Molecular Insight Pharmaceuticals (MIPI) 10-Q 2010 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2010

OR

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

For the transition period from             to             

Commission File Number 001-33284

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

Massachusetts	04-0562086
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

160 Second Street, Cambridge, Massachusetts	02142
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 492-5554

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES  ¨    NO  x

The number of shares outstanding of the registrant’s common stock as of May 3, 2010 was 25,268,327.

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  ¨    NO  ¨

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

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

INDEX TO FORM 10-Q

	PAGE
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements-Unaudited	3
Condensed Consolidated Balance Sheets at December 31, 2009 and March 31, 2010	3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2010	4
Condensed Consolidated Statement of Stockholders’ Deficit for the Three Months Ended March  31, 2010	5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2010	6
Notes to the Unaudited Consolidated Financial Statements	7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	25
ITEM 4. Controls and Procedures	25
PART II OTHER INFORMATION	26
ITEM 1A. Risk Factors	26
ITEM 5. Other Information	28
ITEM 6. Exhibits	28
SIGNATURES	29

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements — Unaudited

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	December 31, 2009			March 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	15,467,048		$	18,084,073
Investments		48,514,855			29,048,432
Accounts receivable		651,094			843,765
Prepaid expenses		538,690			2,526,758
Other current assets		363,355			1,463,223
Debt issuance costs — net		4,526,855			4,168,650
Total current assets		70,061,897			56,134,901
Property and equipment — net		4,044,488			4,151,002
Restricted cash		500,000			500,000
Total assets	$	74,606,385		$	60,785,903
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	1,720,756		$	486,293
Accrued expenses		8,041,130			7,364,364
Bonds payable — net of discount		174,838,383			179,668,768
Total current liabilities		184,600,269			187,519,425
Asset retirement obligation		294,637			299,302
Deferred revenue		25,000			25,000
Other long term liabilities		183,075			354,400
Commitments and contingencies (Note 9) Stockholders’ deficit:
Common stock, $0.01 par value; authorized, 100,000,000 shares at December 31, 2009 and March 31, 2010; issued and outstanding, 25,268,327 shares at December 31, 2009 and March 31, 2010		252,683			252,683
Additional paid-in capital		182,142,165			182,716,539
Accumulated other comprehensive loss		(540	)		(17,561	)
Accumulated deficit		(292,890,904	)		(310,363,885	)
Total stockholders’ deficit		(110,496,596	)		(127,412,224	)
Total liabilities and stockholders’ deficit	$	74,606,385		$	60,785,903

See notes to unaudited consolidated financial statements.

3

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2009			2010
Revenue — research and development grants	$	211,859		$	594,788
Operating expenses:
Cost of product revenues		—			42,374
Research and development		6,047,307			7,478,985
General and administrative		3,511,528			5,396,945
General and administrative — related parties		889,913			—
Total operating expenses		10,448,748			12,918,304
Loss from operations		(10,236,889	)		(12,323,516	)
Other (expense) income:
Interest income		464,964			39,125
Interest expense		(5,483,993	)		(5,188,590	)
Total other (expense), net		(5,019,029	)		(5,149,465	)
Net loss	$	(15,255,918	)	$	(17,472,981	)
Basic and diluted net loss per share	$	(0.61	)	$	(0.69	)
Weighted average shares used to compute basic and diluted loss per share		25,169,524			25,235,420

See notes to unaudited consolidated financial statements.

4

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF

STOCKHOLDERS’ DEFICIT

(UNAUDITED)

	Common Stock $0.01 Par Value			Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Deficit			Total Comprehensive Loss
	Number of Shares	Par Value
Balance at January 1, 2010	25,268,327	$	252,683	$	182,142,165	$	(540	)	$	(292,890,904	)	$	(110,496,596	)
Stock-based compensation	—		—		574,374		—			—			574,374
Unrealized loss on available-for-sale securities, net of tax	—		—		—		(12,448	)		—			(12,448	)	$	(12,448	)
Currency translation adjustment	—		—		—		(4,573	)		—			(4,573	)		(4,573	)
Net loss	—		—		—		—			(17,472,981	)		(17,472,981	)		(17,472,981	)
Total comprehensive loss	—		—		—		—			—			—		$	(17,490,002	)
Balance at March 31, 2010	25,268,327	$	252,683	$	182,716,539	$	(17,561	)	$	(310,363,885	)	$	(127,412,224	)

See notes to unaudited consolidated financial statements.

5

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2009			2010
Cash flows from operating activities:
Net loss	$	(15,255,918	)	$	(17,472,981	)
Adjustments to reconcile net loss to cash used in operating activities:
Noncash interest expense and accretion		5,488,374			5,193,255
Depreciation and amortization		263,394			183,430
Loss on disposal of fixed assets		—			51,790
Stock-based compensation expense		492,380			574,374
Changes in assets and liabilities:
Accounts receivable		61,530			(192,671	)
Prepaid expenses		(1,308,470	)		(1,988,068	)
Other current assets		546,894			(1,099,868	)
Accounts payable		(208,799	)		(1,168,470	)
Accrued expenses and other		(2,230,173	)		(698,342	)
Accounts payable and accrued expenses-related parties		244,619			—
Net cash used in operating activities		(11,906,169	)		(16,617,551	)
Cash flows from investing activities:
Purchase of investments		(25,576,739	)		(8,946,025	)
Proceeds from investments		27,400,000			28,400,000
Purchase of property and equipment		(204,415	)		(214,826	)
Net cash provided by investing activities		1,618,846			19,239,149
Cash flows from financing activities:
Proceeds from exercise of common stock options and warrants		424,647			—
Proceeds from sale of restricted stock		687			—
Net cash provided by financing activities		425,334			—
Effect of foreign exchange rate changes on cash and cash equivalents		(2,881	)		(4,573	)
Net (decrease) increase in cash and cash equivalents		(9,864,870	)		2,617,025
Cash and cash equivalents — beginning of period		25,494,834			15,467,048
Cash and cash equivalents — end of period	$	15,629,964		$	18,084,073
Supplemental disclosures of cash flows information:
Noncash investing and financing activities:
Payment-in-kind bonds in lieu of cash interest payments	$	4,198,701		$	3,851,122

See notes to unaudited consolidated financial statements.

6

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND OPERATIONS

Nature of Business — Molecular Insight Pharmaceuticals, Inc. (the “Company”) was incorporated in January 1997 and is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of targeted therapeutic and imaging radiopharmaceuticals for use in oncology. Product candidates are designed to improve patient diagnosis, treatment and management. The Company’s research programs are conducted both internally and through strategic collaborations. The Company is based in Cambridge, Massachusetts and conducts its operations and manages its business as one operating segment.

Risks and Uncertainties — The Company is subject to the risks of a highly leveraged, clinical-stage company, such as developing saleable products, building up the research, manufacturing, administrative personnel, and organization structures to support growth, dependence on strategic partners, licensors and third-party contractors to successfully research, develop, manufacture and commercialize its product candidates based on the Company’s technologies, maintaining compliance with the covenants set forth in an Indenture (“Bond Indenture”) governing the Senior Secured Floating Rate Bonds due 2012 (“the Bond”), and obtaining future financing when required. In addition, the Company is also subject to risks common to companies in the biopharmaceutical industry including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and approval requirements, commercialization of its potential products, uncertainty of market acceptance of products, competition from larger companies, and its ability to reach commercial production of its product candidates.

Going Concern, Liquidity and Management’s Plans —The Company has incurred significant net losses and negative operating cash flows since inception. At March 31, 2010, the Company had an accumulated deficit of $310.4 million, including the $17.5 million net losses incurred for the three months ended March 31, 2010. The Company has five clinical-stage product candidates in development and will need to spend significant capital to fulfill planned operating goals and continue to conduct clinical and non-clinical trials, achieve regulatory approvals and, subject to such approvals, successfully produce products for commercialization. As such, the Company expects to continue to incur significant net losses and negative operating cash flows in the foreseeable future.

The terms of the Company’s Bond Indenture include various covenants, including among others, financial covenants that requires the Company maintain a minimum liquidity level on a quarterly basis. The minimum liquidity covenant (as defined in the Bond Indenture and which substantially represents all of the Company’s cash, cash equivalents and investments) requires the Company to maintain a minimum amount of not less than $25.7 million and $29.2 million at September 30, 2010 and December 31, 2010, respectively. Based on the Company’s current projections of cash flow, the Company expects that it would not be in compliance with this covenant in the third or fourth quarter of 2010, unless it is able to raise sufficient additional capital. Additionally, under the Bond Indenture, the Company is required to deliver audited annual financial statements to Bond holders which are not subject to a “going concern” or like qualification or exception from its independent auditors. Such anticipated noncompliance of the required minimum liquidity level in the second half of 2010, recurring losses from its operations and stockholders’ deficit, and the uncertainty of the Company obtaining additional financing on a timely basis, raise substantial doubt about its ability to continue as a going concern beyond September 2010. As a result, in the report of the independent registered public accounting firm on the Company’s financial statements as of and for the year ended December 31, 2009, the independent auditors have included an explanatory paragraph relating to substantial doubt about whether the Company can continue as a going concern. Consequently, the inclusion of such a “going concern” paragraph resulted in a default under the terms of the Bond Indenture which was waived by the Bond holders. The Company cannot guarantee its ability to continue as a going concern unless it can raise additional capital, of which there can be no assurance.

The Company has received an extension of a waiver by the Bond holders under its waiver agreement executed on March 15, 2010 with the holders of at least a majority of the Bonds and the Bond Indenture trustee, the original term of which expired 12:01 AM Eastern Standard Time on April 16, 2010. The waiver has been extended until 12:01AM Eastern Standard Time on May 18, 2010. Under the terms of the waiver agreement and the related amendment, the Bond holders and Bond Indenture trustee agreed to waive the noncompliance arising from the inclusion of the “going concern” paragraph in the report of the independent registered public accounting firm on the Company’s financial statements as of and for the year ended December 31, 2009 and other technical defaults under the Bond Indenture, subject to earlier termination upon certain circumstances. The waiver and the related amendment are also subject to a number of terms and conditions relating to the Company’s provision of certain information to the Bond holders, among other conditions and matters. Further, based on the Company’s current cash flow projections, it is still likely that the Company will be in breach of the minimum liquidity covenant contained in the Bond Indenture in the second half of 2010. Consequently, the long-term bond obligations and related debt issuance costs have been classified as current liabilities and current assets, respectively, at December 31, 2009 and at March 31, 2010. If the Bond Indenture is restructured in a transaction required to be accounted for as an extinguishment or the outstanding balance of the bond obligations is demanded by the Bond holders, unamortized debt issue costs of $4.2 million at March 31, 2010 would be required to be expensed at the restructuring or demand date.

7

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The accompanying consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern. As of March 31, 2010, the Company had $18.1 million of cash and cash equivalents and $29.0 million of investments.

The Company is continuing to negotiate with the Bond holders regarding the restructuring of the outstanding debt in a manner designed to avoid the acceleration of its debt obligations and position the Company for future growth. The Company cannot be assured that it will reach such an agreement on terms favorable to the Company, or at all. Moreover, in connection with the discussions with the Bond holders to reach such an agreement, the Bond holders may impose additional operational or financial restrictions on the Company or modify the terms of our existing Bond Indenture. These restrictions may limit the Company’s ability, among other things, to make necessary capital expenditures or incur additional indebtedness. In addition, the Bond holders may require the Company to pay additional fees, prepay a portion of its indebtedness, accelerate the amortization schedule for its indebtedness or agree to higher interest rates on its outstanding indebtedness or take other actions that could adversely affect the Company’s business. The Bond holders may also require the Company to raise additional capital concurrently with any restructuring. If the waiver grace period (or any extension thereof) expires or terminates, and the Company is unable to reach an agreement with Bond holders regarding an additional waiver or an agreement regarding the restructuring of its outstanding debt, the Bond holders may choose to accelerate its debt obligations under the Bond Indenture and demand immediate repayment in full and seek to foreclose on the collateral supporting such obligations. If its indebtedness under the Bond Indenture is accelerated or is not restructured on acceptable terms, it is likely that the Company will be unable to repay its debt and it may seek protection under the U.S. Bankruptcy Code or similar relief.

In conjunction with these discussions, the Company may raise additional funds through public or private sales of equity and other strategic collaborative arrangements which are limited under the provisions of the Bond Indenture. If the Company raises additional funds through the issuance of new equity securities, its stockholders may experience substantial dilution, or the new equity securities may have rights, preferences or privileges senior to those of existing stockholders. To the extent that the Company raises additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to its technologies or its product candidates or grant licenses on terms that are not favorable to the Company. The Company has no current commitments from any persons that they will provide any additional financing. Given the current market conditions and the status of the Company’s product development pipeline, obtaining financing may be difficult and may not be available on commercially acceptable terms, or at all.

In September 2009, the Company entered into a Territory License Agreement with BioMedica Life Sciences, S.A. (“BioMedica”) to sub-license its Onalta™ 90-Y edotreotide radiotherapeutic in certain countries. Further, in October 2009, the Company executed an exclusive 10-year agreement to supply Onalta to BioMedica and entered into an agreement with Eckert & Ziegler Nuclitec GmbH (“EZN”) to manufacture Onalta. The Company has received $4.4 million of upfront payments from BioMedica and will also be eligible to receive regulatory milestone payments, as well as commercial milestones and tiered royalties on Onalta sales upon commercialization in addition to near- and long-term revenues from supplying Onalta for compassionate use, clinical trial supplies and, upon regulatory approvals, commercial supply to the licensed BioMedica territories. While the Supply Agreement will provide the Company with a source of liquidity after net remaining payments to EZN of approximately $5.9 million for the first five years for manufacturing and facility costs, future potential cash receipts from BioMedica, if any, are principally contingent upon the successful completion of contractually defined development and regulatory approval objectives. There is also considerable inherent uncertainty in the successful development and commercialization of products in the pharmaceutical industry.

The Company believes that its existing cash, cash equivalents and investments together with the implementation of planned additional cost reduction initiatives if necessary, will be sufficient to fund its operations and maintain compliance with its minimum liquidity covenant through at least September 30, 2010. In order to continue operations beyond September 2010, the Company must raise additional capital and restructure the terms of our outstanding Bonds. The Company’s failure to raise capital when needed could have a negative impact on its financial condition and its ability to pursue business strategies as well as potentially delay product research and development efforts and potentially require the Company to reduce the scope of, or eliminate one or more of its ongoing clinical programs or cause the Company to cease operations. The Company would also be required to implement further reduction in personnel and related costs and other discretionary expenditures that are within the Company’s control. In January 2010, the Company announced a strategic decision to re-align and re-balance personnel to further reduce future operating costs and support the efficient development of its oncology product candidates. The Company recognized a charge of approximately $0.2 million in the first quarter of 2010 as a result of this decision.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (of normal and recurring nature) necessary for a fair statement of the Company’s financial position, results of operations, and cash flows. The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31,

8

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2009. The Company’s significant accounting policies are described in the Notes to the Consolidated Financial Statements in the 2009 Annual Report on Form 10-K and updated, as necessary, in this Form 10-Q. The December 31, 2009 consolidated balance sheet presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the U.S. The results of operations for the three months ended March 31, 2010 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

3. FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments —The carrying amounts of the Company’s financial instruments, which include cash equivalents, investments, accounts receivable, accounts payable and accrued expenses, except for the embedded derivative, approximate their fair values due to their short-term nature. The embedded derivative is recorded at its estimated fair value. Due to the circumstances described in Notes 1 and 8 to the unaudited financial statements, Management cannot reasonably estimate the fair value of the Company’s bond obligations, including accrued interest which are paid-in-kind and issued as additional bonds to bond holders at March 31, 2010. Further, the Bond Indenture is not publicly traded and contains characteristics that are not widely observed in similar debt instruments.

The Company records cash equivalents, which are held in money market funds and invested U.S. treasuries, at fair value (level 1) as quoted prices and an active market exists.

The Company measures and records the fair value of its available-for-sale securities at the closing market price (level 1) at period end for these investment instruments and the balance sheet valuation reflects the aggregate fair market value of all available-for-sale securities. Unrealized changes in such fair values are recorded in accumulated other comprehensive income.

The Company measures the fair value of the embedded derivative (contingent mandatory redemption feature — see Note 8) through the use of unobservable inputs (level 3) which include adjustable interest rates, fixed budgeted research spending based on a pre-determined timeline (as defined by the Company’s bond financing agreement), discount rate determined using an appropriate risk-free rate plus a credit spread, success factor probabilities for key product candidates at each phase of development and the likelihood that bond holders will allow for reinvestment in an alternative product upon occurrence of a product material adverse event (“MAE”). Contingent mandatory redemption amounts approximate the remaining budgeted research spending in the period in which a product MAE on a primary product is determined to have occurred. The fair value of the embedded derivative declines as product development proceeds over time. Changes in the product development timeline would also have an effect on the fair value of the embedded derivative as potential repayments on the bond declines with the passage of time. In evaluating the assumptions utilized in the valuation model, the Company considered the progress and results of clinical trials conducted on its primary products and potential alternative products in the Company’s pipeline in the event of a product MAE. The Company has assigned success factor probabilities ranging from 78%-100% and deems that it is highly unlikely that: (1) a product MAE would occur in the time periods outlined in the bond financing agreement; and (2) bond holders would not allow for reinvestment of budgeted research spending in alternative products in the case of a product MAE. The Company had no purchases, sales, issuances, or settlements that would otherwise have an impact on the fair value of the embedded derivative.

These valuation techniques may be based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

• Level 1 — Quoted prices for identical instruments in active markets.

• Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

• Level 3 — Instruments whose significant value drivers are unobservable.

9

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents the Company’s assets and liabilities that are measured at fair value and their related hierarchy levels:

	Fair Value Measurements at Reporting Date Using
	March 31, 2010		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Measured at Fair Value on a Recurring Basis
Assets:
Cash equivalents	$	17,940,520	$	17,940,520	$	—	$	—
Available-for-sale securities (U.S. Treasury Bills)	$	29,048,432	$	29,048,432	$	—	$	—
Liabilities:
Embedded derivative	$	50,000	$	—	$	—	$	50,000

	Fair Value Measurements at Reporting Date Using
	December 31, 2009		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Measured at Fair Value on a Recurring Basis
Assets:
Cash equivalents	$	14,826,040	$	14,826,040	$	—	$	—
Available-for-sale securities (U.S. Treasury Bills)	$	48,514,855	$	48,514,855	$	—	$	—
Liabilities:
Embedded derivative	$	50,000	$	—	$	—	$	50,000
Measured at Fair Value on a Non-Recurring Basis
Long-lived assets	$	1,799,544	$	—	$	—	$	1,799,544

The table below provides a reconciliation of the fair value of the embedded derivative measured on a recurring basis for which the Company used Level 3 for the three months ended March 31, 2009 and 2010:

	2009		2010
Beginning, January 1	$	50,000	$	50,000
Realized gain included in other income		—		—
Purchases, issuances and settlements		—		—
Transfers in/out of Level 3		—		—
Balance, March 31	$	50,000	$	50,000

4. NET LOSS PER SHARE

Basic and diluted net loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share, because the effects of potentially dilutive securities are anti-dilutive for all periods presented.

Net loss per share amounts have been computed based on the weighted-average number of common shares outstanding during each period. For the three months ended March 31, 2009 and 2010, options to purchase 2,884,711 and 4,007,469 shares of common stock, respectively, nonvested shares of 32,907 and warrants to purchase 6,604,840 were not included in the computation of net loss per share, because the effect would be anti-dilutive.

5. STOCK-BASED COMPENSATION

Pursuant to the annual automatic increase provisions of the Amended and Restated 2006 Equity Incentive Plan, an additional 1,010,733 shares have been reserved in 2010 to allow for a total of 5,311,635 shares issuable for share awards.

10

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Employees —The estimated fair value of stock options granted was determined using the Black-Scholes option pricing model. In using the Black-Scholes option pricing model, the Company makes certain assumptions with respect to the estimated lives of the awards, expected volatility of the common stock consistent with the expected option life, risk free interest rates, and dividend rates.

There were no awards granted during the three months ended March 31, 2010. The Company used the following assumptions in estimating the fair value of stock options granted for the three months ended March 31, 2009:

	2009
Risk free interest rates	2.06	%
Expected dividend yield	0	%
Expected life (non-performance-based options)	6.25 years
Expected volatility	89	%

Information concerning stock option activity granted under the Company’s Amended and Restated 2006 Equity Incentive Plan (the “Plan”) for the three months ended March 31, 2010 is summarized as follows:

	Number of Shares		Weighted Average Exercise Price per Share		Weighted Remaining Contractual Life (Years)
Options outstanding at beginning of period	4,114,853		$	5.16	7.44
Granted	—			—
Exercised	—			—
Forfeitures	(187,384	)		5.85
Options outstanding at end of period	3,927,469			5.13	7.16
Options exercisable	1,747,954			5.26	5.08
Options vested and expected to vest	2,923,138			5.19	6.57
Options available for grant	2,312,404
Weighted average fair value of options granted			$	—

Information concerning unvested restricted stock activity for the three months ended March 31, 2010 is summarized as follows:

	Number of Shares	Grant Date Fair Value
Nonvested shares at beginning of period	32,907	$	7.78
Granted	—		—
Vested	—		—
Forfeited	—		—
Nonvested shares at end of period	32,907	$	7.78

Certain of the Company’s option agreements provide that in the event of a change in control of the Company, as defined, any unvested options will become immediately vested and exercisable.

Stock-based compensation expense, including awards granted to non-employees for each period presented in the accompanying consolidated statements of operations is as follows:

	Three Months Ended March 31,
	2009		2010
Stock-based compensation charged to:
Research and development	$	210,941	$	300,579
General and administrative		281,439		273,795
Stock-based compensation expense	$	492,380	$	574,374

11

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of March 31, 2010, the unamortized compensation expense of all employee stock option and restricted stock awards granted under the Company’s Plan, net of estimated forfeitures were $2,852,873 and $106,740, respectively. These amounts will be amortized over an estimated weighted average period of 1.98 and 2.14 years, respectively.

6. CASH EQUIVALENTS AND INVESTMENTS

Cash Equivalents and Investments — Cash equivalents were money market accounts invested in U.S. Treasury bills and purchased with maturities less than 90 days. The Company’s investments were held in U.S. Treasury bills with maturities over 90 days. These investments are recorded at fair value and accounted for as available-for-sale securities with any unrealized gains or losses reported as a separate component of stockholders’ deficit. The Company uses the specific identification method in determining gains and losses reclassified out of accumulated other comprehensive income into earnings. Cash and cash equivalents, and investments are held at two financial institutions, of which substantially all amounts were held in one institution.

The amortized cost, gross unrealized gains and losses, and fair value of short-term investments are as follows:

	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
March 31, 2010	$	29,048,158	$	274	$	—	$	29,048,432
December 31, 2009	$	48,502,133	$	18,458	$	5,736	$	48,514,855

No realized gains or losses were recognized in Other income or expense for the year ended December 31, 2009 and the three months ended March 31, 2010.

7. ACCRUED EXPENSES

Accrued expenses consist of the following:

	December 31, 2009		March 31, 2010
Payroll, bonuses, severance and vacation	$	2,327,866	$	1,397,232
Clinical trials		2,120,123		2,301,807
Manufacturing		650,104		469,422
Professional fees		2,355,322		2,530,025
Sponsored research and license agreements		385,680		118,192
Other		202,035		547,686
Total accrued expenses	$	8,041,130	$	7,364,364

8. DEBT

Debt consists of the Senior Secured Floating Rate Bonds, due 2012, and has the following carrying amounts:

	December 31 2009			March 31, 2010
Bond principal	$	150,000,000		$	150,000,000
PIK interest		36,533,644			40,384,766
Bond discount		(11,695,261	)		(10,715,998	)
	$	174,838,383		$	179,668,768

As of March 31, 2010, future payments of principal and PIK (“paid-in-kind”) interest on all existing debt due in November 2012 were $190,384,766. The Bonds have a five-year maturity date and bear a coupon interest rate equivalent to the three month LIBOR (London Inter-Bank Offer Rate) plus 8%, determined on a quarterly basis beginning on November 16, 2007. The average interest rate was 9.84% and 8.26% for the three months ended March 31, 2009 and 2010, respectively. Interest accrued on the Bonds on any quarterly interest payment date between and including November 16, 2007 and November 16, 2010, shall be payable through the issuance of PIK Bonds. Such PIK Bonds shall be part of the same class, and shall have the same terms and rights, as the original Bonds except that interest on such PIK Bonds shall begin to accrue from the date of issuance of such PIK Bond. Interest accrued on the Bonds shall be paid in cash after November 16, 2010. All of the Company’s assets are pledged as security for the obligations of the Company under the Bond Indenture.

Redemption of Bonds

The Bond Indenture requires mandatory redemption of some or all of the Bonds upon defined events, such as the disposition of certain assets or property, disposition of or sale of any non-primary product, disposition of any product consisting of outbound

12

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

licensing arrangements, the issuance of indebtedness (other than the PIK Bonds), the sale of securities in an equity financing, receipt by the Company of funds constituting extraordinary receipts, in the event of excess free cash flow over specified levels, and in the event of a product material adverse event (as defined in the Bond Indenture).

The contingent mandatory redemption feature related to a product material adverse event is an embedded derivative. The Company valued the derivative financial instrument at date of issue and will continue to re-measure it at each reporting period at its fair value. Based on a periodic evaluation of input assumptions to the valuation model utilized in determining the initial fair value of the embedded derivative, the Company has determined a remaining fair value of $50,000 at December 31, 2009 and March 31, 2010. The embedded derivative is classified in accrued expenses in the consolidated balance sheets. Changes in fair value are recorded as either a gain or loss in the consolidated statement of operations in other income (expense).

The Bonds become subject to redemption upon a change in control (defined as a person acquiring 30% or more of the voting securities of the Company). The Company may redeem the Bonds at its option and with a premium, beginning November 16, 2007. If redeemed at the following dates, the redemption price would be equal to the following:

From	To	Price
November 1, 2009	October 31, 2010	104% of principal plus unpaid interest
November 1, 2010	October 31, 2011	102% of principal plus unpaid interest
Thereafter		100% of principal plus unpaid interest

Debt Covenants

The Bond Indenture contains various covenants with which the Company must comply, including, without limitation, the timely payment of interest and principal when due, the provisions of quarterly and annual financial statements and other reports, the maintenance of a minimum liquidity level and a requirement that capital expenditures not exceed certain annual amounts. The provisions of the Bond Indenture also require that the report on the audit of the Company’s consolidated financial statements by the Company’s independent registered public accounting firm not be subject to a “going concern” or like qualification or exception. The Company is also prohibited from paying cash dividends on its common stock.

Under the Bond Indenture, the Company is required to maintain a Minimum Liquidity (as defined in the Bond Indenture and which substantially represents all of the Company’s cash, cash equivalents and investments) of at least the sum of $21.1 million for the period ended March 31, 2010 (the lowest “minimum amount”) and any contingent mandatory redemption amounts due in the case of a product material adverse event less any amounts already paid with respect to such mandatory redemption amounts and amounts not held on deposit with the Trustee. The minimum amount increases on a quarterly basis to $41.9 million for the period from April 1, 2011 to June 30, 2011; after which the amount increases to $45.0 million for the period from July 1, 2011 and through the maturity date. The Company expects to be in violation of this covenant in the third or fourth quarter of 2010 (see Note 1). The Company had Minimum Liquidity in excess of the required amount by approximately $26.0 million at March 31, 2010.

The financial covenants in the Bond Indenture also set limits on the Company’s capital expenditures in any year. Under the Bond Indenture, capital expenditures may not exceed $3.0 million in year 2010, $5.0 million in year 2011, and $6.0 million in 2012. These maximum capital expenditure limits may be adjusted upwards in any given year, up to an additional $1.5 million, if the preceding year’s capital expenditures were less than the maximum level. In any year when a cyclotron is purchased, the maximum capital expenditure level is increased by the cost of the cyclotron, up to a maximum of $10.0 million.

A failure to comply with the covenants of the Bond Indenture which is not cured within applicable cure or grace periods would constitute an event of default under the Bond Indenture. Such events of default would include the failure to pay interest and principal when due, the failure to provide financial statements and other required reports when due, the failure to maintain Minimum Liquidity levels, and the failure to limit annual capital expenditures to the maximum levels permitted under the Bond Indenture. Because of the covenant violation described in Note 1, the Company has classified the bonds payable and related issuance costs as current in the consolidated balance sheets as at December 31, 2009 and at March 31, 2010.

The Bond Indenture contains various covenants with which the Company must comply, including, without limitation, the timely payment of interest and principal when due, the provisions of quarterly and annual financial statements and other reports, the maintenance of a minimum liquidity level and a requirement that capital expenditures not exceed certain annual amounts. The Company is prohibited from paying cash dividends on its common stock.

Due to the circumstances described in Note 1, on March 15, 2010, the Company executed a waiver agreement with the holders of at least a majority of the Bonds and the Bond Indenture trustee. Under the terms of the waiver agreement, the Bond holders and Bond Indenture trustee have agreed to waive the default arising from the inclusion of a “going concern” paragraph in the report of the independent registered public accounting firm on the Company’s financial statements as of and for the year ended December 31, 2009 and other technical defaults under the Bond Indenture until 12:01 AM Eastern Standard Time on April 16, 2010, subject to earlier termination upon certain circumstances. The Company has received an extension of this waiver by the Bond holders and the waiver has been extended until 12:01AM Eastern Stand Time on May 18, 2010.

13

MOLECULAR INSIGHT PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The waiver and the related amendment are also subject to a number of terms and conditions relating to the Company’s provision of certain information to the Bond holders, among other conditions and matters. In the event that the waiver expires or terminates prior to the successful restructuring of the Company’s outstanding debt, then the Company will be in default of its obligations under the Bond Indenture and the Bond holders may choose to accelerate the debt obligations under the Bond Indenture and demand immediate repayment in full and seek to foreclose on the collateral supporting such obligations. If the Company’s debt obligations under the Bond Indenture are accelerated or are not restructured on acceptable terms, it is likely the Company will be unable to repay such obligations and may seek protection under the U.S. Bankruptcy Code or similar relief.

9. COMMITMENTS AND CONTINGENCIES

As of March 31, 2010, the Company is not a party to any material legal proceedings. There were no material changes in commitments from December 31, 2009 except as disclosed below:

On March 30, 2010, the Company entered into an amendment to its lease agreement for the lease of office space located in Cambridge, Massachusetts to reduce the aggregate rentable premises and extend the term of its lease agreement through September 30, 2011 subject to early termination upon 90 days’ written notice to the landlord. The monthly base rent from April 1, 2010 to December 31, 2010 is $34,466 and from January 1, 2011 to September 30, 2011 is $35,462.

10. COMPLIANCE WITH NASDAQ LISTING REQUIREMENTS

On March 9, 2010, the Company received a letter from The NASDAQ Stock Market (“NASDAQ”) notifying that for the 30 consecutive business days preceding the date of the letter, the Company failed to maintain the minimum $50 million Market Value of Listed Securities requirement for continued listing on the NASDAQ Global Market pursuant to NASDAQ Listing Rule 5450(b)(2)(A) (the “MVLS Rule”). NASDAQ further advised the Company that in accordance with NASDAQ Listing Rule 5810(c)(3)(C), the Company has a grace period of 180 calendar days, or until September 7, 2010, to regain compliance with the MVLS Rule. NASDAQ will deem the Company to have regained compliance with the MVLS Rule if at any time during this grace period the Company’s Market Value of Listed Securities closes at $50,000,000 or more for a minimum of ten consecutive business days.

On April 27, 2010, the Company received a letter from NASDAQ stating that for the last 10 consecutive business days, from April 13, 2010 to April 26, 2010, the Company’s market value of listed securities has been $50,000,000 or greater and accordingly, the Company has regained compliance with the MVLS Rule and this matter is now closed.

11. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06,Improving Disclosures about Fair Value Measurements.ASU 2010-06 requires a gross presentation of activities within the Level 3 roll forward, and adds a new requirement to disclose transfers in and out of Level 1 and 2 measurements. It also clarifies two existing disclosure requirements of ASC 820-10,Fair Value Measurements and Disclosures – Overall,to require fair value disclosures by class of assets and liabilities rather than by major category; and requires that reporting entities must disclose the valuation technique used and the inputs used in determining the fair values of each class of assets and liabilities for Level 2 and Level 3 measurements. The ASU is effective for the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 roll forward, which is required for annual reporting periods beginning after December 15, 2010 and for interim reporting periods within those years. Early application is permitted and comparative disclosures are not required in the period of initial adoption. The adoption of this ASU did not have a significant impact on the Company’s financial statements.

12. SUBSEQUENT EVENTS

On April 28, 2010, the Company entered into an Amendment to the Territory License and Supply Agreements (the “Amendment”) with BioMedica to modify the Supply Agreement with respect to certain product transfer pricing provisions for the supply of Onalta during the period from April 1, 2010 through September 30, 2011 and the timing of certain advance payments on inventory; and to modify the Territory License Agreement with respect to the timing of a milestone payment after a first sale of Onalta. The effective date of the Amendment was April 1, 2010.

14

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements and Risk Factors

When you read this section of this Form 10-Q, it is important that you also read the financial statements and related notes and the Risk Factors section included in our Annual Report on Form 10-K as of, and for the year ended December 31, 2009, as well as the Risk Factors section in this Form 10-Q.

Statements in this interim report on Form 10-Q that are not strictly historical in nature are forward-looking statements. These statements include, but are not limited to, statements about our financial performance, our corporate strategy, our business operations, our negotiations with our Bond holders and the consequences of the failure to reach agreement with the Bond holders in regard to avoiding acceleration of the debt obligations under the Bond Indenture and restructuring such debt on acceptable terms, our ability to meet our obligations under the Bond Indenture, our potential insolvency and other consequences caused by a default under the Bond Indenture, our clinical trials of Azedra^™, Onalta^™, Trofex^™, Solazed^™ and Zemiva^™ and anticipated regulatory requirements and the timing of launches of such products, our business development strategy regarding the European rights to Onalta™ and anticipated compassionate use and clinical trials in the licensed territories, anticipated revenues from product supply to BioMedica, from regulatory milestone payments and from milestone and tiered royalties on sales, our capital requirements and our needs for additional financing, potential severe dilution of our stock ownership, and potential delisting of our stock. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “continuing,” “ongoing,” “should,” “could,” “goal,” and similar expressions intended to identify forward-looking statements. These statements are only predictions based on current information and expectations and involve a number of risks and uncertainties. The underlying information and expectations are likely to change over time. Actual events or results may differ materially from those projected in the forward-looking statements due to various factors, including, but not limited to, those set forth in the Risk Factors section of our annual report on Form 10-K and those set forth in the Risk Factors section in this Form 10-Q. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Recent Developments

On November 16, 2007, we sold $150,000,000 in Senior Secured Floating Rate Bonds due 2012 (“Bonds”) and warrants to purchase 6,021,247 shares of common stock at an exercise price of $5.87 per share (“Bond Warrants”) under an Indenture (“Bond Indenture”). Based on our current projections of our cash flow, we will breach the minimum liquidity requirements under the Bond Indenture in the second half of 2010, unless we are able to raise sufficient additional capital. Additionally, under the Bond Indenture, we are required to deliver audited annual financial statements to Bond holders which are not subject to a “going concern” or like qualification or exception from our auditors. In light of recurring losses from our operations and stockholders’ deficit, the uncertainty of our obtaining additional financing on a timely basis, and the fact we will likely not comply with the minimum liquidity requirements under the Bond Indenture if we do not procure such additional financing, as well as other factors described in Note 1 to the financial statements for the three months ended March 31, 2010 attached to this Quarterly Report on Form 10-Q, in the report of our independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2009, our independent auditors have included an explanatory paragraph relating to substantial doubt about whether we can continue as a going concern. Consequently, the inclusion of such a “going concern” paragraph resulted in a default under the terms of the Bond Indenture which was waived by the Bond holders.

We discussed with the holders of our Bond the foregoing circumstances and a restructuring of our outstanding debt. We have received an extension of a waiver by our Bond holders under our waiver agreement executed on March 15, 2010 with the holders of at least a majority of the Bonds and the Bond Indenture trustee, the original term of which expired 12:01 AM Eastern Standard Time on April 16, 2010. The waiver has been extended until 12:01AM Eastern Standard Time on May 18, 2010. Under the terms of the waiver agreement and related amendment, the Bond holders and Bond Indenture trustee agreed to waive the default arising from the inclusion of a “going concern” paragraph in the report of our independent registered public accounting firm on our financial statements and other technical defaults under the Bond Indenture, subject to earlier termination upon certain circumstances. The waiver and related amendment are also subject to a number of terms and conditions relating to our provision of certain information to the Bond holders, among other conditions and matters. In the event that the waiver expires or terminates prior to the successful restructuring of the outstanding debt, then we will be in default of our obligations under the Bond Indenture and the Bond holders may choose to accelerate the debt obligations under the Bond Indenture and demand immediate repayment in full and seek to foreclose on the collateral supporting such obligations.

We are continuing to negotiate with the Bond holders regarding the restructuring of the outstanding debt in a manner designed to avoid the acceleration of our debt obligations. Although our management team remains optimistic regarding the possibility of reaching

15

an agreement with the Bond holders that will allow us to avoid such an acceleration of the debt obligations and position us for future growth through a restructuring of these obligations, there is no assurance that we will reach such an agreement on terms favorable to us, or at all.

In the event that we are able to successfully restructure our outstanding indebtedness, we will also need to actively pursue financing strategies to raise additional funds through private sales of equity and other strategic collaborative arrangements. However, unless the amount of our senior secured indebtedness is significantly reduced, it may prove difficult for us to obtain such additional financing.

Company Overview

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

We have five clinical-stage candidates in development. The Company’s product candidates and their stages of development as of March 31, 2010 are summarized below:

Program	Primary Indication(s)	Stage of Development
Oncology
Azedra (Ultratrace iobenguane I 131)	Pheochromocytoma (and paraganglioma;together referred to singly as “pheochromocytoma”)	In Pivotal Phase 2b
	Neuroblastoma	In Phase 2a
Onalta (Yttrium-90 edotreotide)	Metastatic carcinoid and pancreatic neuroendocrine tumors	Pre-Phase 3 (Europe)
Trofex (MIP-1072)	Metastatic prostate cancer	In Phase 1
Solazed (Ioflubenzamide I 131)	Metastatic melanoma	Initiating Phase 1
Non-Oncology
Zemiva (Iodofiltic acid I 123)	Acute cardiac ischemia	Completed Phase 2

Clinical Developments Regarding our Product Candidates

Oncology Product Candidates

Azedra

Azedra is our lead radiotherapeutic oncology product candidate. We have received an Special Protocol Assessment (“SPA”) letter stating that the FDA has reached agreement with the Company regarding the design of the pivotal Phase 2 trial for pheochromocytoma leading to the registration of Azedra™ (Ultratrace™ iobenguane I 131, formerly known as Ultratrace MIBG). Currently, patients are being enrolled in this study (IB-12b).

Onalta

In May, 2009, we reached an agreement with the EMEA on a proposed Phase 3 protocol design for Onalta that would be suitable to support registration provided the results are compelling. In September 2009, we sub-licensed Onalta™ Y-90 edotreotide to BioMedica. Under the Agreement, BioMedica is expected to perform clinical studies and market, distribute and commercialize Onalta in certain countries in Europe, the Middle East, North Africa, Russia and Turkey and secure all regulatory approvals within the BioMedica territories. BioMedica is expected to commence a European pivotal Phase 2 clinical study in the first half of 2011.

Trofex

We have completed the Phase 1 (TX-P101), proof of concept study for Trofex in men with documented prostate cancer and confirmed metastatic disease. Based on our initial results of clinical data in men with prostate cancer, we initiated a second Phase 1 (TX-P102) Trofex imaging study in August 2009 to compare normal men and men with metastatic disease. In November 2009, an additional exploratory Phase 1 (TX-P103) was initiated for the detection of metastatic prostate cancer that will inform development of further clinical trials and support a fast track designation for approval by the FDA, for Trofex as a diagnostic agent. Finally, we expect an important collaborative study (TX-P104) with the National Cancer Institute/National Institute of Health to begin in 2010 where patients with known prostate cancer scheduled for surgery will be evaluated with Trofex prior to surgery.

Solazed

Solazed is our targeted radiotherapeutic drug candidate for treatment of malignant metastatic melanoma. We initiated a Phase 1 clinical trial of Solazed and dosed our first patient in March 2010. The Phase 1 proof-of-concept study is being conducted with the University of Pennsylvania and is funded by a two-year grant from the National Cancer Institute that could total as much as $1.5 million to support this stage of development of Solazed.

16

Our Non-Oncology Product Candidate

Zemiva

We are currently in discussions with the FDA regarding the design of the Phase 3 protocol.

On-Going Clinical Programs

Clinical trial costs are a significant component of our research and development expenses. We contract with third parties to perform certain clinical trial activities on our behalf in the on-going development of our product candidates. As of March 31, 2010, we have four (4) active clinical trials in the area of oncology. Our on-going clinical trials and estimated future remaining costs to be incurred on these clinical trials based on the financial terms of our contracts with clinical sites and contract research organizations are as follows:

Clinical Trial	Indication	Estimated Future Remaining Costs		Estimated Period of Expenditure
Pivotal Phase 2b for Azedra or IB12b	Malignant pheochromocytoma in adults	$	8.5 million	Through the End of 2014
Phase 2a for Azedra or IB13	Neuroblastoma in children	$	0.3 million	Through the End of 2010(1)
Phase 1 Trofex or TX-P103(2)	Prostate cancer imaging	$	0.9 million	Through the End of 2010

(1) Estimated completion of clinical trial has been pushed out due to delays in patient enrollment.

(2) The number of estimated patient enrollment has increased.

Financial Operations Overview

Revenue

Licensing Agreement.

In September 2009, we entered into a Territory License Agreement (“Agreement”) with BioMedica to sub-license our Onalta™ Y-90 edotreotide radiotherapeutic in certain countries in Europe, the Middle East, North Africa, Russia and Turkey. This Agreement provides BioMedica an exclusive sub-license to ours and Novartis’ intellectual property rights and know-how with respect to Onalta. We had licensed the rights to edotreotide, the parent compound of Onalta, from Novartis in November 2006. Under this Agreement, BioMedica is expected to perform clinical studies and market, distribute and commercialize Onalta in the specified territories and secure all regulatory approvals. We agreed to provide forty (40) hours of compound radiolabeling technical transfer support services without charge in addition to providing reasonable levels of training, technical and regulatory support services on a time and materials basis at BioMedica’s request.

Under the terms of this Agreement, we received an initial, nonrefundable payment of $4.4 million, two option grants to have BioMedica assign, transfer and convey to us, a minority shareholder interest in BioMedica, each for 1.5% of the total non-diluted interest in all classes of any issued and authorized outstanding share capital in BioMedica at the time of each exercise, exercisable upon execution of this Agreement and upon the EMEA marketing authorization approval of Onalta and will be eligible to receive more than $10 million in total regulatory milestone payments, net of license payments to Novartis. We will also be eligible to receive milestone and tiered royalties on Onalta sales.

This Agreement also provides that during the term of the Agreement, BioMedica will purchase all of its requirements for Onalta exclusively and solely from us, a third party manufacturer designated by us, and/or a BioMedica designated third-party manufacturer approved by us, the terms and conditions of which are outlined in a definitive supply agreement executed in October 2009 (“Supply Agreement”). The term of the Supply Agreement is for ten (10) years and provides for guaranteed monthly minimum purchases within a defined period of time by BioMedica.

Research and Development Grants.

Our grant revenue to date has been derived from National Institutes of Health, or NIH, grants. We have not had any significant product sales. In the future, we expect our revenue to consist of product sales and payments from collaborative or strategic relationships, as well as from additional grants. Funding of government grants is competitive and subject to annual Congressional appropriations, and all of our government contracts contain provisions which make them terminable at the convenience of the government. The

17

government could terminate, reduce or delay the funding under any of our grants at any time. Accordingly, there is no assurance that we will receive funding of any grants that we may be awarded. As of March 31, 2010, gross proceeds of $1.6 million remained to be received under our various NIH grants, which include potential reimbursements for our employees’ time and benefits and other expenses related to performance under the various contracts. In the event we are not successful in obtaining any new government grants or extensions to existing grants, we may have to reduce the scope of some of our programs.

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

Program Title	Agency		Program Total		Total  Received Through March 31, 2010		Remaining Amounts  to be Earned as of March 31, 2010		Contract/ Grant Expiration
Early Clinical Testing for Melanin Targeting Radio-therapeutic Agent in Melanoma(2)	NCI	(1)	$	224,000	$	125,000	$	99,000	2009
Targeting Tumor Microenvironment with Radiolabeled Inhibitors of Seprase(2)	NCI	(1)		181,000		177,000		4,000	2010
Nanodosing: A Path to Higher Sensitivity and Lower Toxicity Pharmaceuticals(3)	NCI	(1)		982,000		643,000		339,000	2010
Systematic Radiotherapy for Metastatic Melanoma: Innovation of a Novel Radiopharma(3)	NCI	(1)		1,243,000		390,000		853,000	2011
Development of a Molecular Targeting Agent for PSMA to Diagnose Metastatic Prostate Cancer(2)	NCI	(1)		488,000		263,000		225,000	2011
Targeting Tumor Hypoxia with Radiohalogenated Inhibitors of Carbonic Anhydrase IX(4)	NCI	(1)		111,000		—		111,000	2012
Total			$	3,229,000	$	1,598,000	$	1,631,000

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

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

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

(4) New contract awarded in the first quarter of 2010.

Cost of Product Revenues.

Concurrent with the Supply Agreement entered into with BioMedica in October 2009, we also entered into a ten (10) year Facility Setup and Contract Manufacturing Agreement with EZN, a company with a licensed radiopharmaceutical manufacturing facility in Braunschweig, Germany. Under the terms of the agreement, EZN will manufacture and supply Onalta for compassionate use and registration clinical trials within the BioMedica territories, and for commercial sales, upon the EMEA marketing authorization approval of Onalta. The agreement also provides for EZN to establish an exclusive suite for the manufacture and supply of Onalta which will be funded by us and estimated at a cost of €1.3 million (approximately $1.9 million), including estimated costs of €0.3 million associated with decommissioning of the dedicated suite upon termination. We are also required to make fixed monthly payments to EZN aggregating €2.7 million (approximately $3.9 million) for the initial five (5) years following the effective date of the agreement in addition to product costs.

The monthly payments to EZN are expensed as incurred and recognized as “Cost of product revenues” in the Consolidated Statements of Operations.

Research and Development Expense.

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

18

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

• the number of clinical sites included in the trial;

• the length of time required to enroll suitable subjects;

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

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

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

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

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

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

We own a radiopharmaceutical manufacturing facility located in Denton, Texas and have obtained a radioactive materials license from the State of Texas for this facility that expires in May 2018. The facility has more than 80,000 square feet of pharmaceutical manufacturing, warehouse, clean room and administrative office space.

As of March 31, 2010, the facility was not yet placed in service. In the fourth quarter of 2009, we recognized an impairment charge of $1.2 million to reflect the outcome of an impairment review that was undertaken which indicated a decline in the fair value of building facility. We conduct a review of our long-lived assets for possible impairment when events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets as determined by valuation techniques appropriate in the circumstances.

In early January 2010, we also announced a strategic decision to re-align and re-balance personnel to further reduce operating costs and support the efficient development of our oncology product candidates. We also recognized a charge of approximately $0.2 million in the first quarter of 2010 as a result of this reduction in research and development personnel.

General and Administrative Expense.

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

19

Stock-Based Compensation Expense.

Operating expenses include stock-based compensation expense, which results from the issuance of stock-based awards, such as options and restricted stock to employees, members of our Board of Directors and consultants in lieu of cash consideration for services received. The measurement and recognition of compensation expense for service-based awards made to employees under our Equity Incentive Plans are based on their estimated grant date fair values and compensation costs are recognized over the requisite service period using the straight-line attribution method. Fair values for performance-based awards made to employees are estimated based on the date the performance conditions are established and assessed as probable of being achieved and compensation costs are recognized on a straight-line basis through the period of achievement of the performance conditions. The probability of vesting is reassessed by the Company at each reporting period and compensation costs are adjusted based on its probability assessment. Compensation costs recognized reflect the number of awards that are expected to vest and adjusted to reflect those awards that do ultimately vest.

The estimated fair value of the stock options granted is estimated using the Black-Scholes valuation model. The use of the Black-Scholes option-pricing model requires us to make assumptions with respect to the expected life of the option, the expected volatility of the common stock consistent with the expected life of the option, risk free interest rates and expected dividend yields of our common stock. Higher estimates of volatility and expected life of the option increase the value of an option and the resulting expense.

All stock-based awards to non-employees are accounted for at their fair values and recognized over the period of expected service by the nonemployees (which is generally the vesting period). As the service is performed, we are required to update these assumptions and periodically revalue unvested options and make adjustments to the stock-based compensation expense using the new valuation. These adjustments are recognized in the consolidated statements of operations in the periods of re-measurement. Ultimately, the final compensation charge for each option grant to nonemployees is unknown until the performance of services is completed. We account for transactions in which services are received in exchange for equity instruments based either on the fair value of such services received from nonemployees or of the equity instruments issued, whichever is more reliably measured. The two factors which most effect charges or credits to operations related to stock-based compensation for nonemployee awards are the fair value of the common stock underlying stock options for which such stock-based compensation is recorded and the volatility of such fair value.

Compensation expense for options and restricted stock granted to employees and nonemployees is classified either as research and development expense or general and administrative expense based on the job function of the individual receiving the grant.

Other (Expense) Income, Net.

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

Critical Accounting Policies

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect our reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our judgments and estimates, including those related to revenue recognition, the fair value of our Denton Texas facility, establishing amounts of accrued expenses, fair valuation of stock-based awards, valuation of the bond, common stock warrants and derivative financial instruments. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no significant changes in our critical accounting policies since December 31, 2009 as described in the discussion of critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2009.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06,Improving Disclosures about Fair Value Measurements.ASU 2010-06 requires a gross presentation of activities within the Level 3 roll forward, and adds a new requirement to disclose transfers in and out of Level 1 and 2 measurements. It also clarifies two existing disclosure requirements of ASC 820-10,Fair Value Measurements and Disclosures – Overall,to require fair value disclosures by class of assets and liabilities rather than by major category; and requires that reporting entities must disclose the valuation technique used and the inputs used in determining the fair values of each class of assets and liabilities for Level 2 and Level 3 measurements. The ASU is effective for the first interim or annual reporting period beginning after December 15, 2009, except for the gross

20

presentation of the Level 3 roll forward, which is required for annual reporting periods beginning after December 15, 2010 and for interim reporting periods within those years. Early application is permitted and comparative disclosures are not required in the period of initial adoption. The adoption of this ASU did not have a significant impact on our financial statements.

Results of Operations

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2010

Revenue — Research and Development Grants.

Revenue increased by approximately $383,000, or 181%, to approximately $595,000 for the three months ended March 31, 2010 from approximately $212,000 for the three months ended March 31, 2009. The Company receives funding under various Research and Development grants. The increase is primarily due to three new grants received in the third quarter of 2009 and timing of grant-related activities.

Cost of Product Revenues.

For the three months ended March 31, 2010, we have recognized cost of product revenues of approximately $42,000 under our agreement entered into with EZN in October 2009 for the manufacture and supply of Onalta to BioMedica.

Research and Development Expense.

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

	Three months ended March  31,				Increase / (Decrease)
Program	2009		2010
Azedra and Ultratrace platform	$	1,809	$	3,059	$	1,250
Onalta		842		202		(640	)
Solazed		31		36		5
Trofex		536		615		79
Zemiva		274		100		(174	)
Other Platform and general R&D programs		2,555		3,467		912
Total R&D expenses, including related party R&D	$	6,047	$	7,479	$	1,432

Research and development expense increased approximately $1.4 million or 24%, to $7.5 million for the three months ended March 31, 2010 from $6.0 million for the three months ended March 31, 2009. Key components of this spending increase were attributed to: (1) an increase of $1.3 million in the Azedra program primarily due to costs incurred for the build-out of the manufacturing facility at MDS Nordion and validation of the manufacturing process for the manufacture and supply of Azedra for clinical trials and commercial supply; and (2) an increase of $0.1 million primarily due to payroll costs for increased personnel allocated to the Trofex program; and (3) an increase of $0.9 million in other platform and general research and development costs primarily due to increased grant-related activities and payroll costs for severance payments. These spending increases were offset by reduced clinical activities and costs of $0.8 million for Onalta, Solazed and Zemiva as we plan the next phases of our clinical trials for these programs.

General and Administrative Expense.

	Three months ended March  31,				Increase / (Decrease)
General and Administrative Expenses	2009		2010
			(in thousands)
Compensation and personnel-related expense	$	1,239	$	1,193	$	(46	)
Professional services		2,280		3,338		1,058
Insurance		148		338		190
Facility costs		83		31		(52	)
Stock-based compensation expense		281		274		(7	)
Depreciation and amortization expense		263		183		(80	)
Other		107		40		(67	)
Total general and administrative expenses	$	4,401	$	5,397	$	996

21

General and administrative expense increased $1.0 million or 23%, to $5.4 million for the three months ended March 31, 2010 from $4.4 million for the three months ended March 31, 2009. This increase is due primarily to an increase of $1.1 million in professional services attributable to increased legal costs of $1.0 million incurred in connection with our ongoing discussions and negotiations with our Bondholders regarding the restructuring of our debt obligations and an increase of $0.2 million in business insurance expenses.

Other (Expense) Income, Net.

Other expense, net, increased $0.1 million to $5.1 million for the three months ended March 31, 2010 from other expense, net of $5.0 million for the three months ended March 31, 2009. During the three months ended March 31, 2009 and 2010, interest expense was $5.5 million and $5.2 million, respectively, partially offset by interest income of $465,000 and $39,000 respectively. The decrease in interest expense of $0.3 million in the three months ended March 31, 2010 as compared to the three months ended March 31, 2009 was due to lower LIBOR interest rates on our $150 million Senior Secured Floating Rate Bonds (“Bonds”) and PIK bonds, offset by an increase in the principal base on which interest is accrued. Interest accrued on the Bonds for the first three years from issuance date shall be payable through the issuance of PIK Bonds and shall begin to accrue interest from the date of issuance of such PIK Bonds. The average interest rate was 9.84% and 8.26% for the three months ended March 31, 2009 and 2010, respectively. The decrease in interest income of $426,000 in the current period was the result of lower yields on our investments as well as a decrease in investments. The investments and associated income are utilized to fund current operations.

Liquidity and Capital Resources

We have funded our operations from inception on January 10, 1997 through March 31, 2010 mainly through the issuance of bonds and warrants, common stock, redeemable convertible preferred stock, convertible notes and other notes, research funding from government grants and upfront license payments from collaborations.

We have incurred significant net losses and negative operating cash flows since inception. At March 31, 2010, we had an accumulated deficit of $310.4 million including the $17.5 million net losses incurred for the quarter ended March 31, 2010. We currently have five clinical programs in various stages of development and will need to spend significant capital to fulfill planned operating goals and continue to conduct clinical and non-clinical trials, achieve regulatory approvals and, subject to such approvals, successfully produce products for commercialization. As such, we expect to continue to incur significant net losses and negative operating cash flows in the foreseeable future.

The terms of our Bond Indenture include various covenants, including among others, financial covenants that requires us to maintain a minimum liquidity level on a quarterly basis. The minimum liquidity covenant (as defined in the Bond Indenture and which substantially represents all of our cash, cash equivalents and investments) requires us to maintain a minimum amount of not less than $25.7 million and $29.2 million at September 30, 2010 and December 31, 2010, respectively. Based on our current projections of our cash flow, we expect that we would not be in compliance with this covenant in the third or fourth quarter of 2010, unless we are able to raise sufficient additional capital. Additionally, under the Bond Indenture, we are required to deliver audited annual financial statements to Bond holders which are not subject to a “going concern” or like qualification or exception from our independent auditors. Such anticipated noncompliance of the required minimum liquidity level in the second half of 2010, recurring losses from our operations and stockholders’ deficit, and the uncertainty of our obtaining additional financing on a timely basis, raise substantial doubt about our ability to continue as a going concern beyond September 2010. As a result, in the report of our independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2009, our independent auditors have included an explanatory paragraph relating to substantial doubt about whether we can continue as a going concern. Consequently, the inclusion of such a “going concern” paragraph resulted in a default under the terms of the Bond Indenture which was waived by the Bond holders. We cannot guarantee our ability to continue as a going concern unless we can raise additional capital, of which there can be no assurance.

We have received an extension of a waiver by our Bond holders under our waiver agreement executed on March 15, 2010 with the holders of at least a majority of the Bonds and the Bond Indenture trustee, the original term of which expired 12:01 AM Eastern Standard Time on April 16, 2010. The waiver has been extended until 12:01AM Eastern Standard Time on May 18, 2010. Under the terms of the waiver agreement and related amendment, the Bond holders and Bond Indenture trustee agreed to waive the noncompliance arising from the inclusion of the “going concern” paragraph in the report of our independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2009 and other technical defaults under the Bond Indenture, subject to earlier termination upon certain circumstances. The waiver and related amendment is also subject to a number of terms and conditions relating to our provision of certain information to the Bond holders, among other conditions and matters. Further, based on our current cash flow projections, it is still likely that we will be in breach of the minimum liquidity covenant contained in the Bond Indenture in the second half of 2010. Consequently, the long-term bond obligations and related debt issuance costs have been classified as current liabilities and current assets, respectively, at December 31, 2009 and at

22

March 31, 2010. If the Bond Indenture is restructured in a transaction required to be accounted for as an extinguishment or the outstanding balance of the bond obligations is demanded by the Bond holders, unamortized debt issue costs of $4.2 million at March 31, 2010 would be required to be expensed at the restructuring or demand date.

The unaudited consolidated financial statements as of March 31, 2010 have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to our ability to continue as a going concern. As of March 31, 2010, we had $18.1 million of cash and cash equivalents and $29.0 million of investments.

We are continuing to negotiate with the Bond holders regarding the restructuring of the outstanding debt in a manner designed to avoid the acceleration of our debt obligations and position us for future growth. There is no assurance that we will reach such an agreement on terms favorable to us, or at all. Moreover, in connection with our discussions with the Bond holders to reach such an agreement, the Bond holders may impose additional operational or financial restrictions on us or modify the terms of our existing Bond Indenture. These restrictions may limit our ability, among other things, to make necessary capital expenditures or incur additional indebtedness. In addition, the Bond holders may require us to pay additional fees, prepay a portion of our indebtedness, accelerate the amortization schedule for our indebtedness or agree to higher interest rates on our outstanding indebtedness or take other actions that could adversely affect our business. The Bond holders may also require us to raise additional capital concurrently with any restructuring. If the waiver grace period (or any extension thereof) expires or terminates, and we are unable to reach an agreement with Bond holders regarding an additional waiver or an agreement regarding the restructuring of our outstanding debt, the Bond holders may choose to accelerate our debt obligations under the Bond Indenture and demand immediate repayment in full and seek to foreclose on the collateral supporting such obligations. If our indebtedness under the Bond Indenture is accelerated or is not restructured on acceptable terms, it is likely that we will be unable to repay our debt and we may seek protection under the U.S. Bankruptcy Code or similar relief.

In conjunction with these discussions, we may raise additional funds through private sales of equity and other strategic collaborative arrangements which are limited under the provisions of the Indenture. If we raise additional funds through the issuance of new equity securities, our stockholders may experience substantial dilution, or the new equity securities may have rights, preferences or privileges senior to those of existing stockholders. To the extent that we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or our product candidates or grant licenses on terms that are not favorable to us. We have no current commitments from any persons that they will provide any additional financing. Given the current market conditions and the status of our product development pipeline, obtaining financing may be difficult and may not be available on commercially acceptable terms, or at all.

In September 2009, we entered into a Territory License Agreement with BioMedica to sub-license the Onalta™ Y-90 edotreotide radiotherapeutic in certain countries. Further, in October 2009, we executed an exclusive, 10-year agreement to supply Onalta to BioMedica and entered into an agreement with EZN to manufacture Onalta. We have received $4.4 million of upfront payments from BioMedica and will also be eligible to receive regulatory milestone payments as well as commercial milestones and tiered royalties on Onalta sales upon commercialization in addition to near- and long-term revenues from supplying Onalta for compassionate use, clinical trial supplies and, upon regulatory approval, commercial supply to the licensed BioMedica territories. While the Supply Agreement will provide us with a source of liquidity after net remaining payments to EZN of approximately $5.9 million for the first five years for manufacturing and facility costs, future potential cash receipts from BioMedica, if any, are principally contingent upon the successful completion of contractually defined development and regulatory approval objectives. There is also considerable inherent uncertainty in the successful development and commercialization of products in the pharmaceutical industry.

We believe that our existing cash, cash equivalents and investments together with the implementation of planned additional cost reduction initiatives if necessary, will be sufficient to fund our operations and maintain compliance with our minimum liquidity covenant through at least September 30, 2010. In order to continue operations beyond September 2010, we must raise additional capital and restructure the terms of our outstanding Bonds. Our failure to raise capital when needed could have a negative impact on our financial condition and our ability to pursue business strategies as well as potentially delay product research and development efforts and potentially require us to reduce the scope of, or eliminate one or more of our ongoing clinical programs or cause us to cease operations. We would also be required to implement further reduction in personnel and related costs and other discretionary expenditures that are within our control. In January 2010, we announced a strategic decision to re-align and re-balance personnel to further reduce future operating costs and support the efficient development of our oncology product candidates.

23

Cash Flows

		Three Months Ended March 31,						Increase/ (Decrease)
Summary Cash Flow Information		2009			2010			2010 vs. 2009
					(in thousands)
Net cash (used in) provided by:
Operating activities		$	(11,906	)	$	(16,618	)	$	(4,712	)
Investing activities			1,619			19,239			17,620
Financing activities			425			—			(425	)
Exchange rate effect on cash and cash equivalents			(3	)		(5	)		(2	)
Net increase (decrease) in cash and cash equivalents			(9,865	)		2,616			12,481
Cash and cash equivalents			15,630			18,084			2,454
Short and long-term investments			78,070			29,048			(49,022	)
	��
Cash, cash equivalents and short-term investments		$	93,700		$	47,132		$	(46,568	)

Three Months Ended March 31, 2009, Compared to the Three Months Ended March 31, 2010

Net cash used in operating activities increased by $4.7 million to $16.6 million for the three months ended March 31, 2010, compared to $11.9 million for the three months ended March 31, 2009. The increase in cash used in operations was primarily due to the increase in net loss of $2.2 million and increase of $2.0 million in payments to vendors for prepaid expenses and other current assets, accounts payable and accrued expenses for the three months ended March 31, 2010, compared to the three months ended March 31, 2009. The increase in net loss is attributed to the increase in research and development expenses of $1.4 million and increase in general and administrative expenses of $1.0 million. This increase in net loss was offset by the reduction of $0.3 million in non-cash interest expense related to our bonds. Net cash provided by investing activities increased by $17.6 million to $19.2 million for the three months ended March 31, 2010, compared to $1.6 million for the three months ended March 31, 2009. The increase was primarily due to liquidation of investments as such are utilized to fund operations. Net cash provided by financing activities in the prior period related primarily to the exercise of common stock options, there were no exercises of stock options in the current period.

Contractual Obligations

Contractual obligations, as of March 31, 2010, are not significantly different than that shown on page 69 of our Annual Report filed on Form 10-K for December 31, 2009 except as discussed under Note 9,Commitment and Contingencies,in the “Notes to the Unaudited Consolidated Financial Statements” for the period ended March 31, 2010.

Off-Balance Sheet Arrangements

We do not engage in nor have any off-balance sheet financing arrangements.

24

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk due to Variable Interest Rates on Bonds

We are exposed to interest rate risk from changes in the three month LIBOR (London Inter-Bank Offer Rate) rate that is the base rate of our $150,000,000 outstanding Bonds. The Bonds have a five-year maturity date and bear an interest rate equivalent to the LIBOR plus 8%, determined on a quarterly basis. The interest rate at March 31, 2010 was 8.25%. A 1% (100 basis points) increase in the three month LIBOR interest rate could add approximately $1.9 million in annual interest expense on the principal amount of the bonds that includes the paid-in-kind interest at March 31, 2010. During the first three years that the Bonds are outstanding, interest payments not paid in cash may be paid by issuing additional Bonds. The Company has opted to issue additional bonds in lieu of cash payments for interest, which increases the Company’s overall debt levels. An increase in the LIBOR rate on our debt levels could adversely affect operating results as well as our financial position and cash flows.

Although we have not at the present time employed derivative financial instruments to limit the impact on cash flows of the volatility in the LIBOR interest rate, we may in the future employ derivative financial instruments such as swaps, collars, forwards, options or other instruments to limit the volatility to earnings and cash flows generated by this exposure. Derivative financial instruments will be executed solely as risk management tools and not for trading or speculative purposes. We may employ derivative contracts in the future which are not designated for hedge accounting treatment, which may result in volatility to earnings depending upon fluctuations in the underlying markets.

We principally invest our cash in money market instruments and securities issued by the US government and its agencies. These investments are subject to interest rate risk and could decline in value if interest rates fluctuate.

Foreign Currency Risk

We have entered into agreements with suppliers that require payment in foreign currencies. As a result, our financial position, results of operations and cash flows can be affected by market fluctuations in foreign exchange rates, primarily with respect to the Euro and Canadian dollar. We have not entered into any hedging agreements relating to this risk. We do not believe that a 10% change in foreign currency exchange rates would have a material impact on our financial position, results of operations and cash flows.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-l5(e) and l5d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report. The term “disclosure controls and procedures” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2010.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2010 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

25

PART II — OTHER INFORMATION

ITEM 1A. RISK FACTORS

During the period covered by this Quarterly Report on Form 10-Q, there have not been any material changes from the risk factors previously disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, except as noted below:

Risks Related to Our Ability to Continue as a Going Concern and Our Noncompliance with Covenants under Our Bond Indenture

We may not be able to continue as a going concern.

On November 16, 2007, we sold $150,000,000 in Senior Secured Floating Rate Bonds due 2012 (“Bonds”) and warrants to purchase 6,021,247 shares of common stock at an exercise price of $5.87 per share (“Bond Warrants”) under an Indenture (“Bond Indenture”). The terms of our Bond Indenture include various covenants, including, among others, a financial covenant that requires us to maintain a minimum liquidity level on a quarterly basis. The minimum liquidity covenant (as defined in the Bond Indenture and which substantially represents all of our cash, cash equivalents and investments) requires us to maintain a minimum amount of not less than $25.7 million and $29.2 million at September 30, 2010 and December 31, 2010, respectively. Based on our current projections of our cash flow, we expect that we would not be in compliance with this covenant in the third or fourth quarter of 2010, unless we are able to raise sufficient additional capital. Additionally, under the Bond Indenture, we are required to deliver audited annual financial statements to Bond holders which are not subject to a “going concern” or like qualification or exception from our independent auditors. Such anticipated noncompliance of the required minimum liquidity level in the second half of 2010, recurring losses from our operations and net stockholders’ capital deficiency, and the uncertainty of our obtaining additional financing on a timely basis raise substantial doubt about our ability to continue as a going concern beyond September 2010. As a result, in the report of our independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2009, our independent auditors have included an emphasis of a matter paragraph relating to substantial doubt about whether we can continue as a going concern. We cannot guarantee our ability to continue as a going concern unless we can raise additional capital, of which there can be no assurance.

Our obligations under our Bond Indenture may be accelerated due to our noncompliance with the covenants in our Bond Indenture if the grace period (or any extension thereof) of the waiver granted by our Bond holders expires, and we are unable to reach an agreement with Bond holders regarding an additional waiver or an agreement regarding the restructuring of our outstanding debt.

As discussed above, the inclusion of such a “going concern” paragraph in the report of our independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2009 would result in a default by us under the terms of the Bond Indenture that may give rise to an acceleration of our debt obligations under the Bond Indenture, unless waived by the Bond holders.

We discussed with the holders of our Bond the foregoing circumstances and a restructuring of our outstanding debt. We have received an extension of a waiver by our Bond holders under our waiver agreement executed on March 15, 2010 with the holders of at least a majority of the Bonds and the Bond Indenture trustee, the original term of which expired 12:01 AM Eastern Standard Time on April 16, 2010. The waiver has been extended until 12:01AM Eastern Stand Time on May 18, 2010. Under the terms of the waiver agreement and related amendment, the Bond holders and Bond Indenture trustee agreed to waive the noncompliance arising from the inclusion of the “going concern” paragraph in the report of our independent registered public accounting firm on our financial statements and other technical defaults under the Bond Indenture, subject to earlier termination upon certain circumstances. The waiver and related amendment are also subject to a number of terms and conditions relating to our provision of certain information to the Bond holders, among other conditions and matters. In the event that the waiver expires or terminates prior to the successful restructuring of the outstanding debt, then we will be in default of our obligations under the Bond Indenture and the Bond holders may choose to accelerate the debt obligations under the Bond Indenture and demand immediate repayment in full and seek to foreclose on the collateral supporting such obligations.

We are continuing to negotiate with the Bond holders regarding the restructuring of the outstanding debt in a manner designed to avoid the acceleration of our debt obligations and position us for future growth. There is no assurance that we will reach such an agreement on terms favorable to us, or at all. Moreover, in connection with our discussions with the Bond holders to reach such an agreement, the Bond holders may impose additional operational or financial restrictions on us or modify the terms of our existing Bond Indenture. These restrictions may limit our ability, among other things, to make necessary capital expenditures or incur additional indebtedness. In addition, the Bond holders may require us to pay additional fees, prepay a portion of our indebtedness, accelerate the amortization schedule for our indebtedness or agree to higher interest rates on our outstanding indebtedness or take

26

other actions that could adversely affect our business. The Bond holders may also require us to raise additional capital concurrently with any restructuring. Any restructuring of the debt obligations could require a significant change in our plans and could require us to undergo a realignment of our cost structure, including a reduction in workforce. Further, we expect that any restructuring of the Bonds will require the approval of holders of more than a majority of the outstanding Bonds and, in some circumstances, unanimous approval will be required. Consequently, we cannot assure you that we will be able to obtain such approval on satisfactory terms or at all. If the waiver grace period (or any extension thereof) expires or terminates, and we are unable to reach an agreement with Bond holders regarding an additional waiver or an agreement regarding the restructuring of our outstanding debt, the Bond holders may choose to accelerate our debt obligations under the Bond Indenture and demand immediate repayment in full and seek to foreclose on the collateral supporting such obligations. If our indebtedness under the Bond Indenture is accelerated or is not restructured on acceptable terms, it is likely that we will be unable to repay our debt and we may seek protection under the U.S. Bankruptcy Code or similar relief.

Our outstanding Bonds are secured by all of our assets, and a default could result in our debt holders taking title to all of our assets in order to satisfy our obligations to them, which could render our common stock valueless, as our debt holders may foreclose on our assets in an effort to be repaid amounts due under the Bonds and force us into bankruptcy.

Our obligations under our existing Bonds are secured by a first priority security interest in all of our assets including our intellectual property. If we are unable to make the payments due on the Bonds, if we default on any of the conditions, restrictions or covenants of the Bonds, or if we become insolvent, the holders of the Bonds have a right to foreclose on, take possession of and liquidate all of our assets. Any such a default and the related foreclosure and liquidation could irreparably harm our financial condition and our ability to operate. As such, our Bond holders could force us into bankruptcy at any time, which could result in the complete failure of our business and stockholders would lose their entire investment in our Company. We currently have very limited assets that would most likely not be sufficient to cover existing debts if we had to liquidate. Consequently, if the Bond holders choose to accelerate our debt obligations under the Bond Indenture and demand immediate repayment in full, we may seek protection under the U.S. Bankruptcy Code or similar relief.

If we are unable to reach an agreement with our Bond holders regarding the restructuring of our outstanding debt obligations and obtain additional financing, we will likely be unable to comply with our Bond Indenture’s financial covenants.

We are currently in discussions with our Bond holders regarding the restructuring of our debt obligations under the Bond Indenture and the avoidance of an acceleration of our debt obligations under the Bond Indenture. There is no assurance that we will reach such an agreement on terms favorable to us, or at all. Even though the Bond holders have granted a temporary waiver with respect to the breach of the covenant regarding the inclusion of a “going concern” paragraph in the report of our independent registered public accounting firm on our financial statements and other technical defaults by us, such waiver may expire or terminate without us having reached an agreement with the Bond holders regarding a restructuring. Further, based on our current cash flow projections, it is still likely that we will be in breach of the minimum liquidity covenant contained in the Bond Indenture in the second half of 2010. Consequently, we will need to reach an agreement with the Bond holders regarding a restructuring of our outstanding debt obligations to either remove such requirements or allow us to raise a sufficient amount of additional capital through the issuance of additional debt or equity securities or through asset dispositions or other means to maintain compliance with such requirements. If we are unable to successfully restructure the indebtedness outstanding under the Bond Indenture, we will likely breach the minimum liquidity covenant and the Bond holders may choose to accelerate our debt obligations under the Bond Indenture and demand immediate repayment in full and seek to foreclose on the collateral supporting such obligations. If our indebtedness under the Bond Indenture is accelerated or is not restructured on acceptable terms, it is likely that we will be unable to repay our debt and we may seek protection under the U.S. Bankruptcy Code or similar relief.

Any uncertainty relating to our ability to restructure our debt could impair our ability to implement our business plan.

As we continue our discussions with the Bond holders regarding a restructuring of our outstanding debt obligations, we will also need to continue to operate our business, maintain our relationships with our key employees, vendors and other third parties. Our key employees may seek opportunities elsewhere due to a lack of certainty regarding our financial situation. Vendors may be reluctant to extend credit as a result of our current financial situation. Similarly, our ability to grow our relationships with our current licensees and potential licensees may be significantly impaired due to the uncertainty regarding our financial situation. If we are unable to maintain our relationships with our key employees and vendors and grow our relationships with our current licensees and potential licensees, our ability to continue to operate and grow our business could be materially impaired.

Risks Related to Our Common Stock

Our stock price has resulted in our failure to meet NASDAQ Global Market continued listing requirements, which could result in NASDAQ delisting of our common stock.

Our common stock is listed on the NASDAQ Global Market. On March 9, 2010, we received a letter from The NASDAQ Stock Market (“NASDAQ”) notifying us that for the 30 consecutive business days preceding the date of the letter, we failed to maintain the minimum $50 million Market Value of Listed Securities requirement for continued listing on the NASDAQ Global Market pursuant to NASDAQ Listing Rule 5450(b)(2)(A) (the “MVLS Rule”). NASDAQ further advised that in accordance with NASDAQ Listing Rule 5810(c)(3)(C), we have a grace period of 180 calendar days, or until September 7, 2010, to regain compliance with the MVLS Rule. NASDAQ will deem us to have regained compliance with the MVLS Rule if at any time during the 180-day grace period our Market Value of Listed Securities (the “MVLS”) closes at $50,000,000 or more for a minimum of 10 consecutive business days.

27

On April 27, 2010, the Company received a letter from NASDAQ stating that for the last 10 consecutive business days, from April 13, 2010 to April 26, 2010, our market value of listed securities has been $50,000,000 or greater and accordingly, we have regained compliance with the MVLS Rule and this matter is now closed.

Additionally, in order to maintain our listing, we are required to satisfy other minimum financial and continued listing requirements, including, without limitation, maintaining a $1.00 per share minimum closing bid price for our common stock (the “Minimum Bid Price Rule”).

Our common stock has recently traded at a low of $1.05 per share on February 17, 2010. If the closing bid price of our common stock goes below $1.00 for 30 consecutive business days in the future, we will receive a deficiency notice from NASDAQ advising us that our common stock fails to meet the Minimum Bid Price Rule. To regain compliance, our common stock would need to close at $1.00 or more for a minimum of 10 consecutive business days during the 180 calendar days following our receipt of such a notice. If in the future we fail to satisfy the NASDAQ Global Market’s continued listing requirements, our common stock could be delisted from the NASDAQ Global Market unless we apply to transfer our common stock to the NASDAQ Capital Market, provided that we satisfy the requirements for continued listing on that market. Given current economic conditions and the volatility of our stock price, there can be no assurance that we will be able to maintain compliance with the MVLS Rule or the Minimum Bid Price Rule for continued listing on the NASDAQ Global Market or satisfy the requirements for transferring our listing to the NASDAQ Capital Market.

If we were to be delisted, the market liquidity of our common stock and the value of our stock would likely be adversely affected. Although our common stock may be traded over-the-counter or on pink sheets, these types of listings involve more risk and trade less frequently and in smaller volumes than securities traded on NASDAQ. A delisting could also adversely affect our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by our investors, business partners and employees. If we are not listed on The NASDAQ Stock Market and/or if our public float remains below $75 million, we will be limited in our ability to file new shelf registration statements on Form S-3 and/or to fully use one or more registration statements on Form S-3 that have been filed with the SEC. Any such limitations might have a material adverse effect on our ability to raise the capital we need for the continuation of our operations.

Our stock is subject to short selling, which could cause trading in our common stock and our stock price to be volatile, and the anticipation of a volatile stock price could cause greater volatility.

There has been active shorting on our stock in substantial amount recently, which has caused significant fluctuations in our stock price. Short selling and possible market price manipulation of our common stock may cause trading in our common stock to be volatile and has a negative effect on the trading price of our common stock. The anticipation of a volatile stock price could cause even greater volatility in our stock trading and could further adversely affect our stock price. The short selling and volatility of our stock may cause the value of a stockholder’s investment to decline rapidly.

ITEM 5. OTHER INFORMATION

On March 30, 2010, the Company entered into an amendment to its lease agreement with ARE-MA Region No. 35, LLC for the lease of office space located at 101 Rogers Street, Cambridge, Massachusetts to reduce the aggregate rentable premises and extend the term of the lease agreement through September 30, 2011, subject to early termination upon 90 days’ written notice to the landlord. The premises leased by the Company now is 11,950 square feet in aggregate. The monthly base rent from April 1, 2010 to December 31, 2010 is $34,466 and from January 1, 2011 to September 30, 2011 is $35,462.

ITEM 6. EXHIBITS

See Exhibit Index on the page immediately preceding the exhibits for a list of the exhibits filed as a part of this quarterly report which is incorporated by reference.

28

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 on May 6, 2010.

MOLECULAR INSIGHT PHARMACEUTICALS, INC.
By:	/S/    DANIEL L. PETERS
	Daniel L. Peters
	President and Chief Executive Officer

By:	/S/    CHARLES H. ABDALIAN, JR.
	Charles H. Abdalian, Jr.
	Chief Financial Officer

29

Exhibit Index

Exhibit Number	Description of Exhibit
10.1	Change of Control Agreement, between Molecular Insight Pharmaceuticals, Inc. and Charles H. Abdalian, Jr., dated March 22, 2010(incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 26, 2010)
10.2	Second Amendment to Lease, between Molecular Insight Pharmaceuticals, Inc. and ARE-MA Region No. 35, LLC, dated March 30, 2010
10.3	First Amendment to Lease and Acknowledgement of Commencement Date, between Molecular Insight Pharmaceuticals, Inc. and ARE-MA Region No. 35, LLC, dated June 3, 2008
31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32	Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

30