The investors in this offering also received five-year warrants,
exercisable upon expiration of a lock-up period of six months, to purchase an additional 978,566 shares of common stock at an exercise price of $1.00 per share. The Company also issued 391,426 warrants at an exercise price of $1.00 per share to the
placement agent, Rodman & Renshaw LLC, exercisable upon expiration of a lock-up period of six months. The offered shares are registered pursuant to the Companys shelf registration statement that was declared effective by the
Securities and Exchange Commission on January 12, 2005.

As a result of this offering, 1,150,000 warrants were repriced from $5.31 per
share to $4.54 per share.



|4. | Insurance Settlement
|-- | --------------------

On March 2, 2007, the
Company received a final insurance settlement in the amount of $305,000 relating to a shipment of drug supply that was damaged in June 2006 during shipping. The Company recorded this as an offset to manufacturing expense in the three month period
ending March 31, 2007.



|5. | New Accounting Pronouncements
|-- | -----------------------------

In June 2006,
the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an entitys financial statements in accordance with SFAS No. 109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance on subsequent derecognition of tax positions, financial statement classification, recognition of interest and penalties, accounting
in interim periods, and disclosure and transition requirements. The Company adopted the provisions of FIN 48 on January 1, 2007. Previously, the Company had accounted for tax contingencies in accordance with Statement of Financial Accounting
Standards 5, Accounting for Contingencies". As required by FIN 48, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the
position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate
settlement with the relevant tax authority. At the adoption date, the Company applied FIN 48 to all tax positions for which the statute of limitations remained open. The amount of unrecognized tax benefits as of January 1, 2007 was zero. There
have been no material changes in unrecognized tax benefits since January 1, 2007. As of January 1, 2007, due to the carry forward of unutilized net operating losses and research and development credits, the Company is subject to U.S.
Federal income tax examinations for the tax years 2002 through 2006, and to state income tax examinations for the tax years 1994 through 2006. The Company recognizes accrued interest related to unrecognized tax benefits in interest expense and
penalties in operating expense. No amounts were accrued for the payment of interest and penalties at January 1, 2007. The Companys adoption of FIN 48 did not have a material effect on the Companys financial condition, results of
operations or cash flows.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial
Liabilities, which will be effective for public entities no later than the beginning of the first fiscal year beginning after November 15, 2007. The new standard allows entities to voluntarily choose, at specific election dates, to
measure many financial assets and financial liabilities (as well as certain nonfinancial instruments that are similar to financial instruments) at fair value (the fair value option). The election is made on an instrument-by-instrument
basis and is irrevocable. If the fair value option is elected for an instrument, the statement specifies that all subsequent changes in fair value for that instrument shall be reported in earnings (or another performance indicator for entities such
as not-for-profit organizations that do not report earnings). The Company will adopt this pronouncement on January 1, 2008 and is currently evaluating the impact that this pronouncement will have on its consolidated financial statements.



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##### Table of Contents

|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Cautionary Factors with Respect to Forward-Looking Statements

Readers are cautioned that certain
statements contained in this Managements Discussion and Analysis of Financial Condition and Results of Operations that are not related to historical results are forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995, as from time-to-time in effect. This information includes statements on the prospects for our drug development activities and results of operations based on our current expectations, such as statements regarding
certain milestones with respect to our clinical program and our product candidates. Forward-looking statements are statements that are not historical facts, and can be identified by, among other things, the use of forward-looking language, such as
believe, expect, may, will, should, seeks, plans, schedule to, anticipates or intends or the negative of those terms, or
other variations of those terms of comparable language, or by discussions of strategy or intentions. A number of important factors could cause actual results to differ materially from those projected or suggested in the forward looking statement,
including, but not limited to, our ability to (i) successfully develop and manufacture products, (ii) obtain the necessary governmental approvals, (iii) obtain external funding to finance the operations, and (iv) obtain and
enforce intellectual property rights, as well as the risk factors discussed elsewhere in this report.

Overview

We are a Boston-based biopharmaceutical company dedicated to developing a family of dipeptidyl peptidase (DPP) inhibitors for use in cancer and type 2
diabetes. DPPs are enzymes that appear to regulate several different physiological processes, including those involved in tumor growth and host responses to cancer and type 2 diabetes. We are currently studying our lead product candidate,
talabostat, in two Phase 3 double-blind, placebo-controlled trials in metastatic non-small cell lung cancer (NSCLC). The first Phase 3 trial is studying talabostat in combination with pemetrexed (Alimta®, Eli Lilly) and the second Phase 3 trial is studying talabostat in combination with
docetaxel (Taxotere®, sanofi-aventis). We are also
currently studying talabostat in a Phase 2 trial in combination with gemcitabine in Stage IV pancreatic cancer. In addition, we have studied talabostat in several Phase 2 trials, including in combination with docetaxel in metastatic NSCLC, as a
single-agent in metastatic melanoma, in combination with cisplatin in metastatic melanoma, and in combination with rituximab in advanced chronic lymphocytic leukemia (CLL).

We believe talabostat has a novel mechanism of action and that its anti-tumor activity can occur by two different pathwayseach initiated by
inhibiting different DPPs. One pathway is believed to disrupt the tumor stroma and may reduce metastases. The second pathway is believed to stimulate both the innate and acquired immune systems to attack the tumor. The most frequently reported
adverse events include peripheral edema (fluid retention) and fatigue.

In addition to our oncology program, we have another DPP inhibitor
as a preclinical lead drug candidatePT-630 for type 2 diabetes. PT-630 has a high affinity for DPP-4 which is a widely known target that numerous pharmaceutical companies are studying to treat type 2 diabetes. Currently, we are deferring the
preclinical development of our PT-630 program to prioritize our capital spending on our two Phase 3 NSCLC clinical trials.

In addition, we
from time to time evaluate new technologies to broaden our portfolio of potential products, including in-licensing and collaboration arrangements, as well as more expansive corporate relationships, including mergers and acquisitions.

To date, we have generated no revenues from product sales and have primarily depended upon equity financings, interest earned on invested funds, and
collaboration payments received from pharmaceutical companies and government agencies to provide the working capital required to pursue our intended business activities. We have a net accumulated deficit of approximately $97,013,000 as of
March 31, 2007. The accumulated deficit has resulted principally from our efforts to develop drug candidates and the associated administrative costs required to support these efforts. We expect to incur significant additional operating losses
over the next several years due to our ongoing developmental and clinical efforts. Our potential for future profitability is dependent on our ability to effectively develop our current pharmaceutical product candidate, talabostat, to develop other
currently in-licensed product candidates, and to license and develop new pharmaceutical compounds.

Our principal executive office
is located at 155 Federal Street, Boston, MA 02110 and our telephone number is (617) 933-2130. Our common stock trades on the NASDAQ Capital Market under the symbol POTP. Our website is www.pther.com.



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##### Table of Contents

Critical Accounting Policies and Significant Judgments and Estimates

Critical Accounting Policies

Revenue
Recognition.    Revenue is deemed earned when all of the following have occurred: there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured, all of
our obligations relating to the revenue have been met and the earning process is complete; the monies received or receivable are not refundable, irrespective of research results; and there are neither future obligations nor future milestones to be
met by us with respect to such revenue incurred.

Revenues from corporate collaborations and government grants are earned based upon
research expenses incurred and milestones achieved. Non-refundable license fees upon initiation of contracts are deferred and amortized over the period which we are obligated to participate on a continuing and substantial basis in the research and
development activities outlined in each contract. Amounts received in advance of reimbursable expenses are recorded as deferred revenue until the related expenses are incurred. Milestone payments are recognized as revenue in the period in which the
parties agree that the milestone has been achieved.

For the three month period ended March 31, 2007, we did not recognize any
revenue. For the three month period ended March 31, 2006 we recognized revenue totaling $139,000 relating to our $600,000 Orphan Drug Grant which will partially fund our Phase 2 clinical trial in patients with CLL.

Clinical Trial Expenses.    We record the estimated cost of patient recruitment and related supporting functions for our
clinical trial as patients are enrolled in the trial. We record the costs for the trials based on percentage of completion of the contract entered into. In the past, our estimates have been materially accurate with the actual billings received.
These costs consist primarily of payments made to the outside clinical management organizations, clinical centers, investigators, testing facilities and patients for participating in our clinical trial. As actual or expected costs become known, they
may differ from estimated costs previously accrued for and this clinical trial accrual or prepaid would be adjusted accordingly. At March 31, 2007, prepaid and deposit balances related to clinical trials were approximately $1,409,000 resulting
from payments made in connection with our two Phase 3 clinical trials in NSCLC. At March 31, 2007, accrued expenses related to clinical trials were approximately $1,180,000 related primarily to our ongoing Phase 3 clinical trials. Clinical
trial expenses were $2,301,000 and $2,592,000 for the quarters ended March 31, 2007 and 2006, respectively.

Stock-based
Compensation.    Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123R, Share-Based PaymentAn Amendment of FASB Statements
No. 123 and 95, or SFAS No. 123R. SFAS No. 123R requires companies to measure compensation cost for all share-based awards at fair value on grant date and recognize it as expense ratably over the requisite service period of the
award. We use the Black-Scholes option pricing model to calculate the fair value of share-based awards on the grant date. This option pricing model requires the input of highly subjective assumptions, including the term during which the
awards are expected to be outstanding and the price volatility of the underlying stock. In addition, SFAS No. 123R requires forfeitures, which represent only the unvested portion of a surrendered award, to be estimated at the time of the
grant and revised, if necessary, in subsequent periods. Please refer to Note 2Summary of Significant Accounting Principles, included in the condensed consolidated financial statements appearing elsewhere in this report, for additional
information regarding our adoption of SFAS No. 123R.

Significant Judgments and Estimates.The
preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires that we make estimates and assumptions that affect the reported amounts and disclosure of certain assets
and liabilities at our balance sheet date. Such estimates include the carrying value of property and equipment and the value of certain liabilities. Actual results may differ from such estimates.



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Results of Operations

Three month period ended March 31, 2007 as compared to the three month period ended March 31, 2006



|                           |  |                                     |            |   |                |   |            |           |  |        |   
|-------------------------- |  | ----------------------------------- | ---------- | - | -------------- | - | ---------- | --------- |  | ------ | --
|                           |  | Three Month Periods Ended March 31, |            |   | Percent Change |  
|                           |  | 2007                                |            |   | 2006           |   |            | 2007/2006 | 
|License revenue            |  | $                                   |           |   |                | $ |           |           |  |       | % 
|Sponsored research revenue |  |                                     |           |   |                |   | 138,795    |           |  | (100.0 | ) 
|                           |  |                                     |            |   |                |   |            |           |  |        |   
|Total revenue              |  |                                     |           |   |                |   | 138,795    |           |  | (100.0 | ) 
|Research and development   |  |                                     | 3,752,150  |   |                |   | 6,318,363  |           |  | (40.6  | ) 
|General and administrative |  |                                     | 1,652,665  |   |                |   | 2,018,397  |           |  | (18.1  | ) 
|                           |  |                                     |            |   |                |   |            |           |  |        |   
|Total operating expenses   |  |                                     | 5,404,815  |   |                |   | 8,336,760  |           |  | (35.2  | ) 
|Interest income            |  |                                     | 125,774    |   |                |   | 341,352    |           |  | (63.2  | ) 
|                           |  |                                     |            |   |                |   |            |           |  |        |   
|Net loss                   |  | $                                   | (5,279,041 | ) |                | $ | (7,856,613 | )         |  | (32.8  | )%
|                           |  |                                     |            |   |                |   |            |           |  |        |   

Revenue

For the three month period ended March 31, 2007, we did not recognize any revenue. For the three month period ended March 31, 2006, we
recognized revenue totaling $139,000 relating to our $600,000 Orphan Drug Grant from the Food and Drug Administration to partially fund our Phase 2 clinical trial in patients with advanced CLL.

Operating Expenses

Research and development

During the three month periods ending March 31, 2007 and 2006, almost all of our
research and development efforts were focused on the preclinical and clinical development of talabostat for the treatment of solid tumors and hematologic malignancies.

We are currently studying our lead product candidate, talabostat, in two Phase 3 double-blind, placebo-controlled trials in metastatic non-small cell lung cancer (NSCLC). The first Phase 3 trial is studying talabostat
in combination with pemetrexed (Alimta®, Eli Lilly)
and the second Phase 3 trial is studying talabostat in combination with docetaxel (Taxotere®, sanofi-aventis). We are also currently studying talabostat in a Phase 2 trial in combination with gemcitabine in Stage IV pancreatic cancer. In addition, we have studied talabostat in
several Phase 2 trials, including in combination with docetaxel in metastatic NSCLC, as a single-agent in metastatic melanoma, in combination with cisplatin in metastatic melanoma, and in combination with rituximab in advanced CLL.

Research and development expenses decreased 40.6% to $3,752,000 for the three month period ended March 31, 2007 from $6,318,000 for the three month
period ended March 31, 2006.



|                               |  |                                     |           |                |   |           |  |       |   
|------------------------------ |  | ----------------------------------- | --------- | -------------- | - | --------- |  | ----- | --
|                               |  | Three Month Periods Ended March 31, |           | Percent Change |  
|Research and development       |  | 2007                                |           | 2006           |   | 2006/2005 | 
|Clinical and drug development  |  | $                                   | 3,453,679 |                | $ | 5,220,299 |  | (33.8 | )%
|Research                       |  |                                     | 298,471   |                |   | 1,098,064 |  | (72.8 | ) 
|                               |  |                                     |           |                |   |           |  |       |   
|Total research and development |  | $                                   | 3,752,150 |                | $ | 6,318,363 |  | (40.6 | )%
|                               |  |                                     |           |                |   |           |  |       |   

Clinical and drug development:    Clinical development expenses include
costs of drug development and conducting clinical trials. Such costs include costs of personnel (including salary, fringe benefits, recruiting and relocation costs), drug supply and testing costs and facility expenses, including depreciation.

Total clinical development expenses decreased 33.8% to $3,454,000 for the three month period ended March 31, 2007 from $5,220,000 for
the three month period ended March 31, 2006.

The decrease in 2007 was primarily due to a decrease of $1,306,000 for external clinical
and related manufacturing costs related to our two Phase 3 trials in NSCLC. We also did not record any annual bonuses during the three month period ended March 31, 2007 as compared to annual bonuses recorded in the three month period ended
March 31, 2006 of $239,000. In addition, non-cash stock-based compensation expense for employee stock options in accordance with SFAS No. 123R decreased by $287,000 for the three month period ended March 31, 2007 as compared to the
three month period ended March 31, 2006. During the three month period ended March 31, 2007, we recorded a pro-rated amount for retention bonuses to be paid in two installments in May 2007 and December 2007 to non-executive employees of
$69,000 in this area.



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During the remainder of 2007, we anticipate that our clinical development costs will remain at similar
levels primarily due to our ongoing two Phase 3 clinical studies. We do not currently anticipate increasing headcount in this area for the remainder of 2007.

Research:    Research includes expenses associated with research and testing of our product candidates supporting the clinical development of talabostat and our other preclinical candidates
prior to reaching the clinical development stage. Such expenses primarily include the costs of internal personnel, outside contractors, facilities, including depreciation, and lab supplies.

Research expenses decreased 72.8% to $298,000 for the three month period ended March 31, 2007 from $1,098,000 for the three month period ended
March 31, 2006. The decrease was primarily due to the shut-down of our internal research laboratory in December 2006. Six employees were terminated as part of the shutdown, resulting in decreased salary and related fringe costs of $139,000,
decreased laboratory supplies and services costs of $145,000 and decreased rent cost of $45,000. In addition, there were no annual bonuses recorded for the three month period ended March 31, 2007 as compared to annual bonuses recorded in the
three month period ended March 31, 2006 of $202,000. Also, spending related to external collaborations and our diabetes product candidate, PT-630 was reduced by $164,000 as compared tothe three month period ended March 31, 2006. During the
three month period ended March 31, 2007, we recorded a pro-rated amount for retention bonuses to be paid in two installments in May 2007 and December 2007 to non-executive employees totaling $3,000 in this area.

During the remainder of 2007, we currently anticipate that research expenses will stay at current levels. We do not currently anticipate increasing
headcount in this area for the remainder of 2007.

General and administrative

General and administrative:    General and administrative costs include the associated administrative costs required to support
the clinical development and research efforts such as legal, finance and accounting, business development, investor relations and other administrative support functions.

General and administrative expenses decreased 18.1% to $1,653,000 during the three month period ended March 31, 2007 from $2,018,000 for the three
month period ended March 31, 2006. The decrease in general and administrative expenses resulted primarily from employee bonuses recorded during the three month period ended March 31, 2006 of $379,000. There were no annual bonuses recorded
during the three month period ended March 31, 2007. In addition, business development, investor relations and related travel costs decreased in 2007 as compared to 2006 by approximately $181,000 due to reduced activity. The decrease in bonus
costs and business development/investor relations and related travel costs was partially offset by an increase of $221,000 in legal expenses. In addition, during the three month period ended March 31, 2007, we recorded a pro-rated amount for
retention bonuses to be paid in two installments in May 2007 and December 2007 to non-executive employees totaling $18,000 in this area.

During 2007, we currently anticipate that general and administrative expenses will stay at current levels. We do not currently anticipate increasing headcount in this area for the remainder of 2007.

Interest Income

Interest
income includes interest earned on invested cash balances. During the three month periods ended March 31, 2007 and 2006, our investments consisted entirely of funds deposited in money market funds.

Interest income decreased 63.2% to $126,000 in the three month period ended March 31, 2007 from $341,000 in the three month period ended
March 31, 2006. The decrease in interest income resulted from a lower average cash balance for the three month period ended March 31, 2007.

Net loss

As a result of the foregoing, we incurred a net loss of $5,279,000, or $0.14 per
common share, for the three month period ended March 31, 2007 compared to a net loss of $7,857,000, or $0.24 per common share, for the three month period ended March 31, 2006.

Liquidity and Capital Resources

At March 31, 2007, our principal sources of liquidity were our
cash, cash equivalents and restricted cash which totaled $9,090,000.



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During the three month period ended March 31, 2007, our cash and cash equivalents decreased
$1,008,000 as compared to December 31, 2006.

During the three month period ended March 31, 2007, net cash used in operations
resulted primarily from a net loss of $5,279,000. Included in the net loss for the three month period ended March 31, 2007 were non-cash stock-based compensation of $191,000 and depreciation of $27,000. Prepaid expenses, deposits and other
assets, net, decreased $400,000 for the three month period ended March 31, 2007, resulting primarily from expenses recorded as services were earned offset by payments made to the outside clinical research organization we engage for our clinical
trials and annual insurance premiums paid. Our unbilled receivable decreased by $3,000 during the three month period ended March 31, 2007. Accounts payable and accrued expenses decreased $743,000 during the three month period ended
March 31, 2007 resulting primarily from Phase 3 clinical program accruals at December 31, 2006 paid during the three month period ended March 31, 2007.

We did not use any cash for investing activities during the three month period ending March 31, 2007.

Our financing activities provided net cash of $4,393,000 for the three month period ended March 31, 2007, primarily related to the registered direct offering (the Offering) from the sale of 6,523,776 shares of our common
stock at a price of $0.73 per share. Gross proceeds from the February 7, 2007 Offering were $4,762,000. After placement agent fees of approximately $286,000 and other expenses related to the Offering totaling approximately $85,000, net proceeds to
us were $4,391,000. We also received $4,000 from the exercise of stock options during the three month period ended March 31, 2007.

Capital
Resources

At March 31, 2007, we had $8,790,000 in cash and cash equivalents and $300,000 in restricted cash. We currently
anticipate that our existing capital resources will enable us to maintain current and planned operations into the third quarter of 2007. We are currently considering several strategic options in order to ensure the continued funding of our
operations including, but not limited to, the sale of additional securities in both public and private offerings as the markets allow, raising additional funds through corporate collaborations and merger and acquisition activities and
consolidations. There can be no assurance that a transaction will be consummated in a reasonable time frame or on terms acceptable to us. Should we be unable to raise sufficient funds, we may be required to curtail our research and development
activities and cease our operations as soon as the second quarter of 2007. In addition, increases in expenses or delays in product development not currently forecasted or anticipated may adversely impact our cash position and require further cost
reductions.

Our expectations regarding our rate of spending and the sufficiency of our cash resources over future periods are
forward-looking statements. Our funding requirements are expected to increase over the next several years as we continue with the clinical development of talabostat and potentially initiate human clinical trials of possible additional clinical
indications for talabostat and additional product candidates. The rate of spending and sufficiency of such resources will be affected by numerous factors, including the success of our preclinical and clinical trials and the rate of acquisition of
new products and technologies. Success in early-stage clinical trials or acquisition of new products and technologies would lead to an increase in working capital requirements. Our actual cash requirements may vary materially from those now planned
because of the results of research and development, clinical trials, product testing, relationships with strategic partners, acquisition of new products and technologies, changes in the focus and direction of our research and development programs,
competitive and technological advances, the process of obtaining United States Food and Drug Administration or other regulatory approvals and other factors.

Contractual Obligations

As of March 31, 2007, we had future payments required under contractual obligations and other
commitments approximately as follows:



|                         |  |                      |         |      |   |         |  |      |         |      |   |            |  |       |        |  |   |       |  |   |          
|------------------------ |  | -------------------- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ---------- |  | ----- | ------ |  | - | ----- |  | - | ---------
|                         |  | Payments Due By Year
|                         |  | Q2-Q4 2007           |         | 2008 |   | 2009    |  | 2010 |         | 2011 |   | Thereafter |  | Total
|Operating Leases         |  | $                    | 313,000 |      | $ | 416,000 |  | $    | 405,000 |      | $ | 216,000    |  | $     | 12,000 |  | $ |      |  | $ | 1,362,000
|Capital Leases           |  |                      | 3,000   |      |   |        |  |      |        |      |   |           |  |       |       |  |   |      |  |   | 3,000    
|Licensing Obligations    |  |                      | 10,000  |      |   | 10,000  |  |      | 10,000  |      |   | 10,000     |  |       | 10,000 |  |   | 8,000 |  |   | 58,000   
|                         |  |                      |         |      |   |         |  |      |         |      |   |            |  |       |        |  |   |       |  |   |          
|Total Future Obligations |  | $                    | 326,000 |      | $ | 426,000 |  | $    | 415,000 |      | $ | 226,000    |  | $     | 22,000 |  | $ | 8,000 |  | $ | 1,423,000
|                         |  |                      |         |      |   |         |  |      |         |      |   |            |  |       |        |  |   |       |  |   |          



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In addition, in accordance with the license agreement between us and Tufts University School of Medicine
(Tufts), we are required to make payments totaling $250,000 to Tufts upon marketing application of the first licensed product and marketing approval of the first licensed product. We are also required to pay a royalty based on future
sales of products covered under the license agreement.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of March 31, 2007 that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

New Accounting Pronouncements

In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entitys financial
statements in accordance with SFAS No. 109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to
be taken in a tax return. Additionally, FIN 48 provides guidance on subsequent derecognition of tax positions, financial statement classification, recognition of interest and penalties, accounting in interim periods, and disclosure and transition
requirements. We adopted the provisions of FIN 48 on January 1, 2007. Previously, we had accounted for tax contingencies in accordance with Statement of Financial Accounting Standards 5, Accounting for Contingencies". As required
by FIN 48, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not
threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, we applied FIN
48 to all tax positions for which the statute of limitations remained open. The amount of unrecognized tax benefits as of January 1, 2007 was zero. There have been no material changes in unrecognized tax benefits since January 1, 2007. As
of January 1, 2007, due to the carry forward of unutilized net operating losses and research and development credits, we are subject to U.S. Federal income tax examinations for the tax years 1994 through 2006, and to state income tax
examinations for the tax years 2002 through 2006. We recognize accrued interest related to unrecognized tax benefits in interest expense and penalties in operating expense. No amounts were accrued for the payment of interest and penalties at
January 1, 2007. Our adoption of FIN 48 did not have a material effect on our financial condition, results of operations or cash flows.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, which will be effective for public entities no later than the beginning of the first fiscal year beginning after
November 15, 2007. The new standard allows entities to voluntarily choose, at specific election dates, to measure many financial assets and financial liabilities (as well as certain nonfinancial instruments that are similar to financial
instruments) at fair value (the fair value option). The election is made on an instrument-by-instrument basis and is irrevocable. If the fair value option is elected for an instrument, the Statement specifies that all subsequent changes
in fair value for that instrument shall be reported in earnings (or another performance indicator for entities such as not-for-profit organizations that do not report earnings). We will adopt this pronouncement on January 1, 2008 and are
currently evaluating the impact that this pronouncement will have on our consolidated financial statements.



|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Our proceeds to date have been invested in money market funds that invest primarily in short-term, highly-rated investments, including U.S. Government securities, commercial paper and certificates of deposit guaranteed by banks. Currently,
we do not use interest rate derivative instruments to manage exposure to interest rate changes. Because of the short-term maturities of our investments, we do not believe that a change in market rates would have a significant impact on the value of
our investment portfolio. Declines in interest rates will reduce our interest income while increases in interest rates will increase our interest income.



|Item 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

(a) Evaluation of
disclosure controls and procedures. Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of March 31, 2007. Based on this evaluation, our chief executive officer and chief financial officer concluded that as of March 31, 2007, our disclosure controls and
procedures were (1) designed to ensure that material information relating to us is made known to our chief executive officer and chief financial officer by others, particularly during the period in which this report was prepared and
(2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms.

In connection with managements evaluation of the effectiveness of our internal controls and
procedures, we note that the translation of complex clinical data into complete and accurate disclosures that can readily be understood by non-scientific investors is a tremendous challenge for biotech companies. While we believe that our controls
and procedures regarding the disclosure of clinical data are designed properly as discussed above, the effectiveness of these controls and procedures in connection with the recording, processing and reporting of such information depends to a
significant degree on the quality of information provided by our clinical and regulatory personnel.

(b) Changes in internal controls.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2007 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION



|Item 1A. | Risk Factors
|-------- | ------------

Risks Related to Our Business

If we fail to obtain the capital necessary to fund our operations, we may be forced to reduce or wind-down operations

As of March 31, 2007, we had unrestricted cash of approximately $8.8 million. Our unrestricted cash balance as of
March 31, 2007 of approximately $8.8 million is expected to be sufficient to allow us to maintain our current and planned operations into the third quarter of 2007. This does not, however, give us sufficient capital to carry on our business for
the current fiscal year as now conducted and proposed to be conducted or provide any reserves for outstanding obligations or anticipated wind-down expenses. Our current cash flow, together with the amounts we would receive, were we to liquidate all
of our assets, after taking into account all anticipated uses of the cash, may not be sufficient to pay all amounts on or in respect of our obligations when such amounts are required to be paid.

We anticipate that we will continue to generate significant losses from operations for the foreseeable future, and that our business will require
substantial additional investment that we have not yet secured. These conditions raise substantial doubt about our ability to continue as a going concern. The audit report prepared by our independent registered public accounting firm in connection
with our financial statements for the year ended December 31, 2006 included an explanatory paragraph expressing the substantial doubt about our ability to continue as a going concern.

We may have to incur obligations in the ordinary course of business that are beyond our ability to pay as such obligations mature. We may be forced to
file for reorganization or liquidation under the bankruptcy or reorganization laws of an appropriate jurisdiction as soon as the second quarter of 2007 if a follow-on private placement of our securities or other financing in a sufficient amount
cannot be consummated shortly.

We are unable to estimate at this time the additional funds required to finance our operations as we have
not determined the therapeutic indications that we will continue to clinically develop into later stages, the extent of the clinical program required to successfully develop a selected therapeutic indication, and if any of these programs will
eventually be financed through a collaboration with a better funded partner. Also, we do not know whether additional funding will be available when needed, or that, if available, we will be able to obtain funding on satisfactory terms. We have
incurred approximately $108.0 million of expenses since inception through March 31, 2007, and expect our capital outlays and operating expenditures could increase over the next several years if we expand our infrastructure and clinical and
preclinical trial activities. We may raise additional funds through additional sales of equity and/or convertible debt in both public and private offerings as the markets allow, corporate collaborations, and merger and acquisition activities. The
issuance of additional equity securitieseither directly or in connection with the issuance of convertible debtwould result in substantial dilution to our existing stockholders.

In addition to the progress of our preclinical and clinical effort, our future capital requirements depend on many other factors, including: the cost and
timing of regulatory approvals of talabostat, technological advances, the reevaluation of the commercial potential of talabostat in light of developments in our industry or market, the status of competitive products and the establishment of a sales
force. Unexpected events or other factors beyond our control could also impact our capital requirements.

We may be required to relinquish
rights to our technologies or talabostat, or grant licenses on terms that are not favorable to us, in order to raise additional funds through alliance, joint venture and licensing arrangements. If adequate funds are not available, we will be
required to delay, reduce the scope of, or eliminate one or more of our clinical programs, or wind-down our operations.

We have had
a history of losses, and expect to continue to incur losses and may not achieve or maintain profitability

As of March 31,
2007, we had an accumulated deficit of approximately $97.0 million. The extent of our future losses and the timing of profitability are highly uncertain, and we may never achieve profitable operations. We have not had any products that have
generated sales revenue, and we likely will not until talabostat or any other of our other product candidates become commercially available, if ever. We expect to incur losses at least until we begin commercial sales of our first approved product,
if any. We expect that our operating expenses will increase and accelerate as our preclinical, clinical and support operations expand, even if we succeed in developing one or more commercial products. Our ability to achieve product revenue and
profitability is dependent on our capability, alone or with partners, to successfully complete the development of talabostat, conduct clinical trials, obtain necessary regulatory approvals, and manufacture, distribute, market and sell talabostat. We
cannot provide assurance that we will generate product revenues or achieve profitability.



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We are not in compliance with NASDAQ listing requirements, our stock could be delisted, and the
trading price, volume and marketability of our stock could be adversely affected

On March 8, 2007, we received a letter from
the Listing Qualification Department of The NASDAQ Stock Market indicating that we failed to comply with the minimum bid price requirement for continued listing on the NASDAQ Capital Market Exchange set forth in Marketplace Rule 4310(c)(4) because
our common stock had closed below the minimum $1.00 per share requirement for 30 consecutive business days. We can regain compliance if, any time before September 4, 2007, the bid price of our common stock closes at $1.00 per share or more for
a minimum of 10 consecutive business days. In the event we do not regain compliance by September 4, 2007, we will have the right to appeal a staff determination to delist our common stock, and our common stock will remain listed until
completion of that appeal process. Delisting of our shares from trading on the NASDAQ system could have a material adverse effect on the trading price, volume and marketability of our common stock.

We are not in compliance with NASDAQ listing requirements due to the resignation of William Whelan, Jr. from the Board of Directors of Point and
Chairman of Points Audit Committee

As a result of the Board of Directors vacancy created in January 2007 by the resignation
of William Whelan, Jr. as a director and as Chairman of our Audit Committee, we do not currently comply with NASDAQs Marketplace Rule 4350(d)(2), which requires us to have an audit committee of at least three independent directors as defined
by NASDAQs rules. Consistent with NASDAQs Marketplace Rule 4350(d)(4), we have a cure period until the earlier of our next annual meeting of stockholders or January 24, 2008 to fill the vacancy and regain compliance. Failure to maintain
compliance with NASDAQ listing requirements could result in the delisting of our shares from trading on the NASDAQ system, which could have a material adverse effect on the trading price, volume and marketability of our common stock.

Our lead product candidate, talabostat, is in human clinical development, and its safety and effectiveness are still being determined

Our lead product candidate, talabostat, is currently undergoing evaluation in clinical trials for the treatment of certain solid
tumors. To obtain regulatory approval for the commercial sale of talabostat for its intended therapeutic applications, we must demonstrate in carefully controlled and well-designed clinical trials that talabostat is safe and effective in humans for
the proposed therapeutic indications. In addition to animal safety studies, we have conducted Phase 1 human clinical safety studies, both in single and multiple doses, which have provided us sufficient safety information to select dose ranges for
our Phase 1 human clinical dose finding studies. These Phase 1 dose finding studies have, in turn, provided us safety and effectiveness information to select doses for our Phase 2 human clinical studies which evaluated safety and effectiveness of
talabostat in larger cohort groups. We have also commenced two Phase 3 human clinical studies in which we are evaluating talabostat in double-blind placebo controlled studies. Although with the completion of each of our human clinical studies we are
learning more about the safety profile of talabostat, we cannot yet predict whether subjects in clinical trials will suffer unacceptable health consequences related to talabostat. In addition, success in preclinical testing and early clinical trials
does not necessarily predict final results. A number of biotechnology companies have suffered significant setbacks in advanced clinical trials, even after receiving promising results in earlier clinical trials. Our clinical trials may be suspended
at any time if the FDA or we believe that the participating subjects are exposed to unacceptable health risks. In addition, we cannot yet predict whether talabostat will be effective in treating the therapeutic applications for which the human
clinical studies we are conducting have been designed or that physicians or the FDA will consider talabostat effective for such therapeutic applications. In addition, even if talabostat is shown to be effective in our clinical trials, we cannot
predict whether the FDA will determine that the therapeutic benefits of talabostat outweigh any adverse effects of the drug. If talabostat is not safe or effective, or is perceived as not being safe or effective by the FDA or physicians, our
business, financial condition, results of operations and prospects will be substantially harmed.

Our lead product candidate,
talabostat, is in human clinical development, and we may not be able to design or implement an effective clinical development plan which will result in timely FDA approval for the selected therapeutic applications

Our lead product candidate, talabostat, is currently undergoing evaluation in clinical trials for the treatment of certain solid tumors. Conducting
clinical trials is a lengthy and highly uncertain process. The length of time to complete clinical trials varies according to the type, complexity, novelty and intended use of the product candidate. We may not have designed our clinical trials in a
way that results in their fastest completion because of unforeseen safety or effectiveness issues. Our trials may take longer to complete than we anticipate because of a slower than expected rate of eligible subject recruitment in the trials. If our
clinical trials take longer than we expect, we may have greater expenses than we project and may have increased difficulty raising additional capital to fund future or current capital requirements.



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Even if we are able to conduct our clinical trials in a timely manner, other factors related to the
conduct of the trials could still adversely affect our chances of obtaining FDA approval. The FDA may object to certain aspects of our clinical trial design, including the clinical endpoints we have selected and the magnitude of the therapeutic
effect we are attempting to show. We may not be able to adequately follow or evaluate the subjects of the clinical trials after their treatment to establish a positive therapeutic effect. We may not be able to maintain a database of sufficient
integrity to track safety and effectiveness information of treated subjects that would withstand FDA scrutiny. We, or our chosen vendors, may fail to comply with FDA regulations for good clinical practices.

If we obtain FDA approval for one or more therapeutic indications, we may then elect to perform further clinical studies intended to broaden the labeling
indications. If such studies do not support expanding the labeling indications, our ability to promote and market such products will be limited.

Whether or not we raise sufficient additional capital, we may be forced to reduce the size and scope of one or both of our Phase 3 trials

Whether or not we can raise sufficient additional capital from a follow-on private placement of our securities or other financings, we may have to pursue one or more of the following alternatives: (i) modifying
the existing clinical trial protocols for each of the talabostat/docetaxel and talabostat/pemetrexed studies to permit interim analyses of the current data in each of the studies in a way that would not substantially alter the current statistical
endpoints in these studies; (ii) reducing the size of one or both of these studies by such an amount that we would not be able to obtain statistical significance acceptable to the FDA for a Phase 3 trial; and (iii) stopping one or both of
the studies completely. If one or both of our current Phase 3 studies would have to be recharacterized as a randomized, placebo-controlled Phase 2 study, then we would have to commence one or both Phase 3 studies from the beginning if and when we
could obtain sufficient capital to do so.

If talabostat is not a successful drug candidate, we will be adversely affected

We have devoted substantial efforts developing talabostat on a preclinical and clinical basis. If talabostat is not ultimately a
successful drug candidate, our business, financial condition and results of operations and prospects will be severely harmed.

If we
fail to obtain regulatory approval for talabostat in a timely manner, our operating results and business may be adversely affected

We must obtain regulatory approval before marketing or selling talabostat in any major world pharmaceutical market for any therapeutic application for talabostat. Due to risks and uncertainties inherent in clinical testing and the
regulatory process, we are not able to estimate when talabostat may be commercially available for any application, if at all.

In the
United States, we must obtain FDA approval for talabostat for each indication that we intend to commercialize. The FDA approval process is typically lengthy and expensive, and such approval is never certain and entails a high degree of risk.
Products marketed, manufactured or distributed abroad are also subject to foreign government regulation. Talabostat has not received regulatory approval to be commercially marketed and sold for any therapeutic indication. If we fail to obtain
regulatory approval, we will be unable to market and sell talabostat. We cannot predict with certainty if or when we might submit talabostat for regulatory approval for any therapeutic indication. Once we submit talabostat for review, we cannot
ensure that the FDA or other regulatory agencies will grant approvals on a timely basis or at all. If regulatory approval for any therapeutic application for talabostat is delayed, our business, financial condition or results of operations would be
materially adversely affected.

Because we rely on third parties to conduct human clinical studies, we may encounter delays or
experience increased costs in product development and commercialization

We have relatively few employees and do not have sufficient
internal resources or experience to conduct human clinical trials without the assistance of third parties. We must therefore contract with third parties to perform the clinical trials required to submit talabostat to the FDA for marketing approval.

Although we continue to increase our internal clinical development capability, including our ability to supervise, manage and, as
necessary, replace outside vendors, we still outsource a substantial amount of the clinical trial development process. Thus, we may lose control over the cost of and time required to conduct these studies. In addition, these third parties might not
conduct our clinical trials in accordance with regulatory requirements. The failure of any contractor to carry out its contractual duties could delay or increase the cost of the successful development and commercialization of talabostat.



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If Tufts University School of Medicine terminates our license, we could experience delays or be
unable to complete the development and commercialization of our potential products

We license key technology including the rights
to talabostat, our lead product, from Tufts. The underlying license for this technology terminates on the later of the expiration date of the last-to-expire patents, or 20 years from the date of initial commercial sale of the licensed product.
Termination of these licenses prior to or upon expiration of the term could force us to delay or discontinue our development and commercialization programs. Pursuant to the terms of the license, Tufts has the right to terminate the license prior to
expiration of the term upon a material breach of the license by us, our ceasing to do business or becoming insolvent, or our failure to sell a licensed product in the U.S. market by May 2011. If we do not meet our current clinical development,
regulatory and commercialization milestones prior to May 2011, it is possible that Tufts could seek to terminate or modify the terms of the license in a way which could have a material adverse effect on us. We have no assurance that we would be able
to license substitute technology in the future. Our inability to do so could impair our ability to conduct our business because we may lack the technology, the necessary rights to such technology, or the finances required, in each case, to develop
and commercialize our potential products.

We may fail to adequately protect or enforce our intellectual property rights, and our
products and processes may infringe the intellectual property rights of others

Protection of our compounds and technology owned or
licensed by us is essential to our business. Our policy is to protect our technology by, among other things, filing or causing to be filed on our behalf patent applications for technology relating to the development of our business. We own or have
licensed 18 issued U.S. patents and 24 pending U.S. patent applications. Most of these patents and patent applications relate to our oncology and diabetes technologies. If regulatory extensions are not taken into account, one U.S. patent expires in
2007; one U.S. patent and one application expire in 2011; one U.S. patent expires in 2012; and the remaining patents and applications expire in 2016 and beyond. We also own or have licensed foreign patents and patent applications corresponding to
most of the U.S. patents and patent applications. It is possible that no patents will be issued on our pending patent applications, and it is possible that our patent claims, now or in the future issued, will not be sufficient to protect our
products and technology, will not be sufficient to provide protection against competitive products, or otherwise will not be commercially valuable. Any patents issued to or licensed by us could be challenged, invalidated, infringed, circumvented or
held unenforceable.

Our commercial success will also depend in part on our ability to commercialize talabostat without infringing on the
patents or other proprietary rights of others. Talabostat or our other drug candidates may infringe current or future patents or other proprietary rights of others. To date, we have not received any communications from third parties nor are we aware
of any claims by third parties that our use of talabostat or any of our other activities infringe upon the patent or other proprietary rights of any third party. However, we cannot assure you that other companies or individuals have not or will not
independently develop substantially equivalent proprietary rights or that other parties have not or will not be issued patents that may prevent the sale of our products or require licensing and the payment of significant fees or royalties in order
for us to be able to carry on our business. If we are successful in the preclinical and clinical development of PT-630, our lead drug candidate for the treatment of type 2 diabetes, to market and sell that drug we may need to obtain at least a
non-exclusive license for relevant use patents from third parties, and there can be no assurance that we will be able to obtain that license on economically favorable terms, or at all. We from time to time engage in discussions with Tufts, other
licensors, vendors and other parties about the scope and enforceability of our contractual rights that may include utilization of dispute resolution procedures contained in applicable agreements. Otherwise, we have not notified any third party that
they are infringing any of our proprietary rights.

Litigation or other legal proceedings could result in substantial costs to us and may
be necessary to enforce any of our patents or other proprietary rights or to determine the scope and validity or enforceability of other parties proprietary rights. The defense and enforcement of patent and intellectual property claims are
both costly and time consuming, even if the legal outcome is favorable to us. Any adverse legal outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require us to cease
manufacturing or selling our future products.

Our employees, consultants and advisors are required to enter into written confidentiality
agreements that prohibit the disclosure or use of confidential information. We also have entered into written confidentiality agreements that are intended to protect our confidential information delivered to third parties for research and other
purposes. However, these agreements could be breached, and we may not have adequate remedies for any breach, or our trade secrets and proprietary information could otherwise become known or be independently discovered by others. We have not notified
any person of a violation of a confidentiality agreement that has materially harmed our business.



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If our competitors reach the market sooner or develop products and technologies that are more
effective, less costly, or have reduced side effects, our commercial opportunity will be reduced or eliminated

The pharmaceutical
and biotechnology industries are intensely competitive. There are existing products on the market, including generics, that are used for the treatment of subjects with the same indications talabostat is intended to target including, among others,
Novartis Proleukin®, Bayers
DTIC-Dome®, Sanofi-Aventis Taxotere®, Bristol-Myers Squibbs Paraplatin® and Platinols AQ®, AstraZenecas Iressa®, GSKs Bexxar®, OSI Pharmaceuticals / Genentechs Tarceva®, Eli Lillys Alimta® and Gemzar®, Genzyme / Berlexs Campath®, Biogen-IDECs Zevalin® and Roche / Genentech / Biogen-IDECs Rituxan® / MabThera®. There are also several other potential competitive novel products in development at other companies as well as currently approved products that are
being developed for additional indications that may be competitive with talabostats indications including, among others, Onyx / Bayers Nexavar®, Genentechs Avastin®, ImClones Erbitux®, Sanofi-Aventis Eloxatin®, and Millenniums Velcade®. If any of these products are successful in clinical trials, we may experience additional competition. Because talabostat is still in clinical
development, we do not have the sales, marketing, manufacturing or distribution capabilities necessary to compete with well-established companies. If talabostat is approved by the FDA for one or more therapeutic applications, we may enter into
collaboration agreements with one or more established companies in order to compete in the marketplace. There can be no assurances that we would be able to successfully enter into any such collaboration with third parties or that any such
collaborations would be entered into on terms satisfactory to us.

There are also many public and private pharmaceutical companies,
biotechnology companies, public and private universities, governmental agencies and research organizations actively engaged in drug discovery and research and development of products for the treatment of subjects with the same indications that
talabostat is intended to target. Many of these organizations have financial, technical, regulatory, patenting, manufacturing and marketing resources that are greater than ours. If a competitor were to successfully develop or acquire rights to a
similar or more effective treatment of subjects with the same indications talabostat is intended to target or one that has reduced side effects or offers significantly lower costs of treatment, or successfully enters the market in advance of us with
a similar or superior therapy, our business, financial condition or results of operations could be materially adversely affected. We cannot provide assurances that research and development by others will not render our technology or talabostat
obsolete or non-competitive or result in treatments superior to any therapy or drug developed by us, or that any drug or therapy developed by us will be preferred to any existing or newly developed technologies.

Our manufacturing strategy presents a number of risks

We do not currently have our own manufacturing facilities. We depend on outside contractors for the manufacture of talabostat. Completion of our clinical trials and the commercialization of talabostat will require
sufficient access to these external manufacturing capabilities.

Our outside contractors may give greater priority to other products or for
other reasons may fail to manufacture or deliver the required supply of talabostat in a cost-effective or timely manner. Our current and future manufacturers are and will be subject to ongoing periodic unannounced inspection by the FDA and
corresponding state and foreign agencies for compliance with strictly enforced good manufacturing practice regulations and similar state and foreign standards, and we do not have control over our third-party manufacturers compliance with these
regulations and standards.

Any of these factors could in the future delay clinical trials or commercialization of talabostat, interfere
with sales, entail higher costs or result in us being unable to effectively sell our products. To the extent that we are reliant on a sole source of supply of talabostat, any interruption in that supply could delay us in effectively developing,
testing and commercializing the drug.

Our ability to generate revenues will be diminished if talabostat is not accepted in the
marketplace, if we fail to obtain acceptable prices or if adequate reimbursement is not available for talabostat from third-party payors

There are competing products to talabostat already in the market for the treatment of each therapeutic indication we are currently pursuing in clinical trials. Even if approved for sale and distribution for one or more therapeutic
indications, talabostat might not achieve market acceptance for such indications or remain on the market. Talabostat may be rejected by the marketplace due to many factors, including cost and the perceived risks versus the benefits of talabostat.
Physicians, subjects, payors or the medical community in general may be unwilling to accept, prescribe, utilize, recommend or reimburse for talabostat for such indications. Our ability to commercialize our drugs may be limited due to the continuing
efforts of government and third-party payors to contain or reduce the costs of health care through various means. For example, in many markets outside the United States, the pricing and profitability of prescription pharmaceuticals are subject to
government control. In the United States, we expect that there will continue to be federal and state proposals to implement additional government control. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003
provides a



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new Medicare prescription drug benefit that began in 2006 and mandates other reforms. Although we cannot predict the full effects on our business of the
implementation of this new legislation, it is possible that the new benefit will result in decreased reimbursement for prescription drugs which may further exacerbate industry-wide pressure to reduce the prices charged for prescription drugs. This
could harm our ability to market talabostat and generate revenues.

Also, increasing emphasis on managed care in the United States and the
possibility of government regulation of prescription drug prices will likely continue to put additional pressure on the pricing of pharmaceutical products.

Cost control initiatives could decrease the price that we might otherwise achieve for talabostat in the future. Further, cost control initiatives could adversely affect our ability to commercialize talabostat and our
ability to realize profits and revenues from this commercialization.

Our ability to commercialize pharmaceutical products, alone or with
distributors or others, may depend in part on the extent to which reimbursement for the products will be available from:



| |  |  | government and health administration authorities;
| | - |  | -------------------------------------------------



| |  |  | private health insurers; and
| | - |  | ----------------------------



| |  |  | other third-party payors.
| | - |  | -------------------------

Significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Third-party payors, including Medicare, are challenging the prices charged for medical products and services. Government and other
third-party payors increasingly are attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for disease
indications for which the FDA has not granted labeling approval. Third-party insurance coverage may not be available to subjects for any products we discover and develop, alone or with our strategic alliance partners. If government and other
third-party payors do not provide adequate coverage and reimbursement levels for talabostat, the market acceptance of these products may be reduced.

We have used hazardous chemicals and radioactive and biological materials in our business; any disputes relating to improper use, handling, storage or disposal of these materials could be time-consuming and
costly

Our preclinical and clinical operations involved the use of certain hazardous materials, including certain chemicals and
radioactive and biological materials. The hazardous materials used most frequently by us in our operations included sodium chromate containing chromium-51 (51 Cr), nucleotides containing phosphorus-32 (32 P) and phenol. Our operations also
produced hazardous waste products. We are subject to the risk of accidental contamination or discharge or any resultant injury from these materials, and we do not maintain liability insurance for contamination or injury resulting from the use of the
materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these materials. We could be subject to damages, fines and penalties in the event of an improper or unauthorized release of, or
exposure of individuals to, these hazardous materials, and our liability could exceed our total assets. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our business. To
date, our compliance costs with respect to environmental laws and regulations have been minimal.

We may be sued for product or
operational liability

We may be held liable if any of our products or operations cause injury or death or are found otherwise
unsuitable during product testing, manufacturing, marketing or sale. We currently maintain a $2 million general liability policy and a $5 million per occurrence and annual aggregate product liability insurance policy related to our
clinical trials consistent with industry standards. When necessary for our products, we intend to obtain additional product liability insurance. Insurance coverage may be prohibitively expensive, may not fully cover our potential liabilities or may
not be available in the future. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of our products. If we are sued
for any injury caused by our products, the litigation could consume substantial time and attention of our management and our liability could exceed our total assets.

If we cannot attract or retain key personnel, we may be unable to develop talabostat or achieve our commercialization objectives

Our success depends on our ability to attract, retain and motivate highly qualified management and scientific personnel who are able to work
collaboratively across multiple disciplines, including financial, legal, scientific, clinical and regulatory, to execute our business plans and strategies effectively. We cannot provide assurances that we will be able to attract, retain or motivate
personnel or develop or maintain such relationships. The loss of any key personnel may have a disruptive effect on our operations until they can be replaced and may have a material disruptive effect on our product development and commercialization
efforts if we are unable to recruit qualified replacements.



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We have contingent liabilities relating to our historical discontinued operations that could give
rise to liability risks in the future

Prior to the sale of substantially all of our non-cash assets to Whatman Bioscience, Inc.
(Whatman) in May of 2001, we were engaged in the business of developing and supplying blood filtration devices. Although Whatman contractually assumed and agreed to indemnify us and hold us harmless from and against most liabilities and
obligations arising out of the conduct of our blood filtration business, we retained certain known and unknown risks that were not contractually assumed by Whatman including without limitation, (i) any of our liabilities under any benefit plan,
(ii) tax liabilities incurred which relate to periods prior to the closing of the Whatman transaction, (iii) accounts payable arising prior to the closing of the Whatman transaction, (iv) any of our liabilities which were owed to our
security holders in their capacity as such, and (v) our liabilities which were owed to Sepracor, Inc. arising or resulting from its respective contractual relationships with us. If for any reason Whatman, or its successors, is not able to
satisfy any of the assumed liabilities, such outcome could have a material and adverse effect on our financial condition. Accordingly, there can be no assurances that claims arising out of our historical business and operations would not be asserted
against us in the future and, if asserted, there can be no assurances that we would prevail.

The subsequent sale of a substantial
number of shares of our common stock could cause our stock price to decline and cause our stockholders to experience substantial dilution

In total, certain entities and individuals hold existing warrants to purchase up to 3,962,492 shares of our common stock at a weighted-average exercise price of $2.60 as of May 4, 2007. In addition, certain entities and individuals hold
existing options to purchase 4,702,103 shares of our common stock at an average exercise price of $3.41 as of May 4, 2007. The exercise and subsequent sale of a substantial amount of these warrants and options could adversely affect the market price
of our common stock. To the extent we raise additional capital by issuing equity securities, all stockholders may experience substantial dilution.

Our stock price could be volatile and our trading volume may fluctuate substantially

The price of our common stock
has been and may in the future continue to be extremely volatile, with the sale price fluctuating from a low of $0.36 to a high of $4.99 in the two-year period ended May 4, 2007. Many factors could have a significant impact on the future price of
our common stock, including:



| |  |  | progress or results of any of our clinical trials, in particular any announcements regarding the progress or results of our clinical trials for talabostat;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | progress of regulatory approval of our product candidate, talabostat, and compliance with ongoing regulatory requirements;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to raise additional capital to fund our operations, whether through the issuance of equity securities or debt;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to consummate a strategic transaction to ensure the continued funding of our operations, including corporate collaborations, merger and acquisition
activities and consolidations;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | market acceptance of our product candidates;
| | - |  | --------------------------------------------



| |  |  | technological innovations, new commercial products or drug discovery efforts and preclinical and clinical activities by us or our competitors;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in our intellectual property portfolio or developments or disputes concerning the proprietary rights of our product candidates;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to obtain component materials and successfully enter into and maintain manufacturing relationships for our product candidates;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | maintenance of our existing licensing agreement with Tufts;
| | - |  | -----------------------------------------------------------



| |  |  | changes in government regulations;
| | - |  | ----------------------------------



| |  |  | issuance of new or changed securities analysts reports or recommendations;
| | - |  | ---------------------------------------------------------------------------



| |  |  | general economic conditions and other external factors;
| | - |  | -------------------------------------------------------



| |  |  | actual or anticipated fluctuations in our quarterly financial and operating results; and
| | - |  | ----------------------------------------------------------------------------------------



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| |  |  | degree of trading liquidity in our common stock.
| | - |  | ------------------------------------------------

In addition, the stock market has from time to time experienced extreme price and volume fluctuations which may be unrelated to the operating performance of particular companies. For the three month period ended May
4, 2007, the daily trading volume for shares of our common stock ranged from 20,200 to 1,580,300 shares traded per day, and the average daily trading volume during such three month period was 324,335 shares traded per day. Accordingly, our investors
who wish to dispose of their shares of common stock on any given trading day may not be able to do so or may be able to dispose of only a portion of their shares of common stock.



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|Item 6. | Exhibits
|------- | --------



|               |  |                                                                                                                                         
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                             
|               | 
|31.1           |  | Certification of Donald R. Kiepert, Jr. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 10, 2007, filed herewith.  
|               | 
|31.2           |  | Certification of Richard N. Small pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 10, 2007, filed herewith.        
|               | 
|32.1           |  | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant
has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.



|                   |  |  |  |                          |  |                              
|------------------ |  |  |  | ------------------------ |  | -----------------------------
|                   |  |  |  | POINT THERAPEUTICS, INC.
|                   |  |  | 
|Date: May 10, 2007 |  |  |  | By:                      |  | /S/    DONALD R. KIEPERT, JR.
|                   |  |  |  |                          |  | Donald R. Kiepert, Jr.       
|                   |  |  |  |                          |  | Chief Executive Officer      
|                   |  | 
|                   |  |  |  | POINT THERAPEUTICS, INC.
|                   |  |  | 
|Date: May 10, 2007 |  |  |  | By:                      |  | /S/    RICHARD N. SMALL      
|                   |  |  |  |                          |  | Richard N. Small             
|                   |  |  |  |                          |  | Chief Financial Officer      



25