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1804780 76473 10639600 10638600 1000 7686886 7684085 2801 12 17605485 17605485 127875 127875 <div> 8. Stockholders' Equity and Stock Based Compensation   Initial Public Offering in Japan   On February 8, 2005, we completed an IPO of 3,000,000 shares of common stock in Japan and received aggregate proceeds of $104,486,895, net of underwriting discounts and commissions and offering expenses. In addition, on March 8, 2005, we closed the sale of an additional 157,300 shares of our common stock pursuant to the partial exercise by our underwriters of an over-allotment option which resulted in aggregate proceeds to us of $5,557,773, net of underwriting discounts and commissions. In connection with our IPO, redeemable convertible and convertible preferred stock outstanding as of February 8, 2005 was automatically converted into 6,678,285 shares of common stock.   Public Offering in the U.S.   On February 1, 2007, we completed a public offering of 1,000,000 shares of common stock in the U.S. at a purchase price of $12.00 per share and received aggregate net proceeds of approximately $10,639,600 million, net of underwriting discounts and commissions and offering expenses.   Redeemable Convertible Preferred Stock   On September 2, 2004, we sold 27,667,856 shares of Series C redeemable convertible preferred stock at a purchase price of $1.62 per share for total net proceeds of $43,404,320, net of issuance costs. The Series C preferred stock was sold at a price per share below our IPO price. Accordingly, pursuant to the authoritative guidance for debt under ASC 470, we recorded a deemed dividend on the Series C preferred stock of $31,264,677, which is equal to the number of shares of Series C preferred stock sold multiplied by the difference between the estimated fair value of the underlying common stock and the Series C preferred stock conversion price per share. The deemed dividend increased the net loss applicable to common stockholders in the calculation of basic and diluted net loss per common share and was reported as a charge to accumulated deficit and a credit to additional paid-in capital, with no net impact on total stockholders' equity.   Firm Underwritten Public Offering   On March 23, 2011, we consummated a firm-commitment underwritten public offering of 2,750,000 units at a price to the public of $3.00 per unit for gross proceeds of $8.25 million. Each unit consists of one share of common stock, and a warrant to purchase one share of common stock. The shares of common stock and warrants are immediately separable and were issued separately. On March 24, 2011, the underwriter exercised 50,666 units of its 412,500 unit overallotment. The warrants are exercisable immediately upon issuance, have a five-year term and an exercise price of $3.56 per share. The warrants are indexed to our stock and do not permit net-cash settlement. On March 29, 2011, we received net proceeds of approximately $7.7 million, after underwriter discount and underwriter expenses and no warrants exercised. In accordance with the authoritative guidance, the warrants were classified as equity instruments as they contain no provisions which may require cash settlement.   Warrants   In May 2010, pursuant to the Loan Agreement with Oxford, we issued to Oxford a warrant to purchase up to 198,020 shares of our common stock at an exercise price of $6.06 per share. The warrant will terminate on the earlier of May 10, 2017 or the closing date of a merger or consolidation transaction in which we are not the surviving entity. In addition, the warrant and debt instrument are immediately separable and were issued separately. We therefore accounted for the warrant as a component of stockholders' equity as the agreement requires settlement in shares and under no provision of the agreement are we required to settle the warrant in cash.   Kissei Stock Purchase   On October 13, 2011, pursuant to a stock purchase agreement by and between us and Kissei Pharmaceutical Co., Ltd., or Kissei, Kissei purchased (i) an aggregate of 800,000 shares of our common stock, par value $0.001 per share at a price of $2.50 per share, which approximated the fair value of our common stock at the time of the transaction, and (ii) 220,000 shares of our Series B Convertible Preferred Stock, or Series B Preferred, par value $0.01 per share, at a price of $25.00 per share, which approximated the fair value of our preferred stock on an as converted basis at the time of the transaction. In October 2011 we received gross proceeds of approximately $7.5 million related to this purchase agreement. The purchase agreement contains customary representations, warranties and covenants and a standstill agreement from Kissei that terminates if Kissei beneficially owns less than three percent of our outstanding voting stock. Each share of the Series B Preferred is convertible into 10 shares of common stock. The Series B Preferred ranks pari passu (on an as-if-converted-to-common-stock basis) with the common stock in liquidation and dividend rights. The holders of the Series B Preferred do not have voting rights, and the consent of a majority of the outstanding Series B Preferred is required for certain actions of the Company.   Stock Options   We grant options to our employees, directors and consultants under the 2004 Plan, the successor to the 2000 Plan.   2000 General Stock Incentive Plan   In September 2000, we adopted the 2000 Plan under which incentive stock options could be granted to our employees and nonstatutory stock options and other stock-based awards could be granted to employees, directors and consultants. Stock options have been granted with an exercise price of $10.00 per share and vest 25% after the first year of service from the grant date, with the remaining shares vesting in equal monthly installments over the subsequent 36 months of service. An employee may exercise stock options prior to vesting in which case we have the right to repurchase the unvested shares at the original exercise price if the employee is terminated before vesting in all shares occurs.   Following the vesting period, options are exercisable until the earlier of 90 days after the employee's termination with us or the ten-year anniversary of the initial grant, subject to adjustment under certain conditions. We have the right to purchase all of those shares that the employees have or will acquire under these stock options. The purchase price for any vested shares repurchased will be the greater of the fair market value of such shares on the date of purchase or the aggregate exercise price for such shares.   At December 31, 2011, stock options to purchase a total of 14,000 shares of common stock were outstanding under the 2000 Plan at a weighted average exercise price of $10.00 per share. No additional stock options have been or will be issued under the 2000 Plan subsequent to our IPO. However, stock options previously granted under the 2000 Plan will remain outstanding until the earlier of expiration or exercise.   2004 Stock Incentive Plan   In connection with our IPO, we adopted the 2004 Plan, which serves as the successor program to the 2000 Plan. The 2004 Plan became effective upon the completion of our IPO in February 2005 and was amended and restated in February 2007.   The 2004 Plan is administered by the compensation committee of our board of directors and provides for the grant of (i) options to purchase shares of common stock; (ii) restricted stock; (iii) stock appreciation rights; and (iv) stock units. Incentive stock options may only be granted to employees. Nonstatutory stock options and other stock-based awards may be granted to employees, non-employee directors and consultants.   The number of shares reserved for issuance under the 2004 Plan will be increased on the first day of each of our fiscal years from 2006 through 2014, with the first such increase occurring on January 1, 2006, by the lesser of: (i) 100,000 shares; (ii) 3% of our outstanding common stock on the last day of the immediately preceding fiscal year; or (iii) the number of shares determined by our board of directors. In addition, in February 2007 and June 2008, the total number of shares available for grant under the 2004 Plan was increased by 300,000 and 1,000,000, respectively.   Options granted to optionees other than non-employee directors will generally vest monthly over a four-year period, beginning on the vesting commencement date. The exercise price of an incentive stock option shall not be less than 100% of the fair market value at the time of grant and the exercise price of a nonstatutory stock option shall not be less than 85% of the fair market value at the time of grant.   The 2004 Plan terminates ten years after its initial adoption by the board of directors, unless terminated earlier by the board of directors. The board of directors may amend or terminate the plan at any time, subject to stockholder approval where required by applicable law.   A summary of our stock option activity and related information as of December 31, 2011 is as follows: <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="67%"> </td> <td valign="bottom" width="11%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="11%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Number of Option Shares</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted Average Exercise Price</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Outstanding at January 1, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,280,931</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">8.38</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Granted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,431,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2.47</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Exercised</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(32,836</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2.32</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Cancelled</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(586,424</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9.36</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Outstanding at December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,092,671</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5.52</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Exercisable at December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,561,214</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">7.92</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>   The weighted average contractual life of options outstanding at December 31, 2011 was 7.7 years and the weighted average contractual life of exercisable options at December 31, 2011 was 6.1 years. The intrinsic value of stock options exercised, during the year ended December 31, 2011 was $5,000 based on the Nasdaq Global Market on such date.   Common Stock Reserved for Future Issuance   The following table summarizes common stock reserved for future issuance at December 31, 2011: <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="90%" align="center"> <tr><td width="87%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Common Stock under the employee stock purchase program</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">269,992</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Common stock reserved for issuance upon exercise of warrant</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">198,020</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Common stock options outstanding (under the 2000 Plan and 2004 Plan)</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,092,671</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Common stock options authorized for future grant (under the 2004 Plan)</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">851,329</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,412,012</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>   Convertible Notes   At the closing of the Merger, we and American Stock Transfer & Trust Company, LLC, as trustee, entered into the indenture. Under the terms of a separate trust agreement (the "Trust Agreement"), $29.4 million, which represented the initial principal amount of the Convertible Notes, was deposited with a trust agent for the benefit of the holders and us.   Prior to the maturity of the convertible notes on June 18, 2011, holders of the Convertible Notes could submit irrevocable conversion notices instructing the trustee to convert such Convertible Notes into shares of our common stock at an initial conversion price of $6.80 per share. Following each conversion date we would issue the number of whole shares of common stock issuable upon conversion and the trustee would in turn release to us the respective amount of restricted cash to cover the stock issuance. Prior to the maturity of the Convertible Notes, approximately $1.9 million of the convertible notes were converted to 276,655 shares of our common stock. 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58343997

15707664

<div> 1. The Company, Basis of Presentation and Summary of Significant Accounting Policies   The Company   We were incorporated in the state of Delaware in September 2000. We are a development stage biopharmaceutical company focused on acquiring and developing novel, small molecule therapeutics for the treatment of serious diseases with unmet medical needs with a specific focus on the U.S. market. Through strategic alliances primarily with Japanese pharmaceutical companies, we hold rights to a diversified portfolio of clinical and preclinical product candidates which we believe provide significant commercial opportunity for the Company.   We incurred losses of $17.7 million, $20.2 million and $20.4 million for the years ended December 31, 2011, 2010, and 2009 respectively. We have an accumulated deficit of $285.3 million as of December 31, 2011. Additionally, we have used net cash of $13.3 million, $17.7 million and $17.0 million to fund our operating activities for the years ended December 31, 2011, 2010, and 2009, respectively. To date, these operating losses have been funded primarily through the private placement of our equity securities, the public sale of our common stock, long-term debt and the exercise of founders' warrants, net of treasury stock repurchases.   As a development stage company, we have consumed substantial amounts of capital since our inception. We do not have material commitments for capital expenditures. We do conduct clinical trials which are administered by third-party CROs and there is a significant degree of estimation involved in quantifying the expense associated with clinical trial activity. We accrue costs for work performed by CROs based on the achievement of contracted milestone activities and on internal estimates of activities using patient enrollment and contractual or estimated rates during the period. Our R&D expense and cash payments in future periods could potentially be impacted if we were not to receive complete and accurate information from the CRO or other third parties on a timely basis or correctly estimate the outcome of contract negotiations, activity levels and enrollment rates. We have recently announced on March 21, 2012 the completion of patient enrollment of a significant Phase 2 clinical trial (MN-221-CL-007), the trial results of which are expected in second quarter of 2012.   We have had, and will continue to have an ongoing need to raise additional cash from outside sources to fund our operations. Our business will continue to require us to incur substantial research and development expenses and management plans to continue financing operations with equity issuances, debt arrangements or a combination thereof.   We believe our current liquidity position will be sufficient to fund our operating requirements for at least the next 12 months. We expect to utilize our cash and cash equivalents to fund our operations, including research and development of our product development candidates and for clinical trials. Additionally, we believe that without additional sources of financing, we do not currently have adequate funding to complete the research and development and clinical trials required to bring our future products to market. We will therefore require significant additional funding. If we are unsuccessful in our efforts to raise additional funds, we will be required to significantly reduce or curtail our future research and development activities and other operations.   Basis of Presentation   Our primary activities since incorporation have been recruiting personnel, conducting research and development, performing business and financial planning and raising capital. Accordingly, in connection with preparation of the consolidated financial statements we operate under one reporting segment and are considered to be in the development stage, in accordance with the authoritative guidance for development stage entities.   During the first quarter of 2005, we completed our initial public offering, or IPO, of 3,000,000 shares of common stock in Japan for proceeds of $104.5 million, net of underwriting discounts and commissions and offering costs. In December 2006, we were listed on the Nasdaq Global Market. Accordingly, we are a public company in both the U.S. and Japan, as our stock is traded on both the Nasdaq Global Market and the Jasdaq Market (formerly the Hercules Market of the Osaka Securities Exchange until its closure in 2010).   Avigen Transaction. On December 18, 2009, or the Merger Date, Absolute Merger, Inc., a wholly-owned subsidiary of ours, merged with and into Avigen, Inc., or Avigen, with Avigen continuing as the surviving entity and wholly-owned subsidiary of ours, or the Merger. Under the terms of the Merger agreement, Avigen shareholders, at their election, received an amount per share either in cash, convertible notes issued by us or a combination thereof, upon closing. Avigen shareholders holding approximately 17% of the 29,852,115 shares of Avigen common stock outstanding at the closing date elected to receive cash in the amount of approximately $1.19 per share with an additional $0.04 per share paid in two increments during fiscal year 2010, while the remaining 83% received the corresponding value of additional convertible notes issued by us. In March 2011 we paid $0.02 per share to former Avigen shareholders related to the management transition plan Contingent Payment Rights (CPR). All additional CPR expired on August 18, 2011 and no payments were made related to these CPR.   Avigen Management Transition Plan (MTP). On March 11, 2011, a designated representative from Avigen notified us of the termination of the Avigen MTP, with the final distribution to occur on or about March 31, 2011. In connection with the termination of the Avigen MTP and pursuant to the related contingent payment rights agreement, the remaining funds were distributed to American Stock Transfer & Trust Company, LLC, or AST, and AST was instructed to distribute the funds to the Avigen shareholders on a pro rata basis (approximately $0.02 per share) based on the shares of Avigen common stock held immediately prior to the effective time of the Merger.   Joint Venture. We entered into an agreement to form a joint venture company with Zhejiang Medicine Co., Ltd. and Beijing Make-Friend Medicine Technology Co., Ltd. effective September 27, 2011. The joint venture agreement provides for the joint venture company to develop and commercialize MN-221 in China. A sublicense under which the joint venture company will license MN-221 from us will be required, which sublicense will require the consent of Kissei. In accordance with the joint venture agreement, on March 16, 2012, we paid $650,000 for a 30% interest in the joint venture company. The other parties to the joint venture agreement are responsible for providing their initial funding in the joint venture company for their combined 70% interest, and for future funding for the joint venture company's activities. We have not entered into the sublicense of MN-221 with the joint venture company as of the date of this filing. At December 31, 2011, we reflect a long-term asset on our consolidated balance sheet which represents our investment and a corresponding current liability which represents our required capital contribution payable to the joint venture company. We evaluated the joint venture company under the authoritative guidance and concluded that it is a variable interest entity for which we are not the primary beneficiary as we will not have a majority of the board seats and we will not have power to direct or significantly influence the actions of the entity. We will therefore not consolidate the joint venture company into our financial results but will account for the activities of the joint venture company under the equity method whereby we will absorb any loss or income generated by the entity according to our percentage ownership. See Notes to Consolidated Financial Statements—Note 12. Subsequent Events, for information regarding our payment for the 30% interest in the joint venture company.   Principles of Consolidation   The consolidated financial statements include the accounts of MediciNova, Inc. and its wholly-owned subsidiaries. MediciNova, Inc. and its subsidiaries are collectively referred to herein as "we," "our" or "us."   On December 13, 2006, MediciNova (Europe) Limited, a wholly-owned subsidiary of MediciNova, Inc., was incorporated under the laws of England and Wales and established for the purpose of facilitating the clinical development of our compounds for the European marketplace. MediciNova (Europe) Limited's functional currency is the U.S. dollar, the reporting currency of its parent.   On January 4, 2007, MediciNova Japan, Inc., a wholly-owned subsidiary of MediciNova, Inc., was incorporated under the laws of Japan and established to strengthen business development and investor and public relations activities in Japan and other Asian countries. MediciNova Japan, Inc.'s functional currency is the Japanese yen.   On August 17, 2009, Absolute Merger, Inc., a wholly-owned subsidiary of MediciNova, Inc. was incorporated under the General Corporation Law of the State of Delaware for the purpose of facilitating the Merger with Avigen.   All intercompany transactions and investments in our subsidiaries have been eliminated in consolidation.   Use of Estimates   The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates under different assumptions or conditions.   Cash and Cash Equivalents   Cash and cash equivalents consist of cash and other highly liquid investments with original maturities of three months or less from the date of purchase. Cash equivalents at December 31, 2011 consisted of money market funds.   Restricted Cash   Restricted cash consisted of cash held in a separate trust account, managed by a third-party, in connection with the Avigen transaction. We no longer hold restricted cash as of our payment of the Convertible Notes at their maturity on June 18, 2011.   Restricted Investment   Restricted investment consisted of cash held in an irrevocable grantor trust to fund benefit obligations under the Avigen MTP. These funds represented reserves for eligible benefits as defined by the MTP. At December 31, 2011, we no longer held restricted investments as a result of payouts in 2011 of eligible benefits to terminated employees and fees associated with managing the trust account.   Restricted Letter of Credit   Restricted letter of credit consisted of cash provided as a credit guarantee and security for an irrevocable letter of credit related to the original lease of office space which expired November 30, 2010. The funds remaining after the letter of credit expired reverted to the escrow holdback account described below.   Deferred Revenue and Revenue Recognition   We recognized no revenues for each of the years in the three-year period ended December 31, 2011.   On October 13, 2011, we entered into an agreement with Kissei to perform research and development services relating to MN-221 in exchange for a non-refundable upfront payment of $2.5 million. Under the terms of the agreement we are responsible for all costs to be incurred in the performance of these services which are expected to be completed in 2012 and 2013. We assessed the deliverables in accordance with the authoritative guidance and concluded the existence of one deliverable, research and development services. As such, we will recognize as revenue the $2.5 million payment as the research and development services are performed. The amount received from Kissei is recorded on the balance sheet at December 31, 2011 as deferred revenue. As of December 31, 2011, we have not recorded any revenue in 2011 relating to this agreement.   Convertible Notes   At the closing of the Merger, we and AST, as trustee, entered into an indenture. Under the terms of a separate trust agreement, $29.4 million, which represented the First Payment Consideration less approximately $6.0 million paid out to Avigen shareholders who elected cash payment and the initial principal amount of the convertible notes, or Convertible Notes, was deposited with a trust agent for the benefit of the holders and us (the amount of such deposit together with interest accrued and capitalized thereon, the Property). At the Merger Date we recorded the Convertible Notes in our consolidated balance sheet at fair value.   Prior to the maturity of the Convertible Notes on June 18, 2011, holders of the Convertible Notes could submit irrevocable conversion notices instructing the trustee to convert such Convertible Notes into shares of our common stock at an initial conversion price of $6.80 per share. Following each conversion we would issue the number of whole shares of common stock issuable upon conversion and the trustee would in turn release to us the respective amount of restricted cash to cover the stock issuance. For the year ended December 31, 2011, approximately $76,000, of Convertible Notes were converted into 11,246 shares of our common stock. All remaining Convertible Notes matured on June 18, 2011 and the principal was repaid in full.   Escrow Holdback   At the closing of the Merger, we and Avigen funded in cash and letter of credit $1,500,000 in a separate escrow account, or Second Payment Consideration, pursuant to an escrow agreement. The Second Payment Consideration was considered the "Escrow Holdback". We (Avigen and us) had identified certain additional liabilities of approximately $400,000 prior to closing of the Merger. As such, in accordance with the procedures set forth in the escrow agreement, $400,000 was released from the escrow account in satisfaction of these additional liabilities. A reconciliation of expenses was performed around June 30, 2010 and the letter of credit expired in November 2010. As a result, the Second Payment Consideration of $0.04 per share was paid in two installments. At the Merger Date, we recorded the Escrow Holdback in our consolidated balance sheet at fair value.   At-The-Market Issuance Sales Agreement   On May 5, 2011, we entered into an at-the-market, or ATM, issuance sales agreement, or sales agreement, with McNicoll, Lewis & Vlak LLC, or MLV, pursuant to which we could issue and sell shares of our common stock having an aggregate offering price of up to $15.0 million from time to time through MLV as our sales agent. The issuance and sale of these shares by us under the sales agreement, if any, would be subject to the effectiveness of our shelf registration statement on Form S-3 (File No. 333-163116), initially filed with the Securities and Exchange Commission on November 13, 2009.   Effective October 23, 2011, we terminated the ATM between us and MLV. No shares of common stock were issued under the ATM.   Concentrations and Credit Risk   We maintain cash balances at various financial institutions and such balances commonly exceed the $250,000 amount insured by the Federal Deposit Insurance Corporation. We also maintain money market funds at various financial institutions which are not federally insured although are invested primarily in U.S. government securities. We have not experienced any losses in such accounts and management believes that we do not have significant credit risk with respect to such cash and cash equivalents. We have sustained operating losses since inception and expect such losses to continue over the next several years. Management plans to continue financing operations with equity issuances, debt arrangements or a combination thereof. We believe our working capital at December 31, 2011 to be sufficient to fund our operating requirements through at least December 31, 2012. If adequate funds are not available, we might be required to delay, reduce the scope of or terminate one or more of our product development programs and/or implement other operating cost reductions, any of which could result in the termination of license rights related to any of our product candidates.   Goodwill and Purchased Intangibles   Goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of the identified net tangible and intangible assets of acquired businesses. The allocation of purchase price for acquisitions require extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. Additionally, we must determine whether an acquired entity is considered to be a business or a set of net assets as a portion of the purchase price can only be allocated to goodwill in a business combination. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. The amounts and useful lives assigned to intangible assets that have finite useful lives require the use of estimates and the exercise of judgment. These judgments can significantly affect our net operating results. As of December 31, 2011 and 2010, we had goodwill and IPR&D recorded of $9.6 million and $4.8 million, respectively.   Our annual test date for goodwill and purchased intangibles impairment is December 31 or more frequently if we believe indicators of impairment are present. We periodically re-evaluate the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of our long-lived assets. The criteria used for these evaluations include management's estimate of the asset's continuing ability to generate income from operations and positive cash flows in future periods as well as the strategic significance of any intangible assets in our business objectives. If assets are considered to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.   Fair Value   Financial instruments, including cash equivalents, accounts payable and accrued liabilities, are carried at cost, which we believe approximates fair value given their short-term nature. We are required to measure certain assets and liabilities at fair value, either upon initial measurement or for subsequent accounting or reporting. We use fair value in the initial measurement of net assets acquired in a business combination and when accounting for and reporting on investment securities and certain financial instruments or assets. We estimate fair value using an exit price approach, which requires, among other things, that we determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market of market participants, considering the highest and best use of assets and, for liabilities, assuming the risk of non-performance will be the same before and after the transfer. Many, but not all, of our financial instruments are carried at fair value. In addition, as required under accounting rules for business combinations, the assets acquired and liabilities assumed in the Avigen transaction on December 18, 2009 have been recorded at their estimated fair values as of the Merger Date.   The judgments made in determining an estimate of fair value can materially impact our results of operations.   Property and Equipment   Property and equipment, net, which consists of leasehold improvements, furniture and equipment and software, is stated at cost. Leasehold improvements, furniture and equipment, and software are depreciated using the straight-line method over the estimated useful lives of the related assets. The useful life for furniture, equipment (other than computers) and software is five years, computers is three years and leasehold improvements are amortized over the lesser of the useful life or the term of the lease. Our current lease at our headquarters in San Diego, California expires in May, 2012. We also lease office space in Tokyo, Japan under a lease that expires in May, 2013. See Notes to Consolidated Financial Statements-Note 12. Subsequent Events, for information regarding a lease amendment for our San Diego lease.   Research and Development   Research and development expenses consist of costs incurred to further our research and development activities and include salaries and related employee benefits, costs associated with clinical trials, costs associated with non-clinical activities such as regulatory activities, research-related overhead expenses, and fees paid to external service providers who conduct certain research and development activities on our behalf. We use external service providers and vendors to conduct clinical trials, to manufacture product candidates to be used in clinical trials and to provide various other products and services related to our product development programs. Research and development expenses also include fees for licensed technology for which technological feasibility has not been established and there are no alternative uses. Research and development costs are expensed as incurred or accrued based on certain contractual provisions such as those for estimates of work performed, milestones achieved, patient enrollment, etc. As actual costs become known, accruals are adjusted if necessary. To date, our accrual estimates have not differed significantly from the actual costs incurred.   Income Taxes   In accordance with the authoritative guidance for income taxes under ASC 740, a deferred tax asset or liability is determined based on the difference between the financial statement and the tax basis of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. We provide a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.   Effective January 1, 2007, we adopted the authoritative guidance on accounting for uncertainty in income taxes, which prescribes a comprehensive model for how we should recognize, measure, present and disclose in our financial statements for uncertain tax positions that we have taken or expect to take on a tax return. The cumulative effect of adopting the guidance on accounting for uncertainty in income taxes resulted in no adjustment to retained earnings as of January 1, 2007.   Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. We had no accrued interest or penalties since implementation of guidance on accounting for uncertainty in income taxes.   We are subject to taxation in the U.S., California and foreign jurisdictions, of which currently no years are under examination. Our tax years for 2000 and forward are subject to examination by the U.S. and state tax authorities due to the carry-forward of unutilized net operating losses and research and development credits. During each of the three years in the period ended December 31, 2011, income tax expense relates to intercompany service income earned by our Japanese subsidiary, MediciNova Japan, Inc.   Stock-Based Compensation   We grant stock options to our employees, directors and consultants under the MediciNova, Inc. Amended and Restated 2004 Stock Incentive Plan (the "2004 Plan"), the successor to the MediciNova, Inc. 2000 General Stock Incentive Plan (the "2000 Plan"). No additional stock options have been or will be issued under the 2000 Plan subsequent to our IPO. Stock options issued to non-employees were recorded at their fair value as determined in accordance with the authoritative guidance for equity under ASC 505.   Under the MediciNova, Inc. 2007 Employee Stock Purchase Plan, or ESPP, 300,000 shares of our common stock have been reserved for issuance. In addition, the shares reserved will automatically increase by a number equal to the lesser of: (i) 15,000 shares, (ii) 1% of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year or (iii) such lesser amount as determined by the Board. The ESPP permits full-time employees to purchase our common stock through payroll deductions (which cannot exceed 15% of each employee's compensation) at the lower of 85% of fair market value at the beginning of the offering period or the end of each six-month offering period.   The exercise price of stock options granted during the years ended December 31, 2011, 2010 and 2009 were equal to market value on the date of grant. During the years ended December 31, 2011, 2010 and 2009, options to purchase 1,431,000, 525,000 and 521,373 shares of common stock, respectively, were granted. For the year ended December 31, 2011, 4,135 shares were issued under the ESPP, leaving 269,992 shares available for future issuance. Stock-based compensation expense for such stock options and employee stock purchase place are reflected in total operating expense for each respective year. The estimated fair value of each stock option award was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions for stock option grants: <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="80%" align="center"> <tr><td width="75%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center">Year Ended December  31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Stock Options</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Risk-free interest rate</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.70</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1.37</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1.79</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Expected volatility of common stock</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">78.79</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">76.50</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">70.00</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr><td valign="top"> Dividend yield</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.00</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.00</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.00</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Expected option term (in years)</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5.36</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4.40</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4.13</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Employee Stock Purchase Plan</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Risk-free interest rate</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.69</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.57</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2.37</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr><td valign="top"> Expected volatility of common stock</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">77.88</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">76.00</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">73.00</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Dividend yield</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.00</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.00</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.00</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr><td valign="top"> Expected option term (in years)</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.5</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.5</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.5</td> <td valign="bottom" nowrap="nowrap">  </td></tr></table>   The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of our employee stock options. The expected volatility is based on the historical volatility of our stock since listing on the Nasdaq Global Market in December 2006. We have not paid nor do we anticipate paying dividends on our common stock in the foreseeable future. The expected term of employee stock options is based on the simplified method as provided by the authoritative guidance on stock compensation, as we concluded that our historical stock option exercise experience does not provide a reasonable basis for us to estimate the expected term.   The weighted-average fair value of each stock option granted during the years ended December 31, 2011, 2010 and 2009, estimated as of the grant date using the Black-Scholes option valuation model, was $1.25 per option, $4.02 per option and $1.53 per option, respectively.   For the years ended December 31, 2011, 2010 and 2009, stock-based compensation expense related to stock options and the employee stock purchase plan was approximately $1.4 million, $2.0 million and $2.4 million, respectively, and was recorded as a component of general and administrative expense (approximately $1.1 million, $1.6 million and $1.9 million, respectively) and research and development expense (approximately $0.3 million, $0.4 million and $0.5 million, respectively). During the years ended December 31, 2011, 2010 and 2009, there were 32,836, 44,948 and 100,483 stock options exercised, respectively, from which proceeds of approximately $.08 million, $0.2 million and $0.4 million, respectively, were received.   As of December 31, 2011, there was approximately $2.0 million of unamortized compensation cost related to unvested stock option awards which is expected to be recognized over a remaining weighted-average vesting period of 1.9 years, on a straight-line basis.   Comprehensive Income (Loss)   The authoritative guidance for comprehensive income under ASC 220 requires that all components of comprehensive income (loss), including net income (loss), be reported in the financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity (net assets) during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments and unrealized gains and losses on available for sale investments, are reported, net of their related tax effect, to arrive at comprehensive income (loss). For the years ended December 31, 2011, 2010 and 2009, comprehensive loss was $17,735,219, $20,178,096 and $20,404,060, respectively. The table below sets forth the components of our accumulated other comprehensive loss at: <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="73%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center">December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Beginning Balance</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(55,702</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(64,914</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(29,744</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> Currency translation</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,143</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">9,212</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(35,170</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Ending Balance</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(56,845</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(55,702</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(64,914</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>   Net Loss Per Share   Net loss per share is presented as basic and diluted net loss per share. Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common share equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, convertible preferred stock, stock options and warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. For the years ended December 31, 2011, 2010 and 2009, 5,436,111, 470,200 and 4,547,300, respectively, of potentially dilutive securities were excluded from determining diluted earnings per share because of their anti-dilutive effect.   New Accounting Standards Not Yet Adopted   In September 2011, the Financial Accounting Standards Board, or FASB, issued updated guidance to simplify how entities test for goodwill impairment. The updated guidance permits an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit in which goodwill resides is less than its carrying value. For reporting units in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, the updated guidance eliminates the requirement to perform further goodwill impairment testing. This new guidance is effective for fiscal years beginning after December 15, 2011 and becomes effective for us in the first quarter of fiscal year 2012. We do not expect the adoption to have a material impact on our financial position or results of operations.   In June 2011, the FASB issued a guidance related to the Presentation of Comprehensive Income. The guidance requires an entity to present items of net income and other comprehensive income, or OCI, and total comprehensive income either in a single continuous statement of comprehensive income or two separate but continuous statements. We will no longer be allowed to present OCI in the statement of stockholders' equity. Earnings per share would continue to be based on net income. Although existing guidance related to items that must be presented in OCI has not changed, companies will be required to display reclassification adjustments for each component of OCI in both net income and OCI. Also, companies will need to present the components of other comprehensive income in their interim and annual financial statements. This guidance is required to be implemented retrospectively during interim and annual periods beginning after December 15, 2011 and becomes effective for us in the first quarter of fiscal year 2012. The adoption of this update is not expected to have a material impact on our consolidated financial statements.   In May 2011, the FASB issued updated guidance related to Fair Value Measurements and Disclosures that clarified and amended the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. The FASB also clarified the intent of existing fair value measurement requirements. The new and revised disclosures are required to be implemented prospectively during interim and annual periods beginning after December 15, 2011 and become effective for us in the first quarter of fiscal year 2012. Early adoption is not permitted. The adoption of this update is not expected to have a material impact on our consolidated financial statements. </div>

<div> 2. Avigen Transaction   On December 18, 2009 we acquired 100% of the outstanding shares of Avigen, a biopharmaceutical company whose potential product candidate is a therapeutic for Central Nervous System, or CNS, disorders. Under the terms of the acquisition, we issued $29.4 million in secured convertible notes that matured on June 18, 2011. Holders of these convertible notes may convert their notes into our common stock at an initial conversion price of $6.80 per share. At the maturity of the convertible notes, the remaining holders would be paid out the same per share amount as the Avigen shareholders that elected to receive cash at the merger closing, plus accrued interest. As part of the merger consideration, the former Avigen shareholders were also entitled to receive approximately $0.04 per share, which was paid in two increments in 2010, and rights under contingent payment rights issued as part of the merger consideration. The amount to be paid in the two installments was net of a reconciliation of Avigen expenses and a letter of credit after expiry. Under the first and second installments paid out, we paid $140,119 and $73,449, respectively, to Avigen shareholders who elected payment in cash and we issued an additional principal amount of $685,917 and $359,551, respectively, in convertible notes to Avigen shareholders who elected payment in convertible notes in lieu of a cash payment. We have included Avigen's business operations in our consolidated financial statements since the merger date and we have accounted for the merger under the acquisition method of accounting. </div>

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<div> <div> 7. Commitments and Contingencies   Facility Lease   In January 2008, we entered into a fourth amendment to lease for our San Diego corporate headquarters in which we reduced the amount of space under lease to 12,699 square feet of office space through August 2011. On July 6, 2011, we entered into a fifth amendment, the Fifth Lease Amendment, which extends the Lease term with respect to 5,089 square feet, from August 31, 2011 to May 31, 2012. The Fifth Lease Amendment provides that we pay the Landlord a monthly base rent of $12,468.00 for the premises during the nine-month extension period. See Notes to Consolidated Financial Statements-Note 12. Subsequent Events, for information regarding a sixth lease amendment related to our lease in San Diego. In June 2005, we leased 1,726 square feet of office space in Tokyo, Japan under a non-cancelable operating lease that expires in May 2013. Rent expense for the years ended December 31, 2011 and 2010 was $529,114 and $612,291, respectively, and rent expense, net of sub-lease income for the period from September 26, 2000 (inception) to December 31, 2011 was $4.7 million.   Future minimum payments as of December 31, 2011 are as follows: <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="80%" align="center"> <tr><td width="87%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Years ending December 31:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> 2012</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">200,717</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2013</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">57,657</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Total minimum payments</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">258,374</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>   License Agreements   Since our inception, we have entered into eight license agreements with pharmaceutical companies which cover our current product candidates. In general, we seek to obtain exclusive licenses to the patent rights and know-how for all indications under the agreements within our licensed territories and to procure patent protection for our anticipated products, or obtain such protection from the relevant patents owned by our licensors. Under our license agreements we generally are required to make an upfront payment and additional payments upon the achievement of specific development and/or regulatory approval milestones. We are also generally obligated to pay royalties under the agreements until the later of the expiration of the applicable patent or the applicable last date of market exclusivity after the first commercial sale, on a country-by-country basis.   The amounts expended under these agreements and charged to research and development expense from September 26, 2000 (inception) to December 31, 2011 was $9,850,000. No such amounts have been expended during the three years ended December 31, 2011. As of December 31, 2011, future potential milestone payments totaled approximately $94.1 million, and there are no minimum royalties required under any of the license agreements. We are unable at this time to estimate with certainty the timing on when these milestone payments will occur as these payments are dependent upon the progress of our product development programs.   Legal Proceedings   On August 24, 2009, The Pennsylvania Avenue Funds, an Avigen stockholder, filed a complaint in Alameda County Superior Court alleging that Avigen's directors breached their fiduciary duties in connection with the proposed transaction with us. On October 15, 2009, The Pennsylvania Avenue Funds filed an amended complaint adding us as a defendant. In the amended complaint, The Pennsylvania Avenue funds alleged, among other things, that we aided and abetted the alleged breach of fiduciary duties by the Avigen directors. Avigen and The Pennsylvania Avenue Funds have signed a stipulation of settlement agreement and moved the court for preliminary approval. The Court heard oral arguments on the Motion for Preliminary Approval of Settlement and held a case management conference on March 8, 2010, during which it raised a few issues regarding the settlement provisions. On April 6, 2010, the Superior Court for the State of California for the County of Alameda approved the preliminary settlement and set a final settlement hearing for June 24, 2010. Under the terms of the Stipulation of Settlement, Avigen agreed not to oppose a fee motion by counsel to The Pennsylvania Avenue Funds for fees and expenses in the amount not to exceed $140,000 and a petition by The Pennsylvania Avenue Funds for an incentive award of up to $2,500. On June 24, 2010, the final order and judgment approving final settlement of $140,000 for fees and expenses was received. The petition for the $2,500 incentive award was denied. Avigen's insurance carrier paid the $140,000 balance due to The Pennsylvania Avenue Funds on July 2, 2010.   On March 3, 2011, we received a letter, in which certain allegations were made, from a former employee who had been terminated in January 2011 pursuant to our planned reduction-in-force. On July 8, 2011, the former employee filed a lawsuit in the Superior Court of the State of California, County of San Diego, asserting certain claims related to the Company's work environment and the employee's termination, and on December 12, 2011 the court granted our motion to compel arbitration. We have engaged legal counsel in this matter. Based on our current assessment, we do not expect its outcome to have a material adverse effect on our business, financial condition and results of operations. </div> </div>

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<div> 3. Fair Value Measurements   As defined in the authoritative guidance for fair value measurements and disclosures under ASC 820, fair value is based on the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability and consistency of fair value measurements, ASC 820 prescribes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels which are described below: <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="90%" align="center"> <tr><td width="7%"> </td> <td valign="bottom" width="4%"> </td> <td width="89%"> </td></tr> <tr><td valign="top">Level 1:</td> <td valign="bottom">  </td> <td valign="bottom">Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date.</td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="90%" align="center"> <tr><td width="7%"> </td> <td valign="bottom" width="4%"> </td> <td width="89%"> </td></tr> <tr><td valign="top">Level 2:</td> <td valign="bottom">  </td> <td valign="bottom">Inputs are quoted prices for similar items in active markets or inputs are quoted prices for identical or similar items in markets that are not active.</td></tr> <tr><td height="16"> </td> <td height="16" colspan="2"> </td></tr> <tr><td valign="top">Level 3:</td> <td valign="bottom">  </td> <td valign="bottom">Inputs are unobservable due to little or no market data availability and inputs are usually developed by management or a third-party which reflect those inputs that a market participant would use. The fair value hierarchy gives the lowest priority to Level 3 inputs.</td></tr></table>   The following table presents our financial instruments measured at fair value on a recurring basis classified by the fair value measurements and disclosures valuation hierarchy (in thousands): <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="66%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="14" align="center">As of December 31, 2011</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center">Fair Value Measurements Using</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 1</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 2</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 3</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Cash equivalents</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,659</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,659</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="64%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="14" align="center">As of December 31, 2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center">Fair Value Measurements Using</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 1</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 2</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 3</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Cash equivalents</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">11,082</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">11,082</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="64%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="14" align="center">As of December 31, 2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center">Fair Value Measurements Using</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 1</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 2</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 3</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Current liabilities:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Current portion of long-term debt(3)</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,952</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4,952</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Convertible notes(1, 2)</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">28,626</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">28,626</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Total current liability</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">33,578</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">33,578</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Non-current liability:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Long-term debt, less current portion(3)</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,484</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,484</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total non-current liability</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,484</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,484</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td valign="top" width="4%" align="left">(1)</td> <td valign="top" align="left">The fair value of the convertible notes and the related conversion feature was based on a binomial option pricing model, or BOPM. Assumptions used in the BOPM included the maturity date of the Convertible Notes, the time between nodes, volatility, face value of the Convertible Notes at the merger closing date and the risk-free rate. </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td valign="top" width="4%" align="left">(2)</td> <td valign="top" align="left">Although we recorded the Convertible Notes as a liability upon merger closing on December 18, 2009, following ASC 805, the fair value of the conversion feature was accounted for within equity and measured during interim periods and subsequent settlements (conversions to our stock) would be accounted for in equity. </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td valign="top" width="4%" align="left">(3)</td> <td valign="top" align="left">The carrying value of the long-term debt, current and non-current portion, approximates fair value. </td></tr></table>   At December 31, 2011, cash equivalents (instruments with maturities of three months or less at the date of purchase) were $1.7 million and primarily invested in money market accounts. At December 31, 2011, we no longer held restricted cash. We measure cash equivalents, restricted cash and restricted investments on a recurring basis. The fair value of our cash equivalents, which are current assets, is based on Level 1 criteria in which their carrying amount is a reasonable estimate of their fair value based on daily quoted market prices.   The following table provides a reconciliation of liabilities measured at fair value using significant observable inputs (Level 3) for the years ended December 2011 and 2010 (in thousands): <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="43%"> </td> <td valign="bottom" width="10%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="10%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="10%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="10%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Auction Rate Security Put(1)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Auction Rate Securities(2)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Convertible Notes</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Long-term Debt</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance at December 31, 2009</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,577</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">24,255</td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(29,258</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Conversion of convertible notes</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,805</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Principal increase or proceeds</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,045</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(13,991</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> Accrued interest</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(134</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Other expense accretion</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(125</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(310</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> Fair value adjustment</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(2,786</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,498</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Realized gain</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">229</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,270</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Redemptions</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(28,112</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance at December 31, 2010</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(28,626</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(14,435</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> Conversion of convertible notes</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">77</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Principal increase or proceeds</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Accrued interest</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(504</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Other expense accretion/write-off</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(63</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(511</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> Repayment</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">28,613</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">15,450</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance at December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td valign="top" width="4%" align="left">(1)</td> <td valign="top" align="left">The fair value of the ARS put was determined on a level 3 basis based on a discounted cash flow model, which employed a liquidity discount taking into consideration the cost of capital of the redeeming entity, UBS. At December 31, 2010, we no longer held the ARS put as it was redeemed by UBS on July 1, 2010. </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td valign="top" width="4%" align="left">(2)</td> <td valign="top" align="left">The fair value of the ARS was determined on a level 3 basis based a discounted cash flow model, which employed liquidity discounts and included assumptions regarding future cash flows and the likelihood of the redemption or refinancing of such ARS.</td></tr></table> </div>

36229670

36687706

-458036

-10637

-11997

1360

105522524

10366291

8171811

8323715

9600241

-253844544

-20361883

-20174630

-17722503

<div> 9. Income Taxes   The significant components of our deferred income taxes at December 31, 2011 and 2010 are as follows: <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="76%"> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="2%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Deferred Tax Assets:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Net operating loss carry-forwards</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">79,215,000</td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">72,100,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Capitalized licenses</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,067,000</td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,313,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Research tax credits</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">7,124,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,723,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Stock Options</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">395,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">846,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Other, net</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">988,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,224,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total Deferred Tax Assets</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">89,789,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">83,206,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Deferred Tax Liabilities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> IPR&D</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,956,000 </td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,956,000</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Total Deferred Tax Liabilities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,956,000 </td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,956,000</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net deferred tax assets</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">87,833,000</td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">81,250,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Valuation Allowance</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(89,789,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(83,206,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net Deferred Tax Liability</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,956,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,956,000</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>   We have established a valuation allowance against our deferred tax assets due to the uncertainty that such assets will be realized. We periodically evaluate the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred tax assets will be realizable, the valuation allowance will be reduced.   At December 31, 2011, we had federal and California net operating loss carry-forwards of approximately $194.5 million and $193.9 million, respectively. Included in these amounts are federal and California tax expense of approximately $22,000 attributable to stock option deductions which will be credited to equity when realized. The federal net operating loss carry-forwards begin to expire in 2020, and the California net operating loss carry-forwards begin to expire in 2013. At December 31, 2011, we also had federal and California research tax credit carry-forwards of approximately $6.2 million and $1.4 million, respectively. The federal research tax credit carry-forwards begin to expire in 2024, and the California research tax credit carry-forward does not expire and can be carried forward indefinitely until utilized.   Additionally, utilization of the net operating losses, or NOL, and tax credit carry-forwards will be subject to a substantial annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions due to ownership change limitations that have occurred. These ownership changes will limit the amount of NOL and tax credit carry-forwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. An analysis was performed which indicated that multiple ownership changes have occurred in previous years which created annual limitations on our ability to utilize NOL and tax credit carryovers. Such limitations will result in approximately $7.3 million and $1 million of tax benefits related to federal and state NOL and tax credit carry-forwards, respectively, that will expire unused. Accordingly, the related NOL and R&D credit carry-forwards have been removed from deferred tax assets accompanied by a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, related to our operations in the U.S. will not impact our effective tax rate.   A reconciliation of the federal statutory income tax rate to our effective income tax rate is as follows: <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="82%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center">Year Ended December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Federal statutory income tax rate</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">35.0</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">35.0</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">35.0</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr><td valign="top"> State income taxes, net of federal benefit</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5.5</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6.4</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">8.8</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Tax credits</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1.6</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2.8</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2.7</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Change in valuation allowance</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(37.1</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(44.0</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(60.9</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Permanent differences</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(5.0</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(0.2</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">14.5</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Other</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(0.1</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Provision for income taxes</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.0</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.0</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.0</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>   We file income tax returns in the United States, California and foreign jurisdictions. Due to our losses incurred, we are essentially subject to income tax examination by tax authorities from our inception to date. Our practice is to recognize interest expense and penalties related to income tax matters as tax expense. At December 31, 2011, we do not have any significant accruals for interest related to unrecognized tax benefits or tax penalties. During each of the three years in the period ended December 31, 2011, income tax expense relates to intercompany service income earned by our Japanese subsidiary, MediciNova Japan, Inc. </div>

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9483605

<div> 4. Long-term Debt   On May 10, 2010, we entered into a loan and security agreement, or the Loan Agreement, with Oxford Finance Corporation, or Oxford, under which we borrowed $15.0 million at a stated interest rate of 12.87 percent.   Our obligations under the Loan Agreement were secured by a first priority security interest in substantially all of our assets, other than our intellectual property and we also had agreed not to pledge or otherwise encumber our intellectual property. Our obligations under the Loan Agreement were guaranteed on a senior secured basis by Avigen. The Loan Agreement also contained certain restrictive covenants.   Pursuant to the Loan Agreement, we issued to Oxford a warrant to purchase up to 198,020 shares of our common stock. This warrant is exercisable, immediately, in whole or in part, has a per share exercise price of $6.06 and may be exercised on a cashless basis. The warrant will terminate on the earlier of May 10, 2017 or the closing date of a merger or consolidation transaction in which we are not the surviving entity. In addition, the warrant and debt instrument were immediately separable and issued separately; thus, we accounted for the warrant as a component of stockholders' equity as the agreement required settlement in shares and under no provision of the agreement are we required to settle the warrant in cash.   On April 1, 2011, we entered into an agreement with Oxford under which we made an early repayment of the loan in-full and wherein Oxford waived the prepayment penalty of approximately $437,000.   We accounted for the interest on the debt using the effective interest method wherein we treated the debt issuance costs paid directly to the lender (financing fees) and the relative fair value of the warrants issued to the lender as a discount on the debt (or a contra liability) and we treated the debt issuance costs paid to third parties (primarily legal fees) as an other asset in our consolidated balance sheet. The amortization of the debt discount was recorded as interest expense and the amortization of the debt issuance costs paid to third parties was recorded as other expense in our consolidated statement of operations.   The table below summarizes the long-term debt activity: <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="34%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="22" align="center">Year Ended December 31, 2011</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Carrying Value 12/31/2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Amortization (Interest Expense)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Amortization (Other Expense)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Payments</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Write-Off Debt Related Costs </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Carrying Value 12/31/2011</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Other Assets:</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Debt issuance costs paid to third parties</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">124,722</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right"> </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(21,426</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(103,296</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Liability:</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Loan</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(15,000,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right"> </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">15,000,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Deferred interest charge</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(134,491</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(504,207</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">450,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">188,698</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(15,134,491</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(504,207</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">15,450,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">188,698</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Contra Liability:</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Relative fair value of warrants issued to lender(1)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">595,342</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(102,274</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(493,068</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Debt issuance costs paid to lender</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">103,934</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(17,855</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(86,079</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">699,276</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(120,129</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(579,147</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="39%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="14" align="center">Year Ended December 31, 2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Gross Amount 5/10/10</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Amortization (Interest  Expense) 5/10/10-12/31/10</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Amortization (Other  Expense) 5/10/10-12/31/10</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Carrying  Value 12/31/2010</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Other Assets:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Debt issuance costs paid to third parties</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">180,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(55,278</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">124,722</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Liability:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Loan</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(15,000,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(15,000,000</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Deferred interest charge</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(134,491</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(134,491</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(15,000,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(134,491</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(15,134,491</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Contra Liability:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Relative fair value of warrants issued to lender(1)</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">859,209</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(263,867</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">595,342</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Debt issuance costs paid to lender</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">150,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(46,066</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">103,934</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,009,209</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(309,933</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">699,276</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td valign="top" width="4%" align="left">(1)</td> <td valign="top" align="left"> The relative fair value of the warrants issued to the lender was calculated using a Black-Scholes valuation model. The risk-free interest rate assumption was 2.86 percent based upon observed risk-free interest rates appropriate for the expected term of the warrants. The expected volatility assumption was 76 percent consistent with the volatility of our common stock based on the historical volatility of our stock since listing on the Nasdaq Global Market in December 2006. We have not paid and do not anticipate paying dividends on our common stock since our inception, and therefore, the dividend yield assumption was zero. The expected term assumption was seven years, which is the contractual life of the warrants. The fair value of the warrants using the Black-Scholes valuation model was calculated to be $4.34 per share.</td></tr></table> </div>

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<div> 10. Employee Savings Plan   We have an employee savings plan available to substantially all employees. Under the plan, an employee may elect salary reductions which are contributed to the plan. The plan provides for discretionary contributions by us, which totaled $97,929, $139,621 and $149,994, and $1,099,676 for the years ended December 31, 2011, 2010, 2009 and the period from September 26, 2000 (inception) to December 31, 2011, respectively. </div>

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<div> 11. Quarterly Financial Data (Unaudited)   The following financial information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods. Summarized quarterly data for fiscal 2011 and 2010 are as follows (in thousands, except per share data): <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="64%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="14" align="center">Year Ended December 31, 2011</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">1st Quarter</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2nd Quarter</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">3rd Quarter</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">4th Quarter</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Selected quarterly financial data:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Total operating expenses</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,976</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,722</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,907</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,503</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net loss</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(5,656</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(4,681</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,894</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,503</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> Net loss applicable to common stockholders</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(5,656</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(4,681</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,894</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,503</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Basic and diluted net loss per common share(1)</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(0.45</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(0.31</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(0.25</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(0.22</td> <td valign="bottom" nowrap="nowrap">) </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="64%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="14" align="center">Year Ended December 31, 2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">1st Quarter</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2nd Quarter</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">3rd Quarter</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">4th Quarter</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Selected quarterly financial data:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Total operating expenses</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5,236</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,152</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,148</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,347</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net loss</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(5,161</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(4,334</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(5,701</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(4,991</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr><td valign="top"> Net loss applicable to common stockholders</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(5,161</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(4,334</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(5,701</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(4,991</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Basic and diluted net loss per common share(1)</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(0.42</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(0.35</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(0.46</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(0.40</td> <td valign="bottom" nowrap="nowrap">) </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td valign="top" width="4%" align="left">(1)</td> <td valign="top" align="left">Loss per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly net loss per share will not necessarily equal the total for the year.</td></tr></table> </div>

<div> 6. Related Party Transactions   We entered into a consulting agreement dated June 12, 2009 with Danerius, LLC, or Danerius, an affiliate of Alan W. Dunton, M.D., one of our directors, under which Danerius, would provide consulting services to us related to our product development programs at a rate of $27,500 per month. For the years ended December 31, 2010 and 2009, we paid Danerius approximately $302,000 and $193,000, respectively. We terminated the contract with Danerius in November 2010 and Dr. Dunton resigned as a director in January 2011.   We entered into a stock purchase agreement dated September 26, 2011 with Kissei Pharmaceutical Co., Ltd., or Kissei, under which on October 13, 2011 Kissei purchased for $7.5 million an aggregate of 800,000 shares of our common stock and 220,000 shares of our Series B Convertible Preferred Stock. On the same day, we entered into a letter agreement with Kissei pursuant to which we agreed to renegotiate in good faith the existing levels of the milestone payment amounts and royalty rates under our license agreement for MN-221 and agreed upon a new price for clinical supplies of API. On October 13, 2011 we entered into a services agreement with Kissei to perform two separate studies relating to MN-221 in exchange for $2.5 million paid to us in October, 2011. We are responsible for all costs to be incurred in the performance of these studies which are expected to be completed in 2012 and 2013. The amount received from Kissei is recorded on the balance sheet at December 31, 2011 as deferred revenue and will be recognized as revenue as we perform these services. As of December 31, 2011, we have not recorded any revenue in 2011 relating to this agreement. </div>

15000000

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<div> 12. Subsequent Events   Lease Amendment   On March 19, 2012, we entered into a sixth amendment of our lease agreement, the Sixth Lease Amendment, with 4350 La Jolla Village LLC, the Landlord. The Sixth Lease Amendment extends the lease term for nine additional months with respect to 5,089 square feet, from May 31, 2012 to February 28, 2013. The Sixth Lease Amendment provides that we will pay the Landlord a monthly base rent of $12,672 for the premises during the nine month period.   Joint Venture Company Payment   On March 16, 2012, we paid $650,000 for our 30% interest in the joint venture company. </div>

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<div> 5. Balance Sheet Details   Property and Equipment   Property and equipment, net, consist of the following: <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="80%" align="center"> <tr><td width="71%"> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Leasehold improvements</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">172,648</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">498,581</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Furniture and equipment</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">561,332</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">794,498</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Software</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">221,380</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">219,652</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">955,360</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,512,731</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Less accumulated depreciation and amortization</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(925,935</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,447,522</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">29,425</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">65,209</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Depreciation and amortization expense</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">41,869</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">108,257</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>   Accrued Expenses   A substantial portion of our ongoing research and development activities are performed under agreements with external service providers, including clinical research organizations, which conduct many of our research and development activities. A portion of our ongoing general and administrative activities relate to legal, accounting and consulting services. We accrue for costs incurred as the services are being provided by monitoring the status of clinical trials or specific projects or services provided, contractual factors such as milestones or retainer fees and the invoices received from our external service providers. Accrued expenses consist of the following: <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="80%" align="center"> <tr><td width="70%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Research and development costs</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">615,792</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">766,886</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Professional services fees</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">100,823</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">226,362</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> China Joint Venture capital contribution payable</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">650,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Other</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">142,710</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">140,025</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,509,325</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,133,273</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td></tr></table> </div>

43735

39600

1197935

1189705

55445

1382425

-1735212

310250

-785478