Oncotelic Therapeutics, Inc. - Quarter Report: 2009 June (Form 10-Q)

e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-21990

OXiGENE, INC.

(Exact name of registrant as specified in its charter)


Delaware		13-3679168

(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

701 Gateway Blvd,
South San Francisco, CA 94080
(Address of principal executive offices, including zip code)

(650) 635-7000
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 24, 2009, there were 62,451,742 shares of the Registrant’s common stock issued and outstanding.

OXiGENE, INC.
Cautionary Factors that May Affect Future Results

The disclosure and analysis by OXiGENE, Inc. (the “Company”) in this report contain “forward-looking statements.” Forward-looking statements give management’s current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words, such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning. These include statements, among others, relating to our planned future actions, our clinical trial plans, our research and development plans, our prospective products or product approvals, our beliefs with respect to the sufficiency of our financial resources, our plans with respect to funding operations, projected expense levels, and the outcome of contingencies.

Any or all of our forward-looking statements in this report may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual results may vary materially from those set forth in forward-looking statements. The uncertainties that may cause differences include, but are not limited to: the Company’s history of losses, anticipated continuing losses and uncertainty of future revenues or profitability; the early stage of product development; uncertainties as to the future success of ongoing and planned clinical trials; the unproven safety and efficacy of products under development; the sufficiency of the Company’s existing capital resources; the possible need for additional funds; uncertainty of future funding; the Company’s dependence on others for much of the clinical development of its product candidates under development, as well as for obtaining regulatory approvals and conducting manufacturing and marketing of any product candidates that might successfully reach the end of the development process; the impact of government regulations, health care reform and managed care; competition from other companies and other institutions pursuing the same, alternative or superior technologies; the risk of technological obsolescence; uncertainties related to the Company’s ability to obtain adequate patent and other intellectual property protection for its proprietary technology and product candidates; dependence on officers, directors and other individuals; and risks related to product liability exposure.

We will not update forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. You are advised to consult any further disclosures we make in our reports to the Securities and Exchange Commission, including our reports on Form 10-Q, 8-K and 10-K. Our filings list various important factors that could cause actual results to differ materially from expected results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

INDEX


	Page
	No.
PART I—FINANCIAL INFORMATION		4
Item 1. Unaudited Financial Statements		4
Condensed Consolidated Balance Sheets		4
Condensed Consolidated Statements of Operations		5
Condensed Consolidated Statements of Cash Flows		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3. Quantitative and Qualitative Disclosures about Market Risk		24
Item 4. Controls and Procedures		24
PART II—OTHER INFORMATION		25
Item 1. Legal Proceedings		25
Item 1A. Risk Factors		25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30
Item 3. Defaults Upon Senior Securities		30
Item 4. Submission of Matters to a Vote of Security Holders		30
Item 5. Other Information		31
Item 6. Exhibits		31
SIGNATURES		32
Ex-3.1 Certificate of Amendment to the Company's Restated Certificate of Incorporation
Ex-31.1 Section 302 Certification of Chief Executive Officer
Ex-31.2 Section 302 Certification of Vice President and Chief Financial Officer
Ex-32.1 Section 906 Certification of Chief Executive Officer and Chief Financial Officer

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements—Unaudited

OXiGENE, Inc.

Condensed Consolidated Balance Sheets
(All amounts in thousands, except per share data)
(Unaudited)


	June 30			December 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	8,045		$	18,275
Restricted cash		140			—
Available-for-sale securities		—			643
Marketable securities held by Symphony ViDA, Inc., restricted		12,626			14,663
Prepaid expenses		550			382
Other assets		143			123

Total current assets		21,504			34,086
Furniture and fixtures, equipment and leasehold improvements		1,508			1,456
Accumulated depreciation		(1,275	)		(1,255	)

		233			201

License agreements, net of accumulated amortization of $967 and $919 at June 30, 2009 and December 31, 2008 respectively		532			581
Other assets		175			163

Total assets	$	22,444		$	35,031


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,159		$	1,744
Accrued research and development		4,611			3,416
Accrued other		777			606

Total current liabilities		7,547			5,766

Derivative liability		225			466
Rent loss accrual		41			60

Total liabilities		7,813			6,292


Commitments and contingencies (Note 5)
OXiGENE, Inc. Stockholders’ equity:

Preferred Stock, $0.01 par value, 15,000 shares authorized; 0 shares issued and outstanding
Common Stock, $0.01 par value, 150,000 shares authorized; 46,202 shares at June 30, 2009 and 46,293 shares at December 31, 2008 issued and outstanding		462			463

Additional paid-in capital		178,479			178,156
Accumulated deficit		(170,025	)		(159,202	)
Accumulated other comprehensive (loss)		—			(110	)

Total OXiGENE, Inc. stockholders’ equity		8,916			19,307

Non controlling interest		5,715			9,432

Total equity		14,631			28,739

Total liabilities and stockholders’ equity	$	22,444		$	35,031

See accompanying notes.

OXiGENE, Inc.

Condensed Consolidated Statements of Operations
(All amounts in thousands, except per share data)
(Unaudited)


	Three months ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008
Operating costs and expenses:

Research and development	$	5,813		$	5,176		$	10,481		$	8,865
General and administrative		2,362			2,023			4,327			4,070


Total operating costs and expenses		8,175			7,199			14,808			12,935


Loss from operations		(8,175	)		(7,199	)		(14,808	)		(12,935	)

Investment income		18			158			70			445
Gain (loss) in change of fair value of warrants		249			—			241			—
Other income (expense), net		(58	)		(7	)		(44	)		(2	)


Consolidated net loss	$	(7,966	)	$	(7,048	)	$	(14,541	)	$	(12,492	)


Net loss attributed to non controlling interest	$	(2,693	)	$	—		$	(3,717	)	$	—

Net loss attributed to OXiGENE, Inc.	$	(5,273	)	$	(7,048	)	$	(10,824	)	$	(12,492	)
Basic and diluted net loss per share attributed to OXiGENE, Inc. common shares	$	(0.11	)	$	(0.25	)	$	(0.24	)	$	(0.44	)

Weighted-average number of common shares outstanding		46,014			28,258			46,011			28,164

See accompanying notes.

OXiGENE, Inc.

Condensed Consolidated Statements of Cash Flows
(All amounts in thousands)
(Unaudited)


	Six months ended June 30,
	2009			2008
Operating activities:
Consolidated net loss	$	(14,541	)	$	(12,492	)

Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of warrants		(241	)		—
Depreciation		20			66
Disposal of assets		43			—
Other-than-temporary impairment of available -for-sale securities		—			6
Amortization of license agreement		49			49
Rent loss accrual		(19	)		(201	)
Stock-based compensation		322			710
Changes in operating assets and liabilities:
Restricted cash		(140	)		—
Prepaid expenses and other current assets		(188	)		(320	)

Accounts payable, accrued expenses and other payables		1,781			1,125


Net cash used in operating activities		(12,914	)		(11,057	)

Investing activities:
Purchase of available-for-sale securities		—			(4,016	)
Proceeds from sale of available-for-sale securities		754			20,323

Proceeds from sale of marketable securities held by Symphony ViDA, Inc.		2,037			—
Purchase of furniture, fixtures and equipment		(100	)		(53	)
Proceeds from sale of fixed assets		6
Decrease in other assets		(13	)		129

Net cash provided by investing activities		2,684			16,383

Financing activities:
Proceeds from issuance of common stock, net of acquisition costs		—			829


Net cash provided by financing activities		—			829

Increase (decrease) in cash and cash equivalents		(10,230	)		6,155

Cash and cash equivalents at beginning of period		18,275			8,527


Cash and cash equivalents at end of period	$	8,045		$	14,682

See accompanying notes.

OXiGENE, Inc.

Notes to Condensed Consolidated Financial Statements
June 30, 2009
(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They have been prepared on a basis which assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, however, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

The balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in the Annual Report on Form 10-K for OXiGENE, Inc. (the “Company” or “OXiGENE”) for the year ended December 31, 2008, which can be found at www.oxigene.com. Material subsequent events have been considered for disclosure and recognition through the filing date of this Form 10-Q.

In July 2009, OXiGENE completed the purchase of Symphony ViDA, Inc. (“ViDA”) pursuant to an Amended and Restated Purchase Option Agreement in which it acquired all of the common stock of ViDA in exchange for 10,000,000 shares of OXiGENE common stock with a Fair Market Value (“FMV”) of an estimated $15,600,000 based on the closing price of the Company’s common stock on July 20, 2009. In connection with this transaction, OXiGENE acquired approximately $12,400,000 of ViDA cash and marketable securities on its balance sheet on the date of the Agreement. In addition, in July 2009, OXiGENE completed a registered direct offering of its common stock and warrants to purchase common stock in which it received approximately $9,200,000 in net proceeds. In addition to the capital acquired in the two transactions described above, OXiGENE will need to access additional funds to support its operations to remain a going concern beyond the third quarter of 2010, and such funding may not be available to OXiGENE on acceptable terms, or at all. If the Company is unable to access additional funds when needed, it may not be able to continue the development of its product candidates or the Company could be required to delay, scale back or eliminate some or all of its development programs and other operations. OXiGENE may seek to access additional funds through public or private financing, strategic partnerships or other arrangements. Any additional equity financing may be dilutive to its current stockholders and debt financing, if available, may involve restrictive covenants. If the Company accesses funds through collaborative or licensing arrangements, it may be required to relinquish, on terms that are not favorable to the Company, rights to some of its technologies or product candidates that it would otherwise seek to develop or commercialize on its own. The Company’s failure to access capital when needed may harm its business, financial condition and results of operations.

Available-for-Sale Securities

In accordance with the Company’s investment policy, surplus cash may be invested primarily in commercial paper, obligations issued by the U.S. Treasury/ federal agencies or guaranteed by the U.S. government, money market instruments, repurchase agreements, bankers’ acceptances, certificates of deposit, time deposits and bank notes. In accordance with Statement of Financial Accounting Standards No. 115 (“SFAS 115”), “Accounting for Certain Investments in Debt and Equity Securities”, the Company separately discloses cash and cash equivalents from investments in marketable securities. The Company designates its marketable securities as available-for-sale securities. Available-for-sale securities are carried at fair value with the unrealized gains and losses, net of tax, if any, reported as accumulated other comprehensive income (loss) in stockholders’ equity. The Company reviews the status of the unrealized gains and losses of its available-for-sale marketable securities on a regular basis. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in investment income. Interest and dividends on securities classified as available-for-sale are included in investment income. Securities in an unrealized loss position that are deemed not to be other-than-temporarily impaired, due to the Company’s positive intent and ability to hold the securities until anticipated recovery, with maturation greater than twelve months, are classified as long-term assets.

In April 2009, the Financial Accounting Standards Board (FASB) released FASB Staff Position (FSP) FAS 115-2, FAS 124-2, and EITF 99-20-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2). FSP FAS 115-2 provides new guidance on the recognition and presentation of an other-than-temporary impairments (OTTI) and provides some new disclosure requirements. The Company adopted FSP FAS 115-2 during the quarter ended June 30, 2009. The adoption did not have a material impact to the Company’s financial statements.

The Company’s investment objectives are to preserve principal, maintain a high degree of liquidity to meet operating needs and obtain competitive returns subject to prevailing market conditions. The Company assesses the market risk of its investments on an ongoing basis so as to avert risk of loss. The Company assesses the market risk of its investments by continuously monitoring the market prices of its investments and related rates of return, and continuously looking for the safest, most risk-averse investments that will yield the highest rates of return in their category.

The Company had no available-for-sale securities at June 30, 2009 and approximately $643,000 in short-term corporate bonds at December 31, 2008. The Company did not hold any long-term available-for-sale securities as of June 30, 2009 or December 31, 2008. ViDA holds approximately $12,626,000 of its restricted marketable securities balance in a Blackrock Liquidity Fund (“Liquidity Fund”) valued at $1 per share as of June 30, 2009. The fund is invested in U.S. Treasury and agency obligations and Repurchase Agreements. The Liquidity Fund is a type of mutual fund that is required by law to invest in low-risk securities. These funds, historically, have relatively low risks compared to other mutual funds and pay dividends that generally reflect short-term interest rates. They attempt to keep their net asset value (NAV) at a constant $1.00 per share — only the yield should vary. However, the NAV of the fund may fall below $1.00 if the investments perform poorly. While investor losses in liquidity funds have been rare, they are possible.

Fair Value

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements”. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. SFAS 157 replaces multiple existing definitions of fair value with a single definition, establishes a consistent framework for measuring fair value and expands financial statement disclosures regarding fair value measurements. This Statement applies only to fair value measurements that already are required or permitted by other accounting standards and does not require any new fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, which delayed the effective date of SFAS No. 157 until the first quarter of 2009 for nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis.

The adoption of SFAS 157 for our financial assets and liabilities in the first quarter of 2008 did not have a material impact on our financial position or results of operations. Pursuant to the provisions of SFAS 157, we are required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. SFAS 157 establishes a fair value hierarchy that prioritizes valuation inputs based on the observable nature of those inputs. The SFAS 157 fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of our investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:


Level 1 inputs		Quoted prices in active markets;

Level 2 inputs		Generally include inputs with other observable qualities, such as quoted prices in active markets for similar assets or quoted prices for identical assets in inactive markets; and

Level 3 inputs		Valuations based on unobservable inputs.

The following table summarizes our assets that were measured at fair value as of June 30, 2009 (in thousands):


	Fair Value Measurement at Reporting Date Using:
			Significant Other		Significant
	Quoted Prices in		Observable		Unobservable
	Active Markets		Inputs		Inputs		Fair Value
	(Level 1)		(Level 2)		(Level 3)		June 30, 2009
*Cash Equivalents*

Money Market Fund	$	12,626	$	—	$	—	$	12,626


Total Cash Equivalents		12,626		—		—		12,626

The marketable securities of $12,626,000 are held by ViDA. OXiGENE’s cash and restricted cash of $ 8,185,000 is not included in our SFAS 157 level hierarchy disclosure.

Accrued Research and Development

The Company charges all research and development expenses, both internal and external costs, to operations as incurred. The Company’s research and development costs represent expenses incurred from the engagement of outside professional service organizations, product manufacturers and consultants associated with the development of the Company’s potential product candidates. The Company recognizes expense associated with these arrangements based on the completion of activities as specified in the

applicable contracts. Costs incurred under fixed fee contracts are expensed ratably over the contract period absent any knowledge that the services will be performed other than ratably. Costs incurred under contracts with clinical trial sites and principal investigators are generally accrued on a patient-treated basis consistent with the terms outlined in the contract. In determining costs incurred on some of these programs, the Company takes into consideration a number of factors, including estimates and input provided by internal program managers. Upon termination of such contracts, the Company is normally only liable for costs incurred and committed to date. As a result, accrued research and development expenses represent the Company’s estimated contractual liability to outside service providers at any particular point in time.

Net Loss Per Share

Basic and diluted net loss per share were calculated in accordance with the provisions of Statement of Financial Accounting Standards No. 128, “Earnings Per Share,” by dividing the net loss per share attributed to OXiGENE’s common shares by the weighted-average number of common shares outstanding. Diluted net loss per share includes the effect of all dilutive, potentially issuable common equivalent shares as defined using the treasury stock method. All of the Company’s common stock equivalents are anti-dilutive due to the Company’s net loss position for all periods presented. Accordingly, common stock equivalents of approximately 3,300,000 and 2,867,000 at June 30, 2009 and 2008, respectively, were excluded from the calculation of diluted weighted average shares outstanding.

Stock-based Compensation

The Company follows the provisions of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS 123R), which requires the expense recognition of the estimated fair value of all share-based payments issued to employees.

The Company’s stock options are valued using the Black-Scholes option pricing model, and the resulting fair value is recorded as compensation cost on a straight-line basis over the performance period, which is generally the same as the option vesting period.

During the three and six months ended June 30, 2009 options to purchase 395,000 and 1,365,000 shares, respectively, of the Company’s common stock were granted. The weighted average fair values of the options granted based on the assumptions outlined in the table below were $1.21 and $0.33 per share, respectively, for the three and six months ended June 30, 2009. During the three and six months ended June 30, 2008 options to purchase 20,000 and 44,000 shares, respectively, of the Company’s common stock were granted, with 20,000 of those options being granted to non-employees. The weighted average fair values of the options granted based on the assumptions outlined in the table below were $0.62 and $0.93 per share, respectively, for the three and six months ended June 30, 2008.

The Company granted options to purchase 100,000 shares of its common stock on April 30, 2007 to its, then Chief Business Officer, now its Chief Executive Officer, at an exercise price of $4.69 per share. The options were valued using the Black-Scholes option pricing model with the assumptions consistent with other options granted by the Company. These options shall vest upon execution of a major outlicensing deal, approved by the Board of Directors for the rights to one of the Company’s drug candidates. Other criteria outlined in the Chief Executive Officer’s employment agreement must also be met. At this time the Company has determined that meeting the milestone is not probable and therefore no compensation expense has been recorded for these options.

On May 28, 2009, at the annual meeting of stockholders, the stockholders of the Company approved amendments to its 2005 Stock Plan (the “Plan”) to (i) increase from 2,500,000 to 7,500,000 the number of shares of the Company’s common stock available for issuance under the Plan which number includes such number of shares of its common stock, if any, that were subject to awards under the Company’s 1996 Stock Incentive Plan as of the date of adoption of the 2005 Stock Plan but which became or will become unissued upon the cancellation, surrender or termination of such award; and (ii) increase from 250,000 to 750,000 the number of shares that may be granted under the Plan to any participant in any fiscal year.

The fair values for the employee stock options were estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the three and six months ended June 30, 2009 and 2008:


	Three months ended June 30,						Six months ended June 30,
	2009			2008			2009			2008
Weighted Average Assumptions

Risk-free interest rate		2.25	%		3.38	%		1.82	%		3.03	%
Expected life	5 years			5 years			5 years			5 years
Expected volatility		63	%		54	%		56	%		65	%
Dividend yield		0.00	%		0.00	%		0.00	%		0.00	%

Options, Warrants and Non-Vested Stock

The following is a summary of the Company’s stock option activity under its 1996 and 2005 Stock Plans for the six months ended June 30, 2009:


						Weighted Average
				Weighted Average		Remaining		Aggregate
	Shares			Exercise Price		Contractual Life		Intrinsic Value
	(In thousands)					(Years)		(In thousands)
Options outstanding at December 31, 2008		2,333		$	5.01		6.15	$	472
Granted		1,365		$	1.08		—		1,541
Exercised		—					—		—
Forfeited		(517	)	$	3.09		—		(201	)


Options outstanding at June 30, 2009		3,181		$	3.64		6.74	$	1,812


Option exercisable at June 30, 2009		1,336		$	6.54		3.12		7


Options vested or expected to vest at June 30, 2009		2,748		$	4.01		6.33	$	1,325

As of June 30, 2009, there was approximately $770,000 of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over a weighted average period of 2.0 years. The total fair value of stock options that vested during the six months ended June 30, 2009 and 2008 was approximately $294,000 and $522,000 respectively. The total fair value of stock options that vested during the three months ended June 30, 2009 and 2008 was $477,000 and $82,000, respectively.

Non-Vested Stock

The following table summarizes the activity for non-vested stock in connection with restricted common stock grants during the six months ended June 30, 2009:


				Weighted Average
	Shares			Fair Value
	(In thousands)
Unvested at December 31, 2008		140		$	4.56

Granted		—		$	—
Vested		(20	)	$	4.09
Forfeited		(30	)		4.91


Unvested at June 30, 2009		90		$	4.55

The Company recorded expense of approximately $26,000 and $116,000 related to outstanding restricted stock awards during the three months and six months ended June 30, 2009, respectively. During the three and six months ended June 30, 2008 the Company recorded expense related to restricted stock awards of approximately $196,000 and $392,000, respectively.

Employee Stock Purchase Plan

In May 2009, the Company’s shareholders approved the 2009 Employee Stock Purchase Plan (the “2009 ESPP”). Under the 2009 ESPP, employees have the option to purchase shares of the Company’s common stock at 85% of the closing price on the first day of each opening period or the last day of each purchase period (as defined in the 2009 ESPP), whichever is lower, up to specified limits. Eligible employees are given the option to purchase shares of its common stock, on a tax-favored basis, through regular payroll deductions in compliance with Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). An aggregate of 2,000,000 shares of common stock may be issued under the 2009 ESPP, subject to adjustment each year pursuant to the terms of the plan. The estimated expense for the first six month period during the implementation year is $45,000, which estimate may be revised downward based on a potential decrease in stock price or employees who either decrease their monthly investment or withdraw from participation in the 2009 ESPP.

Comprehensive Income (Loss)

The Company’s only item of other comprehensive income (loss) relates to unrealized gains and losses on available for sale securities and is presented separately on the balance sheet, as required.

A reconciliation of comprehensive loss is as follows:


	Three months ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008
	(In thousands)

Consolidated net loss as reported	$	(7,966	)	$	(7,048	)	$	(14,541	)	$	(12,492	)

Unrealized gain (loss)		53			(4	)		110			(7	)


Total comprehensive loss	$	(7,913	)	$	(7,052	)	$	(14,431	)	$	(12,499	)


Less comprehensive loss attributable to noncontrolling interest		(2,693	)		—			(3,717	)		—

Comprehensive loss attributable to OXiGENE, Inc.	$	(5,220	)	$	(7,052	)	$	(10,714	)	$	(12,499	)

Consolidation of Variable Interest Entity (VIE)

In October 2008, OXiGENE entered into a strategic collaboration with Symphony Capital Partners, L.P. (Symphony), a private-equity firm, under which Symphony agreed to provide up to $40,000,000 in funding to support the advancement of ZYBRESTAT for oncology, ZYBRESTAT for ophthalmology and OXi4503 (the “Programs”). Under this collaboration, the Company entered into a series of related agreements with Symphony Capital LLC, Symphony ViDA, Inc., or ViDA, and Symphony ViDA Holdings LLC, or Holdings. Pursuant to these agreements, Holdings formed and capitalized ViDA, a Delaware corporation, in order (a) to hold certain intellectual property related to two of OXiGENE’s product candidates, ZYBRESTAT for use in ophthalmologic indications and OXi4503, referred to as the “Programs,” which were exclusively licensed to ViDA under the Novated and Restated Technology License Agreement and (b) to fund commitments of up to $25,000,000. The funding supported pre-clinical and clinical development by OXiGENE, on behalf of ViDA, for ZYBRESTAT for ophthalmology and OXi4503.

Pursuant to the agreements, OXiGENE was primarily responsible for all pre-clinical and clinical development efforts as well as maintenance of the intellectual property portfolio for ZYBRESTAT for ophthalmology and OXi4503. OXiGENE and ViDA established a development committee to oversee ZYBRESTAT for ophthalmology and OXi4503. The Company incurred expenses related to ZYBRESTAT for ophthalmology and OXi4503 that were not funded by ViDA. Under the terms of the purchase option agreement, entered into in October 2008, OXiGENE had the exclusive right, but not the obligation, to repurchase both Programs by acquiring 100% of the equity of ViDA at any time between October 2, 2009 and March 31, 2012 for an amount equal to two times the amount of capital actually invested by Symphony in ViDA, less certain amounts.

The Company has consolidated the financial position and results of operations of ViDA in accordance with FASB Interpretation No. 46 (“FIN 46R”) “Consolidation of Variable Interest Entities”. OXiGENE believes ViDA is by design a VIE because OXIGENE had a purchase option to acquire its outstanding voting stock at prices that are fixed based upon the date the option is exercised. The fixed nature of the purchase option price limited Symphony’s returns, as the investor in ViDA. Further, due to the direct investment from Holdings in OXiGENE common stock, as a related party ViDA is a VIE of which OXiGENE is the primary beneficiary.

Symphony absorbed the development risk for its equity investment in ViDA. Pursuant to FIN 46R’s requirements, Symphony’s equity investment in ViDA is classified as noncontrolling interest in OXiGENE’s consolidated balance sheet. The noncontrolling interest held by Symphony has been reduced by the $4,000,000 fair value of the common stock it received in consideration for the Purchase Option and the pro rata portion of the structure fees paid to Symphony of $1,750,000 upon the transaction’s closing as the total consideration provided by the Company reduces Symphony’s at-risk equity investment in ViDA. While OXiGENE performed the research and development on behalf of ViDA, its development risk was limited to the consideration it provided to Symphony (the common stock and fees).

One hundred percent of the losses incurred by ViDA are charged to the noncontrolling interest, as OXiGENE does not have any voting rights in ViDA. For the six month period ended June 30, 2009, net losses incurred by ViDA and charged to the noncontrolling interest were $3,717,000. At June 30, 2009, the noncontrolling interest balance was $5,715,000. As of June 30, 2009, the Liquidity Fund held by ViDA was $12,626,000.

In July 2009, OXiGENE acquired 100% of the equity of ViDA pursuant to an Amended and Restated Purchase Option Agreement in exchange for 10,000,000 shares of OXiGENE common stock with a Fair Market Value (“FMV”) of an estimated $15,600,000 based on the closing price of the Company’s common stock on July 20, 2009. Under the terms of the Amended and Restated Purchase Option Agreement, OXiGENE re-acquired all of the rights to the Programs and it acquired the approximately $12,400,000 in cash and marketable securities on ViDA’s balance sheet on the closing date. OXiGENE will continue to treat ViDA as a VIE and consolidate its financial statements up until the July 20, 2009 closing date of the acquisition. See Note 5 of the Notes to Condensed Consolidated Financial Statements, “Subsequent Events”.

Accounting and Reporting of Noncontrolling Interests

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 principally requires that earnings or losses attributed to the noncontrolling interests be reported as part of consolidated earnings and not as a separate component of income or expense, to be included in the consolidated statement of operations. SFAS 160 also changes the accounting for noncontrolling interests in consolidated financial statements including the requirements to classify noncontrolling interests as a component of stockholders’ equity. Accordingly, the Company has reported the consolidated earnings in the consolidated statement of operations and reclassified the noncontrolling interest from a mezzanine section of the balance sheet to stockholders’ equity.

Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in the Company’s Common Stock

In February 2008, the Company issued five year warrants exercisable beginning in August 2008 to Kingsbridge Capital Limited in consideration for entering into a Committed Equity Financing Facility (“CEFF”). Kingsbridge may purchase from the Company up to 250,000 shares of common stock with an exercise price of $2.74 per share. As of June 30, 2009, none of these warrants had been exercised.

In connection with the strategic collaboration with Symphony in October 2008, OXiGENE agreed that should the development committee of ViDA determine that ViDA needs additional funding and that funding is provided by Holdings, the Company would issue to Holdings shares of its common stock having a value of up to $1,000,000 (the “Additional Investment Shares”) on the date of issuance. This obligation to issue the Additional Investment Shares expires no later than the term of the strategic collaboration or March 31, 2012. The number of shares required to meet this obligation will be based on the closing price of OXiGENE common stock on the NASDAQ Global Market on the additional closing date. Because the closing price of the Company’s common stock as of the additional closing date is not yet determinable, the number of potential shares issuable to Holdings to satisfy this $1,000,000 Additional Investment Shares obligation is not yet known, and depending on the Company’s stock price, there is a possibility that the number of shares necessary to settle the Additional Investment Shares obligation may be greater than the number of shares that OXiGENE currently has authorized.

Due to the indeterminable number of shares required to meet the $1,000,000 Additional Investment Shares obligation the Company has determined that there is a possibility it may not have sufficient authorized shares to settle its outstanding financial instruments. Pursuant to Emerging Issues Task Force No. 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company’s Own Stock (“EITF 00-19”), the Company’s policy with regard to settling outstanding financial instruments is to settle those with the earliest maturity date first, which essentially sets the order of preference for settling the awards. In accordance with FASB Interpretation No. 133, Accounting for Derivative Instruments and Hedging Activities (“FASB 133”) and EITF 00-19, OXiGENE accounts for the Additional Investment Shares and CEFF Warrant (collectively the “Derivative Instruments”) as liabilities. The Company began the treatment of these Derivative Instruments as liabilities (collectively the “Derivative Liabilities”) as of October 17, 2008, the initial funding and effective date of the Symphony transaction. Establishing the value of these Derivative Instruments is an inherently subjective process. The value of the CEFF Warrant is determined using the Black-Scholes option model. The value of the Additional Investment Shares is determined by considering a number of factors, including among others, the probability and amount of the additional funding provided by Holdings, if any, the probability that OXiGENE may provide the additional funding amount, and the timing of meeting the potential obligation. Differences in value from one measurement date to another are recorded as other income/expense in OXiGENE’s statement of operations.

As of June 30, 2009, the Additional Investment Shares had a zero fair value as a result of the Additional Investment obligation being terminated, thus eliminating the liability and creating a noncash gain as the Company entered into the Amended and Restated Purchase Option Agreement as agreed to on July 2, 2009. OXiGENE re-measured the fair value of the Derivative Liabilities, resulting in a gain of $249,000 and $241,000 for the three and six month periods ended June 30, 2009 and 2008, respectively.

2. License Agreements

In August 1999, the Company entered into an exclusive license agreement for the commercial development, use and sale of products or services covered by certain patent rights owned by Arizona State University. From the inception of the agreement through June 30, 2009, the Company has paid a total of $2,500,000 in connection with this license. The Company capitalized the net present value of the total amount paid under the initial terms of the license, or $1,500,000, and is amortizing this amount over the patent life or 15.5 years. In June 2002, this agreement was amended and provides for additional payments in connection with the license arrangement upon the initiation of certain clinical trials or the completion of certain regulatory approvals, which payments could be accelerated upon the achievement of certain financial milestones, as defined in the agreement. The license agreement also provides for additional payments upon the Company’s election to develop certain additional compounds, as defined in the agreement. As of June 30, 2009, additional accelerated milestones that have previously been expensed and paid due to achievement of certain financial milestones, totaled $700,000, and future milestones under this agreement could total up to an additional $200,000. These accelerated payments were expensed to research and development as triggered by the achievements of milestones defined in the agreement. The Company is also required to pay royalties on future net sales of products associated with these patent rights.

In October 2008, the Company announced a strategic collaboration with Symphony Capital Partners, L.P. a private-equity firm, under which Symphony agreed to provide up to $40,000,000 in funding to support the advancement of ZYBRESTAT for oncology,

ZYBRESTAT for ophthalmology and OXi4503. Under this collaboration, the Company entered into a series of related agreements. See Consolidation of Variable Interest Entity above for more details.

3. Agreements

In February 2008, the Company entered into a Committed Equity Financing Facility, or CEFF, with Kingsbridge Capital Limited, or Kingsbridge, pursuant to which Kingsbridge committed to purchase, subject to certain conditions, up to 5,708,035 shares of the Company’s common stock or up to an aggregate of $40,000,000 during the three years from the date of the agreement. Under the CEFF, the Company is able to draw down in tranches of up to a maximum of 3.5% of its closing market value at the time of the draw down or the alternative draw down amount calculated pursuant to the Common Stock Purchase Agreement dated February 19, 2008, whichever is less, subject to certain conditions. The purchase price of these shares will be at a discount of between 5 and 12 % from the volume weighted average price of the Company’s common stock for each of the eight trading days following the election to sell shares. Kingsbridge is not obligated to purchase shares if the volume weighted average price of our stock is less than $1.25 per share or 85% of the closing share price of the Company’s stock on the trading day immediately preceding the commencement of the draw down, whichever is higher. In connection with the CEFF, the Company issued a warrant to Kingsbridge to purchase 250,000 shares of its common stock at a price of $2.74 per share exercisable beginning August 19, 2008 for a period of five years thereafter. The fair value of the warrant was determined on the date of issuance using the Black-Scholes option valuation model applying the following assumptions: (i) a risk-free interest rate of 2.75%, ( ii) an expected term of 5.5 years , which represents the contractual term , (iii) no dividend yield, and (iv) volatility of 83%. The estimated fair value of this warrant was $349,000 at the date of issue, which was recorded as contra-equity within additional paid in capital.

As part of the CEFF, the Company entered into a Registration Rights Agreement dated February 19, 2008. Pursuant to the agreement, the Company has filed a Registration Statement on Form S-1 (File No. 333-150595) with respect to the resale of the shares of common stock issuable under the CEFF and the warrant. The Registration Rights Agreement provides for payments by the Company to Kingsbridge in the event of (1) failure to maintain effectiveness of Registration Statement in certain circumstances, and (2) deferral or suspension of registration during black-out periods, subject to certain exceptions. This Registration Statement is not currently usable by Kingsbridge pending the updating of the filing by the Company to include financial statements for the fiscal year ended December 31, 2008.

4. Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), entitled “Business Combinations”. SFAS 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 141R will be effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS 141R to have a material effect on its financial position or results of operations.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS165”). SFAS 165 modified the definition of subsequent events to refer to events or transactions that occur after the balance sheet date but before the financial statements are issued for public entities. In addition, SFAS 165 requires entities to disclose the date through which an entity has evaluated subsequent events and the basis for that date. The Company evaluates subsequent events from period end to the date the financial statements are filed with the SEC. SFAS 165 is effective on a prospective basis for interim or annual financial periods ending after June 15, 2009. Accordingly, the Company adopted SFAS 165 in the second quarter of 2009. The adoption of the provisions of SFAS 165 did not have a material impact on the Company’s financial position and results of operations.

5. Subsequent Events

On July 2, 2009, the Company, Holdings and ViDA entered into a series of related agreements pursuant to which such parties agreed to amend the terms of the Purchase Option, as set forth in an amended and restated purchase option agreement (the “Amended Purchase Option Agreement”). In connection with such amendment, OXiGENE and Holdings also entered into an amended and restated registration rights agreement (the “Amended Registration Rights Agreement” and together with the Amended Purchase Option Agreement, the “Transaction Documents”).

Under the Amended Purchase Option Agreement, OXiGENE issued 10,000,000 newly-issued shares of OXiGENE common stock in exchange for all of the equity of ViDA. Under the Transaction Documents, the Company re-acquired all of the rights to the ZYBRESTAT for ophthalmology and OXi4503 programs that had been licensed to ViDA. In addition, the approximately $12,400,000 in cash and marketable securities held by ViDA was transferred to OXiGENE.

Under the Amended Purchase Option Agreement, in the event that OXiGENE issued additional securities prior to January 2, 2010 at a price lower than $2.08 per share, Symphony would have the right to receive additional securities in an amount reflecting the difference in value of the securities at the time of issuance and $2.08 per share.

The two members of the Company’s Board of Directors appointed by Symphony, Mr. Mark Kessel and Dr. Alastair Wood, will remain on the Board, and the Company expects to maintain its advisory relationships with Symphony and RRD International LLC. The Additional Funding Agreement, dated October 1, 2008, has been terminated in connection with the execution of the Transaction Documents pursuant to the Termination Agreement dated July 2, 2009. The closing of the transaction occurred on July 20, 2009.

On July 20, 2009, OXiGENE raised approximately $10,000,000 in gross proceeds, before deducting placement agents’ fees and other offering expenses, in a registered direct offering (the “Offering”) relating to the sale of 6,250,000 units, each unit consisting of (i) one share of common stock, (ii) a five-year warrant to purchase 0.45 shares of common stock at an exercise price of $2.10 per share of common stock and (iii) a short-term warrant to purchase 0.45 shares of common stock at an exercise price of $1.60 per share of common stock, for a purchase price of $1.60 per unit (the “Units”). The short-term warrants are exercisable during a period beginning on the date of issuance until the later of (a) nine months from the date of issuance and (b) ten trading days after the earlier of (i) the public announcement of the outcome of the planned interim analysis by the Independent Data Safety Monitoring Committee of data from the Company’s Phase II/III pivotal clinical trial regarding ZYBRESTAT as a treatment for anaplastic thyroid cancer or (ii) the public announcement of the suspension, termination or abandonment of such trial for any reason.

The Units were offered and sold pursuant to (i) a prospectus dated December 1, 2008 and (ii) a prospectus supplement dated July 15, 2009, pursuant to and forming a part of the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-155371). The net proceeds to the Company from the sale of the Units, after deducting the fees of the placement agents and other offering expenses, were approximately $9,200,000.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations as of June 30, 2009 and June 30, 2008 should be read in conjunction with the sections of our audited consolidated financial statements and notes thereto, as well as our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that is included in our Annual Report on Form 10-K for the year ended December 31, 2008, and also with the unaudited financial statements set forth in Part I, Item 1 of this Quarterly Report.

Overview

We are a clinical-stage, biopharmaceutical company developing novel therapeutics to treat cancer and eye diseases. Our primary focus is the development and commercialization of product candidates referred to as vascular disrupting agents (VDAs) that selectively disable and destroy abnormal blood vessels that provide solid tumors a means of growth and survival and also are associated with visual impairment in a number of ophthalmological diseases and conditions. To date, more than 400 subjects have been treated with ZYBRESTAT in human clinical trials, and the drug candidate has generally been observed to be well-tolerated. In light of the significant safety dataset collected for ZYBRESTAT to date, we believe the potential for unexpected toxicity is relatively low. In addition, because our VDA product candidates act via a well-characterized mechanism, i.e, inhibition of blood flow to tumors and to neovascular lesions within the eye, we believe there is a relatively high likelihood of observing clinical benefits in our ongoing clinical trials.

Our most advanced therapeutic product candidate, ZYBRESTAT™ (USAN name fosbretabulin, previously known as combretastatin A4 phosphate or CA4P), is currently being evaluated in a Phase II/III pivotal registration study, which we refer to as the FACT Trial, as a potential treatment for anaplastic thyroid cancer (ATC), a highly aggressive and lethal malignancy for which there are currently no approved therapeutics and extremely limited treatment options. In 2007, we completed a Special Protocol Assessment process with the U.S. Food and Drug Administration (FDA) for this pivotal registration study. The FDA has also granted Fast Track designation to ZYBRESTAT for the treatment of regionally advanced and/or metastatic ATC. In addition, ZYBRESTAT was awarded orphan drug status by the FDA and the European Commission in the European Union for the treatment of advanced ATC and for the treatment of medullary, Stage IV papillary and Stage IV follicular thyroid cancers.

ZYBRESTAT is also being evaluated in Phase II clinical trials as a potential treatment for: (i) non-small cell lung cancer (NSCLC) in combination with the chemotherapeutic agents, carboplatin and paclitaxel, and the anti-angiogenic agent, bevacizumab, which we refer to as the FALCON Trial; and (ii) platinum-resistant ovarian cancer in combination with carboplatin and paclitaxel. The results from the ongoing ZYBRESTAT Phase II ovarian cancer study were reported at the June 2009 annual meeting of the American Society of Clinical Oncology (ASCO).

We believe that the ongoing FACT trial in ATC, if successful, will provide a basis for us to seek marketing approval of ZYBRESTAT in ATC, and that the FACT rial and/or other ongoing ZYBRESTAT studies will establish a compelling rationale for further development of ZYBRESTAT as a treatment for:

	(i)		other forms of recurrent, metastatic thyroid cancer;

	(ii)		other aggressive and difficult-to-treat malignancies;

	(iii)		use in combination with chemotherapy in a variety of solid tumors, particularly those in which carboplatin and/or paclitaxel chemotherapy are commonly used; and

(iv)

use in combination with commonly used anti-angiogenic drugs, such as bevacizumab that act via VEGF pathway inhibition, in various solid tumor indications.

We believe these areas for potential further development collectively represent a large potential commercial market opportunity that includes cancers of the thyroid, ovary, kidney, liver, head and neck, breast, lung, skin, brain, colon and rectum.

In addition, based upon pre-clinical results first published by our collaborators in the November 2007 online issue of the journal BLOOD, as well as pre-clinical data presented in April 2009 at the annual meeting of the American Association of Cancer Research (AACR), we believe that ZYBRESTAT and our other VDA product candidates, particularly OXi4503, may also have utility in the treatment of hematological malignancies, or “liquid tumors,” such as acute myeloid leukemia.

In addition to developing ZYBRESTAT as an intravenously administered therapy for oncology indications, we are undertaking an ophthalmology research and development program with ZYBRESTAT, the objective of which is to develop a topical formulation of ZYBRESTAT for ophthalmological diseases and conditions that are characterized by abnormal blood vessel growth within the eye that results in loss of vision. We believe that a safe, effective and convenient topically-administered anti-vascular therapeutic would have advantages over currently approved anti-vascular, ophthalmological therapeutics, which must be injected directly into patients’ eyes, in some cases on a chronic monthly basis. In June 2009, we initiated a randomized, double-masked, placebo controlled Phase II proof-of-mechanism trial, which we refer to as the FAVOR trial, with intravenously-administered ZYBRESTAT in patients with polypoidal choroidal vasculopathy (PCV), a form of choroidal neovascularization against which current therapies, including approved anti-angiogenic drugs, appear to provide limited benefit. In parallel with the FAVOR trial, we are currently conducting preclinical pilot toxicology and efficacy studies with ZYBRESTAT, administered via topical ophthalmological formulations. The goals of these clinical and preclinical studies are to (i) confirm the therapeutic utility of ZYBRESTAT in an ophthalmologic indication; (ii) determine blood concentrations of drug required for activity and thereby extrapolate tissue concentrations required for activity; and (iii) further evaluate the feasibility of and reduce the risk associated with developing a topical formulation of ZYBRESTAT for ophthalmological indications. To date, the Company has completed pre-clinical experiments demonstrating that ZYBRESTAT has activity in six different pre-clinical ophthalmology models, including a model in which ZYBRESTAT was combined with an approved anti-angiogenic drug. The Company has also completed multiple pre-clinical studies suggesting that ZYBRESTAT, when applied topically to the surface of the eye at doses anticipated to be tolerated and non-toxic, penetrates to the retina and choroid in quantities that the Company believes should be more than sufficient for therapeutic activity. Finally, the Company has completed and reported results at the 2007 annual meeting of the Association for Research in Vision and Ophthalmology (ARVO) from a Phase II study in patients with myopic macular degeneration in which all patients in the study met the primary clinical endpoint of vision stabilization three months after study entry.

We are currently evaluating a second-generation VDA product candidate, OXi4503, in a Phase I clinical trial in patients with advanced solid tumors, and a Phase Ib/IIa trial in patients with solid tumors with hepatic involvement. Based on what we believe to be compelling preclinical study results, we plan to file an IND for this product candidate and initiate an additional Phase Ib study beginning in the second half of 2009. In pre-clinical studies, OXi4503 has shown potent anti-tumor activity against solid tumors and acute myeloid leukemia models, both as a single agent and in combination with other cancer treatment modalities. We believe that OXi4503 is differentiated from other VDAs by its dual-action activity. In pre-clinical studies, OXi4503 has demonstrated potent vascular disrupting effects on tumor vasculature, as well as direct cytotoxic effects on tumor cells that arise from metabolism of the drug by oxidative enzymes, which are elevated in certain tumors and tissues, (e.g., leukemia, hepatic tumors, and melanoma) to a cytotoxic orthoquinone chemical species.

As described above in Note 5 of the Notes to Condensed Consolidated Financial Statements, “Subsequent Events”, in July 2009, we exercised our option to acquire all the equity of ViDA pursuant to an Amended and Restated Purchase Option Agreement, in exchange for 10,000,000 newly-issued shares of our common stock. The acquisition included the re-acquisition of the ZYBRESTAT for ophthalmology and OXi4503 development programs and the approximately $12,400,000 in cash and marketable securities held by ViDA. In a separate transaction, we also raised approximately $9,200,000 in net proceeds, after deducting placement agents’ fees and other expenses, in a registered direct offering relating to the sale of 6,250,000 units, each unit consisting of (i) one share of common stock, (ii) a five-year warrant to purchase 0.45 shares of common stock at an exercise price of $2.10 per share of common stock and (iii) a short-term warrant to purchase 0.45 shares of common stock at an exercise price of $1.60 per share of common stock, for a purchase price of $1.60 per unit.

Under a sponsored research agreement with Baylor University, we are pursuing discovery and development of novel, small-molecule therapeutics for the treatment of cancer, including small-molecule cathepsin-L inhibitors and hypoxia-activated VDAs. Cathepsin-L is an enzyme involved in protein degradation and has been shown to be closely involved in the processes of angiogenesis and metastasis. Small molecule inhibitors may have the potential to slow tumor growth and metastasis in a manner we believe could be complementary with our VDA therapeutics. We also believe that our hypoxia-activated VDAs could serve as line-extension products to ZYBRESTAT and/or OXi4503.

We are committed to a disciplined financial strategy and as such maintain a limited employee and facilities base, with development, scientific, finance and administrative functions, which include, among others, product development, regulatory oversight and clinical testing. We conduct scientific activities pursuant to collaborative arrangements with universities. Regulatory and clinical testing functions are generally contracted out to third-party, specialty organizations.

Our failure to successfully complete human clinical trials, develop and market products over the next several years, or realize product revenues, or continue to fund our business activities, would materially adversely affect our business, financial condition and results of operations.

In addition to the completion of the ViDA purchase option transaction and the registered direct offering in July 2009 described above, we will need to access additional funds to support our operations to remain a going concern beyond the third quarter of 2010, and such funding may not be available to us on acceptable terms, or at all. If we are unable to access additional funds when needed, we may not be able to continue development of our product candidates or we could be required to delay, scale back or eliminate some or all of our development programs and other operations. We may seek to access additional funds through public or private financing, strategic partnerships or other arrangements. Any additional equity financing may be dilutive to our current stockholders and debt financing, if available, may involve restrictive covenants. If we access funds through collaborative or licensing arrangements, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves. Our failure to access capital when needed may harm our business, financial condition and results of operations.

Results of Operations

Six Months Ended June 30, 2009 and 2008

Revenue

We reported no revenue for the six months ended June 30, 2009 and 2008.

Costs and expenses

The following table summarizes our operating expenses for the periods indicated, in thousands and as a percentage of total expenses. This table also provides the changes in our operating expense components and their percentages:


	Six Months ended June 30,
	2009					2008					Increase (Decrease)
			% of Total					% of Total
			Operating					Operating
	Amount		Expenses			Amount		Expenses			Amount		%

Research and development	$	10,481		71	%	$	8,865		69	%	$	1,616		18	%
General and administrative		4,327		29	%		4,070		31	%		257		6	%


Total operating expenses	$	14,808		100	%	$	12,935		100	%	$	1,873		14	%

Research and development expenses

The table below summarizes the most significant components of our research and development expenses for the periods indicated, in thousands and as a percentage of total research and development expenses. The table also provides the changes in these components and their percentages:

R&D


	Six Months ended June 30,
	2009					2008					Increase (Decrease)
			% of Total					% of Total
	Amount		Expenses			Amount		Expenses			Amount			%

External services	$	6,455		61.0	%	$	6,610		75	%	$	(155	)		-2	%
Employee compensation and related		3,804		37.0	%		1,941		21	%		1,863			96	%
Stock-based compensation		73		1.0	%		158		2	%		(85	)		-54	%
Other		149		1.0	%		156		2	%		(7	)		-5	%


Total research and development	$	10,481		100	%	$	8,865		100	%	$	1,616			18	%

The most significant increase in research and development expenses for the six month period ended June 30, 2009, as compared to the six months ended June 30, 2008, is employee compensation and related costs with an increase of $1,863,000. Employee

compensation and related costs include salaries, benefits, costs to hire new employees, severance costs and employee travel expenses. The increase for the six month period of 2009 over the same period in 2008 is due to an increase in salaries, benefits, hiring related costs and travel in connection with staffing our research and development support groups. In addition, we incurred a one-time severance charge of approximately $332,000 in the 2009 period related to the departure of our former Chief Medical Officer. The increase in employee compensation and related costs was offset in part by decreases in stock based compensation of $85,000 as a result of forfeitures of options, and in external services of $155,000 due primarily to a reduction of out-sourced drug manufacturing, labeling and clinical supplies costs. We expect the trend of increases in research and development expenses to continue for the foreseeable future as we anticipate the continued development of our potential product candidates, especially in OXi4503 and ZYBRESTAT for ophthalmology.

General and administrative expenses

The table below summarizes the most significant components of our general and administrative expenses for the periods indicated, in thousands and as a percentage of total general and administrative expenses. The table also provides the changes in these components and their percentages:

G&A


	Six Months ended June 30,
	2009					2008					Increase (Decrease)
			% of Total					% of Total
	Amount		Expenses			Amount		Expenses			Amount			%

Employee compensation and related	$	1,520		35	%	$	1,569		39	%	$	(49	)		-3	%
Stock-based compensation		213		5	%		551		13	%		(338	)		-61	%
Consulting and professional services		1,643		38	%		1,288		32	%		355			28	%
Facilities and related		560		13	%		289		7	%		271			94	%
Other		391		9	%		373		9	%		18			5	%


Total general and administrative	$	4,327		100	%	$	4,070		100	%	$	257			6	%

Total general and administrative costs for the six months ended June 30, 2009, as compared to the six months ended June 30, 2008, increase by approximately $257,000. Consulting and professional services increased $355,000 primarily due to increased legal and consulting fees in connection with an initiative we undertook to review and improve our quality, vendor oversight and regulatory compliance systems, as well as advisory services in connection with the formation and maintenance of our ViDA entity which was formed in the fourth quarter of 2008. These increases in consulting and professional services costs were slightly offset by a reduction in Board of Director fees and expenses. Facilities related expenses increased by approximately $271,000 in the six months ended June 30, 2009, as compared to the six months ended June 30, 2008. This increase was due to higher rent expense of approximately $184,000 in connection with moving into our new corporate headquarters in South San Francisco, California and increased computer and office supplies expenses related to more space and increased headcount.

Three Months Ended June 30, 2009 and 2008

Revenue

We reported no license revenue for the three months ended June 30, 2009 and 2008.

Costs and expenses


	Three Months ended June 30,
	2009					2008					Increase (Decrease)
			% of Total					% of Total
			Operating					Operating
	Amount		Expenses			Amount		Expenses			Amount		%

Research and development	$	5,813		71	%	$	5,176		72	%	$	637		12	%
General and administrative		2,362		29	%		2,023		28	%		339		17	%


Total operating expenses	$	8,175		100	%	$	7,199		100	%	$	976		14	%

Research and development expenses

R&D


	Three Months ended June 30,
	2009					2008					Increase (Decrease)
			% of Total					% of Total
	Amount		Expenses			Amount		Expenses			Amount			%

External services	$	3,625		62	%		4,125		80	%		(500	)		-12	%
Employee compensation and related		2,097		36	%		879		17	%		1,218			138	%
Stock-based compensation		15		1	%		79		2	%		(64	)		-81	%
Other		76		1	%		93		2	%		(17	)		-18	%


Total research and development	$	5,813		100	%	$	5,176		100	%	$	637			12	%

Research and development expenses for the three months ended June 30, 2009 increased by approximately $637,000 versus the three months ended June 30, 2008 due to the increase of $1,218,000 in employee compensation and related costs partially offset by decreases in the other major spending categories. The increase in employee compensation and related costs is primarily attributable to staffing our research and development support groups as well as the inclusion of a one-time severance charge of approximately $332,000 for the three-months ended June 30, 2009 period in connection with the departure of our Chief Medical Officer. External services decreased by approximately $500,000 for the three months ended June 30, 2009, as compared to the three months ended June 30, 2008. The external services decrease is due in part to approximately $230,000 of lower cost related to drug manufacture, stability testing, logistical cost and clinical supplies, and approximately $157,000 of external project management fees.

General and administrative expenses

G&A


	Three Months ended June 30,
	2009					2008					Increase (Decrease)
			% of Total					% of Total
	Amount		Expenses			Amount		Expenses			Amount			%

Employee compensation and related	$	757		32	%	$	715		35	%	$	42			6	%
Stock-based compensation		85		4	%		276		14	%		(191	)		-69	%
Consulting and professional services		1,081		46	%		614		30	%		467			76	%
Facilities and related		270		11	%		234		12	%		36			16	%
Other		169		7	%		184		9	%		(15	)		-8	%


Total general and administrative	$	2,362		100	%	$	2,023		100	%	$	339			17	%

Total general and administrative costs for the three months ended June 30, 2009, as compared to the three months ended June 30, 2008, increased by approximately $339,000 due predominately to the increase in cost of consulting and professional services of approximately $467,000, offset, in part, by a decrease of approximately $191,000 of stock -based compensation expense. Consulting and professional services costs increased as a result of increased legal and consulting expenses in connection with an initiative we undertook to review and improve our quality, vendor oversight and regulatory compliance systems, as well as costs to establish and maintain the ViDA entity which was formed in the fourth quarter of 2008.

Other Income and Expense

The table below summarizes Other Income and Expense in our Income Statement for the periods indicated, in thousands.


	Three months ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008

Investment income		18			158			70			445
Gain (loss) in change of fair value of warrants		249			—			241			—
Other income (expense), net		(58	)		(7	)		(44	)		(2	)

Investment Income was $70,000 and $445,000 for the six month period ended June 30, 2009 and 2008, respectively. The change is primarily a result of an estimated 43% reduction in the average month end cash balance and lower rate of return during the six month period ending June 30, 2009 as compared to 2008. Investment Income was $18,000 and $158,000 for the three month period ended June 30, 2009 and 2008 respectively. The change is primarily a result of an estimated 49% reduction in the average month end cash balance. The Other Income balances are derived from our gain and loss on foreign currency exchange and reflect both a change in number of foreign trials and the fluctuation in exchange rates.

We recorded a noncash gain of approximately $249,000 and $241,000 for the three and six months period ended June 30, 2009, respectively, as a result of the change in the estimated Fair Market Value (“FMV”) of our Derivative Liabilities. As described above in Note 1 of the Summary of Significant Accounting Policies, “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in the Company’s Common Stock”, our total Derivate Liabilities FMV were estimated at $225,000 and $466,000 as of June 30, 2009 and December 31, 2008, respectively, as indicated in the table below.


	Fair Market Value of Derivative Liabilities as of
	June 30, 2009		March 31, 2009		December 31, 2008

Additional investment shares	$	—	$	448,000	$	444,000
CEFF warrant	$	225,000	$	26,000	$	22,000

Total FMV of derivative liabilities	$	225,000	$	474,000	$	466,000

As of June 30, 2009, the Additional Investment Shares had a zero FMV as result of the Additional Investment obligation being terminated, thus eliminating the liability and creating a noncash gain as we entered into the Amended and Restated Purchase Option Agreement as agreed to on July 2, 2009. This was offset, in part, by recording a noncash loss as a result of the change in estimated FMV of the CEFF Warrant, mainly, as a result in the change of our stock price from $0.66 per share to $2.18 per

share at December 31, 2008 and June 30, 2009, respectively, resulting in an increase in the liability of approximately $203,000.

Liquidity and Capital Resources

We have experienced net losses and negative cash flow from operations each year since our inception, except in fiscal 2000. As of June 30, 2009, we had an accumulated deficit of approximately $170,025,000. We expect to continue to incur expenses, resulting in operating losses, over the next several years due to, among other factors, our continuing clinical trials, planned future clinical trials, and other anticipated research and development activities. Our cash, cash equivalents and available-for-sale securities balance was approximately $8,045,000 at June 30, 2009, compared to approximately $18,275,000 at December 31, 2008.

The following table summarizes our cash flow activities for the period indicated, in thousands:


	Six Months Ended
	June 30, 2009
Operating activities:

Consolidated net loss	$	(14,541	)
Non-cash adjustments to net loss		174
Changes in operating assets and liabilities		1,453


*Net cash used in operating activities*		(12,914	)
Investing activities:
Net increase in available-for-sale securities		2,791
Purchase of furniture, fixtures and equipment		(94	)
Other		(13	)


*Net cash provided by investing activities*		2,684

*Net cash used in financing activities*		—


*Decrease in cash and cash equivalents*		(10,230	)

Cash and cash equivalents at beginning of period		18,275


Cash and cash equivalents at end of period	$	8,045

A major component of the non-cash adjustments to net loss in the six-month period ended June 30, 2009 is compensation expense of $322,000 related to the issuance of options and restricted stock, Board of Directors compensation and one month of expense relating to the employee stock purchase plan (“ESPP”). The net change in operating assets and liabilities is attributable to an increase in accounts payable, accrued expenses and other payables of $1,781,000 offset by an increase in restricted cash of $140,000 and in prepaid expenses and other current assets of $188,000. The decrease in available-for-sale securities is primarily attributable to our short-term product development-related cash requirements.

In July 2009, we exercised our purchase option, under an Amended and Restated Purchase Option Agreement with Symphony Capital, and acquired all of the equity of ViDA in exchange for 10,000,000 newly-issued shares of our common stock. In connection with this transaction we reacquired the rights to the ZYBRESTAT for ophthalmology and OXi4503 development programs and the approximately $12,400,000 in cash and marketable securities held by ViDA. We also raised approximately $9,200,000 in net proceeds, after deducting placement agents’ fees and other expenses, in a registered direct offering relating to the sale of 6,250,000 units, each unit consisting of (i) one share of common stock, (ii) a five-year warrant to purchase 0.45 shares of common stock at an exercise price of $2.10 per share of common stock and (iii) a short-term warrant to purchase 0.45 shares of common stock at an exercise price of $1.60 per share of common stock, for a purchase price of $1.60 per unit. We plan to utilize these funds to continue funding the advancement of ZYBRESTAT for oncology, ZYBRESTAT for ophthalmology and OXi4503.

Our cash utilization amount is highly dependent on the progress of our potential-product development programs, particularly, the results of our pre-clinical projects, the cost timing and outcomes of regulatory approvals for our product candidates, the terms and conditions of our contracts with service providers for these programs, the rate of recruitment of patients in our human clinical trials, much of which is not within our control as well as the timing of hiring development staff to support our product development plans. We may be able to access our Kingsbridge Committed Equity Financing Facility (CEFF) to augment our existing capital resources as long as the current market value of our common stock remains above the minimum price required for draw downs

under our agreement with Kingsbridge. We do intend to aggressively pursue other forms of capital infusion, including strategic alliances with organizations that have capabilities and/or products that are complementary to our own, in order to continue the development of our potential product candidates.

Our cash requirements may vary materially from those now planned for or anticipated by management due to numerous risks and uncertainties. These risks and uncertainties include, but are not limited to: the progress of and results of our pre-clinical testing and clinical trials of our VDA drug candidates under development, including ZYBRESTAT, our lead drug candidate, and OXi4503; the progress of our research and development programs; the time and costs expended and required to obtain any necessary or desired regulatory approvals; the resources, if any, that we devote to developing manufacturing methods and advanced technologies; our ability to enter into licensing arrangements, including any unanticipated licensing arrangements that may be necessary to enable us to continue our development and clinical trial programs; the costs and expenses of filing, prosecuting and, if necessary, enforcing our patent claims, or defending ourselves against possible claims of infringement by us of third party patent or other technology rights; the costs of commercialization activities and arrangements, if any, undertaken by us; and, if and when approved, the demand for our products, which demand is dependent in turn on circumstances and uncertainties that cannot be fully known, understood or quantified unless and until the time of approval, for example the range of indications for which any product is granted approval.

Even with the additional funds raised in July 2009, we will need to access additional funds to support our operations to remain a going concern beyond the third quarter of 2010, and such funding may not be available to us on acceptable terms, or at all. If we are unable to access additional funds when needed, we may not be able to continue development of our product candidates or we could be required to delay, scale back or eliminate some or all of our development programs and other operations. We may seek to access additional funds through public or private financing, strategic partnerships or other arrangements. Any additional equity financing may be dilutive to our current stockholders and debt financing, if available, may involve restrictive covenants. If we access funds through collaborative or licensing arrangements, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves. Our failure to access capital when needed may harm our business, financial condition and results of operations.

The following table presents our contractual obligations and commercial commitments as of June 30, 2009:


			Less than 1						After 5
	Total		year		1-3 years		4-5 years		years

Clinical development and related committements	$	9,304	$	8,426	$	878	$	—	$	—
Operating Leases		2,441		817		1,226		398		—


Total contractual cash obligations	$	11,745	$	9,243	$	2,104	$	398		—

Payments under the pre-clinical, product development and clinical development contracts are based on the completion of activities as specified in the contract. The amounts in the table above assume the successful completion by third-party contractors of all activities contemplated in the agreements with such parties. The table above includes approximately $3,838,000 of accrued research and development related costs. In addition, not included in the operating leases above is sublease income, which is expected to total approximately $279,000 for the 12-month period ending June 30, 2010. Lease payments of approximately $139,000 under a lease for our new office space in Waltham, Massachusetts entered into in April 2009 are now included in the table above.

Our primary drug development programs are based on a series of natural products called Combretastatins. In August 1999, we entered into an exclusive license for the commercial development, use and sale of products or services covered by certain patent rights owned by Arizona State University. This agreement was subsequently amended in June 2002. From the inception of the agreement through June 30, 2009, we have paid a total of $2,500,000 in connection with this license. The agreement provides for additional payments in connection with the license arrangement upon the initiation of certain clinical trials or the receipt of certain regulatory approvals, which payments could be accelerated upon the achievement of certain financial milestones, as defined in the agreement. We have made total milestone payments of $700,000 through June 30, 2009. In the six months ended June 30, 2009, we did not make any payments pursuant to meeting a financial milestone under the agreement. The license agreement also provides for additional payments upon our election to develop certain additional compounds, as defined in the agreement. Future milestone payments under this agreement could total up to an additional $200,000. We are also required to pay royalties on future net sales of products associated with these patent rights.

Critical Accounting Policies and Significant Judgments and Estimates

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. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to

intangible assets. We base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances, the results of which form the basis for making the judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008 and in our notes to the financial statements set forth in Item 1 of this Quarterly Report on Form 10-Q, we believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial results.

Available-for-Sale Securities

We designate our marketable securities as available-for-sale securities. Available-for-sale securities are carried at fair value with the unrealized gains and losses, net of tax, if any, reported as accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in investment income. Interest and dividends on securities classified as available-for-sale are included in investment income. It is our policy to evaluate all available-for-sale securities for other-than-temporary impairment.

Accrued Research and Development

We charge all research and development expenses, both internal and external costs, to operations as incurred. External costs consist of fees paid to consultants and other outside providers under service contracts. Costs incurred under fixed fee contracts are accrued ratably over the contract period absent any knowledge that the services will be performed other than ratably. Costs incurred under contracts to perform clinical trials are accrued on a patients-treated basis consistent with the typical terms of reimbursement. Upon termination of such contracts, we are normally only liable for costs incurred to date. As a result, accrued research and development expenses represent our estimated contractual liability to outside service providers at any of the relevant times.

Impairment of Long-Lived Assets

On August 2, 1999, we entered into an exclusive license for the commercial development, use and sale of products or services covered by certain patent rights owned by Arizona State University. The present value of the amount payable under the license agreement has been capitalized based on a discounted cash flow model and is being amortized over the term of the agreement (approximately 15.5 years). Under SFAS 144, management is required to perform an impairment analysis of our long-lived assets if triggering events occur. We review for such triggering events periodically and, even though we have experienced triggering events, such as receiving a going concern opinion from our auditors in their report on our financial statements for the fiscal year ended December 31, 2008, and our continuing financial losses, we have determined that there is no impairment to this asset during the periods ended up to and including June 30, 2009. In addition, the agreement provides for additional payments in connection with the license arrangement upon the initiation of certain clinical trials or the completion of certain regulatory approvals, which payments could be accelerated upon the achievement of certain financial milestones as defined in the agreement. To date, no clinical trials triggering payments under the agreement have been completed and no regulatory approvals have been obtained. We expense these payments to research and development in the period the criteria, as defined in the agreement, are satisfied.

Stock-Based Compensation

Effective January 1, 2006, we adopted SFAS 123R, “Share-Based Payment,” which requires the expense recognition of the estimated fair value of all share-based payments issued to employees. For the six-month period ended June 30, 2009, we recorded approximately $278,000 of expense, associated with share-based payments, which would not have been recorded prior to the adoption of SFAS 123R.

The valuation of employee stock options is an inherently subjective process, since market values are generally not available for long-term, non-transferable employee stock options. Accordingly, an option pricing model is utilized to derive an estimated fair value. In calculating the estimated fair value of our stock options, we used the Black-Scholes option pricing model which requires the consideration of the following six variables for purposes of estimating fair value:

	•		the stock option exercise price,

	•		the expected term of the option,

	•		the grant date price of our common stock, which is issuable upon exercise of the option,

	•		the expected volatility of our common stock,

	•		the expected dividends on our common stock (we do not anticipate paying dividends in the foreseeable future), and

	•		the risk free interest rate for the expected option term.

Stock Option Exercise Price & Grant Date Price of our common stock — The closing market price of our common stock on the date of grant.

Expected Term — The expected term of options represents the period of time for which the options are expected to be outstanding and is based on an analysis of historical behavior of participants over time.

Expected Volatility — The expected volatility is a measure of the amount by which our stock price is expected to fluctuate during the term of the option granted. We determine the expected volatility based on the historical volatility of our common stock over a period commensurate with the option’s expected term.

Expected Dividends — Because we have never declared or paid any cash dividends on any of our common stock and do not expect to do so in the foreseeable future, we use an expected dividend yield of zero to calculate the grant date fair value of a stock option.

Risk-Free Interest Rate — The risk-free interest rate is the implied yield available on U.S. Treasury issues with a remaining life consistent with the option’s expected term on the date of grant.

Of the variables above, the selection of an expected term and expected stock price volatility are the most subjective. In the six-month period ended June 30, 2009, we granted options to purchase 1,365,000 shares of our common stock valued using these assumptions. In accordance with the transition provisions of SFAS 123R, the grant date estimates of fair value associated with prior awards, which were also calculated using the Black-Scholes option pricing model, have not been changed. The specific valuation assumptions that were utilized for purposes of deriving an estimate of fair value at the time that prior awards were issued are as disclosed in our prior Annual Reports on Form 10-K, as filed with the Securities and Exchange Commission.

Upon adoption of SFAS 123R, we were also required to estimate the level of award forfeitures expected to occur and record compensation expense only for those awards that are ultimately expected to vest. This requirement applies to all awards that are not yet vested, including awards granted prior to January 1, 2006. Accordingly, we performed a historical analysis of option awards that were forfeited prior to vesting, and ultimately recorded total stock option expense that reflected this estimated forfeiture rate. In our calculation, we segregated participants into two distinct groups, (1) directors and officers and (2) employees, and our estimated forfeiture rates were calculated at 10% and 50%, respectively. This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.

Employee Stock Purchase Plan

In May 2009, our shareholders approved the 2009 Employee Stock Purchase Plan (the “2009 ESPP”). Under the 2009 ESPP, employees have the option to purchase shares of the Company’s common stock at 85% of the closing price on the first day of each opening period or the last day of each purchase period (as defined in the 2009 ESPP), whichever is lower, up to specified limits. Eligible employees are given the option to purchase shares of our common stock, on a tax-favored basis, through regular payroll deductions in compliance with Section 423 of the Code. An aggregate of 2,000,000 shares of common stock may be issued under the 2009 ESPP, subject to adjustment each year pursuant to the terms of the plan. The estimated expense for the first six month period during the implementation year is $45,000, which estimate may be revised downward based on a potential decrease in stock price or employees who either decrease their monthly investment or withdraw from participation in the 2009 ESPP.

Consolidation of Variable Interest Entity

Under FASB Interpretation No. 46 (FIN 46R), “Consolidation of Variable Interest Entities", a variable interest entity (VIE) is (1) an entity that has equity that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or (2) an entity that has equity investors that cannot make significant decisions about the entity’s operations or that do not absorb their proportionate share of the expected losses or do not receive the expected residual returns of the entity. FIN 46R requires a VIE to be consolidated by the party that is deemed to be the primary beneficiary, which is the party that has exposure to a majority of the potential variability in the VIE’s outcomes. The application of FIN 46R to a given arrangement requires significant management judgment.

Pursuant to the Symphony collaboration agreements, the Company has consolidated the financial position and results of operations of ViDA in accordance with FIN 46R. OXiGENE believes ViDA is by design a VIE because OXIGENE had a purchase option to acquire its outstanding voting stock at prices that are fixed based upon the date the option is exercised. The fixed nature of the purchase option price limited Symphony’s returns, as the investor in ViDA. Further, due to the direct investment from Holdings in OXiGENE common stock, as a related party ViDA is a VIE.

FIN 46R deems parties to be de facto agents if they cannot sell, transfer, or encumber their interests without the prior approval of an enterprise. Symphony is considered to be a de facto agent of the Company pursuant to this provision. Further, because OXiGENE and Symphony are a related party group based on the direct investment in OXiGENE common stock, the Company absorbs a majority of ViDA’s variability. OXIGENE evaluated whether, pursuant to FIN 46R’s requirements, the Company is most closely associated with ViDA and concluded the Company should consolidate ViDA because (1) OXiGENE originally developed the technology that was licensed to ViDA, (2) OXIGENE oversaw and monitored the development program, (3) OXiGENE’s employees and contractors performed substantially all of the development work, (4) OXiGENE had the ability to make decisions that would have a significant effect on the success of ViDA’s activities through the Company’s representation on the ViDA Board of Directors and Joint Development Committee, (5) ViDA’s operations were substantially similar to the Company’s activities, and (6) through the Purchase Option, OXiGENE had the ability to meaningfully participate in the benefits of a successful development effort.

Symphony will be required to absorb the development risk for its equity investment in ViDA. Pursuant to FIN 46R’s requirements, Symphony’s equity investment in ViDA is classified as noncontrolling interest in OXiGENE’s consolidated balance

sheet. The noncontrolling interest held by Symphony has been reduced by the $4,000,000 fair value of the common stock it received in consideration for the Purchase Option and the pro rata portion of the structure fees paid to Symphony of $1,750,000 upon the transaction’s closing as the total consideration provided by the Company reduced Symphony’s at-risk equity investment in ViDA. While OXiGENE performed the research and development on behalf of ViDA, its development risk was limited to the consideration we provided to Symphony (the common stock and fees).

Tax Matters

At December 31, 2008, the Company had net operating loss carry-forwards of approximately $155,011,000 for U.S. income tax purposes, which will begin to expire in 2020 for U.S. purposes and state operating loss carry-forwards of $60,500,000 that will begin expiring in 2009. The future utilization of the net operating loss carry-forwards may be subject to an annual limitation due to ownership changes that could have occurred in the past or that may occur in the future under the provisions of Internal Revenue Code Section 382 or 383. Realization of the deferred tax assets is uncertain due to the historical losses of the Company and therefore a full valuation allowance has been established.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

At June 30, 2009, we did not hold any derivative financial instruments, commodity-based instruments or other long-term debt obligations. We account for the Symphony Additional Investment Shares and the Kingsbridge CEFF Warrant as liabilities. As of June 30, 2009, the Additional Investment Shares were determined to have no fair market value and, therefore, we eliminated the liability, resulting in a gain of $447,000. See Note 5 of the Notes to Condensed Consolidated Financial Statements, “Subsequent Events”. The Kingsbridge CEFF Warrant is valued at $225,000 as of June 30, 2009.

We have adopted an Investment Policy, the primary objectives of which are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields while preserving principal. Although our investments are subject to credit risk, we follow procedures to limit the amount of credit exposure in any single issue, issuer or type of investment. Our investments are also subject to interest rate risk and will decrease in value if market interest rates increase. However, due to the conservative nature of our investments and relatively short duration, we believe that interest rate risk is mitigated. Our cash and cash equivalents are maintained in U.S. dollar accounts. Although we conduct a number of our trials and studies outside of the United States, we believe our exposure to foreign currency risk to be limited as the arrangements are in jurisdictions with relatively stable currencies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

The Securities and Exchange Commission requires that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) evaluate the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and report on the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective to ensure that we record, process, summarize and report the information we must disclose in reports that we file or submit under the Exchange Act, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control.

There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such control that occurred during the last fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Important Considerations.

The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

We will be required to raise additional funds to finance our operations and remain a going concern; we may not be able to do so when necessary, and the terms of any financings may not be advantageous to us.

Our operations to date have consumed substantial amounts of cash. We expect our cash on hand and the capital resources acquired in the two transactions completed in July 2009, see Note 5 of the Notes to Condensed Consolidated Financial Statements, “Subsequent Events”, to fund our operations into the third quarter of 2010. In order to remain a going concern beyond this date, we will require significant funding. Additional funds may not be available to us on terms that we deem acceptable, or at all. Negative cash flows from our operations are expected to continue over at least the next several years. We do not currently have any commitments to raise additional capital by selling equity, issuing debt or entering into any collaboration that would provide material funding. Our cash utilization amount is highly dependent on the progress of our product development programs, particularly, the results of our preclinical studies, the cost timing and outcomes of regulatory approval for our product candidates, the terms and conditions of our contracts with service providers for these programs, the rate of recruitment of patients in our human clinical trials, as well as the timing of hiring development staff to support our product development plans. Many of these factors are not within our control. We may be able to access our Kingsbridge Committed Equity Financing Facility (CEFF) to augment our existing capital resources as long as the current market value of our common stock remains above the minimum price required for draw downs under our agreement with Kingsbridge. We intend to aggressively pursue other forms of capital infusion including strategic alliances with organizations that have capabilities and/or products that are complementary to our own, in order to continue the development of our product candidates.

Our actual capital requirements will depend on numerous factors, including: the progress of and results of our preclinical testing and clinical trials of our product candidates under development, including ZYBRESTAT and OXi4503; the progress of our research and development programs; the time and costs expended and required to obtain any necessary or desired regulatory approvals; the resources, if any, that we devote to developing manufacturing methods and advanced technologies; our ability to enter into licensing arrangements, including any unanticipated licensing arrangements that may be necessary to enable us to continue our development and clinical trial programs; the costs and expenses of filing, prosecuting and, if necessary, enforcing our patent claims, or defending against possible claims of infringement by us of third party patent or other technology rights; the cost of commercialization activities and arrangements, if any, undertaken by us; and, if and when approved, the demand for our products, which demand depends in turn on circumstances and uncertainties that cannot be fully known, understood or quantified unless and until the time of approval, including the range of indications for which any product is granted approval.

We will need to raise additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, we may not be able to continue development of our product candidates or we could be required to delay, scale back or eliminate some or all of our development programs or cease operations. We may seek to raise additional funds through public or private financing, strategic partnerships or other arrangements. Any additional equity financing may be dilutive to our current stockholders and debt financing, if available, may involve restrictive covenants. If we raise funds through collaborative or licensing arrangements, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves. Our failure to raise capital when needed may materially harm our business, financial condition and results of operations.

We have a history of losses and we anticipate that we will continue to incur losses in the future.

We have experienced net losses every year since our inception and, as of June 30, 2009, had an accumulated deficit of approximately $170,025,000. We anticipate continuing to incur substantial additional losses over at least the next several years due to, among other factors, the need to expend substantial amounts on our continuing clinical trials with respect to our VDA drug candidates, technologies, and anticipated research and development activities and the general and administrative expenses associated with those activities. We have not commercially introduced any product and our potential products are in varying early stages of development and testing. Our ability to attain profitability will depend upon our ability to develop products that are effective and commercially viable, to obtain regulatory approval for the manufacture and sale of our products and to license or otherwise market our products successfully. We may never achieve profitability, and even if we do, we may not be able to sustain being profitable.

We recently undertook an internal review of matters pertaining to our quality, vendor oversight and regulatory compliance systems, practices and procedures relating to the conduct of clinical trials sponsored by us. While we believe that the actions recently taken by us have substantially improved our systems, practices and procedures, we cannot assure you that these measures will fully prevent any future quality, vendor management or regulatory compliance issues.

Because we operate with a relatively small clinical operations team while sponsoring clinical trials in numerous foreign jurisdictions, we are heavily reliant on outside vendors, including clinical research organizations, or CROs, for the training of

personnel at the various sites where we are sponsoring clinical trials, periodic monitoring of clinical trial sites, and ongoing management of clinical trial operations at trial sites. Under our oversight, outside vendors are also responsible for hosting and managing our clinical trial databases, including safety databases, and for reporting safety information to the FDA and foreign regulatory authorities. In April 2009, we initiated an internal review of our systems, practices and procedures governing the areas of vendor oversight, quality, and regulatory compliance as a result of concerns raised by internal personnel that our existing systems, practices and procedures in these areas were not sufficiently robust.

Our Board of Directors established a committee of its members to manage the review process. The review primarily focused on matters relating to our ongoing FACT trial in anaplastic thyroid cancer, and included an evaluation of our systems, practices and procedures involving, among other things, the following matters:

• selection and oversight of vendors to us of clinical trial-related services;

• maintenance and management of databases containing safety and other data from clinical trials, the timely reporting of any issues raised from the review of safety and other data to applicable regulatory authorities, institutional review boards and ethics committees, and data safety monitoring committees;

• oversight of the monitoring of clinical trial sites by outside vendors and the review of and response to periodic monitoring reports;

• training of clinical trial investigators and site personnel;

• establishing adequate standard operating procedures, or SOPs, and internal staff training in such procedures to ensure appropriate adherence to applicable quality and compliance standards; and

• allocation of resources to our Quality/Compliance Department.

With the assistance of an outside consulting firm, we have prepared and adopted a corrective actions/preventive actions plan, or CAPA, which is designed to remedy and avoid the recurrence of matters noted during the internal review. Pursuant to the CAPA, we are implementing a number of operational changes, particularly as they relate to vendor qualification and oversight, management of clinical trial and safety databases, review and reporting of safety data, and personnel training. In parallel with these operational changes, we have recently recruited a new Chief Development Officer to oversee our drug development programs, and we are recruiting additional personnel in our Quality Assurance function.

While we believe that the actions we have taken in response to the internal review have collectively resulted in substantially improved quality, vendor oversight, and regulatory compliance systems, practices and procedures, we cannot assure you that matters similar or related to those that prompted the review will not recur, or that applicable regulatory authorities, institutional review boards or ethics committees would find the actions taken by us in response to the internal review to have been sufficient. If applicable regulatory authorities were to find our quality controls or other regulatory compliance systems to be insufficient, they could take a range of actions, including but not limited to placing one or more of our clinical trials on clinical hold, requiring us to redo one or more of our clinical trials, or requiring additional clinical trials prior to approval of any of our product candidates. Similarly, if institutional review boards or ethics committees associated with our clinical trial sites were to find our quality systems, practices, and procedures to be insufficient, they could take a range of actions, including suspending participation in our clinical trials at their sites. In addition, we could decide on our own to take any of these actions, if either our management or a data safety monitoring committee concluded that such steps were necessary in order to protect the safety of subjects in trials involving our product candidates, the integrity of the data generated by those trials, or otherwise.

We may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable indications or therapeutic areas for our product candidates or those that we in-license.

We have limited technical, managerial and financial resources to determine the indications on which we should focus the development efforts related to our product candidates. We may make incorrect determinations. Our decisions to allocate our research, management and financial resources toward particular indications or therapeutic areas for our product candidates may not lead to the development of viable commercial products and may divert resources from better opportunities. Similarly, our decisions to delay or terminate drug development programs may also be incorrect and could cause us to miss valuable opportunities. In addition, from time to time we may in-license or otherwise acquire product candidates to supplement our internal development activities. Those activities may use resources that otherwise would be devoted to our internal programs. We cannot assure you that any resources that we devote to acquired or in-licensed programs will result in any products that are superior to our internally developed products.

Our product candidates have not completed clinical trials, and may never demonstrate sufficient safety and efficacy in order to do so.

Our product candidates are in an early stage of development. In order to achieve profitable operations, we, alone or in collaboration with others, must successfully develop, manufacture, introduce and market our products. The time frame necessary to

achieve market success for any individual product is long and uncertain. The products currently under development by us will require significant additional research and development and extensive preclinical and clinical testing prior to application for commercial use. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in clinical trials, even after showing promising results in early or later-stage studies or clinical trials. Although we have obtained some favorable results to date in preclinical studies and clinical trials of certain of our potential products, such results may not be indicative of results that will ultimately be obtained in or throughout such clinical trials, and clinical trials may not show any of our products to be safe or capable of producing a desired result. Additionally, we may encounter problems in our clinical trials that will cause us to delay, suspend or terminate those clinical trials. Further, our research or product development efforts or those of our collaborative partners may not be successfully completed, any compounds currently under development by us may not be successfully developed into drugs, any potential products may not receive regulatory approval on a timely basis, if at all, and competitors may develop and bring to market products or technologies that render our potential products obsolete. If any of these problems occur, our business would be materially and adversely affected.

We depend heavily on our executive officers, directors, and principal consultants and the loss of their services would materially harm our business.

We believe that our success depends, and will likely continue to depend, upon our ability to retain the services of our current executive officers, directors, principal consultants and others. The loss of the services of any of these individuals could have a material adverse effect on us. In addition, we have established relationships with universities, hospitals and research institutions, which have historically provided, and continue to provide, us with access to research laboratories, clinical trials, facilities and patients. Additionally, we believe that we may, at any time and from time to time, materially depend on the services of consultants and other unaffiliated third parties.

Our industry is highly competitive, and our products may become technologically obsolete.

We are engaged in a rapidly evolving field. Competition from other pharmaceutical companies, biotechnology companies and research and academic institutions is intense and expected to increase. Many of those companies and institutions have substantially greater financial, technical and human resources than we do. Those companies and institutions also have substantially greater experience in developing products, in conducting clinical trials, in obtaining regulatory approval and in manufacturing and marketing pharmaceutical products. Our competitors may succeed in obtaining regulatory approval for their products more rapidly than we do. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competitive products. We are aware of at least one other company that currently has a clinical-stage VDA for use in an oncology indication. Some of these competitive products may have an entirely different approach or means of accomplishing the desired therapeutic effect than products being developed by us. Our competitors may succeed in developing technologies and products that are more effective and/or cost competitive than those being developed by us, or that would render our technology and products less competitive or even obsolete. In addition, one or more of our competitors may achieve product commercialization or patent protection earlier than we do, which could materially adversely affect us.

We have licensed in rights to ZYBRESTAT, OXi4503 and other programs from third parties. If our license agreements terminate, we may lose the licensed rights to our product candidates, including ZYBRESTAT and OXi4503, and we may not be able to continue to develop them or, if they are approved, market or commercialize them.

We depend on license agreements with third parties for certain intellectual property rights relating to our product candidates, including patent rights. Currently, we have licensed in patent rights from Arizona State University, or ASU, and the Bristol-Myers Squibb Company for ZYBRESTAT and OXi4503 and from Baylor University for other programs. In general, our license agreements require us to make payments and satisfy performance obligations in order to keep these agreements in effect and retain our rights under them. These payment obligations can include upfront fees, maintenance fees, milestones, royalties, patent prosecution expenses, and other fees. These performance obligations typically include diligence obligations. If we fail to pay, be diligent or otherwise perform as required under our license agreements, we could lose our rights under the patents and other intellectual property rights covered by the agreements. While we are not currently aware of any dispute with any licensors under our material agreements with them, if disputes arise under any of our in-licenses, including our in-licenses from ASU and the Bristol-Myers Squibb Company, and Baylor University, we could lose our rights under these agreements. Any such disputes may or may not be resolvable on favorable terms, or at all. Whether or not any disputes of this kind are favorably resolved, our management’s time and attention and our other resources could be consumed by the need to attend to and seek to resolve these disputes and our business could be harmed by the emergence of such a dispute.

If we lose our rights under these agreements, we may not be able to conduct any further activities with the product candidate or program that the license covered. If this were to happen, we might not be able to develop our product candidates further, or following regulatory approval, if any, we might be prohibited from marketing or commercializing them. In particular, patents previously licensed to us might after termination be used to stop us from conducting these activities.

We depend extensively on our patents and proprietary technology, and we must protect those assets in order to preserve our business.

To date, our principal product candidates have been based on certain previously known compounds. We anticipate that the products we develop in the future may include or be based on the same or other compounds owned or produced by unaffiliated parties, as well as synthetic compounds we may discover. Although we expect to seek patent protection for any compounds we discover and/or for any specific uses we discover for new or previously known compounds, any or all of them may not be subject to effective patent protection. Further, the development of regimens for the administration of pharmaceuticals, which generally involve specifications for the frequency, timing and amount of dosages, has been, and we believe, may continue to be, important to our efforts, although those processes, as such, may not be patentable. In addition, the issued patents may be declared invalid or our competitors may find ways to avoid the claims in the patents.

Our success will depend, in part, on our ability to obtain patents, protect our trade secrets and operate without infringing on the proprietary rights of others. As of July 1, 2009, we were the exclusive licensee, sole assignee or co-assignee of twenty-nine (29) granted United States patents, twenty-eight (28) pending United States patent applications, and granted patents and/or pending applications in several other major markets, including the European Union, Canada and Japan. The patent position of pharmaceutical and biotechnology firms like us generally is highly uncertain and involves complex legal and factual questions, resulting in both an apparent inconsistency regarding the breadth of claims allowed in United States patents and general uncertainty as to their legal interpretation and enforceability. Accordingly, patent applications assigned or exclusively licensed to us may not result in patents being issued, any issued patents assigned or exclusively licensed to us may not provide us with competitive protection or may be challenged by others, and the current or future granted patents of others may have an adverse effect on our ability to do business and achieve profitability. Moreover, since some of the basic research relating to one or more of our patent applications and/or patents was performed at various universities and/or funded by grants, one or more universities, employees of such universities and/or grantors could assert that they have certain rights in such research and any resulting products. Further, others may independently develop similar products, may duplicate our products, or may design around our patent rights. In addition, as a result of the assertion of rights by a third party or otherwise, we may be required to obtain licenses to patents or other proprietary rights of others in or outside of the United States. Any licenses required under any such patents or proprietary rights may not be made available on terms acceptable to us, if at all. If we do not obtain such licenses, we could encounter delays in product market introductions while we attempt to design around such patents or could find that the development, manufacture or sale of products requiring such licenses is foreclosed. In addition, we could incur substantial costs in defending ourselves in suits brought against us or in connection with patents to which we hold licenses or in bringing suit to protect our own patents against infringement.

We require employees, Scientific Advisory Board members, Clinical Trial Advisory Board members, and the institutions that perform our preclinical and clinical trials to enter into confidentiality agreements with us. Those agreements provide that all confidential information developed or made known to the individual during the course of the relationship with us is to be kept confidential and not to be disclosed to third parties, except in specific circumstances. Any such agreement may not provide meaningful protection for our trade secrets or other confidential information in the event of unauthorized use or disclosure of such information.

If third parties on which we rely for clinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our product candidates.

We do not have the ability to independently conduct the clinical trials required to obtain regulatory approval for our product candidates. We depend on independent clinical investigators and, in some cases, contract research organizations and other third-party service providers to conduct the clinical trials of our product candidates and expect to continue to do so. We rely heavily on these parties for successful execution of our clinical trials and we do not control many aspects of their activities. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA and corresponding foreign regulatory authorities require us and our clinical investigators to comply with regulations and standards, commonly referred to as good clinical practices, for conducting and recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Third parties may not complete activities on schedule or may not conduct our clinical trials in accordance with regulatory requirements or the respective trial plans and protocols. The failure of these third parties to carry out their obligations could delay or prevent the development, approval and commercialization of our product candidates or result in enforcement action against us.

Our products may result in product liability exposure, and it is uncertain whether our insurance coverage will be sufficient to cover any claims.

The use of our product candidates in clinical trials and for commercial applications, if any, may expose us to liability claims, in the event such product candidates cause injury or disease, or result in adverse effects. These claims could be made directly by health care institutions, contract laboratories, patients or others using such products. Although we have obtained liability insurance coverage for our ongoing clinical trials, this coverage may not be in amounts sufficient to protect us from any product liability claims or product recalls which could have a material adverse effect on our financial condition and prospects. Further, adverse product and similar liability claims could negatively impact our ability to obtain or maintain regulatory approvals for our technology and product candidates under development.

Our products are subject to extensive government regulation, which results in uncertainties and delays in the progress of our products through the clinical trial process.

Our research and development activities, preclinical testing and clinical trials, and the manufacturing and marketing of our products are subject to extensive regulation by numerous governmental authorities in the United States and other countries. Preclinical testing and clinical trials and manufacturing and marketing of our products are and will continue to be subject to the rigorous testing and approval requirements and standards of the FDA and other corresponding foreign regulatory authorities. Clinical testing and the regulatory review process generally take many years and require the expenditure of substantial resources. In addition, delays or rejections may be encountered during the period of product development, clinical testing and FDA regulatory review of each submitted application. Similar delays may also be encountered in foreign countries. Even after such time and expenditures, regulatory approval may not be obtained for any potential products developed by us, and a potential product, if approved in one country, may not be approved in other countries. Moreover, even if regulatory approval of a potential product is granted, such approval may impose significant limitations on the indicated uses for which that product may be marketed. Further, even if such regulatory approval is obtained, a marketed product, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections, and later discovery of previously unknown problems, such as undiscovered side effects, or manufacturing problems, may result in restrictions on such product, manufacturer or facility, including a possible withdrawal of the product from the market. Failure to comply with the applicable regulatory requirements can, among other things, result in fines, suspensions of regulatory approvals, product recalls, operating restrictions, injunctions and criminal prosecution. Moreover, continued cost control initiatives by third party health care payers, including government programs such as Medicare may affect the financial ability and willingness of patients and their health care providers to utilize certain therapies which, in turn, could have a material adverse effect on us.

We have no manufacturing capacity, and we have relied and expect to continue to rely on third-party manufacturers to produce our product candidates.

We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates or any of the compounds that we are testing in our preclinical programs, and we lack the resources and the capabilities to do so. As a result, we currently rely, and we expect to rely in the future, on third-party manufacturers to supply our product candidates. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates or products ourselves, including:

• reliance on the third party for manufacturing process development, regulatory compliance and quality assurance;

• limitations on supply availability resulting from capacity and scheduling constraints of the third party;

• The possible breach of the manufacturing agreement by the third party because of factors beyond our control; and

• The possible termination or non-renewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.

If we do not maintain or develop important manufacturing relationships, we may fail to find replacement manufacturers or develop our own manufacturing capabilities which could delay or impair our ability to obtain regulatory approval for our products and substantially increase our costs or deplete profit margins, if any. If we do find replacement manufacturers, we may not be able to enter into agreements with them on terms and conditions favorable to us, and there could be a substantial delay before new facilities could be qualified and registered with the FDA and foreign regulatory authorities.

The FDA and foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding foreign regulators also inspect these facilities to confirm compliance with current good manufacturing practices, or cGMPs. Contract manufacturers may face manufacturing or quality control problems causing drug substance production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements or other FDA and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our product candidates and market our products after approval.

Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop our product candidates and commercialize any products that receive regulatory approval on a timely basis.

Our restated certificate of incorporation, our amended and restated by-laws, our stockholder rights agreement and Delaware law could defer a change of our management which could discourage or delay offers to acquire us.

Certain provisions of Delaware law and of our restated certificate of incorporation, as amended, and amended and restated by-laws could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in their best interests or the best interests of OXiGENE. Further, the rights issued under the stockholder rights agreement would cause substantial dilution to a person or group that attempts to acquire us on terms not approved in advance by our Board of Directors.

The uncertainty associated with pharmaceutical reimbursement and related matters may adversely affect our business.

Upon the marketing approval of any one or more of our products, if at all, sales of our products will depend significantly on the extent to which reimbursement for our products and related treatments will be available from government health programs, private health insurers and other third-party payers. Third-party payers and governmental health programs are increasingly attempting to limit and/or regulate the price of medical products and services. The MMA, as well as other changes in governmental or in private third-party payers’ reimbursement policies, may reduce or eliminate any currently expected reimbursement. Decreases in third-party reimbursement for our products could reduce physician usage of the product and have a material adverse effect on our product sales, results of operations and financial condition.

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009. This law provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate any policies for public or private payers, it is not clear what, if any, effect the research will have on the sales of our products if any such product or the condition that it is intended to treat is the subject of a study. Decreases in third-party reimbursement for our products or a decision by a third-party payer to not cover our products could reduce physician usage of the product and have a material adverse effect on our product sales, results of operations and financial condition.

The price of our common stock is volatile, and is likely to continue to fluctuate due to reasons beyond our control.

The market price of our common stock has been, and likely will continue to be highly volatile. Factors, including our or our competitors’ financial results, clinical trial and research development announcements and government regulatory action affecting our potential products in both the United States and foreign countries, have had, and may continue to have, a significant effect on our results of operations and on the market price of our common stock. We cannot assure you that your investment in our common stock will not fluctuate significantly. One or more of these factors could significantly harm our business and cause a decline in the price of our common stock in the public market. Substantially all of the shares of our common stock issuable upon exercise of outstanding options have been registered for sale and may be sold from time to time hereafter. Such sales, as well as future sales of our common stock by existing stockholders, or the perception that sales could occur, could adversely affect the market price of our common stock. The price and liquidity of our common stock may also be significantly affected by trading activity and market factors related to the NASDAQ and Stockholm Stock Exchange markets, which factors and the resulting effects may differ between those markets. In order to remain in good standing with both The NASDAQ Global Market and NASDAQ OMX, we must meet the continued listing requirements of these exchanges, which include minimum stockholders’ equity, market value of listed securities or total assets and revenue and minimum bid price of our common stock, among others. There can be no assurance that we will continue to meet the ongoing listing requirements and that our commons stock will remain eligible to be traded on these exchanges.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

On May 28, 2009, the Company held its Annual Meeting of Stockholders (the “Meeting”). On April 9, 2009, the record date for the Meeting, there were 46,231,325 shares of outstanding common stock of the Company that could be voted at the Meeting. A total of 34,876,004 shares were present, in person or by proxy, and voted at the Meeting. At the Meeting, all nominees for director, were elected by plurality of the votes cast, as follows:


	FOR		Withheld Authority
Name of Director	Number of Shares		Number of Shares

Roy Hampton Fickling		33,810,611		1,065,393

Mark Kessel		33,830,515		1,045,489

John Kollins		33,816,859		1,059,145

Arthur Laffer, Ph.D.		33,477,389		1,398,615

William D. Schwieterman, M.D.		33,829,920		1,046,084

William N. Shiebler		33,687,416		1,188,588

Alastair J. J. Wood M.D.		33,828,761		1,047,243

In addition, the proposals to approve an amendment to the Company’s Restated Certificate of Incorporation to increase the authorized number of shares of the Company’s common stock from 100,000,000 to 150,000,000 (Proposal 2); to approve an amendment to the Company’s Restated Certificate of Incorporation to provide for 15,000,000 authorized shares of preferred stock that may be issued from time to time by the Board of Directors in one or more series (Proposal 3); to approve an amendment to the Company’s Restated Certificate of Incorporation to effect a reverse stock split of the Company’s common stock at a ratio in the range of 1:2 to 1:10, such ratio to be determined by the Board of Directors (Proposal 4); to approve amendments to the OXiGENE, Inc. 2005 Stock Plan (Proposal 5); to approve the OXiGENE, Inc. 2009 Employee Stock Purchase Plan (Proposal 6); and to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2009 (Proposal 7) passed with the following votes:


	FOR		Against		Abstain
Proposals	Number of Shares		Number of Shares		Number of Shares

Proposal 2		31,877,235		2,328,176		670,589
Proposal 3		24,158,498		1,352,818		519,617
Proposal 4		31,470,092		2,732,655		673,254
Proposal 5		24,314,791		1,155,946		560,186

Proposal 6		23,631,527		1,865,317		534,079
Proposal 7		33,996,704		266,158		613,132

Item 5. Other Information

On May 28, 2009, at the annual meeting of stockholders, the stockholders of the Company approved amendments to the OXiGENE, Inc. 2005 Stock Plan (the “Plan”). The amendments to the Plan, unanimously approved by the Company’s Board of Directors on March 2, 2009, (i) increase from 2,500,000 to 7,500,000 the number of shares of OXiGENE common stock available for issuance under the Plan, which number includes such number of shares of common stock, if any, that were subject to awards under the Company’s 1996 Stock Incentive Plan as of the date of adoption of the 2005 Stock Plan but which became or will become unissued upon the cancellation, surrender or termination of such awards and (ii) increase from 250,000 to 750,000 the number of shares that may be granted under the Plan to any participant in any fiscal year.

Item 6. Exhibits

3.1		Certificate of Amendment to the Company’s Restated Certificate of Incorporation, dated June 2, 2009.

10.1		OXiGENE, Inc. 2005 Stock Plan, as amended. Filed as Appendix B to the Company’s Proxy Statement on Schedule 14A on April 7, 2009 and incorporated herein by reference.

10.2		OXiGENE, Inc. Employee Stock Purchase Plan. Filed as Appendix C to the Company’s Proxy Statement on Schedule 14A on April 7, 2009 and incorporated herein by reference.

10.3		Separation Agreement between the Company and Patricia Walicke, dated as of June 10, 2009. Filed as an exhibit to the Company’s Current Report on Form 8-K on June 12, 2009 and incorporated herein by reference.

10.4		Employment Agreement between the Company and Peter Langecker, dated as of June 10, 2009. Filed as an exhibit to the Company’s Current Report on Form 8-K on June 17, 2009 and incorporated herein by reference.

31.1		Certification of Principal Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	OXiGENE, INC. (Registrant)
Date: August 13, 2009	By:	/s/ John A. Kollins
		John A. Kollins
		Chief Executive Officer



Date: August 13, 2009	By:	/s/ James B. Murphy
		James B. Murphy
		Vice President and Chief Financial Officer

EXHIBIT INDEX


Exhibit
Number		Description

3.1		Certificate of Amendment to the Company’s Restated Certificate of Incorporation, dated June 2, 2009.

10.1		OXiGENE, Inc. 2005 Stock Plan, as amended. Filed as Appendix B to the Company’s Proxy Statement on Schedule 14A on April 7, 2009 and incorporated herein by reference.

10.2		OXiGENE, Inc. Employee Stock Purchase Plan. Filed as Appendix C to the Company’s Proxy Statement on Schedule 14A on April 7, 2009 and incorporated herein by reference.

10.3		Separation Agreement between the Company and Patricia Walicke, dated as of June 10, 2009. Filed as an exhibit to the Company’s Current Report on Form 8-K on June 12, 2009 and incorporated herein by reference.

10.4		Employment Agreement between the Company and Peter Langecker, dated as of June 10, 2009. Filed as an exhibit to the Company’s Current Report on Form 8-K on June 17, 2009 and incorporated herein by reference.

31.1		Certification of Principal Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Oncotelic Therapeutics, Inc. - Quarter Report: 2009 June (Form 10-Q)

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