Forward-Looking Statements and Risk Factors

When you read this section of this Form 10-Q, it is important that you also read the financial statements and related notes and the Risk Factors section included in our Annual Report on Form 10-K as of, and for the year ended December 31, 2008, as well as the Risk Factors section in this Form 10-Q.

Statements in this interim report on Form 10-Q that are not strictly historical in nature are forward-looking statements. These statements include, but are not limited to, statements about: the timing of the commencement, enrollment, and completion of our clinical trials for our product candidates; the progress or success of our product development programs; the status of regulatory approvals for our product candidates; the timing of product launches; our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; and our estimates for future performance, anticipated operating losses, future revenues, capital requirements, and our needs for additional financing. In some cases, you can identify forward-looking statements by terms such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "should," "goal," and similar expressions intended to identify forward-looking statements. These statements are only predictions based on current information and expectations and involve a number of risks and uncertainties. The underlying information and expectations are likely to change over time. Actual events or results may differ materially from those projected in the forward-looking statements due to various factors, including, but not limited to, those set forth in the Risk Factors section of our annual report on Form 10-K and those set forth in the Risk Factors section in this Form 10-Q. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a clinical-stage biopharmaceutical company and a pioneer in the emerging field of molecular medicine. We are focused on the discovery, development and commercialization of targeted therapeutic and imaging radiopharmaceuticals, primarily for use in oncology.

We have five clinical-stage candidates in development. The Company's product candidates and their stages of development as of September 30, 2009 are summarized below:

Program                         Primary Indication(s)       Stage of Development
Oncology
Azedra (Ultratrace
iobenguane I 131)             Pheochromocytoma            Pivotal Phase 2b
                              Neuroblastoma               Phase 2a
Onalta (Yttrium-90            Metastatic carcinoid and
edotreotide)                  pancreatic neuroendocrine
                              tumors                      Pre-Phase 3 (Europe)
Trofex (MIP-1072)             Metastatic prostate
                              cancer                      Phase 1
Solazed (Ioflubenzamide I
131)                          Metastatic melanoma         Phase 1

Non-Oncology
Zemiva (Iodofiltic acid I
123)                          Acute cardiac ischemia      Pre-Phase 3

Clinical Developments Regarding our Product Candidates

Oncology Product Candidates

Azedra

Azedra is our lead molecular radiotherapeutic product. We have received a Special Protocol Assessment (SPA) letter stating that the U.S. Food and Drug Administration (FDA) has reached agreement with the Company regarding the design of the pivotal Phase 2 trial for pheochromocytoma leading to the registration of our lead oncology candidate, Azedra™ (Ultratrace™ iobenguane I 131, formerly known as Ultratrace MIBG). A SPA is an agreement between the trial sponsor and the FDA covering the major design features such as patient population, choice of control, primary efficacy endpoint(s), safety monitoring plan, and statistical analysis plan of a clinical trial to be used as the pivotal evidence of safety and efficacy in support of regulatory approval.

We are developing Azedra for the treatment of neuroendocrine tumors, such as pheochromocytoma in adults and neuroblastoma in children. In June 2009, we initiated a single-arm, pivotal Phase 2 clinical trial for Azedra for the treatment of malignant pheochromocytoma in adults. In addition, Azedra has been granted Orphan Drug designation and Fast Track status by the FDA. Under these programs, we plan to file a New Drug Application (NDA) based on the Phase 2 data and anticipate an expedited FDA review of our application. If successful, Azedra could be the first anti-cancer therapy in the United States indicated for the treatment of pheochromocytoma.

In October 2009, we reported the results of our one-year follow-up data from a Phase I dose-escalation clinical study of Azedra™ demonstrating a positive safety profile and durable objective tumor responses in patients with neuroendocrine cancers, pheochromocytoma and paraganglioma. The study was designed to evaluate the safety and identify the maximum tolerated dose (MTD) of Azedra, as well as to collect clinical data on efficacy. In the 12-month data reported, a single dose of Azedra was shown to be well tolerated by patients, and toxicities were predictable and manageable. The data provides long-term confirmation of preliminary Phase I clinical findings that were presented at the 2008 American Society of Clinical Oncology (ASCO) Annual Meeting.

Onalta

In May, 2009, we reached an agreement with European Medicines Agency ("EMEA") on a proposed Phase 3 protocol design for Onalta that would be suitable to support registration provided the results are compelling. In September 2009, we sub-licensed Onalta™ 90-Y edotreotide to BioMedica Life Sciences, S.A. ("BioMedica"). Under the Agreement, BioMedica is expected to perform clinical studies and market, distribute and commercialize Onalta in certain countries in Europe, the Middle East, North Africa, Russia and Turkey and secure all regulatory approvals within the BioMedica territories.

Trofex

Based on our initial results of clinical data in men with prostate cancer, we initiated a Phase 1 Trofex™ imaging study in August 2009 to compare normal men and men with metastatic disease.

Solazed

We are preparing for site initiation and expect an Institutional Review Board ("IRB") approval for a Phase I clinical study to confirm proof of concept in man and to define the pharmacokinetics, normal organ distribution, radiation dosimetry and urinary excretion. This study is primarily supported by grants from the National Cancer Institute.

Our Non-Oncology Product Candidate

Zemiva

In March 2009, we reported and provided positive data analyses on the results of Zemiva's Phase 2 clinical trial (BP-23). The results from our Phase 2 clinical study (BP-23) demonstrated that Zemiva offers a significant clinical benefit in the rapid diagnosis of the chest pain patient. A Zemiva scan significantly improved the ability to diagnose cardiac ischemia when added to the current battery of tests that make up the standard of care in the Emergency Department setting. Zemiva consistently demonstrated this improvement in detection even in patients whose symptoms had subsided up to 30 hours prior to the scan. Based on the BP-23 trial results, the Phase 2 clinical development requirements have been met and we will proceed to a Phase 3 trial. We are currently working with the FDA to reach agreement on a Phase 3 protocol.

On-Going Clinical Programs

Clinical trial costs are a significant component of our research and development expenses. We contract with third parties to perform certain clinical trial activities on our behalf in the on-going development of our product candidates. As of September 30, 2009, we have three (3) active clinical trials in the area of oncology. Our on-going clinical trials and estimated future remaining costs to be incurred on these clinical trials based on the financial terms of our contracts with clinical sites and contract research organizations are as follows:

                                              Estimated Future      Estimated Period
Clinical Trial             Indication          Remaining Costs       of Expenditure

Pivotal Phase 2b for   Malignant             $10.4 million         End of 2014
Azedra or IB12b        pheochromocytoma in
                       adults

Phase 2a for Azedra    Neuroblastoma in      $0.5 million          Early 2010
or IB13                children

Phase 1 Trofex or      Prostate cancer       $0.2 million          Early 2010
TX-P102                imaging

Financial Operations Overview

Revenue

Licensing Agreement.

In September 2009, we entered into a Territory License Agreement ("Agreement") with BioMedica to sub-license our Onalta™ 90-Y edotreotide radiotherapeutic in certain countries in Europe, the Middle East, North Africa, Russia and Turkey. The Agreement provides BioMedica an exclusive sub-license to ours and Novartis Pharma AG's ("Novartis") intellectual property rights and know-how with respect to Onalta.

Under the terms of the Agreement, we are entitled to receive an initial, nonrefundable payment of $4.4 million of which $1.0 million was received in September 2009 and $3.4 million was received in October 2009, and will be eligible to receive more than $10 million in total regulatory milestone payments, net of license payments to Novartis. We will also be eligible to receive milestone and tiered royalties on Onalta sales. The Agreement also provides that during the term of the Agreement, BioMedica will purchase all of its requirements for Onalta exclusively and solely from the Company, a Company-designated third party manufacturer, and/or a BioMedica designated third-party manufacturer approved by the Company, the terms and conditions of which are outlined in a definitive supply agreement executed in October 2009 ("Supply Agreement"). The term of the Supply Agreement is for ten (10) years and provides for guaranteed monthly minimum purchases within a defined period of time by BioMedica.

We have not recognized any license revenue as of September 30, 2009. We expect to begin recognizing revenues from the sale of Onalta to BioMedica for use in clinical trials beginning in 2010.

Research and Development Grants.

Our revenue to date has been derived from National Institutes of Health, or NIH, grants. We have not had any product sales. In the future, we expect our revenue to consist of product sales and payments from collaborative or strategic relationships, as well as from additional grants. Funding of government grants is subject to annual Congress appropriations, and all of our government contracts contain provisions which make them terminable at the convenience of the government. The government could terminate, reduce or delay the funding under any of our grants at any time. Accordingly, there is no assurance that we will receive funding of any grants that we may be awarded. As of September 30, 2009, gross proceeds of $2.7 million remained to be received under our various NIH grants, which include potential reimbursements for our employees' time and benefits and other expenses related to performance under the various contracts. In the event we are not successful in obtaining any new government grants or extensions to existing grants, we may have to reduce the scope of some of our programs.

The status of our research and development grants is as follows:

                                                                                                 Remaining
                                                                       Total Received            Amounts to         Contract/
                                                       Program            Through            be Received as of        Grant
Program Title                         Agency            Total        September 30, 2009      September 30, 2009     Expiration
Early Clinical Testing for Melanin
Targeting Radio-therapeutic Agent
in Melanoma(2)                           NCI (1)     $   224,000    $             27,000    $            197,000          2009
Targeting Tumor Microenvironment
with Radiolabeled Inhibitors of
Seprase(2)                               NCI (1)         181,000                  34,000                 147,000          2010
Nanodosing: A Path to Higher
Sensitivity and Lower Toxicity
Pharmaceuticals(3)                       NCI (1)         982,000                 234,000                 748,000          2010
Systematic Radiotherapy for
Metastatic Melanoma: Innovation of
a Novel Radiopharma(3)                   NCI (1)       1,243,000                 100,000               1,143,000          2011
Development of a Molecular
Targeting Agent for PSMA to
Diagnose Metastatic Prostate
Cancer(2)                                NCI (1)         488,000                      -                  488.000          2011

Total                                                $ 3,118,000    $            395,000    $          2,723,000

(1) National Cancer Institute ("NCI"), part of the National Institutes of Health.

(2) New contracts awarded in the third quarter ended September 30, 2009.

(3) Contract terms were extended by NCI for another year to the expiration date stated in the table above in the third quarter ended September 30, 2009.

Research and Development Expense.

Research and development expense consists of expenses incurred in developing and testing product candidates. These expenses consist primarily of salaries and related expenses for employees, as well as fees from contract research organizations, independent clinical investigators, fees paid to third-party professional service providers for monitoring our clinical trials and for acquiring and evaluating clinical trial data, costs of contract manufacturing services and materials used in clinical trials, depreciation of capital assets used to develop our product candidates, and facilities operating costs. We expense research and development costs as incurred. Certain research and development activities are partially funded by NIH grants described above. All costs related to such grants are included in research and development costs. We believe that significant investment in product development is necessary and plan to continue these investments as we seek to develop our product candidates and proprietary technologies.

We do not know if we will be successful in developing our drug candidates. While we expect that expenses associated with the completion of our current clinical programs could be substantial, we believe that such expenses are not reasonably certain at this time. The future timing and amount of these development expenses is dependent upon the costs associated with potential future clinical trials of our drug candidates, and the related expansion of our research and development organization, regulatory requirements, the advancement of our preclinical programs and product manufacturing costs, many of which cannot be determined with accuracy at this time based on our stage of development. This is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, including regulatory requirements for government approvals, which can vary significantly over the life of a project as a result of unanticipated events arising during clinical development, including:

• the number of clinical sites included in the trial;

• the length of time required to enroll suitable subjects;

• the number of subjects that ultimately participate in the trials;

• the efficacy and safety results of our clinical trials; and

• the number of additional clinical trials that may be required as part of the government approval process.

Our expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals and expenses related to filing, prosecuting, defending or enforcing any patent claims or other intellectual property rights. In addition, we may obtain unexpected or unfavorable results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some drug candidates or focus on others. A change in the outcome of any of the foregoing variables in the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate. For example, if the FDA or other regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Additionally, future commercial and regulatory factors beyond our control will evolve over time, which will impact our clinical development programs and plans.

Beyond our lead drug candidates, we could select additional drug candidates and research projects for further development in response to the preclinical and clinical success, as well as the commercial potential of such drug candidates.

As our product candidates advance to late-stage clinical trials, we anticipate incurring increased costs as expanded, larger-scale studies of patients with the target disease or disorder are conducted to obtain more definitive statistical evidence of efficacy and safety of the proposed product and dosing regimen. In particular, we expect to incur increased development costs in connection with our ongoing development efforts and clinical trials. We may incur additional costs to pursue the identification and development of other product candidates, which can be funded through our own resources or through strategic collaborations.

We own a radiopharmaceutical manufacturing facility located in Denton, Texas. The facility has more than 80,000 square feet of pharmaceutical manufacturing, warehouse, clean room and administrative office space and is intended to be used for the manufacture of molecular imaging and targeted radiotherapeutic product candidates. The Company has a radioactive materials license from the State of Texas for this facility that expires in May 2018. As of September 30, 2009, the facility was not yet placed in service and has a carrying value of $3.7 million which includes the acquisition costs of the land, building and equipment. Completion of the build-out of the facility has been deferred until manufacturing requirements for our clinical trials are determined. When determined, we anticipate that the build-out of the facilities would require a minimum of six months to complete.

General and Administrative Expense.

General and administrative expense consists primarily of salaries and other related costs for personnel in executive, finance, accounting, information technology and human resource functions. Other costs include facility costs not otherwise included in research and development expense, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

We have experienced a significant reduction in our general and administrative expenses for 2009 due to our cost-cutting initiatives implemented in the latter half of 2008.

Stock-Based Compensation Expense.

Operating expenses include stock-based compensation expense, which results from the issuance of stock-based awards, such as options and restricted stock to employees, members of our Board of Directors and consultants in lieu of cash consideration for services received. We measure compensation cost for employee stock-based awards using the estimated grant date fair value of the awards issued. We use the fair value method of accounting for all other awards. Compensation expense for options and restricted stock granted to employees and non-employees is classified either as research and development expense or general and administrative expense based on the job function of the individual receiving the grant.

Other (Expense) Income, Net.

Other (expense) income, net includes interest income, interest expense and the change in fair value of the bond derivative. Interest income consists of interest earned on our cash, cash equivalents and investments. Interest expense consists of interest incurred on debt instruments. Interest expense is a non-cash expense relating to the Bond interest, which includes the paid-in-kind Bonds issued to the bondholders in lieu of cash interest payments, the amortization of Bond financing expenses and discount.

Critical Accounting Policies

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect our reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities.

There have been no significant changes in our critical accounting policies since December 31, 2008 as described in the discussion of critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2008.

Recent Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update ("ASU") 2009-13 to address the accounting for multiple-deliverable revenue arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. The ASU also establishes a selling price hierarchy for determining the selling price of a deliverable, replaces the term fair value in the revenue allocation guidance with selling price to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant. ASU 2009-13 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted, and if early adopted, the entity would be required to apply the amendments in this ASU retrospectively from the beginning of the entity's fiscal year. We have elected to early adopt this ASU. No retrospective adjustments were required upon adoption. The adoption of this ASU did not have a significant impact on our financial statements.

Results of Operations

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2009

Revenue - Research and Development Grants.

Revenue increased by approximately $39,000 or 64%, to approximately $101,000 for the three months ended September 30, 2009 from approximately $62,000 for the three months ended September 30, 2008. The Company receives funding under various Research and Development grants. The increase is primarily due to three new grants obtained at the end of 2008, three new grants received in the current period, an increase in the program total for two grants obtained in 2008 due to contract term extensions and timing of grant-related activities.

Research and Development Expense.

For the periods indicated, research and development expenses for our programs in
the development of Azedra, Onalta, Solazed, Trofex, Zemiva and other general R&D
programs were as follows (in thousands):



                                                         Three months ended
                                                            September 30,           Increase /
Program                                                   2008          2009        (Decrease)
Azedra and Ultratrace platform                         $     3,359     $ 3,536     $        177
Onalta                                                         776         430             (346 )
Solazed                                                        211          21             (190 )
Trofex                                                         466       1,353              887
Zemiva                                                       2,703         546           (2,157 )
Other Platform and general R&D programs                      4,352       3,078           (1,274 )

Total R&D expenses, including related party R&D        $    11,867     $ 8,964     $     (2,903 )

Research and development expense decreased approximately $2.9 million or 24%, to $9.0 million for the three months ended September 30, 2009 from $11.9 million for the three months ended September 30, 2008. Key components of this spending decrease were attributed to the following: (1) a decrease of $2.2 million in overall Zemiva program costs due to the completion of our Zemiva Phase 2 (BP-23) clinical trial in December 2008; (2) reduced clinical activities and costs of $0.5 million for Onalta and Solazed to plan our European and Phase I clinical trials, respectively; and (3) reduction in other platform and general research and development costs of $1.3 million primarily due to reallocation of $0.5 million in payroll costs to key programs and a decrease in outside services, consultants and travel related expenses of $0.4 million, offset by an increase in payroll related costs of $0.2 million due to an increase in research and development personnel in the second quarter of 2008. These spending decreases were offset, in part, by (1) an increase of $0.2 million in the Azedra program primarily due to costs incurred for the build-out of the manufacturing facility at MDS Nordion and validation of the manufacturing process for the manufacture and supply of Azedra for clinical trials and commercial supply; and (2) an increase of $0.9 million primarily for preclinical animal testing conducted in the current year for Trofex.

General and Administrative Expense.



                                                      Three months ended
                                                         September 30,               Increase /
General and Administrative Expenses                2008              2009            (Decrease)
                                                                (in thousands)
Compensation and personnel-related expense      $    1,909      $         1,371      $      (538 )
Professional services                                4,740                4,107             (633 )
Insurance                                              145                  158               13
Facility costs                                          78                  130               52
Stock-based compensation expense                       544                1,349              805
Depreciation and amortization expense                  259                  235              (24 )
Other                                                  275                  105             (170 )

Total general and administrative expenses       $    7,950      $         7,455      $      (495 )

General and administrative expense decreased $0.5 million or 6%, to $7.5 million . . .