Summary of ADEONA PHARMACEUTICALS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION 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, 2008, found in our Annual Report on Form 10K. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Where possible, we have tried to identify these forward looking statements by using words such as "anticipate," "believe," "intends," or similar expressions. 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 I, Item 1A of our Annual Report on Form 10K.

Overview

Since our inception during January 2001, our efforts and resources have been focused primarily on acquiring and developing our pharmaceutical products, raising capital and recruiting personnel. We are a development stage company and have had no product sales to date. Our major sources of working capital have been proceeds from equity financings from affiliates of 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") and on October 16, 2008 the Company changed its name to Adeona Pharmaceuticals, Inc. ("Adeona"). 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. We believe that the following discussion regarding research and development expenses, general and administrative expenses and non-cash compensation expense involve our most critical accounting policies.

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.

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 as amortized in the period of recognition. 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".

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.

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.

Results of Operations

Three Months Ended March 31, 2009 and 2008.

Research and Development Expenses. For the three months ended March 31, 2009, research and development expense was $495,994 as compared to $2,124,620 for the three months ended March 31, 2008. The decrease of $1,628,626 is due primarily to a decrease of approximately $837,000 associated with payments related the development of our licensed clinical drug candidates, a decrease of approximately $445,000 in stock based compensation charges, a decrease in salaries and related taxes of approximately $296,000 and a decrease in allocated overhead expenses of approximately $46,000.

General and Administrative Expenses. For the three months ended March 31, 2009, general and administrative expense was $593,444 as compared to $1,002,582 for the three months ended March 31, 2008. The decrease of $409,138 is due primarily to a decrease in salaries and payroll taxes of approximately $100,000, a decrease in allocated overhead of approximately $96,000, a decrease in stock based compensation charge of approximately $71,000 and a decrease in professional fees of approximately $43,000.

Other Income (Expense), net. For the three months ended March 31, 2009, other expense was $23,837 compared to other income-net of $37,746 for the three months ended March 31, 2008. For the three months ended March 31, 2009, interest income was $2,622 as compared to $51,577 for the three months ended March 31, 2008. Interest income was lower for the period in 2009 as compared to the same period in 2008 due to lower interest rates and lower levels of cash in interest bearing accounts. For the three months ended March 31, 2009, loss on sale of equipment was $26,459 as compared to $0 for the three months ended March 31, 2008. For the three months ended March 31, 2009, interest expense was $0 as compared to $13,831 for the three months ended March 31, 2008. Interest expense for the period in 2008 relates to interest paid on the notes payable which were repaid in March 2008.

Net Loss. Net loss for the three months ended March 31, 2009, was $1,113,275 as compared to $3,089,456 for the three months ended March 31, 2008. This decrease in net loss of $1,976,181 is attributable primarily to a decrease in research and development expense of $1,628,626, a decrease in general and administrative expenses of $409,138 and an increase in other income (loss)-net of $61,583 as discussed above.

Liquidity and Capital Resources

During the three months ended March 31, 2009, we had a net decrease in cash of $567,342. Total cash resources as of March 31, 2009 was $5,289,042. During the three months ended March 31, 2009 and 2008, net cash used in operating activities was $567,342 and $1,812,320 respectively. This cash was used to fund our operations for the periods, adjusted for non-cash expenses and changes in operating assets and liabilities.

Net cash used in investing activities was $0 for the three months ended March 31, 2009 compared to $21,398 net cash used in investing activities for the three months ended March 31, 2008. The net cash used in investing activities for the three months ended March 31, 2008 resulted from the purchase of property and equipment in the amount of $21,398.

Net cash used in financing activities was $0 for the three months ended March 31, 2009 compared to $897,561 of net cash used in financing activities for the three months ended March 31, 2008. The net cash used in financing activities for the three months ended March 31, 2008 resulted from $900,000 for the repayment on notes payable, less proceeds of $2,439 from the issuance of preferred and common stock.

Our continued operations will depend on whether we are able to generate revenues and profits through our planned introduction of diagnostic clinical laboratory services and zinc-based products or raise additional funds through various potential sources, such as license fees from a potential corporate partner, 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 $39,394,951 through March 31, 2009. 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 16 months.

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;
• our pending acquisition of Colwell Clinical Laboratories, Inc.;
• our potential stock repurchases under our Stock Repurchase Program, and
• the success, timing, and profitability of our planned clinical laboratory services and zinc-based product launches.

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.

Product Candidates

Metal Dyshomeostasis Clinical Diagnostic Products and Services

During the first quarter of 2009, we analyzed patient samples from an IRB-approved, prospective, observational, blinded clinical trial that we sponsored and conducted during 2007 and 2008. Such study enrolled 90 subjects, 30 with Alzheimer's disease (AD), 30 with Parkinson's disease (PD) and 30 age-matched normal subjects. The purpose of the study was to evaluate serum markers of copper status and compare these results across the three groups of patients. The results of such study indicate highly statistically significant differences in serum markers of copper status between AD and normal subjects. We believe that the differences observed suggest that Alzheimer's patients have impaired protection from chronic copper toxicity, which may contribute to the progression of their disease. The results from this study also appear to indicate a subclinical zinc deficiency in AD subjects. We currently intend to announce these results in the first half of July and launch a panel of metal dyshomeostasis clinical diagnostics based upon our findings. There are an estimated 5.8 million, 1.5 million and 15 million persons in the U.S. with Alzheimer's disease, Parkinson's disease and mild cognitive impairment (MCI), respectively, that may benefit from our planned panel of clinical diagnostic products and services.

On April 17, 2009 we announced our potential acquisition of Colwell Clinical Laboratories, Inc. ("Colwell Labs") a Southern California CLIA-certified clinical laboratory through which we intend to launch and market our intended panel of metal dyshomeostasis clinical diagnostic products and services. Our acquisition of Colwell Labs is subject to our evaluation which we expect to complete by May 31, 2009.

During the first quarter 2009, we incurred no costs associated with our metal dyshomeostasis clinical diagnostics products and services.

Products for Subclinical Zinc Deficiency and Chronic Copper Toxicity

Our leading product candidate brands, Zinthionein™ and EyeDaily™ with Zinthionein™, are expected to be products that contain proprietary ingredients (such as, zinc monocysteine complex), proprietary combinations of ingredients, proprietary modified-release zinc-containing formulations and proprietary product packaging. We believe that our technologies and expertise may provide physicians and aging patients with the most timely, convenient, well-tolerated, "best-in-class" product solutions we consider to be an under-recognized, potential multi-billion dollar market to address for the prevention and treatment of degenerative conditions that we believe involve subclinical zinc deficiency and/or chronic copper toxicity.

Zinc-monocysteine is a complex of zinc and the amino acid cysteine that we believe may have improved properties compared to currently marketed zinc-based products. Zinc-monocysteine was invented and developed by David A. Newsome, M.D., President of the Company's subsidiary Healthmine and former Chief of the Retinal Disease Section of the National Eye Institute (NEI). Dr. Newsome was the first to pioneer and demonstrate the benefits of oral high dose zinc therapy in dry AMD. Oral high dose zinc containing products now represent the standard of care for dry AMD affecting over 10 million Americans and have annual sales of approximately $300 million. Zinc monocysteine has completed an 80-patient, randomized, double-masked, placebo controlled clinical trial in dry AMD and demonstrated highly statistically significant improvements in central retinal function the results of which were published in a peer-reviewed journal in 2008. In addition, we believe that our patent pending modified-release formulations of zinc-monocysteine and other zinc moieties may offer the significant advantages of convenient once-a-day dosing and improved gastrointestinal tolerability compared to currently-marketed oral high dose zinc-containing products.

Our sales and marketing plans include promoting prevention through public awareness, physician and patient education including current research, the research and development of potential proprietary diagnostic products to aid in the identification of individuals who may be at increased risk as well as the commercialization of our proprietary zinc-based products intended for the treatment and/or nutritional support of conditions characterized by subclinical zinc deficiency and chronic copper toxicity. Through our HealthMine subsidiary, we launched copperproof.com, a website intended to increase public awareness aimed at the prevention of chronic copper toxicity. Our EyeDaily™ brand of oral zinc-based therapies is expected to utilize patent-pending product packaging that incorporates an eye-self test to improve compliance and convenience of patients with dry AMD.

Through March 31, 2009, we have incurred approximately $443,500 of costs related to our development of Zinthionein of which $154,000 was incurred during 2007, $256,000 which was incurred in 2008 and $33,500 which was incurred during the first quarter of 2009.

Oral dnaJP1

In June 2008, we in-licensed Oral dnaJP1, an oral, candidate for the treatment of rheumatoid arthritis (RA) which has completed a 160 patient, multi-center, double-blind, randomized, placebo-controlled Phase II clinical trial for the treatment of RA. Rheumatoid arthritis is an autoimmune disease which affects approximately 20 million people worldwide. Oral dnaJP1 is a epitope specific immunotherapy for RA patients. Oral dnaJP1 is a heat shock protein (hsp)-derived peptide which was previously identified as a contributor of T cell mediated inflammation in RA. Immune responses to hsp are often found at sites of inflammation and have an initially amplifying effect that needs to be downregulated to prevent tissue damage. The mechanisms for this regulation involve T cells with regulatory function that are specific for hsp-derived antigens. This regulatory function is one of the key components of a "molecular dimmer" whose physiologic function is to modulate inflammation independently from its trigger. This function is impaired in autoimmunity and could be restored for therapeutic purposes. Through March 31, 2009, we have incurred approximately $297,500 of costs related to our development of Oral dnaJP1 all of which $219,000 has been incurred in 2008 and $78,500 was incurred during the first quarter of 2009. We are seeking potential U.S. and international corporate partners for the manufacturing, testing and further development of oral dnaJP1.

TRIMESTA™ (oral estriol)

In June 2007, a two year seven U.S. center, placebo controlled 150 patient phase IIb clinical trial using TRIMESTA™ for the treatment of relapsing-remitting Multiple Sclerosis (MS) was initiated under a $5 million grant from the Southern California Chapter of the National Multiple Sclerosis Society and NIH. This phase IIb clinical trial builds upon our encouraging results from an earlier phase IIa clinical trial. The primary purpose of this study is to evaluate the safety and efficacy of TRIMESTA™ in a larger MS patient population with a one year blinded interim analysis. The preclinical and clinical development of TRIMESTA™ has been primary financed by grants from the NIH and various non-profit foundations. Through March 31, 2009, we have incurred approximately $703,000 of costs related to our development of TRIMESTA™ of which approximately $49,500, $185,500, 194,000 and $256,000 was incurred in fiscal years 2005, 2006, 2007 and 2008 respectively, and approximately $18,000 was incurred in 2009. During 2009, this clinical trial was expanded to include 16 total clinical trial sites and currently approximately 40 of 150 patients have been enrolled in this Phase IIb study.

Oral flupirtine

A scientific collaborator of ours has filed and received an IND with the FDA to conduct a phase II clinical trial with flupirtine in fibromyalgia patients. Our scientific collaborator also received institutional review board (IRB) approval to conduct this study. Through March 31, 2009, we have incurred approximately $112,000 of costs related to our development of flupirtine, of which $85,000 was incurred during 2007 and $27,000 was incurred during 2008. During 2008, we obtained an option to license issued and pending patent applications relating to flupirtines use in the treatment of ophthalmic indications. We are seeking potential U.S. and international corporate partners for the further development of flupirtine for various indications.

Oral TTM (oral tetrathiomolybate)

Through December 31, 2009, we have incurred approximately $3,628,500 of costs related to our development of oral TTM, of which approximately $150,000, $1,061,000, $1,676,000 and $725,000 was incurred in fiscal years 2005, 2006, 2007 and 2008, respectively, and approximately $16,500 was incurred during 2009.

We are seeking potential U.S. and international corporate partners for the further development of Oral TTM for Wilson's Disease, idiopathic pulmonary fibrosis (IPF), Alzheimer's disease and Huntington's Disease.

Anti-CD4 802-2

Through March 31, 2009, we have incurred $1,532,000 of costs related to our development of anti-CD4 802-2 of which $58,000, $332,000, $303,000, $295,000, $113,000, $161,000, $121,000 and $82,000 was incurred in fiscal years 2001, 2002, 2003, 2004, 2005, 2006, 2007 and 2008 respectively and approximately $67,000 has been incurred in 2009. We are seeking potential U.S. and international corporate partners for the further development of anti-CD4 802-2 for various indications.

Based on our current capital expenditures, we believe we currently have sufficient capital to fund development activities of our principal products for at least the next 16 months. However, if our business does not generate any cash flow through clinical diagnostic services and/or zinc-based product sales or corporate partnering transactions, we will need to raise additional capital to continue operations beyond the second half of 2010. 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.