UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2010

OR

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

For the transition period from                    to                    .

Commission File Number 001-33451

BIODEL INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	90-0136863 (IRS Employer Identification No.)
100 Saw Mill Road Danbury, Connecticut (Address of principal executive offices)	06810 (Zip code)

(203) 796-5000
(Registrant’s telephone number, including area code)

Not Applicable
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)

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

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

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

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

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

Indicate the number of shares outstanding of the issuer’s common stock as of the latest practicable date: As of July 30, 2010 there were 23,993,971 shares of the registrant’s common stock outstanding.

BIODEL INC.

	Page
PART I — FINANCIAL INFORMATION
Item 1. Condensed Financial Statements		1
Condensed Balance Sheets at September 30, 2009 and June 30, 2010 (unaudited)		1
Condensed Statements of Operations (unaudited) for the Three and Nine Months Ended June 30, 2009 and 2010 and for the period from December 3, 2003 (inception) to June 30, 2010		2
Condensed Statements of Stockholders’ Equity (unaudited) for the period from December 3, 2003 (inception) to June 30, 2010		3
Condensed Statements of Cash Flows (unaudited) for the Nine Months Ended June 30, 2009 and 2010 and for the period from December 3, 2003 (inception) to June 30, 2010		6
Notes to Condensed Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosure About Market Risk		24
Item 4. Controls and Procedures		24
PART II — OTHER INFORMATION
Item 1A. Risk Factors		26
Item 6. Exhibits		39
Signatures		40
EX-31.01
EX-31.02
EX-32.01

PART I — FINANCIAL INFORMATION

Item 1. Condensed Financial Statements.

Biodel Inc.
(A Development Stage Company)
Balance Sheets
(in thousands, except share and per share amounts)

	September 30,			June 30,
	2009			2010
				(unaudited)
ASSETS
Current:
Cash and cash equivalents	$	54,640		$	17,850
Marketable securities		—			6,005
Taxes receivable		752			820
Other receivables		—			1,406
Prepaid and other assets		482			682
Total current assets		55,874			26,763
Property and equipment, net		3,695			3,135
Intellectual property, net		56			53
Total assets	$	59,625		$	29,951
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current:
Accounts payable	$	1,007		$	1,021
Accrued expenses:
Clinical trial expenses		5,647			1,933
Regulatory		359			97
Payroll and related		1,117			1,099
Accounting and legal fees		325			422
Severance		183			0
Other		284			402
Income taxes payable		165			139
Total current liabilities		9,087			5,113
Commitments
Stockholders’ equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized, none outstanding		—			—
Common stock, $.01 par value; 100,000,000 shares authorized; 23,803,672 and 23,993,446 issued and outstanding		238			240
Additional paid-in capital		176,764			181,248
Deficit accumulated during the development stage		(126,464	)		(156,650	)
Total stockholders’ equity		50,538			24,838
Total liabilities and stockholders’ equity	$	59,625		$	29,951

See accompanying notes to financial statements.

1

Biodel Inc.
(A Development Stage Company)
Condensed Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)

													December 3,
													2003
	Three Months Ended						Nine Months Ended						(inception) to
	June 30,						June 30,						June 30,
	2009			2010			2009			2010			2010
Revenue	$	—		$	—		$	—		$	—			—
Operating expenses:
Research and development		7,991			5,890			24,387			21,658			111,709
General and administrative		2,692			2,780			8,408			8,573			45,218
Total operating expenses		10,683			8,670			32,795			30,231			156,927
Other (income) and expense:
Interest and other income		(54	)		(3	)		(374	)		(10	)		(5,499	)
Interest expense		—			—			—			—			78
Loss on settlement of debt		—			—			—			—			627
Operating loss before tax provision (benefit)		(10,629	)		(8,667	)		(32,421	)		(30,221	)		(152,133	)
Tax provision (benefit)		519			(38	)		380			(35	)		(543	)
Net loss		(11,148	)		(8,629	)		(32,801	)		(30,186	)		(151,590	)
Charge for accretion of beneficial conversion rights		—			—			—			—			(603	)
Deemed dividend — warrants		—			—			—			—			(4,457	)
Net loss applicable to common stockholders	$	(11,148	)	$	(8,629	)	$	(32,801	)	$	(30,186	)		(156,650	)
Net loss per share — basic and diluted	$	(0.47	)	$	(0.36	)	$	(1.38	)	$	(1.26	)
Weighted average shares outstanding — basic and diluted		23,759,675			23,944,386			23,727,833			23,892,899

See accompanying notes to financial statements.

2

Biodel Inc.
(A Development Stage Company)
Condensed Statements of Stockholders’ Equity
(in thousands, except share and per share amounts)

																		Deficit
																Accumulated		Accumulated
	Common Stock				Series A Preferred stock				Series B Preferred stock				Additional			Other		During the			Total
	$01 Par Value				$.01 Par Value				$.01 Par Value				Paid in			Comprehensive		Development			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Income (loss)		Stage			Equity
Shares issued to employees		732,504	$	7		—	$	—		—	$	—	$	(7	)	$	—	$	—		$	—
January 2004 Proceeds from sale of common stock		4,581,240		46		—		—		—		—		1,308			—		—			1,354
Net loss		—		—		—		—		—		—		—					(774	)		(774	)
Balance, September 30, 2004		5,313,744		53		—		—		—		—		1,301			—		(774	)		580
Additional stockholder contributions		—		—		—		—		—		—		514			—		—			514
Share-based compensation		—		—		—		—		—		—		353			—		—			353
Shares issued to employees and directors for services		42,656		1		—		—		—		—		60			—		—			61
July 2005 Private placement — Sale of Series A preferred stock, net of issuance costs of $379		—		—		569,000		6		—		—		2,460			—		—			2,466
Founder’s compensation contributed to capital		—		—		—		—		—		—		63			—		—			63
Net loss		—		—		—		—		—		—		—			—		(3,383	)		(3,383	)
Balance, September 30, 2005		5,356,400		54		569,000		6		—		—		4,751			—		(4,157	)		654
Share-based compensation		—		—		—		—		—		—		1,132			—		—			1,132
July 2006 Private placement — Sale of Series B preferred stock, net of issuance costs of $1,795		—		—		—		—		5,380,711		54		19,351			—		—			19,405
July 2006 — Series B preferred stock units issued July 2006 to settle debt		—		—		—		—		817,468		8		3,194			—		—			3,202
Shares issued to employees and directors for services		4,030		—		—		—		—		—		23			—		—			23
Accretion of fair value of beneficial conversion charge		—		—		—		—		—		—		603			—		(603	)		—
Net loss		—		—		—		—		—		—		—			—		(8,068	)		(8,068	)
Balance, September 30, 2006		5,360,430		54		569,000		6		6,198,179		62		29,054			—		(12,828	)		16,348

3

Biodel Inc.
(A Development Stage Company)
Condensed Statements of Stockholders’ Equity
(in thousands, except share and per share amounts)

																						Deficit
					Series A Preferred														Accumulated			Accumulated
	Common Stock				stock						Series B Preferred stock						Additional		Other			During the			Total
	$01 Par Value				$.01 Par Value						$.01 Par Value						Paid in		Comprehensive			Development			Stockholders’
	Shares		Amount		Shares			Amount			Shares			Amount			Capital		Income (loss)			Stage			Equity
May 2007 Proceeds from sale of common stock		5,750,000		58		—			—			—			—			78,697		—			—			78,755
Conversion of preferred stock on May 16, 2007		6,407,008		64		(569,000	)		(6	)		(6,198,179	)		(62	)		4		—			—			—
Share-based compensation		—		—		—			—			—			—			4,224		—			—			4,224
Shares issued to employees, non-employees and directors for services		2,949		—		—			—			—			—			16		—			—			16
Stock options exercised		3,542		—		—			—			—			—			5		—			—			5
March 2007 Warrants exercised		2,636,907		26		—			—			—			—			397		—			—			423
Deemed dividend — warrants		—		—		—			—			—			—			4,457		—			(4,457	)		—
Net loss		—		—		—			—			—			—			—		—			(22,548	)		(22,548	)
Balance, September 30, 2007		20,160,836		202		—			—			—			—			116,854		—			(39,833	)		77,223
Proceeds from sale of common stock		3,260,000		32		—			—			—			—			46,785		—			—			46,817
Issuance of restricted stock		9,714		—		—			—			—			—			172		—			—			172
Share-based compensation		—		—		—			—			—			—			6,503		—			—			6,503
Stock options exercised		174,410		1		—			—			—			—			901		—			—			902
Warrants exercised		79,210		1		—			—			—			—			111		—			—			112
Net unrealized (loss) on Marketable Securities		—		—		—			—			—			—			—		(62	)		—			(62	)
Proceeds from sale of stock — ESPP		14,388		1		—			—			—			—			180		—			—			181
Net loss		—		—		—			—			—			—			—		—			(43,361	)		(43,361	)
Balance, September 30, 2008		23,698,558		237		—			—			—			—			171,506		(62	)		(83,194	)		88,487

4

Biodel Inc.
(A Development Stage Company)
Condensed Statements of Stockholders’ Equity
(in thousands, except share and per share amounts)

																	Deficit
					Series A Preferred										Accumulated		Accumulated
	Common Stock				stock				Series B Preferred stock				Additional		Other		During the			Total
	$01 Par Value				$.01 Par Value				$.01 Par Value				Paid in		Comprehensive		Development			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Income (loss)		Stage			Equity
Share-based compensation		—		—		—		—		—		—		5,064		—		—			5,064
Stock options exercised		17,661		—		—		—		—		—		25		—		—			25
Net unrealized gain on Marketable Securities		—		—		—		—		—		—		—		62		—			62
Proceeds from sale of stock — ESPP		87,453		1		—		—		—		—		169		—		—			170
Net loss																		(43,270	)		(43,270	)
Balance, September 30, 2009		23,803,672		238		—		—		—		—		176,764		—		(126,464	)		50,538
Share-based compensation		—		—		—		—		—		—		4,117		—		—			4,117
Stock options exercised		24,202		—		—		—		—		—		43		—		—			43
Proceeds from sale of stock — ESPP		165,572		2		—		—		—		—		324		—		—			326
Net loss		—		—		—		—		—		—		—		—		(30,186	)		(30,186	)
Balance, June 30, 2010 (unaudited)		23,993,446	$	240		—	$	—		—	$	—	$	181,248	$	—	$	(156,650	)	$	24,838

See accompanying notes to financial statements.

5

Biodel Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
(in thousands, except share and per share amounts)
(unaudited)

							December 3,
							2003
	Nine months ended						(inception) to
	June 30,						June 30,
	2009			2010			2010
Cash flows from operating activities:
Net loss	$	(32,801	)	$	(30,186	)	$	(151,590	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		643			736			2,885
Founder’s compensation contributed to capital		—			—			271
Share-based compensation for employees and directors		3,827			4,147			19,351
Share-based compensation for non-employees		81			(30	)		2,295
Loss on settlement of debt		—			—			627
Write-off of loan to related party		—			—			41
Write-off of capitalized patent expense		—			—			208
(Increase) decrease in:
Income tax receivable		1,408			(68	)		(820	)
Other receivables					(1,406	)		(1,406	)
Prepaid expenses		753			(200	)		(682	)
Increase (decrease) in:
Accounts payable		(540	)		14			1,021
Income taxes payable		(975	)		(26	)		139
Accrued expenses		1,812			(3,961	)		4,172
Total adjustments		7,009			(794	)		28,102
Net cash used in operating activities		(25,792	)		(30,980	)		(123,488	)
Cash flows from investing activities:
Purchase of property and equipment		(171	)		(174	)		(5,983	)
Purchase of marketable securities		—			(6,005	)		(31,619	)
Sale of marketable securities		24,614			—			25,614
Acquisition of intellectual property		—			—			(298	)
Loan to related party		—			—			(41	)
Net cash provided by (used in) investing activities		24,443			(6,179	)		(12,327	)
Cash flows from financing activities:
Options exercised		15			43			975
Warrants exercised		—			—			535
Employee stock purchase plan		170			326			677
Deferred public offering costs		—			—			(1,458	)
Stockholder contribution		—			—			1,660
Net proceeds from sale of Series A preferred stock		—			—			2,466
Net proceeds from sale of common stock		—			—			127,030
Proceeds from bridge financing		—			—			2,575
Net proceeds from sale of Series B preferred stock		—			—			19,205
Net cash provided by financing activities		185			369			153,665
Net (decrease) increase in cash and cash equivalents		(1,164	)		(42,790	)		11,850
Cash and cash equivalents, beginning of period		64,731			54,640			—
Cash and cash equivalents, end of period	$	63,567		$	17,850		$	17,850

6

Biodel Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
(in thousands, except share and per share amounts)
(unaudited)

					December 3,
					2003
	Nine months ended				(inception) to
	June 30,				June 30,
	2009		2010		2010
Supplemental disclosures of cash flow information:
Cash paid for interest and income taxes was:
Interest	$	—	$	—	$	9
Income taxes		110		60		306
Non-cash financing and investing activities:
Settlement of debt with Series B preferred stock	$	—	$	—	$	3,202
Accrued expenses settled with Series B preferred stock		—		—		150
Deemed dividend — warrants		—		—		4,457
Accretion of fair value of beneficial charge on preferred stock		—		—		603
Conversion of convertible preferred stock to common stock		—		—		68

See accompanying notes to financial statements.

7

Biodel Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(in thousands, except share and per share amounts)
(unaudited)

1. Business and Basis of Presentation

  Business

     Biodel Inc. (“Biodel” or the “Company”, and formerly Global Positioning Group Ltd.) is a development stage specialty pharmaceutical company located in Danbury, Connecticut. The Company was incorporated in the State of Delaware on December 3, 2003 and commenced operations in January 2004.

     The Company’s most advanced product candidate is VIAject^®, a proprietary injectable formulation of recombinant human insulin designed to be absorbed into the blood faster than the currently marketed rapid-acting insulin analogs. We have completed two pivotal Phase 3 clinical trials of VIAject^®, one in patients with Type 1 diabetes and the other in patients with Type 2 diabetes. In both clinical trials, we compared VIAject^® to Humulin^® R, a form of recombinant human insulin. We believe VIAject^® can improve the management of blood glucose levels in patients with diabetes by more closely mimicking the natural first-phase insulin release that healthy individuals experience at mealtime. Patients in both clinical trials were treated for a period of six months. Our new drug application for VIAject^® has been accepted for review by the FDA with a Prescription Drug User Fee Act action date of October 30, 2010. Our earlier stage product candidates include VIAtab™ (a sublingual tablet formulation of insulin), an extended duration basal insulin, a glucose responsive basal insulin formulation and a stabilized formulation of glucagon.

  Basis of Presentation

     The financial statements have been prepared by the Company and are unaudited. In the opinion of management, the Company has made all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position and results of operations for the interim periods presented. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted. These condensed financial statements should be read in conjunction with the September 30, 2009 audited financial statements and accompanying notes included in the 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 14, 2009. The results of operations for the nine months ended June 30, 2010 are not necessarily indicative of the operating results for the full year or any other interim period.

     The Company is in the development stage, as defined by Financial Accounting Standards Board (“FASB”) ASC 915 (prior authoritative literature: Statement of Financial Accounting Standards (“SFAS”) No. 7), “Development Stage Entities”, as its primary activities since incorporation have been establishing its facilities, recruiting personnel, conducting research and development, business development, business and financial planning and raising capital.

Recently Adopted and Recently Issued Accounting Pronouncements

Adopted Accounting Pronouncements

  Fair Value Measurement

     Effective October 1, 2009, the Company adopted the provisions of ASU 2009-5 Fair Value and Disclosures (Topic 820) Measuring Liabilities at Fair Value (“ASU 2009-5”). ASU 2009-5 provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures-Overall, for the fair value measurement of liabilities. ASU 2009-5 clarifies that in circumstances in which a quoted price in an active market for the identical liability is not available; a reporting entity is required to measure fair value. The adoption of this accounting pronouncement did not have a material effect on the Company’s financial statements.

  Share-based Compensation

     In June 2008, the FASB issued ASC 260-10-55 Earnings Per Share — Overall (formerly Financial Statement Position Emerging Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities) (“ASC 260-10-55”). ASC 260-10-55 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. ASC 260-10-55 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform to the provisions of ASC 260-10-55. Given that the holder of Restricted Stock Unit awards (“RSUs”) will only receive dividends or dividend equivalents on RSUs that have vested prior to the Company declaring dividends as well as forfeiting their rights to receive dividends or dividend equivalents on any unvested portion, the Company determined that the RSUs are non-participating securities and therefore are not subject to ASC 260-10-55.

  Recent Accounting Pronouncements

     In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) (“ASU 2010-06”). This Update provides amendments to Subtopic 820-10 and related guidance within US GAAP to require disclosure of the transfers in and out of Levels 1 and 2 and a schedule for Level 3 that separately identifies purchases, sales, issuances and settlements and requires more detailed disclosures regarding valuation techniques and inputs. ASU 2010-06 will be effective for fiscal years beginning after December 15, 2010 and for interim periods within those years. The Company is evaluating the impact the adoption of ASU 2010-06 will have on its financial position and results of operations.

8

Biodel Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(in thousands, except share and per share amounts)
(unaudited)

2. Marketable Securities

     The Company classifies marketable securities as available for sale and accounts for marketable securities in accordance with the provisions of ASC Topic 320 (“ASC 320,” formerly SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities). ASC 320 addresses the accounting and reporting for investments in fixed maturity securities and for equity securities with readily determinable fair values. The Company determines the appropriate classification of debt and equity securities at the time of purchase and re-evaluates such designation as of each balance sheet date.

     The Company invests in certain marketable securities, which consist primarily of short-to-intermediate-term debt securities issued by the U.S. government, U.S. government agencies and municipalities and investment grade corporate securities. The Company only invests in marketable securities with active secondary or resale markets to ensure portfolio liquidity and the ability to readily convert investments into cash to fund current operations, or satisfy other cash requirements as needed. Due to the nature of the Company as a development stage company and its funding needs at times being uncertain, the Company has classified all marketable securities as available-for-sale. The unrealized gains and losses on these securities, are included in accumulated other comprehensive income as a separate component of stockholders’ equity. The specific-identification method is used to determine the cost of a security sold or the amount reclassified from accumulated other comprehensive income into earnings.

     The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with FASB Staff Position No. 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (which was subsequently incorporated into ASC 320, Investments — Debt and Equity Securities). Any unrealized loss identified as other-than-temporary is recorded directly in the Statement of Operations.

     Marketable securities classified as available for sale are measured at fair value based on quoted market prices. The amortized cost, gross unrealized gains and losses and fair value of investment securities at June 30, 2010 are summarized below. The securities listed as of June 30, 2010 mature on various dates through December 2010.

	June 30, 2010
	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
Short term marketable securities
US government agency securities		6,005		—		—		6,005
Corporate and agency bonds		—		—		—		—
Discount and bank notes		—		—		—		—
Total	$	6,005	$	—	$	—	$	6,005

     Contractual maturities of available-for-sale debt securities at June 30, 2010 are as follows:

	Estimated
	Fair Value
Within one year	$	6,005
1-5 years		—
Total	$	6,005

3. Fair Value Measurement

     ASC Topic 820 (“ASC 820”, originally issued as SFAS No. 157, Fair Value Measurements) applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, ASC 820 does not require any new fair value measurements. SFAS No. 157 originally became effective October 1, 2008 for the Company. The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. The three levels of inputs used are as follows:

9

Biodel Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(in thousands, except share and per share amounts)
(unaudited)

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

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

     As of June 30, 2010, the Company’s only assets that fell under the scope of ASC 820 were its investments — marketable securities. The fair values of the marketable securities were based on quoted market prices. Accordingly, the Company’s fair value measurements of its marketable securities are classified as Level 1 input.

     The fair value of the Company’s financial assets carried at fair value and measured on a recurring basis is as follows:

			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
	Fair Value at		Identical Assets		Market Inputs		Inputs
Description	June 30, 2010		(Level 1)		(Level 2)		(Level 3)
Assets:
Money Market Fund	$	7,146	$	7,146	$	—	$	—
US government agency securities (cash equivalents)		6,000		6,000		—		—
US government agency securities (short-term securities)		6,005		6,005		—		—
Total	$	19,151	$	19,151	$	—	$	—

4. Pre-Launch Inventory

     Inventory costs associated with products that have not yet received regulatory approval are capitalized if the Company believes there is probable future commercial use and future economic benefit. If the probability of future commercial use and future economic benefit cannot be reasonably determined, then costs associated with pre-launch inventory that has not yet received regulatory approval are expensed as research and development expense during the period the costs are incurred. For the three and nine months ended June 30, 2010, the Company expensed $830 and $3,524, respectively, of costs associated with the purchase of recombinant human insulin as research and development expense after it passed quality control inspection by the Company and transfer of title occurred. The Company submitted a new drug application to the U.S. Food and Drug Administration for VIAject^® in December 2009. Until the Company can determine the probability of VIAject^® receiving regulatory approval, costs associated with the purchase of recombinant human insulin will continue to be expensed as research and development costs.

5. Share-Based Compensation

     In March 2010, the shareholders of the Company approved a new 2010 Stock Incentive Plan (2010 Plan). Up to 5,400,000 shares of the Company’s common stock may be issued pursuant to awards granted under the 2010 Plan, plus shares of common stock underlying already outstanding awards under the Company’s prior plans. The contractual life of options granted under the 2010 Plan may not exceed seven years. The 2010 Plan uses a “fungible share” concept under which any awards that are not a full-value award shall be counted against the share limit as one (1) share for each share of common stock and any award that is a full-value award shall be counted against the share limit as 1.6 shares for each one share of common stock. The Company will not make any new awards under any prior equity plans after March 2, 2010 — the effective date the 2010 Plan was approved by the Company’s stockholders. The Company will continue to use the Black-Scholes pricing model to assist in the calculation of fair value. For options granted under the 2010 Plan for the quarters ended March 31, 2010 and June 30, 2010, the expected life for these grants was calculated in accordance with the simplified method described in the Securities and Exchange Commission Staff Accounting Bulletin (SAB) Topic 14.D.2 in accordance with SAB No. 110. The simplified method was chosen due to limited Company history. Until the Company has adequate history, it will continue to utilize the simplified method.

     The Company recognizes stock-based compensation arising from compensatory stock-based transactions using the fair value at the grant date of the award. Determining the fair value of stock-based awards at the grant date requires judgment. The Company uses an option-pricing model (Black-Scholes pricing model) to assist in the calculation of fair value. Due to its limited history, the Company uses the “calculated value method” which relies on comparable company historical volatility. For options that were granted under the 2004 Stock Incentive plan, the

10

Biodel Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(in thousands, except share and per share amounts)
(unaudited)

Company used the average of (i) the weighted average vesting period and (ii) the contractual life of the option, or eight years, as the estimated term of the option. The Company bases its estimates of expected volatility on the median historical volatility of a group of publicly traded companies that it believes are comparable to the Company based on the line of business, stage of development, size and financial leverage.

     The risk free rate of interest for periods within the contractual life of the stock option award is based on the yield of U.S. Treasury strips on the date the award is granted with a maturity similar to the expected term of the award. The Company estimates forfeitures based on actual forfeitures during its limited history. Additionally, the Company has assumed that dividends will not be paid.

     Based on historical experience of option cancellations, the Company has estimated an annualized forfeiture rate of 9% for employee and director options. Forfeiture rates will be adjusted over the requisite service period when actual forfeitures differ, or are expected to differ, from the estimate.

     For determining the fair value of restricted stock units and total stock-based compensation expenses, the Company uses the fair market value of the Company’s stock on the award date of grant.

     For stock options granted to non-employees, the Company measures fair value of the equity instruments utilizing the Black-Scholes model, if that value is more reliably measurable than the fair value of the consideration or service received. The fair value of these instruments are periodically revalued as the options vest, and are recognized as expense over the related period of service or vesting period, whichever is longer. The total compensation charge (credit) for options granted to non-employees for the three and nine months ended June 30, 2009 and 2010 were $(10), $(6), $81 and $(30), respectively.

     The Company expenses ratably over the vesting period the cost of the stock options granted to employees and directors. The total compensation charge for the three and nine months ended June 30, 2009 and 2010 were $1,303, $1,514, $3,827 and $4,147, respectively. At June 30, 2010, the total compensation charge related to non-vested options to employees and directors not yet recognized was $9,030 which will be recognized over the remaining vesting periods, up to the next four years, assuming the employees complete their service period for vesting of the options.

     The following table summarizes the stock option activity during the nine months ended June 30, 2010:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Number		Price		Life in Years		Value
Outstanding options, September 30, 2009		3,407,633	$	11.81			$	1,158
Granted		1,282,500		4.10			$	29
Exercised		24,202		1.74			$	48
Forfeited, expired		41,446		14.24				—
Outstanding options, June 30, 2010		4,624,485	$	9.71		6	$	1,187
Exercisable options, June 30, 2010		2,232,536	$	11.29		4	$	679

     The Company did not grant any options during the three months ended June 30, 2009. The Black-Scholes pricing model assumptions for the three months ended June 30, 2010 and nine months ended June 30, 2009 and 2010 are as follows:

	Three Months Ended			Nine Months Ended
	June 30,			June 30,
	2010			2009			2010
Expected life (in years)		3.77-5.25			5.25			3.77-5.25
Expected volatility		65 – 77	%		59 – 68	%		64 – 77	%
Expected dividend yield		0	%		0	%		0	%
Risk-free interest rate		1.23 – 2.43	%		1.00 – 3.19	%		1.30 – 2.69	%
Weighted average grant date fair value	$	4.74		$	2.69		$	4.10

11

Biodel Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(in thousands, except share and per share amounts)
(unaudited)

Restricted Stock Units

     In the quarter ended December 31, 2009, the Company granted RSUs to executive officers and employees pursuant to the 2004 Stock Incentive Plan. There is no direct cost to the recipients of the restricted stock units, except for any applicable taxes. Each restricted stock unit represents one share of common stock and vests in equal installments over four years on the anniversary of the grant date. Each year following the annual vesting date, between January 1st and March 15th, the Company will issue common stock for each vested restricted stock unit. During the vesting period, the restricted stock units cannot be transferred and the grantee has no voting rights. If the Company declares a dividend, restricted stock unit recipients will receive payment based upon the percentage of RSUs that have vested prior to the date of declaration. The costs of the awards, determined as the fair value of the shares on the grant date, is expensed ratably over the vesting period.

     Based on historical experience of option cancellations, the Company has estimated an annualized forfeiture rate of 9% for employee RSUs. Rates will be adjusted over the requisite service period when actual forfeitures differ, or are expected to differ, from the estimate.

     The stock-based compensation expense associated with the restricted stock units have been recorded in the statement of operations and in additional paid-in-capital on the balance sheets as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2009		2010		2009		2010
Stock compensation expense — RSUs	$	—	$	62	$	—	$	144

     At June 30, 2010, there was $843 of total unrecognized stock-based compensation expense related to RSUs granted under the 2004 Stock Incentive Plan. This expense is expected to be recognized over the remaining vesting periods up to four years.

     The following table summarizes restricted stock unit activity from October 1, 2009 through June 30, 2010:

				Weighted
				Average
				Grant-Date
				Fair Value
	Shares			Per Share
Nonvested balance at October 1, 2009		—		$	—
Changes during the period
Shares granted		250,000			3.95
Shares vested		—			—
Shares forfeited or expired		(90	)		3.95
Nonvested balance at June 30, 2010		249,910		$	3.95

2005 Employee Stock Purchase Plan

     The Company’s 2005 Employee Stock Purchase Plan (“the Purchase Plan”) was adopted by its Board of Directors and approved by its stockholders on March 20, 2007. The Purchase Plan became effective upon the closing of the Company’s initial public offering. The Purchase Plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code.

Under the Purchase Plan, eligible employees may contribute up to 15% of their eligible earnings for the period of that offering withheld for the purchase of common stock under the Purchase Plan. The employee’s purchase price is equal to the lower of: 85% of the fair market value per share on the start date of the offering period in which the employee is enrolled or 85% of the fair market value per share on the semi-annual purchase date. The Purchase Plan imposes a limitation upon a participant’s right to acquire common stock if immediately after the purchase the employee would own 5% or more of the total combined voting power or value of the Company’s common stock or of any of its affiliates. The Purchase Plan provides for an automatic rollover when the purchase price for a new offering period is lower than previously established purchase price(s). The Purchase Plan also provides for a one-time election that allows an employee the opportunity to enroll into a new offering period when the new offering is higher than their current offering price. This election must be made within 30 days from the start of a new offering period. Offering periods are twenty-seven months in length. The compensation costs in connection with the Purchase Plan for the three and nine months ended June 30, 2009 and 2010 were $163, $224, $206, and $425, respectively.

12

Biodel Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(in thousands, except share and per share amounts)
(unaudited)

     An aggregate of 1,600,000 shares of common stock are reserved for issuance pursuant to purchase rights to be granted to the Company’s eligible employees under the Purchase Plan. The Purchase Plan shares are replenished annually on the first day of each calendar year by virtue of an evergreen provision. The provision allows for share replenishment equal to the lesser of 1% of the total number of shares of common stock outstanding on that date or 100,000 shares. As of June 30, 2010, a total of 1,332,588 shares were reserved and available for issuance under the Purchase Plan. As of June 30, 2010, the Company issued 267,412 shares under the Purchase Plan.

6. Income Taxes

     The Company accounts for income taxes under FASB Codification Topic 740 (“ASC 740”), “Income Taxes”. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

     As of the three and nine months ended June 30, 2010, a liability adjustment of $1 and $4, respectively, was recorded. As of the quarter ended June 30, 2010, the Company recorded a $39 credit related to the current year’s book-to-tax adjustment. The Company did not have any amounts of unrecognized tax benefits that, if recognized, would affect its effective tax rate. The liability does not include interest or penalties based on the nature of the liability. The Company plans to treat any future interest or penalties as operating expense.

     The Company files U.S. federal and state tax returns and has determined that its major tax jurisdictions are the United States and Connecticut. The tax years ended in 2004 through 2009 remain open and subject to examination by the appropriate governmental agencies in the United States and Connecticut.

     The Company’s effective tax rate for the nine months ended June 30, 2009 and 2010 was 0% for both periods and differs from the federal statutory rate of 34% primarily due to the effects of state income taxes and changes in valuation allowance.

7. Net Loss per Share

     Basic and diluted net loss per share has been calculated by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. All potentially dilutive common shares have been excluded from the calculation of weighted average common shares outstanding, as their inclusion would be antidilutive.

     The amount of options and warrants excluded are as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2009		2010		2009		2010
Common shares underlying warrants for Series A Preferred Stock		118,815		118,815		118,815		118,815
Stock options		3,512,431		4,624,485		3,512,431		4,624,485
Restricted stock units		—		249,910		—		249,910

8. Commitments

Chief Executive Officer Employment Agreement

     On March 30, 2010, the Company announced the appointment of Errol B. De Souza, Ph.D., as the Company’s President, Chief Executive Officer and a Director. In connection with his appointment, Dr. De Souza signed an employment agreement, dated March 26, 2010, setting forth the terms of his employment. The agreement provides for an initial term of employment for the period from March 29, 2010 to March 28, 2014 and it continues for successive one-year terms unless the agreement is terminated by either party on 120 days prior written notice in accordance with the terms of the agreement. The agreement provides for an annual salary of $450 and eligibility for a target bonus of 50% of the annual salary. In addition, Dr. De Souza was granted options to purchase 700,000 shares of the Company’s common stock pursuant to the Company’s 2010 Plan. These options will vest over a four-year period, with 25% vesting on the first anniversary of the grant date and the rest vesting in equal monthly amounts over the next three years. The Company will pay Dr. De Souza reasonable and documented temporary housing and related expenses of up to $5 per month for a period of up to 18 months following the date of the agreement.

13

Biodel Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(in thousands, except share and per share amounts)
(unaudited)

     The Company may terminate the agreement with or without cause. Dr. De Souza will not be entitled to severance benefits if the Company terminates his employment for cause, or if he terminates his employment without good reason, as defined in the agreement. If the Company terminates Dr. De Souza’s employment without cause, or he terminates his employment with the Company for good reason, he is entitled to:

• two times his then current salary, plus two times his target annual bonus for the fiscal year in which he is terminated, plus the pro rata amount of his target annual bonus for the fiscal year in which he is terminated;

• COBRA benefits until the earlier of the end of the 24th month after the date his employment with the Company ends or the date his COBRA coverage expires;

• 24 months of acceleration of his outstanding equity compensation awards; and

• full vesting of his outstanding equity compensation awards, if the Company terminates his employment without cause, or he terminates his employment with the Company for good reason within 12 months following a change in control, as defined in the agreement.

Chief Scientific Officer Employment Agreement

     On March 30, 2010, the Company announced the appointment of Dr. Solomon S. Steiner, the Company’s former Chairman, President and Chief Executive Officer, as the Company’s Chief Scientific Officer and a Director. In connection with his appointment, Dr. Steiner signed an employment agreement, dated March 26, 2010, setting forth the terms of his employment. The agreement provides for at-will employment, meaning that the Company or Dr. Steiner can terminate his employment at any time, for any or no reason, subject to the terms of the agreement. The agreement provides for an annual salary of $400 and eligibility for a target bonus of 50% of the annual salary.

     The Company may terminate the agreement with or without cause. Dr. Steiner will not be entitled to severance benefits if the Company terminates his employment for cause, as defined in the agreement. If the Company terminates Dr. Steiner’s employment without cause or he resigns for any reason, he is entitled to:

• two times his then current salary, plus two times his target annual bonus for the fiscal year in which he is terminated, plus the pro rata amount of his target annual bonus for the fiscal year in which he is terminated;

• COBRA benefits until the earlier of the end of the 24th month after the date his employment with the Company ends or the date his COBRA coverage expires;

• 24 months of acceleration of his outstanding equity compensation awards; and

• full vesting of his outstanding equity compensation awards, if the Company terminates his employment without cause, or he resigns within 12 months following a change in control, as defined in the agreement.

Leases

     As of June 30, 2010, the Company leased three facilities in Danbury, Connecticut with Mulvaney Properties, LLC, which is controlled by a non-affiliated stockholder of the Company.

     The Company entered into its first lease for laboratory space in February 2004, which was subsequently renewed in January 2010 for an additional three years. The lease will expire in January 2013. This lease provides for annual basic lease payments of $64, plus operating expenses.

     In July 2007, the Company entered into a second lease for its corporate office, which was subsequently amended in October 2007. The October 2007 amendment increased the term from five years to seven years beginning on August 1, 2007 and ending on July 31, 2014. The renewal option was also amended from a five year to a seven year term. This lease provides for annual basic lease payments of $357, plus operating expenses.

     In December 2008, the Company entered into a third lease agreement for additional office space adjacent to its laboratory space, which was subsequently renewed in January 2010 for an additional three years. The Company has agreed to use the leased premises only for offices, laboratories, research, development and light manufacturing. This lease provides for annual basic lease payments of $29, plus operating expenses.

     Lease expense for the three and nine months ended June 30, 2009 and 2010 were $149, $151, $441, and $447, respectively.

14

FORWARD-LOOKING STATEMENTS

     This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Quarterly Report on Form 10-Q regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

     Our forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from those described or implied in the forward-looking statements, including:

• our ability to secure approval by the U.S. Food and Drug Administration, or FDA, for our product candidates under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA;

• the length of time that will elapse before our NDA for VIAject^® is fully reviewed by the FDA and, if approved, the length of time following approval before the product is launched commercially;

• our ability to secure approval by the FDA for VIAject^® without conducting additional pivotal clinical trials or other tests or analyses;

• the length of time that will elapse before we submit for FDA review a disposable pen for use with VIAject^®, the duration of the FDA’s review and our ability to secure approval by the FDA for the disposable pen;

• our ability to market, commercialize and achieve market acceptance for VIAject^®;

• the progress, timing or success of our product candidates, particularly VIAject^®, and that of our research, development and clinical programs, including any resulting data analyses;

• our ability to enter into collaboration arrangements for the commercialization of our product candidates and the success or failure of any such collaborations into which we enter, or our ability to commercialize our product candidates ourselves;

• our ability to enforce our patent for VIAject^® and our ability to secure additional patents for VIAject^® and for our other product candidates;

• our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

• the degree of clinical utility of our products;

• the ability of our major suppliers, including suppliers of insulin, to produce our product or products in our final dosage form;

• our commercialization, marketing and manufacturing capabilities and strategies; and

• our ability to accurately estimate anticipated operating losses, future revenues, capital requirements and our needs for additional financing.

     We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report, particularly in Part II - Item 1A “Risk Factors” of this Quarterly Report that could cause actual results or events to differ materially from the forward-looking statements that we make.

     You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits hereto with the understanding that our actual future results may be materially different from what we expect. It is routine for internal projections and expectations to change as the year, or each quarter in the year, progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations are made as of the date of this Quarterly Report on Form 10-Q and may change prior to the end of each quarter or the year. While we may elect to update forward-looking statements at some point in the future, we do not undertake any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

15

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

     You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this Form 10-Q (see Part II-Item 1A below) for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

     We are a specialty biopharmaceutical company focused on the development and commercialization of innovative treatments for diabetes that may be safer, more effective and more convenient for patients. We develop our product candidates by applying our proprietary formulation technologies to existing drugs in order to improve their therapeutic profiles.

     Our most advanced product candidate is VIAject^®, a proprietary injectable formulation of recombinant human insulin designed to be absorbed into the blood faster than the currently marketed rapid-acting insulin analogs. We have completed two pivotal Phase 3 clinical trials of VIAject^®, one in patients with Type 1 diabetes and the other in patients with Type 2 diabetes. In both clinical trials, we compared VIAject^® to Humulin^® R, a form of recombinant human insulin. We believe VIAject^® can improve the management of blood glucose levels in patients with diabetes by more closely mimicking the natural first-phase insulin release that healthy individuals experience at mealtime. Patients in both clinical trials were treated for a period of six months. Our new drug application for VIAject^® has been accepted for review by the FDA with a Prescription Drug User Fee Act action date of October 30, 2010. Our earlier stage product candidates include VIAtab™, a sublingual tablet formulation of insulin, an extended duration basal insulin, a glucose responsive basal insulin formulation and a stabilized formulation of glucagon.

     In October 2009, we executed a letter of intent to purchase a disposable insulin pen designed by Wockhardt Ltd. for use with VIAject^®. We intend to submit this pen to the FDA for review in late 2010 or early 2011 after completing certain modifications that we believe will improve its commercial performance. Even if VIAject^Ò is approved by the FDA prior to the FDA approving the disposable pen, we do not intend to commercially launch VIAject^® until a disposable pen version of the product is approved.

     In December 2009, we submitted an NDA to the FDA under section 505(b)(2) of the FFDCA for clearance to market VIAject^® as a treatment for diabetes. The NDA includes results from pharmacokinetic and standardized meal studies, two pivotal 6 month Phase 3 clinical trials of VIAject^® in patients with Type 1 and Type 2 diabetes, as well as interim results from the long-term 18 month safety extension trials for patients who completed the pivotal Phase 3 clinical trials. The data from these studies consistently document the safety and efficacy of VIAject^®. We are seeking approval for a 100 IU/cc liquid formulation of VIAject^® that is bioequivalent to the two-part 25 IU/cc lyophilized powder formulation of VIAject^® that was used in our pivotal Phase 3 clinical trials. The FDA accepted the NDA for review with a Prescription Drug User Fee Act action date for the NDA to be October 30, 2010.

     In March 2010, we appointed Dr. Errol B. De Souza as our President and Chief Executive Officer and Dr. Charles Sanders as our board chairman. Dr. Solomon S. Steiner, our former Chairman, President and Chief Executive Officer, became our Chief Scientific Officer and remains a member of the board.

     In fiscal year 2010, we plan to conduct additional clinical trials designed to generate data to enhance VIAject’s^® potential commercial success. We believe that the following product candidates have shown promise in early-stage laboratory and clinical work, and we therefore intend to generate proof of concept data for these programs in animal models and small human clinical trials:

• VIAtab™: VIAtab™ is an oral sublingual insulin tablet that is designed to dissolve in minutes. We are developing it for use as an insulin supplement for patients with early stage Type 2 diabetes;

• An extended duration basal insulin: Current basal insulins have a duration of activity that varies patient by patient; what may be an adequate duration for one patient may be too short in another. We are developing a technology that may lengthen the duration of a basal insulin to best suit the individual needs of patients.

• A glucose responsive basal insulin formulation: We are developing a basal insulin formulation that may sufficiently react to a patient’s blood glucose levels to meaningfully lessen the risk of hyper or hypoglycemia compared to currently available basal insulin products, although we anticipate that prandial insulin injections would still be necessary in many instances.

• Stabilized glucagon: Glucagon is a protein released by the pancreas that signals the liver to release glucose. Glucagon is currently approved and marketed for use as a rescue therapy in cases where patients become severely hypoglycemic. It is an unstable protein and therefore must be stored lyophilized and reconstituted prior to use. We are developing a more stable formulation of glucagon that may allow it to be stored as a refrigerated liquid. Such a formulation may offer certain advantages in the rescue market and may also enable the development of a bi-hormonal pump, which might better mimic the normal function of the human pancreas.

     We are a development stage company. We were incorporated in December 2003 and commenced active operations in January 2004. To date, we have generated no revenues and have incurred significant losses. We have financed our operations and internal growth through our initial public offering in May 2007 and follow-on offering in February 2008 and prior to that, private placements of convertible preferred stock and other securities. We have devoted substantially all of our efforts to research and development activities, including clinical trials. Our net loss applicable to common stockholders was $30.2 million for the nine months ended June 30, 2010. As of June 30, 2010, we had a deficit

16

accumulated during the development stage of $156.7 million. The deficit accumulated during the development stage is attributable primarily to our research and development activities. Research and development and general and administrative expenses represent approximately 71% and 29%, respectively, of the net loss applicable to common stockholders that we have incurred since our inception. We expect to continue to generate significant losses as we continue to develop our product candidates.

Financial Operations Overview

Revenues

     To date, we have generated no revenues. We do not expect to begin generating any revenues unless any of our product candidates receive marketing approval or if we receive payments in connection with strategic collaborations that we may enter into for the commercialization of our product candidates.

Research and Development Expenses

     Research and development expenses consist of the cost associated with our basic research activities, as well as the costs associated with our drug development efforts, conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings. Our research and development expenses consist of:

• external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites, third-party manufacturing organizations and consultants;

• employee-related expenses, which include salaries and benefits for the personnel involved in our preclinical and clinical drug development and manufacturing activities; and

• facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies.

     We expect to continue to incur significant operating losses for the next several years as we:

• conduct additional clinical trials of VIAject^® to support our commercialization efforts and, potentially, FDA approval;

• purchase recombinant human insulin and other materials to build commercial supply inventory for VIAject^®; and

• continue pre-clinical and limited clinical development of earlier-stage product candidates.

     If we obtain regulatory approval for VIAject^®, research and development expenses may increase significantly as we prepare for the commercial launch of VIAject^® and reinvigorate development work on our early stage product candidates.

     We have used our employee and infrastructure resources across multiple research projects, including our drug development programs. To date, we have not tracked expenses related to our product development activities on a program-by-program basis. Accordingly, we cannot reasonably estimate the amount of research and development expenses that we incurred with respect to each of our clinical and preclinical product candidates. However, substantially all of our research and development expenses incurred to date are attributable to our VIAject^® program.

     The following table illustrates, for each period presented, our research and development costs by nature of the cost.

									December 3,
									2003
	Three Months Ended				Nine Months Ended				Inception to
	June 30,				June 30,				June 30,
	2009		2010		2009		2010		2010
			(in thousands)
Research and development expenses:
Preclinical expenses	$	542	$	727	$	2,122	$	2,078	$	14,332
Manufacturing expenses		3,454		1,819		8,736		6,971		29,032
Clinical/regulatory expenses		3,995		3,344		13,529		12,609		68,345
Total	$	7,991	$	5,890	$	24,387	$	21,658	$	111,709

17

     The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, specific timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of, or the period, if any, in which material net cash inflows may commence from our product candidates. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

• our ability to secure approval by the FDA for our product candidates under Section 505(b)(2) of the FFDCA;

• the length of time that will elapse before our NDA is fully reviewed by the FDA, and, if approved, the length of time following approval before the product is launched commercially;

• the costs associated with preparing and submitting our Market Authorization Application (“MAA”) for VIAject^® to the European Medicines Agency (“EMEA”);

• our ability to market, commercialize and achieve market acceptance for product candidates, particularly VIAject^®;

• our ability to secure approval by the FDA for VIAject^® without conducting additional pivotal clinical trials or other test or analyses;

• the FDA’s findings regarding data anomalies observed in India in our Phase 3 clinical trial of VIAject^® for patients with Type 1 diabetes and the impact of those findings on the timing of a regulatory approval;

• the size, endpoints and duration of additional clinical trials of VIAject^® to support our commercialization efforts and, potentially, FDA approval;

• our ability to establish that VIAject^® is well-tolerated in chronic use;

• the length of time that will elapse before we submit for FDA review a disposable pen for use with VIAject^®, the duration of the FDA’s review, and our ability to secure approval by the FDA for the disposable pen;

• the costs of pre-commercialization activities, including increased insulin purchases;

• the costs associated with qualifying and obtaining regulatory approval of suppliers of insulin and manufacturers of our product candidates;

• the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;

• the emergence of competing technologies and products and other adverse market developments; and

• our ability to establish and maintain collaborations and the terms and success of the collaborations, including the timing and amount of payments that we might receive from potential strategic collaborators.

     A change in the outcome of any of these variables with respect to the development of VIAject^® or our other product candidates could mean a significant change in the costs and timing associated with product development. For example, if the FDA or other regulatory authority were to require us to conduct an additional pivotal Phase 3 clinical trial of VIAject^®, we could be required to expend significant additional financial resources and time on the completion of that clinical development program.

     General and Administrative Expenses

     General and administrative expenses consist primarily of salaries and related expenses for personnel, including stock-based compensation expenses, in our executive, legal, accounting, finance and information technology functions. Other general and administrative expenses include facility-related costs not otherwise allocated to research and development expense, travel expenses, costs associated with industry conventions and professional fees, such as legal and accounting fees and consulting costs.

     We anticipate that our general and administrative expenses will not change significantly as we focus our product development efforts on obtaining regulatory approval for VIAject^®. Over the next year, however, these expenses could increase as we approach the commercial launch of VIAject^®.

     Pre-Launch Inventory

     Inventory costs associated with products that have not yet received regulatory approval are capitalized if we believe there is probable future commercial use and future economic benefit. If the probability of future commercial use and future economic benefit cannot be reasonably determined, then costs associated with pre-launch inventory that has not yet received regulatory approval are expensed as research and development expense during the period the costs are incurred. For the three and nine months ended June 30, 2010, we expensed approximately $0.8 million and $3.5 million, respectively, of costs associated with the purchase of recombinant human insulin, as research and development expense after it passed quality control inspection and transfer of title occurred. We submitted the NDA for VIAject^® in December 2009. Until we can determine the probability of VIAject^® receiving regulatory approval, costs associated with the purchase of recombinant human insulin will continue to be expensed as research and development costs.

     2010 Stock Incentive Plan

     On March 2, 2010, our shareholders approved our 2010 Stock Incentive Plan, or the 2010 Plan. The purpose of the 2010 Plan is to promote our long-term success, by providing financial incentives to our employees, directors and consultants who are in positions to make significant contributions toward such success. The 2010 Plan is designed to attract, retain and motivate persons who are expected to make important contributions to us and to provide such persons with equity ownership opportunities and performance-based incentives that are intended to

18

better align the interests of such persons with those of our stockholders. A total of 5,400,000 shares of common stock were reserved for issuance under the 2010 Plan plus shares of common stock underlying already outstanding awards under our prior plans if such awards expire or are canceled without the holders receiving any shares under those plans. The 2010 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, or the Code, as well as nonstatutory stock options, stock appreciation rights, restricted shares, restricted stock units, other stock-based awards and cash-based awards. The 2010 Plan is administered by our Board of Directors, the compensation committee, or any other committee to whom the board of director’s delegates authority.

     The 2010 Plan uses a “fungible share” concept under which the awards of options and SARs cause one share per covered share to be removed from the available pool, while the award of restricted stock, restricted stock units or other stock-based awards where the price charged for the awards is less than 100% of the fair market value will be counted as 1.6 shares. Shares covered by awards under the 2010 Plan and predecessor plans that are forfeited, cancelled or otherwise expire without having been exercised or settled, or that are settled by cash or other non-share consideration, become available for issuance pursuant to a new award and will credited back to the pool at the same one share or 1.6 shares used for the awards if made under the 2010 Plan. Shares that are tendered or withheld to pay the exercise price of an award or to satisfy tax withholding obligations are not made available for issuance pursuant to new awards. Any awards granted under the predecessor plans between September 30, 2009 and March 2, 2010, the date the 2010 Plan was approved, will be counted using the fungible share principles against the shares that can be awarded under the 2010 Plan.

     We will continue to use the Black-Scholes pricing model to assist in the calculation of fair value. For options granted in the quarter ended March 31, 2010 and under the 2010 Plan, the expected life for options granted was calculated in accordance with the simplified method described in the Security Exchange Commission Staff Accounting Bulletin (“SAB”) Topic 14.D.2 in accordance with SAB No. 110. The simplified method was chosen due to limited history. Until we have adequate history, we will continue to utilize the simplified method.

     Restricted Stock Units

     In the quarter ended December 31, 2009, we granted restricted stock units to executive officers and employees pursuant to the 2004 Stock Incentive Plan. There is no direct cost to the recipients of the restricted stock units, except for any applicable personal taxes. Each restricted stock unit represents one share of common stock and annually vests ratably over four years. Each year following the annual vesting date, between January 1st and March 15th, we will issue common stock for each vested restricted stock unit. During the vesting period, the restricted stock units cannot be transferred and the grantee has no voting rights. If we declare a dividend, restricted stock unit recipients will receive payment based upon the percentage of RSUs that have vested prior to the date of declaration. The costs of the awards, determined as the fair value of the shares on the grant date, is expensed ratably over the vesting period.

     Marketable Securities

     In accordance with ASC 320, (formerly SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities issued by the Financial Accounting Standards Board (“FASB”) in May 1993), our marketable securities were classified as available-for-sale. In accordance with that standard, these securities are reported at market value with unrealized gains and losses shown as a component of accumulated other comprehensive income (loss). We regularly evaluate the performance of these investments individually for impairment, taking into consideration the investment, volatility and current returns. If a determination is made that a decline in fair value is other-than-temporary, the related securities are written down to their estimated fair value. As of June 30, 2010, our marketable securities totaled $6.0 million.

     Comprehensive Income (Loss)

     We classify our marketable securities as available for sale, in accordance with ASC 220-10 (formerly SFAS No. 130, Reporting Comprehensive Income, issued by the FASB in June 1997). Other Comprehensive Income includes changes in equity for unrealized holding gains/(losses) on marketable securities, which have arisen during the period. As of June 30, 2010, the net unrealized gains on marketable securities were immaterial.

     Interest Income

     Due to the uncertainty in the credit and financial markets, along with our short term requirements and liquidity needs, we have modified our investment strategy and primarily invested in certain marketable securities, which consist primarily of treasury securities. The focus on preserving cash and investing in stable securities generated lower returns during the three and nine months ended June 30, 2010. We intend to maintain this conservative strategy until the credit and financial markets improve and stabilize.

Critical Accounting Policies and Significant Judgments and Estimates

     Our management’s discussion and analysis of our financial condition and results of operations are based on our unaudited financial statements, that have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various assumptions that we believe are 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 described in Note 2 to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2009 and in the notes to our financial statements included in this Form 10-Q. We believe that our

19

accounting policies relating to preclinical study and clinical trial accruals, stock-based compensation and income taxes are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations. These policies are described under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2009. There have been no material changes to such policies since the filing of such Annual Report.

Adopted Accounting Pronouncements

Fair Value Measurement

     Effective October 1, 2009, we adopted the provisions of ASU 2009-5 Fair Value and Disclosures (Topic 820) Measuring Liabilities at Fair Value (“ASU 2009-5”). ASU 2009-5 provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures-Overall, for the fair value measurement of liabilities. ASU 2009-5 clarifies that in circumstances in which a quoted price in an active market for the identical liability is not available; a reporting entity is required to measure fair value. The adoption of this accounting pronouncement did not have a material effect on our financial statements.

Share-based Compensation

     In June 2008, the FASB issued ASC 260-10-55 Earnings Per Share-Overall (formerly Financial Statement Position Emerging Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities) (“ASC 260-10-55”), ASC 260-10-55 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. ASC 260-10-55 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform to the provisions of ASC 260-10-55. Given that a holder of restricted stock unit awards (“RSUs”) will only receive dividends or dividend equivalents on RSUs that have vested prior to our declaring dividends as well as forfeiting their rights to receive dividends or dividend equivalents on any unvested portion, we determined that the RSUs are non-participating securities and therefore are not subject to ASC 260-10-55.

Recent Accounting Pronouncements

     In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) (“ASU 2010-06”). ASU 2010-06 provides amendments to Subtopic 820-10 and related guidance within US generally accepted accounting principles (“GAAP”) to require disclosure of the transfers in and out of Levels 1 and 2 and a schedule for Level 3 that separately identifies purchases, sales, issuances and settlements and requires more detailed disclosures regarding valuation techniques and inputs. The ASU 2010-06 will be effective for fiscal years beginning after December 15, 2010 and for interim periods within those years. We are evaluating the impact the adoption of ASU 2010-06 will have on its financial position and results of operations.

Results of Operations

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2010

     Revenue. We did not recognize any revenue during the three months ended June 30, 2009 or 2010.

     Research and Development Expenses.

	Three Months Ended
	June 30,						Decrease
	2009			2010			$		%
				(in thousands)
Research and Development	$	7,991		$	5,890		$	2,101		26.3	%
Percentage of net loss		72	%		68	%

     Research and development expenses were $5.9 million for the three months ended June 30, 2010, a decrease of $2.1 million, or 26.3%, from $8.0 million for the three months ended June 30, 2009. This decrease was primarily attributable to reductions of $1.0 million in clinical expenses and $1.6 million in manufacturing and device development expenses. The savings in clinical expenses are directly related to conducting fewer studies during the quarter ended June 30, 2010. For example, our VIAject^â extension trials ended in February, 2010. The savings in manufacturing and device development are the result of purchasing a reduced quantity of recombinant human insulin in the quarter ended June 30, 2010 of $0.8 million, as compared to the $1.9 million purchase made in the quarter ended June 30, 2009. The decreases in clinical and manufacturing expenses were offset by increases of $0.4 million in regulatory expense and $0.1 million in research expense. Research and development expenses for the three months ended June 30, 2010 include $0.6 million in stock-based compensation expense related to options granted to employees and $6 thousand in stock-based compensation credit related to options granted to non-employees.

20

     General and Administrative Expenses.

	Three Months Ended
	June 30,						Decrease
	2009			2010			$		%
				(in thousands)
General and Administrative	$	2,692		$	2,780		$	88		3.3	%
Percentage of net loss		24	%		32	%

     General and administrative expenses were approximately $2.8 million for the three months ended June 30, 2010 and $2.7 million for the three months ended June 30, 2009. During the quarter ended June 30, 2010, our expenses increased by $0.1 million as a result of an increase in consulting services. General and administrative expenses for the three months ended June 30, 2010 include $0.9 million in stock-based compensation charge related to options granted to employees.

     Interest and Other Income.

	Three Months Ended
	June 30,						Decrease
	2009			2010			$		%
				(in thousands)
Interest and Other Income	$	54		$	3		$	51		94.4	%
Percentage of net loss		1	%		0	%

     Interest and other income was $3 thousand for the three months ended June 30, 2010, a decrease of $51 thousand, or 94.4% from $54 thousand for the three months ended June 30, 2009. The decrease was primarily due to the shifting of our investments primarily into treasury securities.

     Net Loss and Net Loss per Share

	Three Months Ended
	June 30,						Decrease
	2009			2010			$		%
				(in thousands, except per share amounts)
Net loss	$	(11,148	)	$	(8,629	)	$	2,519		22.6	%
Net loss per share	$	(0.47	)	$	(0.36	)

     Net loss was $8.6 million, or $(0.36) per share, for the three months ended June 30, 2010 compared to $11.1 million, or $(0.47) per share, for the three months ended June 30, 2009. The decrease in net loss was primarily due to reduced clinical and manufacturing expenses, as noted above. We do not expect our losses to change significantly in the near term as the reduction in expenses due to patients exiting the extension trials are offset by expenses associated with obtaining regulatory approval for VIAject^®, additional purchases of bulk insulin, production of finished product and additional clinical trials of VIAject^® to support our commercialization efforts.

Nine Months Ended June 30, 2009 Compared to Nine Months Ended June 30, 2010

     Revenue. We did not recognize any revenue during the nine months ended June 30, 2009 or 2010.

     Research and Development Expenses

	Nine Months Ended
	June 30,						Decrease
	2009			2010			$		%
				(in thousands)
Research and Development	$	24,387		$	21,658		$	2,729		11.2	%
Percentage of net loss		74	%		72	%

     Research and development expenses were $21.7 million for the nine months ended June 30, 2010, a decrease of $2.7 million, or 11.2%, from $24.4 million for the nine months ended June 30, 2009. The decrease is attributable to reductions of $3.4 million in clinical expenses, $1.7 million in manufacturing and device development expenses and $0.2 million in research expenses. The savings in clinical expenses are directly related to conducting fewer studies during the quarter ended June 30, 2010. For example, our VIAject^â extension trials ended in February 2010. The savings in manufacturing are the results of (a) purchasing a reduced quantity of recombinant human insulin and (b) producing fewer process and registration batches. The savings in research is primarily due to a reduction in personnel costs. The decrease in clinical and manufacturing expense was partially offset by an increase of $2.6 million in regulatory expenses associated with preparing for and filing the

21

NDA and the related 120-day safety update. Research and development expenses for the nine months ended June 30, 2010 include $1.6 million in stock-based compensation expense related to options granted to employees and $24 thousand in stock-based compensation credit related to options granted to non-employees.

     General and Administrative Expenses

	Nine Months Ended
	June 30,						Increase
	2009			2010			$		%
				(in thousands)
General and Administrative	$	8,408		$	8,573		$	165		2.0	%
Percentage of net loss		26	%		28	%

     General and administrative expenses were $8.6 million for the nine months ended June 30, 2010, an increase of $0.2 million, or 2%, from $8.4 million for the nine months ended June 30, 2009. This net increase was primarily attributable to a $0.7 million increase in professional fees and offset by a reduction of $0.5 million in personnel costs primarily due to a one-time charge in 2009 related to severance costs association with our former general counsel. General and administrative expenses for the nine months ended June 30, 2010 include $2.6 million in stock-based compensation expense related to options granted to employees and $30 thousand in stock-based compensation credit related to options granted to non-employees.

     Interest and Other Income

	Nine Months Ended
	June 30,						Decrease
	2009			2010			$		%
				(in thousands)
Interest and Other Income	$	374		$	10		$	364		97.3	%
Percentage of net loss		1	%		0	%

     Interest and other income was $10 thousand for the nine months ended June 30, 2010, a decrease of $0.3 million, or 97.3%, from $0.4 million for the nine months ended June 30, 2009. The decrease was primarily due to a decrease in investments and the shifting of our investments primarily into treasury securities.

     Net Loss and Net Loss per Share

	Nine Months Ended
	June 30,						Decrease
	2009			2010			$		%
	(in thousands, except per share amounts)
Net Loss	$	(32,801	)	$	(30,186	)	$	2,615		79.7	%
Net loss per share	$	(1.38	)	$	(1.26	)

     Net loss was $30.2 million, or $(1.26) per share, for the nine months ended June 30, 2010 compared to $32.8 million, or $(1.38) per share, for the nine months ended June 30, 2009. The decrease in net loss was primarily attributable to the decrease in expenses described above. We do not expect our losses to change significantly in the near term as the reduction in expenses due to patients exiting the extension trials are offset by expenses associated with obtaining regulatory approval for VIAject^®, additional purchases of bulk insulin, production of finished product and additional clinical trials of VIAject^® to support our commercialization efforts.

22

Liquidity and Capital Resources

Sources of Liquidity and Cash Flows

     As a result of our significant research and development expenditures and the lack of any approved products or other sources of revenue, we have not been profitable and have generated significant operating losses since we were incorporated in 2003. We have funded our research and development operations primarily through proceeds from our Series A convertible preferred stock financing in 2005 and our mezzanine and Series B convertible preferred stock financings in 2006. Through December 31, 2006, we had received aggregate gross proceeds of $26.6 million from these sales. We received an aggregate of $125.6 million in net proceeds from our initial public offering in May 2007 and follow-on offering in February 2008.

     At June 30, 2010, we had cash and cash equivalents and marketable securities totaling approximately $23.9 million. To date, we have invested our excess funds primarily in managed money funds and US government agency securities with one major financial institution. All highly liquid investments with an original maturity of less than three months at the date of purchase are categorized as cash equivalents. We plan to continue to invest our cash and cash equivalents in accordance with our approved investment policy guidelines, which set forth our policy to hold investment securities to maturity.

     Net cash used in operating activities was $31.0 million for the nine months ended June 30, 2010 and $25.8 million for the nine months ended June 30, 2009. Net cash used in operating activities for the nine months ended June 30, 2010 primarily reflects the net loss for the period, adjusted by stock-based compensation, depreciation and amortization expenses, increases in other receivables, and prepaid expenses and decrease in accrued expenses. In accordance with 13CFR 121.901, we requested a small business waiver of the fee we paid to the FDA for reviewing a human drug application under the user fee provision of the FFDCA, specifically, section 736(D) of the FFDCA. The waiver was granted in March 2010 and the $1.4 million NDA application fee, or other receivable, was received in July 2010. Net cash used in operating activities for the nine months ended June 30, 2009 primarily reflects the net loss for the period, adjusted by stock-based compensation, depreciation and amortization expenses, increases in accrued expenses and decreases in income tax receivable, prepaid expenses, and accounts payable.

     Net cash provided by/(used in) investing activities was $(6.2) million for the nine months ended June 30, 2010 and $24.4 million for the nine months ended June 30, 2009. Net cash used in investing activities for the nine months ended June 30, 2010 primarily reflects the purchase of short term securities and lab equipment. Net cash provided by investing activities for the nine months ended June 30, 2009 primarily reflects the sale of marketable securities.

     Net cash provided by financing activities was $369 thousand for the nine months ended June 30, 2010 and $185 thousand for the nine months ended June 30, 2009. Net cash provided by financing activities for the nine months ended June 30, 2010 and 2009 was primarily due to proceeds received from the sale of stock through our 2005 Employee Stock Purchase Plan and from the exercise of stock options.

Funding Requirements

     We believe that our existing cash and cash equivalents will be sufficient to fund our anticipated operating expenses and capital expenditures through the third quarter of fiscal year 2011. We have based this estimate upon assumptions that may prove to be wrong and we could use our available capital resources sooner than we currently expect, especially if the FDA requires us to conduct additional tests or analyses prior to approving our VIAject^® NDA. For example, if the FDA were to require us to conduct an additional pivotal Phase 3 clinical trial of VIAject^®, our existing capital resources would not be sufficient to complete that clinical development program. If additional clinical trials, tests, or analyses of VIAject^® are required, we may scale back our business operations and development programs in order to reduce our cash expenditures. Even if no additional tests or analyses are required, we will need substantial additional funding to successfully commercialize VIAject^® without a commercial partner. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, and to the extent that we may or may not enter into collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current anticipated clinical trials.

     Our future capital requirements will depend on many factors, including:

• our ability to secure approval by the FDA for VIAject^® under Section 505(b)(2) of the FFDCA;

• the length of time that will elapse before our NDA is fully reviewed by the FDA and, if approved, the length of time following approval before the product is launched commercially;

• the costs associated with preparing and submitting our MAA for VIAject^® to the EMEA;

• our ability to market, commercialize and achieve market acceptance for product candidates, particularly VIAject^® ;

• our ability to secure approval by the FDA for VIAject^® without conducting additional pivotal clinical trials or other tests or analyses;

• the FDA’s findings regarding data anomalies observed in India in our Phase 3 clinical trial of VIAject^® for patients with Type 1 diabetes and the impact of those findings on the timing of a regulatory approval;

• the size, endpoints and duration of additional clinical trials of VIAject^® in patients with Type 1 diabetes to support our commercialization efforts and, potentially, FDA approval;

• our ability to establish that VIAject^® is well-tolerated in chronic use;

• the cost and time needed to develop a disposable insulin pen program for use with VIAject^®;

23

• the cost of purchasing recombinant human insulin and other materials to build commercial supply inventory for VIAject^®, taking into account currency exchange rate fluctuations;

• the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;

• the cost associated with qualifying and obtaining regulatory approval of suppliers of insulin and manufacturers of our product candidates; and

• our ability to establish and maintain collaborations and the terms and success of the collaborations, including the timing and amount of payments that we might receive from potential strategic collaborators.

     In the absence of additional funding, we expect our continuing operating losses to result in increases in our cash used in operations over the next several years. To the extent our capital resources are insufficient to meet our future capital requirements, we will need to finance our future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. We do not currently have any commitments for future external funding.

     Additional equity or debt financing or corporate collaboration and licensing arrangements may not be available on acceptable terms, if at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate some or all of our research and development programs, reduce our planned commercialization efforts or obtain funds through arrangements with collaborators or others that may require us to relinquish rights to certain drug candidates that we might otherwise seek to develop or commercialize independently or enter into corporate collaborations at a later stage of development. In addition, any future equity funding will dilute the ownership of our equity investors.

Off-Balance Sheet Arrangements

     We have no off-balance sheet arrangements.

Contractual Obligations

     The following table summarizes our significant contractual obligations and commercial commitments as of June 30, 2010 (in thousands):

			Less
			Than
	Total		1 Year		1-3 Years		3-5 Years
Operating lease obligations	$	2,505	$	632	$	1,827	$	46
Purchase commitments		7,300		4,372		2,928		—
Total fixed contractual obligations	$	9,805	$	5,004	$	4,755	$	46

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Our exposure to market risk is limited to our cash, cash equivalents and marketable securities. We invest in high-quality financial instruments, as permitted by the terms of our investment policy guidelines. Currently, our investments are limited to treasury securities. A portion of our investments may be subject to interest rate risk and could fall in value if interest rates were to increase. The effective duration of our portfolio is currently less than one year, which we believe limits interest rate and credit risk. We do not hedge interest rate exposure.

     Because most of our transactions are denominated in United States dollars, we do not have any material exposure to fluctuations in currency exchange rates.

Item 4. Controls and Procedures

Management’s 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 June 30, 2010. 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, or 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 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. 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 June 30, 2010, 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.

24

Changes in internal controls

     No change in our internal control over financial reporting (defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

25

PART II-OTHER INFORMATION

Item 1A. Risk Factors.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.

     Since our inception in December 2003, we have incurred significant operating losses. Our net loss was approximately $30.2 million for the nine months ended June 30, 2010. As of June 30, 2010, we had a deficit accumulated during the development stage of approximately $156.7 million. We have invested a significant portion of our efforts and financial resources in the development of VIAject^®, and our ability to generate near-term revenue depends on VIAject’s^® success. We have not completed development of VIAject^® or any of our other product candidates. We expect to continue to incur significant operating losses for at least the next several years as we:

• continue to incur expenses without the ability to generate income for the period during which our NDA is fully reviewed by the FDA, if not longer;

• conduct additional clinical trials of VIAject^® to support our commercialization efforts and, potentially, FDA approval;

• produce required validation batches of VIAject^® vials, cartridges, and disposable pens to support our NDA for VIAject^®;

• purchase recombinant human insulin and other materials to build commercial supply inventory for VIAject^®; and

• conduct additional clinical development of our other product candidates.

     To become and remain profitable, we must succeed in developing and eventually commercializing drugs with significant market potential. This will require us to be successful in a range of challenging activities, including successfully completing preclinical testing and clinical trials of our product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling those products for which we may obtain regulatory approval. We may never succeed in these activities and may never generate revenues that are significant or large enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could depress the market price of our common stock and could impair our ability to raise capital, expand our business or continue our operations. A decline in the market price of our common stock could also cause you to lose all or a part of your investment.

We will need substantial additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts.

     We are a development stage company with no commercial products. All of our product candidates are still being developed, and all but VIAject^® are in early stages of development. Our earlier stage product candidates will require significant additional clinical development, regulatory approvals and related investment before they can be commercialized.

     While we have reduced expenditures on our earlier stage product candidates pending further development of our regulatory plans for VIAject^®, we do not expect our research and development expenses to decrease in 2010 as we conduct new clinical trials of VIAject^® to support our commercialization efforts, produce validation batches, and purchase recombinant human insulin. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses to produce commercial quantities of finished product; and we may incur significant additional sales and marketing expenses depending on our role in commercializing any of our products that obtain regulatory approval. If we commercialize VIAject^® without a commercial partner, we will need substantial additional funding and may be unable to raise capital when needed or on attractive terms, which would force us to delay, reduce or eliminate our research and development programs or commercialization efforts.

     Based upon our current plans, we believe that our existing cash, cash equivalents and marketable securities will enable us to fund our anticipated operating expenses and capital expenditures through the third quarter of fiscal year 2011. We cannot assure you that our plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate. Our future capital requirements will depend on many factors, including:

• our ability to secure approval by the FDA for VIAject^® under Section 505(b)(2) of the FFDCA;

• the length of time that will elapse before our NDA is fully reviewed by the FDA and, if approved, the length of time following approval before the product is launched commercially;

• the costs associated with preparing and submitting our MAA, for VIAject^® to the EMEA;

• our ability to market, commercialize and achieve market acceptance for product candidates, particularly VIAject^®;

• our ability to secure approval by the FDA for VIAject^® without conducting additional pivotal clinical trials or other test or analyses;

• the FDA’s findings regarding data anomalies observed in India in our Phase 3 clinical trial of VIAject^® for patients with Type 1 diabetes and the impact of those findings on the timing of a regulatory approval;

26

• the size, endpoints and duration of additional clinical trials of VIAject^® in patients with Type 1 diabetes to support our commercialization efforts and, potentially, FDA approval;

• our ability to establish that VIAject^® is well-tolerated in chronic use;

• the cost and time needed to develop a disposable insulin pen program for use with VIAject^®;

• the cost of purchasing recombinant human insulin and other materials to build commercial supply inventory for VIAject^®, taking into account currency exchange rate fluctuations;

• the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;

• the cost associated with qualifying and obtaining regulatory approval of suppliers of insulin and manufacturers of our product candidates; and

• our ability to establish and maintain collaborations and the terms and success of the collaborations, including the timing and amount of payments that we might receive from potential strategic collaborators.

     Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through public or private equity offerings and debt financings, strategic collaborations and licensing arrangements. If we raise additional funds by issuing additional equity securities, our stockholders will experience dilution. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, that are not favorable to us or our stockholders. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies or product candidates, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.

Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

     We commenced active operations in January 2004. Our operations to date have been limited to organizing and staffing our company, developing and securing our technology and undertaking preclinical studies and clinical trials of our product candidates. We have limited experience completing large-scale, pivotal clinical trials and we have not yet demonstrated our ability to obtain regulatory approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

     In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from a company with a research focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

Risks Related to the Development and Commercialization of Our Product Candidates

We depend heavily on the success of our most advanced product candidate, VIAject^®. The results from our completed pivotal Phase 3 clinical trials of VIAject^® may not be sufficient to obtain marketing approval from the FDA. If we are unable to commercialize VIAject^® or experience significant delays in doing so, our business will be materially harmed.

     We have invested a significant portion of our efforts and financial resources in the development of our most advanced product candidate, VIAject^®. Our ability to generate significant product revenues will depend heavily on FDA approval and eventual commercialization of this product candidate. We do not intend to commercially launch VIAject^â until a disposable pen version of the product is approved. The results from our completed pivotal Phase 3 clinical trials of VIAject^® may not be sufficient to obtain marketing approval from the FDA. Due to data from India in our pivotal Phase 3 clinical trial for patients with Type 1 diabetes that we found to be anomalous when compared to data from the United States and Germany for the same trial, the FDA could conclude we did not establish non-inferiority of VIAject^® when compared to Humulin^® R in terms of blood glucose control. The FDA may require that we conduct additional clinical trials with VIAject^® or perform additional tests and analyses related to VIAject^® before approving our marketing application. If additional clinical trials, tests or analyses of VIAject^® are required, we may scale back our business operations and development programs in order to reduce our cash expenditures. Even if it is determined that no additional clinical trials will be required by the FDA, we anticipate that VIAject^® would not be commercially available for at least the next 18 months, if at all.

We may never reinitiate significant expenditures on our earlier stage product candidates.

     We reduced expenditures on the development of VIAtab™ and are unlikely to reinitiate extensive development of our early stage product candidates unless we receive marketing approval for VIAject^® from the FDA. Even if VIAject^® is approved by the FDA, we cannot guarantee that we will have sufficient resources to allocate to earlier stage product candidates or that the focus of our early stage product development program will not have changed.

The results of clinical trials do not ensure success in future clinical trials or commercial success.

     We have completed and released the results of our two pivotal Phase 3 clinical trials of VIAject^®. Additionally, we have tested one formulation of VIAtab™ in Phase 1 clinical trials in patients with Type 1 diabetes and are developing additional formulations for further clinical testing. We have not completed the development of any products through commercialization. We believe we will need to conduct additional clinical trials to be successful in our commercialization efforts and, potentially, in order to receive FDA approval. The outcomes of

27

preclinical testing and clinical trials may not be predictive of the success of later clinical trials. Furthermore, interim or preliminary results of a clinical trial do not necessarily predict final results. We cannot assure you that our additional clinical trials of VIAject^® will ultimately be successful. New information regarding the safety, efficacy and tolerability of VIAject^® may arise that may be less favorable than the data observed to date. In addition, we will need to conduct Phase 2 and Phase 3 clinical trials of VIAtab™ in larger numbers of patients taking the drug for longer periods before we are able to seek approvals to market and sell VIAtab™ from the FDA and similar regulatory authorities outside the United States. If we are not successful in commercializing any of our product candidates, or are significantly delayed in doing so, our business will be materially harmed. The commercial success of our product candidates will depend on several factors, including the following:

• successful completion of preclinical development and clinical trials;

• our ability to identify and enroll patients who meet clinical trial eligibility criteria;

• receipt of marketing approvals from the FDA and similar regulatory authorities outside the United States, including for the liquid formulation of VIAject^®;

• establishing that VIAject^® is well-tolerated in chronic use;

• establishing commercial manufacturing capabilities through arrangements with third-party manufacturers;

• launching commercial sales of the products, whether alone or in collaboration with others;

• competition from other products; and

• a continued acceptable safety and tolerability profile of the products following approval.

If our clinical trials are delayed or do not produce positive results, we may incur additional costs and ultimately be unable to commercialize our product candidates.

     Before obtaining regulatory approval for the sale of our product candidates, we must conduct, at our own expense, extensive preclinical tests to demonstrate the safety of our product candidates in animals and clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Preclinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during clinical trials of our product candidates that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including:

• the number of patients required for our clinical trials may be larger than we anticipate, enrollment in our clinical trials may be slower than we currently anticipate, or participants may drop out of our clinical trials at a higher rate than we anticipate, any of which would result in significant delays;

• our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner;

• we might have to suspend or terminate our clinical trials if the participants are being exposed to unacceptable health risks;

• regulators or institutional review boards may require that we hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

• the cost of our clinical trials may be greater than we anticipate;

• the supply or quality of our product candidates or other materials necessary to conduct our clinical trials may be insufficient or inadequate; and

• the effects of our product candidates may not be the desired effects or may include undesirable side effects or the product candidates may have other unexpected characteristics.

     If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete our clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

• be delayed in obtaining marketing approval for our product candidates;

• not be able to obtain marketing approval;

• obtain approval for indications that are not as broad as intended; or

• have the product removed from the market after obtaining marketing approval.

     Our product development costs will also increase if we experience delays in testing or approvals. We do not know whether any preclinical tests or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, if at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to commercialize our products or product candidates and may harm our business and results of operations.

28

If our product candidates are found to cause undesirable side effects we may need to delay or abandon our development and commercialization efforts.

     Any undesirable side effects that might be caused by our product candidates could interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications. In addition, if any of our product candidates receive marketing approval and we or others later identify undesirable side effects caused by the product, we could face one or more of the following:

• a change in the labeling statements or withdrawal of FDA or other regulatory approval of the product;

• a change in the way the product is administered; or

• the need to conduct additional clinical trials.

     Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing the product, which in turn could delay or prevent us from generating significant revenues from its sale.

Reports of side effects or safety concerns in related technology fields or in other companies’ clinical trials could delay or prevent us from obtaining regulatory approval or negatively impact public perception of our product candidates.

     At present, there are a number of clinical trials being conducted by us and by other pharmaceutical companies involving insulin or insulin delivery systems. The major safety concern with patients taking insulin is the occurrence of hypoglycemic events. If we discover that our product is associated with a significantly increased frequency of hypoglycemic or other adverse events, or if other pharmaceutical companies announce that they observed frequent or significant adverse events in their trials involving insulin or insulin delivery systems, we could encounter delays in the commencement or completion of our clinical trials or difficulties in obtaining the approval of our product candidates. In addition, the public perception of our products might be adversely affected, which could harm our business and results of operations, even if the concern relates to another company’s product.

The commercial success of any product candidates that we may develop will depend upon the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community.

     Any products that we bring to the market, if they receive marketing approval, may not gain market acceptance by physicians, patients, healthcare payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. Physicians will not recommend our product candidates until clinical data or other factors demonstrate the safety and efficacy of our product candidates as compared to other treatments. Even if the clinical safety and efficacy of our product candidates is established, physicians may elect not to recommend these product candidates for a variety of reasons including the reimbursement policies of government and third-party payors, the effectiveness of our competitors in marketing their products and, in the case of VIAject^®, the possibility that patients may experience more injection site discomfort than they experience with competing products. In our analysis of our completed pivotal Phase 3 clinical trials we found that VIAject^® was associated with injection site discomfort, although the prevalence of discomfort decreased during the course of the treatment. In addition, in an October 2009, tolerability trial of the liquid formulation of VIAject^® it was determined that a subset of patients experienced more injection site discomfort with VIAject^® than they did with Humalog^®.

     The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

• the willingness and ability of patients and the healthcare community to adopt our technology;

• the ability to manufacture our product candidates in sufficient quantities with acceptable quality and to offer our product candidates for sale at competitive prices;

• the perception of patients and the healthcare community, including third-party payors, regarding the safety, efficacy and benefits of our product candidates compared to those of competing products or therapies;

• the convenience and ease of administration of our product candidates relative to existing treatment methods, such as our ability to gain regulatory approval for our liquid 100 IU/cc formulation of VIAject^®;

• the label and promotional claims allowed by the FDA, such as, in the case of VIAject^®, claims relating to glycemic control, hypoglycemia, weight gain, injection site discomfort, expiry dating and required handling conditions;

• the pricing and reimbursement of our product candidates relative to existing treatments; and

• marketing and distribution support for our product candidates.

If we fail to enter into strategic collaborations for the commercialization of our product candidates or if our collaborations are unsuccessful, we may be required to establish our own sales, marketing, manufacturing and distribution capabilities which will be expensive, require additional capital we do not currently have, and could delay the commercialization of our product candidates and have a material and adverse effect on our business.

     A broad base of physicians, including primary care physicians, internists and endocrinologists, treat patients with diabetes. A large sales force may be required to educate and support these physicians. Therefore, our current strategy for developing, manufacturing and commercializing our product candidates includes securing collaborations with leading pharmaceutical and biotechnology companies for the

29

commercialization of our product candidates. To date, we have not entered into any collaborations with pharmaceutical or biotechnology companies. We face significant competition in seeking appropriate collaborators. In addition, collaboration agreements are complex and time-consuming to negotiate, document and implement. For all these reasons, it may be difficult for us to find third parties that are willing to enter into collaborations on economic terms that are favorable to us, or at all. If we do enter into any such collaboration, the collaboration may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. It is likely that our collaborators will have significant discretion in determining the efforts and resources that they will apply to these collaborations.

     If we fail to enter into collaborations, or if our collaborations are unsuccessful, we may be required to establish our own direct sales, marketing, manufacturing and distribution capabilities. Establishing these capabilities can be time-consuming and expensive and we have little experience in doing so. Because of our size, we would be at a disadvantage to our potential competitors to the extent they collaborate with large pharmaceutical companies that have substantially more resources than we do. As a result, we would not initially be able to field a sales force as large as our competitors or provide the same degree of market research or marketing support. In addition, our competitors would have a greater ability to devote research resources toward expansion of the indications for their products. We cannot assure prospective investors that we will succeed in entering into acceptable collaborations, that any such collaboration will be successful or, if not, that we will successfully develop our own sales, marketing and distribution capabilities.

If we are unable to obtain adequate reimbursement from governments or third-party payors for any products that we may develop or if we are unable to obtain acceptable prices for those products, they may not be purchased or used and our revenues and prospects for profitability will suffer.

     Our future 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 other 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 authorities. In addition, 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.

We are subject to pricing pressures and uncertainties regarding Medicare reimbursement and reform.

     Reforms in Medicare added a prescription drug reimbursement benefit beginning in 2006 for all Medicare beneficiaries. Although we cannot predict the full effects on our business of the implementation of this legislation, it is possible that the new benefit, which will be managed by private health insurers, pharmacy benefit managers, and other managed care organizations, will result in decreased reimbursement for prescription drugs, which may further exacerbate industry-wide pressure to reduce the prices charged for prescription drugs. This could harm our ability to generate revenues.

Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.

     In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

     Legislation has been introduced in Congress that, if enacted, would permit more widespread re-importation of drugs from foreign countries into the United States, which may include re-importation from foreign countries where the drugs are sold at lower prices than in the United States. Such legislation, or similar regulatory changes, could decrease the price we receive for any approved products which, in turn, could adversely affect our operating results and our overall financial condition.

Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.

     We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

30

• decreased demand for any product candidates or products that we may develop;

• injury to our reputation;

• withdrawal of clinical trial participants;

• costs to defend the related litigation;

• substantial monetary awards to trial participants or patients;

• loss of revenue; and

• the inability to commercialize any products that we may develop.

     We currently carry global liability insurance that we believe is sufficient to cover us from potential damages arising from clinical trials of VIAject^®. We also carry local insurance policies per clinical trial of our product candidates. The amount of insurance that we currently hold may not be adequate to cover all liabilities that we may incur. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for any products. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost. If losses from product liability claims exceed our liability insurance coverage, we may ourselves incur substantial liabilities. If we are required to pay a product liability claim, we may not have sufficient financial resources to complete development or commercialization of any of our product candidates and, if so, our business and results of operations would be harmed.

We face substantial competition in the development of our product candidates which may result in others developing or commercializing products before or more successfully than we do.

     We are engaged in segments of the pharmaceutical industry that are characterized by intense competition and rapidly evolving technology. Many large pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are pursuing the development of novel drugs that target endocrine disorders. We face, and expect to continue to face, intense and increasing competition as new products enter the market and advanced technologies become available. There are several approved injectable rapid-acting mealtime insulin analogs currently on the market including Humalog^®, marketed by Eli Lilly and Company, NovoLog^®, marketed by Novo Nordisk A/S, and Apidra^®, marketed by Sanofi-Aventis. These rapid-acting insulin analogs provide improvement over regular forms of short-acting insulin, including faster subcutaneous absorption, an earlier and greater insulin peak and more rapid post-peak decrease. In addition, other development stage rapid-acting insulin formulations may be approved and compete with VIAject^®. Halozyme Therapeutics, Inc. has conducted a Phase 1 and Phase 2 clinical trial of Humulin^® R and Humalog^® in combination with a recombinant human hyaluronidase enzyme and has reported that in each case the combination yielded pharmacokinetics and glucodynamics that better mimicked physiologic mealtime insulin release and activity than Humulin^® R or Humalog^® alone. Generex Biotechnology Corporation has developed an oral spray that is currently in Phase 3 development. Several companies are also developing alternative insulin systems for diabetes, including MannKind Corporation, which has submitted its NDA in early 2009. In March 2010, MannKind received a complete response letter from the FDA. In addition, a number of established pharmaceutical companies, including GlaxoSmithKline plc, and Bristol-Myers Squibb Company, are developing proprietary technologies or have entered into arrangements with, or acquired, companies with technologies for the treatment of diabetes.

     Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Our competitors may develop products that are more effective, safer, more convenient or less costly than any that we are developing or that would render our product candidates obsolete or non-competitive. Our competitors may also obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours.

     Many of our potential competitors have:

• significantly greater financial, technical and human resources than we have and may be better equipped to discover, develop, manufacture and commercialize product candidates;

• more extensive experience in preclinical testing and clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products;

• product candidates that have been approved or are in late-stage clinical development; or

• collaborative arrangements in our target markets with leading companies and research institutions.

Our product candidates may be rendered obsolete by technological change.

     The rapid rate of scientific discoveries and technological changes could result in one or more of our product candidates becoming obsolete or noncompetitive. For several decades, scientists have attempted to improve the bioavailability of injected formulations and to devise alternative non-invasive delivery systems for the delivery of drugs such as insulin. Our product candidates will compete against many products with similar indications. In addition to the currently marketed rapid-acting insulin analogs, our competitors are developing insulin formulations delivered by oral pills, pulmonary devices and oral spray devices. Our future success will depend not only on our ability to develop our product candidates, but also on our ability to maintain market acceptance against emerging industry developments. We cannot assure current or prospective stockholders that we will be able to do so.

31

Our business activities involve the storage and use of hazardous materials, which require compliance with environmental and occupational safety laws regulating the use of such materials. If we violate these laws, we could be subject to significant fines, liabilities or other adverse consequences.

     Our research and development work and manufacturing processes involve the controlled storage and use of hazardous materials, including chemical and biological materials. Our operations also produce hazardous waste products. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials. Although we believe that our safety procedures for handling and disposing of such materials and waste products comply in all material respects with the standards prescribed by federal, state and local laws and regulations, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident or failure to comply with environmental laws, we could be held liable for any damages that may result, and any such liability could fall outside the coverage or exceed the limits of our insurance. In addition, we could be required to incur significant costs to comply with environmental laws and regulations in the future or pay substantial fines or penalties if we violate any of these laws or regulations. Finally, current or future environmental laws and regulations may impair our research, development or production efforts.

Risks Related to Our Dependence on Third Parties

Use of third parties to manufacture our product candidates may increase the risks that we will not have sufficient quantities of our product candidates or such quantities at an acceptable cost, or that our suppliers will not be able to manufacture our products in their final dosage form. In any such case, clinical development and commercialization of our product candidates could be delayed, prevented or impaired.

     We do not currently own or operate manufacturing facilities for commercial production of our product candidates. We have limited experience in drug manufacturing and we lack the resources and the capabilities to manufacture any of our product candidates on a clinical or commercial scale. Our current strategy is to outsource all manufacturing of our product candidates and products to third parties. We also expect to rely upon third parties to produce materials required for the commercial production of our product candidates if we succeed in obtaining necessary regulatory approvals. We currently are working with two manufacturers with regard to VIAject^Ò. If VIAject^Ò is approved for commercial sale, we may rely on one or both manufacturers to manufacture commercial quantities of VIAject^®. We intend to negotiate a commercial manufacturing agreement with at least one manufacturer but we cannot guarantee that we will reach agreement in a timely manner or on terms that are favorable to us.

     There can be no assurance that our manufacturers will support our VIAject^® or other manufacturing programs in the future. The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques, processes and quality controls.

     Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates or products ourselves, including:

• reliance on the third party for regulatory compliance and quality assurance;

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

• the possible refusal by the third party to support our manufacturing programs, based on its own business priorities, at a time that is costly or inconvenient for us.

     Our manufacturers may not be able to comply with current good manufacturing practice, or cGMP, regulations or other regulatory requirements or similar regulatory requirements outside the United States. Our manufacturers are subject to unannounced inspections by the FDA, state regulators and similar regulators outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates.

     Our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that are both capable of manufacturing for us and willing to do so. If the third parties that we engage to manufacture product for our clinical trials should cease to continue to do so for any reason, we likely would experience delays in advancing these trials while we identify and qualify replacement suppliers and we may be unable to obtain replacement supplies on terms that are favorable to us. In addition, if we are not able to obtain adequate supplies of our product candidates or the drug substances used to manufacture them, it will be more difficult for us to develop our product candidates and compete effectively.

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

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

     We do not independently conduct clinical trials of our product candidates. We rely on third parties, such as contract research organizations, clinical data management organizations, medical institutions and clinical investigators, to enroll qualified patients and conduct our clinical

32

trials. Our reliance on these third parties for clinical development activities reduces our control over these activities. We are responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as Good Clinical Practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, regulatory approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.

If our suppliers, principally our sole insulin supplier, fail to deliver materials and provide services needed for the production of VIAject^® and VIAtab™ in a timely and sufficient manner, or if they fail to comply with applicable regulations, clinical development or regulatory approval of our product candidates or commercialization of our products could be delayed, producing additional losses and depriving us of potential product revenue.

     We need access to sufficient, reliable and affordable supplies of recombinant human insulin and other materials for which we rely on various suppliers. We also must rely on those suppliers to comply with relevant regulatory and other legal requirements, including the production of insulin in accordance with cGMP. We can make no assurances that our suppliers, particularly our insulin supplier, will comply with cGMP.

     We have an agreement with a single insulin supplier from which we obtain all of the insulin that we use for testing and manufacturing VIAject^® and VIAtab™. Our agreement with this insulin supplier will terminate in December 2011. We are discussing the possibility of extending this supply agreement beyond 2011, but we cannot guarantee that this effort will be successful.

     We believe that our current supplies of insulin, together with the quantities of insulin called for under our existing supply agreement, will be sufficient to support our needs for approximately three years following the commercial launch of VIAject^®. We are seeking to qualify other insulin suppliers to serve as additional or alternative suppliers if we are unable or choose not to enter into a new commercial supply agreement with our existing supplier. We cannot assure you that we will be able to qualify a new insulin supplier prior to December 2011. Even if we do qualify a new supplier in a timely manner, the cost of switching or adding additional suppliers may be significant, and we cannot assure you that we will be able to enter into a commercial supply agreement with a new supplier on favorable terms. If we are unable to procure sufficient quantities of insulin from our current or any future supplier, if supply of recombinant human insulin and other materials otherwise becomes limited, or if our suppliers do not meet relevant regulatory requirements, and if we were unable to obtain these materials in sufficient amounts, in a timely manner and at reasonable prices, we could be delayed in the manufacturing and future commercialization of VIAject^® and VIAtab™, which would have a material adverse effect on our business. We would incur substantial costs and manufacturing delays if our suppliers are unable to provide us with products or services approved by the FDA or other regulatory agencies.

Risks Related to Our Intellectual Property

If we are unable to protect our intellectual property rights, our competitors may develop and market similar or identical products that may reduce demand for our products, and we may be prevented from establishing collaborative relationships on favorable terms.

     The following factors are important to our success:

• receiving patent protection for our product candidates;

• maintaining our trade secrets;

• not infringing on the proprietary rights of others; and

• preventing others from infringing our proprietary rights.

     We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. We try to protect our proprietary position by filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. Because the patent position of pharmaceutical companies involves complex legal and factual questions, the issuance, scope and enforceability of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. Thus, any patents that we own or license from others may not provide any protection against competitors.

     We have been granted one U.S. patent and one European patent in all of the designation countries, several pending United States patent applications relating to our VIAject^® and VIAtab™ technology and several pending U.S. foreign patent applications relating to our technology for enhancing delivery of drugs. These pending patent applications, those we may file in the future, or those we may license from third parties, may not result in patents being issued. If patents do not issue with claims encompassing our products, our competitors may develop and market similar or identical products that compete with ours. Even if patents are issued, they may not provide us with proprietary protection or competitive advantages against competitors with similar technology. Failure to obtain effective patent protection for our technology and products may reduce demand for our products and prevent us from establishing collaborative relationships on favorable terms.

     The active and inactive ingredients in our VIAject^® and VIAtab™ product candidates have been known and used for many years and, therefore, are no longer subject to patent protection. Accordingly, our granted U.S. and foreign patents and pending patent applications are directed to the particular formulations of these ingredients in our products, and their use. Although we believe our formulations and their use

33

are patentable and provide a competitive advantage, even if issued, our patents may not prevent others from marketing formulations using the same active and inactive ingredients in similar but different formulations.

     We also rely on trade secrets, know-how and technology, which are not protected by patents, to maintain our competitive position. We try to protect this information by entering into confidentiality agreements with parties that have access to it, such as potential corporate partners, collaborators, employees and consultants. Any of these parties may breach the agreements and disclose our confidential information or our competitors may learn of the information in some other way. Furthermore, others may independently develop similar technologies or duplicate any technology that we have developed. If any trade secret, know-how or other technology not protected by a patent were to be disclosed to or independently developed by a competitor, our business and financial condition could be materially adversely affected.

     The laws of many foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States.

We may become involved in lawsuits and administrative proceedings to protect, defend or enforce our patents that would be expensive and time-consuming.

     In order to protect or enforce our patent rights, we may initiate patent litigation against third parties in the United States or in foreign countries. In addition, we may be subject to certain opposition proceedings conducted in patent and trademark offices challenging the validity of our patents and may become involved in future opposition proceedings challenging the patents of others. The defense of intellectual property rights, including patent rights, through lawsuits, interference or opposition proceedings, and other legal and administrative proceedings can be costly and can divert our technical and management personnel from their normal responsibilities. Such costs increase our operating losses and reduce our resources available for development activities. An adverse determination of any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

     Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. For example, during the course of this kind of litigation and despite protective orders entered by the court, confidential information may be inadvertently disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial testimony. This disclosure could materially adversely affect our business and financial results.

Claims by other parties that we infringe or have misappropriated their proprietary technology may result in liability for damages, royalties, or other payments, or stop our development and commercialization efforts.

     Competitors and other third parties may initiate patent litigation against us in the United States or in foreign countries based on existing patents or patents that may be granted in the future. Many of our competitors may have obtained patents covering products and processes generally related to our products and processes, and they may assert these patents against us. Moreover, there can be no assurance that these competitors have not sought or will not seek additional patents that may cover aspects of our technology. As a result, there is a greater likelihood of a patent dispute than would be expected if our competitors were pursuing unrelated technologies.

     While we conduct patent searches to determine whether the technologies used in our products infringe patents held by third parties, numerous patent applications are currently pending and may be filed in the future for technologies generally related to our technologies, including many patent applications that remain confidential after filing. Due to these factors and the inherent uncertainty in conducting patent searches, there can be no guarantee that we will not violate third-party patent rights that we have not yet identified.

     There may be U.S. and foreign patents issued to third parties that relate to aspects of our product candidates. There may also be patent applications filed by these or other parties in the United States and various foreign jurisdictions that relate to some aspects of our product candidates, which, if issued, could subject us to infringement actions. The owners or licensees of these and other patents may file one or more infringement actions against us. In addition, a competitor may claim misappropriation of a trade secret by an employee hired from that competitor. Any such infringement or misappropriation action could cause us to incur substantial costs defending the lawsuit and could distract our management from our business, even if the allegations of infringement or misappropriation are unwarranted. A need to defend multiple actions or claims could have a disproportionately greater impact. In addition, either in response to or in anticipation of any such infringement or misappropriation claim, we may enter into commercial agreements with the owners or licensees of these rights. The terms of these commercial agreements may include substantial payments, including substantial royalty payments on revenues received by us in connection with the commercialization of our products.

     Payments under such agreements could increase our operating losses and reduce our resources available for development activities. Furthermore, a party making this type of claim could secure a judgment that requires us to pay substantial damages, which would increase our operating losses and reduce our resources available for development activities. A judgment could also include an injunction or other court order that could prevent us from making, using, selling, offering for sale or importing our products or prevent our customers from using our products. If a court determined or if we independently concluded that any of our products or manufacturing processes violated third-party proprietary rights, our clinical trials could be delayed and there can be no assurance that we would be able to reengineer the product or processes to avoid those rights, or to obtain a license under those rights on commercially reasonable terms, if at all.

Risks Related to Regulatory Approval of Our Product Candidates

If we are unable to obtain required regulatory approvals, we will not be able to commercialize VIAject^® as planned, or at all, and our ability to generate revenue will be materially impaired.

     We have invested a significant portion of our efforts and financial resources in the development of VIAject^®, and our ability to generate near-term revenue depends on VIAject’s^® success. All of our product candidates, including VIAject^®, and the activities associated with their

34

development and commercialization, including their testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain regulatory approval for a product candidate will prevent us from commercializing the product candidate. Securing FDA approval requires the submission of an NDA containing extensive preclinical and clinical data and supporting information for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing FDA approval also requires the submission of information about the product manufacturing process to the FDA and inspection by the FDA of our manufacturing, research and operational facilities and those of our partners and service providers.

     While we have submitted an NDA for VIAject^®, we have not received regulatory approval to market VIAject^® or any of our other product candidates in the United States or any other jurisdiction. While the FDA has accepted our NDA as filed, we cannot guarantee that they will review our NDA in a timely fashion or approve our NDA. Many companies that have believed that their products performed satisfactorily in clinical trials have nonetheless failed to obtain FDA approval for their products. Upon the FDA’s review of our NDA, it may request that we conduct additional analyses of the data and, if it believes that the data are not satisfactory, could request additional information from us, including data that may necessitate additional clinical trials. While we announced positive results from our pivotal Phase 3 clinical trial of VIAject^®, data from patients with Type 1 diabetes in India were found to be anomalous when compared to data from the United States and Germany for the same trial. As a result, the FDA could conclude we did not establish non-inferiority of VIAject^® when compared to Humulin^® R in terms of blood glucose control. Failure of the FDA to review our NDA in a timely fashion or approve our NDA will materially impair our ability to generate product revenue and our business.

If the FDA does not believe that our product candidates satisfy the requirements for the Section 505(b)(2) approval procedure, the approval pathway will take longer and cost more than anticipated and in either case may not be successful.

     We believe that VIAject^® and VIAtab™ qualify for approval under Section 505(b)(2) of the FFDCA. Because we are developing new formulations of previously approved chemical entities, such as insulin, this may enable us to avoid having to submit certain types of data and studies that are required in full NDAs and instead submit an NDA under Section 505(b)(2). The FDA may not agree that our products are approvable under Section 505(b)(2). Insulin is a unique and complex drug that is associated with more intra-and inter-patient variability than many small molecule drugs. The availability of the Section 505(b)(2) pathway for insulin is even more controversial than for small molecule drugs, and the FDA may not accept this pathway for our insulin product candidates. The FDA has not published any guidance that specifically addresses an NDA for an insulin product candidate under Section 505(b)(2). No other insulin product has yet been approved pursuant to an NDA under Section 505(b)(2). If the FDA determines that NDAs under Section 505(b)(2) are not appropriate and that full NDAs are required for our product candidates, the time and financial resources required to obtain FDA approval for our product candidates could substantially and materially increase. This would require us to obtain substantially more funding than previously anticipated which could significantly dilute the ownership interests of our stockholders. Even with this investment, the prospect for FDA approval may be significantly lower. If the FDA requires full NDAs for our product candidates or requires more extensive testing and development for some other reason, our ability to compete with alternative products that arrive on the market more quickly than our product candidates would be adversely impacted.

     Notwithstanding the approval of many products by the FDA under Section 505(b)(2) over the last few years, certain brand-name pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its interpretation of Section 505(b)(2) which could delay or even prevent the FDA from approving any NDA under Section 505(b)(2) that we submit. The pharmaceutical industry is highly competitive, and it is not uncommon for a manufacturer of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition.

     Moreover, even if VIAject^® and VIAtab™ are approved under Section 505(b)(2), the approval may be subject to limitations on the indicated uses for which the product may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product.

Any product for which we obtain marketing approval could be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.

     Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and comparable regulatory authorities. These requirements include, in the case of FDA, submissions of safety and other post-marketing information and reports, registration requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. In addition, if any of our product candidates are approved, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription drug products. In particular, a drug may not be promoted in a misleading manner or for uses that are not approved by the FDA as reflected in the product’s approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting misleading promotion and the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

35

     Discovery after approval of previously unknown problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in actions such as:

• restrictions on such products’ manufacturers or manufacturing processes;

• restrictions on the marketing or distribution of a product;

• warning letters;

• withdrawal of the products from the market;

• refusal to approve pending applications or supplements to approved applications that we submit;

• recall of products;

• fines, restitution or disgorgement of profits or revenue;

• suspension or withdrawal of regulatory approvals;

• refusal to permit the import or export of our products;

• product seizure;

• injunctions; or

• imposition of civil or criminal penalties.

Legislation may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to produce, market and distribute our existing products.

     On September 27, 2007, President Bush signed into law the Food and Drug Administration Amendments Act of 2007, or the FDAAA. This new legislation grants significant new powers to the FDA, many of which are aimed at improving drug safety and assuring the safety of drug products after approval. Under the FDAAA, companies that violate the new law are subject to substantial civil monetary penalties. While we expect the FDAAA to have a significant impact on the pharmaceutical industry, the extent of the impact is not yet known. The new requirements and changes imposed by the FDAAA may make it more difficult, and more costly, to obtain and maintain approval of new pharmaceutical products and to produce, market and distribute existing products.

     In addition, the FDA’s regulations, policies or guidance may change and new or additional statutes or government regulations may be enacted that could prevent or delay regulatory approval of our product candidates or further restrict or regulate post-approval activities. It is impossible to predict whether additional legislative changes will be enacted, or FDA regulations, guidance or interpretations implemented or modified, or what the impact of such changes, if any, may be.

Failure to obtain regulatory approval in international jurisdictions would prevent us from marketing our products abroad.

     We intend to have our products marketed outside the United States. In order to market our products in the European Union and many other jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales and distribution of our products. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ from that required to obtain FDA approval. The regulatory approval process outside the United States may include all of the risks associated with obtaining FDA approval, as well as additional risks. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market.

Risks Related to Employee Matters and Managing Growth

Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.

     The performance of our Chief Executive Officer, Chief Financial Officer, Chief Scientific Officer, Chief Medical Officer and other key employees is critical to our success. In March 2010, we appointed Dr. Errol B. De Souza as our President and Chief Executive Officer. Dr. Solomon S. Steiner became our Chief Scientific Officer, devoting his full-time attention to the development of Biodel’s early-stage product candidates to treat diabetes and will remain a member of the board. Dr. Steiner is an inventor of our VIAdel™ technology. The loss of the services of any of these persons might impede the achievement of our research, development and commercialization objectives. With the exception of Dr. De Souza and Dr. Steiner, we currently do not have employment agreements with any other executive officers. Replacing key employees may be difficult and time-consuming because of the limited number of individuals in our industry with the skills and experiences required to develop, gain regulatory approval of and commercialize our product candidates successfully.

36

     Recruiting and retaining qualified scientific personnel, clinical personnel and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms, if at all, given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from other companies, universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

We may expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

     If our development and commercialization plans for VIAject^® are successful, we may experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of manufacturing, clinical trials management, and regulatory affairs. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems and continue to recruit and train additional qualified personnel. Due to our limited financial resources we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

Risks Related to Our Common Stock

Our executive officers, directors and principal stockholders have significant ability to control all matters submitted to stockholders for approval.

     Our executive officers, directors and principal stockholders, in the aggregate, beneficially own shares representing approximately 36% of our outstanding capital stock. As a result, these stockholders, if they act together, will be able to exercise a significant controlling influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as mergers, consolidations and sales of all or substantially all of our assets, and will have significant control over our management and policies. The interests of this group of stockholders may not always coincide with our corporate interests or the interests of other stockholders. This significant concentration of stock ownership could also result in the entrenchment of our management and adversely affect the price of our common stock.

Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

     Provisions in our corporate charter and bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team.

     Among others, these provisions:

• establish a classified board of directors such that not all members of the board are elected at one time;

• allow the authorized number of our directors to be changed only by resolution of our board of directors;

• limit the manner in which stockholders can remove directors from the board;

• establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;

• require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

• limit who may call stockholder meetings;

• authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a stockholder rights plan or “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and

• require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.

     In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

If our stock price is volatile, purchasers of our common stock could incur substantial losses.

37

     Our stock price may be volatile. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our common stock may be influenced by many factors, including:

• results of clinical trials of our product candidates or those of our competitors;

• regulatory or legal developments in the United States and other countries;

• variations in our financial results or those of companies that are perceived to be similar to us;

• developments or disputes concerning patents or other proprietary rights;

• the recruitment or departure of key personnel;

• changes in the structure of healthcare payment systems;

• market conditions in the pharmaceutical and biotechnology sectors and issuance of new or changed securities analysts’ reports or recommendations;

• general economic, industry and market conditions; and

• the other factors described in this “Risk Factors” section.

We have never paid any cash dividends on our capital stock and we do not anticipate paying any cash dividends in the foreseeable future.

     We have paid no cash dividends on our capital stock to date. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, we do not expect to pay any cash dividends in the foreseeable future, and payment of cash dividends, if any, will depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors. Furthermore, we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends. Capital appreciation, if any, of our common stock will be investors’ sole source of gain for the foreseeable future.

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

     Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of July 31, 2010, we had approximately 24 million shares of common stock outstanding. Of these, approximately 9 million shares are able to be sold in accordance with the SEC’s Rule 144 and the remainder are generally freely tradable without restriction under securities laws.

We incur substantial costs as a result of operating as a public company, and our management is required to devote substantial time to comply with public company regulations.

     We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 as well as other federal and state laws. These requirements may place a strain on our people, systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, significant resources and management oversight will be required. This may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

38

Item 6. Exhibits

Exhibit No.	Description
31.01	Chief Executive Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Chief Financial Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01	Chief Executive Officer and Chief Financial Officer—Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

39

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.

	BIODEL INC.
Dated: August 6, 2010	By:	/s/ Gerard Michel
		Gerard Michel, Chief Financial Officer,
		VP Corporate Development, and Treasurer

40

Exhibit No.	Description
31.01	Chief Executive Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Chief Financial Officer—Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01	Chief Executive Officer and Chief Financial Officer—Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

41