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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark one)

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



FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004



OR



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



Commission File Number: 0-19410



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POINT THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 04-3216862                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|125 SUMMER STREET BOSTON, MASSACHUSETTS                        |  | 02110                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          



(617) 933-2130

Registrants Telephone Number, Including Area Code



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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.    x  Yes ̈No



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). ̈Yes    x  No



As of November 9, 2004, there were 18,255,798 shares of the Registrants Common Stock, $0.01 par value per share, outstanding.



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##### Table of Contents

POINT THERAPEUTICS, INC. AND SUBSIDIARIES



(A Development Stage Company)



QUARTERLY REPORT ON
FORM 10-Q



INDEX



|                                                                                                                                                                                                      |  |            |  |   
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- |  | --
|                                                                                                                                                                                                      |  | PageNumber
|PART I.
FINANCIAL INFORMATION                                                                                                                                                                         |  |           
|                                                                                                                                                                                                      | 
|Item 1.
Financial Statements (unaudited)                                                                                                                                                              |  |           
|                                                                                                                                                                                                      | 
|Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003                                                                                                                            |  | 3         
|                                                                                                                                                                                                      | 
|Consolidated Statements of Operations For The Three and Nine Month Periods Ended September 30, 2004 and 2003 and For The Period From September 3, 1996 (Date of Inception) Through September 30, 2004 |  | 4         
|                                                                                                                                                                                                      | 
|Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 2004 and 2003 and For The Period From September 3, 1996 (Date of Inception) Through September 30, 2004           |  | 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                                                                                                                                    |  |            |  | 22
|                                                                                                                                                                                                      |  |           
|Item 4.
Controls and Procedures                                                                                                                                                                       |  |            |  | 22
|                                                                                                                                                                                                      |  |           
|PART II.
OTHER INFORMATION                                                                                                                                                                            |  |            |  |   
|                                                                                                                                                                                                      |  |           
|Item 4.
Submission of Matters to a Vote of Security Holders                                                                                                                                           |  |            |  | 23
|                                                                                                                                                                                                      |  |           
|Item 6.
Exhibits                                                                                                                                                                                      |  |            |  | 23
|                                                                                                                                                                                                      |  |           
|SIGNATURES                                                                                                                                                                                            |  |            |  | 24



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



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



POINT THERAPEUTICS, INC. AND SUBSIDIARIES

(A Development Stage Company)



CONSOLIDATED BALANCE SHEETS

(unaudited)



|                                                                                                                                                                                                                           |  |                    |             |   |                  |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                                                                           |  | September 30, 2004 |             |   | December 31,2003 |  
|ASSETS                                                                                                                                                                                                                     |  |                    |             |   |                  |   |             |  
|Current assets:                                                                                                                                                                                                            |  |                    |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                                                                                                                  |  | $                  | 17,883,119  |   |                  | $ | 14,062,104  |  
|Restricted cash                                                                                                                                                                                                            |  |                    | 86,001      |   |                  |   | 80,168      |  
|Prepaid expenses and other current assets                                                                                                                                                                                  |  |                    | 502,059     |   |                  |   | 413,941     |  
|                                                                                                                                                                                                                           |  |                    |             |   |                  |   |             |  
|Total current assets                                                                                                                                                                                                       |  |                    | 18,471,179  |   |                  |   | 14,556,213  |  
|Office and laboratory equipment, net                                                                                                                                                                                       |  |                    | 220,692     |   |                  |   | 243,056     |  
|Deposits and other assets                                                                                                                                                                                                  |  |                    | 14,598      |   |                  |   | 37,373      |  
|                                                                                                                                                                                                                           |  |                    |             |   |                  |   |             |  
|Total assets                                                                                                                                                                                                               |  | $                  | 18,706,469  |   |                  | $ | 14,836,642  |  
|                                                                                                                                                                                                                           |  |                    |             |   |                  |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                       |  |                    |             |   |                  |   |             |  
|Current liabilities:                                                                                                                                                                                                       |  |                    |             |   |                  |   |             |  
|Accounts payable                                                                                                                                                                                                           |  | $                  | 846,714     |   |                  | $ | 438,475     |  
|Accrued clinical                                                                                                                                                                                                           |  |                    | 1,122,971   |   |                  |   | 184,531     |  
|Accrued expenses                                                                                                                                                                                                           |  |                    | 359,426     |   |                  |   | 305,226     |  
|                                                                                                                                                                                                                           |  |                    |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                                                                                  |  |                    | 2,329,111   |   |                  |   | 928,232     |  
|Patent liability, less current portion                                                                                                                                                                                     |  |                    | 47,604      |   |                  |   | 52,367      |  
|Stockholders equity:                                                                                                                                                                                                      |  |                    |             |   |                  |   |             |  
|Preferred stock, $0.01 par value, 1,000,000 shares authorized; no shares issued or outstanding as of September 30, 2004 and December 31,
2003                                                                              |  |                    |            |   |                  |   |            |  
|Common stock, $0.01 par value, 75,000,000 shares authorized, 18,427,875 shares issued and 18,255,798 outstanding at September 30, 2004 and
14,976,925 shares issued and 14,875,756 shares outstanding at December 31, 2003 |  |                    | 184,279     |   |                  |   | 149,769     |  
|Treasury stock, at cost, 172,077 shares as of September 30, 2004 and 101,169 shares as of December 31, 2003                                                                                                                |  |                    | (767,338    | ) |                  |   | (331,936    | )
|Additional paid-in capital                                                                                                                                                                                                 |  |                    | 51,885,895  |   |                  |   | 38,574,572  |  
|Deficit accumulated during the development stage                                                                                                                                                                           |  |                    | (34,973,082 | ) |                  |   | (24,536,362 | )
|                                                                                                                                                                                                                           |  |                    |             |   |                  |   |             |  
|Total stockholders equity                                                                                                                                                                                                 |  |                    | 16,329,754  |   |                  |   | 13,856,043  |  
|                                                                                                                                                                                                                           |  |                    |             |   |                  |   |             |  
|Total liabilities and stockholders equity                                                                                                                                                                                 |  | $                  | 18,706,469  |   |                  | $ | 14,836,642  |  
|                                                                                                                                                                                                                           |  |                    |             |   |                  |   |             |  



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



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POINT THERAPEUTICS, INC. AND SUBSIDIARIES

(A Development Stage Company)



CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                                                          |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  
|------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | --------------------------- | - | ---------- | --------------------------------------------------------------------- |  | - | ----------- | - |  | - | ---------- | - |  | - | ----------- | -
|                                                                          |  | Three months ended Sept. 30, |            |   | Nine months ended Sept. 30, |   |            | Period fromSeptember 3, 1996(date of
inception)through Sept. 30, 2004 | 
|                                                                          |  | 2004                         |            |   | 2003                        |   |            | 2004                                                                  |  |   | 2003        |   | 
|REVENUES                                                                  |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  
|License revenue                                                           |  | $                            |           |   |                             | $ |           |                                                                       |  | $ |            |   |  | $ | 96,150     |   |  | $ | 5,115,041   |  
|Sponsored research revenue                                                |  |                              |           |   |                             |   |           |                                                                       |  |   |            |   |  |   |           |   |  |   | 2,400,000   |  
|                                                                          |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  
|Total revenues                                                            |  |                              |           |   |                             |   |           |                                                                       |  |   |            |   |  |   | 96,150     |   |  |   | 7,515,041   |  
|                                                                          |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  
|OPERATING EXPENSES                                                        |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  
|Research and development                                                  |  |                              | 3,398,493  |   |                             |   | 1,303,898  |                                                                       |  |   | 7,628,886   |   |  |   | 3,844,183  |   |  |   | 28,528,036  |  
|General and administrative                                                |  |                              | 941,920    |   |                             |   | 615,141    |                                                                       |  |   | 2,906,753   |   |  |   | 1,711,027  |   |  |   | 14,958,866  |  
|                                                                          |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  
|Total operating expenses                                                  |  |                              | 4,340,413  |   |                             |   | 1,919,039  |                                                                       |  |   | 10,535,639  |   |  |   | 5,555,210  |   |  |   | 43,486,902  |  
|                                                                          |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  
|Loss from operations                                                      |  |                              | (4,340,413 | ) |                             |   | (1,919,039 | )                                                                     |  |   | (10,535,639 | ) |  |   | (5,496,060 | ) |  |   | (35,971,861 | )
|                                                                          |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  
|INTEREST INCOME, NET                                                      |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  
|Interest income                                                           |  |                              | 46,530     |   |                             |   | 11,069     |                                                                       |  |   | 98,919      |   |  |   | 53,378     |   |  |   | 1,081,431   |  
|Interest expense                                                          |  |                              |           |   |                             |   |           |                                                                       |  |   |            |   |  |   |           |   |  |   | (82,652     | )
|                                                                          |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  
|Total interest income, net                                                |  |                              | 46,530     |   |                             |   | 11,069     |                                                                       |  |   | 98,919      |   |  |   | 53,378     |   |  |   | 998,779     |  
|                                                                          |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  
|NET LOSS                                                                  |  | $                            | (4,293,883 | ) |                             | $ | (1,907,970 | )                                                                     |  | $ | (10,436,720 | ) |  | $ | (5,405,682 | ) |  | $ | (34,973,082 | )
|                                                                          |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  
|BASIC AND DILUTED NET LOSS PER COMMON SHARE                               |  | $                            | (0.24      | ) |                             | $ | (0.21      | )                                                                     |  | $ | (0.61       | ) |  | $ | (0.58      | ) |  |   |             |  
|                                                                          |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  
|WEIGHTED AVERAGE COMMON SHARES FOR BASIC AND DILUTED NET LOSS COMPUTATION |  |                              | 18,254,331 |   |                             |   | 9,275,755  |                                                                       |  |   | 17,207,162  |   |  |   | 9,275,755  |   |  |   |             |  
|                                                                          |  |                              |            |   |                             |   |            |                                                                       |  |   |             |   |  |   |            |   |  |   |             |  



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



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POINT THERAPEUTICS, INC. AND SUBSIDIARIES

(A Development Stage Company)



CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                            |  |                                 |             |   |                                                               |   |            |   |  |   |             |  
|--------------------------------------------------------------------------- |  | ------------------------------- | ----------- | - | ------------------------------------------------------------- | - | ---------- | - |  | - | ----------- | -
|                                                                            |  | Nine months ended September 30, |             |   | Period frominception (September 3,1996) throughSept. 30, 2004 |  
|                                                                            |  | 2004                            |             |   | 2003                                                          |   |           
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |  |                                 |             |   |                                                               |   |            |   |  |   |             |  
|Net loss                                                                    |  | $                               | (10,436,720 | ) |                                                               | $ | (5,405,682 | ) |  | $ | (34,973,082 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                 |             |   |                                                               |   |            |   |  |   |             |  
|Depreciation                                                                |  |                                 | 80,544      |   |                                                               |   | 64,927     |   |  |   | 311,708     |  
|Stock-based compensation                                                    |  |                                 | 49,212      |   |                                                               |   | 45,435     |   |  |   | 273,891     |  
|Common stock issued under license agreement                                 |  |                                 |            |   |                                                               |   |           |   |  |   | 910,677     |  
|Patent costs                                                                |  |                                 |            |   |                                                               |   |           |   |  |   | 75,557      |  
|Accrued interest on convertible notes                                       |  |                                 |            |   |                                                               |   |           |   |  |   | 82,652      |  
|Changes in assets and liabilities:                                          |  |                                 |             |   |                                                               |   |            |   |  |   |             |  
|Restricted cash                                                             |  |                                 | (5,833      | ) |                                                               |   |           |   |  |   | (86,001     | )
|Prepaid expenses, other current assets and other assets                     |  |                                 | (65,343     | ) |                                                               |   | (326,799   | ) |  |   | (535,934    | )
|Accounts payable and accrued liabilities                                    |  |                                 | 1,400,879   |   |                                                               |   | (115,994   | ) |  |   | 2,326,667   |  
|                                                                            |  |                                 |             |   |                                                               |   |            |   |  |   |             |  
|Net cash used in operating activities                                       |  |                                 | (8,977,261  | ) |                                                               |   | (5,738,113 | ) |  |   | (31,613,865 | )
|CASH FLOWS FROM INVESTING ACTIVITIES                                        |  |                                 |             |   |                                                               |   |            |   |  |   |             |  
|Purchase of office and laboratory equipment                                 |  |                                 | (58,180     | ) |                                                               |   | (9,331     | ) |  |   | (532,400    | )
|                                                                            |  |                                 |             |   |                                                               |   |            |   |  |   |             |  
|Net cash used in investing activities                                       |  |                                 | (58,180     | ) |                                                               |   | (9,331     | ) |  |   | (532,400    | )
|CASH FLOWS FROM FINANCING ACTIVITIES                                        |  |                                 |             |   |                                                               |   |            |   |  |   |             |  
|Proceeds from issuance of common stock, net of issuance costs               |  |                                 | 12,137,228  |   |                                                               |   |           |   |  |   | 33,102,713  |  
|Proceeds from merger between Point and HMSR Inc.                            |  |                                 |            |   |                                                               |   |           |   |  |   | 14,335,285  |  
|Proceeds from issuance of convertible note                                  |  |                                 |            |   |                                                               |   |           |   |  |   | 1,892,904   |  
|Proceeds from warrant exercises                                             |  |                                 | 717,991     |   |                                                               |   |           |   |  |   | 717,991     |  
|Proceeds from stock option exercise                                         |  |                                 | 6,000       |   |                                                               |   |           |   |  |   | 6,000       |  
|Principal payments of patent liability                                      |  |                                 | (4,763      | ) |                                                               |   | (4,688     | ) |  |   | (25,509     | )
|                                                                            |  |                                 |             |   |                                                               |   |            |   |  |   |             |  
|Net cash provided by (used in) financing activities                         |  |                                 | 12,856,456  |   |                                                               |   | (4,688     | ) |  |   | 50,029,384  |  
|                                                                            |  |                                 |             |   |                                                               |   |            |   |  |   |             |  
|Net increase (decrease) in cash and cash equivalents                        |  |                                 | 3,821,015   |   |                                                               |   | (5,752,132 | ) |  |   | 17,883,119  |  
|Cash and cash equivalents, beginning of period                              |  |                                 | 14,062,104  |   |                                                               |   | 12,005,495 |   |  |   |            |  
|                                                                            |  |                                 |             |   |                                                               |   |            |   |  |   |             |  
|Cash and cash equivalents, end of period                                    |  | $                               | 17,883,119  |   |                                                               | $ | 6,253,363  |   |  | $ | 17,883,119  |  
|                                                                            |  |                                 |             |   |                                                               |   |            |   |  |   |             |  



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



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POINT THERAPEUTICS, INC. AND SUBSIDIARIES

(A Development Stage Company)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2004

(unaudited)



1. Nature of the Business



Point Therapeutics, Inc. (Point or the Company) is a
Boston-based biopharmaceutical company developing a family of dipeptidyl peptidase (DPP) inhibitors for a variety of cancers, certain hematopoietic disorders, type 2 diabetes and as vaccine adjuvants. Points lead product candidate, talabostat
(PT-100), is a small molecule drug currently in Phase 2 clinical trials. Talabostat is orally-active which, through a novel mechanism of action, has the potential to inhibit the growth of malignant tumors and to reconstitute the hematopoietic
system.



Point believes that talabostat and its other in-licensed dipeptidyl
peptidase (DPP) inhibitors represent a large market opportunity because of their wide range of potential applications, including:



| |  | Cancers: talabostat is being tested in clinical trials for use as a single agent and in combination with chemotherapeutic agents and monoclonal antibodies to treat both solid tumors
and hematologic malignancies. Talabostat could also be used in combination with cancer vaccines;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Hematopoietic Disorders: talabostat is being tested in clinical trials to treat both neutropenia and anemia;
| | - | ------------------------------------------------------------------------------------------------------------



| |  | Type 2 Diabetes: Points preclinical product candidate, PT-630, is being tested as a high affinity DPP-4 inhibitor to treat type 2 diabetes; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Vaccine Adjuvants: Points preclinical product candidate, PT-510, is being tested as an adjuvant to improve the response to different vaccine regimens.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



The strategy of Points current clinical
development program is to develop the full range of potential commercial applications of talabostat with resource priorities given to the fastest-to-market applications. In 2004, Point initiated four Phase 2 clinical trials of talabostat. The trials
are studying talabostat in combination with Taxotere® for the treatment of advanced non-small cell lung cancer (NSCLC), talabostat as a single agent to treat advanced metastatic melanoma, talabostat in combination with cisplatin to treat advanced metastatic melanoma, and
talabostat in combination with rituximab to treat advanced chronic lymphocytic leukemia (CLL). Point plans to announce the detailed results of its Phase 1 clinical study to test the safety and efficacy of talabostat in combination with rituximab in
subjects with hematologic malignancies, such as non-Hodgkins lymphoma (NHL) at the American Society of Hematology Annual Meeting in December of this year. Point is also clinically developing talabostat as a potential therapy for the treatment
of hematopoietic disorders.



The Companys portfolio also
includes two other DPP inhibitors in preclinical developmentPT-630 for type 2 diabetes, and PT-510 as a vaccine adjuvant. PT-630 has a high affinity for DPP-4 which is currently being developed by several pharmaceutical companies as a
promising therapy to treat type 2 diabetes. PT-630 has demonstrated the ability in vitro to rapidly inhibit DPP-4 for a prolonged duration. Through its ability to inhibit DPP-4, PT-630 could maintain active GLP-1, thus lowering blood glucose
in type 2 diabetes. The Companys second preclinical DPP inhibitor, PT-510 is being developed as a potential vaccine adjuvant for both cancer and infectious disease. The Company has preclinical proof of principle data that indicates PT-510
upregulates cytokines and chemokines which are believed to be critical for the induction of an immune response.



In addition to these product opportunities, Point, from time to time evaluates new technology to broaden its portfolio of potential products, including
in-licensing, collaboration arrangements, as well as more expansive corporate relationships, including mergers and acquisitions.



The Companys principal executive office is located at 125 Summer Street, Boston, Massachusetts, 02110 and the telephone number is (617) 933-2130.
The shares of Points common stock trade on the NASDAQ SmallCap Market under the symbol POTP. Points website address is www.pther.com.



On November 15, 2001, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Point Massachusetts. On March 15,
2002, the Companys stockholders approved a 1 for 10 reverse split of HMSRs common stock and a name change from HMSR to Point Therapeutics, Inc. The stockholders of Point Massachusetts also approved on March 15, 2002 the Merger Agreement,
at which time Point Massachusetts became a wholly owned subsidiary of the Company and changed its name to Point Therapeutics Massachusetts, Inc.



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The historical financial statements of the Company presented prior to March 15, 2002 are those of Point
Massachusetts. Point Massachusetts capital structure has been restated to reflect all stock issuances as if the merger had taken place prior to all periods presented. In addition, if the merger with HMSR had occurred at the beginning of the
periods presented, the effect of the inclusion of HMSR operating results on the financial statements presented would not be material.



For additional information regarding the terms of the merger, please refer to the Companys Form S-4, which was filed with the Securities and
Exchange Commission on February 11, 2002.



The Companys
business operations after the merger consist solely of the business previously conducted by Point Massachusetts.



2. Significant Accounting Policies



Unaudited Interim Financial Statements



The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United
States and applicable Securities and Exchange Commission (the SEC) regulations for interim financial information. These financial statements are unaudited and, in the opinion of management, include all adjustments necessary to present
fairly the balance sheets, statements of operations, and statements of cash flows for the periods presented in accordance with accounting principles generally accepted in the United States. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to SEC rules and regulations. It is presumed that users of this interim financial
information have read or have access to the audited financial statements and footnote disclosure of Point for the year ended December 31, 2003, contained in Amendment No. 2 to Annual Report on Form 10-K/A filed with the Securities and Exchange
Commission on June 1, 2004. Operating results for the quarter and nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.



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.



Reclassifications



Certain amounts in prior periods have been reclassified to conform to the presentation as of September 30, 2004.



Net Loss Per Share



Basic and diluted net loss per common share amounts are presented in conformity with Statement of Financial Accounting
Standards No. (SFAS) 128, Earnings per Share, for all periods presented. In accordance with SFAS 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 and nine-month periods ended September 30, 2004 and 2003. Potentially dilutive securities, consisting of stock options of 3,188,221 and warrants of 4,100,143 outstanding at September 30, 2004 have been excluded
from the diluted earnings per share calculations since their effect is antidilutive.



Stock-Based Compensation



Point accounts for
its stock-based plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and provides pro forma disclosures of the compensation expense determined under the fair value provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation as amended by Statement of Financial Accounting Standards No. 148 Accounting for Stock-Based Compensation  Transition and Disclosure
(SFAS No. 148).



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Pro forma information regarding net income and earnings per share is required by SFAS No. 148, which also
requires that the information be determined as if Point had accounted for its employee stock options granted subsequent to January 28, 1995 under the fair value method of that Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option-pricing model. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period. Points pro forma information follows:



|                                                                                                                                                                                        |  |                              |            |   |      |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                                                        |  | Three Months Ended Sept. 30, |           
|                                                                                                                                                                                        |  | 2004                         |            |   | 2003 |  
|Net loss, as reported                                                                                                                                                                   |  | $                            | (4,293,883 | ) |      | $ | (1,907,970 | )
|Deduct: Non-employee stock compensation cost included in net loss as reported                                                                                                           |  |                              | 16,404     |   |      |   | 18,640     |  
|Add: Stock based employee compensation cost that would have been included in the determination of net loss as reported if the fair value
method had been applied to all employee awards |  |                              | (433,420   | ) |      |   | (171,108   | )
|                                                                                                                                                                                        |  |                              |            |   |      |   |            |  
|Pro forma net loss                                                                                                                                                                      |  | $                            | (4,710,899 | ) |      | $ | (2,060,438 | )
|                                                                                                                                                                                        |  |                              |            |   |      |   |            |  
|Diluted net loss per share, as reported                                                                                                                                                 |  | $                            | (0.24      | ) |      | $ | (0.21      | )
|                                                                                                                                                                                        |  |                              |            |   |      |   |            |  
|Diluted net loss per share, pro forma                                                                                                                                                   |  | $                            | (0.26      | ) |      | $ | (0.22      | )
|                                                                                                                                                                                        |  |                              |            |   |      |   |            |  



|                                                                                                                                                                                        |  |                             |             |   |      |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----------- | - | ---- | - | ---------- | -
|                                                                                                                                                                                        |  | Nine Months Ended Sept. 30, |            
|                                                                                                                                                                                        |  | 2004                        |             |   | 2003 |  
|Net loss, as reported                                                                                                                                                                   |  | $                           | (10,436,720 | ) |      | $ | (5,405,682 | )
|Deduct: Non-employee stock compensation cost included in net loss as reported                                                                                                           |  |                             | 49,212      |   |      |   | 45,435     |  
|Add: Stock based employee compensation cost that would have been included in the determination of net loss as reported if the fair value
method had been applied to all employee awards |  |                             | (838,627    | ) |      |   | (513,324   | )
|                                                                                                                                                                                        |  |                             |             |   |      |   |            |  
|Pro forma net loss                                                                                                                                                                      |  | $                           | (11,226,135 | ) |      | $ | (5,873,571 | )
|                                                                                                                                                                                        |  |                             |             |   |      |   |            |  
|Diluted net loss per share, as reported                                                                                                                                                 |  | $                           | (0.61       | ) |      | $ | (0.58      | )
|                                                                                                                                                                                        |  |                             |             |   |      |   |            |  
|Diluted net loss per share, pro forma                                                                                                                                                   |  | $                           | (0.65       | ) |      | $ | (0.63      | )
|                                                                                                                                                                                        |  |                             |             |   |      |   |            |  



3. Common Stock



The Company sold equity securities in a private placement (the Private
Placement) that closed on March 26, 2004. The Company sold 3,000,000 shares of common stock (the Shares) at a price of $4.50 per share to new and existing institutional investors, resulting in gross proceeds to the Company of
$13,500,000. The investors in this Private Placement also received five-year warrants to purchase an additional 900,000 shares of common stock (the Investor Warrant Shares) at an exercise price of $6.25 per share. After agent fees,
related legal and accounting costs and registration fees totaling approximately $1,400,000, net proceeds to Point from the Private Placement were $12,100,000. Point also issued warrants to purchase 150,000 and 100,000 shares of common stock at a
price of $6.25 per share to RBC Capital Markets Corporation and Paramount BioCaptial, Inc., respectively, the placement agents in the transaction.



In connection with the Private Placement, the Company filed a registration statement with the SEC on April 23, 2004 for purposes of registering the
Shares. The registration statement, as amended, was declared effective by the SEC on June 24, 2004.



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4. License Revenue



On March 5, 2003, Whatman sold the non-cash assets it had previously purchased from HemaSure to Pall Corporation. In connection with that sale, the
ongoing patent litigation among Pall Corporation, Whatman and the Company was settled, and the litigation was dismissed, with prejudice, in the United States District Court in the Eastern District of New York and in the District of Colorado. From
March 15, 2002, the effective date of the merger of the Company and Point Massachusetts, through March 5, 2003, the effective date of the sale of the Whatman assets to Pall Corporation, $96,150 of net royalties was accrued and was payable to the
Company. During the nine-month period ended September 30, 2003, the Company recognized $96,150 of license revenue.



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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 below under the caption titled Certain Factors That May Affect
Future Operating Results.



Overview



We are a Boston-based biopharmaceutical company developing a family of
dipeptidyl peptidase (DPP) inhibitors for a variety of cancers, certain hematopoietic disorders, type 2 diabetes and as vaccine adjuvants. Our lead product candidate, talabostat (PT-100), is a small molecule drug in Phase 2 clinical trials.
Talabostat is orally-active which, through a novel mechanism of action, has the potential to inhibit the growth of malignant tumors and to reconstitute the hematopoietic system.



We believe that talabostat and our other in-licensed dipeptidyl peptidase (DPP) inhibitors represent a large market opportunity because of
their wide range of potential applications, including:



| |  | Cancers: talabostat is being tested in clinical trials for use as a single agent and in combination with chemotherapeutic agents and monoclonal antibodies to treat both solid tumors
and hematologic malignancies. Talabostat could also be used in combination with cancer vaccines;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Hematopoietic Disorders: talabostat is being tested in clinical trials to treat both neutropenia and anemia;
| | - | ------------------------------------------------------------------------------------------------------------



| |  | Type 2 Diabetes: our preclinical product candidate, PT-630, is being tested as a high affinity DPP-4 inhibitor to treat type 2 diabetes; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| |  | Vaccine Adjuvants: our preclinical product candidate, PT-510, is being tested as an adjuvant to improve the response to different vaccine regimens.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



The strategy of our current clinical development program is to develop the
full range of potential commercial applications of talabostat with priorities given to the fastest-to-market applications. In 2004, we initiated four Phase 2 clinical trials of talabostat. The trials are studying talabostat in combination with
Taxotere® for the treatment of advanced non-small
cell lung cancer (NSCLC), talabostat as a single agent to treat advanced metastatic melanoma, talabostat in combination with cisplatin to treat advanced metastatic melanoma, and talabostat in combination with rituximab to treat advanced chronic
lymphocytic leukemia (CLL). We plan to announce the detailed results of our Phase 1 clinical study to test the safety and efficacy of talabostat in combination with rituximab in subjects with hematologic malignancies, such as non-Hodgkins
lymphoma (NHL) at the American Society Hematology in December of this year. We are also clinically developing talabostat as a potential therapy for the treatment of hematopoietic disorders.



Our portfolio also includes two other DPP inhibitors in preclinical
developmentPT-630 for type 2 diabetes, and PT-510 as a vaccine adjuvant. PT-630 has a high affinity for DPP-4 which is currently being developed by several pharmaceutical companies as a promising therapy to treat type 2 diabetes. PT-630 has
demonstrated the ability in vitro to rapidly inhibit DPP-4 for a prolonged duration. Through its ability to inhibit DPP-4, PT-630 could maintain active GLP-1, thus lowering blood glucose in type 2 diabetes. Our second preclinical DPP
inhibitor, PT-510 is being developed as a potential vaccine adjuvant for both cancer and infectious disease. We have preclinical proof of principle data that indicates PT-510 upregulates cytokines and chemokines which are believed to be critical for
the induction of an immune response.



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



Our principal executive office is located at 125 Summer Street, Boston, Massachusetts, 02110 and our telephone number is
(617) 933-2130. The shares of our common stock trade on the NASDAQ SmallCap Market under the symbol POTP. Our website address is www.pther.com.



To date, we have generated no material revenues from product sales and have primarily depended upon equity financings, interest earned on invested funds,
and collaboration payments received from pharmaceutical companies to provide the working capital required to pursue our intended business activities. We have a net accumulated deficit of $34,973,000 as of September 30, 2004. The accumulated deficit
has resulted principally from our efforts to develop drug candidates and the associated 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 candidates, talabostat, PT-510 and PT-630 and to license and develop new pharmaceutical compounds.



We are the successor of a merger between Point Therapeutics,
Inc., a privately held Massachusetts corporation (Point Massachusetts), and HMSR Inc., a publicly-traded Delaware corporation (HMSR). Point Massachusetts was incorporated in September 1996 as a biopharmaceutical company to
develop small molecule drugs. HMSR was incorporated in December 1993 as a Delaware Corporation and from 1994 to May 2001 under the name HemaSure Inc., developed and supplied innovative blood filtration technologies. On May 28, 2001, HMSR sold
substantially all of its non-cash assets to a subsidiary of Whatman Plc (Whatman), a leader in separations technology, and then changed its name from HemaSure Inc. to HMSR Inc. From May 2001 until the merger on March 15, 2002 with Point
Massachusetts, HMSRs operations consisted primarily of investigating various strategic business combinations.



For additional information regarding the terms of the merger, please refer to our Form S-4, which was filed with the Securities and Exchange Commission
(the SEC) on February 11, 2002.



Our business operations
after the merger consist solely of the business previously conducted by Point Massachusetts.



Critical Accounting Policies and Significant Judgments and Estimates



Critical Accounting Policies



In December 2001, the SEC requested that all registrants list their most critical accounting policies in Managements Discussion and
Analysis of Financial Condition and Results of Operations. The SEC indicated that a critical accounting policy is one which is both important to the portrayal of our financial condition and results and requires managements most
difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our significant accounting policies are fully described in Note 2 to our consolidated financial
statements, included in our Amendment No. 2 to our Annual Report on Form 10-K/A filed with the SEC on June 1, 2004.



Revenue Recognition



Revenue is deemed earned when all of the following have occurred: there is persuasive evidence of an arrangement; 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.



Revenue from corporate collaborations is
earned based upon research expenses incurred and milestones achieved. Non-refundable payments 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 nine-month period ended September 30, 2003, we recognized $96,000 of license revenue relating to royalties payable to us as successor to HMSR following the merger. Royalty revenue is recognized upon the sale of the related products,
provided the royalty amounts are fixed or determinable and collection of the related receivable is reasonably assured.



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Clinical Trial Accrual



We accrue the estimated cost of patient recruitment and related supporting functions for our clinical trial as subjects are
enrolled in the trial. We accrue 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 clinical centers, investigators and subjects 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 would be
adjusted accordingly.



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 and the amount of expenses during the period. Such estimates include the carrying value of property and equipment and the value of certain liabilities. Actual results may differ from such estimates.



Results of Operations



Three-month period ended September 30, 2004 as compared to the three-month period ended September 30, 2003



|                           |  |                              |            |   |                |   |            |           |  |       |  
|-------------------------- |  | ---------------------------- | ---------- | - | -------------- | - | ---------- | --------- |  | ----- | -
|                           |  | Three Months Ended Sept. 30, |            |   | Percent Change |  
|                           |  | 2004                         |            |   | 2003           |   |            | 2004/2003 | 
|License revenue            |  | $                            |           |   |                | $ |           |           |  |      |  
|                           |  |                              |            |   |                |   |            |           |  |       |  
|Total revenue              |  |                              |           |   |                |   |           |           |  |      |  
|Research and development   |  |                              | 3,398,493  |   |                |   | 1,303,898  |           |  | 160.6 | %
|General and administrative |  |                              | 941,920    |   |                |   | 615,141    |           |  | 53.1  |  
|                           |  |                              |            |   |                |   |            |           |  |       |  
|Total operating expenses   |  |                              | 4,340,413  |   |                |   | 1,919,039  |           |  | 126.2 |  
|Interest income            |  |                              | 46,530     |   |                |   | 11,069     |           |  | 320.4 |  
|                           |  |                              |            |   |                |   |            |           |  |       |  
|Net loss                   |  | $                            | (4,293,883 | ) |                | $ | (1,907,970 | )         |  | 125.1 | %
|                           |  |                              |            |   |                |   |            |           |  |       |  



Nine-month
period ended September 30, 2004 as compared to the nine- month period ended September 30, 2003



|                           |  |                             |             |   |                |   |            |           |  |        |   
|-------------------------- |  | --------------------------- | ----------- | - | -------------- | - | ---------- | --------- |  | ------ | --
|                           |  | Nine Months Ended Sept. 30, |             |   | Percent Change |  
|                           |  | 2004                        |             |   | 2003           |   |            | 2004/2003 | 
|License revenue            |  | $                           |            |   |                | $ | 96,150     |           |  | (100.0 | )%
|                           |  |                             |             |   |                |   |            |           |  |        |   
|Total revenue              |  |                             |            |   |                |   | 96,150     |           |  | (100.0 | ) 
|Research and development   |  |                             | 7,628,886   |   |                |   | 3,844,183  |           |  | 98.5   |   
|General and administrative |  |                             | 2,906,753   |   |                |   | 1,711,027  |           |  | 69.9   |   
|                           |  |                             |             |   |                |   |            |           |  |        |   
|Total operating expenses   |  |                             | 10,535,639  |   |                |   | 5,555,210  |           |  | 89.7   |   
|Interest income            |  |                             | 98,919      |   |                |   | 53,378     |           |  | 85.3   |   
|                           |  |                             |             |   |                |   |            |           |  |        |   
|Net loss                   |  | $                           | (10,436,720 | ) |                | $ | (5,405,682 | )         |  | 93.1   | % 
|                           |  |                             |             |   |                |   |            |           |  |        |   



Revenue



We recorded no revenue during the three-month periods
ended September 30, 2004 and 2003. For the nine-month period ending September 30, 2003, we recorded license revenue totaling $96,000, representing royalties payable to us as successor to HMSR following the merger.



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Operating Expenses



Research and development



During the three and nine-month periods ended September 30, 2004 and 2003, the majority of our research and development
efforts have been focused on the preclinical and clinical development of talabostat for the treatment of solid tumors, hematologic malignancies and hematopoietic disorders. In addition, during the three and nine-month periods ended September 30,
2004, our efforts have included preclinical development of our product candidate PT-630 to treat type-2 diabetes and our product candidate PT-510 as a potential adjuvant to improve the response to different vaccine regimens. In 2004, we have
initiated four Phase 2 human clinical trial of talabostat. The trials are evaluating the safety and effectiveness of talabostat in combination with Taxotere®for the treatment of advanced NSCLC, talabostat as a single agent in advanced metastatic melanoma, talabostat in combination with
cisplatin to treat advanced metastatic melanoma and talabostat in combination with rituximab to treat advanced CLL.



In addition, a Phase 1 clinical study was performed in 2003/2004 to test the safety and efficacy of talabostat in combination with rituximab in subjects
with hematologic malignancies, such as NHL. We are also clinically developing talabostat as a potential therapy for the treatment of hematopoietic disorders and completed a Phase 1 talabostat human clinical study in chemotherapy induced neutropenic
subjects in 2004.



Research and development expenses increased
160.6% to $3,398,000 for the three-month period ended September 30, 2004 from $1,304,000 for the three-month period ended September 30, 2003. Research and development expenses increased 98.5% to $7,629,000 for the nine-month period ended September
30, 2004 from $3,844,000 for the nine-month period ended September 30, 2003.



|                               |  |                              |           |                |   |           |  |       |  
|------------------------------ |  | ---------------------------- | --------- | -------------- | - | --------- |  | ----- | -
|                               |  | Three months ended Sept. 30, |           | Percent Change |  
|Research and development       |  | 2004                         |           | 2003           |   | 2004/2003 | 
|Clinical development           |  | $                            | 2,888,244 |                | $ | 802,207   |  | 260.0 | %
|Preclinical development        |  |                              | 510,249   |                |   | 501,691   |  | 1.7   |  
|                               |  |                              |           |                |   |           |  |       |  
|Total research and development |  | $                            | 3,398,493 |                | $ | 1,303,898 |  | 160.6 | %
|                               |  |                              |           |                |   |           |  |       |  
|                               |  |                             
|                               |  | Nine months ended Sept. 30,  |           | Percent Change |  
|Research and development       |  | 2004                         |           | 2003           |   | 2004/2003 | 
|Clinical development           |  | $                            | 5,782,327 |                | $ | 2,284,511 |  | 153.1 | %
|Preclinical development        |  |                              | 1,846,559 |                |   | 1,559,672 |  | 18.4  |  
|                               |  |                              |           |                |   |           |  |       |  
|Total research and development |  | $                            | 7,628,886 |                | $ | 3,844,183 |  | 98.5  | %
|                               |  |                              |           |                |   |           |  |       |  



Clinical
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.



Clinical
development expenses increased 260.0% to $2,888,000 for the three-month period ended September 30, 2004 from $802,000 for the three-month period ended September 30, 2003. For the nine-month period ended September 30, 2004, clinical development
expenses increased 153.1% to $5,782,000 from $2,285,000 for the nine-month period ended September 30, 2003.



The increase in the three-month period ended September 30, 2004 as compared to the three-month period ended September 30, 2003 was primarily due to
increased external clinical and manufacturing costs ($1,844,000) due to the costs incurred for activities related to our Phase 2 clinical trials currently under way. We also added six employees during the first quarter of 2004 in order to internally
manage the clinical trial process for talabostat in place of utilizing outside contractors, bringing total employees in this area to nine.



The increase in the nine-month period ended September 30, 2004 as compared to the nine-month period ended September 30, 2003 was primarily due to
increased external clinical and manufacturing costs ($3,093,000) due to the costs incurred for the purchase of bulk drug, pre-study clinical activities and actual clinical trial costs related to our ongoing Phase 2 clinical trials. As noted above,



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we also added six employees during the first quarter of 2004 in order to internally manage the clinical trial process for
talabostat in place of utilizing outside contractors, bringing total employees in this area to nine. In addition, during the nine-month period ended September 30, 2004, a bonus paid to all employees which totaled approximately $111,000 in this area.
The increase for the first nine-months of 2004 as compared to the same period in 2003 was less than it would have been because of severance payments incurred for a former executive during the nine-month period ended September 30, 2003 totaling
approximately $250,000.



During the remainder of 2004, we
anticipate that our clinical development costs will continue to increase due to the four Phase 2 talabostat clinical studies in three different tumor types where talabostat is being studied in combination with chemotherapeutic agents and monoclonal
antibodies as well as a single agent anti-tumor therapeutic. In addition, we currently anticipate incurring post-study expenses for our Phase 1 talabostat/rituximab study during the fourth quarter of 2004.



Preclinical Development: Preclinical development includes expenses
associated with research and testing of our product 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.



Preclinical development expenses increased 1.7% to
$510,000 for the three-month period ended September 30, 2004 from $502,000 for the three-month period ended September 30, 2003. The slight increase was primarily due to salary increases for current employees during 2004.



Preclinical development expenses increased 18.4% to $1,847,000 for the
nine-month period ended September 30, 2004 from $1,560,000 for the nine-month period ended September 30, 2003. The increase was primarily due to a bonus paid to all employees which totaled approximately $159,000 in this area. In addition, lab
supplies and services increased by approximately $32,000 in the nine-month period ended September 30, 2004 as compared to the nine-month period ended September 30, 2003 to support the talabostat clinical program and preclinical research for our type
2 diabetes and vaccine adjuvant programs.



During the remainder
of 2004, we currently anticipate that preclinical expenses will remain approximately consistent with current spending levels as activities overall are expected to remain constant and total employees in this area to remain at seven.



General and administrative



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



General and administrative expenses increased 53.1% to $942,000 during the
three-month period ended September 30, 2004 from $615,000 for the three-month period ended September 30, 2003. The increase was primarily due to increased salaries and fringes of $104,000, patent expenses of $62,000, legal and audit expenses related
to Sarbanes-Oxley matters of $57,000, and investor relation and consultant costs of $45,000.



General and administrative expenses increased 69.9% to $2,907,000 during the nine-month period ended September 30, 2004 from $1,711,000 for the nine-month period ended September 30, 2003. Salaries and related fringes
increased by approximately $464,000 as compared to prior year due primarily due to a bonus paid to all employees which totaled approximately $251,000 in this area and the hiring of three additional employees in 2004. In addition, patent costs
increased by $237,000, investor relations, SEC, and consultant costs increased by approximately $243,000 and legal and audit expenses increased by $90,000 in the nine-month period ended September 30, 2004 as compared to the nine-month period ended
September 30, 2003.



During the remainder of 2004, we currently
anticipate that general and administrative expenses will increase from current levels as we plan to spend additional resources on legal and audit expenses for compliance with Sarbanes-Oxley and expand our business development and investor relation
efforts. We also added three additional employees in this area during the first nine months of 2004 bringing total employees in this area to eight.



Interest Income



Interest income includes interest earned on invested cash balances. During the nine-month periods ended September 30, 2004 and 2003, our investments
consisted entirely of funds deposited in money market funds.



Interest income increased 320.4% to $47,000 in the three-month period ended September 30, 2004 from $11,000 in the three-month period ended September 30, 2003. Interest income increased 85.3% to $99,000 in the nine-month period ended
September 30, 2004 from $53,000 in the nine-month period ended September 30, 2003. The increase in interest income in both periods resulted primarily from a higher average cash balance.



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##### Table of Contents

Net loss



As a result of the foregoing, we incurred a net loss of $4,294,000, or $0.24 per share, for the three-month period ended
September 30, 2004 compared to a net loss of $1,908,000, or $0.21 per share, for the three-month period ended September 30, 2003 and a net loss of $10,437,000 or $0.61 per share for the nine-month period ended September 30, 2004 as compared to a net
loss of $5,406,000 or $0.58 per share for the nine-month period ended September 30, 2003.



Liquidity and Capital Resources



We have financed our operations since inception principally through private placements of equity securities and collaboration payments received from pharmaceutical companies. Since our inception in September 1996, we have raised
approximately $34,996,000, net of costs of raising capital, in private equity financings and $7,515,000 from licensing and sponsored research collaborations with pharmaceutical companies. In addition, we received $14,335,000 as a result of the
merger between Point Massachusetts and HMSR in March 2002. We have also received $1,081,000 from interest earned in invested cash balances and $724,000 in proceeds from warrant and stock option exercises.



On March 26, 2004, we closed a private placement of 3,000,000 shares of
common stock at a price of $4.50 per share and five-year warrants to purchase an additional 900,000 shares of common stock at a price of $6.25 per share. Total gross proceeds were $13,500,000, offset by agent fees, related legal and accounting costs
and registration costs of approximately $1,400,000, resulting in net proceeds to us of $12,100,000. All of these costs were incurred through September 30, 2004. We also issued warrants to purchase 150,000 and 100,000 shares of common stock at a
price of $6.25 per share to RBC Capital Markets Corporation and Paramount BioCapital, Inc., respectively, the placement agents in the transaction.



As of September 30, 2004, our cash and cash equivalents increased $3,821,000 as compared to December 31, 2003. The increase was primarily due to net
proceeds totaling $12,100,000 resulting from the March 26, 2004 private placement and proceeds from warrant and stock option exercises of $724,000, offset in part by $8,977,000 used in operations for the nine-month period ended September 30, 2004,
primarily to support the clinical program for talabostat and other research and development initiatives. We also increased our investment in office and laboratory equipment by $58,000 from $474,000 at December 31, 2003 to $532,000 at September 30,
2004. The increase resulted from purchases of laboratory equipment, computers and furniture.



Since inception, we have incurred $28,528,000 in expenses on research and development activities. Almost all of our research and development efforts have been focused on the preclinical and clinical development of
talabostat for the treatment of a variety of cancers, certain hematopoietic disorders and hematologic malignancies. During 2004, we initiated two additional preclinical product opportunities, PT-630 for the treatment of type 2 diabetes and PT-510,
an adjuvant to improve the response to different vaccine regimens. Both PT-630 and PT-510 have required limited resources to date and thus the $28,528,000 disclosed for research and development in our financial statements has primarily been directed
towards developing talabostat. In 2004, we initiated four Phase 2 human clinical trials of talabostat. The trials are evaluating the safety and effectiveness of talabostat in combination with Taxotere® for the treatment of advanced non-small cell lung cancer, talabostat as a single agent
to treat advanced metastatic melanoma, talabostat in combination with cisplatin to treat advanced metastatic melanoma and talabostat in combination with rituximab to treat advanced CLL. We plan to announce the detailed results of our Phase 1
clinical study to test the safety and efficacy of talabostat in combination with rituximab in subjects with hematologic malignancies, such as NHL at the American Society of Hematology Annual Meeting in December of this year. We are also developing
talabostat as a potential therapy for the treatment of hematopoietic disorders. We recently completed a Phase 1 human clinical study in which subjects undergoing chemotherapy were treated with talabostat for neurtropenia. We cannot predict whether
the results of further testing will be successful or will result in FDA approvals. Thus, due to the uncertainties inherent in clinical testing and the regulatory process, we are not able to estimate at this time when talabostat, PT-630 or PT-510 may
be commercially available for any application, if at all, nor the costs associated with completing the clinical trial process.



Since inception, we have incurred operating expenses of $43,487,000 and have accumulated a deficit as of September 30, 2004 of $34,973,000. At September
30, 2004, we had $17,883,000 in cash and cash equivalents. We currently anticipate that our existing capital resources and interest to be received on invested cash balances should enable us to maintain current and planned operations into the second
half of 2005. Therefore, the accompanying financial statements have been prepared assuming that we will continue as a going concern. 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 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 operations during 2005. 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.



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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 significantly increase over the next several years as we continue with the clinical development of talabostat and potentially initiate human clinical trials for
additional clinical indications for talabostat, PT-630 and PT-510 and additional product candidates. The rate of spending and sufficiency of such resources will be affected by numerous factors including the success of our 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 September 30, 2004, we had future payments required under contractual obligations and other commitments approximately as follows:



|                         |  |                      |        |      |   |         |  |      |        |      |   |            |  |   |        |  |   |  
|------------------------ |  | -------------------- | ------ | ---- | - | ------- |  | ---- | ------ | ---- | - | ---------- |  | - | ------ |  | - | -
|                         |  | Payments Due By Year
|                         |  | Q4 2004              |        | 2005 |   | 2006    |  | 2007 |        | 2008 |   | Thereafter
|Operating Leases         |  | $                    | 64,000 |      | $ | 143,000 |  | $    | 15,000 |      | $ | 7,000      |  | $ |       |  | $ | 
|Licensing Obligations    |  |                      |       |      |   | 10,000  |  |      | 10,000 |      |   | 10,000     |  |   | 10,000 |  |   | 
|                         |  |                      |        |      |   |         |  |      |        |      |   |            |  |   |        |  |   |  
|Total Future Obligations |  | $                    | 64,000 |      | $ | 153,000 |  | $    | 25,000 |      | $ | 17,000     |  | $ | 10,000 |  | $ | 
|                         |  |                      |        |      |   |         |  |      |        |      |   |            |  |   |        |  |   |  



In addition, in
connection with the sublease for our offices at 125 Summer Street in Boston, we issued a letter of credit on April 11, 2002 in the amount of $80,168. The letter of credit is renewable annually on April 11thfor the term of the sublease with the landlord. We also issued an additional letter of credit on April 9, 2004 in the amount of $5,833, renewable annually on
April 9thfor the term of the sublease with the landlord.



Off-Balance Sheet Arrangements



We had no off-balance sheet arrangements as of September 30, 2004 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.



Certain Factors That May Affect Future Operating Results



We operate in a rapidly changing environment that involves a number of
risks, some of which are beyond our control. The following discussion highlights some of these risks and others are discussed elsewhere herein.



If we fail to obtain the capital necessary to fund our operations, we will be unable to successfully develop or commercialize talabostat (PT-100)



As of September 30, 2004, we had a cash balance of
approximately $18 million. We currently anticipate spending approximately between $1.5 and $2.0 million per month to fund our preclinical and clinical programs and related general and administrative activities. Our current cash balance is expected
to be sufficient to allow us to maintain current and planned operations into the second half of 2005. Therefore, additional funding of operations will be required in the first half of 2005. It is difficult to estimate at this time the additional
funds required to finance our operations as we are currently uncertain about 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 $43.5 million of expenses since inception through September 30, 2004, and expect our capital outlays and operating expenditures to increase over the next several years as
we expand our infrastructure and preclinical and clinical trial activities. We may raise these funds through corporate partnerships, the sale of securities in both public and private offerings as the markets allow, and merger and acquisition
activities and consolidations.



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, the establishment of a sales force and the development of manufacturing capacity. Unexpected events or other factors beyond our control could also
impact our capital requirements.



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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
preclinical and clinical programs.



Our lead product
candidate, talabostat, is in the early stages of human clinical development, and its safety and effectiveness are still being determined.



Our lead product candidate, talabostat, is currently undergoing evaluation in early-stage clinical trials for the treatment of solid tumors and
neutropenia. 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 are evaluating safety and
effectiveness of talabostat in larger cohort groups. 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. Our clinical trials may be suspended at any time if the Food and Drug Administration (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 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 can not predict whether the FDA will determine that the therapeutic benefits of talabostat outweigh any
perceived 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 harmed.



Our lead product candidate, talabostat, is in the early stages of 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 early-stage clinical trials for the treatment of solid tumors and
neutropenia. 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 a more difficult time raising additional capital to fund future or even existing capital requirements.



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. 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 appropriate 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.



If
talabostat is not a successful drug candidate, we may be unable to obtain other potential drug candidates



In addition to our substantial efforts developing talabostat on a preclinical and early-stage clinical basis, we from time to time evaluate new technology
opportunities to broaden our portfolio of potential drug candidates, including in-licensing opportunities, collaboration arrangements as well as more expansive corporate relationships, such as mergers and acquisitions. However, we may not be able to
consummate a transaction to broaden our portfolio of potential drug candidates on terms satisfactory to us. If talabostat is not ultimately a successful drug candidate and we cannot obtain other potential drug candidates through one or more
strategic transactions, our business, financial condition and results of operations and prospects will be harmed.



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



As of September 30,2004 we had an accumulated deficit of approximately $35 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 generated
any sales revenue, and we likely will not until talabostat or any other of our products 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.



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 University School of Medicine. The underlying licenses for this technology terminate on the later of the date of the last-to-expire patents, or 15 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 University School of Medicine 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 2009. 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.



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 U.S., we must obtain FDA approval for talabostat and 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 assure you 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 in product development and commercialization.



We have relatively few employees and do not have sufficient internal resources or experience to conduct human clinical trials completely on our own. We must therefore contract with third parties to perform the
clinical trials needed for us to submit talabostat to the FDA for marketing approval.



Although we have increased our internal clinical development capability substantially over the past 21 months, 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. Currently, we rely on a small number of contractors for conducting clinical trials of talabostat, although we believe we can replace these contractors, as necessary, on terms acceptable to us. 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.



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 12 issued U.S. patents and 16 pending U.S. patent applications. These patents and patent applications relate to our anti-tumor, hematopoiesis, diabetes and vaccine adjuvant technologies. If regulatory



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extensions are not taken into account, one U.S. patent expires in 2007; one U.S. patents and two application expire in
2011; 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.



Our
commercial success will also depend in part on our ability to commercialize talabostat without infringing on patents or other proprietary rights of others. Any patents issued to or licensed by us could be challenged, invalidated, infringed,
circumvented or held unenforceable. Talabostat or our other lead 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 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. We have not notified another party that they are infringing any of our proprietary rights although we do from time to time engage in discussions with licensors, vendors and other parties about the scope and
enforceability of our contractual 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.



If our competitors reach
the market sooner or develop products and technologies that are more effective 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 that
are used for the treatment of subjects with the same indications that we have targeted including, among others, Chirons Proleukin®, Bayers DTIC-Dome®, Aventis
Taxotere®, Bristol-Myers Squibbs Paraplatin®and Platinol AQ®, AstraZenecas Iressa®, Amgen Inc.s Neupogen®and Neulasta®, Corixas Bexxar®and IDECs
Zevalin®. Because talabostat is still in the early stages of 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 collaborations 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 we have targeted. Many of these organizations have financial, technical, regulatory, patenting, manufacturing and marketing resources that are far 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 targeted by us or one that has reduced side effects or offers significantly lower costs of treatment, or were to successfully enter 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 expect in the
future to depend on outside contractors for the manufacture of talabostat. Completion of our clinical trials and the commercialization of talabostat will require access to, or development of, manufacturing capabilities. We have entered into
short-term arrangements with third parties with respect to the manufacture of the quantities necessary for preclinical and early-stage clinical development. As we approach later-stage clinical



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development and commercialization of a product candidate, however, our intention is to enter into longer-term
arrangements with multiple manufacturing sources. We may not be able to enter into additional third-party manufacturing arrangements on acceptable terms, if at all. An outside contractor 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 a drug, 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 U.S., the pricing and profitability of prescription pharmaceuticals are subject to government control. In the U.S., we expect that there will continue to be federal and
state proposals to implement additional government control. For example, the recently enacted Medicare Prescription Drug, Improvement, and Modernization Act of 2003 provides a new Medicare prescription drug benefit beginning 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 U.S. 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 use 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 involve 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 include sodium chromate containing chromium-51 (51 Cr), nucleotides containing phosphorus-32 (32 P) and phenol. Our operations also produce 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



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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 annual aggregate product liability insurance related to our clinical
trials consistent with industry standards which we believe is adequate to insure us against such potential losses. 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 lose key personnel or are unable to attract or retain additional
personnel, we may be unable to develop talabostat or achieve commercialization objectives



We are highly dependent on Donald R. Kiepert, Jr., our Chairman, President and Chief Executive Officer, Richard N. Small, our Senior Vice President, Chief
Financial Officer and Treasurer, Michael P. Duffy, our Senior Vice President, General Counsel and Secretary, Barry Jones, our Senior Vice President for Research, Margaret J. Uprichard, our Senior Vice President of Clinical and Regulatory Affairs, as
well as other key members of our management and scientific staff. To date, we have not maintained key-man liability insurance to protect against the loss of any of these personnel, with the exception of Mr. Kiepert, for whom we maintain a key-man
liability insurance policy. The loss of any of these personnel may have a disruptive effect on our operations until they are replaced, and may have a material adverse effect on our product development and commercialization efforts if we are not able
to attract qualified replacements.



Our success depends on our
continued ability to attract, retain and motivate highly qualified management and scientific personnel. In particular, our preclinical and clinical operations depend on our ability to attract and retain highly skilled scientists and clinical
development and regulatory affairs personnel. In addition, we will need to hire additional personnel and develop additional collaborations as we continue to expand our preclinical and clinical operations. To date, we have been able to attract and
retain key personnel when needed. We are not aware of any key employee who plans to retire or terminate his or her employment with us in the near future. Despite our ability in the past in attracting and retaining key personnel, we cannot
provide assurances that we will be able to continue to attract, retain or motivate personnel or develop or maintain such outside relationships in the future.



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 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 Gambro Inc. or Sepracor, Inc. arising or resulting from their respective contractual relationships with us. If for any reason Whatman 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.



If we are unable to maintain compliance with NASDAQ listing requirements, our stock could be delisted



As of April 2, 2004, our common stock began trading on the NASDAQ SmallCap Market. Previously, our common stock was traded on the OTC Bulletin Board.
There can be no assurances, however, that we will be able to maintain compliance with NASDAQs present listing standards, or that NASDAQ will not implement additional listing standards with which we are unable to comply. 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.



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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 $0.60 to a high of $6.95 in the two-year period ended November 9, 2004. Factors such as the announcements of results from our clinical trials, technological
innovations or new products of our competitors, governmental regulation, health care legislation, developments in patent or other proprietary rights of us or our competitors, including litigation, fluctuations in operating results and market
conditions for health care and life sciences stocks in general could have a significant impact on the future price of 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 November 9, 2004, the daily trading volume for shares of our common stock ranged from 0 to 268,883 shares traded per day, and the average daily
trading volume during such three-month period was only 24,313 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.



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 4,100,143 shares of our common stock at
an average exercise price of $3.64. In addition, certain entities and individuals hold existing options to purchase 3,188,221 shares of our common stock at an average exercise price of $3.48. 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.



Item 3. QUANTATIVE 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. Our current policies 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 decrease in market rates would
have a significant negative impact on the value of our investment portfolio. Declines in interest rates will, however, 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 chief executive officer and chief financial officer, after evaluating 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 a date (the Evaluation Date) within 90 days before the filing date of this quarterly report, have concluded that as of the Evaluation Date, our disclosure controls and procedures were
adequate and designed to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities.



(b) Changes in internal controls. There were no significant changes in our internal controls or to our knowledge, in other
factors that could significantly affect our internal controls and procedures subsequent to the Evaluation Date.



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##### Table of Contents

PART II. OTHER INFORMATION



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



The Annual Meeting of Stockholders was held on August 3, 2004. The holders of more than a majority of the shares entitled to vote were represented at the meeting in person or by proxy, constituting a quorum. At the
meeting, the following matters were voted upon by the stockholders, receiving the number of affirmative (for) and withheld or negative (withheld) votes set forth below each matter.



1. To consider and act upon a proposal to elect directors for a term ending
at the next annual meeting and until each such directors successor is duly elected and qualified:



|                       |  |            |  |          |  |        
|---------------------- |  | ---------- |  | -------- |  | -------
|                       |  | For        |  | Withheld |  | Abstain
|Donald R. Kiepert, Jr. |  | 12,275,508 |  | 410,608  |  |       
|Timothy J. Barberich   |  | 12,275,508 |  | 410,608  |  |       
|Richard J. Benjamin    |  | 12,275,508 |  | 410,608  |  |       
|Thomas M. Claflin, II  |  | 12,275,508 |  | 410,608  |  |       
|Larry G. Pickering     |  | 12,275,508 |  | 410,608  |  |       
|Daniel T. Roble        |  | 12,275,508 |  | 410,608  |  |       
|William J. Whelan, Jr. |  | 12,275,508 |  | 410,608  |  |       



2. To ratify, adopt
and approve an amendment to the Companys Certificate of Incorporation to increase the number of authorized shares of common stock from 35,000,000 shares to 75,000,000 shares:



|           |  |          |  |        
|---------- |  | -------- |  | -------
|For        |  | Withheld |  | Abstain
|12,331,569 |  | 116,887  |  | 237,660



Item 6. Exhibits



|              |  |                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                
|3.1           |  | Certificate of Amended Certificate of Incorporation of Point Therapeutics, Inc.                                                            
|              | 
|31.1          |  | Certification of Donald R. Kiepert, Jr. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 15, 2004, filed herewith.
|              | 
|31.2          |  | Certification of Richard N. Small pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 15, 2004, 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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##### Table of Contents

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: November 15, 2004 |  | By:                      |  | /S/ DONALD R. KIEPERT, JR.                    
|                        |  |                          |  | Donald R. Kiepert, Jr. Chief Executive
Officer



|                        |  |                          |  |                                         
|----------------------- |  | ------------------------ |  | ----------------------------------------
|                        |  | POINT THERAPEUTICS, INC.
|                        |  |                         
|Date: November 15, 2004 |  | By:                      |  | /S/ RICHARD N. SMALL                    
|                        |  |                          |  | Richard N. Small Chief Financial
Officer



24