Indicate by check mark with the Registrant is a well-known seasoned issuer (as defined in Securities Act Rule 405). Yeso Noþ

     Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yeso Noþ

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K10-K. þo

     Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.

     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 2b-2 of the Act). Yeso Noþ

     The aggregate market value of the Registrant’s common stock held by non-affiliates on June 30, 2006,29, 2007, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $86.4$260.2 million. On March 23, 2007,28, 2008, there were outstanding 76,788,69490,743,553 shares of the Registrant’s common stock, exclusive of treasury shares.

     From time to time, we make oral and writtenSome of the information contained in this Annual Report may include forward-looking statements that may constitute “forward-looking statements” (rather than historical facts) as defined inwithin the Private Securities Litigation Reform Actmeaning of 1995 or by the Securities and Exchange Commission, or SEC, in its rules, regulations and releases, including Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended.amended, or the Exchange Act. We desire to take advantage of the “safe harbor” provisions in the Private Securities Litigation Reform Act of 1995 forbase these forward-looking statements made from time to time, including, the forward-looking statements made in this Annual Report, as well as those made in our other filings with the SEC.

     All forward-looking statements involve inherent risks and uncertainties, and there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, those factors set forth in this Annual Report under the captionssections entitled “Business,” “Risk Factors,” and“Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and “Controls and Procedures” in this Annual Report, all of which you should review carefully. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we anticipate. Please consider our forward-looking statements in light of those risks as you read this Annual Report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.otherwise, except as required by law.

     iiIf one or more of these or other risks or uncertainties materializes, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we anticipate. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by the cautionary language above. You should consider carefully all of the factors set forth or referred to in this Annual Report that could cause actual results to differ.

     In this Annual Report, we sometimes refer to CytRx Corporation as “CytRx” and to our majority-ownedformer subsidiary, RXi Pharmaceuticals Corporation, as “RXi.” References in this Annual Report to the “company,” “we,” “us” or “our” refer to CytRx, and RXi,alone, unless the context suggests otherwise.otherwise indicated.

     CytRx isWe are a clinical-stage biopharmaceutical research and development company engaged in developing human therapeutic products based primarily upon our small moleculesmall-molecule molecular “chaperone” co-inductionchaperone amplification technology. We recently completedMolecular chaperone proteins occur normally in human cells and are key components of the body’s defenses against potentially toxic mis-folded cellular proteins. Since damaged toxic proteins called aggregates are thought to play a role in many diseases, we believe that amplification of molecular chaperone proteins could have therapeutic efficacy for a broad range of indications. Currently, we are using our chaperone amplification technology to develop treatments for neurodegenerative disorders and diabetic complications.

     In December 2007, we began enrolling patients in our Phase IIaIIb efficacy clinical trial of our lead small molecule product candidate, arimoclomol, for the treatment of amyotrophic lateral sclerosis, which is commonly known as ALS, or Lou Gehrig’s disease. We plan to initiate aThat Phase IIb clinical trial of arimoclomol for this indication during the second half of 2007, subject to clearancewas placed on clinical hold by the U.S. Food and Drug Administration. We also are pursuing clinical development of our other small molecule product candidates, as well as a novel HIV DNA + protein vaccine exclusively licensed to us and developed by researchers at the University of Massachusetts Medical School,Administration, or UMMS, and Advanced BioScience Laboratories with fundingFDA, in January 2008. Based on written correspondence we received from the National Institutes of Health. We haveFDA, their decision pertained to a previously entered into strategic alliancescompleted animal toxicology study in rats and was not related to data generated from any human studies with respectarimoclomol. Subject to our ability to provide satisfactory information to the developmentFDA to remove the clinical hold, we currently anticipate that data regarding the primary efficacy endpoint of products using our other technologies.

     The results from preclinical efficacy studies completed by us in April 2007 indicated that arimoclomol accelerated recovery time, and improved recovery, in experimental animal models of stroke, even when administered as long as 48 hours after onset. We are currently planning to commence in the second half of 2008 a Phase II clinical trial of arimoclomol for stroke recovery, subject to FDA clearance.

     Iroxanadine, our second small-molecule product candidate, has completed Phase I clinical trials. The results from the treatmentPhase I trials indicated that orally-administered iroxanadine was safe and well tolerated in healthy volunteers. The results from an open-label Phase II clinical trial in patients with chronic high blood pressure indicated that oral iroxanadine improved the functioning of ALS. These assets also included two otherendothelial cells that line the interior of blood vessels and are thought to be damaged by conditions of stress such as chronic high blood pressure and diabetes. Animal studies completed by us in May 2007 indicated that iroxanadine accelerated the healing of skin wounds in diabetic animals. Subject to FDA clearance, we plan to initiate a Phase II clinical trial of oral clinical stage drug candidates and a libraryiroxanadine for diabetic ulcers in the second half of small molecule product candidates.2008.

     We also are engagedown several other small-molecule compounds that we believe may amplify molecular chaperone proteins in developing therapeutic products based upon ribonucleic acid interference, or RNAi, which has the potential to effectively treat a broad array of diseases by interfering with the expression of targeted disease-associated genes.human cells. In order to fully realize the potential value of our RNAi technologies, in JanuaryJuly 2007, we transferred to RXi Pharmaceuticals Corporation, our majority-owned subsidiary, substantially all of our RNAi-related technologies and assets in exchange for equity in RXi. These consisted primarily of our licenses from UMMS and the Carnegie Institution of Washington relating to fundamental RNAi technologies, as well as research and other equipment situated at our Worcester, Massachusetts, laboratory. RXi will focus solely on developing and commercializing therapeutic products based upon RNAi technologies for the treatment of human diseases, with an initial focus on neurodegenerative diseases, cancer, type 2 diabetes and obesity. See, “RXi Pharmaceuticals Corporation,” below foropened a description of the technologies, research and development activities and current business planfacility in San Diego, California, to serve as a dedicated laboratory to accelerate development of RXi.our pipeline of molecular chaperone amplification product candidates.

     The synthesis of proteins is a normal part of essential human cell activity. Proteins are linear chains of amino acids. In order to function normally, in a cell, these proteins must fold into particular three-dimensional shapes. DuringIn response to trauma or other stressful conditions, such as certain disease states, proteins can fold improperly, resulting in the aggregation of proteinmis-folded proteins that can be toxic to the cell.cell and cause or contribute to disease. It is believed, for example, that mis-folding and aggregation of certain mutated forms of a particular protein known as superoxide dismutase 1, or SOD1, leads to the death of motor neurons that causes certain forms of ALS. Similar protein aggregates also are present in motor neurons of all other ALS patients.

     In nature, the cell has developed “chaperone”molecular chaperone proteins to deal with these potentially toxicrespond to mis-folded proteins. Chaperones are a key component of the human body’s universal cellular protection, maintenance and repair mechanism. They help to ensure that newly synthesized proteins are complete, situated correctly within the cell’s structure and correctly folded. Molecular chaperones detect proteins that are mis-folded, and have the

Phase IIa clinical trial. Participants in the Phase IIa clinical trial forof arimoclomol for ALS. The Phase IIa trial was a multicenter, double-blind, placebo-controlled study of approximately 80 ALS patients enrolled at ten clinical centers across the U.S. Patients receivedwere administered either a placebo in the form of a capsule, without drug, or one of three dosedosage levels of arimoclomol capsules, three times daily for a period of 12 weeks, immediately followed by a one-month period without the drug. The primary endpoints of thisthe Phase IIa trial were safety and tolerability. Secondary endpoints included a preliminary evaluation of efficacy using two widely accepted surrogate markers,disease-progression markers. The first marker, the revised ALS Functional Rating Scale, or ALSFRS-R, which is used to determine patients’ overall functional capacity and independence in 13 functional activities, and Vital Capacity, or VC,activities. The second marker measures vital capacity, an assessment of lung capacity.capacity, which is an important disease indicator since ALS sufferers eventually lose the ability to breathe on their own. The trial was designed to monitorbe able to detect only extreme responses in these two categories. We have extended the initialmarkers.

     The results from our Phase IIa trial on an “open-label” basis, meaning that the medication was no longer blinded to the patients or their doctors, in order to provide additional data regarding safety and tolerability. As a result, approximately 70 patients who completed the Phase IIa study and who met the eligibility criteria received arimoclomol at the highest investigative dose for up to an additional six months. We expect the results of this open-label extension to be available in the second quarter of 2007.

     The favorable safety and tolerability profile observed in our Phase IIa trial, open-label extension clinical trial and animal toxicology studies of arimoclomol suggested that we may be able to safely increase the dose of arimoclomol without causing significant side effects. The results from the subsequent multiple ascending-dose study indicated that arimoclomol was safe and well tolerated, even at doses of 600 mg three times daily (six times higher than the highest dose that can be well toleratedused in the Phase IIa and open-label studies), when administered to healthy volunteers over a seven-day period. Results from the 28-day safety clinical trial in healthy volunteers indicated that the dosage of 400 mg administered three times daily also was safe and well tolerated.

Phase IIb efficacy trial. The Phase IIb efficacy trial will evaluate the safety and efficacy in ALS patients of a 400 mg dose of arimoclomol administered orally three times daily. We expect to enroll in the trial 390 ALS patients in two stages. We first expect to enroll 24 patients in a multiple ascending dose study, and thenfour-week safety lead-in stage involving weekly clinical monitoring to assure that the safety previously observed in healthy volunteers is also observed in the ALS volunteers. Unless serious safety issues are observed during this lead-in stage, dosing will continue uninterrupted for these participants, but clinical monitoring will be reduced to a four-week basis for the remainder of the study. An independent data monitoring committee will review all safety data from the four-week lead-in stage. If no substantial safety issues are identified, we expect to enroll the remaining 366 ALS volunteers in the second stage. With the exception of the 24 participants in the first stage of the trial, all of the ALS trial volunteers will be monitored every four weeks for the initial nine-month trial period. After collecting primary efficacy endpoint data, we plan to initiate a subsequent Phase IIcontinue double-blind administration of arimoclomol in trial which we referpatients with monitoring at eight-week intervals for an additional nine months in order to as the Phase IIb trial, that will be designed to detect more subtle efficacy responses. On February 5, 2007, we entered into with Pharmaceutical Research Associates, or PRA, a Master Agreement for Clinical Trials Management Services under which PRA will provide clinical research services in connection with the design, managementadditional data on secondary endpoints and conduct of both the multiple ascending dose studyon long-term safety and theefficacy.

     That Phase IIb clinical trial. Althoughtrial was placed on clinical hold by the FDA in January 2008. Based on written correspondence we received from the FDA, their decision pertained to a previously completed animal toxicology study in rats and was not related to data generated from any human studies with arimoclomol. Subject to our ability to provide satisfactory information to the FDA to remove the clinical hold, we currently expect to complete patient enrollment in the Phase IIb efficacy trial is still inapproximately nine months following the planning stagesresumption of the trial, and anticipate and that data regarding the trial’s primary efficacy endpoint will be subject to FDA clearance, at present we expect it to include approximately 400 ALS patients recruited from 30-35 clinical sites to takeavailable approximately 18 months after initiation to complete. Our agreement with PRA is partfollowing the resumption of our business plan to pursue our product development efforts primarily by contract with clinical research companies and other third parties.

proves     Based on preliminary discussions with the FDA, we plan to be efficacious in preclinical work, we would consider initiation ofconduct a Phase IIsecond efficacy clinical trial for one of these indications.ALS, possibly overlapping with the Phase IIb efficacy trial, to provide additional data to support possible FDA approval.

     Although we initially intend to develop arimoclomol primarilyArimoclomol for the treatment of ALS, it also showedstroke.Stroke results from an acute loss of normal blood flow to the brain caused most often by a blockage in a blood vessel (ischemic) or due to leaking of blood from a vessel (hemorrhagic). According to the American Heart Association: stroke isthe third leading cause of death and the number one cause of long-term disability in the United States; between 50% and 70% of stroke survivors regain functional independence, but between 15% and 30% are permanently disabled and 20% require institutional care within three months after stroke; and the direct and indirect stroke cost in the United States totaled approximately $58 billion in 2006.

     Preclinical efficacy studies completed by us in preclinical animal models of diabetes. If efficacy greater than that of currently available medications is observed in additional preclinical models, we would consider beginning a Phase II clinical trial for diabetes, as arimoclomol has already been tested in two Phase I clinical trials.

     By comparison, tissue plasminogen activator, or t-PA, the only treatment currently approved in the United States for acute ischemic stroke, must be administered within three hours of stroke, which substantially limits the number of patients who qualify for this treatment. In light of these preclinical testing,data, we confirmplan to commence a Phase II clinical trial for arimoclomol in stroke recovery in the second half of this year, subject to FDA clearance.

Iroxanadine.Iroxanadine also is an orally-administered small-molecule product candidate. We believe it functions by stimulating the molecular chaperone protein response in the endothelium, the thin layer of cells that arimoclomol improves functional recovery even significantly afterline the initial stroke event, we would consider clinical developmentinterior surface of arimoclomol for stroke.human blood vessels.

     Cardiovascular Disease

     Animal studies completed by us in May 2007 indicated that iroxanadine provessignificantly decreased the time it took for wounds to heal in diabetic mice without affecting healing in healthy mice. Wound healing in the diabetic mice, which normally required twice the time to heal as healthy mice, was accelerated to the extent that healing time of diabetic mice treated with iroxanadine was indistinguishable from that in untreated healthy mice.

     In Phase I clinical trials in healthy volunteers and Phase II clinical trials in patients with chronic high blood pressure conducted prior to our acquisition of iroxanadine, iroxanadine was determined to be effectivesafe and well tolerated and demonstrated significant improvement in additionalthe function of endothelial cells in the brachial artery, a major blood vessel of the upper arm. Based on our preclinical work,results and the earlier clinical study data, we plan to seekcommence a strategic alliancePhase II clinical trial with a larger companyoral iroxanadine for the treatment of diabetic foot ulcers in the second half of 2008, subject to support the subsequent clinical development for this indication.FDA clearance.

     We are actively conducting scientific research at our research and development facility in San Diego, California. Our HIV subunit vaccine technology licensed from UMMSresearch is aimed at discovering and validating novel drug targets, analyzing our current product candidates and library of related compounds and developing backup compounds and new therapies based upon a unique mixtureon the amplification of pieces of human HIV-1 primary isolates from several genetic subtypes of HIV. These pieces, called HIV envelope proteins, are not sufficient for viral replication and therefore cannot lead to accidental infection by HIV. This polyvalent naked DNA (isolated, purified DNA) vaccine approach has the potential advantages of maintaining efficacy despite the high mutation rate of HIV, a broader immune response against divergent HIV-1 glycoproteins and the possible ability to neutralize a wide spectrum of HIV-1 viruses. UMMS has conducted animal studies of this vaccine, and UMMS and Advanced BioScience Laboratories, or ABL, which provides an adjuvant, or agent to increase effectiveness, for use with the vaccine, received a $16 million grant from the NIH. This grant funded a Phase I clinical trial of a vaccine candidate using our licensed technology. We have previously announced that the vaccine candidate demonstrated promising Phase I clinical trial results that indicate its ability to produce potent antibody responses with neutralizing activity against multiple HIV viral strains, and we are continuing to analyze the Phase I results to determine how, or if, to proceed with clinical development. We have a commercial relationship with ABL which gives us the ownership of, and responsibility for, the further development of the vaccine and subsequent FDA registration following the completion of the Phase I trial. We do not have a commercial relationship with a company that is providing an adjuvant for the HIV vaccine candidate in the current Phase I clinical trial. In any future clinical development of the vaccine candidate, we may be required either to license that adjuvant, or use a different adjuvant in conjunction with our HIV vaccine technology, in which case we may not be able to utilize some or all of the results of the currently planned trial as part of our clinical data for obtaining FDA approval of a vaccine.

     Our other primarycurrent technologies, which we acquired or developed prior to the acquisition of our molecular chaperone amplification technology, are CRL-5861, an intravenous agent for treatment of sickle cell disease and other acute vaso-occlusive disorders, and TranzFect, a delivery technology for DNADNA-based and conventional-based vaccines. In October 2003, we entered into a strategic relationship with another entity to complete the development of CRL-5861. We have licensed our TranzFect technology to two other companies. We may also seek to license this technology as a potential conventional adjuvant for hepatitis C, human pappiloma virus, herpes simplex virusvaccines and other viral diseases or for use as a non-clinical research reagent to increase transfectionin vitroor in laboratory animals. Adjuvants are agents added to a vaccine to increase its effectiveness.potential uses.

     CRL-5861 (purified poloxamer 188) is an intravenous agent for the treatment of sickle cell diseaseRXi Pharmaceuticals Corporation, or RXi, was founded in April 2006 by us and other acute vaso-occlusive disorders. Sickle cell disease is an inherited disease caused by a genetic mutation of hemoglobinfour researchers in the blood, and acute vaso-occlusive disorders are a blockagefield of blood flow caused by deformed, or “sickled,” red blood cells which can cause intense pain in sickle cell disease patients. In June 2004, we licensed our copolymer technologies,RNAi, including CRL-5861, on an exclusive basis, to SynthRx, Inc., a Houston, Texas-based biopharmaceutical company, in exchange for a cash payment and and ownership interest in SynthRx. Upon commercializationDr. Craig Mello, recipient of any products developed under our alliance with SynthRx, we may also receive milestone payments and royalties.

     We regularly evaluate the patentability of new inventions and improvements developed by us or our collaborators, and, whenever appropriate, will endeavor to file United States and international patent applications to protect these new inventions and improvements. We cannot be certain that any of the current pending patent applications we have filed or licensed, or any new patent applications we may file or license, will ever be issued in the United States or any other country. There also is no assurance that any issued patents will be effective to prevent others from using our products or processes. It is also possible that any patents issued to us, as well as those we have licensed or may license in the future, may be held invalid or unenforceable by a court, or third parties could obtain patents that we would need to either license or to design around, which we may be unable to do. Current and future competitors may have licensed or filed patent applications or received patents, and may acquire additional patents and proprietary rights relating to molecular chaperone co-inductionamplification and other small molecule technology, RNAi technology, DNA-based vaccines or other compounds, products or processes that may be competitive with ours.

     In addition to patent protection, we attempt to protect our proprietary products, processes and other information by relying on trade secrets and non-disclosure agreements with our employees, consultants and certain other persons who have access to such products, processes and information. Under the agreements, all inventions conceived by employees are our exclusive property, but there is no assurance that these agreements will afford significant protection against misappropriation or unauthorized disclosure of our trade secrets and confidential information.

of which will have substantially greater financial resources, large acquisition and research and development staffs that may give those companies a competitive advantage over us in identifying and evaluating these drug acquisition opportunities. Any products that we acquire will be competing with products marketed by companies that in many cases will have substantially greater marketing resources than we have. The industry is characterized by rapid technological advances and competitors may develop their products more rapidly and such products may be more effective than those currently under development or that may be developed in the future by our strategic partners or licensees. Competitive products for a number of the disease indications that we have targeted are currently being marketed by other parties, and additional competitive products are under development and may also include products currently under development that we are not aware of or products that may be developed in the future.

manufacturing facilities are in compliance with the FDA’s cGMP, which are regulations that govern the manufacture, holding and distribution of a product. Manufacturers of biologics also must comply with the FDA’s general biological product standards. Our manufacturers also will be subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Nuclear Energy and Radiation Control Act, the Toxic Substance Control Act and the Resource Conservation and Recovery Act. Following approval, the FDA periodically inspects drug and biologic manufacturing facilities to ensure continued compliance with the good manufacturing practices regulations. Our manufacturers will have to continue to comply with those requirements. Failure to comply with these requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing or recall or seizure of product. Adverse patient experiences with the product must be reported to the FDA and could result in the imposition of marketing restrictions through labeling changes or market removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.

     The labeling, advertising, promotion, marketing and distribution of a drug or biologic product also must be in compliance with FDA and Federal Trade Commission requirements which include, among others, standards and regulations for off-label promotion, industry sponsored scientific and educational activities, promotional activities involving the internet, and direct-to-consumer advertising. We also will be subject to a variety of federal, state and local regulations relating to the use, handling, storage and disposal of hazardous materials, including chemicals and radioactive and biological materials. In addition, we will be subject to various laws and regulations governing laboratory practices and the experimental use of animals. In each of these areas, as above, the FDA has broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of product approvals, seize or recall products, and deny or withdraw approvals.

     We will also be subject to a variety of regulations governing clinical trials and sales of our products outside the United States. Whether or not FDA approval has been obtained, approval of a product candidate by the comparable regulatory authorities of foreign countries and regions must be obtained prior to the commencement of marketing the product in those countries. The approval process varies from one regulatory authority to another and the time may be longer or shorter than that required for FDA approval. In the European Union, Canada and Australia, regulatory requirements and approval processes are similar, in principle, to those in the United States.

     As of March 23, 2007, RXi had outstanding 4,865 shares of common stock, of which 4,153 shares were owned by CytRx. The remaining 712 outstanding shares were owned by the current members of RXi’s scientific advisory board.

     We are subject to a number of risks and uncertainties, including the risks and uncertainties discussed below, as well as any modification, replacement or update to these risks and uncertainties that are reflected in any subsequent filings we make with the Securities and Exchange Commission, or SEC. If any of the followingthese risks or uncertainties actually occur, our business, orresults of operations, financial condition and prospects could be materially and adversely affected. You shouldIn that case, the trading price of our common stock could decline. These risks and uncertainties are not the only ones facing us. Additional risks and uncertainties not presently known to us, or that we currently perceive as immaterial, also refer to the other information in this Annual Report, including our financial statements and the related notes.may adversely affect us.

     We Have Operatedhave operated at a Lossloss and Will Likely Continuewill likely continue to Operateoperate at a Loss Forloss for the Foreseeable Futureforeseeable future.

     We have operated at a loss due to our lack of significant recurring revenue and substantial expenditures for research and development onof our productsproduct candidates and for general and administrative expenses.purposes and our lack of significant recurring revenue. We incurred net losses of $21.9 million, $16.8 million $15.1 million and $16.4$15.1 million for the years ended December 31, 2007, 2006, and 2005, respectively, and 2004, respectively. Wewe had an accumulated deficit of approximately $139.6 million as of December 31, 2006.2007 of approximately $161.5 million. We are likely to continue to incur losses unless and until if ever, we are able to commercialize one or more of our productsproduct candidates. These losses, among other things, have had and generate significant recurring revenue.will continue to have an adverse effect on our stockholders’ equity and working capital. Because of the numerous risks and uncertainties associated with our product development efforts, we are unable to predict when we may become profitable, if at all. If we are unable to achieve and then maintain profitability, the market value of our common stock will likely decline.

     We Have No SourceBecause we have no source of Significant Recurring Revenue, Which Makes Us Dependent on Financing to Sustain Our Operations

     Developing products and conducting clinical trials require substantial amounts of the following occurs:

At December 31, 2006,2007, we had cash, and cash equivalents and short-term investments of $30.4$60.4 million, and as of March 23, 2007, we had received approximately $11.0including $11.7 million in connection with the exercise of warrants and options since December 31, 2006.held by RXi. We believe that we have adequate financialCytRx’s current resources will be sufficient to support our currently planned level of operations into the first quartersecond half of 2009, which expectation2009. This estimate is based, in part, onupon our currently projected expenditures for 2007 of: $6.52008 of approximately $29.2 million, including approximately $5.1 million for our Phase IIb trialclinical program for arimoclomol for ALS and related studies, $3.9approximately $6.4 million for our other ongoingplanned Phase II clinical trial of arimoclomol in stroke patients and planned preclinical programs, $8.8Phase II clinical trial of iroxanadine for diabetic ulcers, approximately $9.2 million for equipping and operating our research laboratory in San Diego, California, and approximately $8.5 million for other general and administrative expenses, and $1.6 millionexpenses. Management believes that RXi’s current resources will be sufficient to provide interim funding for RXi’s first few monthssupport its currently planned level of operations. We estimate RXi will expend approximately $6.2 million on development activities for 2007 (including approximately $400,000 in payments under agreements with UMMS, $3.2 million in other research and development expenses and $2.6 million in general and administrative expenses). If, in addition tooperations into the interim funding for which we have already budgeted, we elect to provide RXi with all or a substantial portionsecond quarter of its initial funding for 2007 and beyond2009. As described in the coming few months,risk factor that

follows below in this section, these projected expenditures are based upon numerous assumptions and ifsubject to many uncertainties, and our actual expenditures may be significantly different from these projections.

     If we are unable to raise funds in the future to replenish any amounts thatobtain marketing approval as currently planned and successfully commercialize our product candidates, we provide to RXi, our current working capital will be depleted accordingly. We anticipate it will take a minimum of three years, and possibly longer, for us to generate significant recurring revenue, and we will be dependent on obtaining future financing until such time, if ever, as we can generate significant recurring revenue. We have no commitments from third parties to provide us with any additional future financing, and we may not be able to obtain future financing on favorable terms, or at all. If we raise additional funds by issuing equity securities, dilution to stockholders may result and new investors could have rights superior to holders of the shares issued in this offering. In addition, debt financing, if available, may include restrictive covenants. If adequate funds are not available to us, we may have to liquidate some or all of our assets or to delay or reduce the scope of or eliminate some portion or all of our development programs or clinical trials. We also may have to license to other companies our product candidates or technologies that we would prefer to develop and commercialize ourselves.

     In addition, the FDA and other regulatory agencies may lack experience in evaluating product candidates to treat ALS. For example, we are aware of only one drug that the FDA has approved to treat ALS. This inexperience may lengthen the regulatory review process, increase our development costs and delay or at all. A lackprevent commercialization of needed financing might forcearimoclomol or our other product candidates. It is possible that none of the product candidates we develop will obtain the regulatory approvals necessary for us to reducebegin selling them. The time required to obtain FDA and foreign governmental approvals is unpredictable, but often can take years following the scopecommencement of clinical trials, depending upon the complexity of the product candidate. Any analysis we perform on data from clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. Furthermore, even if we obtain regulatory approvals, our long-term business plans.products and the manufacturing facilities used to produce them will be subject to continual review, including periodic inspections and mandatory post- approval clinical trials by the FDA and other US and foreign regulatory authorities. Any delay or failure in obtaining required approvals or to comply with post-approval regulatory requirements could have a material adverse effect on our ability to generate revenue from the particular product candidate. The failure to comply with any post-approval regulatory requirements also could also result in the rescission of the related regulatory approvals or the suspension of sales of the offending product.

     Our Current Financial Resources May Be Diminished If We Elect To Provide RXicurrent and planned clinical trials of our molecular chaperone amplification product candidates may fail to show that these product candidates are clinically safe and effective.

     The results of our Phase IIa clinical trial and open-label extension clinical trial of arimoclomol for the treatment of ALS indicated that arimoclomol was safe and well-tolerated in patients. However, the results of the open-label extension clinical trial indicated only a non-statistically significant trend of improvement in the ALSFRS in the arimoclomol high-dose group as compared with Initial Financingreports of previous studies of untreated patients. Because this trial did not have concurrent placebo control group, we can draw no definitive conclusions with respect to efficacy. In December 2007, we initiated a Phase IIb efficacy trial of arimoclomol for the treatment of ALS, and we plan to undertake a second efficacy trial of arimoclomol for ALS, possibly overlapping with the Phase IIb efficacy trial, to provide additional data to support possible FDA approval. In addition, we plan to conduct a Phase II clinical trial of arimoclomol in stroke patients and to pursue clinical development of iroxanadine for diabetic ulcers, both of which would require significant additional testing. The FDA may also require additional, larger Phase III clinical trials before we may submit an application for marketing approval. None of these trials may yield favorable safety and efficacy data, and the FDA may disagree with how we interpret the data from these clinical trials. For example, the favorable safety data we observed in earlier trials may not be reproduced in these later trials, and these later trials may not yield statistically significant data indicating that the product candidates are clinically effective. Accordingly, we may ultimately be unable to provide the FDA with satisfactory data on clinical safety and efficacy sufficient to enable the FDA to approve arimoclomol or iroxanadine for these indications.

     In orderJanuary 2008, the FDA placed a clinical hold on our Phase IIb clinical efficacy trial of arimoclomol for the treatment of ALS due to retainconcerns relating to previous toxicology studies of arimoclomol in rats. Although we have submitted additional information to the 2007 UMMS licenses and effectuateFDA regarding these concerns, we cannot predict how long it may take to resolve them. Depending on the new UMMS invention disclosure agreement, RXi is outcome of the FDA’s review, we may be:

     We also planned to obtain significant fundingcommence a Phase II clinical trial for arimoclomol for stroke recovery in the coming few months.second half of 2008. In light of the FDA’s concerns regarding toxicity of arimoclomol, our planned Phase I trial for this indication is subject to similar risks.

     We do not expect to receive regulatory approvals for the commercial sale of arimoclomol or iroxanadine for several years, if at all. Even if we do receive regulatory approvals, the future commercial success of these drug candidates will depend, among other things, on their acceptance by physicians, patients, healthcare payors and other members of the medical community as therapeutic and cost-effective alternatives to commercially available products. If our product candidates fail to gain market acceptance, we may not be able to earn sufficient revenues to continue our business.

     We have no obligation to provide any additional funding to RXi, but we might seek to do so in order to protect our investment in RXi if RXi is unable to obtain sufficient funding on its own or to maintain our relative ownership interest if RXi consummates a substantial portion of the initialfinancing. If we provide RXi with any additional funding, we will have less funds available for our current working capital will be depleted accordingly. As of March 23, 2007, we had received approximately $11.0 millionown business and operations.

     We currently plan to continue the development of arimoclomol for the treatment of ALS under our Master Agreement with Pharmaceutical Research Associates for clinical trials management services, and may retain the services of site management and clinical research organizations to help conduct our clinical trials. We may seek to complete the development of arimoclomol and market it ourselves if it is approved by the FDA. However, the completion of the development of arimoclomol and our other technologies.

     Our products may market it ourselves if it is approved by the FDA, the completion of the development of our current product candidates, as well as the manufacture and marketing of these products, will likely require us to enter into strategic arrangements with other pharmaceutical or biotechnology companies.

     IfTo the extent we enter into collaborative arrangements, we will be dependent upon the timeliness and effectiveness of the development and marketing efforts of our contractual partners. If these companies do not allocate sufficient personnel and resources to these efforts or encounter difficulties in complying with applicable FDA and other regulatory requirements, we may not obtain regulatory approvals as planned, if at all, and the timing of receipt or the amount of revenue from these arrangements may be materially and adversely affected. By entering into these arrangements rather than completing the development and then marketing these products on our own, we may suffer a reduction in the ultimate overall profitability forto us of these products.products may decline.

     We believe that obtaining and maintaining patent and other intellectual property rights for our technologies and potential products is critical to establishing and maintaining the value of our assets and our business. We will be able to protect our technologies from unauthorized use by third parties only to the extent that we have rights to valid and enforceable patents or other proprietary rights that cover them. Although we have patents and patent applications directed to our molecular chaperone amplification technologies, these patents and applications may not prevent third parties from developing or commercializing similar or identical technologies. In addition, our patents may be held to be invalid if challenged by third parties, and our patent applications may not result in the issuance of patents.

     The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date in the United States and in many foreign countries. The application and enforcement of patent laws and regulations in foreign countries is even more uncertain. Accordingly, we may not be able to effectively file, protect or defend our proprietary rights on a consistent basis. In particular, the patents and patent applications related to our molecular chaperone amplification product candidates were issued or filed by third parties prior to the time we acquired rights to them, and they begin to expire in 2016. The validity, enforceability and ownership of those patents and patent applications may be challenged, and if a court decides that our patents are unablenot valid, we will not have the right to stop others from using our inventions. There is also the risk that, even if the validity of our patents is upheld, a court may refuse to stop others on the ground that their activities do not infringe our patents.

     Any litigation brought by us to protect our intellectual property rights could be costly and have a material adverse effect on our operating results or financial condition, make it more difficult for us to enter into these arrangements for a particular product, we maystrategic alliances with third parties to develop our products, or discourage our existing licensees from continuing their development work on our potential products. If our patent coverage is insufficient to prevent third parties from developing or commercializing similar or identical technologies, the value of our assets is likely to be required to either sell our rights in the product to a third party or abandon it unless we are able to raise sufficient capital to fund the substantial expenditures necessary for developmentmaterially and marketing of the product.

     We estimatealso rely on certain proprietary trade secrets and know-how, especially where we believe patent protection is not appropriate or obtainable. However, trade secrets and know-how are difficult to protect. Although we have taken measures to protect our unpatented trade secrets and know-how, including the use of confidentiality and invention assignment agreements with our employees, consultants and some of our contractors, it is possible that these persons may disclose our trade secrets or know-how or that our planned Phase IIb trial of arimoclomol for the treatment of ALScompetitors may independently develop or otherwise discover our trade secrets and related activities will require us to incur approximately $26.8 million (including amounts payable under the Master Agreement for Clinical Trials Management Services we have entered into with Pharmaceutical Research Associates) over the 24 to 30 months beginning December 2006, assuming we receive FDA clearance for this trial. In addition, the agreement by which we acquired our molecular chaperone co-induction drug candidatesknow-how.

     All of our products in development must be approved by the FDAOur competitors or similar foreign governmental agencies beforeothers may have patent rights that they can be marketed. The process for obtaining FDA approval is both time-consuming and costly, with no certainty of a successful outcome. This process typically includes the conduct of extensive pre-clinical and clinical testing, which may take longer or cost more than wechoose to assert against us or our licensees, anticipate, andsuppliers, customers or potential collaborators. Moreover, we may prove unsuccessful duenot know about patents or patent applications that our products would infringe. For example, because patent applications can take many years to numerous factors. Product candidatesissue, there may be currently pending applications, unknown to us, that may appearlater result in issued patents that our arimoclomol, iroxanadine or other product candidates would infringe. In addition, if third parties file patent applications or obtain patents claiming technology also claimed by us in issued patents or pending applications, we may have to be promising at early stages of development may not successfully reach the market for a number of reasons. The results of preclinical and initial clinical testing of these products may not necessarily indicate the results that will be obtained from later or more extensive testing. Companiesparticipate in interference proceedings in the pharmaceuticalUS Patent and biotechnology industriesTrademark Office to determine priority of invention. If third parties file oppositions in foreign countries, we may also have suffered significant setbacksto participate in advanced clinical trials, even after obtaining promising resultsopposition proceedings in earlier trials.

     If a third party claims that we infringe its proprietary rights, any of the following:following may occur:

     It is possible that none of the products we develop will obtain the appropriate regulatory approvals necessary for us to begin selling them. The time required to obtain FDA and other approvals is unpredictable but often can take years following the commencement of clinical trials, depending upon the complexity of the drug candidate. Any analysis we perform of data from clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. Any delay or

     In addition, we concluded in our quarterly reports for the quarters ended June 30, 2007 and September 30, 2007, that our disclosure controls and procedures were ineffective as of those dates. Disclosure controls generally include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. We also recently filed an amendment to an SEC report to correct certain form errors.

     Effective internal controlcontrols over financial reporting could result in errors in ourand disclosure controls and procedures are necessary for us to provide reliable financial statements, which could erode marketand other reports and effectively prevent fraud. If we cannot maintain effective internal controls or provide reliable financial or SEC reports or prevent fraud, investors may lose confidence in our company, adversely affectSEC reports, our operating results and the markettrading price of our common stock could suffer and in egregious circumstances, result in possible claims based upon such financial information.we may become subject to litigation.

     We and our strategic partners or licensees may be unable to compete successfully against our current or future competitors. The pharmaceutical, biopharmaceutical and biotechnology industry isindustries are characterized by intense competition and rapid and significant technological advancements. Many companies, research institutions and universities are working in a number of areas similar to our primary fields of interest to develop new products. There also is intense competition among companies seeking to acquire products that already are being marketed. Many of the companies with which we compete have or are likely to have substantially greater research and product development capabilities and financial, technical, scientific, manufacturing, marketing, distribution and other resources than us and at least some of our present or future strategic partners or licensees.

     As a result, these competitors may:

     We are aware of only one drug, Rilutek, which was developed by Aventis Pharma AG, that has been approved by the FDA for the treatment of ALS, which is now available in generic form. OtherALS. Many companies are working to develop pharmaceuticals to treat ALS, including Aeolus Pharmaceuticals, Celgene Corporation, Mitsubishi Tanabe Pharma Corporation, Ono Pharmaceuticals, Trophos SA, FaustPharmaceuticalsKnopp Neurosciences Inc., Faust Pharmaceuticals SA, Oxford BioMedica plc, Phytopharm plc and Teva Pharmaceutical Industries Ltd. In addition,, as well as RXi. ALS patients often take over-the-counter supplements, including vitamin E, creatine and coenzyme Q10, or drugs such as lithium that are approved for other indications. ALS belongs to a family of diseases called neurodegenerative diseases whichthat includes Alzheimer’s, Parkinson’s and Huntington’s disease.diseases. Due to similarities between these diseases, a new treatment for one ailmentsuch disease potentially could be useful for treating others.

     A number of products currently are being marketedCurrent drug classes used to treat stroke include antiplatelet agents, anticoagulants, salycylates, neuroprotectants and thrombolytic agents. Prescription antiplatelet agents include Aggrenox by a variety of the multinational or other pharmaceutical companies for treating type 2 diabetes, including among others the diabetes drugs AvandiaBoehringer Ingelheim, Plavix by GlaxoSmithKline PLC, ActosSanofi-Aventis and Bristol-Myers Squibb, and Ticlid by Eli Lilly & Co., Glucophage and JunaviaRoche Pharmaceuticals. Coumadin by Bristol-Myers Squibb and Jantoven by Upsher-Smith Laboratories are branded forms of warfarin, an anticoagulant. Moreover, Salicylates, like aspirin, are commonly used to treat patients after stroke. In Europe, Ferrer Grupo markets the neroprotectant, Somazina. Activase, also known as tissue plasminogen activator, or t-PA, is a thrombolytic agent marketed by Genentech. Many new drug candidates are in development by pharmaceutical and biotech companies, including GlaxoSmithKline, Indeveus Pharmaceuticals, Ipsen, Merck & Co., SymlinNeurobiological Technologies, Ono Pharmaceuticals, PAION AG and ByettaWyeth. In addition to drug therapy, companies such as Medtronic and Northstar Neurosciences are developing neurostimulation medical devices to aid in recovery after stroke.

     The wound care market is highly competitive, and there are many products available for treating skin wounds, including diabetic foot ulcers. Prescription and over-the-counter products for the prevention and treatment of infections include topical anti-infectives, such as Betadine, silver sulfadiazine, hydrogen peroxide, Dakin’s solution and hypochlorous acid, and topical antibiotics, such as Neosporine, Mupirocin and Bacitracin. Skin substitute products include Apligraf, manufactured by AmylinOrganogenesis, Inc., which is an FDA-cleared product using human dermal and epidermal cells placed on a collagen matrix, for the treatment of both venous stasis and diabetic foot ulcers, and Dermagraft, produced by Advanced BioHealing, Inc., which uses human derived dermal cells placed on a polyglactin matrix and is FDA cleared to treat diabetic foot ulcers. In addition, a number of companies are working to develop proprietary pharmaceuticals and cell-based therapies to treat diabetic wound healing, including Agennix, Inc., BioSyntech, Inc., CardioVascular BioTherapeutics, Inc., Cardium Therapeutics, Inc., Genentech Inc., KeraCure, Inc., King Pharmaceuticals, Inc., MacroChem Corporation, Oculus Innovative Sciences, Inc., Rovi Pharmaceutical Laboratories, SanuWave, Inc. and Starlix by Novartis and the obesity drugs Acomplia by Sanofi-Aventis SA, Xenical by F. Hoffman-La Roche Ltd. and Meridia by Abbott Laboratories. Many major pharmaceutical companies are also seeking to develop new therapies for these disease indications. Companies developing HIV vaccines that could compete withWyeth.

     Most of our HIV vaccine technology include Merck, GlaxoSmithKline, Sanofi Pasteur, VaxGen, Inc., AlphaVax, Inc. and Immunitor Corporation. These competitors have substantially greater research and product development capabilities and financial, technical, scientific, manufacturing, marketing, distribution and other resources than RXi.us.

     We Will Relymay be required to pay milestone and other payments relating to the commercialization of our products.

     Our agreement by which we acquired rights to arimoclomol and our other molecular chaperone amplification product candidates provides for milestone payments by us upon Third Partiesthe occurrence of certain regulatory filings and approvals related to the acquired products. In the event that we successfully develop arimoclomol or any of these other product candidates, these milestone payments could aggregate as much as $3.7 million, with the most significant payments due upon the first commercialization of any of these products. In addition, our agreement with the ALS Charitable Remainder Trust requires us to pay a one-percent royalty interest on worldwide sales of arimoclomol for the Manufacturetreatment of Our Clinical Product SuppliesALS. Also, any future license, collaborative or other agreements we may enter into in connection with our development and commercialization activities may require us to pay significant milestone, license and other payments in the future.

     We do not have the facilities or expertise to manufacture supplies of any of our product candidates, including the clinical supply of arimoclomol used in our Phase II clinical trials.or iroxanadine. Accordingly, we are dependent upon contract manufacturers, or ourpotential future strategic alliance partners, to manufacture these supplies. We have a manufacturing supply arrangementarrangements in place with respect to a portion of the clinical supplies needed for the Phase II clinical program for arimoclomol for ALS. WeALS and stroke recovery and for iroxanadine for diabetic ulcers. However, we have no supply arrangements for the commercial manufacture of these product candidates or any manufacturing supply arrangements for any of our other potential product candidates, and there can be no assurance that we willmay not be able to secure needed manufacturing supply arrangements on attractive terms, or at all. Our failure to secure these arrangements as needed could have a materially adverse effect on our ability to complete the development of our products or to commercialize them.

     We May Be Unableare subject to Protect Our Intellectual Property Rights, Which Could Adversely Affect the Value of Our Assets

     If any of our products are alleged to be defective, they may expose us to claims for personal injury by patients in clinical trials of our products or, if we obtain marketing approval and commercialize our products, by patients using our commercially marketed products. Even if the commercialization of one or more of our products is approved by the FDA, users may claim that such products caused unintended adverse effects. We currently do not carry product liability insurance covering the commercial marketing of these products.our product candidates. We obtained clinical trial insurance for our Phase IIa clinical trial and Phase IIb efficacy trial of arimoclomol for the treatment of ALS, and willwe plan to seek to obtain similar insurance for the planned Phase IIb

if claims asserted against us are unsuccessful, they may divert management’s attention from our operations, and we may have to incur substantial costs to defend such claims.

     We May Be Unablemay be unable to Acquire Products Approved For Marketingacquire products approved for marketing.

     In the future, we may seek to acquire products from third parties that already are being marketed or have been approved for marketing. We have not currently identified any of these products, however, and we do not have any prior experience in acquiring or marketing products and may need to find third parties to market any products that we might acquire. We may also seek to acquire products through a merger with one or more companies that own such products. In any such merger, the owners of our merger partner could be issued or hold a substantial, or even controlling, amount of stock in our company or, in the event that the other company is the surviving company, in that other company.

     The distribution of RXi common stock to our stockholders will be taxable to us.

     On March 11, 2008, we distributed to our stockholders a total of approximately 4,526,624 shares of RXi common stock. We will recognize gain for income tax purposes on the distribution of shares of RXi common stock in an amount equal to the excess of the fair market value of the stock distributed over our basis. This gain will be included in determining whether we have current year earnings and profits subject to taxation. Although we will ascribe a value to RXi shares in the distribution for tax purposes, our valuation will not be binding on the Internal Revenue Service or any state taxation agency, which could ascribe a different valuation to the distributed RXi shares. Based upon our anticipated loss from operations for 2008 and currently available loss carryforwards, we expect to pay no taxes in connection with the distribution.