Our management's discussion and analysis of our financial condition and results of operations include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated. See Part II, Item 1A, "Risk Factors."

Overview

We are a biopharmaceutical development company dedicated to improving the lives of patients by developing novel therapeutics for the treatment of cancer. We have taken a systematic approach to identifying and validating promising therapeutics and are now focused on developing and advancing a potential drug candidate through clinical development. We are currently focusing the majority of our human and financial resources on our oncology therapeutic area.

Royalties or other revenue generated from commercial sales of products developed through the application of our technologies or expertise is not expected for several years, if at all. We expect that our revenue or income sources for at least the next several years may be limited to potential milestones and other potential payments related to partnering CR011 and interest income.

We expect to continue incurring expenses relating to our research and development efforts as we focus on clinical trials required for the development of CR011-vcMMAE. Conducting clinical trials is a lengthy, time-consuming and expensive process and we expect to incur continued losses over the next several years.

Significant Recent Developments

In February 2009, we repurchased a total of $4.8 million of our 4% convertible subordinated debentures due February 2011, for an aggregate purchase price of $3.8 million, reflecting an aggregate discount from the face value of such notes of approximately 21% and resulting in a $1.0 million gain.

In February 2009, we announced our plan to undertake a review of strategic alternatives that could enhance shareholder value. These alternatives range from selling or licensing CR011, to acquiring additional assets or business lines, to selling the company. There is no assurance that this process will result in any changes to our current business plan or lead to any specific action or transaction.

CR011-vcMMAE for the Treatment of Cancer

CR011-vcMMAE is an antibody-drug conjugate, or ADC, comprised of CR011, a fully-human monoclonal antibody resulting from our collaboration with Amgen Fremont linked to monomethylauristatin E, or vcMMAE, using technology licensed from Seattle Genetics. CR011 targets glycoprotein NMB, or GPNMB, a protein located on the surface of cancer cells including melanoma and breast cancer. After CR011-vcMMAE binds to the target protein, the ADC is transported inside the cancer cell where vcMMAE is cleaved from the antibody and inhibits tubulin polymerization leading to cell death.

CR011-vcMMAE Clinical Development Program

In June 2006, we initiated a Phase I/II open-label, multi-center, dose escalation study evaluating the safety, tolerability and pharmacokinetics of CR011-vcMMAE for patients with unresectable Stage III or Stage IV melanoma who have failed no more than one prior line of cytotoxic therapy. We are currently evaluating CR011- vcMMAE in clinical trials for the treatment of patients with advanced melanoma and breast cancer, as further described in the table below.

                                                        Initiation of Patient
Indication                Phase        Regimen               Enrollment                     Status
Metastatic melanoma       I/II    0.03 to 2.63 mg/kg          June 2006          Enrollment completed. Updated
                                  every three weeks                              results
                                   in Phase I; 1.88                              anticipated in the first half
                                  mg/kg every three                              of 2009.
                                  weeks in Phase II

                                                           Initiation of Patient
Indication                Phase          Regimen                Enrollment                Status
                                  Weekly and two out of          Sept 2007          Enrollment
                                    every three week                                ongoing.
                                        regimens                                    Preliminary
                                                                                    results
                                                                                    anticipated in the
                                                                                    first half of
                                                                                    2009.

Breast cancer             I/II      Every three weeks            June 2008          Enrollment
                                         regimen                                    ongoing.
                                                                                    Preliminary
                                                                                    results
                                                                                    anticipated in the
                                                                                    first half of
                                                                                    2009.

Phase II Trial Results for the Treatment of Metastatic Melanoma Cancer

On June 1, 2008, we announced the presentation of results from this ongoing study at the 2008 American Society of Clinical Oncology, or ASCO, Annual Meeting. A total of 32 patients were enrolled in the Phase I dose-escalation portion of the trial, which aimed to identify the safety and maximum tolerated dose, or MTD, of CR011-vcMMAE. Doses of CR011-vcMMAE between 0.03 mg/kg to 2.63 mg/kg administered intravenously (IV) once every three weeks were evaluated and were generally well tolerated, with rash and neutropenia emerging at higher doses. Based on dose-limiting toxicities of rash, the MTD was determined to be 1.88 mg/kg IV every three weeks. The activity of CR011-vcMMAE appeared dose dependent with 50% of those patients treated with doses at or above 1.34 mg/kg exhibiting tumor shrinkage and 64% progression-free at 12 weeks compared to 17% with tumor shrinkage and 28% progression-free at 12 weeks for patients treated at lower doses. One confirmed partial response was reported in Phase I. Based on the results of the Phase I portion of the trial, the dose selected for the Phase II portion was 1.88 mg/kg IV every three weeks.

On September 11, 2008, we announced the completion of enrollment into the Phase II portion of the melanoma clinical trial. Preliminary results from the trial were presented on November 1, 2008 at the 2008 International Society for Biologic Therapy of Cancer, or iSBTc, Annual Meeting.

Thirty-six patients were enrolled in the Phase II portion of the trial. Of the patients enrolled, 94% had Stage IV disease, of which two-thirds were classified as M1c, the poorest risk group. The overall median progression-free survival, or PFS, was approximately 4.5 months. RECIST-defined partial responses were reported in 3 patients, 2 of whom were ongoing, and an unconfirmed partial response was noted in 1 patient. As expected based upon the expression of GPNMB and as observed in Phase I, dermatologic adverse events consisting of rash, alopecia, and pruritus were the most common toxicities in this study. A preliminary exploratory analysis assessing the relationship of rash and PFS was performed and showed a trend toward longer PFS in patients with rash. We expect updated results for this study to be presented during the first half of 2009.

We are also exploring more frequent dosing schedules of CR011-vcMMAE, including a weekly and a two out of every three-week regimen, to determine if more frequent administration can provide additional activity in patients with metastatic melanoma. We anticipate presenting updated results during the first half of 2009.

Phase II Trial Results for the Treatment of Breast Cancer

On June 25, 2008, we announced the initiation of patient dosing in an open-label, multi-center Phase II study of CR011-vcMMAE IV every three weeks to patients with locally advanced or metastatic breast cancer who have received prior therapy. We expect to enroll up to approximately 40 patients to confirm the MTD in this population and to assess efficacy using a Simon 2-Stage design with an endpoint of progression-free rate at 12 weeks. We anticipate presenting preliminary results from this study during the first half of 2009.

Critical Accounting Policies and Use of Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates, including those related to investment valuation, prepaid expenses, accrued expenses, revenue recognition, and stock based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008.

Results of Operations

The following table sets forth a comparison of the components of our net loss
for the three months ended March 31, 2009 and 2008 (in millions):



                                                            Three Months Ended March 31,
                                                   2009        2008        $ Change       % Change
Collaboration revenue                             $  0.0      $  0.0      $      0.0             0 %
Research and development expenses                    1.7         5.4            (3.7 )         (69 )%
General and administrative expenses                  1.9         1.7             0.2            12 %
Interest income                                      0.5         1.1            (0.6 )         (55 )%
Interest expense                                     0.2         0.8            (0.6 )         (75 )%
Realized gain on sale of available-for-sale
investments, net                                     0.1          -              0.1             *
Gain on extinguishment of debt                       1.0          -              1.0             *
Income tax benefit                                   0.7          -              0.7             *

Net loss                                          $ (1.5 )    $ (6.8 )

* Based on prior year amounts, percentage change does not provide meaningful information.

Collaboration revenue. There was no material change in collaboration revenue for the three months ended March 31, 2009, as compared to the three months ended March 31, 2008 as we recognized $0.02 million in the first quarter of 2008. The collaboration revenue recognized in the first quarter of 2008 was due to the amortization of the $1.3 million received during 2006 from TopoTarget's licensing agreement with an unrelated third party. We do not expect any collaboration revenue in 2009.

Research and development expenses. Research and development expenses consist primarily of: contractual and manufacturing costs; salary and benefits; license fees and milestone payments; drug supply; and allocated facility costs. Our research and development efforts are concentrated solely on clinical trials. We budget and monitor our research and development costs by expense category, rather than by project, because these costs often benefit multiple projects and/or our technology platform as a whole.

Below is a summary that reconciles our total research and development expenses for the three months ended March 31, 2009 and 2008 by the major categories (in millions):

                                                    Three Months Ended March 31,
                                              2009      2008     $ Change      % Change
   Contractual and manufacturing costs       $   0.8    $ 2.1   $     (1.3 )        (62 )%
   Salary and benefits                           0.6      1.2         (0.6 )        (50 )%
   License fee and milestone payments            0.1      1.6         (1.5 )        (94 )%
   Allocated facility costs                      0.2      0.5         (0.3 )        (60 )%

   Total research and development expenses   $   1.7    $ 5.4

The decrease in our research and development expenses for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008 was primarily due to the transfer agreement entered into in the second quarter 2008 with TopoTarget A.S. which effectively sold our rights to belinostat, a Phase I/II HDAC inhibitor and any other HDAC inhibitors, such that we would no longer incur additional clinical trial expenses. We also incurred a decrease in salary and benefits caused by a reduction in workforce in the fourth quarter 2008, and a decrease in allocated facility costs due to reducing our office space. We had a decrease in license fees and milestone payments for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008, due to milestone expenses incurred relating to our collaboration agreements with Amgen Fremont and Seattle Genetics for advancing CR011-vcMMAE to Phase II in the first quarter of 2008. We anticipate our research and development expenses for the remaining quarters in 2009 will remain consistent with the first quarter of 2009.

As soon as we advance a potential clinical candidate into clinical trials, we begin to track the research and development expenses associated with that potential clinical candidate. The following table shows the cumulative research and development expenses for CR011-vcMMAE as of March 31, 2009, as well as the current research and development expenses for the three months ended March 31, 2009 and 2008 which were incurred on or after we started conducting a Phase I clinical trial for CR011-vcMMAE (in millions):

Clinical Development Costs for CR011-vcMMAE

          Cumulative
             as of
           March 31,
          2009 (since         Three Months       Three Months
         commencement             Ended              Ended
       of Phase I trial)     March 31, 2009     March 31, 2008       Indication
                                                                   Metastatic
                                                                   Melanoma/Breast
      $              16.5    $           1.5    $           2.2    Cancer

We expect that the research and development expenses incurred in connection with our development of CR011-vcMMAE in 2009 will be consistent with expenses incurred in 2008.

Currently, our potential pharmaceutical products require significant research and development efforts and preclinical testing, and will require extensive evaluation in clinical trials prior to submitting an application to regulatory agencies for their commercial use. Although we are conducting human studies with respect to CR011-vcMMAE, we may not be successful in developing or commercializing this or other products. Our product candidates are subject to the risks of failure inherent in the development and commercialization of pharmaceutical products and we cannot currently provide reliable estimates as to when, if ever, our product candidates will generate revenue and cash flows.

General and administrative expenses. The increase in general and administrative expenses for the three months ended March 31, 2009, as compared to the three months ended March 31, 2008, was due to an increase in advisor fees in conjunction with our strategic review announced in February 2009. We anticipate our general and administrative expenses will be consistent quarter to quarter during the remaining quarters of 2009.

Interest income. Interest income for the three months ended March 31, 2009, decreased as compared to the three months ended March 31, 2008 due to a reduction in our cash and investment portfolio balance. Our lower cash and investment balance was due to the repurchase of $3.8 million of our 4% convertible subordinated debentures which occurred in February 2009 to retire $4.8 million of debt in addition to debt repurchases completed in the second quarter of 2008 and cash used for operations during the first quarter of 2009. We earned an average yield of 2.7% during the first quarter of 2009 as compared to 3.9% in the first quarter of 2008. We anticipate interest income to decrease in 2009 due to lower cash and investment balances caused by the utilization of cash and investment balances in the normal course of operations. We also expect the yields in our investment portfolio to decrease during the year as a result of lower short term interest rates and the mix of investments in our portfolio.

Interest expense. Interest expense for the three months ended March 31, 2009 decreased as compared to the three months ended March 31, 2008 primarily due to the repurchases of our 4% convertible subordinated debentures due February 2011. The repurchases consisted of $50.9 million in May 2008 and $4.8 million in February 2009. We expect interest expense, including interest paid to debt holders, as well as amortization of deferred financing costs, to approximate $0.6 million for the full year of 2009.

Realized gain on sale of available-for-sale investments, net. During the first quarter of 2009, we realized a gain on the sale of available-for sale investments of $0.1 million. The gain was due to the sale in the first quarter of 2009 of our asset-backed securities and our corporate and municipal bonds.

Gain on extinguishment of debt. The gain on extinguishment of debt for the three months ended March 31, 2009 was due to the repurchase of $4.8 million of our 4% convertible subordinated debentures due February 2011, for $3.8 million plus accrued interest of $0.1 million in February 2009. We recorded a gain of approximately $1.0 million which is net of the write-off of the ratable portion of unamortized deferred financing costs relating to the repurchased debt.

Income tax benefit. We recorded an income tax benefit of $0.7 million during the three months ended March 31, 2009 as a result of the expiration of the State of Connecticut statute of limitations, as it relates to the Year 2004 income tax benefit. Connecticut legislation allows companies to obtain cash refunds from the State of Connecticut at a rate of 65% of their annual research and development expense credit, in exchange for forgoing carryforward of the research and development credit. We expect the 2009 income tax benefit to be lower than 2008 due to anticipated lower research and development expenditures.

Liquidity and Capital Resources

Since our inception, we have financed our operations and met our capital expenditure requirements primarily through: private placements of equity securities; convertible subordinated debt offerings; public equity offerings; sales of assets; and revenues received under our collaborative research agreements. Since inception, we have not had any off-balance sheet arrangements. To date, inflation has not had a material effect on our business.

In February 2009, we repurchased a total of $4.8 million of our 4% convertible subordinated debentures due February 2011, for an aggregate purchase price of $3.8 million reflecting an aggregate discount from the face value of such 2011 notes of approximately 21%, resulting in a gain of approximately $1.0 million.

Cash, restricted cash and investments. The following table depicts changes in the cash, restricted cash, and investments for the three month periods ended March 31, 2009 and 2008, using the direct method (in millions):

                                                                              Three months
                                                                            ended March 31,
                                                                            2009        2008
Cash paid to suppliers, employees and collaborators                       $   (4.0 )   $  (5.5 )
Restructuring charges paid                                                    (0.5 )      (2.2 )
Interest income received                                                       0.5         1.1
Interest expense paid                                                         (0.4 )      (1.4 )
Income tax benefit received                                                    0.2          -
Cash paid for extinguishment of debt                                          (3.8 )        -
Net unrealized gain on short-term investments and marketable securities         -          0.4
Net realized gain on short-term investments and marketable securities          0.1          -
Net decrease in cash, restricted cash and investments                         (7.9 )      (7.6 )
Cash, restricted cash and investments, beginning of period                    87.7       115.0

Cash, restricted cash and investments, end of period                      $   79.8     $ 107.4

In accordance with our investment policy, we are utilizing the following investment objectives for cash and investments: (1) investment decisions are made with the expectation of minimum risk of principal loss, even with a modest penalty in yield; (2) appropriate cash balances and related short-term funds are maintained for immediate liquidity needs, and appropriate liquidity is available for medium-term cash needs; and (3) maximum yield is achieved.

Future Liquidity. In February 2009, we announced our plan to undertake a review of strategic alternatives that could enhance shareholder value. These alternatives range from selling or licensing CR011, to acquiring additional assets or business lines, to selling the Company. There is no assurance that this process will result in any changes to our current business plan or lead to any specific action or transaction.

We expect to continue to fund our operations by a combination of the following sources: cash and investment balances; interest income; potential private equity offerings; debt financing or additional collaborations and licensing arrangements. We intend to use our cash and investment balances for the development costs of CR011-vcMMAE and also for other uses which could include strategic transactions. We do not anticipate any material capital expenditures in the near future. Accordingly, we foresee the following as uses of short term liquidity: contractual services related to clinical trials and manufacturing; salary and benefits; and license fees. We will also continue to evaluate potential acquisitions, including complementary businesses, technologies and products.

We will continue to evaluate options to repurchase or refinance all or a portion of our outstanding 4% convertible debentures that mature on February 15, 2011. Repurchases might occur through cash purchases and/or exchange for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material.

We may use sources of liquidity for working capital, general corporate purposes and potentially for future acquisitions of businesses, products or technologies. The amounts and timing of our actual expenditures will depend upon numerous factors, including the amount and extent of any acquisitions, our product development activities, our investments in technology and the amount of cash generated by our operations and may vary substantially from our estimates. Our failure to use sources of liquidity effectively could have a material adverse effect on our business, results of operations and financial condition.

We believe that our existing cash and investment balances and other sources of liquidity will be sufficient to meet our requirements through 2011. We consider our operating expenditures to be crucial to our future success, and intend to continue to make strategic investments in our clinical drug pipeline. In appropriate situations, we may seek financing from other sources, and expect that we will need additional funds to meet our future operating requirements. To the extent that we need to obtain additional funding, the amount of additional capital we would need to raise would depend on many factors, including: the number, breadth, progress and results of our research, product development and clinical programs; the costs and timing of obtaining regulatory approvals for any of our products; in-licensing and out-licensing of pharmaceutical products; acquisitions, including complementary technologies and products; costs incurred in enforcing and defending our patent claims and other intellectual property rights.

While we will continue to explore alternative sources for financing our business activities, including the possibility of private strategic-driven common stock offerings, we cannot be certain that in the future these sources of liquidity will be available when needed, particularly in light of the current economic environment, or that our actual cash requirements will not be greater than anticipated. In appropriate strategic situations, we may seek financing from other sources, including contributions by others to joint ventures and other collaborative or licensing arrangements for the development and testing of products under development. However, should we be unable to obtain future financing either through the methods described above or through other means, we may be unable to meet the critical objective of our long-term business plan, which is to successfully develop and market pharmaceutical products, and may be unable to continue operations. This result could cause our shareholders to lose all or a substantial portion of their investment.

Contractual Obligations

In the table below, we set forth our enforceable and legally binding obligations, along with future commitments related to all contracts that we are likely to continue, regardless of the fact that they are cancelable as of March 31, 2009.

Some of the amounts included in this table under purchase commitments are based on management's estimates and assumptions about these obligations, including their duration, anticipated actions by third parties, progress of our clinical programs and other factors. These amounts exclude items accrued for on the balance sheet.

. . .