10-Q

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, 2009

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 000-23223

CURAGEN CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	06-1331400
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

322 East Main Street, Branford, Connecticut	06405
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (203) 481-1104

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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceeding 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 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	¨

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

The number of shares outstanding of the registrant’s common stock as of April 30, 2009 was 57,192,696.

CURAGEN CORPORATION

FORM 10-Q

INDEX

			Page
PART I. Financial Information
	Item 1.	Financial Statements
		Condensed Balance Sheets as of March 31, 2009 and December 31, 2008 (unaudited)	3
		Condensed Statements of Operations for the Three Months Ended March 31, 2009 and 2008 (unaudited)	4
		Condensed Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008 (unaudited)	5
		Notes to Condensed Financial Statements (unaudited)	6-10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
	Item 4.	Controls and Procedures	17
PART II. Other Information			19
	Item 1A.	Risk Factors	19-32
	Item 6.	Exhibits	32
Signatures			33
Exhibit Index			34

CURAGEN CORPORATION

CONDENSED BALANCE SHEETS

(in thousands, except par value and share data)

(unaudited)

	March 31, 2009			December 31, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	45,631		$	19,103
Short-term investments		18,045			30,332
Marketable securities		16,116			38,229
Cash and investments		79,792			87,664
Other current assets		478			494
Total current assets		80,270			88,158
Property and equipment, net		80			102
Other assets, net		218			286
Total assets	$	80,568		$	88,546
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	348		$	239
Accrued expenses		1,265			1,610
Accrued payroll and related items		298			660
Interest payable		38			253
Other current liabilities		168			1,352
Total current liabilities		2,117			4,114
Convertible subordinated debt		14,142			18,967
Commitments and contingencies
Stockholders’ equity:
Common Stock; $.01 par value, issued and outstanding 57,190,239 shares at March 31, 2009 and 57,118,186 shares at December 31, 2008		572			571
Additional paid-in capital		527,707			527,294
Accumulated other comprehensive income		360			393
Accumulated deficit		(464,330	)		(462,793	)
Total stockholders’ equity		64,309			65,465
Total liabilities and stockholders’ equity	$	80,568		$	88,546

See accompanying notes to condensed financial statements

3

CURAGEN CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2009			2008
Collaboration revenue	$	—		$	22
Operating expenses:
Research and development expenses		1,682			5,371
General and administrative expenses		1,906			1,715
Total operating expenses		3,588			7,086
Loss from operations		(3,588	)		(7,064	)
Interest income		454			1,074
Interest expense		(175	)		(797	)
Realized gain (loss) on sale of available-for-sale investments, net		84			(4	)
Gain on extinguishment of debt		962			—
Loss before income tax benefit		(2,263	)		(6,791	)
Income tax benefit		726			18
Net loss	$	(1,537	)	$	(6,773	)
Basic and diluted net loss per share	$	(0.03	)	$	(0.12	)
Weighted average number of shares used in computing basic and diluted net loss per share		56,967			56,520

See accompanying notes to condensed financial statements

4

CURAGEN CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2009			2008
Cash flows from operating activities:
Net loss	$	(1,537	)	$	(6,773	)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred revenue		—			(22	)
Depreciation and amortization		39			276
Stock-based compensation		400			617
Stock-based 401(k) plan employer match		14			83
Non-cash interest income		(61	)		45
Non-cash interest income - Restricted cash		—			(138	)
Realized (gain) loss on available for sale investments		(84	)		4
Gain on extinguishment of debt		(962	)		—
Changes in assets and liabilities:
Accrued interest receivable		195			197
Other current assets		17			198
Other assets		—			19
Accounts payable		109			(105	)
Accrued expenses		(346	)		1,797
Accrued payroll and related items		(362	)		(1,181	)
Interest payable		(215	)		(699	)
Other current liabilities		(1,185	)		(2,198	)
Net cash used in operating activities		(3,978	)		(7,880	)
Cash flows from investing activities:
Purchases of short-term investments		—			(981	)
Proceeds from sales of short-term investments		3,250			3,397
Proceeds from maturities of short-term investments		9,000			7,000
Proceeds from sales of marketable securities		13,563			1,618
Proceeds from maturities of marketable securities		8,505			9,000
Net cash provided by investing activities		34,318			20,034
Cash flows from financing activities:
Payment for extinguishment of debt		(3,812	)		—
Net cash used in financing activities		(3,812	)		—
Net increase in cash and cash equivalents		26,528			12,154
Cash and cash equivalents, beginning of period		19,103			16,730
Cash and cash equivalents, end of period	$	45,631		$	28,884
Supplemental cash flow information:
Interest paid	$	372		$	1,398
Income tax benefit payments received	$	214		$	—

See accompanying notes to condensed financial statements

5

CURAGEN CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and Business Overview

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of our management, the accompanying unaudited condensed financial statements include all adjustments, consisting of normal recurring accruals, necessary to present fairly our financial position, results of operations and cash flows. Interim results are not necessarily indicative of the results that may be expected for the entire year.

The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008. All dollar amounts herein are shown in thousands, except par value and per share data.

In February 2009, we announced our plan to undertake a review of strategic alternatives that could enhance shareholder value. These alternatives range from selling or licensing CR011, to acquiring additional assets or business lines, to selling the Company. There is no assurance that this process will result in any changes to our current business plan or lead to any specific action or transaction.

2. Stock-Based Compensation

During the three months ended March 31, 2009 and 2008, the Company recognized compensation expense in total operating expenses on the condensed statements of operations with respect to employee stock options and restricted stock grants as follows:

	Three Months Ended March 31,
	2009		2008
Compensation expense with respect to employee stock options	$	266	$	275
Compensation expense with respect to restricted stock grants	$	133	$	348

The fair value of options granted during the three months ended March 31, 2009 and 2008 were estimated as of the grant date using the Black-Scholes option valuation model with the following assumptions:

	Three Months Ended March 31,
	2009		2008
Expected stock price volatility	71	%	68	%
Risk-free interest rate	3.14	%	4.48	%
Expected option term in years	6.25		6.25
Expected dividend yield	0	%	0	%

The approximate weighted-average grant date fair values using the Black-Scholes option valuation model of all stock options granted during the three months ended March 31, 2009 and 2008 were as follows:

Three Months Ended March 31,
2009	2008
$0.44	$	0.45

6

The 2007 Stock Incentive Plan (“2007 Stock Plan”) was approved by the Company’s stockholders as of May 2, 2007. The 2007 Stock Plan provides for the issuance of stock options and stock grants to employees, directors and consultants of CuraGen. A total of 3,000,000 shares of common stock were originally reserved for issuance under the 2007 Stock Plan. In May 2008, upon approval of the Company’s stockholders, the amount reserved under the 2007 Stock Plan was increased to 6,000,000.

A summary of the stock option activity under the 2007 Stock Plan, as of March 31, 2009, and changes during the three months ended March 31, 2009, are as follows:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding January 1, 2009	1,953,240		$	1.02	8.94	$	—
Granted	1,893,725			0.67	—		438
Exercised	—
Canceled or lapsed	(207,500	)		0.68	—		45
Outstanding March 31, 2009	3,639,465			0.86	9.17		636
Exercisable March 31, 2009	963,005			1.06	8.64		138

A summary of the stock option activity under the 1997 Employee, Director and Consultant Stock Plan (“1997 Stock Plan”) as of March 31, 2009, and changes during the three months ended March 31, 2009, are as follows:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding January 1, 2009	1,757,320		$	6.51	4.85	—
Granted	—
Exercised	—
Canceled or lapsed	(233,972	)		11.87	—	—
Outstanding March 31, 2009	1,523,348			5.68	5.12	—
Exercisable March 31, 2009	1,354,495			5.90	4.94	—

As of March 31, 2009 there was $1,562 of total unrecognized compensation expense related to unvested stock option grants under the 1997 Stock Plan and 2007 Stock Plan, and this expense is expected to be recognized over a weighted-average period of 1.28 years.

A summary of restricted stock activity under the 2007 Stock Plan as of March 31, 2009, and changes during the three months ended March 31, 2009, are as follows:

	Number of Shares of Restricted Stock		Weighted Average Grant Date Fair Value
Outstanding January 1, 2009	87,500		$	1.10
Granted	50,000			0.88
Restrictions lapsed	(62,500	)		0.84
Outstanding March 31, 2009	75,000			1.17

The total intrinsic value of restricted shares vested under the 2007 Stock Plan during the three months ended March 31, 2009 was $56. There were no restricted shares vested under the 2007 Stock Plan during the three months ended March 31, 2008.

A summary of all restricted stock activity under the 1997 Stock Plan as of March 31, 2009, and changes during the three months ended March 31, 2009, are as follows:

	Number of Shares of Restricted Stock		Weighted Average Grant Date Fair Value
Outstanding January 1, 2009	135,695		$	3.59
Granted	—			—
Restrictions lapsed	(60,695	)		4.39
Outstanding March 31, 2009	75,000			2.95

7

The total intrinsic value of restricted shares vested under the 1997 Stock Plan during the three months ended March 31, 2009 and 2008 was $55 and $220, respectively.

As of March 31, 2009, there was $112 of total unrecognized compensation expense related to unvested restricted stock grants under the 1997 Stock Plan and 2007 Stock Plan, and this expense is expected to be recognized over a weighted-average period of 0.74 years.

3. Restructuring Charges

During 2007, the Company underwent corporate restructurings to reduce operating costs and to focus resources on the advancement of its therapeutic pipeline through clinical development, resulting in a restructuring charge of $11,274. This amount included an asset impairment charge of $6,322 (associated with the closure of its pilot manufacturing plant, also known as the Biopharmaceutical Sciences Process facility, on July 27, 2007), $4,408 related to employee separation costs paid or payable in cash, $286 of non-cash employee separation costs and $258 of other asset write-offs.

During 2008, in connection with a reduction in work force of eight employees in December 2008, the Company also recorded a restructuring charge of $529 which consisted of employee separation costs, payable in cash during the first half of 2009. The charge has been classified within other current liabilities.

The following table sets forth the cash payments and balance of the restructuring reserve as of and for the three months ended March 31, 2009:

	Reserve at December 31, 2008		Cash Payments in 2009		Reserve at March 31, 2009
Restructuring—2007	$	3	$	3	$	—
Restructuring—2008		523		495		28
TOTALS	$	526	$	498	$	28

4. Investments

The accumulated balance of other comprehensive income is disclosed as a separate component of stockholders’ equity and consists of unrealized gains and losses on short-term investments and marketable securities. Total comprehensive loss is as follows:

	Three Months Ended March 31,
	2009			2008
Net loss	$	(1,537	)	$	(6,773	)
Other comprehensive loss:
Unrealized (losses) gains on securities:
Unrealized (losses) gains arising during period		(117	)		435
Reclassification adjustment for gains (losses) included in net loss		84			(4	)
Net unrealized (loss) gain on securities		(33	)		431
Total comprehensive loss	($	1,570	)	($	6,342	)

The Company reviews its investment portfolio on a regular basis to determine if there is an impairment that is other than temporary. As of March 31, 2009, there were no investments with unrealized losses. During the first quarter of 2009, the Company sold all of the asset-backed securities and corporate and municipal bonds in its investment portfolio and recognized a net gain of $84 on these sales.

8

All of the securities in the Company’s investment portfolio are priced by the Company’s investment manager. On a quarterly basis, the Company obtains a second price for each security to compare to the price obtained from the Company’s investment manager. As of March 31, 2009, there were no material variances in the prices obtained from these two sources and as such the Company has used the pricing provided by the Company’s investment manager.

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, provides a consistent framework for measuring fair value under Generally Accepted Accounting Principles and expands fair value financial statement disclosure requirements. The valuation techniques defined in SFAS 157 are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. SFAS 157 classifies these inputs into the following hierarchy:

Level 1 Inputs – Quoted prices for identical instruments in active markets.

Level 2 Inputs – 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 Inputs – Instruments with primarily unobservable value drivers.

The following table represents the fair value hierarchy for those financial assets measured at fair value on a recurring basis as of March 31, 2009.

Fair Value Measurements on a Recurring Basis as of March 31, 2009
Assets	Level I		Level II		Level III		Total
Cash equivalents	$	45,220	$	—	$	—	$	45,220
Short-term investments		—		18,045		—		18,045
Marketable securities		4,076		12,040		—		16,116
Total Investments	$	49,296	$	30,085	$	—	$	79,381

Level I securities consist primarily of Money Market accounts and a single U.S. Treasury Note. Level II securities primarily consist of agency and agency sponsored mortgage backed securities.

5. Extinguishment of Debt

During February 2009, the Company repurchased $4,825 of its 4% convertible subordinated debentures due February 2011, for total consideration of $3,812, plus accrued interest of $90 at the date of repurchase. As a result of the transaction, in the first quarter of 2009 the Company recorded a gain of $962 which is net of the write-off of the ratable portion of unamortized deferred financing costs relating to the repurchased debt.

6. Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period, excluding unvested restricted stock. Diluted loss per share reflects the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock. Convertible subordinated debt, stock options granted but not yet exercised under CuraGen’s stock option plans and unvested restricted stock are anti-dilutive and therefore not considered for the diluted loss per share calculations. Anti-dilutive potential common shares, consisting of convertible subordinated debt, outstanding stock options and unvested restricted stock were 6,772,874 and 13,705,988 as of March 31, 2009 and 2008, respectively.

9

7. Recently Enacted Pronouncements

In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position 157-2, “Effective Date of FASB Statement 157”, (“FSP FAS 157-2”). FSP FAS 157-2 deferred the effective date of FAS 157 for non-financial assets and liabilities that are not on a recurring basis recognized or disclosed at fair value in the financial statements, to fiscal years and interim periods beginning after November 15, 2008. The Company adopted FSP FAS 157-2 on January 1, 2009 and the adoption did not have any impact on its financial statements.

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”, (“FSP EITF 03-6-1”). The FSP affects entities that accrue cash dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the awards. Retroactive adjustment of all prior-period earnings per share computations is necessary to reflect the provisions of this FSP, which is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FSP EITF 03-6-1 did not have a material effect on the Company’s financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”, (“FSP FAS 107-1 and APB28-1”) which amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company does not believe the adoption of FSP FAS 107-1 and APB 28-1 will have a material impact on its financial statements.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”, (“FSP FAS 157-4”) which provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP shall be effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Company does not believe the adoption of FSP FAS 157-4 will have a material impact on its financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”, (“FSP FAS 115-2 and FAS 124-2”) which amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP shall be effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009 is not permitted. The Company does not believe the adoption of FSP FAS 115-2 and FAS 124-2 will have a material impact on its financial statements.

10

CURAGEN CORPORATION

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

Our management’s discussion and analysis of our financial condition and results of operations include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated. See Part II, Item 1A, “Risk Factors.”

Overview

We are a biopharmaceutical development company dedicated to improving the lives of patients by developing novel therapeutics for the treatment of cancer. We have taken a systematic approach to identifying and validating promising therapeutics and are now focused on developing and advancing a potential drug candidate through clinical development. We are currently focusing the majority of our human and financial resources on our oncology therapeutic area.

Royalties or other revenue generated from commercial sales of products developed through the application of our technologies or expertise is not expected for several years, if at all. We expect that our revenue or income sources for at least the next several years may be limited to potential milestones and other potential payments related to partnering CR011 and interest income.

We expect to continue incurring expenses relating to our research and development efforts as we focus on clinical trials required for the development of CR011-vcMMAE. Conducting clinical trials is a lengthy, time-consuming and expensive process and we expect to incur continued losses over the next several years.

Significant Recent Developments

In February 2009, we repurchased a total of $4.8 million of our 4% convertible subordinated debentures due February 2011, for an aggregate purchase price of $3.8 million, reflecting an aggregate discount from the face value of such notes of approximately 21% and resulting in a $1.0 million gain.

In February 2009, we announced our plan to undertake a review of strategic alternatives that could enhance shareholder value. These alternatives range from selling or licensing CR011, to acquiring additional assets or business lines, to selling the company. There is no assurance that this process will result in any changes to our current business plan or lead to any specific action or transaction.

CR011-vcMMAE for the Treatment of Cancer

CR011-vcMMAE is an antibody-drug conjugate, or ADC, comprised of CR011, a fully-human monoclonal antibody resulting from our collaboration with Amgen Fremont linked to monomethylauristatin E, or vcMMAE, using technology licensed from Seattle Genetics. CR011 targets glycoprotein NMB, or GPNMB, a protein located on the surface of cancer cells including melanoma and breast cancer. After CR011-vcMMAE binds to the target protein, the ADC is transported inside the cancer cell where vcMMAE is cleaved from the antibody and inhibits tubulin polymerization leading to cell death.

CR011-vcMMAE Clinical Development Program

In June 2006, we initiated a Phase I/II open-label, multi-center, dose escalation study evaluating the safety, tolerability and pharmacokinetics of CR011-vcMMAE for patients with unresectable Stage III or Stage IV melanoma who have failed no more than one prior line of cytotoxic therapy. We are currently evaluating CR011- vcMMAE in clinical trials for the treatment of patients with advanced melanoma and breast cancer, as further described in the table below.

Indication	Phase	Regimen	Initiation of Patient Enrollment	Status
Metastatic melanoma	I/II	0.03 to 2.63 mg/kg every three weeks in Phase I; 1.88 mg/kg every three weeks in Phase II	June 2006	Enrollment completed. Updated results anticipated in the first half of 2009.

11

Indication	Phase	Regimen	Initiation of Patient Enrollment	Status
		Weekly and two out of every three week regimens	Sept 2007	Enrollment ongoing. Preliminary results anticipated in the first half of 2009.
Breast cancer	I/II	Every three weeks regimen	June 2008	Enrollment ongoing. Preliminary results anticipated in the first half of 2009.

Phase II Trial Results for the Treatment of Metastatic Melanoma Cancer

On June 1, 2008, we announced the presentation of results from this ongoing study at the 2008 American Society of Clinical Oncology, or ASCO, Annual Meeting. A total of 32 patients were enrolled in the Phase I dose-escalation portion of the trial, which aimed to identify the safety and maximum tolerated dose, or MTD, of CR011-vcMMAE. Doses of CR011-vcMMAE between 0.03 mg/kg to 2.63 mg/kg administered intravenously (IV) once every three weeks were evaluated and were generally well tolerated, with rash and neutropenia emerging at higher doses. Based on dose-limiting toxicities of rash, the MTD was determined to be 1.88 mg/kg IV every three weeks. The activity of CR011-vcMMAE appeared dose dependent with 50% of those patients treated with doses at or above 1.34 mg/kg exhibiting tumor shrinkage and 64% progression-free at 12 weeks compared to 17% with tumor shrinkage and 28% progression-free at 12 weeks for patients treated at lower doses. One confirmed partial response was reported in Phase I. Based on the results of the Phase I portion of the trial, the dose selected for the Phase II portion was 1.88 mg/kg IV every three weeks.

On September 11, 2008, we announced the completion of enrollment into the Phase II portion of the melanoma clinical trial. Preliminary results from the trial were presented on November 1, 2008 at the 2008 International Society for Biologic Therapy of Cancer, or iSBTc, Annual Meeting.

Thirty-six patients were enrolled in the Phase II portion of the trial. Of the patients enrolled, 94% had Stage IV disease, of which two-thirds were classified as M1c, the poorest risk group. The overall median progression-free survival, or PFS, was approximately 4.5 months. RECIST-defined partial responses were reported in 3 patients, 2 of whom were ongoing, and an unconfirmed partial response was noted in 1 patient. As expected based upon the expression of GPNMB and as observed in Phase I, dermatologic adverse events consisting of rash, alopecia, and pruritus were the most common toxicities in this study. A preliminary exploratory analysis assessing the relationship of rash and PFS was performed and showed a trend toward longer PFS in patients with rash. We expect updated results for this study to be presented during the first half of 2009.

We are also exploring more frequent dosing schedules of CR011-vcMMAE, including a weekly and a two out of every three-week regimen, to determine if more frequent administration can provide additional activity in patients with metastatic melanoma. We anticipate presenting updated results during the first half of 2009.

Phase II Trial Results for the Treatment of Breast Cancer

On June 25, 2008, we announced the initiation of patient dosing in an open-label, multi-center Phase II study of CR011-vcMMAE IV every three weeks to patients with locally advanced or metastatic breast cancer who have received prior therapy. We expect to enroll up to approximately 40 patients to confirm the MTD in this population and to assess efficacy using a Simon 2-Stage design with an endpoint of progression-free rate at 12 weeks. We anticipate presenting preliminary results from this study during the first half of 2009.

Critical Accounting Policies and Use of Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates, including those related to investment valuation, prepaid expenses, accrued expenses, revenue recognition, and stock based compensation. 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. Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008.

12

Results of Operations

The following table sets forth a comparison of the components of our net loss for the three months ended March 31, 2009 and 2008 (in millions):

	Three Months Ended March 31,
	2009			2008			$ Change			% Change
Collaboration revenue	$	0.0		$	0.0		$	0.0		0	%
Research and development expenses		1.7			5.4			(3.7	)	(69	)%
General and administrative expenses		1.9			1.7			0.2		12	%
Interest income		0.5			1.1			(0.6	)	(55	)%
Interest expense		0.2			0.8			(0.6	)	(75	)%
Realized gain on sale of available-for-sale investments, net		0.1			—			0.1		*
Gain on extinguishment of debt		1.0			—			1.0		*
Income tax benefit		0.7			—			0.7		*
Net loss	$	(1.5	)	$	(6.8	)

* Based on prior year amounts, percentage change does not provide meaningful information.

Collaboration revenue. There was no material change in collaboration revenue for the three months ended March 31, 2009, as compared to the three months ended March 31, 2008 as we recognized $0.02 million in the first quarter of 2008. The collaboration revenue recognized in the first quarter of 2008 was due to the amortization of the $1.3 million received during 2006 from TopoTarget’s licensing agreement with an unrelated third party. We do not expect any collaboration revenue in 2009.

Research and development expenses. Research and development expenses consist primarily of: contractual and manufacturing costs; salary and benefits; license fees and milestone payments; drug supply; and allocated facility costs. Our research and development efforts are concentrated solely on clinical trials. We budget and monitor our research and development costs by expense category, rather than by project, because these costs often benefit multiple projects and/or our technology platform as a whole.

Below is a summary that reconciles our total research and development expenses for the three months ended March 31, 2009 and 2008 by the major categories (in millions):

	Three Months Ended March 31,
	2009		2008		$ Change			% Change
Contractual and manufacturing costs	$	0.8	$	2.1	$	(1.3	)	(62	)%
Salary and benefits		0.6		1.2		(0.6	)	(50	)%
License fee and milestone payments		0.1		1.6		(1.5	)	(94	)%
Allocated facility costs		0.2		0.5		(0.3	)	(60	)%
Total research and development expenses	$	1.7	$	5.4

The decrease in our research and development expenses for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008 was primarily due to the transfer agreement entered into in the second quarter 2008 with TopoTarget A.S. which effectively sold our rights to belinostat, a Phase I/II HDAC inhibitor and any other HDAC inhibitors, such that we would no longer incur additional clinical trial expenses. We also incurred a decrease in salary and benefits caused by a reduction in workforce in the fourth quarter 2008, and a decrease in allocated facility costs due to reducing our office space. We had a decrease in license fees and milestone payments for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008, due to milestone expenses incurred relating to our collaboration agreements with Amgen Fremont and Seattle Genetics for advancing CR011-vcMMAE to Phase II in the first quarter of 2008. We anticipate our research and development expenses for the remaining quarters in 2009 will remain consistent with the first quarter of 2009.

13

As soon as we advance a potential clinical candidate into clinical trials, we begin to track the research and development expenses associated with that potential clinical candidate. The following table shows the cumulative research and development expenses for CR011-vcMMAE as of March 31, 2009, as well as the current research and development expenses for the three months ended March 31, 2009 and 2008 which were incurred on or after we started conducting a Phase I clinical trial for CR011-vcMMAE (in millions):

Clinical Development Costs for CR011-vcMMAE
Cumulative as of March 31, 2009 (since commencement of Phase I trial)		Three Months Ended March 31, 2009		Three Months Ended March 31, 2008		Indication
$	16.5	$	1.5	$	2.2	Metastatic Melanoma/Breast Cancer

We expect that the research and development expenses incurred in connection with our development of CR011-vcMMAE in 2009 will be consistent with expenses incurred in 2008.

Currently, our potential pharmaceutical products require significant research and development efforts and preclinical testing, and will require extensive evaluation in clinical trials prior to submitting an application to regulatory agencies for their commercial use. Although we are conducting human studies with respect to CR011-vcMMAE, we may not be successful in developing or commercializing this or other products. Our product candidates are subject to the risks of failure inherent in the development and commercialization of pharmaceutical products and we cannot currently provide reliable estimates as to when, if ever, our product candidates will generate revenue and cash flows.

General and administrative expenses. The increase in general and administrative expenses for the three months ended March 31, 2009, as compared to the three months ended March 31, 2008, was due to an increase in advisor fees in conjunction with our strategic review announced in February 2009. We anticipate our general and administrative expenses will be consistent quarter to quarter during the remaining quarters of 2009.

Interest income. Interest income for the three months ended March 31, 2009, decreased as compared to the three months ended March 31, 2008 due to a reduction in our cash and investment portfolio balance. Our lower cash and investment balance was due to the repurchase of $3.8 million of our 4% convertible subordinated debentures which occurred in February 2009 to retire $4.8 million of debt in addition to debt repurchases completed in the second quarter of 2008 and cash used for operations during the first quarter of 2009. We earned an average yield of 2.7% during the first quarter of 2009 as compared to 3.9% in the first quarter of 2008. We anticipate interest income to decrease in 2009 due to lower cash and investment balances caused by the utilization of cash and investment balances in the normal course of operations. We also expect the yields in our investment portfolio to decrease during the year as a result of lower short term interest rates and the mix of investments in our portfolio.

Interest expense. Interest expense for the three months ended March 31, 2009 decreased as compared to the three months ended March 31, 2008 primarily due to the repurchases of our 4% convertible subordinated debentures due February 2011. The repurchases consisted of $50.9 million in May 2008 and $4.8 million in February 2009. We expect interest expense, including interest paid to debt holders, as well as amortization of deferred financing costs, to approximate $0.6 million for the full year of 2009.

Realized gain on sale of available-for-sale investments, net. During the first quarter of 2009, we realized a gain on the sale of available-for sale investments of $0.1 million. The gain was due to the sale in the first quarter of 2009 of our asset-backed securities and our corporate and municipal bonds.

Gain on extinguishment of debt. The gain on extinguishment of debt for the three months ended March 31, 2009 was due to the repurchase of $4.8 million of our 4% convertible subordinated debentures due February 2011, for $3.8 million plus accrued interest of $0.1 million in February 2009. We recorded a gain of approximately $1.0 million which is net of the write-off of the ratable portion of unamortized deferred financing costs relating to the repurchased debt.

Income tax benefit. We recorded an income tax benefit of $0.7 million during the three months ended March 31, 2009 as a result of the expiration of the State of Connecticut statute of limitations, as it relates to the Year 2004 income tax benefit. Connecticut legislation allows companies to obtain cash refunds from the State of Connecticut at a rate of 65% of their annual research and development expense credit, in exchange for forgoing carryforward of the research and development credit. We expect the 2009 income tax benefit to be lower than 2008 due to anticipated lower research and development expenditures.

14

Liquidity and Capital Resources

Since our inception, we have financed our operations and met our capital expenditure requirements primarily through: private placements of equity securities; convertible subordinated debt offerings; public equity offerings; sales of assets; and revenues received under our collaborative research agreements. Since inception, we have not had any off-balance sheet arrangements. To date, inflation has not had a material effect on our business.

In February 2009, we repurchased a total of $4.8 million of our 4% convertible subordinated debentures due February 2011, for an aggregate purchase price of $3.8 million reflecting an aggregate discount from the face value of such 2011 notes of approximately 21%, resulting in a gain of approximately $1.0 million.

Cash, restricted cash and investments. The following table depicts changes in the cash, restricted cash, and investments for the three month periods ended March 31, 2009 and 2008, using the direct method (in millions):

	Three months ended March 31,
	2009			2008
Cash paid to suppliers, employees and collaborators	$	(4.0	)	$	(5.5	)
Restructuring charges paid		(0.5	)		(2.2	)
Interest income received		0.5			1.1
Interest expense paid		(0.4	)		(1.4	)
Income tax benefit received		0.2			—
Cash paid for extinguishment of debt		(3.8	)		—
Net unrealized gain on short-term investments and marketable securities		—			0.4
Net realized gain on short-term investments and marketable securities		0.1			—
Net decrease in cash, restricted cash and investments		(7.9	)		(7.6	)
Cash, restricted cash and investments, beginning of period		87.7			115.0
Cash, restricted cash and investments, end of period	$	79.8		$	107.4

In accordance with our investment policy, we are utilizing the following investment objectives for cash and investments: (1) investment decisions are made with the expectation of minimum risk of principal loss, even with a modest penalty in yield; (2) appropriate cash balances and related short-term funds are maintained for immediate liquidity needs, and appropriate liquidity is available for medium-term cash needs; and (3) maximum yield is achieved.

Future Liquidity. In February 2009, we announced our plan to undertake a review of strategic alternatives that could enhance shareholder value. These alternatives range from selling or licensing CR011, to acquiring additional assets or business lines, to selling the Company. There is no assurance that this process will result in any changes to our current business plan or lead to any specific action or transaction.

We expect to continue to fund our operations by a combination of the following sources: cash and investment balances; interest income; potential private equity offerings; debt financing or additional collaborations and licensing arrangements. We intend to use our cash and investment balances for the development costs of CR011-vcMMAE and also for other uses which could include strategic transactions. We do not anticipate any material capital expenditures in the near future. Accordingly, we foresee the following as uses of short term liquidity: contractual services related to clinical trials and manufacturing; salary and benefits; and license fees. We will also continue to evaluate potential acquisitions, including complementary businesses, technologies and products.

We will continue to evaluate options to repurchase or refinance all or a portion of our outstanding 4% convertible debentures that mature on February 15, 2011. Repurchases might occur through cash purchases and/or exchange for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material.

We may use sources of liquidity for working capital, general corporate purposes and potentially for future acquisitions of businesses, products or technologies. The amounts and timing of our actual expenditures will depend upon numerous factors, including the amount and extent of any acquisitions, our product development activities, our investments in technology and the amount of cash generated by our operations and may vary substantially from our estimates. Our failure to use sources of liquidity effectively could have a material adverse effect on our business, results of operations and financial condition.

15

We believe that our existing cash and investment balances and other sources of liquidity will be sufficient to meet our requirements through 2011. We consider our operating expenditures to be crucial to our future success, and intend to continue to make strategic investments in our clinical drug pipeline. In appropriate situations, we may seek financing from other sources, and expect that we will need additional funds to meet our future operating requirements. To the extent that we need to obtain additional funding, the amount of additional capital we would need to raise would depend on many factors, including: the number, breadth, progress and results of our research, product development and clinical programs; the costs and timing of obtaining regulatory approvals for any of our products; in-licensing and out-licensing of pharmaceutical products; acquisitions, including complementary technologies and products; costs incurred in enforcing and defending our patent claims and other intellectual property rights.

While we will continue to explore alternative sources for financing our business activities, including the possibility of private strategic-driven common stock offerings, we cannot be certain that in the future these sources of liquidity will be available when needed, particularly in light of the current economic environment, or that our actual cash requirements will not be greater than anticipated. In appropriate strategic situations, we may seek financing from other sources, including contributions by others to joint ventures and other collaborative or licensing arrangements for the development and testing of products under development. However, should we be unable to obtain future financing either through the methods described above or through other means, we may be unable to meet the critical objective of our long-term business plan, which is to successfully develop and market pharmaceutical products, and may be unable to continue operations. This result could cause our shareholders to lose all or a substantial portion of their investment.

Contractual Obligations

In the table below, we set forth our enforceable and legally binding obligations, along with future commitments related to all contracts that we are likely to continue, regardless of the fact that they are cancelable as of March 31, 2009.

Some of the amounts included in this table under purchase commitments are based on management’s estimates and assumptions about these obligations, including their duration, anticipated actions by third parties, progress of our clinical programs and other factors. These amounts exclude items accrued for on the balance sheet.

	Payments Due Year Ended December 31,
	(in millions)
	TOTAL		2009		2010		2011
Long-term debt obligations	$	14.1	$	—	$	—	$	14.1
Interest on convertible subordinated debt		1.2		0.3		0.6		0.3
Purchase commitments		2.5		2.3		0.2		0.0
Total	$	17.8	$	2.6	$	0.8	$	14.4

The expected timing of payment of the obligations discussed above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.

For the purposes of this table, contractual obligations for the purchase of services are defined as agreements that support our external cost related to current clinical trials through completion. Our purchases are based on current operating needs and are fulfilled by vendors within short time periods. We have unrecognized tax benefits of $0.1 million at March 31, 2009. This amount is excluded from the table above.

In addition, we have committed to make potential future milestone payments to third-parties as part of in-licensing and development programs. Payments under these agreements generally become due and payable only upon achievement of certain developmental, regulatory and/or commercial milestones. Because the achievement of these milestones is neither probable nor reasonably estimable, such contingencies have not been recorded on our consolidated balance sheet and are not included above.

16

Recently Enacted Pronouncements

In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position 157-2, “Effective Date of FASB Statement 157”, (“FSP FAS 157-2”). FSP FAS 157-2 deferred the effective date of FAS 157 for non-financial assets and liabilities that are not on a recurring basis recognized or disclosed at fair value in the financial statements, to fiscal years and interim periods beginning after November 15, 2008. We adopted FSP FAS 157-2 on January 1, 2009 and the adoption did not have an impact on our financial statements.

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”, (“FSP EITF 03-6-1”). The FSP affects entities that accrue cash dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the awards. Retroactive adjustment of all prior-period earnings per share computations is necessary to reflect the provisions of this FSP, which is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FSP EITF 03-6-1 did not have a material effect on our financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”, (“FSP FAS 107-1 and APB 28-1”) which amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We do not believe the adoption of FSP FAS 107-1 and APB 28-1 will have a material impact on our financial statements.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”, (“FSP FAS 157-4”) which provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP shall be effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. We do not believe the adoption of FSP FAS 157-4 will have a material impact on our financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”, (“FSP FAS 115-2 and FAS 124-2”) which amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP shall be effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009 is not permitted. We do not believe the adoption of FSP FAS 115-2 and FAS 124-2 will have a material impact on our financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our outstanding long-term liabilities as of March 31, 2009 consisted of $14.1 million of our 4% convertible subordinated notes due February 15, 2011. As the debentures and notes bear interest at a fixed rate, our results of operations are not affected by interest rate changes. As of March 31, 2009, the market value of our $14.1 million 4% convertible subordinated notes due 2011, based on quoted market prices, was approximately $11.0 million.

We review our investment portfolio on a regular basis to determine if there is an impairment that is other than temporary. As of March 31, 2009 there were no investments with unrealized losses.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2009. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the “Exchange Act”), 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

17

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. Disclosure controls and procedures include, without limitation, controls and procedures 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 accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2009, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes in Internal Controls

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

18

Part II - Other Information

Item 1A. Risk Factors

Statements contained or incorporated by reference in this Quarterly Report on Form 10-Q that are not based on historical fact are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, projections, intentions, goals, strategies, plans, prospects and the beliefs and assumptions of our management including, without limitation, our expectations regarding results of operations, general and administrative expenses, research and development expenses, current and future development efforts, regulatory filings, clinical trial results and the sufficiency of our cash for future operations. Forward-looking statements can be identified by terminology such as “anticipate,” “believe,” “could,” “could increase the likelihood,” “hope,” “target,” “project,” “goals,” “potential,” “predict,” “might,” “estimate,” “expect,” “intend,” “is planned,” “may,” “should,” “will,” “will enable,” “would be expected,” “look forward,” “may provide,” “would” or similar terms, variations of such terms or the negative of those terms.

We cannot assure investors that our assumptions and expectations will prove to have been correct. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements. Such factors that could cause or contribute to such differences include those factors discussed below. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer.

The following discussion includes one revised risk factor (“Our common stock could be delisted from the NASDAQ Global Market if our stock price continues to trade below $1.00 per share”), as well as updates to various risk factors in general.

Risks Related to Our Business

We currently have only one significant asset (other than cash), which is CR011. We are currently considering strategic alternatives ranging from selling or licensing CR011, to acquiring additional assets or business lines, to selling the company. As a result, the nature of our business could change significantly and our future is highly uncertain.

CR011 is currently our only significant asset (other than cash), and as a result the future of our company is heavily dependent on the future progress of CR011, which is difficult to predict. If future clinical trial results for CR011 do not warrant continuing its development, our business would be materially and adversely affected and we could be left with no development programs and no prospects of developing any in the future. In addition, in February 2009, we announced our plan to undertake a review of strategic alternatives for the company. These alternatives range from selling or licensing CR011, to acquiring additional assets or business lines, to selling the company. It is impossible to predict whether this process will result in any changes to our current business plans or lead to any specific action or transaction, or what such changes, actions or transactions might be if any do occur as a result of this process. As a result, the nature of our business could change significantly and our future is highly uncertain.

We have a history of operating losses and expect to incur operating losses in the foreseeable future. We do not expect to have a meaningful source of recurring revenue in the near future.

We have incurred losses since inception, except for 2007 and 2008, both years in which we had non-recurring transactions which resulted in net income. We generated net income of $24.8 million in 2008 as a result of the sale of belinostat to TopoTarget and gains on the extinguishment of our convertible subordinated debt, and we also generated net income of $25.4 million in 2007 principally resulting from the sale of our former majority-owned subsidiary 454 Life Sciences Corporation, or 454. We incurred a net loss of $59.8 million in 2006. As of March 31, 2009, we had an accumulated deficit of $464.3 million. We expect to continue to incur operating losses for the foreseeable future. We anticipate incurring additional losses related to investments in CR011-vcMMAE and do not expect to have a meaningful source of recurring revenue in the near future.

19

We can not ensure that our existing cash and investment balances will be sufficient to meet our requirements for the future.

We believe that our existing cash and investment balances and other sources of liquidity will be sufficient to meet our requirements through 2011. We consider our operating expenditures to be crucial to our future success, and by continuing to make investments in CR011-vcMMAE, we believe that we are building value for our stockholders. The adequacy of our available funds to meet our future operating and capital requirements will depend on many factors. These factors include: the number, breadth, progress and results of our research, product development and clinical programs; the costs and timing of obtaining regulatory approvals for any of our products; in-licensing and out-licensing of pharmaceutical products; and costs incurred in enforcing and defending our patent claims and other intellectual property rights.

While we will continue to explore alternative sources for financing our business activities, including the possibility of private strategic-driven common stock offerings, we cannot be certain that in the future these sources of liquidity will be available when needed, particularly in light of the current economic environment, or that our actual cash requirements will not be greater than anticipated. In appropriate strategic situations, we may seek financing from other sources, including contributions by others to joint ventures and other collaborative or licensing arrangements for the development and testing of products under development. However, should we be unable to obtain future financing either through the methods described above or through other means, we may be unable to meet the critical objective of our long-term business plan, which is to successfully develop and market pharmaceutical products, and may be unable to continue operations. This result could cause our stockholders to lose all or a substantial portion of their investment.

Our drug candidates are still in development and remain subject to clinical testing and regulatory approval. If we are unable to successfully develop and test our drug candidates, we will not be successful.

To date, we have not marketed, distributed or sold any drug candidates. The success of our business depends primarily upon our ability to develop and commercialize our drug candidates successfully. Our only clinical stage drug candidate is CR011-vcMMAE, which is currently in Phase II clinical trials. Further development of our preclinical candidates will be limited in the foreseeable future due to our decision to focus our resources on the development of CR011-vcMMAE. Our drug candidates must satisfy rigorous standards of safety and efficacy before they can be approved for sale. To satisfy these standards, we must engage in expensive and lengthy testing and obtain regulatory approval of our drug candidates. Despite our efforts, our drug candidates may not:

• offer therapeutic or other improvement over existing comparable drugs;

• be proven safe and effective in clinical trials;

• meet applicable regulatory standards;

• be capable of being produced in commercial quantities at acceptable costs; or

• be successfully commercialized.

Positive results in preclinical studies of a drug candidate may not be predictive of similar results in humans during clinical trials, and promising results from early clinical trials of a drug candidate may not be replicated in later clinical trials. For example, in the fourth quarter of 2007, we decided to discontinue the development of velafermin, a protein we were investigating for the prevention of oral mucositis in cancer patients receiving chemotherapy, after reviewing and evaluating the results of Phase II clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late stage clinical trials even after achieving promising results in early stage development. Accordingly, the results from the completed preclinical studies and clinical trials and ongoing clinical trials for CR011-vcMMAE and our other potential future drug candidates may not be predictive of the safety, efficacy or dosing results we may obtain in later stage trials. We do not expect any of our drug candidates to be commercially available for at least several years.

20

We may not be able to execute our business strategy if we are unable to enter into alliances with other companies that can provide capabilities and funds for the development and commercialization of our drug candidates. If we are unsuccessful in forming or maintaining these alliances on favorable terms, our business may not succeed.

We have entered into collaboration arrangements with several companies for the research, development and commercialization of our drug candidates, and we may enter into additional collaborative arrangements in the future. For example, we may enter into alliances with major biotechnology or pharmaceutical companies to jointly develop specific drug candidates and to jointly commercialize them if they are approved. We may not be successful in entering into any such alliances on favorable terms. Even if we do succeed in securing such alliances, we may not be able to maintain them if, for example, development or approval of a drug candidate is delayed or sales of an approved drug are disappointing. Furthermore, any delay in entering into collaboration agreements could delay the development and commercialization of our drug candidates and reduce their competitiveness even if they reach the market. Any such delay related to our collaborations could adversely affect our business.

We may also depend on our alliances with other companies to provide substantial additional funding for development and potential commercialization of our drug candidates. We may not be able to obtain funding on favorable terms from these alliances, and if we are not successful in doing so, we may not have sufficient funds to develop a particular drug candidate internally, or to bring drug candidates to market. Failure to bring our drug candidates to market will prevent us from generating sales revenues, and this may substantially harm our business.

We rely significantly on our collaborative partners to gain access to specified technologies and our business could be harmed if we are unable to maintain strategic alliances.

As part of our business strategy, we have strategic research and development alliances with companies to gain access to specific technologies. These alliances with other pharmaceutical and biotechnology companies may provide us with access to unique technologies, access to capital, near-term revenues, milestone and/or royalty payments, and potential profit sharing arrangements. In return, we provide access to unique technologies, expertise in genomics, and information on the molecular basis of disease, drug targets, and drug candidates. We currently have strategic alliances with Amgen Fremont and Seattle Genetics, in addition to numerous smaller agreements to facilitate these efforts. In these strategic alliances, either party can terminate the agreement at any time the alliance permits them to or if either party materially breaches the contract. We may not be able to maintain or expand existing alliances or establish any additional alliances. If any of our existing collaborators were to breach or terminate their agreements with us or otherwise fail to conduct activities successfully and in a timely manner, the preclinical or clinical development or commercialization of product candidates or research programs may be delayed or terminated, which may materially and adversely affect our business, financial condition, and results of operations.

We rely on third parties to conduct our clinical trials and provide other services, and those third parties may not perform satisfactorily, including failing to meet established deadlines for the completion of such services.

We do not have the ability to independently conduct some preclinical studies and the clinical trials for our drug candidates, and we rely on third parties such as contract laboratories, contract research organizations, medical institutions and clinical investigators to design and conduct these studies and our clinical trials. Our reliance on these third parties reduces our control over these activities. Accordingly, these third-party contractors may not complete activities on schedule, or may not conduct the studies of our clinical trials in accordance with regulatory requirements of our trial design. To date, we believe our contract research organizations and other similar entities with which we are working have performed well. However, if these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be required to replace them. Although we believe that there are a number of other third-party contractors we could engage to continue these activities, it may result in delays. Accordingly, our efforts to obtain regulatory approvals for and commercialize our drug candidates may be delayed.

In addition, our ability to bring our future products to market depends on the quality and integrity of the data we present to regulatory authorities in order to obtain marketing authorizations. We cannot guarantee the authenticity or accuracy of data compiled by third parties, nor can we be certain that such data has not been fraudulently generated. The failure of these third parties to carry out their obligations would materially adversely affect our ability to develop and market new products and implement our strategies.

We currently depend on third-party manufacturers to produce our clinical drug supplies and intend to rely upon third-party manufacturers to produce commercial supplies of any approved drug candidates. If, in the future, we manufacture any of our drug candidates, we will be required to incur significant costs and devote significant efforts to establish and maintain these capabilities.

21

We have relied upon third parties to produce material for clinical testing purposes and intend to continue to do so in the future. Although we believe that we will not have any material supply issues, we cannot be certain that we will be able to obtain long-term supplies of those materials on acceptable terms, if at all. We also expect to rely upon third parties to produce materials required for the commercial production of our drug candidates if we succeed in obtaining necessary regulatory approvals. If we are unable to arrange for third-party manufacturing, or to do so on commercially reasonable terms, we may not be able to complete development of our drug candidates or market them. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured drug candidates ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of a manufacturing agreement by the third party because of factors beyond our control and the possibility of termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or damaging to us. In addition, the FDA and other regulatory authorities require that our drug candidates be manufactured according to current Good Manufacturing Practices, or cGMP, regulations. Any failure by us or our third-party manufacturers to comply with cGMP and/or our failure to scale up our manufacturing processes could lead to a delay in, or failure to obtain, regulatory approval of any of our drug candidates. In addition, such failure could be the basis for action by the FDA to withdraw approvals for drug candidates previously granted to us and for other regulatory action.

We currently rely on a limited number of manufacturers for the clinical supplies of our antibody, and ADC drug candidates and do not currently have contractual relationships for redundant supply or a second source for any of these drug candidates. To date, our third-party manufacturers have met our manufacturing requirements, but we cannot assure that they will continue to do so. Any performance failure on the part of our existing or future manufacturers could delay clinical development or regulatory approval of our drug candidates or commercialization of any approved products. If for some reason our current contract manufacturers cannot perform as agreed, we may be required to replace them. Although we believe there are a number of potential replacements as our manufacturing processes are not manufacturer specific, we may incur added costs and delays in identifying and qualifying any such replacements. Furthermore, although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a drug candidate to complete the trial, any significant delay in the supply of a drug candidate for an ongoing trial due to the need to replace a third-party manufacturer could delay completion of the trial.

We may in the future elect to manufacture certain of our drug candidates in our own manufacturing facilities. If we do so, we will require substantial additional funds and need to recruit qualified personnel in order to build or lease and operate any manufacturing facilities.

Because we have limited experience in developing, commercializing and marketing products, we may be unsuccessful in our efforts to do so.

Our products in development will require significant research and development and preclinical and clinical testing prior to our submitting any regulatory application for their commercial use. These activities, even if undertaken without the collaboration of others, will require us to expend significant funds and will be subject to the risks of failure inherent in the development of a pharmaceutical product. Even if we complete such studies, our ability to commercialize products will depend on our ability to:

• obtain and maintain necessary intellectual property rights to our products;

• enter into arrangements with third parties to manufacture our products on our behalf; and

• deploy sales and marketing resources effectively or enter into arrangements with third parties to provide these services.

As a result of these possibilities, we may not be able to develop any commercially viable products. In addition, should we choose to develop pharmaceutical products internally, we will have to make significant investments in pharmaceutical product development, marketing, sales, and regulatory compliance resources and we will have to establish or contract for the manufacture of products under the FDA cGMPs. Any potential products developed by our licensees will be subject to the same risks.

We do not currently have any marketed products. If we develop products that can be marketed, we intend to market the products either independently or together with collaborators or strategic partners. If we decide to market any products independently, we will incur significant additional expenditures and commit significant additional management resources to establish a sales force. For any products that we market together with partners, we will rely, in whole or in part, on the marketing capabilities of those parties. We may also contract with other third parties to market certain of our products. Ultimately, we and our partners may not be successful in marketing our products.

22

If clinical trials for our drug candidates are prolonged or delayed, we may be unable to commercialize our drug candidates on a timely basis, which would require us to incur additional costs and delay our receipt of any product revenue.

We cannot predict whether we will encounter problems with any of our completed, ongoing or planned clinical trials that will cause us or regulatory authorities to delay or suspend clinical trials, or delay the analysis of data from our completed or ongoing clinical trials. Any of the following could delay the clinical development of our drug candidates:

• ongoing discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;

• delays in receiving or the inability to obtain required approvals from institutional review boards or other reviewing entities at clinical sites selected for participation in our clinical trials;

• delays in enrolling volunteers and patients into clinical trials;

• a lower than anticipated retention rate of volunteers and patients in clinical trials;

• the need to repeat clinical trials as a result of inconclusive or negative results or unforeseen complications in testing;

• inadequate supply or deficient quality of drug candidate materials or other materials necessary for the conduct of our clinical trials;

• unfavorable FDA inspection and review of a clinical trial site or records of any clinical or preclinical investigation;

• serious and unexpected drug-related side effects experienced by participants in our clinical trials; or

• the placement by the FDA of a clinical hold on a trial.

Our ability to enroll patients in our clinical trials in sufficient numbers and on a timely basis will be subject to a number of factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites, the availability of effective treatments for the relevant disease and the eligibility criteria for the clinical trial. Delays in patient enrollment may result in increased costs and longer development times. In addition, subjects may withdraw from our clinical trials, and thereby impair the validity or statistical significance of the trials.

We, the FDA or other applicable regulatory authorities may suspend clinical trials of a drug candidate at any time if we or they believe the subjects or patients participating in such clinical trials are being exposed to unacceptable health risks or for other reasons.

We cannot predict whether any of our drug candidates will encounter problems during clinical trials which will cause us or regulatory authorities to delay or suspend these trials, or which will delay the analysis of data from these trials. In addition, it is impossible to predict whether legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes, if any, may be. If we experience any such problems, we may not have the financial resources to continue development of the drug candidate that is affected or the development of any of our other drug candidates.

If a collaborative partner terminates or fails to perform its obligations under agreements with us, the development and commercialization of our drug candidates could be delayed or terminated.

If any current or future collaborative partner does not devote sufficient time and resources to collaboration arrangements with us, we may not realize the potential commercial benefits of the arrangement, and our results of operations may be adversely affected. In addition, if any existing or future collaboration partner were to breach or terminate its arrangements with us, the development and commercialization of the affected drug candidate could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue development and commercialization of the drug candidate on our own.

Much of the potential revenue from our existing and future collaborations will consist of contingent payments, such as payments for achieving development milestones and royalties payable on sales of drugs developed using our technologies. The milestone and royalty revenues that we may receive under these collaborations will depend upon our collaborator’s ability to successfully develop, introduce, market and sell new products. In addition, our collaborators may decide to enter into arrangements with third parties to commercialize products developed under our existing or future collaborations using our technologies, which could reduce the milestone and royalty revenue that we may receive, if any. In many cases we will not be involved in these processes and accordingly will depend entirely on our collaborators. Our collaboration partners may fail to develop or effectively commercialize products using our products or technologies because they:

• decide not to devote the necessary resources due to internal constraints, such as limited personnel with the requisite scientific expertise, limited cash resources or specialized equipment limitations, or the belief that other drug development programs may have a higher likelihood of obtaining regulatory approval or may potentially generate a greater return on investment;

23

• do not have sufficient resources necessary to carry the drug candidate through clinical development, regulatory approval and commercialization;

• decide to pursue a competitive drug candidate developed outside of the collaboration; or

• cannot obtain the necessary regulatory approvals.

If our collaboration partners fail to develop or effectively commercialize drug candidates or drugs for any of these reasons, we may not be able to replace the collaboration partner with another partner to develop and commercialize a drug candidate or drugs under the terms of the collaboration. We may also be unable to obtain a license from such collaboration partner on terms acceptable to us, or at all.

Because neither we nor any of our collaborative partners have received marketing approval for any product resulting from our research and development efforts, and may never be able to obtain any such approval, we may not be able to generate any product revenue.

Any products being developed by our collaborative partners will require additional research and development, extensive preclinical studies and clinical trials, and regulatory approval prior to any commercial sales. In some cases, the length of time that it takes for our collaborative partners to achieve various regulatory approval milestones may affect the payments that we are eligible to receive under our collaboration agreements. We and our collaborative partners may need to address a number of technical challenges successfully in order to complete development of our drug candidates. Moreover, these drug candidates may not be effective in treating any disease or may prove to have undesirable or unintended side effects, toxicities, or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use.

If we are unable to obtain U.S. and/or foreign regulatory approval, we will be unable to commercialize our drug candidates.

Our drug candidates are subject to extensive governmental regulations relating to development, clinical trials, manufacturing and commercialization. Rigorous preclinical testing and clinical trials and an extensive regulatory approval process are required in the United States and in many foreign jurisdictions prior to the commercial sale of our drug candidates. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. It is possible that none of the drug candidates we are developing will obtain marketing approval. In connection with the clinical trials for CR011-vcMMAE and any other drug candidate we may seek to develop in the future, we face risks that:

• the drug candidate may not prove to be efficacious;

• the drug may not prove to be safe;

• the results may not confirm the positive results from earlier preclinical studies or clinical trials; and

• the results may not meet the level of statistical significance required by the FDA or other regulatory authorities.

We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA. The time required to complete clinical trials and for the FDA and other countries’ regulatory review processes is uncertain and typically takes many years. Our analysis of data obtained from preclinical and clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. We may also encounter unanticipated delays or increased costs due to government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review.

Any delay in obtaining, or failure to obtain, required approvals could materially adversely affect our ability to generate revenues from the particular drug candidate. Furthermore, any regulatory approval to market a product may be subject to limitations on the indicated uses for which we may market the product. These limitations may limit the size of the market for the product. We are also subject to numerous foreign regulatory requirements governing the conduct of clinical trials, manufacturing and marketing

24

authorization, pricing and third-party reimbursement. The foreign regulatory approval process includes all of the risks associated with FDA approval described above as well as risks attributable to the satisfaction of foreign requirements. Approval by the FDA does not ensure approval by regulatory authorities outside the United States. Foreign jurisdictions may have different approval procedures than those required by the FDA and may impose additional testing requirements for our drug candidates.

Even if we obtain regulatory approvals, our drug candidates will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and applicable foreign regulations, we could lose those approvals, and our business would be seriously harmed.

Even if we receive regulatory approval of any drugs we may develop, we will be subject to continuing regulatory review, including the review of clinical results which are reported after our drug candidates become commercially available approved drugs. Since drugs are more widely used by patients once approval has been obtained, side effects and other problems may be observed after approval that were not seen or anticipated during pre-approval clinical trials. In addition, the manufacturer, and the manufacturing facilities we use to make any of our drug candidates, will also be subject to periodic review and inspection by the FDA. The subsequent discovery of previously unknown problems with the drug, manufacturer or facility may result in restrictions on the drug, manufacturer or facility, including withdrawal of the drug from the market. If we fail to comply with applicable continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approval, product recalls and seizures, operating restrictions and criminal prosecutions.

Our business has a substantial risk of product liability claims. If we are unable to obtain appropriate levels of insurance, a product liability claim could adversely affect our business.

Our business exposes us to significant potential product liability risks that are inherent in the development, manufacturing and sales and marketing of human therapeutic products. Although we do not currently commercialize any products, claims could be made against us based on the use of our drug candidates in clinical trials. We currently have clinical trial insurance and will seek to obtain product liability insurance prior to the sales and marketing of any of our drug candidates. However, our insurance may not provide adequate coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to maintain current amounts of insurance coverage or obtain additional or sufficient insurance at a reasonable cost to protect against losses that could have a material adverse effect on us. If a claim is brought against us, we might be required to pay legal and other expenses to defend the claim, as well as uncovered damages awards resulting from a claim brought successfully against us. Furthermore, whether or not we are ultimately successful in defending any such claims, we might be required to direct significant financial and managerial resources to such defense, and adverse publicity is likely to result.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our drug candidates, we may not generate product revenue.

We have no commercial products and we do not currently have an organization for the sales and marketing of pharmaceutical products. In order to successfully commercialize any drugs that may be approved in the future by the FDA or comparable foreign regulatory authorities, we must build our sales and marketing capabilities or make arrangements with third parties to perform these services. There are risks involved with establishing our own sales and marketing capabilities, as well as entering into arrangements with third parties to perform these services. For example, developing a sales force is expensive and time consuming and could delay any product launch. In addition, to the extent that we enter into arrangements with third parties to perform sales, marketing and distribution services, we will have less control over sales of our products, and our future revenues would depend heavily on the success of the efforts of these third parties. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable.

If physicians, patients and third-party payors do not accept any future drugs that we may develop, we may be unable to generate significant revenue, if any.

Even if CR011-vcMMAE or any other drug candidates we may develop or acquire in the future obtain regulatory approval, they may not gain market acceptance among physicians, patients and health care payers. Physicians may elect not to recommend these drugs for a variety of reasons including:

• timing of market introduction of competitive drugs;

• lower demonstrated clinical safety and efficacy compared to other drugs;

25

• lack of cost-effectiveness;

• lack of availability of reimbursement from third-party payors;

• convenience and ease of administration;

• prevalence and severity of adverse side effects;

• other potential advantages of alternative treatment methods; and

• ineffective marketing and distribution support.

If our approved drugs fail to achieve market acceptance, we would not be able to generate sufficient revenue from product sales to maintain or grow our business.

If third-party payors do not adequately reimburse customers for any of our product candidates that are approved for marketing, they might not be purchased or used, and our revenues and profits will not develop or increase.

Our revenues and profits will depend heavily upon the availability of adequate reimbursement for the use of our approved product candidates from governmental and other third-party payors, both in the United States and in foreign markets. Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

• a covered benefit under its health plan;

• safe, effective and medically necessary;

• appropriate for the specific patient;

• cost-effective; and

• neither experimental nor investigational.

Obtaining reimbursement approval for a product from each government or other third-party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to each payor. We may not be able to provide data sufficient to gain acceptance with respect to reimbursement. Even when a payor determines that a product is eligible for reimbursement, the payor may impose coverage limitations that preclude payment for some uses that are approved by the FDA or comparable authority. Moreover, eligibility for coverage does not imply that any product will be reimbursed in all cases or at a rate that allows us to make a profit or even cover our costs. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for other products or services, and may reflect budgetary constraints and/or imperfections in Medicare, Medicaid or other data used to calculate these rates. Net prices for products may be reduced by mandatory discounts or rebates required by government health care programs or by any future relaxation of laws that restrict imports of certain medical products from countries where they may be sold at lower prices than in the United States.

There have been, and we expect that there will continue to be, federal and state proposals to constrain expenditures for medical products and services, which may affect payments for our products. The Centers for Medicare and Medicaid Services, or CMS, frequently change product descriptors, coverage policies, product and service codes, payment methodologies and reimbursement values. Third-party payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and both CMS and other third-party payors may have sufficient market power to demand significant price reductions. Due in part to actions by third-party payors, the health care industry is experiencing a trend toward containing or reducing costs through various means, including lowering reimbursement rates, limiting therapeutic class coverage and negotiating reduced payment schedules with service providers for drug products.

Our inability to promptly obtain coverage and profitable reimbursement rates from government-funded and private payors for our products could have a material adverse effect on our operating results and our overall financial condition.

We depend on attracting and retaining key employees.

We are highly dependent on the principal members of our senior management and scientific staff. Our future success will depend in part on the continued services of our key management and scientific personnel. The loss of services of any of these

26

personnel could materially adversely affect our business, financial condition, and results of operations. We have entered into employment agreements with all of the principal members of our senior management team. Our future success will also depend in part on our ability to attract, hire, and retain additional personnel. There is intense competition for qualified personnel and there can be no assurance that we will be able to continue to attract and retain such personnel. Failure to attract and retain key personnel could materially, adversely affect our business, financial condition, and results of operations.

We depend on academic collaborators, consultants, and scientific advisors.

We have relationships with collaborators, consultants, and scientific advisors at academic and other institutions that conduct research or provide consulting services at our request. These collaborators, consultants, and scientific advisors are not our employees. Substantially all of our collaborators, consultants, and scientific advisors are employed by employers other than us and may have commitments to, or collaboration, consulting, or advisory contracts with, other entities that may limit their availability to us. As a result, we have limited control over their activities and, except as otherwise required by our collaboration, consulting agreements, and advisory agreements, can expect only limited amounts of their time to be dedicated to our activities. Our ability to explore and validate biological activity of therapeutic candidates and commercialize products based on these discoveries may depend, in part, on continued collaborations with researchers at academic and other institutions. We may not be able to negotiate additional acceptable collaborations with collaborators, consultants, or scientific advisors at academic and other institutions.

Our academic collaborators, consultants, and scientific advisors may have relationships with other commercial entities, some of which could compete with us. Our academic collaborators, consultants and scientific advisors sign agreements which provide for confidentiality of our proprietary information and of the results of studies. We may not be able to maintain the confidentiality of our technology and other confidential information in connection with every academic collaboration, consulting, or advisory arrangement, and any unauthorized dissemination of our confidential information could materially adversely affect our business, financial condition, and results of operations. Further, any such collaborator, consultant or advisor may enter into an employment agreement or consulting arrangement with one of our competitors.

Competition in our field is intense and likely to increase.

We are subject to significant competition in the development and commercialization of new drugs from organizations that are pursuing strategies, approaches, technologies and products that are similar to our own. Many of the organizations competing with us have greater capital resources, research and development staffs and facilities and marketing capabilities. We face competition from a number of biotechnology and pharmaceutical companies with products in preclinical development, clinical trials, or approved for conditions identical or similar to the ones we are pursuing. In addition, many other pharmaceutical and biotechnology companies are engaged in research and development for the treatment of cancer from which we may face intense competition.

If we do not obtain adequate intellectual property protection, we may not be able to prevent our competitors from commercializing our discoveries.

Our business and competitive position depends on our ability to protect our products and processes, including obtaining patent protection on genes and proteins for which we or our collaborators discover utility, and on products, methods and services based on such discoveries.

The patent positions of pharmaceutical, biopharmaceutical, and biotechnology companies, including us, are generally uncertain and involve complex legal and factual questions. The law relating to the scope of patent claims in the technology fields in which we operate is evolving, and the degree of future protection for our proprietary rights is uncertain. Furthermore, even if patents are issued to us, there can be no assurance that others will not develop alternative technologies or design around the patented technologies developed by us. Therefore, our patent applications may not protect our products, processes, and technologies for at least the following reasons:

• there is no guarantee that any of our pending patent applications will result in additional issued patents;

• there is no guarantee that any patents issued to us or our collaborative customers will provide a basis for commercially viable products;

• there is no guarantee that any patents issued to us or our collaborative customers will provide us with any competitive advantages;

• there is no guarantee that any patents issued to us or our collaborative customers will not be challenged or circumvented or invalidated by third parties; and

27

• there is no guarantee that any patents issued to others will not have an adverse effect on our ability to do business.

The issuance of a patent is not conclusive as to its validity or enforceability, nor does it provide the patent holder with freedom to operate without infringing the patent rights of others. A patent could be challenged by litigation and, if the outcome of such litigation were adverse to the patent holder, competitors could be free to use the subject matter covered by the patent. The invalidation of key patents owned by or licensed to us or the non-approval of pending patent applications could increase competition and materially adversely affect our business, financial condition, and results of operations.

Litigation, which could result in substantial cost to us, also may be necessary to enforce our patent and proprietary rights and/or to determine the scope and validity of others’ proprietary rights. We may participate in interference proceedings that may in the future be declared by the USPTO to determine priority of invention, which could result in substantial cost to us. The outcome of any such litigation or interference proceeding might not be favorable to us, and we might not be able to obtain licenses to technology that we require or, even if obtainable, such technology may not be available at a reasonable cost.

If we infringe on the intellectual property rights of others, we may be required to obtain a license, pay damages, and/or cease the commercialization of our technology.

We believe that there may be significant litigation in the industry regarding patent and other intellectual property rights. It is possible that the commercialization of our technology could infringe the patents or other intellectual property rights of others. In addition, others may have filed, and in the future are likely to file, patent applications covering genes or gene products or antibodies against the gene products that are similar or identical to our products. Any such patent applications may have priority over our patent applications, and may result in the issuance of patents to others that could be infringed by our products or processes.

A number of competitors are producing proteins from genes and claiming both the proteins as potential therapeutics as well as the antibodies against these proteins. In many cases, generic antibody claims are being issued by the USPTO even though competitors have not actually made antibodies against the protein of interest, or do not have cellular, animal, or human data to support the use of these antibodies as therapeutics. These claims to proteins as therapeutics, to all antibodies against a protein, and to methods of use in broad human indications are being filed at a rapid rate, and patents including such claims have issued and may continue to issue. Such patents may prevent us from commercializing some products or processes or, if licenses under the patents are made available, may make the royalty burden on these products and processes so high as to prevent commercial success.

In addition, we have sought and intend to continue to seek patent protection for novel uses for genes and proteins and therapeutic antibodies that may have been patented by third parties. In such cases, we would need a license from the holder of the patent with respect to such gene or protein in order to make, use, or sell such gene or protein for such use. We may not be able to acquire such licenses on commercially reasonable terms, if at all.

Any legal action against us or our collaborators for patent infringement relating to our products and processes could, in addition to subjecting us to potential liability for damages, require us or our collaborators to obtain a license in order to continue to manufacture or market the affected products and processes, or could enjoin us from continuing to manufacture or market the affected products and processes. There can be no assurance that we or our collaborators would prevail in any such action or that any license required under any such patent would be made available on commercially acceptable terms, if at all. If we become involved in such litigation, it could consume a substantial portion of our managerial and financial resources.

We cannot be certain that our security measures will protect our confidential information and proprietary technologies.

We rely upon trade secret protection for some of our confidential and proprietary information that is not the subject matter for which patent protection is being sought. We have taken security measures to protect our proprietary technologies, processes, information systems, and data and continue to explore ways to enhance such security. Such measures, however, may not provide adequate protection for our trade secrets or other proprietary information. While we require employees, academic collaborators, consultants, and scientific advisors to enter into confidentiality and/or non-disclosure agreements where appropriate, any of the following could still occur:

• proprietary information could be disclosed;

• others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, technology, or disclose such information; or

28

• we may not be able to meaningfully protect our trade secrets.

If the security of our confidential information is breached, our business could be materially adversely affected.

We depend upon our ability to license technologies.

We may have to acquire or license certain components of our technologies or products from third parties. We may not be able to acquire from third parties or develop new technologies, either alone or with others. We may not be able to acquire licenses on commercially reasonable terms, if at all. Failure to license or otherwise acquire necessary technologies could materially adversely affect our business, financial condition, and results of operations.

If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.

Our research and development efforts involve the controlled use of hazardous materials, chemicals and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials. Although we maintain workers’ compensation insurance to cover us for costs we may incur due to injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. Due to the small amount of hazardous materials that we generate, we do not currently maintain any environmental liability or toxic tort claim insurance coverage to cover pollution conditions or other extraordinary or unanticipated events relating to our use and disposal of hazardous materials. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.

Risks Related to Our Financial Results

We have convertible debt and our debt service obligations may prevent us from taking actions that we would otherwise consider to be in our best interests.

As of March 31, 2009, we had total outstanding convertible debt of $14.1 million which is due in February 2011; and for the year ended December 31, 2008, we had earnings available to cover fixed charges of $25.1 million due primarily to our sale of belinostat to TopoTarget, which was a one time non-recurring event. A variety of uncertainties and contingencies will affect our future performance, many of which are beyond our control. We may not generate sufficient cash flow in the future to enable us to meet our anticipated fixed charges, including our debt service requirements. The following table shows, as of March 31, 2009, the remaining aggregate amount of our interest payments due in each of the years listed (in millions):

Year	Aggregate Interest
2009	$	0.3
2010		0.6
2011		0.3
Total	$	1.2

Our leverage could have significant negative consequences for our future operations, including:

• increasing our vulnerability to general adverse economic and industry conditions;

• limiting our ability to obtain additional financing;

• requiring the dedication of a substantial portion of our expected cash flow to service our indebtedness, thereby reducing the amount of our expected cash flow available for other purposes, including working capital and capital expenditures;

29

• limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; or

• placing us at a possible competitive disadvantage compared to less leveraged competitors and competitors that have better access to capital resources.

We will likely need to raise additional funding, which may not be available on favorable terms, if at all.

We believe that we have sufficient capital to satisfy our funding requirements through 2011. However, our future funding requirements will depend on many factors and we anticipate that we will likely need to raise additional capital to fund our business plan and research and development efforts on a going-forward basis. To the extent that we need to obtain additional funding, the amount of additional capital we would need to raise would depend on many factors, including:

• the number, breadth, and progress of our research, product development, and clinical programs;

• our ability to establish future potential strategic collaborations;

• the progress of our collaborators;

• our costs incurred in enforcing and defending our patent claims and other intellectual property rights; and

• the costs and timing of obtaining regulatory approvals for any of our products.

We expect that we would raise any additional capital we require through private equity offerings, debt financings, or additional collaborations and licensing arrangements. We cannot be certain that in the future these sources of liquidity will be available when needed, particularly in light of the current economic environment, or that our actual cash requirements will not be greater than anticipated. In appropriate strategic situations, we may seek financing from other sources, including contributions by others to joint ventures and other collaborative or licensing arrangements for the development and testing of products under development. If we raise additional capital by issuing equity securities, the issuance of such securities would result in ownership dilution to our stockholders. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish rights to certain of our technologies or product candidates, or to grant licenses on unfavorable terms. The relinquishing of rights or granting of licenses on unfavorable terms could materially adversely affect our business, financial condition, and results of operations. If adequate funds are not available, our business, financial condition, and results of operations would be materially adversely affected. However, should we be unable to obtain future financing either through the methods described above or through other means, we may be unable to meet the critical objective of our long-term business plan, which is to successfully develop and market pharmaceutical products. If we require additional capital at a time when investment in biotechnology companies such as ours, or in the marketplace in general, is limited due to the then prevailing market or other conditions, we may not be able to raise such funds at the time that we desire or any time thereafter.

Our quarterly operating results have fluctuated greatly and may continue to do so.

Our operating results have fluctuated on a quarterly basis. We expect that losses will continue to fluctuate from quarter to quarter and that these fluctuations may be substantial. Our results of operations are difficult to predict and may fluctuate significantly from period to period, which may cause our stock price to decline and result in losses to investors. Some of the factors that could cause our operating results to fluctuate include:

• the nature, pricing, and timing of products and services provided to our collaborators and customers;

• our ability to compete effectively in our therapeutic development efforts against competitors that have greater financial or other resources or drug candidates that are in further stages of development;

• acquisition, licensing, and other costs related to our operations;

• losses and expenses related to our investments;

• regulatory developments;

• regulatory actions and changes related to the development of drugs;

• changes in intellectual property laws that affect our patent rights;

• payments of milestones, license fees, or research payments under the terms of our external alliances and our ability to monitor and enforce such payments; and

• the timing of intellectual property licenses that we may enter.

30

We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. In addition, fluctuations in quarterly results could affect the market price of our common stock in a manner unrelated to our long-term operating performance.

Our debt investments are impacted by the financial viability of the underlying companies or assets.

Our fixed-rate debt investments comply with our policy of investing in only highly rated debt instruments. The ability for the debt to be repaid upon maturity or to have a viable resale market is dependent, in part, on the financial success of the underlying company or assets. Should the underlying company or assets suffer significant financial difficulty, the debt instrument could either be downgraded or, in the worst case, our investment could be worthless. This would result in our losing the cash value of the investment and incurring a charge to our statement of operations.

The market price of our common stock is highly volatile.

The market price of our common stock has fluctuated widely and may continue to do so. For example, during the quarter ended March 31, 2009 the sales price of our stock ranged from a high of $0.95 per share to a low of $0.47 per share. Many factors could cause the market price of our common stock to rise and fall. These factors include:

• the current economic and credit crisis and associated turmoil in world financial markets;

• variations in our quarterly operating results;

• announcements of clinical results, technological innovations, or new products by us or our competitors;

• acquisitions or strategic alliances by us or others in our industry;

• announcement by the government or other agencies regarding the economic health of the United States and the rest of the world;

• the hiring or departure of key personnel;

• changes in market valuations of companies within the biotechnology industry; and

• changes in estimates of our performance or recommendations by financial analysts.

Our common stock could be delisted from the NASDAQ Global Market if our stock price continues to trade below $1.00 per share.

In September 2008, we received a letter from The NASDAQ Stock Market LLC advising us that the closing bid price of our common stock for the previous 30 consecutive trading days had closed below the minimum $1.00 per share required for continued listing on the NASDAQ Global Market pursuant to NASDAQ Marketplace Rule 5450(a)(1). Pursuant to NASDAQ Marketplace Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until March 23, 2009, to regain compliance with the minimum bid price requirement.

In October 2008, we received a letter from NASDAQ informing us that NASDAQ had temporarily suspended enforcement of the minimum bid price requirement due to conditions in U.S. and world financial markets, and in December 2008, we received an additional letter from NASDAQ indicating that the suspension period had been extended, with enforcement of the requirement scheduled to resume on April 20, 2009.

In March 2009, we received a letter from NASDAQ stating that NASDAQ has further extended the suspension of the minimum bid price requirement and that the enforcement of this requirement is now scheduled to resume on July 20, 2009. This letter further stated that prior to the resumption of enforcement, NASDAQ will send an additional letter to inform us of the number of calendar days remaining in our compliance period and the specific date by which we need to regain compliance. The letter we received in October 2008 stated that we had 158 calendar days remaining in our compliance period. With the enforcement of the rules scheduled to resume on July 20, 2009 and assuming a 158 calendar day compliance period, we would have until December 25, 2009 to regain compliance with the minimum bid price requirement.

We can regain compliance with the minimum bid price requirement, either during the suspension period or during the compliance period resuming after the suspension period, by achieving a $1.00 closing bid price for a minimum of 10 consecutive trading days. If we do not regain compliance with the requirement by the required date, we can apply to list our common stock on the NASDAQ Capital Market and NASDAQ will determine whether we meet the NASDAQ Capital Market initial listing criteria as set forth in the NASDAQ Marketplace Rule, other than the minimum bid price requirement. If we meet the NASDAQ Capital Market initial listing criteria, NASDAQ will notify us that we have been granted an additional 180 calendar days to come into compliance

31

with the requirement. If we do not meet the initial listing criteria, NASDAQ will provide us with written notification that our common stock will be delisted. At that time we would be permitted to appeal NASDAQ’s determination to delist our common stock to a NASDAQ Listings Qualifications Panel.

We will seek to regain compliance with the minimum bid price requirement by the required date, and are considering alternatives to address compliance with the continued listing standards of the NASDAQ Global Market, but it is possible that we will be unable to meet these standards despite our efforts, and that our stock could be delisted from the NASDAQ Global Market as a result.

Delisting from the NASDAQ Global Market could have an adverse effect on our business and on the trading of our common stock. If a delisting of our common stock from the NASDAQ Stock Market were to occur, our common stock would trade on the OTC Bulletin Board or on the “pink sheets” maintained by the National Quotation Bureau, Inc. Such alternatives are generally considered to be less efficient markets, and our stock price, as well as the liquidity of our common stock, may be adversely impacted as a result.

Securities we issue to fund our operations could cause dilution to our stockholders’ ownership.

We may decide to raise additional funds through a private debt or equity financing to fund our operations. If we raise funds by issuing equity securities, the percentage ownership of current stockholders will be reduced, and the new equity securities may have rights with priority over our common stock. We may not be able to obtain sufficient financing on terms that are favorable to us or our existing stockholders, if at all.

We may effect future repurchases of our 4% convertible debentures due in February 2011, which may adversely affect our liquidity.

We may from time to time seek to repurchase or refinance all or a portion of our outstanding $14.1 million 4% convertible debentures that mature on February 15, 2011. Any repurchases might occur through cash purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transaction, individually or in the aggregate, may be material and could adversely affect our liquidity and ability to fund ongoing operations.

We may from time to time exceed the Federal Deposit Insurance Corporation limits in our bank accounts.

We may from time to time have a balance in our bank account which exceeds the $250,000 per depositor, per insured bank amount guaranteed by the Federal Deposit Insurance Corporation, or FDIC. The FDIC insures deposits in most banks and savings associations located in the United States. The FDIC protects depositors against the loss of their deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government.

Item 6. Exhibits

Exhibit 10.1	Non-Employee Director Compensation Summary
Exhibit 31.1	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32	Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32

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.

Dated: May 7, 2009	CuraGen Corporation
	By:	/s/ Timothy M. Shannon, M.D.
		Timothy M. Shannon, M.D.
		Chief Executive Officer and President
		(Principal Executive Officer of the Registrant)
Dated: May 7, 2009	By:	/s/ Sean A. Cassidy
		Sean A. Cassidy
		Vice-President and Chief Financial Officer
		(Principal Financial and Accounting Officer of the Registrant)

33

CURAGEN CORPORATION

EXHIBIT INDEX

No.

Exhibit 10.1	Non-Employee Director Compensation Summary
Exhibit 31.1	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32	Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

34

EX-10.1

Exhibit 10.1

Non-Employee Director Compensation Summary

CuraGen Corporation’s (the “Company”) non-employee directors are currently: (i) Vincent T. DeVita Jr., M.D.; (ii) John H. Forsgren; (iii) James J. Noble, M.A., F.C.A.; (iv) Robert E. Patricelli; and (v) Patrick J. Zenner. The compensation structure for the Company’s non-employee directors is as follows:

Grant of Options Upon Appointment

Each non-employee director will automatically receive an option to purchase 30,000 shares of the Company’s common stock upon appointment to the Company’s Board of Directors (the “Board”). These options will vest  ¹/3 upon grant,  ¹/3 upon the first anniversary of the date of grant, and  ¹/3 upon the second anniversary of the date of grant (vesting will be accelerated upon a 50% or greater change in control of the Company.)

Grant of Additional Stock Options

Each non-employee director who continues to serve on the Board will automatically receive an option to purchase 15,000 shares of the Company’s common stock, granted in conjunction with each year’s Annual Meeting, such option vesting immediately.

The Executive Chairman of the Board will receive an option to purchase 7,500 shares of the Company’s common stock, granted in conjunction with each year’s Annual Meeting (or granted on the date of appointment to the position and prorated for the first fiscal year of appointment, the fiscal year ending with the date of the next regularly scheduled Annual Meeting), such option vesting immediately.

The Audit Committee Chair will receive an option to purchase 5,000 shares of the Company’s common stock, granted in conjunction with each year’s Annual Meeting (or granted on the date of appointment to the position and prorated for the first fiscal year of appointment, the fiscal year ending with the date of the next regularly scheduled Annual Meeting), such option vesting immediately.

The Compensation Committee Chair and the Nominating & Governance Committee Chair will receive an option to purchase 2,500 shares of the Company’s common stock, granted in conjunction with each year’s Annual Meeting (or granted on the date of appointment to the position and prorated for the first fiscal year of appointment, the fiscal year ending with the date of the next regularly scheduled Annual Meeting), such option vesting immediately.

Payment of Fees: Reimbursement of Travel and Other Expenses

In addition to the above mentioned stock option grants, each non-employee director will receive an annual retainer of $20,000 for his service on the Board during 2009. This retainer will be prorated for any non-employee director who serves for only part of the year. Additional amounts will be paid to the non-employee directors during 2009 as follows:

Position	Additional Fees
Executive Chairman of the Board – Retainer	$	30,000
Audit Committee Chair – Retainer	$	15,000
Compensation Committee Chair – Retainer	$	10,000
Nominating & Governance Committee Chair – Retainer	$	10,000
Board meeting fee - regular meeting	$	1,500
Board meeting fee - telephonic meeting	$	750
Audit Committee meeting - Each member	$	1,250
Compensation Committee meeting - Each member	$	1,000
Nominating & Governance meeting - Each member	$	1,000
Audit Committee telephonic meeting - Each member	$	1,000

Position	Additional Fees
Compensation Committee telephonic meeting - Each member	$	750
Nominating & Governance telephonic meeting - Each member	$	750
Per diem for additional work performed on site, in support of Board and/or Committee responsibilities		Waived for 2009

All retainer amounts will be paid quarterly during the fiscal year. Non-employee directors also receive reimbursement for reasonable travel and other expenses in connection with attending Board and committee meetings during the fiscal year.

Additional Fees for Executive Chairman of the Board

In February 2009, the Board of Directors created a new position of Executive Chairman of the Board of Directors and elected John H. Forsgren to this position. In addition to the compensation described above, Mr. Forsgren receives cash compensation of $10,000 per month for his services as Executive Chairman of the Board, and received a fully vested restricted stock grant of 50,000 shares in March 2009 in connection with his election to this position. Mr. Forsgren’s responsibilities as Executive Chairman include assisting with the Company’s current operational and strategic initiatives.

The foregoing summary replaces and supersedes the Non-Employee Director Compensation Summary filed as Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

EX-31.1

Exhibit 31.1

CERTIFICATIONS UNDER SECTION 302

I, Timothy M. Shannon, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CuraGen Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 7, 2009

/s/ Timothy M. Shannon, M.D.

Timothy M. Shannon, M.D.

Chief Executive Officer and President

(principal executive officer of the registrant)

EX-31.2

Exhibit 31.2

CERTIFICATIONS UNDER SECTION 302

I, Sean A. Cassidy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CuraGen Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 7, 2009

/s/ Sean A. Cassidy

Sean A. Cassidy

Vice-President and Chief Financial Officer

(principal financial and accounting officer of the registrant)

EX-32

Exhibit 32

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

In connection with the Quarterly Report on Form 10-Q of CuraGen Corporation (the “Company”) for the period ended March 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Timothy M. Shannon, M.D., Chief Executive Officer and President of the Company, and Sean A. Cassidy, Vice-President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 7, 2009	By:	/s/ Timothy M. Shannon, M.D.
		Timothy M. Shannon, M.D.
		Chief Executive Officer and President
		(principal executive officer of the registrant)
Dated: May 7, 2009	By:	/s/ Sean A. Cassidy
		Sean A. Cassidy
		Vice-President and Chief Financial Officer
		(principal financial and accounting officer of the registrant)