**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**




**Washington,
      DC 20549**









**FORM
      10-QSB**





(Mark
                One)ý
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the quarterly period ended March 31,
                2007**


**OR**





o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
                1934****For
                the transition period from********to******




**Commission
      File Number: 333-139354**




**PIPEX
      PHARMACEUTICALS, INC.**


*(Name
      of small business issuer in its charter)*





**Delaware**
            **13-3808303***(State
                or other jurisdiction of incorporation or
                organization)*
            *(IRS
                Employer Identification Number)***3985
                Research Park Drive**
              **Ann
                Arbor, MI**
            **48108***(Address
                of principal executive offices)*
            *(Zip
                Code)*




**Registrant’s
      telephone number, including area code:**




**(734)
      332-7800**




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




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


Yes o No ý




State issuer’s revenues for its most recent fiscal year: $0




As of May 10, 2007, the issuer had 17,023,218 shares of common stock
      outstanding.




Documents
      incorporated by reference: None.




Transitional
      Small Business Disclosure Format (Check one):   Yes o No ý



















**PIPEX
      PHARMACEUTICALS, INC.**




**FORM
      10-QSB**




**TABLE
      OF CONTENTS**





**Page**PART
                I - FINANCIAL INFORMATIONCautionary
                Statement Regarding Forward-Looking Statements
            
            
            3Item
                1.
            
            Financial
                StatementsConsolidated
                Balance Sheet (Unaudited)
            
            
            4Consolidated
                Statements of Operations (Unaudited)
            
            
            5Consolidated
                Statements of Cash Flows (Unaudited)
            
            
            6Notes
                to Consolidated Financial Statements (Unaudited)
            
            
            7Item
                2.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            
            15Item
                3.
            
            Controls
                and Procedures
            
            
            19PART
                II - OTHER INFORMATIONItem
                1.
            
            Legal
                Proceedings
            
            
            19Item
                1A.
            
            Risk
                Factors
            
            
            19Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            
            32Item
                3.
            
            Defaults
                Upon Senior Securities
            
            
            33Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            
            33Item
                5.
            
            Other
                Information
            
            
            33Item
                6.
            
            Exhibits
            
            
            34SIGNATURE
            
            
            35




2




**PART
      I. - FINANCIAL INFORMATION**




**Forward-Looking
      Statements**




Most
      of
      the matters discussed within this report include forward-looking statements
      on
      our current expectations and projections about future events. In some cases
      you
      can identify forward-looking statements by terminology such as “may,” “should,”
“potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,”
“believes,” “estimates,” and similar expressions. These statements are based on
      our current beliefs, expectations, and assumptions and are subject to a number
      of risks and uncertainties. Actual results and events may vary significantly
      from those discussed in the forward-looking statements.




Except
      as
      otherwise provided, Pipex shall mean Pipex Pharmaceuticals and its subsidiaries,
      Pipex Therapeutics Inc., Effective Pharmaceuticals, Inc., CD4 Biosciences,
      Inc.
      and Solovax, Inc.




These
      forward-looking statements are made as of the date of this report, and we assume
      no obligation to update these forward-looking statements whether as a result
      of
      new information, future events, or otherwise, other than as required by law. The
      forward looking statements discussed in this report might not occur given the
      numerous uncertainties and risks involved in our business. You should carefully
      consider these uncertainties and risks, including the ones set forth in Item
      1A
      of Part II of this report.





3


**Pipex
                  Pharmaceuticals, Inc. and Subsidiaries****(A
                  Development Stage Company)****Consolidated
                  Balance Sheet****March
                  31, 2007****(Unaudited)**
 **Assets****Current
                    Assets**Cash
                
                $
                10,941,484Prepaid
                    expenses
                
                
                26,172**Total
                    Current Assets**
                
                
                10,967,656**Equipment,
                    net of accumulated depreciation of $42,497**
                
                
                324,043**Deposits
                    and other assets**
                
                
                301,225**Total
                    Assets**
                
                **$**
                **11,592,924****Liabilities
                    and Stockholders' Equity****Current
                    Liabilities:**Accounts
                    payable
                
                $
                401,943Accrued
                    liabilities
                
                
                140,000Note
                    payable
                
                
                200,000**Total
                    Current Liabilities**
                
                
                741,943**Long
                    Term Liabilities:**Note
                    payable, less current portion above
                
                
                400,000**Total
                    Liabilities**
                
                
                1,141,943**Commitments
                    (See Note 5)****Stockholders'
                    Equity**Preferred
                    stock, $0.001 par value; 10,000,000 shares authorized,none
                    issued and outstanding
                
                
                -Common
                    stock, $0.001 par value; 100,000,000 shares authorized,17,023,218
                    shares issued and outstanding
                
                
                17,023Additional
                    paid-in capital
                
                
                34,467,578Deficit
                    accumulated during the development stage
                
                
                (24,033,620
                )**Total
                    Stockholders' Equity**
                
                
                10,450,981**Total
                    Liabilities and Stockholders' Equity**
                
                **$**
                **11,592,924**




See
        accompanying notes to consolidated financial
        statements


4


**Pipex
                  Pharmaceuticals, Inc. and Subsidiaries****(A
                  Development Stage Company)****Consolidated
                  Statements of Operations****(Unaudited)**
  **For
                    the Period****from
                    January 8, 2001****For
                    the three months ended March 31,**
                
                **(Inception)
                    to****2007**
                
                **2006**
                
                **March
                    31, 2007****Operating
                    Expenses:**Research
                    and development
                
                
                1,417,123
                
                
                331,319
                
                
                6,250,192General
                    and administrative
                
                
                1,503,881
                
                
                184,212
                
                
                4,536,774**Total
                    Operating Expenses**
                
                
                2,921,004
                
                
                515,531
                
                
                10,786,966**Loss
                    from Operations**
                
                
                (2,921,004
                )
                
                (515,531
                )
                
                (10,786,966
                )**Other
                    Income (Expense):**Interest
                    income
                
                
                71,469
                
                
                -
                
                
                116,051Other
                    expense
                
                
                -
                
                
                -
                
                
                (1,733
                )**Total
                    Other Income, net**
                
                
                71,469
                
                
                -
                
                
                114,318**Net
                    Loss**
                
                **$**
                **(2,849,535**
                **)**
                **$**
                **(515,531**
                **)**
                **$**
                **(10,672,648**
                **)****Less:
                    Preferred stock dividend - subsidiary**
                
                
                -
                
                
                (190,250
                )
                
                (951,250
                )**Less:
                    Merger dividend**
                
                
                (12,409,722
                )
                
                -
                
                
                (12,409,722
                )**Net
                    Loss Applicable to Common Shareholders**
                
                $
                (15,259,257
                )
                $
                (705,781
                )
                $
                (24,033,620
                )**Net
                    Loss Per Share - Basic and Diluted**
                
                $
                (0.90
                )
                $
                (0.45
                )
                $
                (9.55
                )**Weighted
                    average number of shares outstanding****during
                    the period - basic and diluted**
                
                
                16,979,038
                
                
                1,572,137
                
                
                2,516,181


See
        accompanying notes to consolidated financial statements


5


**Pipex
                  Pharmaceuticals, Inc. and Subsidiaries****(A
                  Development Stage Company)****Consolidated
                  Statements of Cash Flows****(Unaudited)**





**For
                    the Period****from
                    January 8, 2001****For
                    the three months ended March 31,**
                
                **(Inception)
                    to****2007**
                
                **2006**
                
                **March
                    31, 2007****Cash
                    Flows From Operating Activities:**Net
                    loss
                
                $
                (2,849,535
                )
                $
                (515,531
                )
                $
                (10,672,648
                )Adjustments
                    to reconcile net loss to net cashused
                    in operating activities:Stock-based
                    compensation expense
                
                
                596,047
                
                
                -
                
                
                1,049,570Stock-based
                    consulting
                
                
                316,360
                
                
                -
                
                
                804,076Stock
                    issued as compensation in acquisition of subsidiary
                
                
                601,612
                
                
                -
                
                
                601,612Stock
                    issued for license fee
                
                
                -
                
                
                -
                
                
                388,691Depreciation
                
                
                9,562
                
                
                -
                
                
                42,497Changes
                    in operating assets and liabilities:Prepaid
                    expenses and other
                
                
                (470
                )
                
                -
                
                
                (26,172
                )Deposits
                    and other assets
                
                
                (301,225
                )
                
                -
                
                
                (301,225
                )Accounts
                    payable
                
                
                (138,177
                )
                
                (3,679
                )
                
                401,943Accrued
                    liabilities
                
                
                (48,799
                )
                
                -
                
                
                143,118**Net
                    Cash Used In Operating Activities**
                
                
                (1,814,625
                )
                
                (519,210
                )
                
                (7,568,538
                )**Cash
                    Flows From Investing Activities:**Purchases
                    of property and equipment
                
                
                (36,317
                )
                
                -
                
                
                (82,150
                )Cash
                    paid to acquire shell in reverse merger
                
                
                -
                
                
                -
                
                
                (665,000
                )**Net
                    Cash Used In Investing Activities**
                
                
                (36,317
                )
                
                -
                
                
                (747,150
                )**Cash
                    Flows From Financing Activities:**Proceeds
                    from note payable
                
                
                600,000
                
                
                -
                
                
                600,000Proceeds
                    from sale of common stock and warrants in private
                    placements
                
                
                -
                
                
                -
                
                
                13,926,362Cash
                    paid as direct offering costs in private placements
                
                
                
                
                
                
                
                
                (1,160,418
                )Proceeds
                    from issuance of Series B, convertible preferred stock -
                    subsidiary
                
                
                -
                
                
                -
                
                
                1,902,500Direct
                    offering costs in connection with issuance ofseries
                    B, convertible preferred stock - subsidiary
                
                
                -
                
                
                -
                
                
                (152,200
                )Proceeds
                    from issuance of preferred and common stock
                
                
                -
                
                
                -
                
                
                1,150,590Proceeds
                    from loans payable - related party
                
                
                -
                
                
                280,349
                
                
                3,210,338Repayments
                    of loans payable - related party
                
                
                -
                
                
                -
                
                
                (220,000
                )**Net
                    Cash Provided By Financing Activities**
                
                
                600,000
                
                
                280,349
                
                
                19,257,172**Net
                    increase (decrease) in cash**
                
                
                (1,250,942
                )
                
                (238,861
                )
                
                10,941,484Cash
                    at beginning of period
                
                
                12,192,426
                
                
                1,157,790
                
                
                -**Cash
                    at end of period**
                
                **$**
                **10,941,484**
                
                **$**
                **918,929**
                
                **$**
                **10,941,484****Supplemental
                    disclosures of cash flow information:**Cash
                    paid for interest
                
                $
                -
                
                $
                -
                
                $
                -Cash
                    paid for taxes
                
                $
                -
                
                $
                -
                
                $
                -**Supplemental
                    disclosure of non-cash investing and financing
                    activities:**Exchange
                    of EPI preferred stock into Pipex common stock in
                    acquisition
                
                $
                12,409,722
                
                $
                -
                
                $
                12,409,722Pipex
                    acquired equipment in exchange for a loan with a related
                    party
                
                $
                -
                
                $
                284,390
                
                $
                284,390EPI
                    declared a 10% and 30% in-kind dividend on its Series B,convertible
                    preferred stock.
                
                $
                -
                
                $
                190,250
                
                $
                951,250The
                    Company issued shares and warrants in connection with theconversion
                    of certain related party debt.
                
                $
                -
                
                $
                -
                
                $
                3,274,728Conversion
                    of accrued liabilities to contributed capital - former related
                    party
                
                $
                -
                
                $
                -
                
                $
                3,017








See
      accompanying notes to consolidated financial statements







**Pipex
      Pharmaceuticals, Inc. and Subsidiaries**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**









**Note
      1 Organization, Nature of Operations and Basis of
      Presentation**




**(A)
      Description of the Business**




Pipex
      Pharmaceuticals, Inc. (“Pipex”) is a development-stage pharmaceutical company
      that is developing proprietary, late-stage drug candidates for the treatment
      of
      neurologic and fibrotic diseases.




In
      January 2007 the Company’s Board of Directors approved a 3 for 1 reverse stock
      split of all outstanding common stock, stock options and stock warrants of
      Pipex
      which was effective of April 25, 2007. All references to the number of shares
      and per share amounts have been retroactively restated to reflect this reverse
      stock split.




**(B)
      Basis of Presentation**




The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with generally accepted accounting principles for interim financial
      information and with the instructions to Form 10-QSB and Item 310(b) of
      Regulation S-B. Accordingly they do not include all of the information and
      footnotes necessary for a fair presentation of financial condition, results
      of
      operations and cash flows in conformity with generally accepted accounting
      principles. In the opinion of management of Pipex, the interim consolidated
      financial statements included herewith contain all adjustments (consisting
      of
      normal recurring accruals and adjustments) necessary for their fair
      presentation. The unaudited interim consolidated financial statements should
      be
      read in conjunction with the Company’s Annual Report on Form 10-KSB, which
      contains the audited financial statements and notes thereto, together with
      the
      Management’s Discussion and Analysis, for the year ended December 31, 2006.
      The interim results for the period ended March 31, 2007 are not necessarily
      indicative of results for the full fiscal year.




**(C)
      Reverse Merger and Recapitalization**




On
      October 31, 2006, Sheffield Pharmaceuticals, Inc. (“Sheffield”), a shell
      corporation, entered into a Merger Agreement (“Merger”) with Pipex Therapeutics
      Inc. (“Pipex Therapeutics”), a privately owned Delaware company, whereby Pipex
      Therapeutics was the surviving corporation. This transaction was accounted
      for
      as a reverse merger since Sheffield did not have any operations and a
      recapitalization of Pipex Therapeutics. Since Pipex Therapeutics acquired a
      controlling voting interest, it was deemed the accounting acquirer, while
      Sheffield was deemed the legal acquirer. The historical financial statements
      of
      the Company are those of Pipex Therapeutics, Effective Pharmaceuticals, Inc.
      (“EPI”), Solovax, Inc. (“Solovax”) and CD4 Biosciences, Inc (“CD4”) since
      inception, and of the consolidated entities from the date of Merger and
      subsequent. On December 11, 2006, Sheffield changed its name to Pipex
      Pharmaceuticals, Inc.




Since
      the
      transaction is considered a reverse merger and recapitalization, the guidance
      in
      SFAS No. 141 does not apply for purposes of presenting pro-forma financial
      information.




Pursuant
      to the Merger Agreement, Sheffield issued 11,333,334 shares of common stock
      for
      all of the outstanding Series A, convertible preferred and common stock of
      Pipex
      Therapeutics and Sheffield assumed all of Pipex Therapeutics’s outstanding
      options and warrants, but did not assume the options and warrants outstanding
      within Pipex Therapeutics’s majority owned subsidiaries. On October 31, 2006,
      concurrent with the Merger, Pipex Therapeutics executed a private stock purchase
      agreement to purchase an additional 808,767 shares of common stock held by
      Sheffield’s sole officer and director; these shares were immediately cancelled
      and retired. Aggregate consideration paid for Sheffield was $665,000. Upon
      the
      closing of the reverse merger, shareholders of Sheffield retained an aggregate
      245,824 shares of common stock. As a result of these transactions, Pipex
      Therapeutics acquired approximately 98% ownership of the issued and outstanding
      common shares of Sheffield.




**(D)
      Contribution Agreements — Consolidation of Entities under Common
      Control**




**1.
      EPI’s Acquisition of CD4**




On
      December 31, 2004, EPI acquired 91.61% of the issued and outstanding common
      stock of CD4 in exchange for 825,000 shares of common stock having a fair value
      of $825. EPI assumed certain outstanding accounts payable and loans of CD4
      of
      approximately $664,000. The fair value







7




of
      the
      exchange was equivalent to the par value of the common stock issued. CD4
      shareholders retained 119,000 shares (8.39%) of the issued and outstanding
      common stock of CD4; these shareholders comprise the non-controlling shareholder
      base of CD4.




**2.
      Pipex Therapeutic’s Acquisition of Solovax**




On
      July
      31, 2005, Pipex Therapeutics acquired 96.9% of the aggregate voting preferred
      and common stock of Solovax.. Pipex Therapeutics assumed all outstanding
      liabilities of approximately $310,000, the transfer of 1,000,000 shares of
      Series A Convertible Preferred Stock owned by Solovax’s president and 250,000
      shares of common stock owned by Solovax’s COO. The fair value of the exchange
      was equivalent to the par value of the common stock received pursuant to the
      terms of the contribution.




**3.
      Pipex Therapeutic’s Acquisition of EPI/CD4**




On
      December 31, 2005, Pipex Therapeutics acquired 65.47% of the aggregate voting
      preferred and common stock of EPI and its majority owned subsidiary CD4. In
      addition, Pipex Therapeutics assumed $583,500 of outstanding liabilities of
      EPI.
      The fair value of the exchange was equivalent to the par value of the common
      stock received pursuant to the terms of the contribution.




In
      the
      consolidated financial statements, each of these transactions was analogous
      to a
      recapitalization with no net change to equity since the entities were under
      common control at the date of the transaction.




**4.
      Pipex Pharmaceuticals’ Acquisition of EPI**




On
      January 5, 2007, EPI merged with and into a wholly owned subsidiary of Pipex,
      Effective Acquisition Corp. In the transaction, Pipex issued 795,248 shares
      of
      common stock having a fair value of $15,865,184 based upon the quoted closing
      trading price of $19.95 per share. As consideration for the share issuance,
      EPI,
      exchanged 634,167 shares of Series B Convertible Preferred stock and 25,000
      shares of common stock into 765,087 and 30,161 (pursuant to the reverse stock
      split), shares of Pipex common stock respectively. The Company took a charge
      of
      $601,712 to compensation expense for the newly issued common stock to an officer
      and director of the Company. The additional 951,250 shares of outstanding Series
      B preferred stock dividends were cancelled and retired and were not contemplated
      in the exchange. EPI also cancelled and retired all of the issued and
      outstanding 3,000,000 shares of Series A Convertible Preferred stock as well
      as
      750,000 shares of common stock.




In
      connection with this exchange, and pursuant to EITF 98-3, “Determining whether a
      Non-Monetary Transaction involves the receipt of Productive Assets or of a
      Business” EPI was classified as a development stage company and thus was not
      considered a business. As a result, SFAS No. 141 purchase accounting rules
      did
      not apply. Additionally, the Company applied the provisions of EITF 86-32,
      “Early Extinguishment of a Subsidiary’s Mandatorily Redeemable Preferred Stock”
and has determined that even though the preferred stock of EPI was not
      mandatorily redeemable, this transaction would be considered a capital
      transaction, and there would be no resulting gain or loss.




Finally,
      in connection with EITF Topic D-42, “The Effect on the Calculation of Earnings
      Per Share for the Redemption or Induced Conversion of Preferred Stock”, The
      Company has determined that the fair value of the consideration transferred
      to
      the holders of EPI Series B, convertible preferred stock over the carrying
      amount of the preferred stock represents a return to the preferred stockholders.
      The difference is $12,409,722, which is included as a component of paid in-kind
      dividends. This amount is included as an additional reduction in net loss
      applicable to common shareholders for purposes of computing loss per share
      in
      the accompanying financial statements for the period ending March 31,
      2007.




As
      part
      of the acquisition of EPI, the Company granted an aggregate 68,858 warrants
      and
      34,685 options for the outstanding warrants and options with EPI warrant and
      option holders. These new options and warrants will continue to vest according
      to their original terms. Pursuant to SFAS No. 123R and fair value accounting,
      the Company treated the exchange as a modification of an award of equity
      instruments. As such, incremental compensation cost shall be measured as the
      excess of the fair value of the replacement award over the fair value of the
      cancelled award at the cancellation date. In substance, Pipex repurchased the
      EPI instruments by issuing a new instrument of equal or greater
      value.




The
      Company used the following weighted average assumptions for the fair value
      of
      the replacement award: expected dividend yield of 0%; expected volatility of
      196.10%; risk-free interest rate of 4.65%, an expected life ranging from seven
      to eight years and exercise prices ranging from $0.09 - $3.30.




The
      Company has the following weighted average assumptions for the fair value of
      the
      cancelled award at the cancellation date: expected dividend yield of 0%;
      expected volatility of 200%; risk-free interest rate of 4.65%, an expected
      life
      ranging from seven to eight years and exercise prices ranging from $0.09 -
      $3.30.





8




The
      fair
      value of the replacement award required an increase in compensation expense
      of
      approximately $352,734.




**Note
      2 Summary of Significant Accounting Policies**




**(A)
      Principles of Consolidation**




The
      consolidated financial statements include the accounts of Pipex Pharmaceuticals,
      Inc. and its majority owned subsidiaries, Pipex Therapeutics, Solovax, EPI,
      and
      CD4. All significant inter-company accounts and transactions have been
      eliminated in consolidation.




For
      financial accounting purposes, the Company’s inception is deemed January 8,
      2001. The activity of EPI for the period from December 12, 2000 to January
      7,
      2001 was nominal. Therefore, there is no financial information presented for
      this period.




**(B)
      Development Stage**




The
      Company’s consolidated financial statements are presented as statements of a
      development stage enterprise. For the period from inception (January 8, 2001)
      to
      date, the Company has been a development stage enterprise, and accordingly,
      the
      Company’s operations have been directed primarily toward the acquisition and
      creation of intellectual properties and certain research and development
      activities to improve current technological concepts. As the Company is devoting
      its efforts to research and development, there has been no revenue generated
      from sales, license fees or royalties. Additionally, the Company continually
      seeks sources of debt or equity based funding to further its intended research
      and development activities. The Company has experienced net losses since its
      inception, and had an accumulated deficit of $24,033,620 at March 31, 2007.




**(C)
      Use of Estimates**




In
      preparing financial statements in conformity with generally accepted accounting
      principles, management is required to make estimates and assumptions that affect
      the reported amounts of assets and liabilities, disclosure of contingent assets
      and liabilities at the date of the financial statements, and revenues and
      expenses during the periods presented. Actual results may differ from these
      estimates.




Significant
      estimates during 2007 and 2006 include depreciable lives of property, valuation
      of stock options and warrants granted for services or compensation pursuant
      to
      SFAS No. 123R, existence and recording of research and development expenditures
      as expenses in connection with the provisions of SFAS No. 2, estimates of the
      probability and potential magnitude of contingent liabilities and the valuation
      allowance for deferred tax assets.




**(D)
      Cash**




The
      Company minimizes its credit risk associated with cash by periodically
      evaluating the credit quality of its primary financial institution. The balance
      at times may exceed federally insured limits. At March 31, 2007, the balance
      exceeded the federally insured limit by $10,655,878.




**(E)
      Equipment**




Equipment
      is stated at cost, less accumulated depreciation. Costs greater than $1,000
      are
      capitalized and depreciated on a straight-line basis over the estimated useful
      lives, which is generally ten years. Equipment consists primarily of equipment
      used in connection with research and development. Expenditures for maintenance
      and repairs are charged to expense as incurred.




**(F)
      Long Lived Assets**




Long-lived
      assets are reviewed for impairment whenever events or changes in circumstances
      indicate that the carrying amount of an asset may not be recoverable.
      Recoverability of assets to be held and used is measured by a comparison of
      the
      carrying amount of an asset to future undiscounted net cash flows expected
      to be
      generated by the asset. If such assets are considered impaired, the impairment
      to be recognized is measured by the amount by which the carrying amount of
      the
      assets exceeds the fair value of the assets. There were no impairment charges
      taken during the three month periods ended March 31, 2007 and March 31, 2006
      and
      for the period from January 8, 2001 (inception) to March 31, 2007.







9


**(G)
        Derivative Liabilities**


In
      connection with the reverse merger, all outstanding convertible preferred stock
      of Pipex was cancelled and retired, as such, the provisions of EITF No. 00-19, *“Accounting
      for Derivative Financial Instruments Index to, and Potentially Settled in,
      a
      Company’s Own Stock”* do not
      apply. The Company’s majority owned subsidiaries also contain issued convertible
      preferred stock; however, none of these instruments currently contains any
      provisions that require the recording of a derivative liability. In connection
      with the acquisition of EPI on January 5, 2007 (See Note 9(A)), all issued
      and
      outstanding shares of Series A and B, convertible preferred stock were cancelled
      and retired. As such, no potential derivative liabilities will exist pertaining
      to these instruments.




**(H)
      Net Loss per Share**




Basic
      earnings (loss) per share is computed by dividing the net income (loss) less
      preferred dividends for the period by the weighted average number of common
      shares outstanding. Diluted earnings per share is computed by dividing net
      income (loss) less preferred dividends by the weighted average number of common
      shares outstanding including the effect of share equivalents, such as stock
      options and warrants. Since the Company reported a net loss at March 31, 2007
      and 2006 and for the period from January 8, 2001 (inception) to March 31, 2007,
      respectively, all common stock equivalents would be anti-dilutive; as such
      there
      is no separate computation for diluted earnings per share.




The
      Company’s net loss per share for the periods ended March 31, 2007 and 2006 and
      for the period from January 8, 2001 (inception) to March 31, 2007 was computed
      assuming the recapitalization associated with the reverse merger in October
      2006
      and the reverse stock split in April 2007, as such all share and per share
      amounts have been retroactively restated. Additionally, the numerator for
      computing net loss per share was adjusted for preferred stock dividends recorded
      during the three months ended March 31, 2007, March 31, 2006 and the period
      from
      January 8, 2001 (inception) to March 31, 2007, in connection with the
      acquisition of EPI (See Note 1(D)(4)) as well as and certain provisions relating
      to the sale of EPI’s Series B, convertible preferred stock.




**(I)
      Research and Development Expense**




The
      Company expenses all research and development expense as incurred for which
      there is no alternative future use. Research and development expenses consist
      primarily of manufacturing costs, license fees, salaries and related personnel
      costs, fees paid to consultants and outside service providers for laboratory
      development, legal expenses resulting from intellectual property prosecution
      and
      other expenses relating to the design, development, testing and enhancement
      of
      the Company’s product candidates, as well as an allocation of overhead expenses
      incurred by the Company.




**(J)
      Fair Value of Financial Instruments**




The
      carrying amounts of the Company’s short-term financial instruments, including
      accounts payable, accrued liabilities and notes payable, approximate fair value
      due to the relatively short period to maturity for these
      instruments.




**(K)
      Stock Based Compensation**




All
      share-based payments to employees since inception have been recorded and
      expensed in the statements of operations as applicable under SFAS No. 123R
      “Share-Based Payment”.




**(L)
      Reclassifications**




Certain
      amounts in the year 2006 financial statements have been reclassified to conform
      to the year 2007 presentation. The results of these reclassifications did not
      materially affect the Company’s consolidated financial position, results of
      operations or cash flows.




**Note
      3 Long-Term Debt**




On
      March
      30, 2007, the Company entered into a loan facility with a bank whereby the
      Company borrowed $600,000 for equipment purchases. Borrowings under the facility
      bear interest at the bank’s prime rate (8.25% at March 31, 2007) plus 2% and are
      payable in equal monthly principal payments over 36 months. As of March 31,
      2007, outstanding borrowings under the facility were $600,000. The loan facility
      subjects the Company to financial covenants, which, among other restrictions,
      requires the Company to maintain certain minimum levels of tangible net worth
      and liquidity. Management has determined that the Company is in compliance
      with
      these covenants at March 31, 2007.







10


**Note
        4 Stockholders’ Equity and Non-Controlling Interest**


**(A)
      Preferred Stock Issuances**




On
      January 4, 2001, EPI issued 3,000,000 shares of Series A Convertible Preferred
      Stock to the Founder serving as the CEO and Chairman of the Board of EPI in
      exchange for $250,000 ($0.08 per share).




On
      January 15, 2001, Pipex Therapeutics issued 5,421,554 shares of Series A
      Convertible Preferred Stock (pursuant to the October 31, 2006 reverse merger
      and
      recapitalization and the reverse stock split on April 25, 2007) to a founder
      serving as the President, CEO and Chairman of the Board of Pipex in exchange
      for
      $300,000 ($0.055 per share). On October 31, 2006, pursuant to the reverse merger
      with Sheffield, these shares of Series A Convertible Preferred Stock were
      cancelled and retired.




On
      January 31, 2001, Solovax issued 1,000,000 shares of Series A Convertible
      Preferred Stock to the Founder serving as the President, CEO and Chairman of
      the
      Board of Solovax in exchange for $300,000 ($0.30 per share).




On
      February 7, 2001, CD4 issued 1,000,000 shares of Series A Convertible Preferred
      Stock, to an affiliate of a founder serving as the CEO and Chairman of the
      Board
      of CD4 in exchange for $300,000 ($.30 per share).




From
      March through June 2005, EPI issued 1,902,500 shares of Series B Convertible
      Preferred Stock, at $1 per share, for proceeds of $1,902,500. In connection
      with
      this offering, EPI paid $152,200 of offering costs that were charged against
      additional paid in capital. The Company also granted 171,225 warrants as
      compensation in connection with this equity raise. On January 5, 2007, pursuant
      to the acquisition of EPI, these shares of Series B Convertible Preferred Stock
      were cancelled and retired. (See Note 1(D)(4))




**(B)
      Common Stock Issuances of Issuer**




On
      January 5, 2007, the Company issued 795,248 shares of common stock in the
      acquisition of EPI having a fair value of $15,865,184 based upon the quoted
      closing trading price of $19.95 per share. (See Note (1)(D)(4).




During
      October and November of 2006, the Company completed private placements of its
      stock, which resulted in the issuance of 6,900,932 shares of common stock and
      3,450,660 warrants. The net proceeds from the private placements were
      approximately $12,766,000, which included cash paid as direct offering costs
      of
      approximately $1,160,000. In connection with the private placements, the Company
      engaged a company, which is controlled by the Company’s Chairman and Chief
      Executive Officer, as the placement agent for the transaction. Of the total
      approximate $1,160,000 in direct offering costs, the Company paid the placement
      agent the sum of approximately $1,033,800. Additionally the placement agent
      was
      paid non-cash compensation of 958,277 warrants with an aggregate fair value
      of
      $4,555,457. (See Note 3 (E)).




On
      October 31, 2006, the loans payable to the Company’s founder, President and CEO
      were converted into 1,665,211 shares of common stock and 832,606
      warrants.




During
      October 2006, the Company converted all of its 5,421,554 shares of Series A,
      convertible preferred stock in exchange for equivalent common shares. The fair
      value of the exchange was based upon par value with a net effect of $0 to the
      statement of equity.




During
      October 2006, the Company issued 422,314 shares of common stock to an unrelated
      third party in connection with the terms of a license agreement. The fair value
      was $388,691 based upon the recent cash offering price at that time and was
      charged to research and development expense.




**(C)
      Common Stock Issuances of Subsidiaries**




During
      the period from January 8, 2001 (inception) to December 31, 2004, the Company’s
      majority owned subsidiaries; CD4 and Solovax issued an aggregate 590,000 shares
      of common stock for $590 and an aggregate 119,000 shares of common stock was
      issued for compensation and consulting services rendered having a fair value
      of
      $119.




**(D)
      Stock Option Plan**




On
      March
      20, 2007, the Company’s Board of Directors adopted the Company’s 2007 Stock
      Incentive Plan (the “2007 Stock Plan”) for the issuance of up to 2,500,000
      shares of common stock to be granted through incentive stock options,
      nonqualified stock options, stock appreciation rights, dividend equivalent
      rights, restricted stock, restricted stock units and other stock-based awards
      to
      officers, other employees, directors and consultants of the Company and its
      subsidiaries. The
      exercise price of stock options under the plan is determined by the compensation
      committee of the Board of Directors, and may be equal to or greater than the
      fair market value of the Company’s common stock on the date the option
      is
      granted. Options become exercisable over various periods from the date of grant,
      and generally expire ten years after the grant date. As of March 31, 2007,
      there
      are a total of 260,012 options issued and outstanding under the 2007 Stock
      Plan.





11




During
      2001, Pipex Therapeutics’ Board and stockholders adopted the 2001 Stock
      Incentive Plan (the “2001 Stock Plan”). This plan was assumed by Pipex in the
      merger, in the forth quarter of 2006. As of the date of the merger there were
      a
      total of 1,489,353 options issued and outstanding. The total number of shares
      of
      stock with respect to which stock options and stock appreciation rights may
      be
      granted to any one employee of the Company or a subsidiary during any one-year
      period shall not exceed 1,250,000. All awards pursuant to the Plan shall
      terminate upon the termination of the grantee’s employment for any reason.
      Awards include options, restricted shares, stock appreciation rights,
      performance shares and cash-based awards (the “Awards”). The Plan contains
      certain anti-dilution provisions in the event of a stock split, stock dividend
      or other capital adjustment, as defined in the Plan. The Plan provides for
      a
      Committee of the Board to grant awards and to determine the exercise price,
      vesting term, expiration date and all other terms and conditions of the awards,
      including acceleration of the vesting of an award at any time.




Pursuant
      to the provisions of SFAS No. 123R, in the event of termination, the Company
      will cease to recognize compensation expense. There is no deferred compensation
      recorded upon initial grant date, instead, the fair value of the share-based
      payment is recognized ratably over the stated vesting period.




The
      Company has followed fair value accounting and the related provisions of SFAS
      No. 123R for all share based payment awards since inception. The fair value
      of
      each option or warrant granted is estimated on the date of grant using the
      Black-Scholes option-pricing model. The Black-Scholes assumptions used in the
      three months ended March 31, 2007 and 2006 are as follows:




**Three
                  Months Ended December 31,****2007**
              
              **2006**Exercise
                  price
              
              
              $0.09
                  - $22.50
              
              
              
              $0.09
                  - $0.99Expected
                  dividends
              
              
              0%
              
              
              
              0%Expected
                  volatility
              
              
              103.29%
                  - 200%
              
              
              
              200%Risk
                  fee interest rate
              
              
              4.18%
                  - 4.90%
              
              
              
              4.44%
                  - 4.57%Expected
                  life of option
              
              
              7-10
                  years
              
              
              
              3-10
                  years




All
      option grants are expensed in the appropriate period based upon vesting terms,
      in each case with an offsetting credit to additional paid in capital. The
      stock-based compensation expense recorded by the Company for the three months
      ended March 31, 2007 and 2006 and the period from inception to March 31, 2007
      with respect to stock option awards is as follows:




**Three
                  Months Ended**
                **March
                  31,****2007**
              
              **2006**
              
              **Inception
                  to**
                **March
                  31,**
                **2007**Research
                  and development:employees
              
              $
              212,307
              
              
              $
              —
              
              
              $
              451,491non-employees
              
              
              —
              
              
              
              52,412
              
              
              
              59,960General
                  and administrative:employees
              
              
              185,725
              
              
              
              —
              
              
              
              381,730non-employees
              
              $
              217,424
              
              
              
              52,412
              
              
              
              628,734$
              615,456
              
              
              $
              104,824
              
              
              $
              1,521,915





Pursuant
      to FAS 123R, the Company records stock based compensation based upon the stated
      vested provisions in the related agreements. The vesting provisions for these
      agreements have various terms as follows: immediate vesting, half vesting
      immediately and the remainder over three years, quarterly over three years,
      annually over three years, one-third immediate vesting and remaining annually
      over two years, and one half immediate vesting with remaining vesting over
      six
      months.




A
      summary
      of stock option activity for the three months ended March 31, 2007 and for
      the
      year ended December 31, 2006 is as follows:








12


**Number
                  of**
                **Shares**
              
              **Weighted**
                **Average**
                **Exercise
                  Price**Balance
                  at December 31, 2005
              
              
              254,795
              
              
              $
              0.09Granted
              
              
              1,364,061
              
              
              $
              2.19Exercised
              
              
              —
              
              
              $
              —Forfeited
              
              
              (5,000
              )
              
              $
              0.90Balance
                  at December 31, 2006
              
              
              1,613,855
              
              
              $
              1.86Granted
              
              
              152,177
              
              
              $
              6.98Exercised
              
              
              —
              
              
              $
              —Forfeited
              
              
              (16,667
              )
              
              $
              15.75Balance
                  at March 31, 2007
              
              
              1,749,365
              
              
              $
              1.79




The
      weighted average remaining contractual term for options outstanding at March
      31,
      2007 was 9.36 years. Of the total options granted, 901,687 are fully
      vested, exercisable and non-forfeitable and have a weighted average exercise
      price of $1.07. Of the 152,177 options granted in 2007, 86,779 were granted
      to
      related parties of which all are fully vested.




**(E)
      Stock Warrants**




On
      February 15, 2007, the Company executed an agreement with an unrelated third
      party to provide certain services. Pursuant to the terms of the agreement,
      The
      Company will issue warrants to purchase 100,000 shares of common stock upon
      the
      achievement of various milestones as well as over the life of the contract.
      The
      warrants have an exercise price of $3.75. The fair value of the warrants totals
      $374,760 and was determined by using the Black-Scholes model with the following
      assumptions: expected dividend yield of 0%; expected volatility of 187.22%;
      risk-free interest rate of 4.68% and an expected life of five years. As of
      March
      31, 2007, 16,666 warrants have been issued for which the Company has charged
      stock based compensation expense in the amount of $62,460.




On
      January 5, 2007, the Company issued warrants to purchase 68,858 shares of common
      stock as part of the acquisition of EPI. (See Note (1)(D)(4))




In
      October and November 2006, the Company issued warrants to purchase 3,450,660
      shares of common stock as part of private placement offerings. The warrants
      have
      an exercise price of $2.22 and each warrant has a life of 5 years.




In
      addition, as part of the private placements, the Company issued warrants to
      purchase 958,277 shares of common stock to the placement agent, that is a
      company that is controlled by the Company’s Chairman and CEO. The warrants have
      an exercise price of $2.22. The fair value of the warrants totals $4,555,457
      and
      was determined by using the Black-Scholes model with the following assumptions:
      expected dividend yield of 0%; expected volatility of 79.4%; risk-free interest
      rate of 4.54% and an expected life of 10 years. Since these warrants were
      granted as compensation in connection with an equity raise, the Company has
      treated these warrants as a direct offering cost. The result of the transaction
      has a $0 net effect to equity. The warrants are fully vested and
      non-forfeitable.




On
      October 31, 2006, the loans payable to the Company’s founder, President and CEO
      were converted into 1,651,878 shares of common stock and 832,606 warrants to
      purchase common stock. The warrants have an exercise price of $2.22 and a life
      of 5 years.




4,283,266
      of the warrants are callable by Pipex in the event that Pipex’s common stock
      trades at $5.55 per share for 20 of 30 consecutive days. Accordingly, net
      proceeds of approximately $9,500,000 may be realized by Pipex in the event
      that
      all of the warrants are exercised.









A
      summary
      of warrant activity is as follows:




**Number
                  of**
                **Shares**
              
              **Weighted**
                **Average**
                **Exercise
                  Price**
              
              **Weighted**
                **Average**
                **Remaining**
                **Contractual**
                **Life**Balance
                  at December 31, 2005
              
              —
              
              —Granted
              
              5,241,544
              
              2.22
              
              4.69
                  Years


Exercised
            
            —
            
            —
            
            —Forfeited
            
            —
            
            —
            
            —




Balance
                at December 31, 2006
            
            5,241,544
            
            2.22
            
            4.69
                YearsGranted
            
            85,525
            
            3.39
            
            8.31
                YearsExercised
            
            —
            
            —
            
            —Forfeited
            
            —
            
            —
            
            —Balance
                at March 31, 2007
            
            5,327,069
            
            2.24
            
            4.98
                Years






**(F)
      Options of Subsidiary**




CD4
      has
      30,000 options outstanding and exercisable, with an exercise price of $0.20
      and
      a remaining contractual life of 1.24 years as of March 31, 2007.







**(G)
      Non-Controlling Interest**




Since
      the
      Company’s majority owned subsidiaries have never been profitable and present
      negative equity, there has been no establishment of a positive non-controlling
      interest. Since this value cannot be presented as a deficit balance, the
      accompanying consolidated balance sheet reflects a $0 balance.




**Note
      5 Commitments**




**(A)
      License Agreements**




Since
      inception, the Company has entered into various option and license agreements
      for the use of patents and their corresponding applications. These agreements
      have been entered into with various educational institutions and hospitals.
      These agreements contain payment schedules or stated amounts due for (a) option
      and license fees, (b) expense reimbursements, and (c) achievement of success
      milestones. All expenses related to these agreements have been recorded as
      research and development. In connection with these agreements, the Company
      had
      approximately $39,682 outstanding as accounts payable and $90,000 outstanding
      as
      accrued liabilities, as of March 31, 2007.




In
      connection with these agreements, the Company may be obligated to make milestone
      payments up to an amount of $6,675,000. Some of these payments may be fulfilled
      through the issuance of the Company’s common stock, at the Company’s option.
      There have been no such milestones achieved or payments made to date. At the
      present time, the Company can give no assurances that any such milestones will
      be achieved. In addition to the milestone payments, the Company may be obligated
      to make royalty payments on future sales pursuant to the agreements. The
      schedule below does not include the value of these commitments.




**(B)
      Research Agreement**




In
      September 2005, the Company entered into a three-year sponsored research
      agreement with a University. Pursuant to that agreement, the Company sponsors
      approximately $460,000 per year, payable in monthly installments. This agreement
      can be extended for an additional two-year period. As of March 31, 2007, 56,567
      are included in accounts payable in connection with this agreement.




**(C)
      Consulting Agreements**




In
      August
      2005, Pipex entered into an agreement with an individual to provide consulting
      services for the Company’s research and development. The consultant was paid
      $25,000 upon the execution of the agreement. The consultant will receive annual
      consulting fees of $120,000 for each of the next three years. The consultant
      also received 66,667 options having a fair value $59,960 and was determined
      using the Black-Scholes model with the following assumptions: expected dividend
      yield of 0%, expected volatility of 200%, risk free interest rate of 1.81%
      and
      an expected life of 10 years.




In
      December 2006, Pipex entered into an agreement with a Company to provide
      consulting services relating to the Company’s business management and
      development. The consultant will be paid $16,666 per month over a six-month
      term. The consultant also received 99,502 stock options having a fair
      value of $705,103, and was determined using the Black-Scholes model with the
      following assumptions: expected dividend yield of 0%, expected volatility of
      93.09%, risk free interest rate of 4.43% and an expected life of 10
      years.





14




**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF OPERATIONS**


*The
      following discussion should be read in conjunction with the attached unaudited
      consolidated financial statements and notes thereto, and with our audited
      consolidated financial statements and notes thereto for the fiscal year ended
      December 31, 2006, found in our Annual Report on Form 10-KSB. In addition
      to historical information, the following discussion contains forward-looking
      statements that involve risks, uncertainties and assumptions. Our actual results
      could differ materially from those anticipated by the forward-looking statements
      due to important factors and risks including, but not limited to, those set
      forth under* “Risk
      Factors” in Part II, Item 1A.




**Financial
      Operations Overview**




Since
      our
      inception during January 2001, our efforts and resources have been focused
      primarily on acquiring and developing our pharmaceutical technologies, raising
      capital and recruiting personnel. We are a development stage company and have
      no
      product sales to date and we will not receive any product sales until we receive
      approval from the FDA or receive approval from equivalent foreign regulatory
      bodies to begin selling our pharmaceutical candidates. Our major sources of
      working capital have been proceeds from cash for equity financings from our
      Chairman and Chief Executive Officer and various private financings, primarily
      involving private sales of our common stock and other equity
      securities.




Our
      company’s current corporate structure resulted from the October 2006 merger of a
      newly-created wholly owned subsidiary of Sheffield Pharmaceuticals, Inc.
      (“Sheffield”), a Delaware corporation incorporated in September 1993, and Pipex
      Therapeutics, Inc., a Delaware corporation (“Pipex Therapeutics”). In connection
      with that transaction, a wholly owned subsidiary of Sheffield merged with and
      into Pipex Therapeutics, with Pipex Therapeutics remaining as the surviving
      corporation and a wholly-owned subsidiary of Sheffield. On December 11, 2006,
      Sheffield changed its name to Pipex Pharmaceuticals, Inc. (“Pipex”). In exchange
      for their shares of capital stock in Pipex Therapeutics, the former stockholders
      of Pipex Therapeutics received shares of capital stock of Sheffield representing
      approximately 98 percent of the outstanding equity of Sheffield on a primary
      diluted basis after giving effect to the transaction, with Sheffield assuming
      Pipex’s outstanding options and warrants. In addition, the board of directors of
      Sheffield was reconstituted shortly following the effective time of the
      transaction such that the directors of Sheffield were replaced by our current
      directors, all of whom were previously directors of Pipex Therapeutics. Further,
      upon the effective time of the merger, the business of Sheffield was abandoned
      and the business plan of Pipex Therapeutics was adopted. The transaction was
      therefore accounted for as a reverse acquisition with Pipex Therapeutics, as
      the
      acquiring party and Sheffield as the acquired party. Accordingly, when we refer
      to our business and financial information relating to periods prior to the
      merger, we are referring to the business and financial information of Pipex
      Therapeutics, unless the context indicates otherwise.




**Critical
      Accounting Policies**




In
      December 2001, the SEC requested that all registrants discuss 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
      the company’s 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.




Research
      and development expenses consist primarily of manufacturing costs, license
      fees,
      salaries and related personnel costs, fees paid to consultants and outside
      service providers for laboratory development, legal expenses resulting from
      intellectual property prosecution and organizational affairs and other expenses
      relating to the design, development, testing, and enhancement of our product
      candidates, as well as an allocation of overhead expenses incurred by the
      Company. We expense our research and development costs as they are
      incurred.




General
      and administrative expenses consist primarily of salaries and related expenses
      for executive, finance and other administrative personnel, recruitment expenses,
      professional fees and other corporate expenses, including business development
      and general legal activities, as well as an allocation of overhead expenses
      incurred by the Company.




Our
      results include non-cash compensation expense as a result of the issuance of
      stock and stock option grants. Compensation expense for options granted to
      employees represents the fair value of the award at the date of grant. We
      account for stock-based employee compensation arrangements in accordance with
      the provisions of Accounting Principles Board Opinion No. 25, “Accounting for
      Stock Issued to Employees” and comply with the disclosure provisions of
      Statement of Financial Accounting Standards No. 123, “Accounting for Stock-
      Based Compensation.” Compensation for options granted to consultants has been
      determined in accordance with SFAS No. 123 as the fair value of the equity
      instruments issued. APB Opinion No. 25 has been applied in accounting for fixed
      and milestone-based stock options to employees and directors as allowed by
      SFAS
      No. 123. This amount is being recorded over the respective vesting periods
      of
      the individual stock options. The expense is included in the respective
      categories of expense in the statement of operations. We expect to record
      additional non-cash compensation expense in the future, which may be
      significant. However, because some of the options are milestone-based, the
      total
      expense is uncertain.





15




**Results
      of Operations**




***Three
      Months Ended March 31, 2007 and 2006.***




Research
      and Development Expenses. For the three months ended March 31, 2007, research
      and development expense was $1,417,123 as compared to $331,319 for the three
      months ended March 31, 2006. The increase of $1,085,804 is due primarily to
      a
      stock based compensation charge of approximately $612,000, an increase in
      salaries of approximately $207,000, an increase of approximately $105,000
      associated with payments related to further the development of our licensed
      clinical drug candidates, and an increase in patent expenses of approximately
      $59,000.




General
      and Administrative Expenses. For the three months ended March 31, 2007, general
      and administrative expense was $1,503,881 as compared to $184,212 for the three
      months ended March 31, 2006. The increase of $1,319,669 is due primarily to
      a
      stock based compensation charge of approximately $902,000, an increase to
      professional fees of approximately $145,000, approximately $131,000 of expenses
      relating to the build out of a new manufacturing facility and approximately
      $50,000 for expenses related to the Company’s reporting requirements as a public
      company .




Other
      Income (Expense), net. For the three months ended March 31, 2007, interest
      income was $71,469 as compared to $0 for the three months ended March 31, 2006.
      Interest income was higher for the three month period in 2007 as compared to
      the
      same period in 2006, due to the higher levels of cash available for
      investment.




Net
      Loss.
      Net loss for the three months ended March 31, 2007, was $2,849,535 as compared
      to $515,531 for the three months ended March 31, 2006. This increase in net
      loss
      is attributable primarily to an increase in research and development expenses
      of
      $1,085,804, and an increase in general and administrative expenses of $1,319,669
      as discussed above.




Net
      Loss
      Applicable to Common Shareholders. The net loss applicable to common
      shareholders for the three months ended March 31, 2007 includes a non-cash
      charge of $12,409,722 related to the acquisition of Effective Pharmaceuticals,
      Inc (“EPI”). The net loss applicable to common shareholders for the three months
      ended March 31, 2006 includes a non-cash charge of $190,250 related to Series
      B
      Preferred Stock dividends issued from EPI. The total of the non-cash charges
      was
      reflected through equal and offsetting adjustments to additional paid-in-capital
      with no net impact on stockholders’ equity. These amounts were considered in the
      determination of the Company’s loss per common share amounts for the three
      months ended March 31, 2007 and 2006 and for the period from January 8, 2001
      (inception) to March 31, 2007.




**Liquidity
      and Capital Resources**




During
      the three months ended March 31, 2007, we had a net decrease in cash of
      $1,250,942. Total cash resources as of March 31, 2007 was
      $10,941,484. During the three months ended March 31, 2007 and 2006, net
      cash used in operating activities was $1,814,625 and $519,210, respectively.
      This cash was used to fund operations for the periods, adjusted for non-cash
      expenses and changes in operating assets and liabilities.




Net
      cash
      used in investing activities for the three months ended March 31, 2007 and
      2006
      was $36,317 and $0, respectively. The net cash used in investing activities
      for
      the three months ended March 31, 2007 resulted from the acquisition of property
      and equipment.




Net
      cash
      proceeds from financing activities were $600,000 and $280,349 for the three
      months ended March 31, 2007 and 2006, respectively. The net cash proceeds from
      financing activities for the three months ended March 31, 2007 resulted from
      $600,000 in proceeds from a note payable under a term loan. The net cash
      proceeds from financing activities for the three months ended March 31, 2006
      resulted from proceeds from a related party loan of $280,349.




Our
      continued operations will depend on whether we are able to raise additional
      funds through various potential sources, such as equity and debt financing.
      Such
      additional funds may not become available on acceptable terms and there can
      be
      no assurance that any additional funding that we do obtain will be sufficient
      to
      meet our needs in the long term. We will continue to fund operations from cash
      on hand and through the similar sources of capital previously described. We
      can
      give no assurances that any additional capital that we are able to obtain will
      be sufficient to meet our needs.




**Current
      and Future Financing Needs**




We
      have
      incurred an accumulated deficit of $24,033,620 through March 31, 2007. We have
      incurred negative cash flow from operations since we started our business.
      We
      have spent, and expect to continue to spend, substantial amounts in connection
      with implementing our business strategy, including our planned product
      development efforts, our clinical trials, and our research and discovery
      efforts. Based on our current plans, we believe that our cash will be sufficient
      to enable us to meet our planned operating needs at least for the next 12
      months.





16




However,
      the actual amount of funds we will need to operate is subject to many factors,
      some of which are beyond our control. These factors include the
      following:




• the
      progress of our research activities;




• the
      number and scope of our research programs;




• the
      progress of our pre-clinical and clinical development activities;




• the
      progress of the development efforts of parties with whom we have entered into
      research and development agreements;




• our
      ability to maintain current research and development programs and to establish
      new research and development and licensing arrangements;




• our
      ability to achieve our milestones under licensing arrangements;




• the
      costs involved in prosecuting and enforcing patent claims and other intellectual
      property rights; and




• the
      costs and timing of regulatory approvals.




We
      have
      based our estimate on assumptions that may prove to be wrong. We may need to
      obtain additional funds sooner or in greater amounts than we currently
      anticipate. Potential sources of financing include strategic relationships,
      public or private sales of our shares or debt and other sources. We may seek
      to
      access the public or private equity markets when conditions are favorable due
      to
      our long-term capital requirements. We do not have any committed sources of
      financing at this time, and it is uncertain whether additional funding will
      be
      available when we need it on terms that will be acceptable to us, or at all.
      If
      we raise funds by selling additional shares of common stock or other securities
      convertible into common stock, the ownership interest of our existing
      stockholders will be diluted. If we are not able to obtain financing when
      needed, we may be unable to carry out our business plan. As a result, we may
      have to significantly limit our operations and our business, financial condition
      and results of operations would be materially harmed.




**License
      and Contractual Agreement Obligations**




Below
      is
      a table of our contractual obligations for the years 2007 through 2010 as of
      March 31, 2007.





**Year****Agreements**
              
              **Total**
              
              **2007**
              
              
              **2008**
              
              
              **2009**
              
              
              **2010**Short
                  and Long Term Debt with interest
              
              $
                  696,402
              
              $
              191,769
              
              
              
              $
              237,341
              
              
              
              $
              216,433
              
              
              
              $
              50,859Research
                  and Development
              
              $
                  650,958
              
              $
              344,625
              
              
              
              $
              306,333
              
              
              
              $
              0
              
              
              
              $
              0License
                  Agreements
              
              $
                  388,830
              
              $
              110,000
              
              
              
              $
              88,830
              
              
              
              $
              95,000
              
              
              
              $
              95,000Consulting
                  Agreements
              
              $
                  193,332
              
              $
              123,332
              
              
              
              $
              70,000
              
              
              
              $
              0
              
              
              
              $
              0Lease
                  Agreements
              
              $
                  159,238
              
              $
              135,958
              
              
              
              $
              23,280
              
              
              
              $
              0
              
              
              
              $
              0




**Product
      Candidates**




***COPREXA*** ** ***TM*** ** ***(oral
      tetrathiomolybate)***





17




Based
      on
      completed pivotal clinical trials using COPREXA TM for the
      treatment of initially presenting neurologic Wilson’s disease and communication
      with the FDA, we plan to file an NDA during 2007. In order to expand the
      therapeutic utility of COPREXA TM , we
      have completed a phase II clinical trial using COPREXA TM for the
      treatment of refractory Idiopathic Pulmonary Fibroiss (IPF), a fatal lung
      disease for which there is no FDA approved therapy. We have also initiated
      a
      phase II clinical trial using COPREXA TM in the
      treatment of primary biliary cirrohis (PBC), a fatal liver disease. The primary
      purposes for these studies is to evaluate the safety and efficacy of COPREXA TM when
      administered intravenously to patients with IPF and PBC and who have failed
      curative or survival prolonging therapy or for whom no such therapies exist,
      establish the maximum tolerated dose, and identify dose limiting
      toxicities.




COPREXA TM has
      received clinical development grants from the FDA’s Orphan Products group. These
      grants have covered the predominant cost of pre-clinical efficacy and safety
      testing, and Phase II and Phase III clinical program. PBC is currently supported
      by a $950,000 orphan drug grant funded by the FDA. Through December 31, 2006,
      we
      have incurred approximately $1,456,000 of costs related to our development
      of
      COPREXA TM , of
      which approximately $150,000 and $1,061,000 was incurred in fiscal years 2005
      and 2006, respectively, and approximately $245,000 was incurred for the three
      months ending March 31, 2007.




***TRIMESTA*** ** ***TM*** ** ***(oral
      estriol)***




During
      2007, we plan to initiate a multicenter, placebo controlled 130 patient phase
      II/III clinical trial using TRIMESTA TM for the
      treatment of relapsing-remitting Multiple Sclerosis (MS). This phase II/III
      clinical trial builds upon our encouraging results from our earlier phase IIa
      clinical trial. The primary purpose of this study will be to evaluate the safety
      and efficacy of TRIMESTA TM in a
      larger MS patient population. The preclinical and clinical development of
      TRIMESTA TM has been
      primary financed by grants from the NIH and various non-profit foundations.
      Through March 31, 2007, we have incurred approximately $311,000 of costs related
      to our development of TRIMESTA TM of which
      approximately $49,500 and $185,500 was incurred in fiscal years 2005 and 2006,
      respectively,, and approximately $76,000 was incurred in the three months ending
      March 31, 2007.




***Anti-CD4
      802-2***




During
      2007, we plan to complete our phase I/II clinical trial of anti-CD4 802-2 in
      the
      prevention of graft-vs-host disease as well as complete our preclinical animal
      studies of anti-CD4 802-2. The primary purpose of these preclinical studies
      is
      to evaluate the molecules potential efficacy in different disease settings.
      If
      successful, we may choose to initiate clinical studies in these diseases. The
      preclinical and clinical development of anti-CD4 802-2 has been primary financed
      by grants from the NIH and various non-profit foundations. Through March 31,
      2007, we have incurred $1,331,100 of costs related to our development of
      anti-CD4 802-2 of which $57,800, $331,800, $303,300, $295,100, $112,500 and
      $160,600 was incurred in fiscal years 2001, 2002, 2003, 2004, 2005 and 2006
      respectively and approximately $70,000 has been incurred in the three months
      ended March 31, 2007.




***CORRECTA*** ** ***TM*** ** ***(clotrimazole
      emema)***




During
      2007, we plan to continue the phase II clinical trial of CORRECTA TM in the
      treatment of acute refractory pouchitis, a gastrointestinal disease (the
“CAPTURE study”). The primary purpose of this double blind, placebo-controlled
      phase II clinical trial is to test CORRECTA’s safety and efficacy in treating
      acute refractory pouchitis. The CAPTURE study is supported by a $750,000 orphan
      drug grant from the FDA.




The
      preclinical and clinical development of CORRECTA TM has been
      primarily financed by grants from the FDA’s orphan drug products group and
      various non-profit foundations. Through March 31, 2007, we have incurred
      approximately $232,000 of costs related to our development of CORRECTA TM of which
      approximately $103,000 and $107,000 was incurred in fiscal years 2005 and 2006,
      respectively, and $22,000 has been incurred during the first three months of
      2007.




***Solovax***




During
      2007, we plan to analyze the data from our phase II clinical trial of SOLAVAX TM in the
      treatment of secondary progressive MS, as well as develop a new manufacturing
      procedure for SOLAVAX TM .




If
      successful, we may choose to initiate a phase IIb clinical study in this
      disease. The preclinical and clinical development of SOLOVAX has been primarily
      financed by grants from the NIH and various non-profit foundations totaling
      $5.5
      million. Through March 31, 2007, we have incurred approximately $679,900 of
      costs related to our development of SOLAVAX of which $106,900, $157,700,
      $164,300, $162,800, $66,900 and $21,300 was incurred in fiscal 2001, 2002,
      2003,
      2004, 2005 and 2006, respectively, and $0 has been incurred in during the first
      three months of 2007.





18




We
      believe we currently have sufficient capital to fund development activities
      of
      COPREXA TM ,
      TRIMESTA TM ,
      anti-CD4 802-2, CORRECTA TM and
      SOLOVAX TM during
      2006 and 2007 and 2008. Assuming our NDA for COPREXA TM is
      filed, accepted and ultimately approved for market in 2008, we will generate
      cash flow from the sales of COPREXA TM .
      However, if our business does not generate any cash flow, we will need to raise
      additional capital to continue development of the product beyond 2009. To the
      extent additional capital is not available when we need it, we may be forced
      to
      sublicense our rights to our product candidates, abandon our development efforts
      altogether, or lose our licenses to our product candidates, any of which would
      have a material adverse effect on the prospects of our business. See also the
      risks identified under the section entitled “Risk Factors” in this
      report.




**Additional
      Licenses**




We
      may
      enter into additional license agreements relating to new drug
      candidates.




**Use
      of Estimates**




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect certain reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of expenses during the
      reporting period. Actual results could differ from those estimates.




**ITEM
      3. CONTROLS AND PROCEDURES**




The
      Company maintains disclosure controls and procedures that are designed to ensure
      that information required to be disclosed in the Company’s reports under the
      Exchange Act is recorded, processed, summarized and reported within the time
      periods specified in the Commission’s rules and forms and that such information
      is accumulated and communicated to the Company’s management, including its Chief
      Executive Officer, as appropriate, to allow for timely decisions regarding
      required disclosure. In designing and evaluating the disclosure controls and
      procedures, management recognizes that any controls and procedures, no matter
      how well designed and operated, can provide only reasonable assurance of
      achieving the desired control objectives, and management is required to apply
      its judgment in evaluating the cost-benefit relationship of possible controls
      and procedures.




As
      required by Commission Rule 13a-15(b), the company carried out an evaluation,
      under the supervision and with the participation of the Company’s management,
      including the Company’s Chief Executive Officer, of the effectiveness of the
      design and operation of the Company’s disclosure controls and procedures as of
      the end of the period covered by this Report. Based on the foregoing, the
      Company’s Chief Executive Officer concluded that the Company’s disclosure
      controls and procedures were effective at the reasonable assurance
      level.




There
      has
      been no change in the Company’s internal control over financial reporting during
      the Company’s most recent fiscal quarter that has materially affected, or is
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




The
      Company is not an “accelerated filer” for the 2007 fiscal year because it is
      qualified as a “small business issuer”. Hence, under current law, the internal
      controls certification and attestation requirements of Section 404 of the
      Sarbanes-Oxley act will not apply to the Company.









**PART
      II - OTHER INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS**




We
      are
      not a party to any pending legal proceeding, nor are we aware of any proceeding
      contemplated by any governmental authority involving us.




**ITEM
      1A. RISK FACTORS**




An
      investment in our securities is highly speculative and involves a high degree
      of
      risk. Therefore, in evaluating us and our business you should carefully consider
      the risks set forth below, which are only a few of the risks associated with
      investing in our common stock. You should be in a position to risk the loss
      of
      your entire investment.




**Risks
          Relating to Our Business**
 ***We
        are a development stage company. We currently have no product revenues and
        will
        need to raise additional capital to operate our
        business.***
  We
        are a
        development stage company that has experienced significant losses since
        inception and has a significant accumulated deficit. We expect to incur
        additional operating losses in the future and expect our cumulative losses
        to
        increase. To date, we have generated no product revenues. As of March 31,
        2007,
        we have expended approximately $9.6 million on a consolidated basis acquiring
        and developing our current product candidates. Until such time as we receive
        approval from the FDA and other regulatory authorities for our product
        candidates, we will not be permitted to sell our drugs and will not have
        product
        revenues. Therefore, for the foreseeable future we will have to fund all
        of our
        operations and capital expenditures from equity and debt offerings, cash
        on
        hand, licensing fees, and grants. We will need to seek additional sources
        of
        financing and such additional financing may not be available on favorable
        terms,
        if at all. If we do not succeed in raising additional funds on acceptable
        terms,
        we may be unable to complete planned pre-clinical and clinical trials or
        obtain
        approval of our product candidates from the FDA and other regulatory
        authorities. In addition, we could be forced to discontinue product development,
        reduce or forego sales and marketing efforts, and forego attractive business
        opportunities. Any additional sources of financing will likely involve the
        issuance of our equity or debt securities, which will have a dilutive effect
        on
        our stockholders.




19


***We
      are not currently profitable and may never become
      profitable.***




We
      have a
      history of losses and expect to incur substantial losses and negative operating
      cash flow for the foreseeable future. Even if we succeed in developing and
      commercializing one or more of our product candidates, we expect to incur
      substantial losses for the foreseeable future and may never become profitable.
      We also expect to continue to incur significant operating and capital
      expenditures and anticipate that our expenses will increase substantially in
      the
      foreseeable future as we do the following:




• continue
      to undertake pre-clinical development and clinical trials for our product
      candidates;




• seek
      regulatory approvals for our product candidates;




• implement
      additional internal systems and infrastructure;




• lease
      additional or alternative office facilities; and




• hire
      additional personnel, including members of our management team.




We
      also
      expect to experience negative cash flow for the foreseeable future as we fund
      our technology development with capital expenditures. As a result, we will
      need
      to generate significant revenues in order to achieve and maintain profitability.
      We may not be able to generate these revenues or achieve profitability in the
      future. Our failure to achieve or maintain profitability could negatively impact
      the value of our common stock and underlying securities.




***We
      have a limited operating history on which investors can base an investment
      decision.***




We
      are a
      development-stage company and have not demonstrated our ability to perform
      the
      functions necessary for the successful commercialization of any of our product
      candidates. The successful commercialization of our product candidates will
      require us to perform a variety of functions, including:




• continuing
      to undertake pre-clinical development and clinical trials;




• participating
      in regulatory approval processes;




• formulating
      and manufacturing products; and


• Conducting
        sales and marketing activities.


Our
        operations have been limited to organizing and staffing our company, acquiring,
        developing, and securing our proprietary technology, and undertaking
        pre-clinical trials and Phase I/II and Phase II clinical trials of our principal
        product candidates. These operations provide a limited basis for you to assess
        our ability to commercialize our product candidates and the advisability
        of
        investing in our securities.


20


***We
        may not obtain the necessary U.S. or worldwide regulatory approvals to
        commercialize our product(s).***
  We
        will
        need FDA approval to commercialize our product candidates in the U.S. and
        approvals from equivalent regulatory authorities in foreign jurisdictions
        to
        commercialize our product candidates in those jurisdictions. In order to
        obtain
        FDA approval for any of our product candidates, we must submit to the FDA
        a new
        drug application, or “NDA,” demonstrating that the product candidate is safe for
        humans and effective for its intended use. This demonstration requires
        significant research and animal tests, which are referred to as “pre-clinical
        studies,” as well as human tests, which are referred to as “clinical trials.” We
        will also need to file additional investigative new drug applications and
        protocols in order to initiate clinical testing of our drug candidates in
        new
        therapeutic indications and delays in obtaining required FDA and institutional
        review board approvals to commence such studies may delay our initiation
        of such
        planned additional studies.




Satisfying
      the FDA’s regulatory requirements typically takes many years, depending on the
      type, complexity, and novelty of the product candidate, and requires substantial
      resources for research, development, and testing. We cannot predict whether
      our
      research and clinical approaches will result in drugs that the FDA considers
      safe for humans and effective for indicated uses. The FDA has substantial
      discretion in the drug approval process and may require us to conduct additional
      pre-clinical and clinical testing or to perform post-marketing studies. The
      approval process may also be delayed by changes in government regulation, future
      legislation or administrative action, or changes in FDA policy that occur prior
      to or during our regulatory review. Delays in obtaining regulatory approvals
      may
      do the following:




• delay
      commercialization of, and our ability to derive product revenues from, our
      product candidates;




• impose
      costly procedures on us; and




• diminish
      any competitive advantages that we may otherwise enjoy.




Even
      if
      we comply with all FDA requests, the FDA may ultimately reject one or more
      of
      our NDAs. We cannot be sure that we will ever obtain regulatory clearance for
      our product candidates. Failure to obtain FDA approval of any of our product
      candidates will severely undermine our business by reducing our number of
      salable products and, therefore, corresponding product revenues.




In
      foreign jurisdictions, we must receive approval from the appropriate regulatory
      authorities before we can commercialize our drugs. Foreign regulatory approval
      processes generally include all of the risks associated with the FDA approval
      procedures described above. We cannot assure you that we will receive the
      approvals necessary to commercialize our product candidate for sale outside
      the
      United States.




***We
      may not be able to retain rights licensed to us by others to commercialize
      key
      products and may not be able to establish or maintain the relationships we
      need
      to develop, manufacture, and market our products.***




We
      currently rely on an exclusive worldwide license agreement with the University
      of Michigan relating to various uses of COPREXA TM . We
      also have an exclusive license agreement with the McLean Hospital relating
      to
      the use of EFFIRMA TM to treat
      fibromyalgia syndrome; an exclusive license agreement with Thomas Jefferson
      University relating to our anti-CD4 inhibitors; an exclusive license agreement
      with the Regents of the University of California relating to our TRIMESTA TM technology; an exclusive license agreement with the Children’s Hospital-Boston
      relating to our CORRECTA TM technology and an exclusive option agreement to license our T-cell vaccine
      program from the University of Southern California (USC) which expires during
      December 2007. Each of these agreements requires us to use our best efforts
      to
      commercialize each of the technologies as well as meet certain diligence
      requirements and timelines in order to keep the license agreement in effect.
      In
      the event we are not able to meet our diligence requirements, we may not be
      able
      to retain the rights granted under our agreements or renegotiate our arrangement
      with these institutions on reasonable terms, or at all.




Furthermore,
      we currently have very limited product development capabilities and no
      manufacturing, marketing or sales capabilities. For us to research, develop,
      and
      test our product candidates, we would need to contract with outside researchers,
      in most cases those parties that did the original research and from whom we
      have
      licensed the technologies.




We
        can
        give no assurances that any of our issued patents licensed to us or any of
        our
        other patent applications will provide us with significant proprietary
        protection or be of commercial benefit to us. Furthermore, the issuance of
        a
        patent is not conclusive as to its validity or enforceability, nor does the
        issuance of a patent provide the patent holder with freedom to operate without
        infringing the patent rights of others.
  ***Developments
        by competitors may render our products or technologies obsolete or
        non-competitive.***
  Companies
        that currently sell or are developing both generic and proprietary
        pharmaceutical compounds to treat central-nervous-system, inflammatory,
        autoimmune and fibrotic diseases include: Pfizer, Inc., GlaxoSmithKline
        Pharmaceuticals, Shire Pharmaceuticals, Plc., Merck & Co., Eli Lilly &
Co.., Serono, SA, Biogen Idec, Inc., Achillion, Ltd., Active Biotech, Inc.,
        Panteri Biosciences, Meda, Merrimack Pharmaceuticals, Inc., Schering AG,
        Forest
        Laboratories, Inc., Attenuon, LLC, Cypress Biosciences, Inc., Axcan Pharma,
        Inc., Teva Pharmaceuticals, Inc., Intermune, Inc. Fibrogen, Inc., Rare Disease
        Therapeutics, Inc., Prana Biotechnology, Inc., Merz & Co., AstraZeneca
        Pharmaceuticals, Inc., Chiesi Pharmaceuticals, Inc., Targacept, Inc., and
        Johnson & Johnson, Inc. Alternative technologies are being developed to
        treat autoimmune inflammatory, fibrotic, Alzheimer’s and Wilson’s diseases,
        several of which are in early and advanced clinical trials, such as,
        pirfenidone, milnacipram, Actimmune TM and other interferon preparations.
        Unlike
        us, many of our competitors have significant financial and human resources.
        In
        addition, academic research centers may develop technologies that compete
        with
        our CORRECTA TM ,
        TRIMESTA TM ,
        anti-CD4 inhibitors, EFFIRMA TM and
        COPREXA TM technologies. We are aware that other companies are developing competitive
        anti-copper therapies that are in various stages of clinical
        trial.





21




***We
      may not succeed in enforcing our orphan drug
      designations.***




COPREXA TM has been
      designated by the FDA as an “orphan drug” for the treatment of Wilson’s disease
      patients presenting with neurologic complications. CORRECTA TM has also
      been designated by the FDA as an “orphan drug” for the treatment of pouchitis
      patients. We intend to file for “orphan drug” designations in the EMEA (the
      European equivalent of the FDA) for both COPREXA TM and
      CORRECTA TM for
      similar uses. Pursuant to our agreements with our scientific inventors and
      universities, we have acquired these designations. Orphan drug designation
      is an
      important element of our competitive strategy because there are no composition
      of matter patents for COPREXA TM ,
      TRIMESTA TM or
      CORRECTA TM . Any
      company that obtains the first FDA approval for a designated orphan drug for
      a
      rare disease generally receives marketing exclusivity for use of that drug
      for
      the designated condition for a period of seven years in the United States and
      ten years in the European Union.




To
      be
      successful in enforcing this designation, our new drug application would need
      to
      be the first NDA approved to use COPREXA TM to treat
      Wilson’s disease. While we are not aware of any other companies that have sought
      orphan drug designation for COPREXA TM or its
      active ingredient, tetrathiomolybdate, for this indication, other companies
      may
      in the future seek it and may obtain FDA marketing approval before we do. In
      addition, the FDA may permit other companies to market a form of
      tetrathiomolybdate to treat Wilson’s disease patients with neurologic
      complication if their product demonstrates clinical superiority. This could
      create a more competitive market for us.




***Competitors
      could develop and gain FDA approval of our products for a different
      indication.***




A
      competitor could develop our products in a similar format, but for a different
      indication. For example, other companies could manufacture and develop COPREXA TM and its
      active ingredient, tetrathiomolybdate, and secure approvals for different
      indications. We are aware that a potential competitor has an exclusive license
      from the University of Michigan (UM) to an issued U.S. patent that relates
      to
      the use of tetrathiomolybdate to treat angiogenic diseases (the “Angiogenic
      Patent”) and is currently in phase I and phase II clinical trials for the
      treatment of various forms of cancer. To our knowledge, this competitor and
      UM
      have filed additional patent applications claiming various analog structures
      and
      formulations of tetrathiomolybdate to treat various diseases. While our use
      of
      COPREXA TM and its
      active ingredient, tetrathiomolybdate, is in a more advanced state of clinical
      development, having completed two pivotal clinical trials, we cannot predict
      whether or not one or more patent applications corresponding to the Angiogenic
      Patent will be filed or if any U.S. patents will be issued which might prevent
      us from expanding the commercial applications of COPREXA TM .
      Further, we cannot predict whether our competitor might seek to develop their
      version of tetrathiomolybdate for Wilson’s disease and file for FDA or EMEA
      approval before us and saturate the market. We also cannot predict whether,
      if
      issued, any patent corresponding to the Angiogenic Patent may prevent us from
      conducting our business or result in lengthy and costly litigation or the need
      for a license. Furthermore, if we need to obtain a license to these or other
      patents in order to conduct our business, we may find that it is not available
      to us on commercially reasonable terms, or is not available to us at
      all.




If
      the
      FDA approves other tetrathiomolybdate products to treat indications other than
      those covered by our issued or pending patent applications, physicians may
      elect
      to prescribe a competitor’s tetrathiomolybdate to treat Wilson’s disease—this is
      commonly referred to as “off-label” use. While under FDA regulations a
      competitor is not allowed to promote off-label uses of its product, the FDA
      does
      not regulate the practice of medicine and, as a result, cannot direct physicians
      as to which source it should use for the tetrathiomolybdate they prescribe
      to
      their patients. Consequently, we might be limited in our ability to prevent
      off-label use of a competitor’s tetrathiomolybdate to treat Wilson’s disease or
      inflammatory or fibrotic disease, even if we have orphan drug exclusivity.
      Our
      competitor might seek FDA or EMEA approval to market tetrathiomolybdate for
      any
therapeutic
      indication, including Wilson’s disease or idiopathic pulmonary fibrosis (IPF).
      If we are not able to obtain and enforce these patents, a competitor could
      use
      tetrathiomolybdate for a treatment or use not covered by any of our
      patents.




***We
        rely primarily on method patents and patent applications and various regulatory
        exclusivities to protect the development of our technologies, and our ability
        to
        compete may decrease or be eliminated if we are not able to protect our
        proprietary technology.***
  Our
        competitiveness may be adversely affected if we are unable to protect our
        proprietary technologies. Currently, there are no composition of matter patents
        for TRIMESTA TM ,
        EFFIRMA TM ,
        CORRECTA TM ,
        COPREXA TM or their
        respective active ingredients estriol, flupirtine, clotrimazole and
        tetrathiomolybdate. Additionally, we do not have an issued patent for COPREXA TM ’s
        use to
        treat Wilson’s disease, although we do have Orphan Drug Designation for this
        indication. Orphan Drug Designation provides protection for seven years of
        marketing exclusivity for that product in that disease indication in the
        U.S. We
        also expect to rely on patent protection from an issued U.S. Patent for the
        use
        of COPREXA TM and
        related compounds to treat inflammatory and fibrotic diseases (U.S. Patent
        No
        6,855,340) and we have received a notice of allowance for the use of COPREXA TM and
        related compounds to treat Alzheimer’s disease. Both of these patents have been
        exclusively licensed to us. We have also filed various pending patent
        applications which cover various formulations, packaging, distribution &
monitoring methods for COPREXA TM . We
        rely on issued patent and pending patent applications for use of TRIMESTA TM to treat
        MS (issued U.S. Patent No. 6,936,599) and various other therapeutic indications
        which have been exclusively licensed to us. We have also exclusively licensed
        an
        issued patent for the treatment of fibromyalgia with EFFIRMA TM and have
        pending patent applications for our uses of CORRECTA TM .





22




We
      also
      expect to rely on regulatory exclusivities, such as the Orphan Drug Designation
      with the FDA and EMEA (“Orphan Drug”) to protect COPREXA TM and
      CORRECTA TM for
      certain therapeutic indications and our other future products. Orphan Drug
      protection provides for seven years of marketing exclusivity for that disease
      indication in the U.S. and ten years of marketing exclusivity for that disease
      indication in Europe. We have received an Orphan Drug Designation for the use
      of
      CORRECTA TM to treat
      pouchitis as well as an Orphan Drug Designation for the use of COPREXA TM to treat
      neurologically presenting Wilson’s disease and are in the process of filing
      similar designations in Europe. Orphan Drug Designation is an important element
      of our competitive strategy for COPREXA TM and
      CORRECTA TM . To be
      successful in enforcing this designation, our NDA would need to be the first
      NDA
      approved to use COPREXA TM and
      CORRECTA TM for that
      indication. While we are not aware of any other companies that have sought
      orphan drug designation for COPREXA TM and
      CORRECTA TM for any
      indication, other companies may in the future seek it and may obtain FDA
      marketing approval before we do.




After
      the
      Orphan Drug exclusivity period expires, assuming our patents are validly issued,
      we still expect to rely on our issued and pending method of use patent
      applications to protect our proprietary technology with respect to the
      development of COPREXA TM ,
      TRIMESTA TM and
      CORRECTA TM . The
      patent positions of pharmaceutical companies are uncertain and may involve
      complex legal and factual questions. We may incur significant expense in
      protecting our intellectual property and defending or assessing claims with
      respect to intellectual property owned by others. Any patent or other
      infringement litigation by or against us could cause us to incur significant
      expense and divert the attention of our management.




We
      may
      also rely on the United States Drug Price Competition and Patent Term
      Restoration Act, commonly known as the “Hatch-Waxman Amendments,” to protect
      some of our current product candidates, specifically COPREXA TM ,
      TRIMESTA TM ,
      Anti-CD4 802-2, EFFIRMA TM and
      other future product candidates we may develop. Once a drug containing a new
      molecule is approved by the FDA, the FDA cannot accept an abbreviated NDA for
      a
      generic drug containing that molecule for five years, although the FDA may
      accept and approve a drug containing the molecule pursuant to an NDA supported
      by independent clinical data. Recent amendments have been proposed that would
      narrow the scope of Hatch-Waxman exclusivity and permit generic drugs to compete
      with our drug.




Others
      may file patent applications or obtain patents on similar technologies or
      compounds that compete with our products. We cannot predict how broad the claims
      in any such patents or applications will be, and whether they will be allowed.
      Once claims have been issued, we cannot predict how they will be construed
      or
      enforced. We may infringe intellectual property rights of others without being
      aware of it. If another party claims we are infringing their technology, we
      could have to defend an expensive and time consuming lawsuit, pay a large sum
      if
      we are found to be infringing, or be prohibited from selling or licensing our
      products unless we obtain a license or redesign our product, which may not
      be
      possible.




We
      also
      rely on trade secrets and proprietary know-how to develop and maintain our
      competitive position. Some of our current or former employees, consultants,
      or
      scientific advisors, or current or prospective corporate collaborators, may
      unintentionally or willfully disclose our confidential information to
      competitors or use our proprietary technology for their own benefit.
      Furthermore, enforcing a claim alleging the infringement of our trade secrets
      would be expensive and difficult to prove, making the outcome uncertain. Our
      competitors may also independently develop similar knowledge, methods, and
      know-how or gain access to our proprietary information through some other
      means.




***We
      may fail to retain or recruit necessary personnel, and we may be unable to
      secure the services of consultants.***




As
      of
      March 31, 2007, we have nine full-time employees and one part-time employee,
      including Steve H. Kanzer, our co-founder, Chairman and CEO and Dr. Charles
      Bisgaier, our President. We have also engaged regulatory consultants to advise
      us on our dealings with the FDA. We intend to recruit certain key executive
      officers, including a vice president of regulatory affairs and other key
      executive officers. Our future performance will depend
      in
      part on our ability to successfully integrate newly hired executive officers
      into our management team and our ability to develop an effective working
      relationship among senior management.




Certain
        of our officers, directors, (including Mr. Stergis, our Vice Chairman &
former Chief Operating Officer and Dr. Rudick, our Chief Medical Officer)
        scientific advisors, and consultants serve as officers, directors, scientific
        advisors, or consultants of other biopharmaceutical or biotechnology companies.
        We can expect this to also be the case with personnel that we engage in the
        future. We can give no assurances that any such other companies will not
        have
        interests that are in conflict with our interests.
  Losing
        key personnel or failing to recruit necessary additional personnel would
        impede
        our ability to attain our development objectives. There is intense competition
        for qualified personnel in the drug-development field, and we may not be
        able to
        attract and retain the qualified personnel we would need to develop our
        business.





23






We
      rely
      on independent organizations, advisors, and consultants to perform certain
      services for us, including handling substantially all aspects of regulatory
      approval, clinical management, manufacturing, marketing, and sales. We expect
      that this will continue to be the case. Such services may not always be
      available to us on a timely basis when we need them.




***We
      may experience difficulties in obtaining sufficient quantities of our products
      or other compounds.***




In
      order
      to successfully commercialize our product candidates, we must be able to
      manufacture our products in commercial quantities, in compliance with regulatory
      requirements, at acceptable costs, and in a timely manner. Manufacture of the
      types of biopharmaceutical products that we propose to develop present various
      risks. For example, manufacture of the active ingredient in COPREXA TM is a
      complex process that can be difficult to scale up for purposes of producing
      large quantities. This process can also be subject to delays, inefficiencies,
      and poor or low yields of quality products. Furthermore, the active ingredient
      of COPREXA TM is known
      to be subject to a loss of potency as a result of prolonged exposure to moisture
      and other normal atmospheric conditions. We are developing proprietary
      formulations and specialty packaging solutions to overcome this stability issue,
      but we can give no assurances that we will be successful in meeting the
      stability requirements required for approval by regulatory authorities such
      as
      the FDA. Additionally, our SOLOVAX T-cell vaccine technology is complex to
      manufacture. The vaccine is manufactured through the procurement of a patients
      own T-cells derived from the patient’s plasma. This manufacturing process
      involves incubation of T-cells, irradiation and refrigeration of the cells.
      We
      plan to develop a revised manufacturing procedure which will streamline quality
      control of the vaccine.




Historically,
      our manufacturing has been handled by contract manufacturers and compounding
      pharmacies. We can give no assurances that we will be able to continue to use
      our current manufacturer or be able to establish another relationship with
      a
      manufacturer quickly enough so as not to disrupt commercialization of any of
      our
      products, or that commercial quantities of any of our products, if approved
      for
      marketing, will be available from contract manufacturers at acceptable
      costs.




In
      addition, any contract manufacturer that we select to manufacture our product
      candidates might fail to maintain a current “good manufacturing practices”
(cGMP) manufacturing facility.




During
      January 2007, we decided to establish a commercial manufacturing facility for
      our products in Ann Arbor MI and we would require substantial additional funds
      in order to hire and train significant numbers of employees and comply with
      the
      extensive regulations applicable to such a facility. We might find that we
      are
      unable to develop a cGMP manufacturing facility that is able to manufacture
      quantities of products required for all clinical trials, as well as
      commercial-scale manufacturing.




The
      cost
      of manufacturing certain products may make them prohibitively expensive. In
      order to successfully commercialize our product candidates we may be required
      to
      reduce the costs of production, and we may find that we are unable to do so.
      We
      may be unable to obtain, or may be required to pay high prices for compounds
      manufactured or sold by others that we need for comparison purposes in clinical
      trials and studies for our products.




***Clinical
      trials are very expensive, time-consuming, and difficult to design and
      implement.***




Human
      clinical trials are very expensive and difficult to design and implement, in
      part because they are subject to rigorous regulatory requirements. The clinical
      trial process is also time-consuming. We estimate that clinical trials of our
      product candidates would take at least several years to complete.. Furthermore,
      failure can occur at any stage of the trials, and we could encounter problems
      that cause us to abandon or repeat clinical trials. Commencement and completion
      of clinical trials may be delayed by several factors, including:




• unforeseen
      safety issues;




• determination
      of dosing;




• lack
        of effectiveness during clinical trials;
  • slower
        than expected rates of patient recruitment;
  • inability
        to monitor patients adequately during or after treatment; and
  • inability
        or unwillingness of medical investigators to follow our clinical
        protocols.





24




In
      addition, we or the FDA may suspend our clinical trials at any time if it
      appears that we are exposing participants to unacceptable health risks or if
      the
      FDA finds deficiencies in our submissions or conduct of our trials.




***The
      results of our clinical trials may not support our product candidate
      claims.***




Even
      if
      our clinical trials are completed as planned, we cannot be certain that the
      results will support our product-candidate claims. Success in pre-clinical
      testing and phase II clinical trials does not ensure that later clinical trials
      will be successful. We cannot be sure that the results of later clinical trials
      would replicate the results of prior clinical trials and pre-clinical testing.
      Clinical trials may fail to demonstrate that our product candidates are safe
      for
      humans and effective for indicated uses. Any such failure could cause us to
      abandon a product candidate and might delay development of other product
      candidates. Any delay in, or termination of, our clinical trials would delay
      our
      obtaining FDA approval for the affected product candidate and, ultimately,
      our
      ability to commercialize that product candidate.




***Physicians
      and patients may not accept and use our technologies.***




Even
      if
      the FDA approves our product candidates, physicians and patients may not accept
      and use them. Acceptance and use of our product will depend upon a number of
      factors, including the following:




• the
      perception of members of the health care community, including physicians,
      regarding the safety and effectiveness of our drugs;




• the
      cost-effectiveness of our product relative to competing products;




• availability
      of reimbursement for our products from government or other healthcare payers;
      and




• the
      effectiveness of marketing and distribution efforts by us and our licensees
      and
      distributors, if any.




Because
      we expect sales of our current product candidates, if approved, to generate
      substantially all of our product revenues for the foreseeable future, the
      failure of any of these drugs to find market acceptance would harm our business
      and could require us to seek additional financing.




***We
      depend on researchers who are not under our control.***




We
      depend
      upon independent investigators and scientific collaborators, such as
      universities and medical institutions, to conduct our pre-clinical and clinical
      trials under agreements with us. These collaborators are not our employees
      and
      we cannot control the amount or timing of resources that they devote to our
      programs or the timing of their procurement of clinical-trial data. They may
      not
      assign as great a priority to our programs or pursue them as diligently as
      we
      would if we were undertaking those programs ourselves. Failing to devote
      sufficient time and resources to our drug-development programs, or substandard
      performance, could result in delay of any FDA applications and our
      commercialization of the drug candidate involved.




These
      collaborators may also have relationships with other commercial entities, some
      of which may compete with us. Our collaborators assisting our competitors at
      our
      expense, could harm our competitive position. For example, we depend on
      scientific collaborators for our TRIMESTA TM ,
      SOLOVAX TM ,
      CORRECTA TM ,
      anti-CD4 802-2, EFFIRMA TM and
      COPREXA TM development programs. Specifically, all of the clinical trials have
      been
      conducted under physician-sponsored investigational new drug applications
      (INDs), not corporate-sponsored INDs. We are also dependent on government and
      private grants to fund certain of our clinical trials for our product
      candidates. If we are unable to maintain these grants, we might be forced to
      scale back development of these product candidates. We have experienced
      difficulty in collecting the data or transferring these programs to
      corporate-sponsored INDs.. Additionally, we are aware that all of our scientific
      collaborators also act as advisors to our competitors.


***We
        have no experience selling, marketing, or distributing products and do not
        have
        the capability to do so.***
  We
        currently have no sales, marketing, or distribution capabilities. We do not
        anticipate having resources in the foreseeable future to allocate to selling
        and
        marketing our proposed products. Our success will depend, in part, on whether
        we
        are able to enter into and maintain collaborative relationships with a
        pharmaceutical or a biotechnology company charged with marketing one or more
        of
        our products. We may not be able to establish or maintain such collaborative
        arrangements or to commercialize our products in foreign territories, and
        even
        if we do, our collaborators may not have effective sales
        forces.





25




If
      we do
      not, or are unable to, enter into collaborative arrangements to sell and market
      our proposed products, we will need to devote significant capital, management
      resources, and time to establishing and developing an in-house marketing and
      sales force with technical expertise. We may be unsuccessful in doing
      so.




***If
      we fail to maintain positive relationships with particular individuals, we
      may
      be unable to successfully develop our product candidates, conduct clinical
      trials, and obtain financing.***




If
      we
      fail to maintain positive relationships with members of our management team
      or
      if these individuals decrease their contributions to our company, our business
      could be adversely impacted. We do not carry key employee insurance policies
      for
      any of our key employees.




We
      also
      rely greatly on employing and retaining other highly trained and experienced
      senior management and scientific personnel. The competition for these and other
      qualified personnel in the biotechnology field is intense. If we are not able
      to
      attract and retain qualified scientific, technical, and managerial personnel,
      we
      probably will be unable to achieve our business objectives.




***We
      may not be able to compete successfully for market share against other drug
      companies.***




The
      markets for our product candidates are characterized by intense competition
      and
      rapid technological advances. If our product candidates receive FDA approval,
      they will compete with existing and future drugs and therapies developed,
      manufactured, and marketed by others. Competing products may provide greater
      therapeutic convenience or clinical or other benefits for a specific indication
      than our products, or may offer comparable performance at a lower cost. If
      our
      products fail to capture and maintain market share, we may not achieve
      sufficient product revenues and our business will suffer.




We
      will
      compete against fully integrated pharmaceutical companies and smaller companies
      that are collaborating with larger pharmaceutical companies, academic
      institutions, government agencies, or other public and private research
      organizations. Many of these competitors have therapies to treat autoimmune
      fibrotic and central nervous system diseases already approved or in development.
      In addition, many of these competitors, either alone or together with their
      collaborative partners, operate larger research-and-development programs than
      we
      do, have substantially greater financial resources than we do, and have
      significantly greater experience in the following areas:




• developing
      drugs;




• undertaking
      pre-clinical testing and human clinical trials;




• obtaining
      FDA and other regulatory approvals of drugs;




• formulating
      and manufacturing drugs; and




• launching,
      marketing and selling drugs.




***We
      may incur substantial costs as a result of litigation or other proceedings
      relating to patent and other intellectual property rights, as well as costs
      associated with frivolous lawsuits.***




If
        any
        other person files patent applications, or is issued patents, claiming
        technology also claimed by us in pending applications, we may be required
        to
        participate in interference proceedings in the U.S. Patent and Trademark
        Office
        to determine priority of invention. We, or our licensors, may also need to
        participate in interference proceedings involving our issued patents and
        pending
        applications of another entity.
  We
        cannot
        guarantee that the practice of our technologies will not conflict with the
        rights of others. In some foreign jurisdictions, we could become involved
        in
        opposition proceedings, either by opposing the validity of another’s foreign
        patent or by persons opposing the validity of our foreign patents.
  We
        may
        also face frivolous litigation or lawsuits from various competitors or from
        litigious securities attorneys. The cost to us of any litigation or other
        proceeding relating to these areas, even if resolved in our favor, could
        be
        substantial and could distract management from our business. Uncertainties
        resulting from initiation and continuation of any litigation could have a
        material adverse effect on our ability to continue our
        operations.





26




***If
      we infringe the rights of others we could be prevented from selling products
      or
      forced to pay damages.***




If
      our
      products, methods, processes, and other technologies are found to infringe
      the
      proprietary rights of other parties, we could be required to pay damages, or
      we
      may be required to cease using the technology or to license rights from the
      prevailing party. Any prevailing party may be unwilling to offer us a license
      on
      commercially acceptable terms.




***Our
      ability to generate product revenues will be diminished if our drugs sell for
      inadequate prices or patients are unable to obtain adequate levels of
      reimbursement.***




Our
      ability to commercialize our drugs, alone or with collaborators, will depend
      in
      part on the extent to which reimbursement is available from government and
      health administration authorities, private health maintenance organizations,
      health insurers, and other healthcare payers.




Significant
      uncertainty exists as to the reimbursement status of newly approved healthcare
      products. Healthcare payers, including Medicare, are challenging the prices
      charged for medical products and services. Government and other healthcare
      payers increasingly attempt to contain healthcare costs by limiting both
      coverage and the level of reimbursement for drugs. Even if our product
      candidates are approved by the FDA, insurance coverage may not be available,
      or
      may be inadequate, to cover the cost of our drugs. This could affect our ability
      to commercialize our products.




***We
      may not be able to obtain adequate insurance coverage against product liability
      claims.***




Our
      business exposes us to the product liability risks inherent in the testing,
      manufacturing, marketing, and sale of human therapeutic technologies and
      products. Even if it is available, product liability insurance for the
      pharmaceutical and biotechnology industry generally is expensive. Adequate
      insurance coverage may not be available at a reasonable cost.




**Risks
      Relating to Our Stock**




***We
      will seek to raise additional funds in the future, which may be dilutive to
      shareholders or impose operational restrictions.***




We
      expect
      to seek to raise additional capital in the future to help fund development
      of
      our proposed products. If we raise additional capital through the issuance
      of
      equity or debt securities, the percentage ownership of our current shareholders
      will be reduced. We may also enter into strategic transactions that may be
      dilutive. Our shareholders may experience additional dilution in net book value
      per share and any additional equity securities may have rights, preferences
      and
      privileges senior to those of the holders of our common stock. If we cannot
      raise additional funds, we will have to delay development activities of our
      products candidates.




***We
      are controlled by our current officers, directors, and principal
      stockholders.***




Currently,
      our directors, executive officers, and principal stockholders beneficially
      own a
      majority of our common stock. As a result, they will be able to exert
      substantial influence over the election of our board of directors and the vote
      on issues submitted to our stockholders.




***Our
      common stock may be thinly traded and its price volatile. This may make it
      difficult for shareholders to sell their shares of our common
      stock.***




There
      may
      be significant volatility in the market price for our common stock. The stock
      market has from time to time experienced significant price and volume
      fluctuations that have particularly affected the market prices of
      pharmaceuticals companies and that may be unrelated to our operating
      performance. General market conditions could materially affect the market price
      of our common stock. The market price of our shares could also be subject
      to significant fluctuations in response to, and may be adversely effected by,
      among other factors, government regulatory actions, variations in our quarterly
      operating results, developments in the global pharmaceuticals industry, and
      general stock market conditions.  ***Because
        we will be subject to the “penny stock” rules, broker-dealers may find it harder
        to sell the shares of our common stock.***
  Our
        common stock is quoted on the OTCBB (as opposed to NASDAQ or AMEX) and the
        price
        of the common stock is below $5.00 per share, we are therefore subject to
“penny
        stock” regulation. The penny stock rules impose additional sales practice
        requirements on broker-dealers who sell such securities to persons other
        than
        established customers and accredited investors (generally those with assets
        in
        excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
        with a spouse). For transactions covered by these rules, the broker-dealer
        must
        make a special suitability determination for the purchase of such securities
        and
        have received the purchaser’s written consent to the transaction prior to the
        purchase. Additionally, for any transaction involving a penny stock, unless
        exempt, the rules require the delivery, prior to the transaction, of a
        disclosure schedule prescribed by the Securities and Exchange Commission
        relating to the penny stock market. The broker-dealer also must disclose
        the
        commissions payable to both the broker-dealer and the registered representative
        and current quotations for the securities. Finally, monthly statements must
        be
        sent disclosing recent price information on the limited market in penny stocks.
        Consequently, the “penny stock” rules may restrict the ability of broker-dealers
        to sell shares of our common stock. The market price of our common stock
        would
        likely suffer as a result.





27




***Because
      we became public by means of a “reverse merger”, we may not be able to attract
      the attention of major brokerage firms.***




Additional
      risks may exist since we became public through a “reverse merger.” Securities
      analysts of major brokerage firms may not provide coverage of us since there
      is
      little incentive to brokerage firms to recommend the purchase of our common
      stock. No assurance can be given that brokerage firms will want to conduct
      any
      secondary offerings on behalf of our company in the future.




***Our
      compliance with the Sarbanes-Oxley Act and SEC rules concerning internal
      controls may be time consuming, difficult and costly.***




Although
      individual members of our management team have experience as officers of
      publicly traded companies, much of that experience came prior to the adoption
      of
      the Sarbanes-Oxley Act of 2002. It may be time consuming, difficult and costly
      for us to develop and implement the internal controls and reporting procedures
      required by Sarbanes-Oxley. We may need to hire additional financial reporting,
      internal controls and other finance staff in order to develop and implement
      appropriate internal controls and reporting procedures. If we are unable to
      comply with Sarbanes-Oxley’s internal controls requirements, we may not be able
      to obtain the independent accountant certifications that Sarbanes-Oxley Act
      requires publicly-traded companies to obtain.




***There
      is not now, and there may not ever be, an active market for our common
      stock.***




There
      currently is no market for our common stock. Further, although our common stock
      may be quoted on the OTC Bulletin Board, trading of our common stock may be
      extremely sporadic. For example, several days may pass before any shares may
      be
      traded. There can be no assurance that a more active market for the common
      stock
      will develop.




***We
      cannot assure you that the common stock will become liquid or that it will
      be
      listed on a securities exchange.***




We
      cannot
      assure you that we will be able to meet the listing standards of any stock
      exchange, such as the American Stock Exchange or the Nasdaq National Market,
      or
      that we will be able to maintain any such listing. Such exchanges require
      companies to meet certain initial listing criteria including certain minimum
      bid
      prices per share. We may not be able to achieve or maintain such minimum bid
      prices or may be required to effect a reverse stock split to achieve such
      minimum bid prices. Until the common stock is listed on an exchange, we expect
      that it would be eligible to be quoted on the OTC Bulletin Board, another
      over-the-counter quotation system, or in the “pink sheets.” In those venues,
      however, an investor may find it difficult to obtain accurate quotations as
      to
      the market value of the common stock. In addition, if we failed to meet the
      criteria set forth in SEC regulations, various requirements would be imposed
      by
      law on broker-dealers who sell our securities to persons other than established
      customers and accredited investors. Consequently, such regulations may deter
      broker-dealers from recommending or selling the common stock, which may further
      affect its liquidity. This would also make it more difficult for us to raise
      additional capital.




***There
      may be issuances of shares of preferred stock in the
      future.***




Although
      we currently do not have preferred shares outstanding, the board of directors
      could authorize the issuance of a series of preferred stock that would grant
      holders preferred rights to our assets upon liquidation, the right to receive
      dividends before dividends would be declared to common stockholders, and the
      right to the redemption of such shares, possibly together with a premium, prior
      to the redemption of the common stock. To the extent that we do issue preferred
      stock, the rights of holders of common stock could be impaired thereby,
      including without limitation, with respect to liquidation.




***We
      have never paid dividends.***




We
        have
        never paid cash dividends on our common stock and do not anticipate paying
        any
        for the foreseeable future.
  **Risks
        Related to Our Industry**
  ***Government
        Regulation***
  The
        FDA,
        comparable foreign regulators and state and local pharmacy regulators impose
        substantial requirements upon clinical development, manufacture and marketing
        of
        pharmaceutical products. These and other entities regulate research and
        development and the testing, manufacture, quality control, safety,
        effectiveness, labeling, storage, record keeping, approval, advertising,
        and
        promotion of our products. The drug approval process required by the FDA
        under
        the Food, Drug, and Cosmetic Act generally involves:





28




• Preclinical
      laboratory and animal tests;




• Submission
      of an IND, prior to commencing human clinical trials;




• Adequate
      and well-controlled human clinical trials to establish safety and efficacy
      for
      intended use;




• Submission
      to the FDA of a NDA; and




• FDA
      review and approval of a NDA.




The
      testing and approval process requires substantial time, effort, and financial
      resources, and we cannot be certain that any approval will be granted on a
      timely basis, if at all.




Preclinical
      tests include laboratory evaluation of the product candidate, its chemistry,
      formulation and stability, and animal studies to assess potential safety and
      efficacy. Certain preclinical tests must be conducted in compliance with good
      laboratory practice regulations. Violations of these regulations can, in some
      cases, lead to invalidation of the studies, requiring them to be replicated.
      In
      some cases, long-term preclinical studies are conducted concurrently with
      clinical studies.




We
      will
      submit the preclinical test results, together with manufacturing information
      and
      analytical data, to the FDA as part of an IND, which must become effective
      before we begin human clinical trials. The IND automatically becomes effective
      30 days after filing, unless the FDA raises questions about conduct of the
      trials outlined in the IND and imposes a clinical hold, in which case, the
      IND
      sponsor and FDA must resolve the matters before clinical trials can begin.
      It is
      possible that our submission may not result in FDA authorization to commence
      clinical trials.




Clinical
      trials must be supervised by a qualified investigator in accordance with good
      clinical practice regulations, which include informed consent requirements.
      An
      independent Institutional Review Board (“IRB”) at each medical center reviews
      and approves and monitors the study, and is periodically informed of the study’s
      progress, adverse events and changes in research. Progress reports are submitted
      annually to the FDA and more frequently if adverse events occur.




Human clinical trials typically have three sequential phases that may
      overlap:




Phase I: The drug is initially tested in healthy human subjects or patients
      for
      safety, dosage tolerance, absorption, metabolism, distribution, and
      excretion.




Phase II: The drug is studied in a limited patient population to identify
      possible adverse effects and safety risks, determine efficacy for specific
      diseases and establish dosage tolerance and optimal dosage.




Phase III: When phase II evaluations demonstrate that a dosage range is
      effective with an acceptable safety profile, phase III trials to further
      evaluate dosage, clinical efficacy and safety, are undertaken in an expanded
      patient population, often at geographically dispersed sites.




We
        cannot
        be certain that we will successfully complete phase I, phase II, or phase
        III
        testing of our product candidates within any specific time period, if at
        all.
        Furthermore, the FDA, an IRB or the IND sponsor may suspend clinical trials
        at
        any time on various grounds, including a finding that subjects or patients
        are
        exposed to unacceptable health risk.
  Concurrent
        with these trials and studies, we also develop chemistry and physical
        characteristics data and finalize a manufacturing process in accordance with
        good manufacturing practice (“GMP”) requirements. The manufacturing process must
        conform to consistency and quality standards, and we must develop methods
        for
        testing the quality, purity, and potency of the final products. Appropriate
        packaging is selected and tested, and chemistry stability studies are conducted
        to demonstrate that the product does not undergo unacceptable deterioration
        over
        its shelf-life.
  Results
        of the foregoing are submitted to the FDA as part of a NDA for marketing
        and
        commercial shipment approval. The FDA reviews each NDA submitted and may
        request
        additional information.
  Once
        the
        FDA accepts the NDA for filing, it begins its in-depth review. The FDA has
        substantial discretion in the approval process and may disagree with our
        interpretation of the data submitted. The process may be significantly extended
        by requests for additional information or clarification regarding information
        already provided. As part of this review, the FDA may refer the application
        to
        an appropriate advisory committee, typically a panel of clinicians.
        Manufacturing establishments often are inspected prior to NDA approval to
        assure
        compliance with GMPs and with manufacturing commitments made in the
        application.


29




Submission
      of a NDA with clinical data requires payment of a fee (for fiscal year 2004,
      $573,500). In return, the FDA assigns a goal of ten months for issuing its
      “complete response,” in which the FDA may approve or deny the NDA, or require
      additional clinical data. Even if these data are submitted, the FDA may
      ultimately decide the NDA does not satisfy approval criteria. If the FDA
      approves the NDA, the product becomes available for physicians prescription.
      Product approval may be withdrawn if regulatory compliance is not maintained
      or
      safety problems occur. The FDA may require post-marketing studies, also known
      as
      phase IV studies, as a condition of approval, and requires surveillance programs
      to monitor approved products that have been commercialized. The agency has
      the
      power to require changes in labeling or prohibit further marketing based on
      the
      results of post-marketing surveillance.




Satisfaction
      of these and other regulatory requirements typically takes several years, and
      the actual time required may vary substantially based upon the type, complexity
      and novelty of the product. Government regulation may delay or prevent marketing
      of potential products for a considerable period of time and impose costly
      procedures on our activities. We cannot be certain that the FDA or other
      regulatory agencies will approve any of our products on a timely basis, if
      at
      all. Success in preclinical or early-stage clinical trials does not assure
      success in later-stage clinical trials. Data obtained from pre-clinical and
      clinical activities are not always conclusive and may be susceptible to varying
      interpretations that could delay, limit or prevent regulatory approval. Even
      if
      a product receives regulatory approval, the approval may be significantly
      limited to specific indications or uses. Even after regulatory approval is
      obtained, later discovery of previously unknown problems with a product may
      result in restrictions on the product or even complete withdrawal of the product
      from the market. Delays in obtaining, or failures to obtain regulatory approvals
      would have a material adverse effect on our business.




Any
      products manufactured or distributed by us pursuant to FDA approvals are subject
      to pervasive and continuing FDA regulation, including record-keeping
      requirements, reporting of adverse experiences, submitting periodic reports,
      drug sampling and distribution requirements, manufacturing or labeling changes,
      record-keeping requirements, and compliance with FDA promotion and advertising
      requirements. Drug manufacturers and their subcontractors are required to
      register their facilities with the FDA and state agencies, and are subject
      to
      periodic unannounced inspections for GMP compliance, imposing procedural and
      documentation requirements upon us and third-party manufacturers. Failure to
      comply with these regulations could result, among other things, in suspension
      of
      regulatory approval, recalls, suspension of production or injunctions, seizures,
      or civil or criminal sanctions. We cannot be certain that we or our present
      or
      future subcontractors will be able to comply with these
      regulations.




The
      FDA
      regulates drug labeling and promotion activities. The FDA has actively enforced
      regulations prohibiting the marketing of products for unapproved uses. The
      FDA
      permits the promotion of drugs for unapproved uses in certain circumstances,
      subject to stringent requirements. We and our product candidates are subject
      to
      a variety of state laws and regulations which may hinder our ability to market
      our products. Whether or not FDA approval has been obtained, approval by foreign
      regulatory authorities must be obtained prior to commencing clinical trials,
      and
      sales and marketing efforts in those countries. These approval procedures vary
      in complexity from country to country, and the processes may be longer or
      shorter than that required for FDA approval. We may incur significant costs
      to
      comply with these laws and regulations now or in the future.




The
      FDA’s
      policies may change, and additional government regulations may be enacted which
      could prevent or delay regulatory approval of our potential products. Increased
      attention to the containment of health care costs worldwide could result in
      new
      government regulations materially adverse to our business. We cannot predict
      the
      likelihood, nature or extent of adverse governmental regulation that might
      arise
      from future legislative or administrative action, either in the U.S. or
      abroad.




***Other
        Regulatory Requirements***
  The
        U.S.
        Federal Trade Commission and the Office of the Inspector General of the U.S.
        Department of Health and Human Services (“HHS”) also regulate certain
        pharmaceutical marketing practices. Government reimbursement practices and
        policies with respect to our products are important to our success.
  We
        are
        subject to numerous federal, state and local laws relating to safe working
        conditions, manufacturing practices, environmental protection, fire hazard
        control, and disposal of hazardous or potentially hazardous substances. We
        may
        incur significant costs to comply with these laws and regulations. The
        regulatory framework under which we operate will inevitably change in light
        of
        scientific, economic, demographic and policy developments, and such changes
        may
        have a material adverse effect on our business.
  ***European
        Product Approval***
  Prior
        regulatory approval for human healthy volunteer studies (phase I studies)
        is
        required in member states of the European Union (E.U.). Summary data from
        successful phase I studies are submitted to regulatory authorities in member
        states to support applications for phase II studies. E.U. authorities typically
        have one to three months (which often may be extended in their discretion)
        to
        raise objections to the proposed study. One or more independent ethics
        committees (similar to U.S. IRBs) review relevant ethical
        issues.





30




For
      E.U.
      marketing approval, we submit to the relevant authority for review a dossier,
      or
      MAA (Market Authorization Application), providing information on the quality
      of
      the chemistry, manufacturing and pharmaceutical aspects of the product as well
      as non-clinical and clinical data.




Approval
      can take several months to several years, and can be denied, depending on
      whether additional studies or clinical trials are requested (which may delay
      marketing approval and involve unbudgeted costs) or regulatory authorities
      conduct facilities (including clinical investigation site) inspections and
      review manufacturing procedures, operating systems and personnel qualifications.
      In many cases, each drug manufacturing facility must be approved, and further
      inspections may occur over the product’s life. The regulatory agency may require
      post-marketing surveillance to monitor for adverse effects or other studies.
      Further clinical studies are usually necessary for approval of additional
      indications. The terms of any approval, including labeling content, may be
      more
      restrictive than expected and could affect the marketability of a
      product.




Failure
      to comply with these ongoing requirements can result in suspension of regulatory
      approval and civil and criminal sanctions. European renewals may require
      additional data, resulting in a license being withdrawn. E.U. regulators have
      the authority to revoke, suspend or withdraw approvals, prevent companies and
      individuals from participating in the drug approval process, request recalls,
      seize violative products, obtain injunctions to close non-compliant
      manufacturing plants and stop shipments of violative products.




***Pricing
      Controls***




Pricing
      for products under approval applications is also subject to regulation.
      Requirements vary widely between countries and can be implemented disparately
      intra-nationally. The E.U. generally provides options for member states to
      control pricing of medicinal products for human use, ranging from specific
      price-setting to systems of direct or indirect controls on the producer’s
      profitability. U.K. regulation, for example, generally provides controls on
      overall profits derived from sales to the U.K. National Health Service that
      are
      based on profitability targets or a function of capital employed in servicing
      the National Health Service market. Italy generally utilizes a price monitoring
      system based on the European average price over the reference markets of France,
      Spain, Germany and the U.K. Italy typically establishes price within a
      therapeutic class based on the lowest price for a medicine belonging to that
      category. Spain generally establishes selling price based on prime cost plus
      a
      profit margin within a range established yearly by the Spanish Commission for
      Economic Affairs.




There
      can
      be no assurance that price controls or reimbursement limitations will result
      in
      favorable arrangements for our products.




***Third-Party
      Reimbursements***




In
      the
      U.S., the E.U. and elsewhere, pharmaceutical sales are dependent in part on
      the
      availability and adequacy of reimbursement from third party payers such as
      governments and private insurance plans. Third party payers are increasingly
      challenging established prices, and new products that are more expensive than
      existing treatments may have difficulty finding ready acceptance unless there
      is
      a clear therapeutic benefit.




In
      the
      U.S., consumer willingness to choose a self-administered outpatient prescription
      drug over a different drug or other form of treatment often depends on the
      manufacturer’s success in placing the product on a health plan formulary or drug
      list, which results in lower out-of-pocket costs. Favorable formulary placement
      typically requires the product to be less expensive than what the health plan
      determines to be therapeutically equivalent products, and often requires
      manufacturers to offer rebates. Federal law also requires manufacturers to
      pay
      rebates to state Medicaid programs
      in order to have their products reimbursed by Medicaid. Medicare, which covers
      most Americans over age 65 and the disabled, has adopted a new insurance regime
      that will offer eligible beneficiarie’s limited coverage for outpatient
      prescription drugs effective January 1, 2006. The prescription drugs that will
      be covered under this insurance will be specified on a formulary published
      by
      Medicare. As part of these changes, Medicare is adopting new payment formulas
      for prescription drugs administered by providers, such as hospitals or
      physicians, that are generally expected to lower reimbursement.  The
        E.U.
        generally provides options for member states to restrict the range of medicinal
        products for which their national health insurance systems provide
        reimbursement. Member states can opt for a “positive” or “negative” list, with
        the former listing all covered medicinal products and the latter designating
        those excluded from coverage. The E.U., the U.K. and Spain have negative
        lists,
        while France uses a positive list. Canadian provinces establish their own
        reimbursement measures. In some countries, products may also be subject to
        clinical and cost effectiveness reviews by health technology assessment bodies.
        Negative determinations in relation to our products could affect prescribing
        practices. In the U.K., the National Institute for Clinical Excellence (“NICE”)
        provides such guidance to the National Health Service, and doctors are expected
        to take it into account when choosing drugs to prescribe. Health authorities
        may
        withhold funding from drugs not given a positive recommendation by NICE.
        A
        negative determination by NICE may mean fewer prescriptions. Although NICE
        considers drugs with orphan status, there is a degree of tension on the
        application of standard cost assessment for orphan drugs, which are often
        priced
        higher to compensate for a limited market. It is unclear whether NICE will
        adopt
        a more relaxed approach toward the assessment of orphan
        drugs.





31




We
      cannot
      assure you that any of our products will be considered cost effective, or that
      reimbursement will be available or sufficient to allow us to sell them
      competitively and profitably.




***Fraud
      and Abuse Laws***




The
      U.S.
      federal Medicare/Medicaid anti-kickback law and similar state laws prohibit
      remuneration intended to induce physicians or others either to refer patients,
      or to acquire or arrange for or recommend the acquisition of health care
      products or services. While the federal law applies only to referrals, products
      or services receiving federal reimbursement, state laws often apply regardless
      of whether federal funds are involved. Other federal and state laws prohibit
      anyone from presenting or causing to be presented false or fraudulent payment
      claims. Recent federal and state enforcement actions under these statutes have
      targeted sales and marketing activities of prescription drug manufacturers.
      As
      we begin to market our products to health care providers, the relationships
      we
      form, such as compensating physicians for speaking or consulting services,
      providing financial support for continuing medical education or research
      programs, and assisting customers with third-party reimbursement claims, could
      be challenged under these laws and lead to civil or criminal penalties,
      including the exclusion of our products from federally-funded reimbursement.
      Even an unsuccessful challenge could cause adverse publicity and be costly
      to
      respond to, and thus could have a material adverse effect on our business,
      results of operations and financial condition. We intend to consult counsel
      concerning the potential application of these and other laws to our business
      and
      to our sales, marketing and other activities to comply with them. Given their
      broad reach and the increasing attention given them by law enforcement
      authorities, however, we cannot assure you that some of our activities will
      not
      be challenged.




***Patent
      Restoration and Marketing Exclusivity***




The
      U.S.
      Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman)
      permits the FDA to approve Abbreviated New Drug Applications (“ANDAs”) for
      generic versions of innovator drugs, as well as NDAs with less original clinical
      data, and provides patent restoration and exclusivity protections to innovator
      drug manufacturers.




The
      ANDA
      process permits competitor companies to obtain marketing approval for drugs
      with
      the same active ingredient and for the same uses as innovator drugs, but does
      not require the conduct and submission of clinical studies demonstrating safety
      and efficacy. As a result, a competitor could copy any of our drugs and only
      need to submit data demonstrating that the copy is bioequivalent to gain
      marketing approval from the FDA.




Hatch-Waxman
      requires a competitor that submits an ANDA, or otherwise relies on safety and
      efficacy data for one of our drugs, to notify us and/or our business partners
      of
      potential infringement of our patent rights. We and/or our business partners
      may
      sue the company for patent infringement, which would result in a 30-month stay
      of approval of the competitor’s application. The discovery, trial and appeals
      process in such suits can take several years. If the litigation is resolved
      in
      favor of the generic applicant or the challenged patent expires during the
      30-month period, the stay is lifted and the FDA may approve the
      application.




Hatch-Waxman
      also allows competitors to market copies of innovator products by submitting
      significantly less clinical data outside the ANDA context. Such applications,
      known as “505(b)(2) NDAs” or “paper NDAs,” may rely on clinical investigations
      not conducted by or for the applicant and for which the applicant has not
      obtained a right of reference or use and are subject to the ANDA notification
      procedures described above.




The
      law
      also restores a portion of a product’s patent term that is lost during clinical
      development and NDA review, and provides statutory protection, known as
      exclusivity, against FDA approval or acceptance of certain competitor
      applications. Restoration can return up to five years of patent term for a
      patent covering a new product or its use to compensate for time lost during
      product development and regulatory review. The restoration period is
      generally one-half the time between the effective date of an IND and submission
      of an NDA, plus the time between NDA submission and its approval (subject to
      the
      five-year limit), and no extension can extend total patent life beyond 14 years
      after the drug approval date. Applications for patent term extension are subject
      to U.S. Patent and Trademark Office (“USPTO”) approval, in conjunction with FDA.
      Approval of these applications takes at least six months, and there can be
      no
      guarantee that it will be given at all.  Hatch-Waxman
        also provides for differing periods of statutory protection for new drugs
        approved under an NDA. Among the types of exclusivity are those for a “new
        molecular entity” and those for a new formulation or indication for a
        previously-approved drug. If granted, marketing exclusivity for the types
        of
        products that we are developing, which include only drugs with innovative
        changes to previously-approved products using the same active ingredient,
        would
        prohibit the FDA from approving an ANDA or 505(b)(2) NDA relying on safety
        and
        efficacy data for three years. This three-year exclusivity, however, covers
        only
        the innovation associated with the original NDA. It does not prohibit the
        FDA
        from approving applications for drugs with the same active ingredient but
        without our new innovative change. These marketing exclusivity protections
        do
        not prohibit FDA from approving a full NDA, even if it contains the innovative
        change.
  **ITEM
        2** . **UNREGISTERED
        SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**
  Not
        applicable.





32




**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




Not
      applicable.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS**




No
      matters were submitted to a vote of stockholders during the first quarter ended
      March 31, 2007.




**ITEM
      5. OTHER INFORMATION**




Not
      applicable.





33




**ITEM
      6. EXHIBITS**




31.1
      Certification pursuant to Rule 13a-14(a)/15d-14(a)




32.1
      Certification pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002.










34





**SIGNATURE**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the
      undersigned.




PIPEX
      PHARMACEUTICALS, INC.


By: /s/
      Steve H. Kanzer


Steve
      H.
      Kanzer


Chairman
      & Chief Executive Officer


(Principal
      Executive Officer and Principal Financial Officer)


Date:
      May
      14, 2007






35