trial for Panzem and are seeking a development partner to manage larger multi-arm Phase 2 and Phase 3 studies.
We continue to focus on three principal objectives: 1) to concentrate our resources on fewer programs that provide a more direct path forward to product registration and ultimately to the market; 2) to conserve our cash by funding essential priority program activities and deferring new program initiatives; and
3) to expand our partnering activities across multiple clinical programs. In order to further advance our commercial objectives, we may seek strategic alliances, licensing relationships and co-development partnerships with other companies to develop compounds for both oncology and non-oncology therapeutic areas. To date, we have been engaged primarily in research and development activities. As a result, we have incurred operating losses through September 30, 2008 and expect to continue to incur operating losses for the foreseeable future before commercialization of any products. To accomplish our business goals, we, or prospective development partners, will be required to conduct substantial development activities for all proposed products that we intend to pursue to commercialization. We intend to continue to pursue strategic relationships to provide resources for the further development of our product candidates. There can be no assurance, however, that these discussions will result in relationships or additional funding. In addition, we will continue to seek capital through the public or private sale of securities. There can be no assurance that we will be successful in seeking such additional capital. On April 4, 2008, we received a letter from The NASDAQ Stock Market LLC ("NASDAQ") advising that for the previous 30 consecutive business days, the bid price of the Company's common stock had closed below the minimum $1.00 per share requirement for continued inclusion on The NASDAQ Global Market. Failure to comply with this minimum bid price requirement, or any other listing standard applicable to issuers listed on The NASDAQ Global Market, by October 1, 2008, would result in our common stock being ineligible for quotation on The NASDAQ Global Market. Our stock price has not closed above $1.00 since the date of the receipt of the letter from NASDAQ. On September 22, 2008, we submitted an application to transfer the trading of our common stock to the NASDAQ Capital Market. On October 1, 2008, we received a letter from The NASDAQ Listing Qualifications Department stating that our application had been approved and that our common stock would commence trading on The NASDAQ Capital Market on October 3, 2008. The NASDAQ Capital Market operates in substantially the same manner as The NASDAQ Global Market. Our trading symbol remains as "ENMD" and the trading of our stock was unaffected by the transfer. The transfer to The NASDAQ Capital Market extended the requirement to achieve a minimum $1.00 bid price until March 30, 2009. On October 22, 2008, we received notification from The NASDAQ Listing Qualifications Department that we will have until July 6, 2009 to regain compliance with the minimum $1.00 closing bid price requirement. The extension is a result of NASDAQ's determination to temporarily suspend the minimum $1.00 closing bid price requirement based on the current extraordinary market conditions. We can regain compliance with a minimum $1.00 closing bid price for a minimum of 10 consecutive business days. We will continue to pursue partnering opportunities to raise less-dilutive capital and could defer all or a portion of our product candidate development costs. In the event that our common stock continues to trade under $1.00, we will consider all alternatives in order to avoid delisting.

The delisting of our common stock from a national exchange could significantly affect the ability of investors to trade our securities and could negatively affect the value and liquidity of our common stock. In addition, the delisting of our common stock could materially adversely affect our ability to raise capital on terms acceptable to us or at all.
CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES The preparation of our financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Our critical accounting policies, including the items in our financial statements requiring significant estimates and judgments, are as follows:
• Revenue Recognition - We recognize revenue in accordance with the provisions of Staff Accounting Bulletin No. 104, Revenue Recognition, whereby revenue is not recognized until it is realized or realizable and earned. Revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed and determinable and collectibility is reasonably assured.

• Royalty Revenue - Royalties from licenses are based on third-party sales and recorded as earned in accordance with contract terms, when third-party results are reliably measured and collectibility is reasonably assured. We expect that the majority of our 2008 revenues will be from royalties on the sale of Thalomid®, which we began to recognize in the third quarter. In 2004 certain provisions of a purchase agreement dated June 14, 2001 by and between Bioventure Investments kft ("Bioventure") and the Company were satisfied, and, as a result, beginning in 2005 we became entitled to share in the royalty payments received by Royalty Pharma Finance Trust, successor to Bioventure, on annual Thalomid® sales above a certain threshold. Based on the licensing agreement royalty formula, annual royalty sharing commences with Thalomid® annual US sales of $225 million.

• Research and Development - Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, research collaborations, costs associated with pre-clinical testing and clinical trials of our product candidates, including the costs of manufacturing the product candidates, and facilities expenses. Research and development costs are expensed as incurred.

• Expenses for Clinical Trials - Expenses for clinical trials are incurred from planning through patient enrollment to reporting of the underlying data. We estimate expenses incurred for clinical trials that are in process based on patient enrollment and based on clinical data collection and management. Costs that are associated with patient enrollment are recognized as each patient in the clinical trial completes enrollment. Estimated clinical trial costs related to enrollment can vary based on numerous factors, including expected number of patients in trials, the number of patients that do not complete participation in a trial, and when a patient drops out of a trial. Information about patient enrollment can become available significantly after we report our expenses for clinical trials, in which case we would change our estimate of the remaining cost of a trial.

Costs that are based on clinical data collection and management are recognized based on estimates of unbilled goods and services received in the reporting period. In the event of early termination of a clinical trial, we would accrue an amount based on estimates of the remaining non-cancelable obligations associated with winding down the clinical trial.

• Stock-Based Compensation - Issued in December 2004, Statement of Financial Accounting Standards No. 123R ("SFAS 123R") requires companies to recognize expense associated with share-based compensation arrangements, including employee stock options and stock purchase plans, using a fair value-based option pricing model, and eliminates the alternative to use the intrinsic value method of accounting for share-based payments. SFAS 123R was effective beginning January 1, 2006. Adoption of the expense provisions of SFAS 123R has a material impact on our results of operations. We have applied the modified prospective transition method; accordingly, compensation expense is reflected in the financial statements beginning January 1, 2006 with no restatement of prior periods. Compensation expense is recognized for awards that are granted, modified, repurchased or cancelled on or after January 1, 2006, as well as for the portion of awards previously granted that have not vested as of January 1, 2006. For the adoption of SFAS 123R, we have selected the straight-line expense attribution method, whereas our previous expense attribution method was the graded-vesting method, an accelerated method, described by FIN 28. Our results of operations are impacted by the recognition of non-cash expense related to the fair value of our share-based compensation awards.

The determination of fair value of stock-based payment awards on the date of grant using the Black-Scholes model is affected by our stock price, as well as the input of other subjective assumptions. These assumptions include, but are not limited to, the expected term of stock options and our expected stock price volatility over the term of the awards. Changes in the assumptions can materially affect the fair value estimates.
Any future changes to our share-based compensation strategy or programs would likely affect the amount of compensation expense recognized under SFAS 123R. Share-based compensation expense recognized in the three and nine months ended September 30, 2008 totaled $228,030 and $746,946, respectively. Share-based compensation expense recognized in the comparable periods in 2007 totaled $216,442 and $1,009,664, respectively.
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2008 and September 30, 2007.
Revenues. For the three and nine-month periods ended September 30, 2008, we have recorded estimated royalty revenues of $3,500,000 and are reporting total revenues of $3,501,000, as compared to $3,518,000 and $3,520,000, respectively, for the same periods in 2007. We recorded no revenue during the first six months of 2008 and 2007. In 2005, we reached certain milestones under our purchase agreement with Royalty Pharma Finance Trust, and began to share in the royalty payments received by Royalty Pharma on annual Thalomid® sales above a certain threshold. Based on the licensing agreement royalty formula, annual royalty sharing commences with Thalomid® annual sales of approximately $225 million. Thalomid® sales in 2008 and in 2007 surpassed the sharing point in the three-month period ended September 30. We expect to record revenues in excess of $7.0 million in 2008, as was similarly recorded in 2007.

Research and Development Expenses. Our research and development expenses for the three and nine months ended September 30, 2008 totaled $4,957,000 and $16,629,000, respectively. Research and development expenses for the corresponding 2007 periods were $5,109,000 and $18,089,000, respectively. Reflected in our R&D expenses totaling $4,957,000 for the three-month period ended September 30, 2008 are direct project costs of $807,000 for Panzem®oncology which relate primarily to residual clinical activity, $825,000 for ENMD-1198, $884,000 for MKC-1 and $1,087,000 for ENMD-2076. Research and development expenses for the comparable period in fiscal 2007 included $1,596,000 direct project costs for Panzem® oncology, $457,000 for ENMD-1198, $735,000 for MKC-1 and $864,000 for ENMD-2076.
R&D expenses totaling $16,629,000 for the nine-month period ended September 30, 2008 include direct project costs of $3,149,000 related to Panzem® oncology, $3,474,000 related to ENMD-1198, $2,853,000 related to MKC-1 and $2,886,000 related to ENMD-2076. The 2007 research and development expenses for the comparable period included $6,533,000 for Panzem® oncology, $1,322,000 for ENMD-1198, $2,187,000 for MKC-1 and $2,898,000 for ENMD-2076.
The decrease in R&D spending results primarily from lower Panzem® NCD project costs resulting from our decision to discontinue its development in oncology. This cost decrease was largely offset by increased expenditures on MKC-1 clinical programs and ENMD-1198 manufacturing.
MKC-1 is currently being administered in four Phase 2 and two Phase 1 oncology trials. We have an exclusive worldwide license from Roche to develop and commercialize MKC-1. ENMD-1198, an antimitotic agent, discovered in our laboratories, is nearing completion of a Phase 1b dose-escalation clinical trial in patients with refractory solid tumors. ENMD-2076, an oral selective kinase inhibitor with both antiproliferative and antiangiogenic properties, also discovered in our laboratories, is in early clinical development with a Phase 1b dose-escalation clinical trial in patients with refractory solid tumors. We are currently seeking a partner for ENMD-2076 to help accelerate its development.
At September 30, 2008, accumulated direct project expenses for Panzem® were $53,924,000, direct ENMD-1198 project expenses totaled $13,141,000; accumulated direct project expenses for MKC-1 totaled $9,094,000, since acquired; and for ENMD-2076, accumulated project expenses totaled $8,301,000. Our R&D expenses also include non-cash stock-based compensation, pursuant to the adoption of SFAS 123R, totaling $65,000 and $186,000, respectively, for the three and nine months ended September 30, 2008 and $41,000 and $142,000 for the respective corresponding 2007 periods. The balance of our R&D expenditures includes facilities costs and other departmental overhead, and expenditures related to the advancement of our pre-clinical programs.
The expenditures that will be necessary to execute our business plan are subject to numerous uncertainties, which may adversely affect our liquidity and capital resources. As of September 30, 2008, we have four proprietary product candidates in clinical development, which include three candidates in oncology and our candidate for the treatment of rheumatoid arthritis. We expect our 2008 R&D expenses to decline through the fourth quarter of 2008 as the open clinical trials across the three oncology programs complete enrollment. Completion of clinical development for our product candidates may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.

We estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:

                                            ESTIMATED
                                            COMPLETION
                           CLINICAL PHASE   PERIOD
                           Phase I          1-2 Years
                           Phase II         1-2 Years
                           Phase III        2-4 Years

The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol, including, among others, the following:
• the number of patients that ultimately participate in the trial;

• the duration of patient follow-up that seems appropriate in view of the results;

• the number of clinical sites included in the trials; and

• the length of time required to enroll suitable patient subjects.

We test our potential product candidates in numerous pre-clinical studies to identify indications for which they may be product candidates. We may conduct multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain product candidates or for certain indications in order to focus our resources on more promising product candidates or indications.
Our proprietary product candidates have also not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our clinical data establish safety and efficacy. Historically, the results from pre-clinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.
An important element of our business strategy is to pursue the research and development of a range of product candidates for both oncology and non-oncology indications. This provides us with multiple opportunities for success and also allows us to diversify the risks associated with research and development of oncology drugs. As a result, we intend to pursue development of our existing product candidates both internally and through development partnerships. In parallel, we will selectively add to our pipeline through the acquisition and subsequent development of promising candidates to enhance the value of our pipeline. The goal is to align our future capital requirements with multiple product candidates and to increase the likelihood that our future financial success is not substantially dependent on any one product candidate. To the extent we are unable to maintain the development of product candidates, our dependence on the success of one or a few product candidates would increase.

Furthermore, our business strategy now includes entering into collaborative arrangements with third parties to complete the development and commercialization of our products. In the event that third parties take over the clinical trial process for one of our product candidates, the estimated completion date would largely be under the control of that third party rather than us. We cannot forecast with any degree of certainty which proprietary products or indications, if any, will be subject to future collaborative arrangements, in whole or in part, and how such arrangements would affect our capital requirements.
As a result of the uncertainties discussed above, among others, we are unable to estimate the duration and completion costs of our research and development projects. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements, when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from time to time in order to continue with our business strategy. There can be no assurance that we will be able to successfully access external sources of financing in the future. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.
Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, research collaborations, costs associated with internal and contract pre-clinical testing and clinical trials of our product candidates, including the costs of manufacturing the product candidates, and facilities expenses. Research and development expenses decreased to $4,957,000 in the three months ended September 30, 2008 from $5,109,000 for the corresponding period in 2007. Research and development expenses decreased to $16,629,000 in the nine months ended September 30, 2008 from $18,089,000 for the corresponding period in 2007. R&D expenses were generally lower due to decreased Panzem® expenses. Expenditures during the three and nine months ended September 30, 2008 were specifically impacted by the following:
• Outside Services - We utilize outsourcing to conduct our product development activities. Larger-scale small molecule synthesis, in vivo testing and data analysis are examples of the services that we outsource. In the three-month period ended September 30, 2008, we expended $451,000 on these activities versus $620,000 in the same 2007 period. For the nine-month period ended September 30, 2008, outside services were $1,224,000 compared to $2,642,000 for the same 2007 period. The decrease reflects the absence in 2008 of certain IND-directed expenses associated with the 2007 IND submissions for Panzem ® NCD for the treatment of rheumatoid arthritis and for ENMD-2076 in oncology.

• Clinical Trial Costs - Clinical trial costs increased to $1,180,000 in the three months ended September 30, 2008, from $907,000 in the three-month period ended September 30, 2007. Clinical trial costs for the nine-month period ended September 30, 2008 increased to $4,018,000 from $3,176,000 for the comparable 2007 period. The increase results primarily from the expanded MKC-1 clinical program and also the initiation of clinical trials for ENMD-2076. Costs of such trials include the clinical site fees, monitoring costs and data management costs.

• Contract Manufacturing Costs - The costs of manufacturing the material used in clinical trials for our product candidates is reflected in contract manufacturing. These costs include bulk manufacturing, encapsulation and fill and finish services, and product release costs.

Contract manufacturing costs for the three months ended September 30, 2008 decreased to $764,000 from $1,086,000 during the same period in 2007. For the nine-month period ended September 30, 2008, manufacturing costs decreased to $3,559,000 from $4,349,000 for the comparable 2007 period. The most significant component of the decrease was our acquisition of bulk API (Active Pharmaceutical Ingredient) to support the Panzem® NCD trials in 2007. The absence of Panzem® NCD API costs in 2008 was partially offset by an increase in contract manufacturing activities for ENMD-1198. Fluctuations in our contract manufacturing costs from period to period result from the timing of manufacturing activities.

Also reflected in our research and development expenses for the three-month period ended September 30, 2008 are personnel costs of $1,339,000, patent costs of $211,000 and facility and related expenses of $388,000. In the corresponding 2007 period, these expenses totaled $1,184,000, $348,000 and $363,000, respectively. For the nine-month period ended September 30, 2008, personnel costs were $4,359,000, patent costs were $514,000 and facility and related expenses were $1,138,000. In the corresponding 2007 period, these expenses totaled $3,717,000, $1,026,000 and $1,128,000, respectively. The increased personnel costs reflect a larger R&D staff, including the hiring of a Senior Vice President of R&D, while the decrease in patent costs results from the timing of patent prosecution activities and prioritization of our intellectual property portfolio.
General and Administrative Expenses. General and administrative expenses include compensation and other expenses related to finance, business development and administrative personnel, professional services and facilities.
General and administrative expenses decreased to $1,552,000 in the three-month period ended September 30, 2008 from $1,706,000 in the corresponding 2007 period. For the nine-month period, general and administrative expenses decreased in 2008 to $5,275,000 from $5,408,000 for the corresponding 2007 period. The net decrease in 2008 spending for the nine-month period ending September 30, 2008 reflects a decrease in stock compensation expense and personnel related costs, and is offset by an increase in the use of professional services, including diligence and recruiting services.
In-process R&D. In January 2006, we acquired Miikana Therapeutics, a private biotechnology company. Pursuant to the merger agreement, based on the success of the acquired pre-clinical programs, we may be required to pay up to an additional $18 million upon the achievement of certain clinical and regulatory milestones. Such additional payments will be made in cash or shares of stock, at our option. The lead molecule in the Aurora Kinase Program, ENMD-2076, advanced into clinical development in 2008. ENMD-2076 is a selective kinase inhibitor with activity against Aurora A and angiogenic kinases linked to promoting cancer and inflammatory diseases. During the three-month period ending June 30, 2008, dosing of the first patient in ENMD-2076 trials triggered a milestone payment of $2 million. In June 2008, 2,564,104 shares of common stock were issued to the former Miikana stockholders as consideration for the satisfaction of the milestone payment. The additional payment of $2 million was recorded to expense as in-process research and development since the research and development project related to the Aurora Kinase Program had not reached technical feasibility and has no future alternative use. Under the terms of the merger agreement, the former Miikana stockholders may earn up to an additional $16 million of potential payments upon the satisfaction of additional clinical and regulatory milestones. We do not expect to incur any additional milestone . . .