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Article by DailyStocks_admin    (02-17-09 10:15 AM)

Filed with the SEC from Feb 5 to Feb 11:

Molecular Insight Pharmaceuticals (MIPI)
former director David S. Barlow, who resigned from the board in January, wants the company to explore strategic alternatives to maximize shareholder value. Barlow is concerned about the election of John Babich as chief executive and president. Barlow owns 2,735,447 shares (10.9% of the total outstanding).

BUSINESS OVERVIEW

In this annual report on Form 10-K, unless the context indicates otherwise, references to “Molecular Insight,” “the Company,” “our company,” “we,” “us,” and similar references, refer to Molecular Insight Pharmaceuticals, Inc. All references to years in this Form 10-K, unless otherwise noted, refer to our fiscal years, which end on December 31. For example, a reference to “2007” or “fiscal 2007” means the 12-month period that ended December 31, 2007.

Overview

We are a biopharmaceutical company specializing in the emerging field of molecular medicine, applying innovations in the identification and targeting of disease at the molecular level to improve patient healthcare by addressing significant unmet medical needs. We are focused on discovering, developing and commercializing innovative and targeted radiotherapeutics and molecular imaging pharmaceuticals with initial applications in the areas of oncology and cardiology. Radiotherapeutics are radioactive drugs, or radiopharmaceuticals, that are systemically administered and selectively target cancer cells to deliver radiation for therapeutic benefit. This ability to selectively target cancer cells allows therapeutic radiation to be delivered to tumors while minimizing radiation exposure to normal tissues. Another application of molecular imaging pharmaceuticals are radiopharmaceuticals that enable early detection of disease through the visualization of subtle changes in biochemical and biological processes. In 2007, we purchased a specialized 80,000 square foot manufacturing facility in Denton, Texas for the purpose of manufacturing commercial grade finished product.

We currently have one clinical-stage molecular imaging pharmaceutical product candidate, Zemiva, and two clinical-stage radiotherapeutic product candidates, Azedra, which has Orphan Drug status and a Fast Track designation by the U.S. Food and Drug Administration, or FDA, and Onalta, which has Orphan Drug status. We are developing additional product candidates which utilize our proprietary technologies in radiopharmaceuticals area, including our Ultratrace technology and Single Amino Acid Chelate, or SAAC, technology. Using our proprietary technologies, we have identified potential candidates that may be useful in the detection or treatment of prostate cancer, heart failure and neurodegenerative disease, which is a disease characterized by the gradual and progressive loss of nerve cells. Additionally, several other indications relating to the future development for Zemiva have been identified, such as detection of diabetes, chronic kidney disease and heart failure.

We have had no revenue from product sales and have funded our operations through the public and private placement of equity securities, debt financings and government grant funding. We have never been profitable and have incurred an accumulated deficit of $145.2 million from inception through December 31, 2007.

We expect to incur significant operating losses for the next several years. Research and development expenses relating to our clinical and pre-clinical product candidates will continue to increase. In particular, we expect to incur increased development costs in connection with our ongoing development efforts and clinical trials for Zemiva, Azedra, Onalta, Solazed and Trofex. We expect general and administrative expense to increase as we prepare for the commercialization of our product candidates, and as we begin to develop our corporate administration to fulfill its responsibilities as a public company.

Recent Financing Transactions

Common Stock Initial Public Offering

On February 7, 2007, the Company completed an initial public offering of 5,000,000 shares of its common stock at a public offering price of $14.00 per share. Net proceeds to the Company were approximately $62.6 million after deducting underwriting discounts and commissions and estimated offering expenses totaling approximately $7.4 million. The proceeds were primarily used to fund R&D programs, which were $40.5 million in 2007. R&D program spending and clinical trials for Zemiva, Azedra and Onalta constituted $24.2 million. Funds were also used for research and development activities for our pre-clinical new product candidates, debt repayment as debt becomes due, and general corporate purposes, including capital expenditures and working capital. To date, we have used a portion of the net proceeds of the initial public offering consistent with our previously disclosed intentions.

Sale of Bonds and Warrants

On November 9, 2007, the Company entered in a purchase agreement (the “Purchase Agreement”) pursuant to which the Company agreed to sell $150,000,000 in senior secured floating rate bonds due 2012 (the “Bonds”) and warrants to purchase 6,021,247 shares of our common stock at $5.87 per share (the “Warrants”), for the aggregate consideration of $150,000,000. Net proceeds to the Company, after expenses, were approximately $143.0 million. We intend to use the proceeds to fund research and development activities for our product candidates and general corporate purposes, including capital expenditures and working capital.

The closing of the sale of the Bonds and Warrants occurred on November 16, 2007. The Bonds and Warrants were offered and sold only to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States under Regulation S under the Securities Act. The Bonds and Warrants have not been registered under the Securities Act.

The Bonds are governed by an Indenture (the “Indenture”), dated as of November 16, 2007, between the Company and The Bank of New York Trust Company, N.A. as trustee and collateral agent.

The Bonds have a five-year maturity date and bear a coupon interest rate equivalent to the three month London Inter-Bank Offer Rate (“LIBOR”), plus eight percent, determined on a quarterly basis, beginning on November 16, 2007. The initial quarterly total interest rate was 12.8775%. The present quarterly rate for the quarter beginning February 1, 2008 is 11.239% . The Bonds are redeemable by the Company, at its option and with a premium, beginning November 16, 2007. Upon certain events of default, there are mandatory redemption provisions which could accelerate the maturity of the Bonds, subject to certain cure periods and other conditions.

The Warrants have an exercise price of $5.87, which was the bid price of the Company’s common stock as of the close of trading on November 8, 2007. The Warrants may be exercised at anytime through five years from the date of issuance.

In connection with the sale of the Bonds and the Warrants, the Company, entered into an Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”), dated as of November 16, 2007, with the initial purchasers of the Bonds and Warrants and certain former holders of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock of the Company, and certain former holders of convertible promissory notes in the Company. Under the Registration Rights Agreement, the Company provides such parties with certain demand registration rights, S-3 registration rights and piggy-back registration rights.

In connection with the sale of the Bonds and the Warrants, the Company also entered into a Pledge and Security Agreement (the “Pledge and Security Agreement”) with The Bank of New York Trust Company, N.A. as collateral agent (the “Collateral Agent”) dated as of November 16, 2007. Pursuant to the Pledge and Security Agreement, the Company and its subsidiaries that are a party to such agreement pledged their rights to the Company’s and subsidiaries’ assets and property to the Collateral Agent as security for the obligations of the Company under the above described financing.

The preceding summary of the Sale of Bonds and Warrants, and the Risk Factors relating to our Bonds and Warrants, are all qualified in their entirety by the terms of the various agreements related to the Bonds and Warrants that have been filed pursuant to the SEC rules.

Our Molecular Radiotherapeutic Oncology Product Candidates: Azedra and Onalta for Neuroendocrine Tumors

Our radiotherapeutic product candidates, Azedra and Onalta, are being developed as treatments for various neuroendocrine tumors. Azedra is designated as a Fast Track drug by the US Food and Drug Administration, or FDA. Both product candidates are designated as Orphan Drugs by the FDA and are being developed to serve a patient population where currently there are no approved therapies for reducing tumor size. Orphan Drug status is designed to facilitate the development of new therapies for rare diseases or conditions, those which generally affect fewer than 200,000 individuals in the United States. Additional criteria include the ability of a product to address a medical need where there are no other treatment options or to provide a significant benefit over other therapies.

The initial target market for Azedra is for the treatment of metastatic neuroendocrine tumors, such as pheochromocytoma, carcinoid and neuroblastoma, which are not amenable to treatment with surgery or conventional chemotherapy. Metastatic tumors are tumors that have spread to other organs or parts of the body. We intend to develop Azedra for the treatment of pheochromocytoma and carcinoid in adults and for neuroblastoma in children.

The initial target market for Onalta is for the treatment of metastatic carcinoid and pancreatic neuroendocrine tumors in patients whose symptoms are not controlled by somatostatin analog therapy. Somatostatin is a hormone distributed throughout the body that acts as a regulator of endocrine and nervous system function by inhibiting the secretion of several other hormones such as growth hormones, insulin and gastrin. Somatostatin analog therapy (or octreotide or sandostatin) is used to alleviate the symptoms associated with carcinoid syndrome, however, patients become refractory to the treatment after an average duration of effect of six months. Once refractory, there currently are no approved treatment options available to alleviate carcinoid syndrome symptoms.

Azedra

Azedra is one of our two lead molecular radiotherapeutic product candidates under development for the treatment of cancer. Formerly known as Ultratrace MIBG, or I-131-metaiodobenzylguani dine, Azedra consists of the MIBG molecule chemically bound to a radioactive iodine isotope through our proprietary Ultratrace technology. The iodine isotope, depending on the particular isotope selected, acts either diagnostically for imaging disease or therapeutically to deliver targeted radiation to the tumor site. Azedra incorporates an iodine isotope, targets specific tumor cells and does not contain unwanted carrier molecules, or cold contaminants.

Azedra Mechanism of Action

MIBG is a synthetic hormone analog of the biogenic amine norepinephrine, which was first described by researchers at the University of Michigan. Norepinephrine is a chemical made by nerve cells that is released from the adrenal gland in response to stress and low blood pressure. The mechanism by which MIBG molecules accumulate in tumors is very selective and controlled by the protein called the norepinephrine transporter, which is expressed on the cell surface. A norepinephrine transporter, or NET, enables the direct movement of norepinephrine into, out of, within or between cells. Like the hormone norepinephrine, MIBG is concentrated by NET and stored within specific types of neuronal tissue and tumor cells. The uptake and prolonged retention of MIBG within tumor cells potentially constitutes a superior molecular targeting mechanism. However, the number of MIBG molecules taken up by a tumor cell is limited. To maximize the accumulation of radioactive MIBG molecules in tumors so that they can be optimally treated by radiotherapy, the amount of non-radioactive MIBG molecules present in the drug must be minimized. By doing so we also minimize potential chemical toxicity associated with administration of MIBG containing cold contaminants. Our proprietary Ultratrace technology reduces the amount of cold contaminants by several orders of magnitude and thereby enhances accumulation of MIBG in the tumor.

Azedra Clinical Development Plan

We are conducting initial clinical trials with Azedra in adults with either pheochromocytoma or carcinoid, and depending on the trial results and with input from the FDA, we plan to then move into clinical trials with children with neuroblastoma. We have completed a Phase 1 dosimetry trial designed to evaluate the safety, tolerability and distribution of Azedra in adult patients with either carcinoid or pheochromocytoma. Data from this Phase 1 trial were used to calculate the radiation dose of Azedra for subsequent clinical trials and were presented at the European Association of Nuclear Medicine 2007 Annual Congress in October, 2007. We are currently conducting a Phase 1/2 safety, dose ranging and efficacy clinical trial with Azedra in adults. The dose-ranging stage of the trial, designed to determine the maximum tolerated dose of Azedra, is being conducted at four U.S. centers, with data from 15 of anticipated 15 to 18 patients received.

We are in discussions with the FDA on the planned pivotal Phase 2 clinical trial protocol, designed to determine safety and efficacy of Azedra as a monotherapy. We expect to begin a clinical trial with Azedra in adults at centers in the United States, Canada and western Europe.

Onalta

Onalta is our other lead radiotherapeutic product candidate under development for the treatment of cancer. We are developing Onalta for the radiotherapeutic treatment of metastatic carcinoid and pancreatic neuroendocrine tumors in patients whose symptoms are not controlled by conventional somatostatin analog therapy. Formerly known as OctreoTher, Onalta is our brand name for edotreotide, an yttrium-90 radiolabeled somatostatin peptide analog that we in-licensed from Novartis Pharma AG, or Novartis. Onalta is a radiolabeled somastatin analog that binds to somastatin receptors found on neuroendocrine tumor cells such as carcinoid and neuroendocrine pancreatic tumors.

Onalta Mechanism of Action

Onalta attaches to tumor cells that have receptors for the peptide hormone somatostatin. These receptors become overexpressed in cancers such as carcinoid and other select neuroendocrine tumors. The octreotide portion of the Onalta molecule binds specifically to somatostatin receptors and serves as a carrier for targeted delivery of the therapeutic radioisotope yttrium-90 to the tumor.

Onalta Clinical Development Plan

We acquired Onalta from Novartis which conducted three Phase 1 and three Phase 2 clinical trials involving more than 300 patients. We will build upon the extensive experience Novartis has had with the drug in order to inform protocol design. We plan to pursue an indication for Onalta for the treatment of somatostatin positive pancreatic neuroendocrine and carcinoid tumors, whose symptoms are not controlled by conventional somatostatin analog therapy.

Our Lead Molecular Imaging Pharmaceutical Product Candidate: Zemiva

Zemiva is our lead molecular imaging pharmaceutical product candidate under development for the diagnosis of cardiac ischemia, or insufficient blood flow to the heart. Zemiva is our brand name for I-123-BMIPP or iodofiltic acid I-123, which has been commercially available in Japan and used in the non-acute setting under the name Cardiodine for over ten years. Cardiodine has been the subject of over 200 peer-review articles and we understand it has been used in over 500,000 patients. The initial target market for Zemiva is for the diagnosis of cardiac ischemia in the emergency department setting. A second target market for Zemiva is for the diagnosis of coronary disease in the non-acute setting.

Zemiva Mechanism of Action

Zemiva is a fatty acid analog that is trapped in healthy heart cells that have appropriate blood supply. In contrast, retention of Zemiva is reduced in ischemic heart cells. Because of its high uptake and long retention in healthy heart cells, Zemiva provides high quality images of the heart. Uptake of Zemiva in the heart most likely reflects normal fatty acid metabolism. In the setting of cardiac ischemia, reduction in fatty acid metabolism is mirrored by decreased cardiac uptake of Zemiva.

Zemiva Completed Clinical Trials and Prior Clinical Experience

We have completed five clinical trials, including one prospective, quantitative study of Phase 2b trial data utilizing a Normals reference database, one Phase 2 Normals database trial to establish a reference library of normal cardiac images, two multi-center Phase 2 clinical trials and one Phase 1 clinical trial at Massachusetts General Hospital. Data from these trials have been presented at leading scientific forums, including the American Society of Nuclear Cardiology and the American Heart Association annual scientific meetings. Results from our Phase 2 trial were published in the peer-reviewed journal Circulation. Phase 2 clinical trials are a stage of drug development for an experimental drug designed to evaluate the drug’s potential efficacy and appropriate dose.

The data from completed trials and the use of I-123-BMIPP in Japan support our decision to advance Zemiva into pivotal registration trials. In March, 2007 we initiated a planned pivotal Phase 2 clinical trial for Zemiva for the diagnosis of cardiac ischemia in patients with suspected ACS in the emergency department setting. This Phase 2 trial is expected to enroll 600 to 700 patients at up to 70 sites in the United States and Canada. We expect that upon successful completion of this trial, and with input from the FDA, that we will then initiate a confirmatory Phase 3 trial for Zemiva.

Our Other Pipeline Product Candidates

In addition to Azedra, Onalta and Zemiva, we are developing a portfolio of product candidates for oncological molecular imaging and targeted radiotherapy as well as cardiovascular molecular imaging using our proprietary technologies. Applied independently and in combination, these technologies enable the development of innovative and targeted molecular radiotherapeutics and molecular imaging pharmaceuticals that use both small molecules and peptides.

Solazed

Solazed is a targeted radiotherapeutic that we intend to develop for the treatment of malignant metastatic melanoma, the most serious type of skin cancer. We in-licensed the compound from Bayer Schering Pharma Aktiengesellschaft, or Schering. Solazed is a small molecule compound that targets melanin, a naturally occurring pigment responsible for the color of the skin and the dark color of the melanoma tumor.

Trofex

We are developing a non-invasive method for visualization of prostate cancer through molecular imaging. We are engaged in preclinical studies of a molecular imaging pharmaceutical, Trofex, for detection of prostate-specific membrane antigen, or PSMA, expression which would enable the detection and monitoring of prostate cancer, with the intention to be able to detect subtle manifestation of metastatic disease in men with elevated serum prostate specific antigen, or PSA, but no other obvious symptoms. Metastatic disease is a disease that can result in the transmission of cancerous cells from an original site to one or more sites elsewhere in the body. We currently have identified a series of compounds that bind PSMA and localize in human prostate tumors. Preclinical data on two lead Trofex candidates were presented in November, 2007 at the AACR-NCI-EORTC “Molecular Targets and Cancer Therapeutics meeting. We plan to conduct exploratory clinical trials with both compounds in humans to select a candidate for further clinical development.

MIP-190

We are developing a non-invasive way to assess the progression of heart failure through the monitoring of angiotensin converting enzyme, or ACE, in human hearts. In conjunction with scientists at the University of Maryland Medical Center, we have engaged in NIH-sponsored development of cardiovascular compounds to target ACE as a marker for the assessment of heart failure patients. Such compounds would be novel in that they would enable the evaluation of ACE in human hearts with chronic ischemia and heart failure using external imaging. The level of ACE has been shown to increase in the heart muscle as heart failure progresses. A means of non-invasively monitoring ACE levels may allow doctors to better manage heart failure to slow down clinical progression. We have identified a lead compound that is radiolabeled using our SAAC technology, which displays strong binding to ACE both in isolated enzymes and in animal studies.

MIP-170D

We are developing a potential aid in the objective diagnosis of Parkinson’s disease and Attention Deficit Hyperactivity Disorder, or ADHD. Our neurology preclinical discovery program, MIP-170D, represents a class of compounds that bind to specific molecular targets in the brain. As molecular imaging pharmaceuticals, these compounds have the potential of aiding doctors in the diagnosis of disorders such as Parkinson’s disease and ADHD. Our next steps will be to select the lead compound to carry into preclinical development for human use.

Our Proprietary Technology Platforms

We have developed platform technologies that allow radiochemistry to be integrated into the medicinal chemistry stage of discovery. As such, compounds can be made which allow the screening of compounds which are chemically equivalent to the ultimately radiolabeled compound. This integration allows both the rapid synthesis and screening of large numbers of compounds, and ensures the radiolabeling platform can be used for manufacturing.

Our core proprietary technologies include our Ultratrace technology and SAAC technology. These technologies drive development of our current portfolio and should enable the research and development of future molecular imaging pharmaceuticals and targeted radiotherapeutic candidates. Our core proprietary technologies, applied independently and together, include:


• Ultratrace Technology. Our Ultratrace technology is a proprietary solid-phase radiolabeling technology that enables the development of ultrapure radiopharmaceuticals which are devoid of unnecessary cold contaminants, thereby enhancing safety, specificity and potency. Cold contaminants are nonradioactive, or unlabeled targeting molecules, which may potentially induce unnecessary side effects and suboptimize efficacy by competing with radiolabeled targeting molecules for binding to limited numbers of receptor target sites.

• SAAC Technology. The ability to reliably and robustly incorporate medically useful radioactive metals into biologically relevant targeting molecules is critical to the design of successful radiopharmaceuticals for molecular imaging and targeted radiotherapy. Single Amino Acid Chelate, or SAAC, is our unique metal binding chemistry platform technology. It represents a new family of compounds with superior metal binding properties for leading radionuclides used for imaging and therapy, namely technetium-99m and rhenium-186 and rhenium-188. This technology incorporates a metal binding, or chelating, group that can rapidly and efficiently bind to technetium or rhenium for diagnostic and therapeutic uses with an amino acid portion that allows it to be incorporated into any peptide sequence through the use of conventional peptide chemistry.


• SAACQ Technology. Two widely employed techniques for visualizing specific biological processes are fluorescence microscopy and radioisotope imaging. Different from current technologies, our new fluorescence-based technology called SAACQ enables the visualization of radiopharmaceuticals interacting with cellular structures. This advance promises to accelerate the development of targeted radiotherapeutics and molecular imaging pharmaceuticals by allowing live cell activity to be viewed by fluorescent microscopy.

• Nanotrace Discovery. Our Nanotrace Discovery targeting platform technology allows for the rapid creation and screening of new leads for molecular targeting of disease. We believe that we can utilize this technology to create libraries of radiolabeled compounds in a relatively short period of time. Nanotrace Discovery appears to be applicable to major disease categories such as cardiovascular disease, oncology and neurology.

Sales, Marketing and Manufacturing

We intend to market Azedra, Onalta and Zemiva through our own specialty sales and marketing team. Considering the concentrated nature of our initial target markets, we believe that approximately 5 to 10 highly specialized sales representatives will be sufficient to support the market for Azedra and Onalta in the first year. We believe that a dedicated sales force of approximately 50 to 100 individuals upon commercial launch of Zemiva will be sufficient to support the market for Zemiva in the first year. To support medical education efforts for the product, we plan to hire a group of five to 10 medical liaisons with emergency department or nuclear medicine expertise to provide technical training and education.

Our initial marketing focus for Azedra and Onalta will be on large cancer centers specializing in the diagnosis and treatment of neuroendocrine tumors with an established capability for targeted radiotherapy delivery. There are approximately 25 such centers in the United States. Our initial marketing focus for Zemiva will be on large hospitals with over 200 beds that have nuclear medicine capabilities available 24 hours a day. There are approximately 1,800 hospitals in the United States with emergency departments and over 200 beds. Of these, 80% have nuclear medicine capabilities available 24 hours a day. Thus, our target hospital focus will be on approximately 1,400 hospitals that tend to be clustered in concentrated areas of large populations. Approximately 76% of emergency department visits occur at hospitals with over 200 beds.

We currently manufacture imaging doses of Azedra in our laboratories and therapeutic doses for our existing clinical trials at a manufacturing facility owned by MDS Nordion located in Ottawa, Canada.

Zemiva is currently manufactured for our preclinical and clinical trials at a manufacturing facility owned by MDS Nordion located in Vancouver, Canada. We believe that the MDS Nordion facility is sufficient to produce Zemiva required for use through our clinical trials. We do not, however, have any experience in commercial-scale manufacturing. Therefore, if we receive FDA approval of Zemiva, we may need to rely on contractual relationships with third-party manufacturers for commercial scale production. We anticipate that the manufacture of the other products in our development pipeline will be outsourced to experienced cGMP-compliant medical manufacturing companies.

In October 2007, we purchased a domestic radiopharmaceutical manufacturing facility which we intend to utilize for the manufacture of our molecular imaging and targeted radiotherapeutic product candidates in tandem with external sources for our commercial production needs.

Competition

We will compete for market share against large pharmaceutical and biotechnology companies, smaller companies that are collaborating with larger pharmaceutical companies, new companies, academic institutions, government agencies and other public and private research organizations. Many of these competitors, either alone or together with their partners, may develop new product candidates that will compete with ours, and these competitors may, and in certain cases do, operate larger research and development programs or have substantially greater financial resources than we do.

If Azedra or Onalta are approved, their competition will be the current standard of care and companies that are engaged in the development and commercialization of targeted radiotherapeutics for treatment of cancer.

If Zemiva is approved, its competition in the emergency department setting will be the current standard of care in the assessment of chest pain patients who present to emergency departments. This standard involves several diagnostic products and procedures, in some cases involving the use of perfusion imaging agents, which in the aggregate may require several hours or days of hospitalization to reach an ultimate diagnosis.

Patents and Proprietary Rights

Our success depends in part on our ability to obtain and maintain a competitive position in the marketplace. This includes obtaining proprietary protection for our product candidates, technology, and know-how; preventing others from infringing our proprietary rights; and operating without infringing the proprietary rights of others. Our strategy is to seek to protect our proprietary position by, among other methods, applying for and obtaining U.S. and foreign patents relating to our proprietary technologies, inventions, and improvements that are important to our business. This includes obtaining patent term extensions or restorations when possible. In addition, we rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary positions. Furthermore, we intend to build brand identity in our company, our technologies and our product candidates, and for this purpose have applied for certain trademarks, as described below.

As of December 31, 2007, we had twelve (12) issued U.S. Patents, twenty (20) U.S. Pending Patent Applications, seventeen (17) Granted Foreign Patents, forty-seven (47) Pending Foreign Patent Applications, that have been nationalized in various countries. Additionally, we have obtained licenses from third parties for the patent rights to U.S. and foreign patents and patent applications to make, use, sell and import certain proprietary technologies and compounds. Patent rights for in-licensed technologies are not included in the above totals. While we believe our patents and patent applications may be important for certain aspects of our business, such as those related to specific product candidates such as BMIPP derivatives whose patents and applications expire between 2016 and 2023, we also believe that our success also depends upon innovation, technical expertise, and responsiveness to the medical needs of an aging patient population. While our patented technology may delay or deter a competitor in offering a competing product, we believe our technical capability should also allow us to obtain limited market exclusivity in the United States under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, and abroad through similar legislation.

The original patent protecting the composition of BMIPP expired in 2003. However, we believe that Zemiva, or I-123-BMIPP, is a new chemical entity in the United States and Europe and, therefore, should be eligible for market exclusivity under the FDCA as amended by the Hatch-Waxman Act. We are also pursuing three additional patent families (in the United States and internationally) to provide up to 18 years of new patent-based exclusivity for certain aspects of BMIPP and BMIPP-derivative compositions and their uses, with the patent and patent applications expiring generally in 2023.

The Hatch-Waxman Act provides a five-year period of non-patent marketing exclusivity to the first applicant to gain approval of a New Drug Application, or NDA, for a new chemical entity. A drug can be classified as a new chemical entity if the FDA has not previously approved any other new drug containing the same active agent. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug, where the applicant does not own or have a legal right of reference to all the data required for approval. Protection under the Hatch-Waxman Act will not prevent the filing or approval of another full NDA, but the applicant would be required to conduct its own adequate and well-controlled clinical trials to demonstrate safety and effectiveness. The Hatch-Waxman Act also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplements to existing NDAs if new clinical investigations are essential to the approval of the applications, for example, for new indications, dosages, or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent.

The Hatch-Waxman Act also permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years. The patent term restoration period is generally one-half the time between the effective date of an investigational new drug exemption, or IND, and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and it must be applied for prior to expiration of the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may consider applying for restorations of patent term for some of our currently owned or licensed patents to add patent life beyond the current expiration date, depending on the expected length of clinical trials and other factors involved in the filing of the relevant NDA.

The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know with certainty whether any of our patent applications or those patent applications that we license will result in the issuance of any new patents. Our issued patents and those that may issue in the future, or those licensed to us, may be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing related products, or could affect the length of term of patent protection that we may have for our products. In addition, the rights granted under any issued patents may not provide us with sufficient proprietary protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies or duplicate any technology developed by us and, to the extent they seek to protect these technologies through patents and such technologies are determined to contain valid and enforceable claims, they could achieve a legal determination that our products or technologies are infringing these third-party patents. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that before any of our products can be commercialized, any related patent may expire, or that such patent may remain in force for only a short period following commercialization of a product candidate, thereby reducing any advantage of the patent with respect to that product candidate. While patent term restoration is available under the Hatch-Waxman Act and similar laws, we cannot predict whether such patent term restoration will be granted to us as to any particular patent covering such product candidate.

We rely in some circumstances on trade secrets to protect our technology, particularly with respect to certain aspects of our Zemiva manufacturing process. Trade secrets, however, can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors, contract manufacturers and other entities with whom we do business. However, these agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the proprietary rights or resulting know-how generated in related inventions.

We currently use Molecular Insight tm , and the Molecular Insight Pharmaceuticals tm (logo) as trademarks in the United States and other countries. We have sought trademark registration for the Molecular Insight Pharmaceuticals tm logo, Azedra tm , Ultratrace tm , Nanotrace tm , Zemiva tm , SAAC tm , SAACQ tm , Onalta tm , Solazed tm , and Trofex tm , in the United States and in countries outside the United States. We have sought trademark registration for Molecular Insight tm , Rintara tm , Unectra tm , and Velepin tm in the United States. We cannot guarantee any of these marks will be approved in the United States or in foreign jurisdictions. However, we have secured registration for AZEDRA ® (Japan), MOLECULAR INSIGHT ® (USA), MOLECULAR INSIGHT PHARMACEUTICALS ® (logo; European Union), SAACQ ® (European Union) and ZEMIVA ® (European Union). In addition, we have obtained rights to the following Internet domain names: www.molecularinsight.com, www.zemiva.com, www.zemiva.org,

CEO BACKGROUND

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the director nominees to be elected at the Annual Meeting, and each other director and executive officer of the Company, their ages, and the positions currently held by each such person with the Company as of April 1, 2008.


Name

Age

Position

David S. Barlow
51 Chairman of the Board of Directors, Chief Executive Officer
John W. Babich, Ph.D.
51 President and Chief Scientific Officer
John E. McCray
57 Chief Operating Officer
Norman LaFrance, M.D., FACP, FACNP
60 Senior Vice President, Clinical Development and Chief Medical Officer
Donald E. Wallroth
59 Chief Financial Officer
John A. Barrett, Ph.D.
54 Vice President of Research
Joshua Hamermesh
35 Vice President of Commercial and Business Development
Priscilla Harlan
55 Vice President, Corporate Communications and Investor Relations
James F. Kronauge, Ph.D.
52 Vice President of Process Development
James Wachholz
54 Vice President, Regulatory Affairs and Quality Assurance
David M. Stack
56 Director
Harry Stylli, Ph.D.
46 Director
Daniel Frank(1)
51 Director
Lionel Sterling(1)
70 Director
Scott Gottlieb, MD(1)
35 Director




MANAGEMENT DISCUSSION FROM LATEST 10K

When you read this section of this Form 10-K, it is important that you also read the financial statements and related notes included elsewhere in this Form 10-K. This section of this annual report contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward- looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the factors described below and in the “Risk Factors” section of this Form 10-K.

Overview

We are a biopharmaceutical company specializing in the emerging field of molecular medicine, applying innovations in the identification and targeting of disease at the molecular level to improve patient healthcare by addressing significant unmet medical needs. We are focused on discovering, developing and commercializing innovative and targeted radiotherapeutics and molecular imaging pharmaceuticals with initial applications in the areas of oncology and cardiology. Radiotherapeutics are radioactive drugs, or radiopharmaceuticals, that are systemically administered and selectively target cancer cells to deliver radiation for therapeutic benefit. This ability to selectively target cancer cells allows therapeutic radiation to be delivered to tumors while minimizing radiation exposure to normal tissues. Another application of molecular imaging pharmaceuticals are radiopharmaceuticals that enable early detection of disease through the visualization of subtle changes in biochemical and biological processes.

We currently have one clinical-stage molecular imaging pharmaceutical product candidate, Zemiva, and two clinical-stage radiotherapeutic product candidates, Azedra, which has Orphan Drug status and a Fast Track designation by the U.S. Food and Drug Administration, or FDA, and Onalta, which has Orphan Drug status. We are developing additional product candidates which utilize our proprietary technologies in radiopharmaceuticals area, including our Ultratrace technology and Single Amino Acid Chelate, or SAAC, technology. Using our proprietary technologies, we have identified potential candidates that may be useful in the detection or treatment of prostate cancer, heart failure and neurodegenerative disease, which is a disease characterized by the gradual and progressive loss of nerve cells. Additionally, several other indications relating to the future development for Zemiva have been identified, such as detection of diabetes, chronic kidney disease and heart failure.

We have had no revenue from product sales and have funded our operations through the public offering and private placement of equity securities, debt financings and government grant funding. We have never been profitable and have incurred an accumulated deficit of $145.2 million from inception through December 31, 2007.

We expect to incur significant operating losses for the next several years. Research and development expenses relating to our clinical and pre-clinical product candidates will continue to increase. In particular, we expect to incur increased development costs in connection with our ongoing development efforts and clinical trials for Zemiva, Azedra, Onalta, Solazed and Trofex. We expect general and administrative expense to increase as we prepare for the commercialization of our product candidates, and as we begin to develop our corporate administration to fulfill its responsibilities as a public company.

Recent Financing Transactions

Common Stock Initial Public Offering

On February 7, 2007, the Company completed an initial public offering of 5,000,000 shares of its common stock at a public offering price of $14.00 per share. Net proceeds to the Company were approximately $62.6 million after deducting underwriting discounts and commissions and estimated offering expenses totaling approximately $7.4 million. We intend to use our cash to fund Zemiva and Azedra clinical trials and research and development activities for our pre-clinical new product candidates, debt repayment as debt becomes due, and general corporate purposes, including capital expenditures and working capital. To date, we have used a portion of the net proceeds of the initial public offering consistent with our intent discussed immediately above.

Sale of Bonds and Warrants

On November 9, 2007, the Company entered in a purchase agreement (the “Purchase Agreement”) pursuant to which the Company agreed to sell $150,000,000 in senior secured floating rate bonds due 2012 (the “Bonds”) and warrants to purchase 6,021,247 shares of our common stock at $5.87 per share (the “Warrants”), for the aggregate consideration of $150,000,000. Net proceeds to the Company, after expenses, were approximately $143.0 million. We intend to use the proceeds to fund research and development activities for our product candidates and general corporate purposes, including capital expenditures and working capital.

The closing of the sale of the Bonds and Warrants occurred on November 16, 2007. The Bonds and Warrants were offered and sold only to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States under Regulation S under the Securities Act. The Bonds and Warrants have not been registered under the Securities Act.

The Bonds are governed by an Indenture (the “Indenture”), dated as of November 16, 2007, between the Company and The Bank of New York Trust Company, N.A. as trustee and collateral agent.

The Bonds have a five-year maturity date and bear a coupon interest rate equivalent to the three month London Inter-Bank Offer Rate (“LIBOR”), plus eight percent, determined on a quarterly basis, beginning on November 16, 2007. The initial quarterly total interest rate was 12.8775%. The quarterly rate is 11.239% for the quarter beginning February 1, 2008. The Bonds are redeemable by the Company, at its option and with a premium, beginning November 16, 2007. Upon certain events of default, there are mandatory redemption provisions which could accelerate the maturity of the Bonds, subject to certain cure periods, and other conditions.

The Warrants have an exercise price of $5.87, which was the bid price of the Company’s common stock as of the close of trading on November 8, 2007. The Warrants may be exercised at anytime through five years from the date of issuance.

In connection with the sale of the Bonds and the Warrants, the Company entered into an Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”), dated as of November 16, 2007, with the initial purchasers of the Bonds and Warrants and certain former holders of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock of the Company, and certain former holders of convertible promissory notes in the Company. Under the Registration Rights Agreement, the Company provides such parties with certain demand registration rights, S-3 registration rights and piggy-back registration rights.

In connection with the sale of the Bonds and the Warrants, the Company also entered into a Pledge and Security Agreement (the “Pledge and Security Agreement”) with The Bank of New York Trust Company, N.A. as collateral agent (the “Collateral Agent”) dated as of November 16, 2007. Pursuant to the Pledge and Security Agreement, the Company and its subsidiaries that are a party to such agreement pledged their rights to substantially all of the assets of the Company to the Collateral Agent as security for the obligations of the Company under the above described financing.

The preceding summary of the sale of Bonds and Warrants and the Risk Factors relating to our Bonds and Warrants, are all qualified in their entirety by the terms of the various agreements related to the Bonds and Warrants.

Financial Operations Overview

Revenue — Research and Development Grants. Our revenue to date has been derived from National Institutes of Health, or NIH, grants. We have not had any product sales and do not expect product sales in the near future. In the future, we expect our revenue to consist of product sales and payments from collaborative or strategic relationships, as well as from additional grants. Funding of government grants is subject to government appropriation and all of our government contracts contain provisions which make them terminable at the convenience of the government. The government could terminate, reduce or delay the funding under any of our grants at any time. Accordingly, there is no assurance that we will receive funding of any grants that we may be awarded, including the approximately $384,281 remaining portion of grants that we had been awarded as of December 31, 2007. In the event we are not successful in obtaining any new government grants or extensions to existing grants, our research and development efforts could be adversely affected.

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

We in-licensed Onalta and Solazed in November 2006 and January 2007, respectively. R&D development activities began on these two products in 2007.

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


• the number of clinical sites included in the trial;

• the length of time required to enroll suitable subjects;

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

• the efficacy and safety results of our clinical trials and the number of additional required clinical trials.

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

Beyond our three lead drug candidates, we anticipate that we will select drug candidates and research projects for further development on an ongoing basis in response to the preclinical and clinical success, as well as the commercial potential of such drug candidates.

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

Stock-Based Compensation Expense. Operating expenses include stock-based compensation expense. Stock-based compensation expense results from the issuance of stock-based awards, such as options and restricted stock to employees, members of our Board of Directors and consultants in lieu of cash consideration for services received. On January 1, 2006 we adopted SFAS No. 123(R) to account for stock-based awards. We use the fair value method of accounting for all other awards. Compensation expense for options and restricted stock granted to employees and nonemployees is classified either as research and development expense or general and administrative expense based on the job function of the individual receiving the grant. These costs of $2.2 million and $1.9 million are included in the Statements of Operations for the years ended December 31, 2007 and December 31, 2006, respectively. See discussion under “Critical Accounting Policies and Estimates — Stock-Based Compensation.”

Other (Expense) Income, Net. Other (expense) income, net includes interest income and interest expense. Interest income consists of interest earned on our cash, cash equivalents and short-term investments. Interest expense consists of interest incurred on equipment leases and on debt instruments.

Redeemable Convertible Preferred Stock Dividends and Accretion of Issuance Costs. Redeemable convertible preferred stock dividends and accretion of issuance costs consists of cumulative, undeclared dividends payable on the securities and accretion of the issuance costs and costs allocated to issued warrants to purchase common stock. The issuance costs on these shares and warrants were recorded as a reduction to the carrying value of the redeemable convertible preferred stock when issued, and are accreted to redeemable convertible preferred stock using the interest method through the earliest redemption dates of each series of redeemable convertible preferred stock (A, B and C) by a charge to additional paid-in capital and net loss attributable to common stockholders. Upon the consummation of the initial public offering of the Company on February 1, 2007, the redeemable convertible preferred stock automatically converted into common stock on a 33-for-1 basis and the cumulative but unpaid dividends (with limited exception) converted into common stock based upon formulas established at each issuance date of the securities. Accordingly, we no longer record dividends and accretion on the redeemable convertible preferred stock.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and disclosures of contingent obligations. On an on-going basis, we evaluate our estimates and judgments, including those related to accrued expenses, fair valuation of stock and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Accrued Expenses. As part of the process of preparing consolidated financial statements, we are required to estimate accrued expenses. This process involves identifying services that have been performed on our behalf and estimating the level of services performed and the associated cost incurred for such services as of each balance sheet date in our consolidated financial statements. Examples of estimated expenses for which we accrue include: professional service fees, such as legal and accounting fees; contract service fees, such as fees paid to clinical monitors, data management organizations and investigators in conjunction with clinical trials; fees paid to contract manufacturers in conjunction with the production of clinical materials; and employee bonuses. In connection with such service fees, our estimates are most affected by our understanding of the status and timing of services provided relative to the actual levels of services incurred by such service providers. The majority of our service providers invoice us monthly in arrears for services performed. In the event that we do not identify certain costs which have begun to be incurred, or we under- or over-estimate the level of services performed or the costs of such services, our reported expenses for such period would be too low or too high. Determining the date on which certain services commence, the level of services performed on or before a given date and the cost of such services often involves judgment. We make these judgments in accordance with GAAP based upon the facts and circumstances known to us.

We attempt to mitigate the risk of inaccurate estimates, in part, by communicating with our service providers when other evidence of costs incurred is unavailable.

Stock-Based Compensation. We issue stock awards such as options and restricted stock to employees, members of our Board of Directors and consultants for incentive purposes and in lieu of cash consideration for services received. Prior to the adoption of SFAS No. 123(R), we used the intrinsic value method of accounting for awards to employees and members of our Board of Directors. Under the intrinsic value method, all terms are fixed, the measurement date is the date of grant. Stock-based compensation to the extent the fair value of our common stock exceeds the exercise price of stock options granted to employees on the measurement date is recorded as deferred stock-based compensation in the equity section of the consolidated balance sheets and is amortized on a straight-line basis over the vesting period of the awards, typically four years, in the consolidated statement of operations. In the notes to our consolidated financial statements, we provide pro forma disclosures in accordance with SFAS No. 123 and related pronouncements.

On January 1, 2006 we adopted SFAS No. 123(R) to account for stock-based awards. We historically have not recorded stock-based compensation expense for stock awards issued to employees with fixed terms and with exercise prices at least equal to the fair value of the underlying common stock on the measurement date. Effective January 1, 2006, we began recording compensation costs over the vesting period for the unvested portion of the other awards issued after being considered a public company, which would include awards granted after November 8, 2005, using the grant date fair value. We will continue to record compensation cost on awards issued prior to this date following the provisions of APB Opinion No. 25, i.e. the prospective transition method under SFAS No. 123(R) for the awards granted while not a public company. Compensation cost for awards granted after January 1, 2006 are accounted for under the fair value method and recognized over the requisite service period.

We use the fair value method of accounting for all other awards. For stock options granted to nonemployees, the fair value of the stock options is estimated using the Black-Scholes valuation model. This model utilizes the estimated fair value of the common stock and requires that, at the measurement date of the award, which is usually the date services are completed, we make assumptions with respect to the expected life of the option, the volatility of the fair value of the common stock, risk free interest rates and expected dividend yields of our common stock. Higher estimates of volatility and expected life of the option increase the value of an option and the resulting expense. Stock-based compensation computed on awards to nonemployees is recognized over the period of expected service by the nonemployees (which is generally the vesting period). As the service is performed, we are required to update these assumptions and periodically revalue unvested options and make adjustments to the stock-based compensation expense using the new valuation. These adjustments have resulted in stock-based compensation expense in addition to the amount originally estimated or recorded as the deemed fair value of our stock has increased over the last two years, with a corresponding increase in compensation expense in the consolidated statements of operations in the periods of re-measurement. Ultimately, the final compensation charge for each option grant to nonemployees is unknown until the performance of services is completed. We account for transactions in which services are received in exchange for equity instruments based either on the fair value of such services received from nonemployees or of the equity instruments issued, whichever is more reliably measured. The two factors which most effect charges or credits to operations related to stock-based compensation for nonemployee awards are the fair value of the common stock underlying stock options for which such stock-based compensation is recorded and the volatility of such fair value.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Forward-Looking Statements and Risk Factors
When you read this section of this Form 10-Q, it is important that you also read the financial statements and related notes and the Risk Factors section included in this Form 10-Q and included in our Annual Report on Form 10-K for the year ended December 31, 2007.
Statements in this interim report on Form 10-Q that are not strictly historical in nature are forward-looking statements. These statements include, but are not limited to, statements about: the timing of the commencement, enrollment, and completion of our clinical trials for our product candidates; the progress or success of our product development programs; the status of regulatory approvals for our product candidates; the timing of product launches; our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; and our estimates for future performance, anticipated operating losses, future revenues, capital requirements, and our needs for additional financing. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” “goal,” and similar expressions intended to identify forward-looking statements. These statements are only predictions based on current information and expectations and involve a number of risks and uncertainties. The underlying information and expectations are likely to change over time. Actual events or results may differ materially from those projected in the forward-looking statements due to various factors, including, but not limited to, those set forth in the Risk Factors section of our annual report on Form 10-K. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We are a biopharmaceutical company specializing in the emerging field of molecular medicine, applying innovations in the identification and targeting of disease at the molecular level to improve patient healthcare by addressing significant unmet medical needs. We are focused on discovering, developing and commercializing innovative and targeted radiotherapeutics and molecular imaging pharmaceuticals with initial applications in the areas of oncology and cardiology. Radiotherapeutics are radioactive drugs, or radiopharmaceuticals, that are systemically administered and selectively target cancer cells to deliver radiation for therapeutic benefit. This ability to selectively target cancer cells allows therapeutic radiation to be delivered to tumors while minimizing radiation exposure to normal tissues. Molecular imaging pharmaceuticals are radiopharmaceuticals that enable early detection of disease through the visualization of subtle changes in biochemical and biological processes.
We currently have two clinical-stage radiotherapeutic product candidates, Azedra, which has Orphan Drug status and a Fast Track designation by the U.S. Food and Drug Administration, or FDA, and Onalta, which has Orphan Drug status in the United States. We have one clinical-stage molecular imaging pharmaceutical product candidate, Zemiva. We are also developing additional product candidates by leveraging our expertise in radiochemistry and radiolabeling founded on our core proprietary technologies, including our Ultratrace technology and Single Amino Acid Chelate, or SAAC, technology. Using our proprietary technologies, we have identified potential candidates that may be useful in the detection or treatment of prostate cancer, heart failure and neurodegenerative disease, which is a disease characterized by the gradual and progressive loss of nerve cells. Additionally, several other indications relating to the future development for Zemiva have been identified, such as diabetes, chronic kidney disease and heart failure.
We have had no revenue from product sales and have funded our operations through the public offering and private placement of equity securities, debt financings and government grant funding. We have never been profitable and have incurred an accumulated deficit during the development stage of $210.6 million from inception through September 30, 2008.

We expect to incur significant operating losses for the next several years. Research and development expenses relating to our clinical and pre-clinical product candidates will continue to increase. In particular, we expect to incur increased development costs in connection with our ongoing and expected development efforts and clinical trials for Zemiva, Azedra, Onalta, Solazed and Trofex. We expect general and administrative expense to increase as we prepare for the commercialization of our product candidates, and as we further improve our corporate administration to fulfill our responsibilities as a public company.
Financial Operations Overview
Revenue—Research and Development Grants.
Our revenue to date has been derived from National Institutes of Health, or NIH, grants. We have not had any product sales and do not expect product sales in the near future. In the future, we expect our revenue to consist of product sales and payments from collaborative or strategic relationships, as well as from additional grants. Funding of government grants is subject to government approvals, and all of our government contracts contain provisions which make them terminable at the convenience of the government. The government could terminate, reduce or delay the funding under any of our grants at any time. Accordingly, there is no assurance that we will receive funding of any grants that we may be awarded, including the approximately $1.1 million remaining portion of grants that we had been awarded as of September 30, 2008. In the event we are not successful in obtaining any new government grants or extensions to existing grants, our research and development efforts could be adversely affected.
Research and Development Expense.
Research and development expense consists of expenses incurred in developing and testing product candidates. These expenses consist primarily of salaries and related expenses for employees, as well as fees for consultants engaged in research and development activities, fees paid to professional service providers for monitoring our clinical trials and for acquiring and evaluating clinical trial data, costs of contract manufacturing services and materials used in clinical trials, depreciation of capital assets used to develop our product candidates, and facilities operating costs. We expense research and development costs as incurred. Certain research and development activities are partially funded by NIH grants described above. All costs related to such grants are included in research and development costs. We believe that significant investment in product development is necessary and plan to continue these investments as we seek to develop our product candidates and proprietary technologies.
We do not know if we will be successful in developing our drug candidates. While we expect that expenses associated with the completion of our current clinical programs would be substantial, we believe that such expenses are not reasonably certain at this time. The future timing and amount of these development expenses will depend upon the costs associated with potential future clinical trials of our drug candidates, and the related expansion of our research and development organization, regulatory requirements, the advancement of our preclinical programs and product manufacturing costs, many of which cannot be determined with accuracy at this time based on our stage of development. This is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, including regulatory requirements for government approvals, which can vary significantly over the life of a project as a result of unanticipated events arising during clinical development, including with respect to:

In addition, we may obtain unexpected or unfavorable results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some drug candidates or focus on others. A change in the outcome of any of the foregoing variables in the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate. For example, if the FDA or other regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in any of our clinical trials, we would be required to expend significant additional financial resources and time on the completion of clinical development. Additionally, future commercial and regulatory factors beyond our control will evolve over time, which will impact our clinical development programs and plans.
Beyond our three lead drug candidates, we anticipate that we will select drug candidates and research projects for further development on an ongoing basis in response to the preclinical and clinical success, as well as the commercial potential of such drug candidates.
General and Administrative Expense.
General and administrative expense consists primarily of salaries and other related costs for personnel in executive, finance, accounting, SEC reporting, information technology and human resource functions. Other costs include facility costs not otherwise included in research and development expense, legal fees relating to patent and corporate matters and fees for accounting consulting services.
Stock-Based Compensation Expense.
Operating expenses include stock-based compensation expense, which results from the issuance of stock-based awards, such as options and restricted stock to employees, members of our Board of Directors and consultants in lieu of cash consideration for services received. On January 1, 2006 we adopted SFAS No. 123(R) to account for stock-based awards. We use the fair value method of accounting for all other awards. Compensation expense for options and restricted stock granted to employees and non-employees is classified either as research and development expense or general and administrative expense based on the job function of the individual receiving the grant. These costs which total $528,800 and $961,733 for the three months ended September 30, 2007 and September 30, 2008, respectively, and $1,478,000 and $2,437,053 for the nine months ended September 30, 2007 and September 30, 2008, respectively, are included in the Statements of Operations.
Other (Expense) Income, Net.
Other (expense) income, net includes interest income and interest expense. Interest income consists of interest earned on our cash, cash equivalents and short and long term investments. Interest expense during 2008 is a non-cash expense relating to the Bond interest, which includes the paid-in-kind Bonds issued to the bondholders in lieu of cash interest payments, the amortization of Bond financing expenses and the amortization of the Bond discount.
Significant Accounting Policies
The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect our reported amounts of assets, revenues and expenses, as well as related disclosure of contingent assets and liabilities.
There have been no significant changes in our critical accounting policies, except for those listed below, since December 31, 2007 as described in the discussion of critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2007.
The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”) as of January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This change resulted in no impact to January 1, 2008 accumulated deficit.

In conjunction with the adoption of SFAS No. 157, the Company adopted SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities , as of January 1, 2008 . SFAS No. 159 provides an option for most financial assets and liabilities to be reported at fair value on an instrument-by-instrument basis with changes in fair value reported in earnings. After initial adoption, the election is made at the acquisition of a financial asset, financial liability, or a firm commitment and it may not be revoked. The Company has not elected to report any other financial instruments and other items at fair value as permitted by SFAS No. 159. The adoption of this Statement therefore had no impact to January 1, 2008 retained earnings or the Company’s financials statements through September 30, 2008.
In December 2007, the Emerging Issues Task Force (EITF) issued EITF Issue No. 07-1, Accounting for Collaborative Arrangements . EITF Issue No. 07-1 provides guidance concerning: determining whether an arrangement constitutes a collaborative arrangement within the scope of the Issue; how costs incurred and revenue generated on sales to third parties should be reported in the income statement; how an entity should characterize payments on the income statement; and what participants should disclose in the notes to the financial statements about a collaborative arrangement. The provisions of EITF Issue No. 07-1 were adopted as of January 1, 2008, which did not have a significant impact on the financial statements.
In June 2007, the EITF issued EITF Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities . EITF Issue No. 07-3 provides guidance concerning the accounting for non-refundable advance payments for goods and services that will be used in future research and development activities and requires that they be expensed when the research and development activity has been performed, and not at the time of payment. The provisions of EITF Issue No. 07-3 were adopted as of January 1, 2008, which did not have a significant impact on the financial statements.
In March 2008, the Financial Accounting Standards Board issued FASB Statement No. 161 Disclosures About Derivative Instruments and Hedging Activities. This standard is intended to improve financial reporting about derivative instruments and hedging activities by enhanced disclosures to better understand their effects on a company’s financial position, results of operations and cash flows. This standard is effective for interim and annual financial statements beginning after November 15, 2008. The Company has not yet determined the impact of this new standard on its financial statements.

CONF CALL

John Babich

Thank you, Lutrice. Good morning. Thank you for taking the time to join us today for our third quarter 2008 conference call. I am John Babich, Interim Chairman and CEO of Molecular Insight.

With me today are Don Wallroth, our Chief Financial Officer; John McCray, our Chief Operating Officer; Dr. Norman LaFrance, our Senior Vice President of Clinical Development and our Chief Medical Officer; and Deborah Lorenz, our Senior Director of Investor Relations and Corporate Communications.

Before moving forward it is important to let you know that we will be making forward-looking statements on today’s call. Debbie is going to go recite a brief safe harbor statement and then we will proceed with the rest of the call.

Deborah Lorenz

Thank you, John. This is just a reminder that statements made on this call that are not strictly historical in nature constitute forward-looking statements. Such statements include, but are not limited to statements about the development of Azedra, Onalta, Zemiva, Trofex and our other product candidates.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results of Molecular Insight to be materially different from the historical results or from any results expressed or implied by such forward-looking statements.

These factors include but are not limited to risks and uncertainties related to the progress, timing, cost and results of clinical trials and product development programs; difficulties or delays in obtaining regulatory approval for product candidates; competition from other pharmaceutical or biotechnology companies; and the additional risks discussed in filings with the Securities and Exchange Commission.

All forward-looking statements are qualified in their entirety by this cautionary statement, and Molecular Insight undertakes no obligation to revise or update this call to reflect events or circumstances after the date hereof.

I will now turn the call back to John.

John Babich

Thanks, Debbie. Next, Don Wallroth, our CFO will summarize our financial results for the third quarter and nine months for 2008. I will then review our recent corporate research and development highlights. Then I will open up the call to our audience for question-and-answer period. Don.

Don Wallroth

Good morning everyone and thanks, John. As we noted in today’s press release Molecular Insight third quarter 2008 net loss was $24.7 million or $0.99 a share on a basic and diluted basis compared to a net loss of $13.2 million or $0.53 per share on a basic and diluted basis in the third quarter of 2007.

Total revenue for the third quarter of 2008, which to-date represents funding received by the company through various research and development plans was approximately $60,000 compared to approximately $300,000 during the same period last year. The decrease in revenue for the quarter is due primarily to the timing of grant-related activities.

Operating expenses for the third quarter of 2008 reflected a 42% increase for the same period in 2007. R&D expenses representing 60% of total operating expenses were $11.9 million in the quarter as compared to $9.8 million for the same period last year.

Key components of this 21% spending increase were additions to research and development staff and associated benefits as well as growth in program spending and clinical trials for both Azedra and Trofex.

The increase was offset by a reduction in the spending for the Zemiva program as the Phase 2b planned pivotal trial enrollment ended and we entered the data analysis phase of the trial.

Operating expenses also increased included a 90% increase in G&A expenses. G&A expenses were $8 million for the third quarter of 2008 compared to $4.2 million in the third quarter of the prior year.

This increase is primarily due to the increase in consulting costs, outside services to support corporate strategy, financial management and Sarbanes-Oxley compliance and expenses associated with staffing increases required as a public company.

Other expenses, net was $4.9 million for the three months ended September 30th, 2008 as compared to $400,000 of other income for the same period in 2007. The increase in interest expense for the third quarter of 2008, compared to the third quarter of 2007, was primarily due to the $4.5 million in payment-in-kind interest accrued on the $150 million Senior Secured Floating Bonds.

For the nine months ending September 30th, 2008, the company reported a net loss of $65.4 million or $2.62 per share on a basic and diluted basis. This compares with a net loss of $39.5 million for the same nine-month period in 2007.

Included in the net loss for the nine months ending September 30, 2008 is revenue of approximately $200,000, which to-ate represents grant revenue from various Research and Development grants and compares with approximately $600,000, from the same source, during the same period last year.

Operating expenses for the first nine months for the year increased by 33% to $51.5 million, up from $38.8 million for the same period last year. R&D expenses, which accounted for 62% of the company's operating expenses for the nine months ended September 30, 2008, increased 18% to $32 million from $27.1 million in the same period last year.

This increase was primarily due to manufacturing and clinical trial costs associated with the Zemiva program, as well as increases in spending for the Azedra program, including a clinical trial.

This increase in expenses, year-over-year, was offset by a one-time license fee for Onalta and an acquisition fee for Solazed. The 67% increase in G&A expense to $19.5 million for the first nine months of 2008, as compared to $11.7 million for the same period in 2007, is attributable to consulting costs and outside services, as noted previously, and expenses associated with increased staffing, as required as a public company.

This increase in other expense net for the nine months ended September 30, 2008 is principally attributed to the $13.4 million payment-in-kind interest accrued on the $150 million senior secured floating bonds as noted previously.

At September 30, 2008, the company had approximately $118.5 million in cash, cash equivalents, and short-term and long-term investments, which are invested in US Treasury Securities with maturities over 90 days.

We continue to review our operating expenses and have recently taken a series of steps to adjust, in particular, our G&A expense to a level that is more appropriate to our position as a development stage company, in line with other companies of our size.

We are focused on the categories of legal, consulting and accounting, where we had in some instances one-time expenses related to the $150 million Senior Secured Floating bonds, put in place just a year ago, and actions taken to become a publicly traded company.

We have brought some of the works previously outsourced to consultants and CRO’s in-house, without compromising the benefit to the company in the near and long-term. We have taken a hard look at budgets across the board given the current economic conditions in both the US and abroad.

We anticipate that these prudent actions will save us 10% to 20% on our cash burn in the coming year and we will continue to see additional efficiencies going forward. We believe that our cost cutting actions will enable us to fund our development program now, till the end of 2010.

With that, I will now turn the call back to John Babich.

John Babich

Thank you, Don. I would like now, to review some of our recent research and development highlights and begin by reiterating that our lead clinical programs remain on track.

This week, we reported positive data from a perspective analysis of a previously completed Phase 2b study for Zemiva, our lead molecular imaging radiopharmaceutical candidate.

In the study, we compare the incremental value of adding quantitative Zemiva imaging to the initial standard diagnosis of chest pain patients arriving at emergency department to evaluate the ability of Zemiva, to rapidly produce an improved diagnosis in acute coronary syndrome, the most severe form of cardiac ischemia.

This analysis is to test the algorithms that will be used to determine the key end points of our ongoing planned pivotal Phase 2 registration trial for Zemiva. Top-line results from that trial, which are expected by year end, will include Zemiva’s performance in the detection of cardiac ischemia.

Data from the analysis presented at AHA last weekend, suggested that the addition of quantitative spec imaging of Zemiva to clinical information obtained in the midst of pharm setting has significant clinical value in rapidly identifying chest pain patients at high-risk for acute coronary syndrome or severe cardiac ischemia.

The combination of Zemiva imaging with initial clinical information resulted in an improved sensitivity of 84% that was statistically significant with the P value of 0. 0.003 compared to the sensitivity of the initial clinical diagnosis alone, which was 54%.

The quantitative Zemiva imaging alone, provided an increased sensitivity for the diagnosis of definitive or probable ACS over the initial clinical diagnosis. This was 76% for Zemiva alone versus 54% for the clinician alone, with the P value of 0.06. There was a slight reduction in specificity for the diagnosis of definitive or probable ACS, but that reduction was not statistically significant.

The negative predicted value increased to 89% for patients with definitive or probable ACS, when Zemiva was added to the diagnosis, up from 76% with standard diagnostic techniques alone. The negative predicted value for patients with definitive ACS was 100% when Zemiva was added to the initial clinical diagnosis.

This analysis provides a compelling case for Zemiva’s used in the triage of the emergency chest pain patient. In the emergency department, the most urgent priority for the physicians is to identify patients with serious cardiac events and to be able to send home safely those patients whose chest pain is not cardiac in origin.

The potential of Zemiva to enable a more sensitive and rapid diagnosis of the chest pain patient should allow more timely intervention, provide a physician the information needed to safety send home non-cardiac patients with confidence.

In addition to Zemiva, we also initiated a Phase 2 clinical trial for Azedra for the treatment of children with high risk neuroblastoma, Azedra is our lead targeted radiotherapeutic for the treatment of neuroendocrine tumors. The primary objective of this trial is to determine a maximal tolerated dose for Azedra in this pediatric application.

This trial has been conducted in collaboration with the New Approaches to Neuroblastoma Therapy Consortium we commonly refer to as NANT. One cohort has been completed and has tolerated the treatment well without toxicity. The next cohort has been identified and dosing for that cohort is expected to begin within the fourth quarter.

Azedra is also being developed for the treatment of pheochromocytoma. We have completed dose escalation trial and have to find the therapeutic dose for the adult population for this disease. The agreement with the FDA on our trial design, we expect to initiate a pivotal Phase 2 trial in the first half of 2009.

Running the pheochromocytoma trial and the neuroblastoma trial concurrently will afford us significant savings on drug manufacturing costs for both of these programs. Rounding on our list, we continue the enrollment of patients in our Phase 1 dose symmetry trial for molecular imaging radiopharmaceuticals, we refer to as Trofex. This is for the detection and staging of metastatic prostate cancer.

Trofex is a small molecule. It is an inhibitor of prostate specific membrane antigen or PSMA, which is approaching that, is highly expressed on all metastatic prostate cancers. The trial is designed to establish proof-of-concept for the molecular targeting of PSMA for the visualization of prostate cancer.

The study is close to being completed. The evaluation of the two candidate compounds and the selection of the lead for further clinical development and commercialization, we hope to see by the end of the year.

Trofex may fulfill the unmet need of enabling the specific and sensitive detection of metastatic prostate cancer, which will be an advantage over current prostate cancer imaging techniques that are unreliable and non-specific.

Research shows that, in the United States, approximately 1 in 6 men will be affected by this disease in his lifetime. Appropriate staging and disease detection is crucial for the optimal disease management of maintenance of quality of life in this ever increasing population.

Our goal then is to focus on our robust product line under development. As Don mentioned in his remarks, we have taken steps to ensure that we will continue to be able to fund our critical path of development out to the end of 2010.

While the majority of the cost cutting has been done, we will continue to look for other opportunities to pair back expenses, where it makes sense and while we will be able to maintain critical mass to ensure the completion of our programs.

We have made significant progress over the last quarter and in closing, I would like to review our upcoming clinical milestones. We expect the following to report top line results for Zemiva's planned pivotal Phase 2 registration trial for the detection of cardiac ischemia and the emergency department setting before the year end 2008.

We expect to complete Trofex's dose symmetry proof-of-concept trial for the detection of non-specific metastatic prostate cancer and to initiate a planned Phase 2 pivotal trial for Azedra in neuroendocrine cancer. This now concludes our prepared remarks.

I would like to open up the floor to questions and turn the call back to the operator.

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