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2. Avigen Transaction On December 18, 2009, Absolute Merger, Inc., a wholly-owned subsidiary of ours, merged with and into Avigen, with Avigen continuing as the surviving entity and wholly-owned subsidiary of ours. Under the terms of the merger, we issued $29.4 million in secured convertible notes that matured on June 18, 2011, the 18-month anniversary of the closing of the merger. Holders of these convertible notes could convert their notes into our common stock at an initial conversion price of $6.80 per share through May 31, 2011. At the maturity of the convertible notes, the remaining holders were paid out the same per share amount as the Avigen shareholders that elected to receive cash at the merger closing, plus accrued interest, approximately $1.19 per share. As part of the merger consideration, the former Avigen shareholders received approximately $0.04 per share, which was paid in two increments in 2010, and rights under contingent payment rights, or CPR, issued as part of the merger consideration. The amount paid in the two installments was net of a reconciliation of Avigen expenses and a letter of credit after expiry. In fiscal year 2010, under the first and second installments, 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. In March 2011 we paid $0.02 per share to former Avigen shareholders related to the management transition plan CPR. The rights related to the Genzyme and Parkinson CPRs expired on August 18, 2011 and no payment was made in 2011 related to these CPRs. The primary reasons for the Avigen acquisition were to combine the ibudilast development programs each company was respectively pursuing, to utilize the preclinical and clinical data for AV411 as support for the development pathway of MN-166, resulting in cost savings for us, and to capture a potential financing opportunity given Avigen's cash balance prior to the Merger. See Notes to Consolidated Financial Statements—Note 2, Avigen Transaction, in our 2010 Annual Report on Form 10-K for further information on the Avigen merger.

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10. Commitments and Contingencies Legal Proceedings On March 3, 2011, we received a legal letter from a former employee who had been terminated in January 2011 pursuant to our planned reduction-in-force in which certain allegations were made. 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. We have engaged legal counsel in this matter. Given the inherent uncertainty and unpredictability of litigation, no range of loss or possible loss can be reasonably estimated. However, we do not expect the outcome of this matter to have a material adverse effect on our consolidated financial statements. We may become involved in various disputes and legal proceedings which arise in the ordinary course of business. While it is not possible to accurately predict or determine the outcome of these matters, an adverse result in any of these matters may occur which could harm our business.

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6. Comprehensive Income (Loss) The authoritative guidance for comprehensive income 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 investments, are reported, net of their related tax effect, to arrive at comprehensive income (loss). Our comprehensive loss includes unrealized losses on marketable securities and currency translation. 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="92%" align="center"> <tr><td width="71%"> </td> <td valign="bottom" width="9%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="8%"> </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">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">September 30, 2010</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></tr> <tr><td valign="top"> Currency translation</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">8,510</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"> Ending balance</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(55,700</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(56,404</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> As of September 30, 2011 and 2010, our comprehensive loss was $14,230,819 and $15,187,419, respectively.

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8. Share-Based Payments For the three months ended September 30, 2011 and 2010, share-based compensation expense related to stock options of approximately $483,000 and $435,000, respectively, was recorded as a component of general and administrative expense, and approximately $115,000 and $101,000, respectively, was recorded as research and development expense. For the nine months ended September 30, 2011 and 2010, share-based compensation expense related to stock options of approximately $728,000 and $1,307,000, respectively, was recorded as a component of general and administrative expense, and approximately $203,000 and $295,000, respectively, was recorded as research and development expense. During the three and nine months ended September 30, 2011, stock options to purchase 921 shares of common stock and 32,836 shares of common stock, respectively, were exercised for approximately $2,000 and $76,000, respectively. As of September 30, 2011, there was $3.0 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 3.5 years. During the three and nine months ended September 30, 2011, respectively, options to purchase 1,412,000 shares of common stock and 1,416,000 shares of common stock, were granted. No stock options were granted in the three months ended September 30, 2010. During the nine months ended September 30, 2010, options to purchase 525,000 shares of common stock were granted. The exercise price of all options granted was equal to market value on the date of grant and the share-based compensation expense for such stock options is reflected in operating results for the three and nine months ended September 30, 2011. 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="100%" align="center"> <tr><td width="38%"> </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="2" align="center">Three Months Ended September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Three Months Ended September 30, 2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Nine months Ended September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Nine months Ended September 30, 2010</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Risk-free interest rate</td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">0.38% - 0.71%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">n/a</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">0.38% - 0.94%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">1.37</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" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">77.71% - 79.07%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">n/a</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">76.84% - 79.07%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">76.50</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Dividend yield</td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">0.00%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">n/a</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">0.00%</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" 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" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">4.40   </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">n/a</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">4.40   </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap"> </td> <td valign="bottom" nowrap="nowrap" align="right">4.40</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 outstanding stock options. The expected volatility of our common stock is based on the historical volatility of our stock since listing on the Nasdaq Global Market in December 2006. We have not paid any dividends on our common stock since our inception, and we do not anticipate paying any dividends on our common stock in the foreseeable future. The expected term of employee stock options is based on the simplified method for "plain vanilla options" 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. As share-based compensation expense recognized in the accompanying consolidated statement of operations for the three and nine months ended September 30, 2011 was based on stock option awards ultimately expected to vest, such expense should be reduced for estimated forfeitures. The authoritative guidance for compensation expense requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We have very few employees and our stock options vest monthly; therefore, we did not estimate any forfeitures during 2011, and we will adjust our stock-based compensation expense should any forfeitures occur. The weighted-average fair value of each stock option granted during the three and nine months ended September 30, 2011, estimated as of the grant date using the Black-Scholes option valuation model, was $1.47 and $1.47, respectively, per stock option, whereas the weighted-average fair value of each stock option granted during the nine months ended September 30, 2010, estimated as of the grant date using the Black-Scholes option valuation model, was $4.02 per stock option.

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5. 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 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 stock 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 three and nine months ended September 30, 2011, 3,021,544 and 3,129,420, respectively, and for the three and nine months ended September 30, 2010, 520,627 and 501,492, respectively, of potentially dilutive securities were excluded from determining diluted earnings per share because of their anti-dilutive effect.

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3. Fair Value Measurements—Other Than Intangibles and Goodwill As defined in the authoritative guidance for fair value measurements and disclosures, 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="92%" 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="top">Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date.</td></tr> <tr><td height="8"> </td> <td height="8" colspan="2"> </td></tr> <tr><td valign="top">Level 2:</td> <td valign="bottom">  </td> <td valign="top">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="8"> </td> <td height="8" colspan="2"> </td></tr> <tr><td valign="top">Level 3:</td> <td valign="bottom">  </td> <td valign="top">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> At September 30, 2011, cash and cash equivalents (instruments with maturities of three months or less at the date of purchase) were $8.7 million, which were invested in money market accounts and money market funds. At September 30, 2011, we no longer held any restricted cash. We measure our cash equivalents on a recurring basis and the fair value of these 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. At September 30, 2011, we no longer held any financial instruments measured at fair value on a non-recurring basis.

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9. Income Taxes In accordance with the authoritative guidance for income taxes, a deferred 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 assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. 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 at September 30, 2011 and we have not recorded any uncertain income tax benefits at September 30, 2011.

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4. 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. The stated interest rate on the loan was 12.87 percent. The effective interest rate on the loan was 18.14 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. We also had agreed not to pledge or otherwise encumber our intellectual property assets. Our obligations under the Loan Agreement are guaranteed on a senior secured basis by Avigen. In connection with 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 are immediately separable and were issued separately; thus, we 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. On March 31, 2011, we executed a pay-off letter between us and Oxford, in which we negotiated the repayment of the loan in-full on April 1, 2011 and Oxford agreed to waive the early payment penalty of approximately $437,000. We had 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 another 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. On April 1, 2011, pursuant to a payoff agreement between us and Oxford, we paid Oxford approximately $15.2 million and paid the loan in-full, which resulted in the write-off of approximately $0.5 million, which was recorded in our consolidated statement of operations.

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1. Interim Financial Information 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 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, each of which we believe has a well-characterized and differentiated therapeutic profile, attractive commercial potential and patent assets having claims of commercially adequate scope. On September 27, 2011, we received final approval for the formation of a joint venture company to develop and commercialize MN-221 in China, or China JV, from the Ministry of Commerce of the People's Republic of China. Under the terms of the China JV agreement with Zhejiang Medicine Co., Ltd. and Beijing Make-Friend Medicine Technology Co. Ltd., within 90 days of receiving final approval, we are required to contribute approximately $650,000 in return for a 30 percent equity interest in the China JV. As of September 30, 2011, the China JV has not commenced any operations and there are no significant assets or liabilities. As of September 30, 2011, we have recorded a liability on our consolidated balance sheet which represents our required capital contribution payable to the China JV, and we have also recorded a corresponding asset to reflect our investment. The China JV is considered a variable interest entity; however, we will not have a majority of board seats, we will not have any power to direct or significantly influence the actions of the entity and any loss or income generated by the entity will be absorbed by the parties according to their percentage ownership of the entity. Basis of Presentation We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flow for the interim period presented have been included. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011 or for any other period. For further information, see the financial statements and disclosures thereto for the year ended December 31, 2010 in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 31, 2011. 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 the Company's product candidates 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 (the "Merger") with Avigen, Inc. ("Avigen"). On December 18, 2009, Absolute Merger, Inc. merged with and into Avigen, with Avigen continuing as the surviving entity and wholly-owned subsidiary of ours. All intercompany transactions and investments in our subsidiaries have been eliminated in consolidation. Use of Estimates We prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States, which requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent liabilities. Actual results may differ from these estimates. Concentrations and Uncertainties We maintain cash balances at various financial institutions and such balances commonly exceed the $250,000 insured amount by the Federal Deposit Insurance Corporation. We also maintain money market funds at various financial institutions which are not federally insured. We have not experienced any losses in such accounts and management believes that we are not exposed to any 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. With the receipt of funds from the stock purchase agreement and the clinical development agreement executed in October, 2011 (see Footnote 12, Subsequent Events), we believe our working capital to be sufficient to fund our operations through at least September 30, 2012. If adequate funds are not available, we may be required to delay, reduce the scope of or terminate one or more of our research or product development programs, and/or implement other operating cost reductions, and/or it could result in the termination of license rights related to any of our product candidates, all of which could raise substantial doubt as to our ability to continue as a going concern. As of September 30, 2011, the accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern.

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12. Subsequent Events 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, and (ii) 220,000 shares of our Series B Convertible Preferred Stock, par value $0.01 per share, at a price of $25.00 per share. The Purchase Agreement contained customary representations, warranties and covenants. In October we received gross proceeds of approximately $7.5 million related to this Purchase Agreement. Kissei Clinical Development Agreement On October 13, 2011, we entered into a clinical development agreement, by and between us and Kissei, in which Kissei will pay us a total of $2.5 million for conducting two studies as defined in the agreement. We will be responsible for any and all other costs incurred in relation to the performance of the studies. In October we received the $2.5 million proceeds. MLV ATM On October 13, 2011, we terminated, effective as of October 23, 2011, the ATM between us and MLV. From October 1 through October 23, 2011, no shares of common stock were issued under the ATM.

49239783

1600960

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11. Stockholders' Equity Stock Options We currently grant stock options to our employees, officers, directors and consultants under the 2004 Plan, the successor to the 2000 Plan. No additional stock options have been or will be issued under the 2000 Plan subsequent to our initial public offering. However, the stock options previously granted under the 2000 Plan will remain outstanding until the earlier of expiration or exercise. A summary of the changes in stock options outstanding under the 2000 Plan and 2004 Plan during the nine months ended September 30, 2011 is as follows:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr><td width="74%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </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">Stock Options</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"> Balance at December 31, 2010</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">$</td> <td valign="bottom" align="right">8.38</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Granted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,416,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2.48</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">$</td> <td valign="bottom" align="right">2.32</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Cancelled</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(574,913</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9.43</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"> Balance at September 30, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,089,182</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5.54</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 aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2011 was approximately $5,200.The aggregate intrinsic value of stock options outstanding at September 30, 2011 and exercisable at September 30, 2011 was approximately $2,400. Of the total stock options outstanding as of September 30, 2011, options to purchase 1,475,188 shares of common stock are exercisable, with a weighted average exercise price of $8.18 per share and a weighted average contractual life of 6.2 years. Employee Stock Purchase Plan ("ESPP") The following assumptions were used to value the September 30, 2011 employee stock purchases: a risk-free interest rate of 0.12 percent, expected volatility of 78 percent, expected term of six months and a dividend rate of 0 percent. For the three and nine months ended September 30, 2011, 2,309 and 4,135 shares of common stock, respectively, were issued under the ESPP and 269,992 shares of common stock were available for future issuance. Convertible Notes Prior to the maturity of the convertible notes on June 18, 2011, holders of the convertible notes could submit conversion notices, which were irrevocable, 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, which date generally was the final business day of each calendar month, we would issue the number of whole shares of common stock issuable upon conversion as promptly as practicable (and in any event within 10 business days). The trustee would in turn release to us the respective amount of restricted cash to cover the stock issuance. We would then invest the unrestricted cash into either a money market fund or a money market account. Any fractional shares (after aggregating all convertible notes being converted by a holder on such date) would be rounded down and we would deliver cash for the current market value of the fractional share. For the nine months ended September 30, 2011, approximately $76,000, of convertible notes was converted into 11,246 shares of our common stock. All remaining convertible notes expired on June 18, 2011. Firm Commitment Underwritten Public Offering On March 23, 2011, we announced 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. The warrants are exercisable immediately upon issuance, have a five-year term and an exercise price of $3.56 per share. On March 24, 2011, the underwriter exercised 50,666 units of its 412,500 unit overallotment. 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, we concluded that the warrants were indexed to our stock and do not permit net-cash settlement. Therefore, the warrants were classified as equity instruments and are not being marked to market prospectively as long as they continue to meet the conditions for equity classification. At-The-Market Issuance Sales Agreement On May 5, 2011, we entered into an at-the-market issuance sales agreement, or ATM, with McNicoll, Lewis & Vlak LLC, or MLV, pursuant to which we may 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 ATM, 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. For the three and nine months ended September 30, 2011 we have not issued any shares of common stock under the ATM. On October 13, 2011, we terminated the ATM (see Footnote 12, Subsequent Events) and from October 1 through October 13, 2011, no shares of common stock were issued under the ATM.

7. Balance Sheet Detail Accrued Expenses A substantial portion of our ongoing research and development activities are performed under agreements we enter into 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 rendered, 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="92%" align="center"> <tr><td width="72%"> </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="2" align="center">September 30, 2011</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">December 31, 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">$</td> <td valign="bottom" align="right">708,703</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</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">$</td> <td valign="bottom" align="right">366,311</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">226,362</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> China JV capital contribution payable (See Note 1)</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">0</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Other</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">164,756</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</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">$</td> <td valign="bottom" align="right">1,889,770</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</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> <td> </td></tr></table>

43735

39600

1197935

1189705

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492707