REGENERX BIOPHARMACEUTICALS INC - Quarter Report: 2011 March (Form 10-Q)

 

 

Securities and Exchange Commission

Washington, DC 20549

FORM 10-Q

þ		Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

o		Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 001-15070

RegeneRx Biopharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware		52-1253406
(State of Incorporation)		(IRS Employer I.D. Number)

15245 Shady Grove Road
Suite 470
Rockville, Maryland 20850

(301) 208-9191

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 during the preceding 12 months (or for 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 definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):

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

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

79,860,282 shares of common stock, par value $0.001 per share, were outstanding as of May 10, 2011.

 

 

RegeneRx Biopharmaceuticals, Inc.
Form 10-Q
Quarterly Period Ended March 31, 2011

Index

		Page No.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets at March 31, 2011 (unaudited) and December 31, 2010			3
Statements of Operations for the three months ended March 31, 2011 and 2010 (unaudited)			4
Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited)			5
Notes to Financial Statements (unaudited)			6-11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 3. Quantitative and Qualitative Disclosures About Market Risk			20
Item 4 Controls and Procedures			20
Part II. Other Information
Item 1. Legal Proceedings			20
Item 1A. Risk Factors			20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			38
Item 3. Defaults Upon Senior Securities			38
Item 4. Reserved			39
Item 5. Other Information			39
Item 6. Exhibits			39-41
Signatures			42
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Part I — Financial Information

Item 1.		Financial Statements

RegeneRx Biopharmaceuticals, Inc.

		March 31,				December 31,
		2011				2010
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	3,909,804			$	3,790,352
Grant receivable			3,845				10,703
Prepaid expenses and other current assets			218,267				384,806
Total current assets			4,131,916				4,185,861
Property and equipment, net of accumulated depreciation of $110,450 and $107,907			23,481				24,940
Other assets			11,503				17,255
Total assets		$	4,166,900			$	4,228,056
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	314,697			$	185,643
Accrued expenses			372,923				430,996
Total current liabilities			687,620				616,639
Commitments			—				—
Stockholders’ equity
Preferred stock, $.001 par value per share, 1,000,000 shares authorized; no shares issued			—				—
Common stock, par value $.001 per share, 200,000,000 shares authorized; 79,860,282 issued and outstanding as of March 31, 2011; 73,531,578 issued and outstanding as of December 31, 2010			79,860				73,532
Additional paid-in capital			94,521,105				93,063,201
Accumulated deficit			(91,121,685	)			(89,525,316	)
Total stockholders’ equity			3,479,280				3,611,417
Total liabilities and stockholders’ equity		$	4,166,900			$	4,228,056

The accompanying notes are an integral part of these financial statements.

RegeneRx Biopharmaceuticals, Inc.

(unaudited)

		Three Months ended March 31,
		2011				2010
Sponsored research revenue		$	602,457			$	—
Operating expenses:
Research and development			1,514,785				470,434
General and administrative			685,059				678,068
Total operating expenses			2,199,844				1,148,502
Loss from operations			(1,597,387	)			(1,148,502	)
Interest income			1,018				2,793
Net loss		$	(1,596,369	)		$	(1,145,709	)
Basic and diluted net loss per common share		$	(0.02	)		$	(0.02	)
Weighted average number of common shares outstanding			79,438,368				60,406,828

The accompanying notes are an integral part of these financial statements.

RegeneRx Biopharmaceuticals, Inc.

(unaudited)

		For the Three Months ended March 31,
		2011				2010
Operating activities:
Net loss		$	(1,596,369	)		$	(1,145,709	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			2,543				3,273
Non-cash share-based compensation			65,617				131,844
Gain on settlement of accrued liabilities			—				(141,016	)
Changes in operating assets and liabilities:
Grants receivable			6,858				—
Prepaid expenses and other current assets			166,539				(28,620	)
Other assets			5,752				5,693
Accounts payable			129,054				37,512
Accrued expenses			(58,073	)			(10,531	)
Net cash used in operating activities			(1,278,079	)			(1,147,554	)
Investing activities:
Purchase of property and equipment			(1,084	)			(18,224	)
Net cash used in investing activities			(1,084	)			(18,224	)
Financing activities:
Net proceeds from the issuance of common stock			1,398,615				—
Net cash provided by financing activities			1,398,615				—
Net increase (decrease) in cash and cash equivalents			119,452				(1,165,778	)
Cash and cash equivalents at beginning of period			3,790,352				4,355,768
Cash and cash equivalents at end of period		$	3,909,804			$	3,189,990

The accompanying notes are an integral part of these financial statements.

RegeneRx Biopharmaceuticals, Inc.

1. organization, business overview and basis of presentation

Organization and Nature of Operations.

RegeneRx Biopharmaceuticals, Inc. (“RegeneRx”, the “Company”, “We”, “Us”, “Our”), a Delaware corporation, was incorporated in 1982. We are focused on the discovery and development of novel molecules to accelerate tissue and organ repair. Our operations are confined to one business segment: the development and marketing of product candidates based on Thymosin Beta 4 (“Tß4”), an amino acid peptide.

Management Plans to Address Operating Conditions.

We have incurred net losses of $5.0 million for the years ended December 31, 2010 and $1.6 million for the three months ended March 31, 2011. Since inception, and through March 31, 2011, we have an accumulated deficit of $91.1 million and we had cash and cash equivalents of $3.9 million as of March 31, 2011. On January 5, 2011 and January 7, 2011, we raised aggregate net proceeds of $1.4 million from the sale of our securities (See Note 6, Stockholders’ Equity). Given the uncertainties surrounding if or when the U.S. Food and Drug Administration’s clinical hold on our Phase 2 trial to evaluate RGN-352 in patients suffering from an acute myocardial infarction will be removed, and our limited financial resources, we have put the Phase 2 trial on hold pending resolution of the regulatory issues and access to sufficient capital resources and are focusing our current efforts on the development of RGN-259 for ophthalmic indications. Based on our current operating plan, which includes designing and commencing a Phase 2 trial to evaluate RGN-259 in patients suffering from dry eye, support of a separate physician-sponsored Phase 2 trial to evaluate RGN-259 in patients suffering from dry eye, and completing a Phase 2 trial to evaluate RGN-137 in patients suffering from epidermolysis bullosa, or EB, we project that our existing capital resources would fund our operations into the fourth quarter of 2011, without giving effect to any other financing activities, including any purchases under our recent committed equity facility with Lincoln Park Capital (See Note 6, Stockholders’ Equity).

We anticipate incurring additional losses in the future as we continue to explore the potential clinical benefits of Tß4-based product candidates over multiple indications. We will need substantial additional funds in order to initiate any further preclinical studies or clinical trials, and to fund our operations beyond the fourth quarter of 2011. Accordingly, we have a need for financing and are in the process of exploring various alternatives, including, without limitation, a public or private placement of our securities, debt financing or corporate collaboration and licensing arrangements or the sale of our company or certain of our intellectual property rights.

These factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements have been prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of our liabilities in the normal course of business.

Although we intend to continue to seek additional financing or a strategic partner, we may not be able to complete a financing or corporate transaction, either on favorable terms or at all. If we are unable to complete a financing or strategic transaction, we may not be able to continue as a going concern after our funds have been exhausted, and we could be required to significantly curtail or cease operations, file for bankruptcy or liquidate and dissolve. There can be no assurance that we will be able to obtain any sources of funding. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be forced to take any such actions.

In addition to our current operational requirements, we expect to continue to expend substantial funds to complete our planned product development efforts. Additionally, we continually refine our operating strategy and evaluate alternative clinical uses of Tß4. However, substantial additional resources will be needed before we will be able to achieve sustained profitability. Consequently, we continually evaluate alternative sources of financing such as the sharing of development costs through strategic collaboration agreements. There can be no assurance that our financing efforts will be successful, and if we are not able to obtain sufficient levels of financing, we would delay certain clinical and/or research activities, and our financial condition would be materially and adversely affected. Even if we are able to obtain sufficient funding, other factors including competition, dependence on third parties, uncertainty regarding patents, protection of proprietary rights, manufacturing of peptides and technology obsolescence could have a significant impact on us and our operations.

To achieve profitability we must successfully conduct pre-clinical studies and clinical trials, obtain required regulatory approvals and successfully manufacture and market those pharmaceuticals we wish to commercialize. The time required to reach profitability is highly uncertain, and there can be no assurance that we will be able to achieve sustained profitability, if at all.

Basis of Presentation. The accompanying unaudited interim financial statements reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. These statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the rules and regulations of the SEC, for interim financial statements. Accordingly, they do not include all of the information and footnotes required by GAAP. The accounting policies underlying our unaudited interim financial statements are consistent with those underlying our audited annual financial statements. These unaudited interim financial statements should be read in conjunction with the audited annual financial statements as of and for the year ended December 31, 2010, and related notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2010 (the “Annual Report”).

The accompanying December 31, 2010 financial information was derived from our audited financial statements included in the Annual Report. Operating results for the three-month period ended March 31, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011 or any other future period.

References in this Quarterly Report on Form 10-Q to “authoritative guidance” are to the Accounting Standards Codification issued by the Financial Accounting Standards Board (“FASB”) in June 2009.

Subsequent events have been evaluated through the filing date of these unaudited financial statements.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Critical accounting policies involved in applying our accounting policies are those that require management to make assumptions about matters that are highly uncertain at the time the accounting estimate was made and those for which different estimates reasonably could have been used for the current period. Critical accounting estimates are also those which are reasonably likely to change from period to period, and would have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. Our most critical accounting estimates relate to accounting policies for clinical trial accruals and share-based arrangements. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances. Actual results could differ from those estimates.

Sponsored Research Revenues.

We account for non-refundable grants as “Sponsored research revenues” in the accompanying statements of operations. Revenues are recognized when persuasive evidence of an arrangement exists, the associated research or other services have been performed, the related underlying costs are incurred, the contract price is fixed or determinable and collectibility is reasonably assured.

Research and Development.

Research and development (“R&D”) costs are expensed as incurred and include all of the wholly-allocable costs associated with our various clinical programs passed through to us by our outsourced vendors. Those costs include: manufacturing Tß4; formulation of Tß4 into the various product candidates; stability for both Tß4 and the various formulations; pre-clinical toxicology; safety and pharmacokinetic studies; clinical trial management; medical oversight; laboratory evaluations; statistical data analysis; regulatory compliance; quality assurance; and other related activities. R&D includes cash and non-cash compensation, employee benefits, travel and other miscellaneous costs of our internal R&D personnel, seven persons in total, who are wholly dedicated to R&D efforts. R&D also includes a pro-ration of our common infrastructure costs for office space and communications.

Cost of Preclinical Studies and Clinical Trials.

We accrue estimated costs for preclinical studies based on estimates of work performed. We estimate expenses incurred for clinical trials that are in process based on patient enrollment and based on clinical data collection and management. Costs based on clinical data collection and management are recognized based on estimates of unbilled goods and services received in the reporting period. We monitor the progress of the trials and their related activities and adjust the accruals accordingly. Adjustments to accruals are charged to expense in the period in which the facts that give rise to the adjustment become known. In the event of early termination of a clinical trial, we would accrue an amount based on estimates of the remaining non-cancelable obligations associated with winding down the clinical trial.

Recent Accounting Pronouncements.

For a discussion of recent accounting pronouncements please refer to Note 2 “Summary of Significant Accounting Policies—Recent Accounting Pronouncements” in the Annual Report. We did not adopt any new accounting pronouncements during the three months ended March 31, 2011 that had a material impact on our financial statements.

2. Net Loss per Common Share

Net loss per common share for the three-month periods ended March 31, 2011 and 2010, respectively, is based on the weighted-average number of shares of common stock outstanding during the periods. Basic and diluted loss per share are identical for all periods presented as potentially dilutive securities have been excluded from the calculation of the diluted net loss per common share because the inclusion of such securities would be antidilutive. The potentially dilutive securities include 20,879,931 shares and 12,847,963 shares for the three months ended March 31, 2011 and 2010, respectively, reserved for the exercise of outstanding options and warrants.

3. Stock-Based Compensation

We measure stock-based compensation expense based on the grant date fair value of the awards which is then recognized over the period which service is required to be provided. We estimate the value of our stock option awards on the date of grant using the Black-Scholes option pricing model and amortize that cost over the expected term of the grant. We recognized $65,617 and $131,844 in stock-based compensation expense for the three months ended March 31, 2011 and 2010, respectively. We expect to recognize the compensation cost related to non-vested options as of March 31, 2011 of $268,587 over the weighted average remaining recognition period of 1.25 years.

We did not grant any stock options during the three months ended March 31, 2011 and 2010.

4. Income Taxes

As of March 31, 2011, there have been no material changes to our uncertain tax positions disclosures as provided in Note 8 of the Annual Report. We do not anticipate that total unrecognized tax benefits will significantly change prior to March 31, 2012.

5. Fair Value Measurements

The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

•

Level 1 — Quoted prices in active markets for identical assets and liabilities.

•

Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities.

•

Level 3 — Unobservable inputs.

At March 31, 2011, we held no qualifying liabilities, and our only qualifying assets that required measurement under the foregoing fair value hierarchy were money market funds and U.S. Treasury Bills included in Cash and Cash Equivalents valued at $3.9 million, using Level 1 inputs.

6. Stockholders’ Equity

On January 4, 2011 and January 5, 2011, we, entered into two purchase agreements and a registration rights agreement with Lincoln Park Capital Fund, LLC, an Illinois limited liability company (“LPC”). In addition to the agreements entered into with LPC, on January 5, 2011, we entered into securities purchase agreements for a private placement with affiliates of Sigma-Tau Group, our largest stockholder.

Purchase Agreements with Lincoln Park Capital Fund, LLC

On January 5, 2011, we entered into a securities purchase agreement with LPC, pursuant to which we sold in a registered direct offering 1,851,852 shares of our common stock to LPC at a price per share of $0.27, for gross proceeds of $500,000 before offering expenses (the “Registered Offering”). As part of the Registered Offering, we also issued to LPC, for no additional consideration, a warrant to purchase 740,741 shares of common stock at an exercise price of $0.38 per share (the “LPC Warrant”). Subject to certain ownership limitations, the LPC Warrant will be exercisable beginning on July 7, 2011 and will expire on January 7, 2016. The exercise price of the LPC Warrant is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions. The warrants were valued using the Black-Scholes option-pricing model as of the closing date and accounted for in permanent equity. The estimated fair value of the warrants at the date of issuance was approximately $65,000.

The Registered Offering was made pursuant to an S-3 shelf registration statement on (SEC File No. 333-150675), which was declared effective by the SEC on May 16, 2008, pursuant to a prospectus supplement filed with the SEC on January 7, 2011.

The Registered Offering closed on January 7, 2011. No discounts or placement agent fees are payable in connection with the Registered Offering, and the Company expects to use the proceeds from the Registered Offering for preclinical and clinical development of the Company’s drug candidates and for general corporate purposes, including working capital.

On January 4, 2011, we and LPC also entered into a committed equity facility (the “LPC Equity Facility”), together with a Registration Rights Agreement (the “Registration Rights Agreement”), whereby we have the right to sell to LPC up to $11,000,000 of our common stock over a 30-month period (any such shares sold being referred to as the “Purchase Shares”). Under the Registration Rights Agreement, we filed a registration statement related to the transaction with the SEC covering the Purchase Shares and the Additional Commitment Shares (as defined below), which was declared by the SEC on February 11, 2011. We will generally have the right, but not the obligation, over a 30-month period, to direct LPC to periodically purchase the Purchase Shares in specific amounts under certain conditions. The purchase price for the Purchase Shares will be the lower of (i) the lowest trading price on the date of sale or (ii) the arithmetic average of the three lowest closing sale prices for the common stock during the 12 consecutive business days ending on the business day immediately preceding the purchase date. In no event, however, will the Purchase Shares be sold to LPC at a price of less than $0.15 per share.

In consideration for entering into the LPC Equity Facility, we issued to LPC 958,333 shares of common stock as an initial commitment fee (the “Initial Commitment Shares”) and are required to issue up to 958,333 shares of common stock as additional commitment shares on a pro rata basis (the “Additional Commitment Shares”) as we direct LPC to purchase our shares under the Equity Facility over the term of the agreement. The LPC Equity Facility may be terminated by us at any time at our discretion without any cost to us. The proceeds that may be received by us under the LPC Equity Facility are expected to be used for preclinical and clinical development of our drug candidates and for general corporate purposes, including working capital.

Under the LPC Equity Facility, we have agreed that, subject to certain exceptions, we will not, during the term of the LPC Equity Facility, effect or enter into an agreement to effect any issuance of common stock or securities convertible into, exercisable for or exchangeable for common stock in a “Variable Rate Transaction,” which means a transaction in which we:

• issue or sell any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of common stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of common stock at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to our business or the market for the common stock; or

• enter into any agreement, including, but not limited to, an equity line of credit, whereby we may sell securities at a future determined price.

We have also agreed to indemnify LPC against certain losses resulting from our breach of any of our representations, warranties or covenants under the agreements with LPC.

Purchase Agreements with Affiliates of Sigma-Tau Group

On January 5, 2011, we entered into three separate securities purchase agreements (each, a “Sigma-Tau Purchase Agreement” and together, the “Sigma-Tau Purchase Agreements”) with affiliates of Sigma-Tau Group, our largest stockholder (the “Sigma-Tau Purchasers”), with respect to the private placement (the “Private Placement”) of an aggregate of 3,518,519 shares of common stock (the “Sigma-Tau Shares”) at a price per share of $0.27, for gross proceeds of $950,000. No discounts or placement agent fees are payable in connection with the Private Placement, and we intend to use the net proceeds of the Private Placement for working capital and other general corporate purposes.

In connection with the Private Placement, we also issued to the Sigma-Tau Purchasers warrants (the “Sigma-Tau Warrants”) to purchase an aggregate of 1,407,407 additional shares of common stock at an exercise price of $0.38 per share. The Sigma-Tau Warrants will be exercisable beginning on July 7, 2011 and will expire on January 7, 2016. The exercise price of the Sigma-Tau Warrants is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions. The Private Placement closed on January 7, 2011. The warrants were valued using the Black-Scholes option-pricing model as of the closing date and accounted for in permanent equity. The estimated fair value of the warrants at the date of issuance was approximately $124,000.

Warrant Amendment Agreement with Affiliates of Sigma-Tau Group

In connection with the Private Placement, on January 5, 2011, we and the Sigma-Tau Purchasers entered into an agreement (the “Warrant Amendment”) to amend the terms of certain outstanding warrants held by the holders of such warrants (the “Holders”). Under the Warrant Amendment, all outstanding warrants held by the Holders that were issued between March 2006 and December 2008, exercisable for an aggregate of 3,046,453 shares of Common Stock and with exercise prices between $1.60 per share and $4.06 per share, were amended to reduce their exercise prices to $0.38 per share and to extend their expiration dates to December 31, 2011. The Black-Scholes option-pricing model was used to value the warrant amendment as of the closing date, which was accounted for in permanent equity. The estimated fair value of the warrant amendment was approximately $40,000.

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

This Quarterly Report on Form 10-Q, including this Part I., Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding us and our business, financial condition, results of operations and prospects within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the words “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “will,” “may” or other similar expressions. In addition, any statements that refer to projections of our future financial performance, our clinical development programs and schedules, our future capital resources and funding requirements, our anticipated growth and trends in our business and other characterizations of future events or circumstances are forward-looking statements. We cannot guarantee that we will achieve the plans, intentions or expectations expressed or implied in our forward-looking statements. There are a number of important factors that could cause actual results, levels of activity, performance or events to differ materially from those expressed or implied in the forward-looking statements we make, including those described under “Risk Factors” set forth below in Part II., Item 1A. In addition, any forward-looking statements we make in this document speak only as of the date of this report, and we do not intend to update any such forward-looking statements to reflect events or circumstances that occur after that date.

Business Overview

We are a biopharmaceutical company focused on the development of a novel therapeutic peptide, Thymosin beta 4, or Tß4, for tissue and organ protection, repair, and regeneration. We have formulated Tß4 into three distinct product candidates currently in clinical development:

• RGN-259, a topical eye drop for regeneration of corneal tissues damaged by injury, disease or other pathology;

• RGN-352, an injectable product candidate to treat cardiovascular diseases, central nervous system diseases, and other medical indications that may be treated by systemic administration; and

• RGN-137, a topically applied gel for dermal wounds and reduction of scar tissue.

We have a fourth product candidate, RGN-457, in preclinical development. RGN-457 is an inhaled formulation of Tß4 targeting cystic fibrosis and other pulmonary diseases.

We are continuing strategic partnership discussions with biotechnology and pharmaceutical companies regarding the further clinical development of all of our product candidates.

In addition to our four pharmaceutical product candidates, we are also pursuing the commercial development of peptide fragments and derivatives of Tß4 for potential cosmeceutical use. These fragments are amino acid sequences, and variations thereof, within the Tß4 molecule that have demonstrated activity in several in vitro preclinical research studies that we have sponsored. We believe the biological activities of these fragments may be useful, for example, in developing novel cosmeceutical products for the anti-aging market. Our strategy is to collaborate with another company to develop cosmeceutical formulations based on these peptides.

Development of Product Candidates

RGN-259

We recently reported that in a second dry eye study conducted by Ora, Inc. using their Preclinical CAE^SM Murine (mouse) Model, four active concentrations of RGN-259 were compared to three control groups, consisting of a negative control (vehicle) and two positive controls (doxycycline and Restasis™). The mice were treated for a total period of ten days following the inducement of moderate, and then severe, dry eye. In the moderate dry eye phase of the study, after six days of treatment, two concentrations of RGN-259 showed a statistically significant reduction in corneal fluorescein staining, a method used to determine the extent of damage to the cornea, which returned to near baseline (normal) levels. At this stage of the study, RGN-259 reduced corneal staining more than both positive controls, and the reduction with RGN-259 was statistically significant compared to treatment with doxycycline. After inducement of severe dry eye in the same mice, treatment continued for four additional days and RGN-259 again showed a statistically significant reduction in corneal staining compared to both the negative control and Restasis™. RGN-259 also reduced corneal staining more than doxycycline, although it was not statistically significant.

This study confirms and expands upon a previous study that also showed a statistically significant reduction of corneal staining back to near baseline levels in a similar animal model. We believe these two dry eye animal studies, along with previous positive results in humans that showed the ability of RGN-259 to repair non-healing corneal ulcers, with no observed adverse safety events, provide a solid foundation to support clinical development of this product candidate. As such, we have contracted with Ora, Inc. to manage a Phase 2 clinical trial with RGN-259 in dry eye patients, which we expect to be conducted during the second half of 2011, with data to be reported by the end of the year.

Separately, we are continuing to support a small physician-sponsored clinical trial in patients with dry eye, in order to evaluate RGN-259’s ability to repair and regenerate damaged ophthalmic tissues in a heterogeneous group of patients. Our support includes manufacturing and supplying RGN-259 for the trial and providing regulatory and clinical guidance.

RGN-352

During 2009, we completed a Phase 1 clinical trial evaluating the safety of RGN-352 in 60 healthy subjects. Based on the results of this Phase 1 trial and extensive preclinical efficacy data published in peer-reviewed journals, we had taken steps to initiate a Phase 2 clinical trial to evaluate RGN-352’s ability to salvage and regenerate damaged cardiac tissue and improve cardiac function after an acute myocardial infarction, or AMI, commonly known as a heart attack. We were scheduled to begin enrolling patients near the end of the first quarter of 2011, but in March 2011 we were notified by the FDA that the trial had been placed on clinical hold pending the resolution of certain compliance issues at the contract manufacturer supplying RGN-352. Based on available information, we are unable to estimate the length of time that the trial will be on clinical hold. The clinical hold is limited to Good Manufacturing Practices at the contract manufacturer and is not related to the manufacture of Tß4 peptide, safety of RGN-352, the trial protocol or our clinical development plan, nor does it affect any of our other clinical trials or drug candidates.

In light of the recent positive data from animal studies using our ophthalmic drug candidate RGN-259 discussed above, the uncertainties surrounding if or when the FDA’s clinical hold on our Phase 2 AMI trial will be lifted, and our limited financial resources, we have put the Phase 2 AMI trial on hold pending resolution of the regulatory issues and access to sufficient capital resources and are focusing our current efforts on the development of RGN-259 for ophthalmic indications.

Preclinical research published in the scientific journals Neuroscience and the Journal of Neurosurgery indicates that RGN-352 may also prove useful for patients with multiple sclerosis, or MS, as well as stroke and traumatic brain injury. In these studies, the administration of Tß4 resulted in regeneration of neuronal tissue and improvement of neurological function.

Based on this preclinical research, depending on our resources, and if regulatory issues regarding our current supply of RGN-352 are resolved or we are able to separately procure cGMP-compliant clinical trial material, we may also support a proposed physician-sponsored Phase 1/2 clinical trial to be conducted at a major U.S. medical center to evaluate the therapeutic potential of RGN-352 in patients with MS. We are planning to supply RGN-352 and provide clinical and regulatory guidance for the trial, which we currently estimate will commence in early 2012.

RGN-137

We are evaluating the use of RGN-137 in the treatment of patients with epidermolysis bullosa, or EB, which is a genetic defect that results in fragile skin and other epithelial tissues that can blister at the slightest trauma or friction, creating a wound that at times does not heal or heals poorly. A portion of this trial was funded by a grant from the FDA. Despite the small patient population with EB, we continue to enroll patients in this Phase 2 trial and will close enrollment in the trial by the end of 2011. Once we complete our Phase 2 EB trial, we will analyze the data in conjunction with our two other completed Phase 2 trials of RGN-137, along with preclinical data indicating Tß4’s ability to reduce scarring, at which time we will further evaluate our strategy for the clinical development of RGN-137.

Financial Operations Overview

We intend to use our existing capital resources to fund our ongoing research and development activities; however, we may not be able to complete all of our active trials and those we intend to initiate or support in 2011 and 2012 without additional funding. We project that our existing capital resources will be sufficient to support our operations into the fourth quarter of 2011, without giving effect to any other financing activities, including any sales of our common stock to Lincoln Park Capital, or LPC, under our committed equity facility described in this report.

We have never generated product revenues, and we do not expect to generate product revenues until the FDA approves one of our product candidates, if ever, and we begin marketing and selling it. Subject to the availability of financing, we expect to invest increasingly significant amounts in the furtherance of our current clinical programs and may add additional nonclinical studies and new clinical trials as we explore the potential of our current product candidates in other indications and explore new formulations of Tß4-based product candidates. As we expand our clinical development initiatives, we expect to incur substantial and increasing losses. Accordingly, we will need to generate significant product revenues in order to ultimately achieve and then maintain profitability. Also, we expect that we will need to raise substantial additional capital in order to meet product development requirements. We cannot assure investors that such capital will be available when needed, on acceptable terms, or at all.

Most of our expenditures to date have been for research and development, or R&D, activities and general and administrative, or G&A, activities. R&D costs include all of the wholly-allocable costs associated with our various clinical programs passed through to us by our outsourced vendors. Those costs include manufacturing Tß4 and peptide fragments, formulation of Tß4 into our product candidates, stability studies for both Tß4, and the various formulations, preclinical toxicology, safety and pharmacokinetic studies, clinical trial management, medical oversight, laboratory evaluations, statistical data analysis, regulatory compliance, quality assurance and other related activities. R&D includes cash and non-cash compensation, employee benefits, travel and other miscellaneous costs of our internal R&D personnel, seven persons in total, who are wholly dedicated either on a full or part-time basis to R&D efforts. R&D also includes a proration of our common infrastructure costs for office space and communications. We expense our R&D costs as they are incurred.

R&D expenditures are subject to the risks and uncertainties associated with clinical trials and the FDA review and approval process. As a result, these expenses could exceed our expectations, possibly materially. We are uncertain as to what we will incur in future research and development costs for our clinical studies, as these amounts are subject to the outcome of current studies, management’s continuing assessment of the economics of each individual research and development project and the internal competition for project funding. As described below under “Sources of Liquidity,” in May 2010 we were awarded a grant from the National Institutes of Health, or NIH, to support the development of RGN-352. Subject to our compliance with the terms and conditions of the grant, we are eligible to receive up to $3.0 million over a three-year period in cost reimbursements related to the purposes set forth in the grant.

G&A costs include outside professional fees for legal, business development, audit and accounting services. G&A also includes cash and non-cash compensation, employee benefits, travel and other miscellaneous costs of our internal G&A personnel, three in total, who are wholly dedicated to G&A efforts. G&A also includes a proration of our common infrastructure costs for office space, and communications. Our G&A expenses also include costs to maintain our intellectual property portfolio. We have expanded our patent prosecution activities and have been reviewing our pending patent applications in the United States, Europe and other countries with the advice of outside legal counsel. In some cases, we have filed patent applications for non-critical strategic purposes intended to prevent others from filing similar patent claims. We continue to closely monitor our patent applications to determine if they will continue to provide strategic benefits. In cases where we believe the benefit has been realized or it becomes unnecessary due to the issuance of other patents, or for other reasons that will not affect the strength of our intellectual property portfolio, we will abandon these patent applications in order to reduce our costs of prosecution.

Critical Accounting Policies

In Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 31, 2010, which was filed with the SEC on March 31, 2011, which we refer to as the Annual Report, we included a discussion of the most significant accounting policies and estimates used in the preparation of our financial statements. There has been no material change in the policies and estimates used in the preparation of our financial statements since the filing of our Annual Report.

Results of Operations

Comparison of the three months ended March 31, 2011 and 2010

Revenues. For the three months ended March 31, 2011, grant revenue was approximately $602,000 compared to $0 for the same period in 2010. In May 2010, we were awarded a grant from NIH’s National Heart Lung & Blood Institute (“NHLBI”). This grant was for $1 million per year for three years. During the three months ended March 31, 2011, we recognized approximately $602,000 in revenue based on costs incurred related to this grant. There were no revenue-generating grants or other sources of revenue during the same period in 2010.

R&D Expenses. For the three months ended March 31, 2011, our R&D expenses increased by approximately $1.0 million, or 222%, to $1.5 million from approximately $470,000 for the same period in 2010. The increase was primarily the result of two new activities in 2011 that were not active during the first quarter of 2010. During the three months ended March 31, 2011, we were actively working towards the initiation of our Phase 2 clinical trials evaluating RGN-352 in AMI patients, and commissioned the manufacturing of additional Tß4 for clinical trials. In total, these two activities accounted for the full increase in R&D expenses of $1.0 million.

G&A Expenses. For the three months ended March 31, 2011, our G&A expenses increased by approximately $7,000, or 1%, to approximately $685,000, from approximately $678,000 for the same period in 2010. There were no significant changes in G&A activities between the two periods.

Liquidity and Capital Resources

Overview

We have not commercialized any of our product candidates to date and have incurred significant losses since inception. We have primarily financed our operations through the issuance of common stock and common stock warrants in private and public financings, although as discussed below we have recently been awarded a government grant and intend to apply for additional federal cash grants and tax credits. The report of our independent registered public accounting firm regarding our financial statements for the year ended December 31, 2010 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our history of net losses and dependence on future financing in order to meet our planned operating activities.

We incurred net losses of $5.0 million and $1.6 million for the year ended December 31, 2010 and the three months ended March 31, 2011, respectively. We had cash and cash equivalents totaling $3.9 million and $3.8 million at March 31, 2011 and December 31, 2010, respectively. As of March 31, 2011, we had an accumulated deficit of $91.1 million. We intend to maintain tight cost controls and continue to operate under a closely monitored budget approved by the Board of Directors until sufficient funding is obtained to enable expanded research activities. Based on our current operations and planned clinical development initiatives, we believe our cash resources will be adequate to fund our operations into the fourth quarter of 2011, without considering any potential sales of our common stock to LPC or any other sources of capital. Accordingly, we continue to have a need for financing, which we may not be able to complete either on favorable terms or at all.

Cash Flows for the Three Months Ended March 31, 2011 and 2010

Our net cash used in operating activities was approximately $1.3 million and $1.1 million for the three months ended March 31, 2011 and 2010, respectively. In both periods, the net cash used in operating activities was primarily the result of our net losses during the periods. Included in these net losses were non-cash expenses related to employee stock compensation and depreciation of $68,000 and $135,000 for the three months ended March 31, 2011 and 2010, respectively. Also included in the net loss for the three months ended March 31, 2010 was a $141,000 non-cash gain upon the settlement of accrued liabilities. Finally, changes in working capital resulted in net cash inflows of approximately $250,000 during the three months ended March 31, 2011, as opposed to net cash inflows of approximately $4,000 for the same period in 2010, During the three months ended March 31, 2011, we spent approximately $1,000 for the purchase of furniture and equipment, which was our only investing activity during the period, as compared with purchases of furniture and equipment of approximately $18,000 for the same period in 2010. During the three months ended March 31, 2011, we raised net proceeds from the sale of equity securities of approximately $1.4 million, with no financing activities during the same period in 2010.

Future Funding Requirements

The expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources. Currently, we are actively enrolling patients in one Phase 2 trial, for RGN-137 in EB patients, supporting a small physician-sponsored study of RGN-259, and preparing to initiate a Phase 2 study of RGN-259. We had intended to commence patient enrollment in a Phase 2 clinical trial of RGN-352 for AMI patients near the end of the first quarter of 2011, but this trial has been placed on clinical hold by the FDA pending resolution of certain manufacturing compliance issues at our contract manufacturer. In light of recent positive data in animal studies with RGN-259, the uncertainties surrounding if or when the clinical hold on our Phase 2 AMI trial will be lifted, and our limited financial resources, we have put the AMI trial on hold pending resolution of the regulatory issues and access to sufficient capital resources and are focusing our current efforts on the development of RGN-259 for ophthalmic indications.

Even with this change in our clinical development priorities, we currently do not have sufficient capital resources to continue clinical development beyond the fourth quarter of 2011 without additional capital. As described below, we have access to a committed equity facility with LPC, but our ability to draw on the facility is subject to a number of limitations, including our stock price, as described in “Risk Factors—Risks Related to Our Liquidity and Need for Financing—We may not be able to access the full amounts available under the LPC committed equity facility.” Therefore, even if we were able to sell shares of our common stock under the LPC facility, based on our current stock price the amount of proceeds we would be able to raise would not extend our capital resources significantly beyond the fourth quarter of 2011.

In addition, the length of time required for clinical trials varies substantially according to the type, complexity, novelty and intended use of a product candidate. Some of the factors that could impact our liquidity and capital needs include, but are not limited to:

	•		the progress of our clinical trials;
	•		the progress of our research activities;
	•		the number and scope of our research programs;
	•		the progress of our preclinical development activities;
	•		the costs involved in preparing, filing, prosecuting, maintaining, enforcing and defending patent and other intellectual property claims;
	•		the costs related to development and manufacture of preclinical, clinical and validation lots for regulatory purposes and commercialization of drug supply associated with our product candidates;
	•		our ability to enter into corporate collaborations and the terms and success of these collaborations;
	•		the costs and timing of regulatory approvals; and
	•		the costs of establishing manufacturing, sales and distribution capabilities.

In addition, the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol, including, among others, the following:

	•		the number of patients that ultimately participate in the trial;
	•		the duration of patient follow-up that seems appropriate in view of the results;
	•		the number of clinical sites included in the trials; and
	•		the length of time required to enroll suitable patient subjects.

Also, we test our potential product candidates in numerous preclinical studies to identify indications for which they may be product candidates. We may conduct multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain product candidates or for certain indications in order to focus our resources on more promising product candidates or indications.

Our proprietary product candidates also have not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our clinical data establish safety and efficacy. Historically, the results from preclinical studies and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.

In addition to our obligations under clinical trials, we are committed under an office space lease through January 2013 that requires average base rental payments of approximately $7,300 per month.

Sources of Liquidity

We have not commercialized any of our product candidates to date and have primarily financed our operations through the issuance of common stock and common stock warrants in private and public financings. Our largest stockholder group, which we refer to as Sigma-Tau, has historically provided significant equity capital to us, including private placements of $950,000 in January 2011 and $1.6 million in October 2009. In January 2011, we also raised $500,000 from a registered direct offering of our securities to LPC. During the first half of 2010, we raised approximately $4.5 million from an underwritten public offering of our securities, and during 2009, we raised approximately $3.7 million from a registered direct offering of our securities.

In January 2011, we also entered into a committed equity facility with LPC. We have an effective registration statement for the resale by LPC of the common stock issuable under the facility. If and when we being making draws under the facility, over approximately 30 months thereafter, we will have the right but not the obligation to direct LPC to purchase up to 200,000 shares of common stock every two business days at a purchase price calculated by reference to the prevailing market price of our common stock without any fixed discount, subject to the floor price of $0.15 per share. We may sell up to $11,000,000 worth of shares under the facility, although based on our current stock price we would not be able to access the full amounts available under the facility. There are no trading volume requirements or restrictions under the facility, and we will control the timing and amount of any sales of our common stock to LPC. Our ability to sell our shares to LPC is also subject to our obtaining all necessary consents, amendments or waivers as may be required, and subject to the shares to be sold having been registered for resale. LPC has no right to require any sales by us, but is obligated to make purchases from us as we direct in accordance with the facility. We can also accelerate the amount of common stock to be purchased under certain circumstances. There are no limitations on use of proceeds, financial or business covenants, restrictions on future funding, rights of first refusal, participation rights, penalties or liquidated damages. We may terminate the facility at any time, in our discretion, without any penalty or cost to us.

We are also party to a license agreement with Sigma-Tau that provides the opportunity for us to receive milestone payments upon specified events and royalty payments in connection with commercial sales of Tß4 in Europe. However, we have not received any milestone payments to date, and there can be no assurance that we will be able to attain such milestones and generate any such payments under the agreement.

We are also aggressively pursuing government funding and in May 2010 were awarded a grant from the NIH’s National Heart, Lung and Blood Institute to support the requisite nonclinical development of RGN-352 for patients who have suffered a heart attack. These nonclinical activities are being conducted in parallel with our pending Phase 2 clinical trial of RGN-352. Subject to our compliance with the terms and conditions of the grant, we are eligible to receive up to $3.0 million over a three-year period in cost reimbursements for our associated costs incurred for the purposes set forth in the grant. Revenue from the grant will be recorded during the same periods when we incur eligible expenses.

The Patient Protection and Affordable Care Act enacted in 2010 included a new incentive for biotechnology companies like ours, known as the Qualifying Therapeutic Discovery Project grant program. Under this program, small businesses were able to apply for a federal grant in an amount equal to 50% of their eligible investment in qualifying therapeutic discovery projects for 2009 and 2010. Qualifying therapeutic discovery projects included those designed to treat or prevent diseases or conditions by conducting pre-clinical or clinical activities for the purpose of securing FDA approval of a product. We submitted three applications, covering each of our clinical-stage product candidates, and in October 2010 were awarded an aggregate of $733,438 under this program.

Additionally, the U.S. government is evaluating RGN-259, our sterile eye drop formulation, in animals exposed to chemical warfare agents. We believe our other formulations may also be of interest in healing damaged tissues for indications that result from battlefield or homeland security situations. As such, we have engaged a consulting firm to help us identify other sources of funding from U.S. government agencies. There can be no assurance, however, that we will be able to secure additional funds from the U.S. government or other governmental sources.

Other potential sources of outside capital include entering into strategic business relationships, additional issuances of equity securities or debt financing or other similar financial instruments. If we raise additional capital through a strategic business relationship, we may have to give up valuable rights to our intellectual property. If we raise funds by selling additional shares of our common stock or securities convertible into our common stock, the ownership interest of our existing stockholders may be significantly diluted. In addition, if additional funds are raised through the issuance of preferred stock or debt securities, these securities are likely to have rights, preferences and privileges senior to our common stock and may involve significant fees, interest expense, restrictive covenants and the granting of security interests in our assets.

Our failure to successfully address ongoing liquidity requirements would have a materially negative impact on our business, including the possibility of surrendering our rights to some technologies or product opportunities, delaying our clinical trials, or ceasing operations. There can be no assurance that we will be able to obtain additional capital in sufficient amounts, on acceptable terms, or at all.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as such term is defined in Item 303(a)(4) of Regulation S-K.

Item 3.		Quantitative and Qualitative Disclosures About Market Risk.

Our cash equivalents, which are generally comprised of Federally-insured bank deposits, are subject to default, changes in credit rating and changes in market value. These investments are also subject to interest rate risk and will decrease in value if market interest rates increase. As of March 31, 2011, these cash equivalents were $3.9 million. Due to the short-term nature of these investments, if market interest rates differed by 10% from their levels as of March 31, 2011, the change in fair value of our financial instruments would not have been material.

Item 4.		Controls and Procedures

a) Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of March 31, 2011. Based upon this evaluation, management has concluded that, as of March 31, 2011, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified under applicable rules of the SEC, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

b) Changes in Internal Controls

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II — Other Information

Item 1.		Legal Proceedings

None.

Item 1A.		Risk Factors

Set forth below and elsewhere in this report and in other documents we file with the SEC are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. The descriptions below include any material changes to and supersede the description of the risk factors affecting our business previously disclosed in “Part II, Item 1A. Risk Factors” of the Annual Report.

Risks Related to Our Liquidity and Need for Financing

Before giving effect to any potential sales of our securities, we estimate that our existing capital resources will only be sufficient to fund our operations into the fourth quarter of 2011.

We intend to use our existing capital resources to fund our ongoing research and development activities; however, we may not be able to complete all of our active trials and those we intend to initiate and support in 2011 and 2012 without additional funding. We project that our existing capital resources will support our operations into the fourth quarter of 2011, without giving effect to any other financing activities, including any purchases under a committed equity facility that we recently entered into with Lincoln Park Capital, as described below.

Our 2011 research initiatives include commencing a Phase 2 clinical trial in patients with dry eye using RGN-259, supporting a small physician-sponsored clinical trial in patients with dry eye by providing RGN-259 for the trial and regulatory and clinical guidance, and completing our ongoing Phase 2 trial of RGN-137 in patients with EB. We had previously begun a Phase 2 clinical trial in the second half of 2010 to evaluate our product candidate RGN-352’s ability to salvage and regenerate damaged cardiac tissue and improve cardiac function after an AMI. We were scheduled to begin enrolling patients near the end of the first quarter of 2011, but in March 2011 we were notified by the FDA that the trial had been placed on clinical hold pending the resolution of compliance issues at our contract manufacturer. In light of the recent positive data in animal studies with RGN-259, the uncertainties surrounding if or when the clinical hold on our Phase 2 AMI trial will be lifted, and our limited financial resources, we have put the AMI trial on hold pending resolution of the regulatory issues and access to sufficient capital resources and are focusing our current efforts on the development of RGN-259 for ophthalmic indications.

Depending on our resources, and if regulatory issues with RGN-352 are resolved, we may also continue to support a proposed physician-sponsored Phase 1/2 clinical trial to evaluate the therapeutic potential of RGN-352 in patients with multiple sclerosis, which we currently estimate will commence in 2012.

In January 2011, we entered into a committed equity facility with Lincoln Park Capital, or LPC, under which we may direct LPC to purchase up to $11,000,000 worth of shares of our common stock over a 30-month period. If we make sales of our common stock under the facility, we would be able to fund our operations for a longer period of time. However, the extent to which we will rely on the facility as a source of funding will depend on a number of factors, including the prevailing market price of our common stock and volume of trading and the extent to which we are able to secure working capital from other sources. Specifically, LPC does not have the obligation to purchase any shares of our common stock on any business day that the price of our common stock is less than $0.15 per share.

We have registered the resale of 15,000,000 shares by LPC. In the event we elect to issue more than 15,000,000 shares, we would be required to file a new registration statement and have it declared effective by the SEC. If obtaining sufficient funding from LPC does not occur or is prohibitively dilutive, we will need to secure another source of funding in order to satisfy our working capital needs. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect on our business, operating results, financial condition and prospects.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this report. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.

We may not be able to access the full amounts available under the LPC committed equity facility.

Under the facility with LPC, we may direct LPC to purchase up to $11,000,000 worth of shares of our common stock over a 30-month period, generally in amounts of up to 200,000 shares every two business days. LPC does not have the right or the obligation to purchase any shares of our common stock on any business day that the market price of our common stock is less than $0.15. The amount we can sell under the facility may be increased to 400,000 shares every two business days as long as the closing sale price of our common stock is not below $0.35 per share on the purchase date.

Depending on the prevailing market price of our common stock, we may not be able to sell shares to LPC for the maximum $11,000,000 over the term of the facility. If the market price of our common stock is less than $0.35 per share, our sales will be limited to 200,000 shares on each purchase date. At the minimum price of $0.15 per share, we would be able to sell 200,000 shares for proceeds of $30,000 on each purchase date. Assuming that we sold shares to LPC ten times each month, we would receive $300,000 in proceeds per month, or $9,000,000 over the term of the facility. In the event that we make less frequent sales to LPC, the aggregate proceeds available to us will be even less.

In addition, we have only registered 15,000,000 shares of our common stock for sale to LPC. Assuming a purchase price of $0.20 per share, the closing sale price of our common stock on May 11, 2011, and the issuance to LPC of 15,000,000 shares, which would be comprised of 14,743,113 shares purchased at $0.20 per share and 256,887 shares issued as additional pro rata commitment shares for no additional consideration, the proceeds to us would only be $2.9 million. In the event we elect to issue more than 15,000,000 shares, we would be required to file a new registration statement and have it declared effective by the SEC before selling such additional shares.

In addition to our current development objectives, we will need substantial additional capital for the continued development of product candidates through marketing approval and for our longer-term future operations.

Beyond our current liquidity needs, we anticipate that substantial new capital resources will be required to continue our longer-term independent product development efforts, including any and all follow-on trials that will result from our current clinical programs beyond those currently contemplated, and to scale up manufacturing processes for our product candidates. We may be able to obtain funding under the committed equity facility with LPC in order to further some of these efforts. However, the actual amount of funds that we will need will be determined by many factors, some of which are beyond our control. These factors include, without limitation:

•		the scope of our clinical trials, which is significantly influenced by the quality of clinical data achieved as trials are completed and the requirements established by regulatory authorities;
•		the speed with which we complete our clinical trials, which depends on our ability to attract and enroll qualifying patients and the quality of the work performed by our clinical investigators;
•		the time required to prosecute, enforce and defend our intellectual property rights, which depends on evolving legal regimes and infringement claims that may arise between us and third parties;

•		the ability to manufacture at scales sufficient to supply commercial quantities of any of our product candidates that receive regulatory approval, which may require levels of effort not currently anticipated; and
•		the successful commercialization of our product candidates, which will depend on our ability to either create or partner with an effective commercialization organization and which could be delayed or prevented by the emergence of equal or more effective therapies.

Emerging biotechnology companies like us may raise capital through corporate collaborations and by licensing intellectual property rights to other biotechnology or pharmaceutical enterprises. We intend to pursue this strategy, but there can be no assurance that we will be able to license our intellectual property or product development programs on commercially reasonable terms, if at all. There are substantial challenges and risks that will make it difficult to successfully implement any of these alternatives. If we are successful in raising additional capital through such a license or collaboration, we may have to give up valuable rights to our intellectual property. In addition, the business priorities of a strategic partner may change over time, which creates the possibility that the interests of the strategic partner in developing our technology may diminish and could have a potentially material negative impact on the value of our interest in the licensed intellectual property or product candidates.

Further, if we raise additional funds by selling shares of our common stock or securities convertible into our common stock, including under our committed equity facility with LPC, the ownership interest of our existing stockholders may be significantly diluted. If additional funds are raised through the issuance of preferred stock or debt securities, these securities are likely to have rights, preferences and privileges senior to our common stock and may involve significant fees, interest expense, restrictive covenants or the granting of security interests in our assets.

Our failure to successfully address long-term liquidity requirements would have a material negative impact on our business, including the possibility of surrendering our rights to some technologies or product opportunities, delaying our clinical trials or ceasing our operations.

We have incurred losses since inception and expect to incur significant losses in the foreseeable future and may never become profitable.

We have not commercialized any product candidates to date and incurred net operating losses every year since our inception in 1982. We believe these losses will continue for the foreseeable future, and may increase, as we pursue our product development efforts related to Tß4. As of March 31, 2011, our accumulated deficit totaled approximately $91.1 million.

As we expand our research and development efforts and seek to obtain regulatory approval of our product candidates to make them commercially viable, we anticipate substantial and increasing operating losses. Our ability to generate additional revenues and to become profitable will depend largely on our ability, alone or through the efforts of third-party licensees and collaborators, to efficiently and successfully complete the development of our product candidates, obtain necessary regulatory approvals for commercialization, scale-up commercial quantity manufacturing capabilities either internally or through third-party suppliers, and market our product candidates. There can be no assurance that we will achieve any of these objectives or that we will ever become profitable or be able to maintain profitability. Even if we do achieve profitability, we cannot predict the level of such profitability. If we sustain losses over an extended period of time and are not otherwise able to raise necessary funds to continue our development efforts and maintain our operations, we may be forced to cease operations.

Our common stock is quoted on the over-the-counter market, which subjects us to the SEC’s penny stock rules and may decrease the liquidity of our common stock.

Our common stock is traded over-the-counter on the OTC Bulletin Board. Over-the-counter markets are generally considered to be less efficient than, and not as broad as, a stock exchange. There may be a limited market for our stock now that it is quoted on the OTC Bulletin Board, trading in our stock may become more difficult and our share price could decrease. Specifically, you may not be able to resell your shares of common stock at or above the price you paid for such shares or at all.

In addition, our ability to raise additional capital may be impaired because of the less liquid nature of the over-the-counter markets. While we cannot guarantee that we would be able to complete an equity financing on acceptable terms, or at all, we believe that dilution from any equity financing while our shares are quoted on an over-the-counter market would likely be substantially greater than if we were to complete a financing while our common stock is traded on a national securities exchange. Further, we are unable to use short-form registration statements on Form S-3 for the registration of our securities, which could impair our ability to raise additional capital as needed.

Our common stock is also subject to penny stock rules, which impose additional sales practice requirements on broker-dealers who sell our common stock. The SEC generally defines “penny stock” as an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The ability of broker-dealers to sell our common stock and the ability of our stockholders to sell their shares in the secondary market will be limited and, as a result, the market liquidity for our common stock will likely be adversely affected. We cannot assure you that trading in our securities will not be subject to these or other regulations in the future.

The report of our independent registered public accounting firm contains explanatory language that substantial doubt exists about our ability to continue as a going concern.

The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2010 contains explanatory language that substantial doubt exists about our ability to continue as a going concern, without raising additional capital. We estimate that our existing capital resources, without giving effect to any proceeds that we may receive from sales of our securities to LPC or otherwise, will only be sufficient to fund our operations into the fourth quarter of 2011. If we are unable to obtain sufficient financing in the near term, then we would, in all likelihood, experience severe liquidity problems and may have to curtail our operations. If we curtail our operations, we may be placed into bankruptcy or undergo liquidation, the result of which will adversely affect the value of our common shares.

Risks Related to Our Business and Operations

Our pending Phase 2 clinical trial of RGN-352 was recently placed on clinical hold by the FDA and we are unsure when, if ever, we will be able to resume this trial.

In the second half of 2010, we began a phase 2 clinical trial to evaluate RGN-352 in patients who have suffered an acute myocardial infarction, or AMI. We had planned to begin enrolling patients near the end of the first quarter of 2011. However, in March 2011, we were notified by the FDA that the trial was placed on clinical hold as a result of our contract manufacturer’s alleged failure to comply with Good Manufacturing Practices. Ultimately, the FDA could prohibit us from using any of the active drug or placebo manufactured by our manufacturer, which would require us to either have new material manufactured by the manufacturer, in the event that the FDA’s concerns are addressed, or we would be required to identify a new manufacturer. In the event a new manufacturer is needed, significant preparatory time and procedures would be required before the new manufacturer would be able to manufacture RGN-352 for the AMI trial. Since we are unable to estimate the length of time that the trial will be on clinical hold, or to determine whether a new manufacturer will ultimately be needed, we have elected to temporarily cease activities on this trial until the FDA clinical hold is resolved and the requisite funding might be secured. Consequently, there can be no assurance that we will be able to timely resume or complete this trial, if at all.

All of our drug candidates are based on a single compound that has yet to be proven effective in human subjects.

Our current primary business focus is the development of Tß4, and its analogues, derivatives and fragments, for the improvement of cardiac function, the acceleration of corneal healing, the treatment of non-healing wounds and other conditions. Unlike many pharmaceutical companies that have a number of unique chemical entities in development, we are dependent on a single molecule, formulated for different routes of administration and different clinical indications, for our potential commercial success. As a result, any common safety or efficacy concerns for Tß4-based products that cross formulations would have a much greater impact on our business prospects than if our product pipeline were more diversified.

We may never be able to commercialize our product candidates.

Although Tß4 has shown biological activity in in vitro and animal models, we cannot assure you that our product candidates will exhibit activity or importance in humans. Our drug candidates are still in research and development, and we do not expect them to be commercially available for the foreseeable future, if at all. Only a small number of research and development programs ultimately result in commercially successful drugs. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons. These include the possibility that the potential products may:

	•		be found ineffective or cause harmful side effects during preclinical studies or clinical trials;
	•		fail to receive necessary regulatory approvals;
	•		be precluded from commercialization by proprietary rights of third parties;
	•		be difficult to manufacture on a large scale; or
	•		be uneconomical or otherwise fail to achieve market acceptance.

If any of these potential problems occurs, we may never successfully market Tß4-based products.

We are subject to intense government regulation, and we may not receive regulatory approvals for our drug candidates.

Our product candidates will require regulatory approvals prior to sale. In particular, therapeutic agents are subject to stringent approval processes, prior to commercial marketing, by the FDA and by comparable agencies in most foreign countries. The process of obtaining FDA and corresponding foreign approvals is costly and time-consuming, and we cannot assure you that such approvals will be granted. Also, the regulations we are subject to change frequently and such changes could cause delays in the development of our product candidates.

Three of our drug candidates are currently in the clinical stage, and we cannot be certain that we or our collaborators will successfully complete the clinical trials necessary to receive regulatory product approvals. The regulatory approval process is lengthy, unpredictable and expensive. To obtain regulatory approvals in the United States, we or a collaborator must ultimately demonstrate to the satisfaction of the FDA that our product candidates are sufficiently safe and effective for their proposed administration to humans. Many factors, known and unknown, can adversely impact clinical trials and the ability to evaluate a product candidate’s safety and efficacy, including:

	•		the FDA or other health regulatory authorities, or institutional review boards, or IRBs, do not approve a clinical trial protocol or place a clinical trial on hold;
	•		suitable patients do not enroll in a clinical trial in sufficient numbers or at the expected rate, for reasons such as the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the perceptions of investigators and patients regarding safety, and the availability of other treatment options;
	•		clinical trial data is adversely affected by trial conduct or patient withdrawal prior to completion of the trial;
	•		there may be competition with ongoing clinical trials and scheduling conflicts with participating clinicians;
	•		patients experience serious adverse events, including adverse side effects of our drug candidates, for a variety of reasons that may or may not be related to our product candidates, including the advanced stage of their disease and other medical problems;
	•		patients in the placebo or untreated control group exhibit greater than expected improvements or fewer than expected adverse events;
	•		third-party clinical investigators do not perform the clinical trials on the anticipated schedule or consistent with the clinical trial protocol and good clinical practices, or other third-party organizations do not perform data collection and analysis in a timely or accurate manner;
	•		service providers, collaborators or co-sponsors do not adequately perform their obligations in relation to the clinical trial or cause the trial to be delayed or terminated;
	•		we are unable to obtain a sufficient supply of manufactured clinical trial materials;
	•		regulatory inspections of manufacturing facilities, which may, among other things, require us or a co-sponsor to undertake corrective action or suspend the clinical trials, such as the recent clinical hold with respect to our pending Phase 2 clinical trial of RGN-352;
	•		the interim results of the clinical trial are inconclusive or negative;
	•		the clinical trial, although approved and completed, generates data that is not considered by the FDA or others to be sufficient to demonstrate safety and efficacy; and
	•		changes in governmental regulations or administrative actions affect the conduct of the clinical trial or the interpretation of its results.

There can be no assurance that our clinical trials will in fact demonstrate, to the satisfaction of the FDA and others, that our product candidates are sufficiently safe or effective. The FDA or we may also restrict or suspend our clinical trials at any time if either believes that we are exposing the subjects participating in the trials to unacceptable health risks.

Clinical trials for product candidates such as ours are often conducted with patients who have more advanced forms of a particular condition or other unrelated conditions. For example, in clinical trials for our product candidate RGN-137, we have studied patients who are not only suffering from chronic epidermal wounds but who are also older and much more likely to have other serious adverse conditions. During the course of treatment with our product candidates, patients could die or suffer other adverse events for reasons that may or may not be related to the drug candidate being tested. Further, and as a consequence that all of our drug candidates are based on Tß4, crossover risk exists such that a patient in one trial may be adversely impacted by one drug candidate, and that adverse event may have implications for our other trials and other drug candidates. However, even if unrelated to our product candidates, such adverse events can nevertheless negatively impact our clinical trials, and our business prospects would suffer.

These factors, many of which may be outside of our control, may have a negative impact on our business by making it difficult to advance product candidates or by reducing or eliminating their potential or perceived value. As a consequence, we may need to perform more or larger clinical trials than planned. Further, if we are forced to contribute greater financial and clinical resources to a study, valuable resources will be diverted from other areas of our business. If we fail to complete or if we experience material delays in completing our clinical trials as currently planned, or we otherwise fail to commence or complete, or experience delays in, any of our other present or planned clinical trials, including as a result of the actions of third parties upon which we rely for these functions, our ability to conduct our business as currently planned could materially suffer.

We may not successfully establish and maintain development and testing relationships with third-party service providers and collaborators, which could adversely affect our ability to develop our product candidates.

We have only limited resources, experience with and capacity to conduct requisite testing and clinical trials of our drug candidates. As a result, we rely and expect to continue to rely on third-party service providers and collaborators, including corporate partners, licensors and contract research organizations, or CROs, to perform a number of activities relating to the development of our drug candidates, including the design and conduct of clinical trials, and potentially the obtaining of regulatory approvals. For example, we currently rely on several third-party contractors to manufacture and formulate Tß4 into the product candidates used in our clinical trials, develop assays to assess Tß4’s effectiveness in complex biological systems, recruit clinical investigators and sites to participate in our trials, manage the clinical trial process and collect, evaluate and report clinical results.

We may not be able to maintain or expand our current arrangements with these third parties or maintain such relationships on favorable terms. Our agreements with these third parties may also contain provisions that restrict our ability to develop and test our product candidates or that give third parties rights to control aspects of our product development and clinical programs. In addition, conflicts may arise with our collaborators, such as conflicts concerning the interpretation of clinical data, the achievement of milestones, the interpretation of financial provisions or the ownership of intellectual property developed during the collaboration. If any conflicts arise with our existing or future collaborators, they may act in their self-interest, which may be adverse to our best interests. Any failure to maintain our collaborative agreements and any conflicts with our collaborators could delay or prevent us from developing our product candidates. We and our collaborators may fail to develop products covered by our present and future collaborations if, among other things:

	•		we do not achieve our objectives under our collaboration agreements;
	•		we or our collaborators are unable to obtain patent protection for the products or proprietary technologies we develop in our collaborations;

	•		we are unable to manage multiple simultaneous product development collaborations;
	•		our collaborators become competitors of ours or enter into agreements with our competitors;
	•		we or our collaborators encounter regulatory hurdles that prevent commercialization of our product candidates; or
	•		we develop products and processes or enter into additional collaborations that conflict with the business objectives of our other collaborators.

We also have less control over the timing and other aspects of our clinical trials than if we conducted the monitoring and supervision entirely on our own. Third parties may not perform their responsibilities for our clinical trials on our anticipated schedule or consistent with a clinical trial protocol or applicable regulations. We also rely on clinical research organizations to perform much of our data management and analysis. They may not provide these services as required or in a timely manner. If any of these parties do not meet deadlines or follow proper procedures, including procedures required by law, the preclinical studies and clinical trials may take longer than expected, may be delayed or may be terminated, which would have a materially negative impact on our product development efforts. If we were forced to find a replacement entity to perform any of our preclinical studies or clinical trials, we may not be able to find a suitable entity on favorable terms or at all. Even if we were able to find a replacement, resulting delays in the tests or trials may result in significant additional expenditures and delays in obtaining regulatory approval for drug candidates, which could have a material adverse impact on our results of operations and business prospects.

We are subject to intense competition from companies with greater resources and more mature products, which may result in our competitors developing or commercializing products before or more successfully than we do.

We are engaged in a business that is highly competitive. Research and development activities for the development of drugs to treat indications within our focus are being sponsored or conducted by private and public research institutions and by major pharmaceutical companies located in the United States and a number of foreign countries. Most of these companies and institutions have financial and human resources that are substantially greater than our own and they have extensive experience in conducting research and development activities and clinical trials and in obtaining the regulatory approvals necessary to market pharmaceutical products that we do not have. As a result, they may develop competing products more rapidly that are safer, more effective, or have fewer side effects, or are less expensive, or they may develop and commercialize products that render our product candidates non-competitive or obsolete.

With respect to our product candidate RGN-259, there are also numerous ophthalmic companies developing drugs for corneal wound healing and other outside-of-the-eye diseases and injuries. Amniotic membranes have been successfully used to treat corneal wounds in certain cases, as have topical steroids and antibacterial agents.

We have initially targeted our product candidate RGN-352 for cardiovascular indications. Most large pharmaceutical companies and many smaller biomedical companies are vigorously pursuing the development of therapeutics to treat patients after heart attacks and for other cardiovascular indications.

With respect to our product candidate RGN-137 for wound healing, Johnson & Johnson has previously marketed Regranex™ for this purpose in patients with diabetic foot ulcers. Other companies, such as Novartis, are developing and marketing artificial skins, which we believe could also compete with RGN-137. Moreover, wound healing is a large and highly fragmented marketplace attracting many companies, large and small, to develop products for treating acute and chronic wounds, including, for example, honey-based ointments, hyperbaric oxygen therapy, and low frequency cavitational ultrasound.

We are also developing potential cosmeceutical products, which are loosely defined as products that bridge the gap between cosmetics and pharmaceuticals, for example, by improving skin texture and reducing the appearance of aging. This industry is intensely competitive, with potential competitors ranging from large multinational companies to very small specialty companies. New cosmeceutical products often have a short product life and are frequently replaced with newer products developed to address the latest trends in appearance and fashion. We may not be able to adapt to changes in the industry as quickly as larger and more experienced cosmeceutical companies. Further, larger cosmetics companies have the financial and marketing resources to effectively compete with smaller companies like us in order to sell products aimed at larger markets.

Even if approved for marketing, our technologies and product candidates are unproven and they may fail to gain market acceptance.

Our product candidates, all of which are based on the molecule Tß4, are new and unproven and there is no guarantee that health care providers or patients will be interested in our product candidates, even if they are approved for use. If any of our product candidates are approved by the FDA, our success will depend in part on our ability to demonstrate sufficient clinical benefits, reliability, safety, and cost effectiveness of our product candidates relative to other approaches, as well as on our ability to continue to develop our product candidates to respond to competitive and technological changes. If the market does not accept our product candidates, when and if we are able to commercialize them, then we may never become profitable. Factors that could delay, inhibit or prevent market acceptance of our product candidates may include:

	•		the timing and receipt of marketing approvals;
	•		the safety and efficacy of the products;
	•		the emergence of equivalent or superior products;
	•		the cost-effectiveness of the products; and
	•		ineffective marketing.

It is difficult to predict the future growth of our business, if any, and the size of the market for our product candidates because the markets are continually evolving. There can be no assurance that our product candidates will prove superior to products that may currently be available or may become available in the future or that our research and development activities will result in any commercially profitable products.

We have no marketing experience, sales force or distribution capabilities. If our product candidates are approved, and we are unable to recruit key personnel to perform these functions, we may not be able to commercialize them successfully.

Although we do not currently have any marketable products, our ability to produce revenues ultimately depends on our ability to sell our product candidates if and when they are approved by the FDA and other regulatory authorities. We currently have no experience in marketing or selling pharmaceutical products, and we do not have a marketing and sales staff or distribution capabilities. Developing a marketing and sales force is also time-consuming and could delay the launch of new products or expansion of existing product sales. In addition, we will compete with many companies that currently have extensive and well-funded marketing and sales operations. If we fail to establish successful marketing and sales capabilities or fail to enter into successful marketing arrangements with third parties, our ability to generate revenues will suffer.

If we enter markets outside the United States our business will be subject to political, economic, legal and social risks in those markets, which could adversely affect our business.

There are significant regulatory and legal barriers to entering markets outside the United States that we must overcome if we seek regulatory approval to market our product candidates in countries other than the United States. We would be subject to the burden of complying with a wide variety of national and local laws, including multiple and possibly overlapping and conflicting laws. We also may experience difficulties adapting to new cultures, business customs and legal systems. Any sales and operations outside the United States would be subject to political, economic and social uncertainties including, among others:

	•		changes and limits in import and export controls;
	•		increases in custom duties and tariffs;
	•		changes in currency exchange rates;
	•		economic and political instability;
	•		changes in government regulations and laws;
	•		absence in some jurisdictions of effective laws to protect our intellectual property rights; and
	•		currency transfer and other restrictions and regulations that may limit our ability to sell certain product candidates or repatriate profits to the United States.

Any changes related to these and other factors could adversely affect our business if and to the extent we enter markets outside the United States.

Governmental and third-party payors may subject any product candidates we develop to sales and pharmaceutical pricing controls that could limit our product revenues and delay profitability.

The successful commercialization of our product candidates, if they are approved by the FDA, will likely depend on our ability to obtain reimbursement for the cost of the product and treatment. Government authorities, private health insurers and other organizations, such as health maintenance organizations, are increasingly seeking to lower the prices charged for medical products and services. Also, the trend toward managed health care in the United States, the growth of healthcare maintenance organizations, and recently enacted legislation reforming healthcare and proposals to reform government insurance programs could have a significant influence on the purchase of healthcare services and products, resulting in lower prices and reducing demand for our product candidates. The cost containment measures that healthcare providers are instituting and any healthcare reform could reduce our ability to sell our product candidates and may have a material adverse effect on our operations. We cannot assure you that reimbursement in the United States or foreign countries will be available for any of our product candidates, and that any reimbursement granted will be maintained, or that limits on reimbursement available from third-party payors will not reduce the demand for, or the price of, our product candidates. The lack or inadequacy of third-party reimbursements for our product candidates would decrease the potential profitability of our operations. We cannot forecast what additional legislation or regulation relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what effect the legislation or regulation would have on our business.

We have no manufacturing or formulation capabilities and are dependent upon third-party suppliers to provide us with our product candidates. If these suppliers do not manufacture our product candidates in sufficient quantities, at acceptable quality levels and at acceptable cost, or if we are unable to identify suitable replacement suppliers if needed, our clinical development efforts could be delayed, prevented or impaired.

We do not own or operate manufacturing facilities and have little experience in manufacturing pharmaceutical products. We currently rely, and expect to continue to rely, primarily on peptide manufacturers to supply us with Tß4 for further formulation into our product candidates. We have engaged three separate smaller drug formulation contractors for the formulation of clinical grade product candidates, one for each of our three product candidates in clinical development. We currently do not have an alternative source of supply for either Tß4 or the individual drug candidates. If these suppliers, together or individually, are not able to supply us with either Tß4 or individual product candidates on a timely basis, in sufficient quantities, at acceptable levels of quality and at a competitive price, or if we are unable to identify a replacement manufacturer to perform these functions on acceptable terms as needed, our development programs could be seriously jeopardized.

The risks of relying solely on single suppliers for each of our product candidates include:

•		the possibility that they may not be able to ensure quality and compliance with regulations relating to the manufacture of pharmaceuticals, as illustrated by the FDA’s recent determination that our contract manufacturer for RGN-352 was in non-compliance with current Good Manufacturing Practices;
•		their manufacturing capacity may not be sufficient or available to produce the required quantities of our product candidates based on our planned clinical development schedule, if at all;
•		they may not have access to the capital necessary to expand their manufacturing facilities in response to our needs;
•		commissioning replacement suppliers would be difficult and time-consuming;
•		individual suppliers may have used substantial proprietary know-how relating to the manufacture of our product candidates and, in the event we must find a replacement or supplemental supplier, our ability to transfer this know-how to the new supplier could be an expensive and/or time-consuming process;
•		an individual supplier may experience events, such as a fire or natural disaster, that force it to stop or curtail production for an extended period;
•		an individual supplier could encounter significant increases in labor, capital or other costs that would make it difficult for them to produce our products cost-effectively; or
•		an individual supplier may not be able to obtain the raw materials or validated drug containers in sufficient quantities, at acceptable costs or in sufficient time to complete the manufacture, formulation and delivery of our product candidates.

Our suppliers may use hazardous and biological materials in their businesses. Any claims relating to improper handling, storage or disposal of these materials could be time-consuming and costly to us, and we are not insured against such claims.

Our product candidates and processes involve the controlled storage, use and disposal by our suppliers of certain hazardous and biological materials and waste products. We and our suppliers and other collaborators are subject to federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. Even if we and these suppliers and collaborators comply with the standards prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that result, and we do not carry insurance for this type of claim. We may also incur significant costs to comply with current or future environmental laws and regulations.

We face the risk of product liability claims, which could adversely affect our business and financial condition.

We may be subject to product liability claims as a result of our testing, manufacturing, and marketing of drugs. In addition, the use of our product candidates, when and if developed and sold, will expose us to the risk of product liability claims. Product liability may result from harm to patients using our product candidates, such as a complication that was either not communicated as a potential side effect or was more extreme than anticipated. We require all patients enrolled in our clinical trials to sign consents, which explain various risks involved with participating in the trial. However, patient consents provide only a limited level of protection, and it may be alleged that the consent did not address or did not adequately address a risk that the patient suffered. Additionally, we will generally be required to indemnify our clinical product manufacturers, clinical trial centers, medical professionals and other parties conducting related activities in connection with losses they may incur through their involvement in the clinical trials.

Our ability to reduce our liability exposure for human clinical trials and commercial sales, if any, of Tß4 is dependent in part on our ability to obtain sufficient product liability insurance or to collaborate with third parties that have adequate insurance. Although we intend to obtain and maintain product liability insurance coverage if we gain approval to market any of our product candidates, we cannot guarantee that product liability insurance will continue to be available to us on acceptable terms, or at all, or that its coverage will be sufficient to cover all claims against us. A product liability claim, even one without merit or for which we have substantial coverage, could result in significant legal defense costs, thereby potentially exposing us to expenses significantly in excess of our revenues, as well as harm to our reputation and distraction of our management.

If any of our key employees discontinue their services with us, our efforts to develop our business may be delayed.

We are highly dependent on the principal members of our management team. The loss of our chairman and chief scientific advisor, Allan Goldstein, or our chief executive officer, J.J. Finkelstein, could prevent or significantly delay the achievement of our goals. We have employment agreements with Dr. Goldstein and Mr. Finkelstein. We cannot assure you that they, or other key employees, will not elect to terminate their employment. In addition, we do not maintain a key man life insurance policy with respect to Dr. Goldstein or Mr. Finkelstein. In the future, we anticipate that we may need to add additional management and other personnel. Competition for qualified personnel in our industry is intense, and our success will depend in part on our ability to attract and retain highly skilled personnel. We cannot assure you that our efforts to attract or retain such personnel will be successful.

Mauro Bove, a member of our Board, is also a director and officer of entities affiliated with Sigma-Tau, a relationship which could give rise to a conflict of interest involving Mr. Bove.

Mauro Bove, a member of our Board of Directors, is also a director and officer of entities affiliated with Sigma-Tau, which collectively make up our largest stockholder group. Sigma-Tau has provided us with significant funding, may continue doing so in the future, and is also our strategic partner in Europe with respect to the development of certain of our drug candidates. We have issued shares of common stock and common stock warrants to Sigma-Tau in several private placement financing transactions, including as recently as January 2011, but we retained the right to repurchase some of these shares under certain circumstances.

We have licensed certain rights to our product candidates generally for the treatment of dermal and internal wounds to Sigma-Tau. Under the license agreement, upon the completion of a Phase 2 clinical trial of either of these product candidates that yields positive results in terms of clinical efficacy and safety, Sigma-Tau is obligated to either make a $5 million milestone payment to us or to initiate and fund a pivotal Phase 3 clinical trial of the product candidate. In 2009, we completed two Phase 2 clinical trials of RGN-137 in the treatment of pressure ulcers and venous stasis ulcers. However, due to the lack of statistical significance of the reported efficacy results, these trials were not sufficient to trigger the milestone obligation described above. There can be no assurance that we will ever receive this payment or be able to initiate a pivotal Phase 3 clinical trial of RGN-137 that would be funded by Sigma-Tau. As a result of Mr. Bove’s relationship with Sigma-Tau, there could be a conflict of interest between Sigma-Tau and our other stockholders with respect to these and other agreements and circumstances that may require the exercise of the Board’s discretion with respect to Sigma-Tau. Any decision in the best interests of Sigma-Tau may not be in the best interest of our other stockholders.

Risks Related To Our Intellectual Property

We are heavily reliant on our license from the National Institutes of Health for the rights to Tß4, and any loss of these rights would adversely affect our business.

We have received an exclusive worldwide license to intellectual property discovered at the National Institutes of Health, or NIH, pertaining to the use of Tß4 in wound healing and tissue repair. The intellectual property rights from this license form the basis for our current commercial development focus with Tß4. This license terminates upon the last to expire of the patent applications that are filed, or any patents that may issue from such applications, in connection with the license. This license requires us to pay a minimum annual royalty to the NIH, regardless of the success of our product development efforts, plus certain other royalties upon the sale of products created by the intellectual property granted under the license. This license may be terminated for a number of reasons, including our non-payment of the royalty or lack of continued product development, among others. While to date we believe that we have complied with all requirements to maintain the license, the loss of this license would have a material adverse effect on our business and business prospects and may require us to cease development of our current line of Tß4-based product candidates.

If we are not able to maintain adequate patent protection for our product candidates, we may be unable to prevent our competitors from using our technology or technology that we license.

Our success will depend in substantial part on our ability to obtain, defend and enforce patents, maintain trade secrets and operate without infringing upon the proprietary rights of others, both in the United States and abroad. Pursuant to an exclusive worldwide license from the NIH, we have exclusive rights to use Tß4 in the treatment of non-healing wounds. While patents covering our use of Tß4 have issued in some countries, we cannot guarantee whether or when corresponding patents will be issued, or the scope of any patents that may be issued, in other countries. We have attempted to create a substantial intellectual property portfolio, submitting patent applications for various compositions of matter, methods of use and fragments and derivatives of Tß4. We have also in-licensed other intellectual property rights from third parties that could be subject to the same risks as our own patents. If any of these patent applications do not issue, or do not issue in certain countries, or are not enforceable, the ability to commercialize Tß4 in various medical indications could be substantially limited or eliminated.

In addition, the patent positions of the products being developed by us and our collaborators involve complex legal and factual uncertainties. As a result, we cannot assure you that any patent applications filed by us, or by others under which we have rights, will result in patents being issued in the United States or foreign countries. In addition, there can be no assurance that any patents will be issued from any pending or future patent applications of ours or our collaborators, that the scope of any patent protection will be sufficient to provide us with competitive advantages, that any patents obtained by us or our collaborators will be held valid if subsequently challenged or that others will not claim rights in or ownership of the patents and other proprietary rights we or our collaborators may hold. Unauthorized parties may try to copy aspects of our product candidates and technologies or obtain and use information we consider proprietary. Policing the unauthorized use of our proprietary rights is difficult. We cannot guarantee that no harm or threat will be made to our or our collaborators’ intellectual property. In addition, changes in, or different interpretations of, patent laws in the United States and other countries may also adversely affect the scope of our patent protection and our competitive situation.

Due to the significant time lag between the filing of patent applications and the publication of such patents, we cannot be certain that our licensors were the first to file the patent applications we license or, even if they were the first to file, also were the first to invent, particularly with regards to patent rights in the United States. In addition, a number of pharmaceutical and biotechnology companies and research and academic institutions have developed technologies, filed patent applications or received patents on various technologies that may be related to our product candidates. Some of these technologies, applications or patents may conflict with our or our licensors’ technologies or patent applications. A conflict could limit the scope of the patents, if any, that we or our licensors may be able to obtain or result in denial of our or our licensors’ patent applications. If patents that cover our activities are issued to other companies, we may not be able to develop or obtain alternative technology.

Additionally, there is certain subject matter that is patentable in the United States but not generally patentable outside of the United States. Differences in what constitutes patentable subject matter in various countries may limit the protection we can obtain outside of the United States. For example, methods of treating humans are not patentable in many countries outside of the United States. These and other issues may prevent us from obtaining patent protection outside of the United States, which would have a material adverse effect on our business, financial condition and results of operations.

Changes to U.S. patent laws could materially reduce any value our patent portfolio may have.

The value of our patents depends in part on their duration. A shorter period of patent protection could lessen the value of our rights under any patents that may be obtained and may decrease revenues derived from its patents. For example, the U.S. patent laws were previously amended to change the term of patent protection from 17 years following patent issuance to 20 years from the earliest effective filing date of the application. Because the time from filing to issuance of biotechnology applications may be more than three years depending on the subject matter, a 20-year patent term from the filing date may result in substantially shorter patent protection. Future changes to patent laws could shorten our period of patent exclusivity and may decrease the revenues that we might derive from the patents and the value of our patent portfolio.

We may not have adequate protection for our unpatented proprietary information, which could adversely affect our competitive position.

In addition to our patents, we also rely on trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. However, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. To protect our trade secrets, we may enter into confidentiality agreements with employees, consultants and potential collaborators. However, we may not have such agreements in place with all such parties and, where we do, these agreements may not provide meaningful protection of our trade secrets or adequate remedies in the event of unauthorized use or disclosure of such information. Also, our trade secrets or know-how may become known through other means or be independently discovered by our competitors. Any of these events could prevent us from developing or commercializing our product candidates.

We may be subject to claims that we or our employees have wrongfully used or disclosed alleged trade secrets of former employers.

As is commonplace in the biotechnology industry, we employ now, and may hire in the future, individuals who were previously employed at other biotechnology or pharmaceutical companies, including competitors or potential competitors. Although there are no claims currently pending against us, we may be subject to claims that we or certain employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and would be a significant distraction to management.

Risks Related To Our Securities

Our common stock price is volatile, our stock is highly illiquid, and any investment in our securities could decline substantially in value.

For the period from January 1, 2010 through March 31, 2011, the closing price of our common stock has ranged from $0.20 to $0.68, with an average daily trading volume of approximately 149,000 shares. We expect the trading volume of our common stock to decline further in light of our recent delisting from the NYSE Amex exchange. In light of our small size and limited resources, as well as the uncertainties and risks that can affect our business and industry, our stock price is expected to continue to be highly volatile and can be subject to substantial drops, with or even in the absence of news affecting our business. The following factors, in addition to the other risk factors described in this report, and the potentially low volume of trades in our common stock, may have a significant impact on the market price of our common stock, some of which are beyond our control:

	•		the recent delisting of our common stock from the NYSE Amex exchange;
	•		results of pre-clinical studies and clinical trials;

	•		commercial success of approved products;
	•		corporate partnerships;
	•		technological innovations by us or competitors;
	•		changes in laws and government regulations both in the U.S. and overseas;
	•		changes in key personnel at our company;
	•		developments concerning proprietary rights, including patents and litigation matters;
	•		public perception relating to the commercial value or safety of any of our product candidates;
	•		future sales of our common stock, including to LPC under our committed equity facility;
	•		other issuances of our common stock causing dilution;
	•		anticipated or unanticipated changes in our financial performance;
	•		general trends related to the biopharmaceutical and biotechnological industries; and
	•		general conditions in the stock market.

The stock market in general has recently experienced relatively large price and volume fluctuations. In particular, the market prices of securities of smaller biotechnology companies have experienced dramatic fluctuations that often have been unrelated or disproportionate to the operating results of these companies. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in its value. You should also be aware that price volatility may be worse if the trading volume of the common stock remains limited or declines.

Our principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.

Our officers, directors and principal stockholders together control approximately 43% of our outstanding common stock. Included in this group is Sigma-Tau and its affiliates, which together hold outstanding shares representing approximately 38% of our outstanding common stock. A portion of the shares of common stock currently held by Sigma-Tau and its affiliates are subject to voting agreements under which our Board controls the voting power of such stock. We cannot assure you that such voting agreements would prevent Sigma-Tau and its affiliates from taking actions not in your best interests and effectively exercising control over us. These voting agreements expire periodically through September 2012. After their expiration, we will have no control over the voting of these shares controlled by Sigma-Tau, including with respect to the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock, and therefore may not be in the best interest of our other stockholders.

If securities or industry analysts do not publish research or reports or publish unfavorable research about our business, the price of our common stock and other securities and their trading volume could decline.

The trading market for our common stock and other securities will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If securities or industry analysts do not commence or maintain coverage of us, the trading price for our common stock and other securities would be negatively affected. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our securities, the price of our securities would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the price of our common stock and other securities and their trading volume to decline.

The exercise of options and warrants and other issuances of shares of common stock or securities convertible into common stock will dilute your interest.

As of the date of this report, there are outstanding options to purchase an aggregate of 5,348,863 shares of our common stock at exercise prices ranging from $0.27 per share to $3.82 per share and outstanding warrants to purchase 15,531,068 shares of our common stock at a weighted average exercise price of $0.77 per share. The exercise of options and warrants at prices below the market price of our common stock could adversely affect the price of shares of our common stock. Additional dilution may result from the issuance of shares of our capital stock in connection with collaborations or manufacturing arrangements or in connection with other financing efforts, including our committed equity facility with LPC.

Any issuance of our common stock that is not made solely to then-existing stockholders proportionate to their interests, such as in the case of a stock dividend or stock split, will result in dilution to each stockholder by reducing his, her or its percentage ownership of the total outstanding shares. Moreover, if we issue options or warrants to purchase our common stock in the future and those options or warrants are exercised or we issue restricted stock, stockholders may experience further dilution. Holders of shares of our common stock have no preemptive rights that entitle them to purchase their pro rata share of any offering of shares of any class or series.

In addition, most of the outstanding warrants to purchase shares of our common stock have an exercise price above the current market price for our common stock. As a result, these warrants may not be exercised prior to their expiration, in which case we would not realize any proceeds from their exercise.

The sale of shares of our common stock to LPC may cause substantial dilution to our existing stockholders and could cause the price of our common stock to decline.

Under our committed equity facility with LPC, we may sell to LPC, under certain circumstances, up to $11,000,000 of our common stock over approximately 30 months. Generally, we have the right, but no obligation, to direct LPC to periodically purchase up to $11,000,000 of our common stock in specific amounts under certain conditions, which periodic purchase amounts can be increased under specified circumstances.

We have also agreed to issue to LPC up to an aggregate of 1,916,666 shares of common stock as a fee for LPC’s commitment to purchase our shares. Of these commitment shares, we issued one-half, or 958,333 shares, upon entering into the facility with LPC. The remaining commitment shares are issuable to LPC on a pro rata basis as purchases are made under the facility.

Depending upon market liquidity at the time, sales of shares of our common stock to LPC may cause the trading price of our common stock to decline. LPC may ultimately purchase all, some or none of the $11,000,000 of common stock, and after it has acquired shares, LPC may sell all, some or none of those shares. Therefore, sales to LPC by us could result in substantial dilution to the interests of other holders of our common stock. The sale of a substantial number of shares of our common stock to LPC, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. However, we have the right to control the timing and amount of any sales of our shares to LPC, and we may terminate the facility at any time, in our discretion, without any cost to us.

Our certificate of incorporation, our stockholder rights plan and Delaware law contain provisions that could discourage or prevent a takeover or other change in control, even if such a transaction would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.

Our certificate of incorporation provides our Board with the power to issue shares of preferred stock without stockholder approval. In addition, under our stockholder rights plan, our Board has the discretion to issue certain rights to purchase our capital stock when a person acquires in excess of 25% of our outstanding common shares. Our Board has exempted purchases by Sigma-Tau to date and purchases that may be made by LPC under the committed equity facility from the operation of our stockholder rights plan. The stockholder rights plan may make it more difficult for stockholders to take corporate actions and may have the effect of delaying or preventing a change in control, even if such actions or change in control would be in your best interests. In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Subject to specified exceptions, this section provides that a corporation may not engage in any business combination with any interested stockholder, as defined in that statute, during the three-year period following the time that such stockholder becomes an interested stockholder. This provision could also have the effect of delaying or preventing a change of control of our company. The foregoing factors could reduce the price that investors or an acquirer might be willing to pay in the future for shares of our common stock.

We may become involved in securities class action litigation that could divert management’s attention and harm our business and our insurance coverage may not be sufficient to cover all costs and damages.

The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of pharmaceutical and biotechnology companies. These broad market fluctuations may cause the market price of our common stock to decline. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could hurt our business, operating results and financial condition.

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

None.

Item 3.		Defaults Upon Senior Securities

None.

Item 4.		Reserved

Item 5.		Other Information

None.

Item 6.		Exhibits

Exhibit No.				Description of Exhibit		Reference*
	3.1			Restated Certificate of Incorporation		Exhibit 3.1 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
	3.2			Certificate of Amendment to Restated Certificate of Incorporation		Exhibit 3.2 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
	3.3			Certificate of Amendment to Restated Certificate of Incorporation		Exhibit 3.3 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
	3.4			Certificate of Amendment to Restated Certificate of Incorporation		Exhibit 3.4 to Registration Statement on Form S-8 (File No. 333-168252) (filed July 21, 2010)
	3.5			Certificate of Designation of Series A Participating Cumulative Preferred Stock		Exhibit 3.4 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
	3.6			Amended and Restated Bylaws		Exhibit 3.4 to the Company’s Quarterly Report on Form 10-Q (filed August 14, 2006)
	3.7			Amendment to Amended and Restated Bylaws		Exhibit 3.6 to the Company’s Registration Statement on Form S-8 (File No. 333-152250) (filed July 10, 2008)
	4.1			Specimen Common Stock Certificate		Exhibit 4.1 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)

Exhibit No.				Description of Exhibit		Reference*
	4.2			Specimen Rights Certificate		Exhibit 4.2 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
	4.3			Rights Agreement, dated April 29, 1994, between the Company and American Stock Transfer & Trust Company, as Rights Agent		Exhibit 4.3 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
	4.4			Amendment No. 1 to Rights Agreement, dated March 4, 2004, between the Company and American Stock Transfer & Trust Company, as Rights Agent		Exhibit 4.4 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
	4.5			Warrant Agreement, dated May 21, 2010, between the Company and American Stock Transfer & Trust Company, as Warrant Agent		Exhibit 4.6 to Current Report on Form 8-K (File No. 001-15070) (filed May 21, 2010)
	4.6			Form of Warrant Certificate		Exhibit 4.6 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-166146) (filed May 17, 2010)
	31.1			Certification of Principal Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934		Filed herewith
	31.2			Certification of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934		Filed herewith
	32.1			Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed herewith***
	32.2			Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed herewith***

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.