The statements contained in this Quarterly Report on Form 10-Q that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. We intend that all forward-looking statements be subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In particular, this "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward-looking statements that reflect our current views with respect to future events and financial performance. We use words such as we "expect," "anticipate," "believe," and "intend" and similar expressions to identify forward-looking statements. A number of important factors could, individually or in the aggregate, cause actual results to differ materially from those expressed or implied in any forward-looking statement, including those set forth under "Item 1A. Part 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2008.

Overview

We are a development stage pharmaceutical company that seeks to acquire, develop and commercialize innovative products for the treatment of a variety of human diseases. Our strategy is to develop technologies that address important unmet medical needs or offer improved, cost-effective alternatives to current methods of treatment. Specifically, we are developing a novel therapeutic agent for the treatment of neurogenic orthostatic hypotension ("NOH") and related conditions and diseases along with our development of prescription products for multiple autoimmune disorders including rheumatoid arthritis, psoriasis, inflammatory bowel disease and cancer.

We are currently focusing the majority of our drug development resources on two clinical stage development projects: droxidopa for symptomatic neurogenic hypotension and other potential indications; and our portfolio of non-metabolized antifolate compounds for the treatment of rheumatoid arthritis.

Droxidopa, our most advanced investigational product candidate, is an orally active synthetic precursor of norepinephrine. It is being developed for the treatment of NOH and is currently approved and marketed in Japan for the treatment of symptomatic orthostatic hypotension, freezing of gait in Parkinson's disease and intradialytic hypotension ("IDH"). During 2007, the U.S. Food and Drug Administration, or FDA, granted orphan drug status to droxidopa for the treatment of NOH and the European Medicines Agency, or EMEA, granted orphan medicinal product designation for the treatment of patients with Pure Autonomic Failure and patients with Multiple Systems Atrophy. Our clinical Phase III development program for the registration of droxidopa in the United States for the treatment of symptomatic NOH includes two double-blind, placebo-controlled studies. Both are designed to compare droxidopa to placebo for the treatment of NOH and to demonstrate a mean improvement over placebo of 1.6 units on the 11-point Orthostatic Hypotension Symptom Assessment (OHSA) scale.

In September 2009, we announced preliminary data from Study 302, the first of these two pivotal double-blind Phase III trials. While strong symptomatic benefit was demonstrated during the open-label dose titration and run-in phase of the trial, results of the trial did not demonstrate a statistically significant improvement relative to placebo, as measured by the mean score of Item 1 (dizziness or light-headedness) of the OHSA scale during the double-blind phase of the trial, the study's primary endpoint. While the study did not meet its primary endpoint, additional analysis confirmed statistically significant symptomatic benefit across five clinically relevant assessment criteria that reflect symptomatic improvements and corroborate other supportive symptom data. Data from the trial also supported the safety and tolerability of droxidopa. We intend to meet with the FDA in November 2009 to obtain greater clarity about our options for completing the planned clinical and registration program for droxidopa. We also reached our targeted enrollment of 118 patients in Study 301, the second double-blind pivotal Phase III trial, in September 2009. The results from this study are not expected to be unblinded until after we meet with the FDA to review our planned registration program. The timing of a new drug application to the FDA for droxidopa will depend upon the outcome of our discussions with the FDA and resulting changes, if any, in our clinical program that might potentially include recruitment of additional patients for study 301, supplementary studies and/or additional clinical trials. Please see Item 1A -Risk Factors of this Form 10-Q for a discussion of risks we face related to the recently announced results of our study 302 clinical trial for droxidopa.

In March 2009, we announced positive results from a preliminary analysis of the completed double-blind, placebo controlled Phase II trial of Droxidopa for the treatment of IDH. Droxidopa demonstrated benefit and indication of dose response in multiple measures of IDH, particularly in alleviating serious adverse events and complications, such as dialysis disruption. In addition, an ongoing Phase II trial of droxidopa, alone and in combination with carbidopa, for the treatment of fibromyalgia began in early 2009, under approval from the United Kingdom's Medicines and Healthcare Products Regulatory Agency.

In addition to droxidopa, we are currently developing a portfolio of molecules for the treatment of various autoimmune/inflammatory diseases. The most advanced platform is a portfolio of metabolically inert antifolate molecules engineered to have potent anti-inflammatory and anti-tumor activity to treat a range of immunological disorders, including two clinical stage product candidates designated as CH-1504 and CH-4051. In March 2009, we announced positive results from a preliminary analysis of the recently completed Phase II head-to-head clinical trial of CH-1504 for the treatment of rheumatoid arthritis. This trial was designed to compare the efficacy and tolerability of CH-1504 against methotrexate, currently the leading antifolate treatment and standard of care for a broad range of abnormal cell proliferation diseases. The preliminary analysis showed comparable ACR20/50/70 response rates to patients treated with 0.25mg, 0.50mg and 1.0mg of CH-1504 against patients treated with a standard 20mg oral dose of methotrexate. In addition, the efficacy of CH-1504 was associated with improved tolerability and reduced heptatoxicity compared with methotrexate. In April 2009, we announced positive findings from our Phase I study of CH-4051, the L-isomer of CH-1504. Data from this single and multiple ascending dose study demonstrated that CH-4051 is safe and well tolerated up to a maximally tolerated dose of 7.5mg. Complementing our autoimmune/inflammatory program is a second platform consisting of a portfolio of therapeutics targeting immune-mediated inflammatory disorders and transplantation, known as our I-3D portfolio.

Since inception we have focused primarily on organizing and staffing our company, negotiating in-licensing agreements with our partners, acquiring, developing and securing our proprietary technology, participating in regulatory discussions with the FDA, the EMEA and other regulatory agencies and undertaking preclinical trials and clinical trials of our product candidates. We are a development stage company and have generated no revenue since inception. We do not anticipate generating any product revenue until and unless we successfully obtain approval from the FDA or equivalent foreign regulatory bodies to begin selling our pharmaceutical candidates although we could potentially generate revenue by entering into strategic agreements including out-licensing, co-development or co-promotion of our drug candidates. Developing pharmaceutical products is a lengthy and expensive process. Even if we do not encounter unforeseen safety issues or timing or other delays during the course of developing our currently licensed product candidates, we would not anticipate receiving regulatory approval to market any such products until, at the earliest, 2011. Currently, development expenses are being funded with proceeds from equity financings completed in December 2004, February 2006, March 2007, November 2007 and July 2009. To the extent we move our products into additional clinical trials and expand our commercialization and marketing efforts for droxidopa, our need to finance operating costs will continue. Accordingly, our success depends not only on the safety and efficacy of our product candidates, but also on our ability to finance the development and/or commercialization of the products.

Critical Accounting Policies

Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Our significant accounting policies are more fully described in Note 1 to the financial statements. The following accounting policies are critical in fully understanding and evaluating our reported financial results.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements as well as the reported revenue and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments. Management bases estimates on historical experience and on various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results might differ from these estimates under different assumptions or conditions.

Research and Development Expense. Research and development costs are expensed as incurred. We often contract with third parties to facilitate, coordinate and perform agreed upon research and development activities. To ensure that research and development costs are expensed as incurred, we measure expense based on work performed for the underlying contract, typically utilizing a percentage-of-completion approach, and record prepaid assets or accrue expenses on a monthly basis for such activities based on the measurement of liability from expense recognition and the receipt of invoices.

These contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain milestones. In the event that we prepay fees for future milestones, we record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research

and development services are performed. Most fees are incurred throughout the contract period and are expensed based on their percentage of completion at a particular date.

These contracts generally include pass-through fees. Pass-through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs, and other miscellaneous costs including shipping and printing fees. Because these fees are incurred at various times during the contract term and they are used throughout the contract term, we record a monthly expense allocation to recognize the fees during the contract period. Fees incurred to set up the clinical trial are expensed during the setup period.

Costs related to the acquisition of technology rights and patents for which development work is still in process are expensed as incurred and considered a component of research and development costs.

Accounting for Stock-Based Compensation. We account for our stock options and warrants as prescribed in ASC 718-10 that defines a fair value based method of accounting for stock options or similar equity instruments. In determining the fair value of the equity instrument, we consider, among other factors, (i) the risk-free interest rate, (ii) the expected life of the options granted,
(iii) the anticipated dividend yield, (iv) the estimated future volatility of the underlying shares and (v) anticipated future forfeitures. To determine the risk-free interest rate, we utilize the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected life of our awards. We estimate the expected life of the options granted based on anticipated exercises in future periods assuming the success of our business model as currently forecasted. The expected dividends reflect our current and expected future policy for dividends on our common stock. To determine the expected stock price volatility for our stock options, we examine historical volatilities for industry peers closely related to the current status of our business, but with sufficient trading history to be able to determine volatility. Utilizing a weighted average calculation to account for the limited price history of our stock, we analyze the historical volatility of our stock price in combination with the historical volatility of the industry peers selected to determine an appropriate volatility factor. We plan to continue to analyze the expected stock price volatility and expected term assumption at each grant date as more historical data for our common stock becomes available. Given the limited service period for our current employees and the senior nature of the roles for those employees, we had estimated that we would experience no forfeitures or that our rate of forfeiture would be immaterial to the recognition of compensation expense for those options currently outstanding. Our results of operations include non-cash compensation expense as a result of the issuance of stock option grants utilizing this method. We expect to record additional non-cash compensation expense in the future, which might be significant. Due to the limited amount of historical data available to us, particularly with respect to stock-price volatility, employee exercise patterns and forfeitures, actual results could differ from our assumptions.

Results of Operations

Three Months Ended September 30, 2009 and 2008

The table below sets forth, for the periods indicated, certain items in our
condensed consolidated statements of operations and other pertinent financial
and operating data.



                                        For the three          For the three
                                        months ended           months ended
                                        September 30,          September 30,             $              %
(in thousands, except percentages)          2009                   2008              Increase         Change
Research and development expense       $         5,357        $         7,041        $  (1,684 )         -24 %
Sales and marketing expense                        714                    295              419           142 %
General and administrative expense               1,014                    941               73             8 %
Interest income                                     32                    306             (274 )         -90 %
Interest expense                                   (41 )                   -               (41 )         100 %
Other income (expense)                              -                  (2,110 )          2,110           100 %

Research and development expenses decreased in the third quarter of 2009 when compared to the same period of 2008 as our pivotal Phase III NOH programs reached or neared completion during the period. The expenses associated with these programs, along with costs related to our ongoing Phase II trial of droxidopa in fibromyalgia and final costs related to our Phase I and Phase II trials of our antifolates accounted for the majority of the costs during the period. The primary expenditures in 2008 related to our then ongoing Phase II trial in rheumatoid arthritis for CH-1504 and significant costs associated with the start of our pivotal Phase III trials in NOH for droxidopa. Also contributing to our expenses were

compensation and related costs, in both periods, and initial regulatory expenses in the third quarter of 2009 associated with our planned registration program for droxidopa. As a percentage of operating expenses, research and development costs were 76% for the three months ended September 30, 2009 and 85% for the three months ended September 30, 2008.

From inception through September 30, 2009, cumulative research and development expenses related to our major research and development projects were approximately $73.6 million and are detailed as follows:

                                                            Inception
                                   Nine months ended         through
                                     September 30,        September 30,
                (in thousands)      2009        2008          2009
                Antifolates      $    1,900   $  7,000   $        25,700
                Droxidopa            18,100     12,900            45,400
                I-3D                     -          -              2,500

                                 $   20,000   $ 19,900   $        73,600

Droxidopa. From inception through September 30, 2009, we had spent approximately $45.4 million in research and development expenses on droxidopa. Assuming we do not enter into an out-license, development or other collaborative agreement with respect to this compound, we estimate that subsequent to that date we will need to incur approximately $8.8 million more to complete our Phase III clinical trials and other development work through to approval of a New Drug Application, or NDA, from the FDA, excluding costs associated with regulatory applications, milestone payments and initial commercial inventory. Assuming regulatory approval for marketing, we currently estimate launch of this product and initial sales or royalty revenue from it no sooner than 2011. In addition to the spending requirements above, we plan spending approximately $4.6 million from the fourth quarter of 2009 through the end of 2010 for clinical proof of concept studies in other indications, our once-daily formulation and other droxidopa related programs.

Antifolates. From inception through September 30, 2009, we had spent approximately $25.7 million in research and development expenses on our portfolio of antifolates. We continue to explore opportunities to engage a partner to assist us in the development of our antifolates after the completion in March 2009 of a Phase II proof-of-concept study for CH-1504 in rheumatoid arthritis and our Phase 1 dosing evaluation in CH-4051, completed in April 2009. However, we may choose to conduct additional Phase II studies starting in 2010 if we believe it will significantly enhance the value of this portfolio and if funding is available. We estimate that we will spend less than $0.2 million more for the development of our antifolate compounds in 2009. Assuming regulatory approval for marketing, we currently estimate launch of this product and initial royalty revenue from it no sooner than 2013.

I-3D Portfolio. From inception through September 30, 2009, we had spent approximately $2.5 million in research and development expenses on the I-3D portfolio of compounds. We have conducted compound discovery work on the portfolio to try and identify one or more lead compounds. All of the work completed to date was performed before 2008 and we do not expect to incur significant additional expenses for these compounds until we select a partner or obtain additional financing.

Sales and marketing expenses. Although we have no formalized selling activities, sales and marketing expenses increased significantly in the third quarter of 2009 when compared to the same period of 2008 primarily related to the initiation of market research and planned commercialization activities for droxidopa. Other expenses for both periods included compensation and related costs and legal expenses related to our intellectual property.

General and administrative expenses. General and administrative expenses increased due to minor increases in compensation and related expenses, office rent related to our headquarter facility and printing costs and travel expenses, offset by a minor reduction in franchise tax expense. Franchise tax expense decreased during 2009 due to our operating losses incurred in 2008 and the related decrease in our stockholders' equity.

Interest income. At September 30, 2009, we had cash and cash equivalents of $30.1 million and short-term investments of $11.475 million. Although the funding received from our July 2009 financing, proceeds from the sale and redemption of ARS and additional funding under the UBS line of credit allowed us to maintain a higher than expected average cash and investments level over the period, the average cash and investment level during 2009 was significantly lower than the level for the same period of 2008. When those lower average levels are combined with a general reduction in interest rates, a loss

of interest income related to our ARS investments and a shift of our holdings, other than ARS, into non-interest bearing accounts, Treasury funds and similar investments, interest earned decreased by $0.3 million.

Other income and expense. During the quarter ended September 30, 2009, we recorded no adjustment to our previously recorded impairment losses on ARS. For the same period of 2008, we recorded an other-than-temporary impairment charge related to our investment in ARS of approximately $2.1 million.

Nine Months Ended September 30, 2009 and 2008

The table below sets forth, for the periods indicated, certain items in our
condensed consolidated statements of operations and other pertinent financial
and operating data.



                                        For the nine           For the nine
                                        months ended           months ended
                                        September 30,          September 30,             $              %
(in thousands, except percentages)          2009                   2008              Increase         Change
Research and development expense       $        19,960        $        19,915        $      45             0 %
Sales and marketing expense                      1,352                  1,177              175            15 %
General and administrative expense               3,039                  2,798              241             9 %
Interest income                                    264                  1,493           (1,229 )         -82 %
Interest expense                                  (108 )                   -              (108 )         100 %
Other income (expense)                           4,390                 (3,676 )          8,066          -219 %

Research and development expenses. We continue to incur significant expenses in 2009, primarily related to our extensive clinical testing programs, particularly, clinical activities for droxidopa, including our pivotal Phase III trials in NOH and Phase II trial in fibromyalgia. In addition, we incurred costs associated with our Phase II study of CH-1504 in rheumatoid arthritis, completed in March 2009, and our Phase I dosing study of CH-4051, completed in April 2009. Other activities contributing to expenses in 2009 include manufacture, formulation, labeling and packaging and regulatory costs. As a percentage of operating expenses, research and development costs were 82% for the nine months ended September 30, 2009, relatively flat when compared with 83% for the same period of 2008. Also contributing to our expenses were compensation and related costs, in both periods. A significant component of our costs in 2008 was related to the ongoing Phase II clinical trial for CH-1504 in rheumatoid arthritis and investigational activities for follow-on molecules in our portfolio of antifolates. We also incurred significant costs during 2008 for clinical activities for droxidopa including the start of our Phase III programs in NOH and our Phase II study in IDH. Other activities for droxidopa included manufacturing and formulation costs in support of the clinical programs and license milestone payments for dosing in a Phase III trial.

Sales and marketing expenses. Although we had no formalized selling activities, contributing to the increase in sales and marketing expenses in 2009 were the costs of initiating market research and commercialization activities for droxidopa during the third quarter. Other expenses included compensation and related costs, legal expenses and related costs for our intellectual property and travel costs for our business development efforts. During 2008, we incurred expenses of a similar nature but rather than preliminary marketing activities related to the planned commercialization of droxidopa, our efforts were focused on the printing of educational materials and a pricing study for droxidopa.

General and administrative expenses. The $0.2 million increase in general and administrative expenses primarily consists of an increase in compensation and related expenses. The remainder of the increase is related to moderate increases in other categories of spending during the period including office rent related to our new headquarters and professional fees for accounting services offset by a decrease in franchise tax expense due to the impact of 2008 operating losses on the taxable equity base.

Interest income. At September 30, 2009, we had cash and cash equivalents of $30.1 million and short-term investments of $11.475 million. Although the funding received from our July 2009 financing, proceeds from the sale and redemption of ARS and additional funding under the UBS line of credit allowed us to maintain a higher than expected average cash and investments level over the period, the average cash and investment level during 2009 was significantly lower than the level for the same period of 2008. When those lower average levels are combined with the loss of interest income on ARS earned in 2008, the deterioration of overall market interest rates and a shift of our holdings, other than ARS, into non-interest bearing accounts, Treasury funds and similar investments, interest earned decreased by $1.3 million.

Other expense. During the nine months ended September 30, 2009, we recorded a gain of $4.4 million on the recovery of previously recorded impairment losses for ARS that were redeemed at par and an increase in the fair value of our ARS Rights. During the nine months ended September 30, 2008, we had recorded the subsequently recovered other-than-temporary impairment loss related to our investments in ARS of approximately $3.7 million.

Liquidity and Capital Resources

From inception to September 30, 2009, we have incurred an aggregate net loss of approximately $89.6 million as a result of expenses similar in nature to those described above.

As of September 30, 2009, we had working capital of approximately $18.2 million, cash and cash equivalents of approximately $30.1 million and short-term investments of $11.475 million. We have financed our operations primarily . . .