• we will be able to preserve cash and monetize our existing assets;

• costs to conclude the remaining portions of the Viprinex program will fall within our estimates;

• XERECEPT will be successfully developed or sold by Celtic Pharma;

• we will be able to comply with Nasdaq's continued listing standards; or

• we will receive sufficient liquidity for our ARS.

Overview
We are a company historically focused on developing investigational drugs for central nervous system conditions and other serious unmet medical needs. We have the right to receive royalty payments from the sales of Namenda (memantine HCL), an approved drug marketed for Alzheimer's disease. We also have the right to receive potential milestone and royalty payments from the development of XERECEPT®, an investigational drug which has completed a Phase 3 clinical trial for the treatment of swelling associated with cerebral tumors. We recently terminated the development of what was previously our most advanced product candidate, Viprinex™, which was studied in Phase 3 clinical trials as a potential new treatment for acute ischemic stroke. We have also recently chosen not to extend our early-stage research collaborations for Alzheimer's and Huntington's diseases.
Below is an overview of key developments affecting our business to date in fiscal 2009.
Viprinex™, formerly a phase 3 investigational drug for stroke In December 2008, we announced that an independent Data Safety Monitoring Board, or DSMB, had determined that the phase 3 clinical trials of Viprinex™ for the treatment of acute ischemic stroke were unlikely to show benefit. As a result, we immediately terminated further enrollment in the trials. After further analysis of the data, we subsequently determined that further development of Viprinex was not warranted, since no patient groups appeared to benefit from treatment. We have sent a letter to Abbott Laboratories, terminating the license under which we obtained the rights to develop and commercialize Viprinex, and we have terminated the employment of all employees that were working on the Viprinex program. We are in the process of fulfilling remaining regulatory and contractual obligations for the Viprinex program and we do not expect to undertake any further development of this compound.
XERECEPT®, a phase 3 investigational drug for which we have rights to receive milestone and royalty/profit-sharing payments Celtic Pharmaceuticals, or Celtic, to whom we sold rights to XERECEPT in 2005, continues to develop XERECEPT (corticorelin acetate) for the treatment of brain edema associated with cerebral tumors. Celtic has announced that it expects to present results from its clinical program at an upcoming cancer conference in the second quarter of calendar 2009. Celtic has also announced that it has retained an investment bank to assist with the sale of XERECEPT. While we are entitled to receive between 13% and 22% of the net proceeds received by Celtic upon the sale of XERECEPT, we cannot estimate whether Celtic will be successful in their attempts to sell XERECEPT or whether we will receive any payments under the agreement.
Preclinical Programs licensed from the Buck Institute for Age Research In fiscal 2008, we entered into agreements with the Buck Institute for Age Research, or Buck, for rights to proteins in early preclinical development for the treatment of Alzheimer's and Huntington's diseases. In the third quarter of fiscal 2009, we sent Buck letters stating that we did not intend to extend the research program terms for either the Huntington's or Alzheimer's disease program beyond the first year of the respective collaborations. As a result, we have ceased making research funding payments to Buck and expect to lose our rights to develop the proteins that formed the basis for the collaborations.

Employees
Following the discontinuance of our Viprinex program, we terminated the employment of over 75 percent of our employees, all during the third quarter of fiscal 2009. As of March 31, 2009, there were a total of eight full- and part-time employees at the Company. Four of these employees continue to support the clinical development of XERECEPT, and their direct costs are reimbursed to us by Celtic.
Employment termination charges aggregating approximately $0.6 million were incurred in the third quarter of fiscal 2009, comprising approximately $0.4 million included in our research and development expenses and $0.2 million in general and administrative expenses.
The employment of Paul E. Freiman, appointed President and Chief Executive Officer in May 1997, was terminated by our Board of Directors effective December 31, 2008. On January 30, 2009, the Board appointed William A. Fletcher as Acting Chief Executive Officer.
Future of Neurobiological Technologies as a Company In March 2009, we announced that we retained RBC Capital Markets, or RBC, as our financial advisor to assist in the evaluation of various options to enhance shareholder value, including a potential sale of the Company or our major assets. Our goal is to determine whether there is a transaction that would be more beneficial to our shareholders than a liquidation. In the event that our evaluation of strategic options does not result in a transaction that meets our objectives, we intend to return as much cash as possible to our shareholders through a liquidation or other means. Our board of directors intends to act expeditiously in the process of seeking a strategic transaction.

RESULTS OF OPERATIONS
Revenues
The major components of our revenue are as follows (in thousands):

                                                         Decrease in                                     Decrease in
                             Three months ended             2009              Nine months ended             2009
                                 March 31,                Compared                March 31,               Compared
                             2009           2008           to 2008           2009           2008           to 2008
Royalty revenue           $    1,505       $ 2,161      $        (656 )    $   5,590      $  6,245      $        (655 )
XERECEPT sale                  1,375         1,375                  -          4,125         4,125                  -
Collaboration services           133           148                (15 )          354           877               (523 )


Total                     $    3,013       $ 3,684      $        (671 )    $  10,069      $ 11,247      $      (1,178 )

Total revenues of $3,013,000 for the three months ended March 31, 2009 decreased by $671,000 from revenues of $3,684,000 in the same period of fiscal 2008. Our third quarter fiscal 2009 revenues consisted of $1,505,000 from royalties on the commercial sales of memantine by Merz and its marketing partners in the United States, $1,375,000 from the sale of our rights and interests in XERECEPT to Celtic and $133,000 from the reimbursement of the direct expenses incurred for services provided to Celtic for development of XERECEPT. Royalties on sales of memantine were lower in the three months ended March 31, 2009 than the three months ended March 31, 2008 because of a scheduled reduction in the royalty rate we are entitled to receive from Merz and from the elimination of royalties on sales in Europe following the amendment of our agreement with Merz in February 2008. Revenues from the sale of XERECEPT were the same for the three months ended March 31, 2009 and for the three months ended March 31, 2008 because we are recognizing the up-front payment of $33 million we received in November 2005 on a straight-line basis over the estimated term of our obligation to provide services to Celtic, which extends to November 2011. Revenues from collaboration services declined by $15,000, or 10%, to $133,000 for the three months ended March 31, 2009 compared to the three months ended March 31, 2008 due to normal fluctuations in the work charged to Celtic for XERECEPT development.

Changes for the nine-month period ended March 31, 2009 compared to the nine-month period ended March 31, 2008 were the same as for the three-month periods, except the decrease in revenues from collaboration services declined by a greater percentage in 2009 as compared to fiscal 2008. The larger decrease for the collaboration services revenue for the nine months ended March 31, 2009 occurred due the transition of most of the XERECEPT drug development work to Celtic in fiscal 2008. Following this transition, we ceased incurring these expenses and the respective reimbursements from Celtic.
RESEARCH AND DEVELOPMENT EXPENSES
Because we have historically engaged in the business of drug development and our drug candidates have not been approved for sale, the majority of our costs have been related to the research and development of these drug candidates and the costs are expensed as incurred. Research and development costs include clinical trial costs, drug supply and manufacturing costs, salaries and related personnel costs for employees involved in the development of our products, and other costs related to developing investigational drugs, including outside consultants. The following table shows our research and development expenses by product under development (in thousands):

                                                         Decrease in                                     Decrease in
                             Three months ended             2009              Nine months ended             2009
                                 March 31,                Compared                March 31,               Compared
                             2009           2008           to 2008           2009           2008           to 2008
Viprinex                  $    1,651       $ 5,122      $      (3,471 )    $  16,485      $ 16,915      $        (430 )
XERECEPT                         160           182                (22 )          366           947               (581 )
Preclinical programs              46           641               (595 )          850           960               (110 )


Total                     $    1,857       $ 5,945      $      (4,088 )    $  17,701      $ 18,822      $      (1,121 )

Total research and development expenses were $1,857,000 for the three months ended March 31, 2009, which represented a decrease of $4,088,000 compared to the three months ended March 31, 2008. For the nine months ended March 31, 2009, research and development expenses were $17,701,000, a decrease of $1,121,000 from the nine months ended March 31, 2008.
For the three months ended March 31, 2009, our expenses related to Viprinex aggregated $1,651,000, a decrease of $3,471,000, or 68%, from expenses of $5,122,000 for the three months ended March 31, 2008. The decrease in expenses for the three months ended March 31, 2009 was due to our decision to no longer develop Viprinex following the results of the interim analysis. Included in the expenses for the three months ended March 31, 2009 are costs to complete close-down of the clinical trial, costs for close-down of the snake farm and purification facility we had established for the production of active ingredient (which was derived from the venom of Malayan pit vipers) and employee termination costs.
For the nine months ended March 31, 2009, our expenditures on Viprinex aggregated $16,485,000, a decrease of $430,000, or 3%, compared to $16,915,000 for the nine months ended March 31, 2008. The decrease in costs related to the development of Viprinex is primarily due to lower clinical trial expenses in fiscal 2009 following the termination of the development of Viprinex, which were mostly offset by nonrecurring costs associated with the close-down of the snake facility and purification unit.
We do not expect significant costs for the Viprinex program in future periods. For the three months ended March 31, 2009, our expenditures related to XERECEPT decreased to $160,000 from $182,000 for the comparable period in fiscal 2008, due to normal fluctuations in the level of activity. For the nine months ended March 31, 2009, our expenditures related to XERECEPT declined by $581,000, or 61%, compared to the nine months ended March 31, 2008. During the first nine months of fiscal 2008 we transitioned substantially all drug development activities to Celtic, and accordingly in fiscal 2008 incurred a higher level of costs prior to the completion of the transition. The decrease in our research and development costs for XERECEPT is comparable to the decrease in revenue for reimbursement of these costs by Celtic.

During the third quarter of fiscal 2009, we sent termination letters related to our preclinical research programs that had been conducted in collaboration with the Buck Institute for Age Research, and therefore incurred lower costs for the preclinical programs than we incurred in the third quarter of fiscal 2008. Expenses for the preclinical programs also decreased for the nine month periods ended March 31, 2009, for the same reason, although by a smaller percentage due to research conducted earlier in fiscal 2009 before the termination letters were sent.

GENERAL AND ADMINISTRATIVE EXPENSES
The following table shows our general and administrative expenses (in
thousands):

                                    Decrease in                                  Decrease in
        Three months ended             2009            Nine months ended            2009
             March 31,               Compared              March 31,              Compared

General and administrative expenses were $1,438,000 for the three months ended March 31, 2009, a decrease of 18% from expenses of $1,757,000 for the three months ended March 31, 2008. During the quarter ended March 31, 2009 we incurred lower costs for employee salaries, investor relations and business development consultants. These lower costs were partially offset by severance charges for terminated administrative employees and close-down costs for our New Jersey office. For the year-to-date periods, general and administrative expenses were lower due to the aforementioned reasons, as well as a reduction in use of outside consultants, lower legal expenses and lower costs of compliance with internal control certification requirements.
We expect general and administrative expenses for future periods to be less than they were for the three months ended March 31, 2009 due to a lower number of employees and a reduced need for administrative work in the absence of an active internal drug development program. If we make no changes to our current operating structure, we estimate that general and administrative expenses, excluding noncash charges, will be less than $1.0 million for each quarter of operations. If we are successful in finding a transaction that enhances shareholder value, we will likely incur additional one-time charges associated with the transaction.
INTEREST INCOME
Interest income for the three- and nine-month periods ended March 31, 2009 was $136,000 and $649,000, respectively, compared to $540,000 and $1,020,000, respectively, for the same periods in the prior fiscal year. The decreases for the three- and nine-month periods of fiscal 2009 compared to the same periods in fiscal 2008 were due to lower average cash and investments balances and a decrease in the average interest rates earned.
IMPAIRMENT CHARGE FOR DECREASE IN VALUE OF INVESTMENTS An impairment charge of $55,000 was recorded for the three- and nine-month periods ended March 31, 2009, as compared to an impairment charge of $1,778,000 for the three- and nine-month periods ended March 31, 2008. The impairment charge recorded during fiscal 2009 was related to ARS we sold after March 31, 2009, for which proceeds were less than cost. The impairment charge recorded in fiscal 2008 was related to the initial failure of ARS auctions and our estimated value of the ARS based on a model of discounted cash flows and interest rates.
INTEREST EXPENSE
Interest expense for the nine months ended March 31, 2008 was related to short-term notes issued in September 2007 and repaid in November 2007. There was no comparable expense for the nine months ended March 31, 2009.
NON-CASH GAIN/LOSS ON DECREASE IN FAIR VALUE OF WARRANTS In April 2007, we issued warrants to purchase 435,000 shares of common stock in connection with a concurrent sale of common stock. The warrants are exercisable through April 2012 at a price of $16.80 per share. Although the terms of the warrants do not provide for net-cash settlement, in certain circumstances, physical or net-share settlement of the warrants is deemed not to be within our control and, accordingly, we are required to account for the estimated fair value of these warrants as a liability. The warrant liability is re-valued on each reporting date with changes in the fair value from prior periods reported as non-cash charges or credits to earnings. The Black-Scholes option valuation model is used to estimate the value of the warrant liability. During the three months ending March 31, 2009, the estimated value of the warrants increased primarily due to the increased volatility of our common stock, as well as an increase in value of our stock, causing us to recognize a loss on the change in value of the warrants. Because the dollar-value of our stock price decreased substantially during the reporting periods that ended on March 31, 2008, in the prior fiscal year the Company recognized a non-cash gain based on the estimated value of the warrants.

LIQUIDITY AND CAPITAL RESOURCES
We assess liquidity primarily by the cash and investments available to fund our operations, which have been significantly curtailed since the Viprinex program for acute ischemic stroke was terminated. Our expenses for the next quarter are expected to be focused on the following areas:
• Completion of our regulatory contractual obligations associated with the terminated Viprinex program, including filing required reports in the United States and various foreign countries;

• Seeking to monetize our assets;

• Continuation of our obligations to provide services to Celtic in connection with the clinical development of XERECEPT; and

• Administrative expenses associated with the above activities, the process of evaluating options to enhance shareholder value, negotiating other contractual obligations, and sustaining operations as a public company.

In addition to cash and investments, we also assess liquidity by our working capital (modified to exclude deferred revenue and the warrant liability) available to fund operations. We exclude deferred revenue and the warrant liability from our working capital as we do not believe these items will ever require cash payments from us. The following table shows our cash and short-term investments and working capital (in thousands).

                                                          March 31,        June 30,
                                                            2009             2008

 Cash, cash equivalents, and short-term investments      $    21,601      $   29,980
 Cash, cash equivalents, short-term and long-term
 investments                                                  28,803          41,830
 Working capital (excluding deferred revenue and the
 warrant liability)                                           15,555          27,357

Since our inception in 1987, we have applied the majority of our resources to our research and development programs and have generated only limited operating revenue. We have experienced operating losses in nearly every year since inception as we have funded the development and clinical testing of our drug candidates. We expect to incur losses for the fiscal year ending June 30, 2009. Although we may be profitable for the fourth quarter of 2009 and for fiscal 2010, we do not expect our business to be able to sustain long-term profitability.
As of March 31, 2009, our combined balance of cash, cash equivalents and short-term investments decreased by $8.4 million from the balance at the end of our most recent fiscal year, June 30, 2008. The decrease was primarily a result of the operating activities of conducting and then closing down our clinical trials, development of Viprinex, termination of drug manufacturing obligations and the other operations of the Company, which used approximately $11.3 million in cash, which was partially offset by proceeds received from the sale of long-term investments. For the quarter ended June 30, 2009, we expect our cash to decrease by a greater amount than our net loss as we settle liabilities related to the development of Viprinex which were not paid to the vendors by March 31, 2009 (such as the closure of the snake facility and purification unit). We expect cash, cash equivalents, short-term and long-term investments to total approximately $23 million at June 30, 2009, assuming we have fully paid off all currently accrued Viprinex-related costs.
We believe that our cash and investments (long and short-term combined) as of March 31, 2009 will be sufficient to fund our planned operations through at least the next twelve months.

Our future capital requirements and net resources will depend on a number of factors, including:
• the final costs involved in completing remaining obligations related to the Viprinex program;

• the value we are able to receive upon our disposition of the ARS we hold as long-term investments;

• the royalties received from Merz on future sales of memantine;

• any milestone, royalty and profit-sharing payments we receive pursuant to our agreements with Celtic; and

• the strategic alternatives that we choose to pursue.

Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our consolidated financial condition, changes
in our consolidated financial condition, revenues or expenses, consolidated
results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
Our noncancelable contractual obligations that extend beyond the next twelve
months are summarized in the following table (in thousands):

                                                  Payments due by period
                                               Current fiscal                      Over 3
                                  Total             year            1-3 years       years
   Operating lease obligations   $   490      $             93     $       397     $     -
   Others                              -                     -               -           -


   Total                         $   490      $             93     $       397     $     -

The only material change from the table of contractual obligations included in our Annual Report on Form 10-K is the elimination of an estimated obligation for a contingent payment to Nordmark that was required in the event we did not commercialize Viprinex. On May 4, 2009, we reached agreement with Nordmark to terminate all obligations under our earlier agreements with them in exchange for a one-time payment of approximately €2.1 million (approximately $2.8 million) from us to Nordmark. The payment to Nordmark has been accrued in the balance sheet as of March 31, 2009, and is not additionally reflected in the above table. We do not expect to incur further costs related to either the operation of the Nordmark snake farm or the removal of the snakes from the facility. A further update of the status of key contractual obligations, including those which are cancelable, due in less than a year is included below.
• Clinical Research Organizations. We had agreements in place with several Clinical Research Organizations, or CROs, for work needed on the clinical trials in various foreign countries. We generally paid the CROs on a monthly or quarterly basis for work as it was performed, and the terms of most of the agreements allow them to be cancelled with no obligations beyond the costs incurred by the CROs to the time of termination. As of March 31, 2009, our CROs have closed down the clinical trial at most sites with which they were involved. We are in the process of reconciling CRO-related costs for the clinical trial and the amounts we have paid to each CRO to date compared to actual costs incurred, as well as reviewing the validity of the costs incurred. We have accrued expenses as of March 31, 2009 which we believe are appropriate under the agreements, and are holding further payments to each CRO until we are satisfied that all costs are justified under the agreements and we reach agreement with the CRO on final amounts. We currently expect resolution with all CROs in the fourth quarter of our fiscal year ending June 30, 2009.
• Medical facilities conducting the clinical trials. We have largely completed the process of reconciling and paying costs incurred by the various medical facilities for each patient enrolled into our trials, and expect any further payments or costs related to the medical facilities not to be material in future periods.
• Data management. We have reached agreement with the outside service organizations involved in managing the data collected from the clinical trial and expect any further costs related to data management not to be material in future periods.

• License agreement for Viprinex. We were developing Viprinex under a worldwide license from Abbott Laboratories. Under the license, we had an obligation to use commercially reasonable efforts to develop Viprinex for the treatment of acute ischemic stroke. Based on the results of our clinical trials, we do not plan to further develop Viprinex for the treatment of stroke, or for any other indication, and we have notified Abbott of our intention to terminate the Viprinex license agreement. As required by the license, we are in the process of returning all drug material, data and intellectual property to Abbott. We expect this to be completed following the completion of the final study report, which is currently being reviewed by independent physicians. . . .