10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2007

OR

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

For the transition period from                      to                     

Commission file number 0-15327

CYTRX CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware	58-1642740
(State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)
11726 San Vicente Blvd.
Suite 650
Los Angeles, CA	90049
(Address of principal executive	(Zip Code)
offices)

(310) 826-5648
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer o      Accelerated filer þ      Non-accelerated filer o

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

Number of shares of CytRx Corporation Common Stock, $.001 par value, issued and outstanding as of November 9, 2007: 90,221,370, exclusive of treasury shares.

CYTRX CORPORATION

Form 10-Q

Table of Contents

	Page
PART I. FINANCIAL INFORMATION		3
Item 1 Financial Statements		3
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3 Quantitative and Qualitative Disclosures About Market Risk		22
Item 4 Controls and Procedures		22
PART II. — OTHER INFORMATION		23
Item 1A Risk Factors		23
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 6 Exhibits		32
SIGNATURES		33
INDEX TO EXHIBITS		34
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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Part I — FINANCIAL INFORMATION

Item 1. — Financial Statements

CYTRX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2007			2006
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	54,374,578		$	30,381,393
Short-term investments, at amortized cost		11,826,285			—
Accounts receivable		—			105,930
Prepaid expense and other current assets		925,769			233,323
Total current assets		67,126,632			30,720,646
Equipment and furnishings, net		362,779			252,719
Molecular library, net		216,324			283,460
Goodwill		183,780			183,780
Deposits and prepaid insurance expense		222,842			195,835
Total assets	$	68,112,357		$	31,636,440
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	464,616		$	955,156
Accrued expenses		4,954,815			2,722,478
Deferred revenue, current portion		7,112,917			6,733,350
Total current liabilities		12,532,348			10,410,984
Deferred revenue, non-current portion		9,832,574			16,075,117
Total liabilities		22,364,922			26,486,101
Minority interest in losses of subsidiary		2,282,332			—
Commitments and Contingencies
Stockholders’ equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized, including 5,000 shares of Series A Junior Participating Preferred Stock; no shares issued and outstanding		—			—
Common stock, $.001 par value, 125,000,000 shares authorized; 89,008,366 and 70,789,000 shares issued at September 30, 2007 and December 31, 2006, respectively		89,008			70,789
Additional paid-in capital		200,864,589			146,961,657
Treasury stock, at cost (633,816 shares held at September 30, 2007 and December 31, 2006, respectively)		(2,279,238	)		(2,279,238	)
Accumulated deficit		(155,209,256	)		(139,602,869	)
Total stockholders’ equity		43,465,103			5,150,339
Total liabilities, minority interest and stockholders’ equity	$	68,112,357		$	31,636,440

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Revenue:
Service revenue	$	2,046,470		$	775,000		$	5,862,976		$	835,831
Grant revenue		—			—			116,070			—
Licensing revenue		—			1,000			1,000			1,000
		2,046,470			776,000			5,980,046			836,831
Expenses:
Research and development (includes an aggregate 462,112 shares of RXi common stock valued at $2,310,560 issued in exchange for licensing rights in the second quarter of 2007)		3,907,514			1,686,636			14,800,183			7,204,018
General and administrative		3,669,361			2,217,571			10,261,042			6,677,154
		7,576,875			3,904,207			25,061,225			13,881,172
Loss before other income		(5,530,405	)		(3,128,207	)		(19,081,179	)		(13,044,341	)
Other income:
Interest and dividend income		857,273			296,086			1,896,950			580,483
Other income (loss)		(1,250	)		—			1,498,750			—
Minority interest in losses of subsidiary		77,092			—			255,228			—
Net loss before income taxes		(4,597,290	)		(2,832,121	)		(15,430,251	)		(12,463,858	)
Provision for income taxes		—			(140,000	)		—			(140,000	)
Net loss applicable to common shareholders before deemed dividend		(4,597,290	)		(2,972,121	)		(15,430,251	)		(12,603,858	)
Deemed dividend for anti-dilution adjustment made to outstanding common stock warrants		—			—			—			(488,429	)
Net loss applicable to common shareholders	$	(4,597,290	)	$	(2,972,121	)	$	(15,430,251	)	$	(13,092,287	)
Basic and diluted loss per common share	$	(0.05	)	$	(0.04	)	$	(0.19	)	$	(0.19	)
Weighted average shares outstanding		88,122,908			67,421,958			82,235,069			67,463,477

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine Months Ended September 30,
	2007			2006
Cash flows from operating activities:
Net loss	$	(15,430,251	)	$	(12,603,858	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		175,531			192,184
Non-cash interest earned on short-term investments		(69,145	)		—
Minority interest in losses of subsidiary		(255,228	)
Common stock, stock options and warrants issued for services		3,813,482			228,432
Expense related to employee stock options		1,664,876			1,075,389
Net change in operating assets and liabilities		(4,734,702	)		23,856,908
Total adjustments		594,814			25,352,913
Net cash provided by (used in) operating activities		(14,835,437	)		12,749,055
Cash flows from investing activities:
Purchase of short-term investments		(11,757,140	)		—
Purchases of equipment and furnishings		(218,455	)		(82,322	)
Net cash used in investing activities		(11,975,595	)		(82,322	)
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants		16,401,312			339,194
Net proceeds from issuances of common stock		34,250,905			12,404,360
Net proceeds from issuances of common stock in subsidiary		152,000			—
Net cash provided by financing activities		50,804,217			12,743,554
Net increase in cash and cash equivalents		23,993,185			25,410,287
Cash and cash equivalents at beginning of period		30,381,393			8,299,390
Cash and cash equivalents at end of period	$	54,374,578		$	33,709,677
Supplemental disclosure of cash flow information:
Cash received during the period for interest received	$	1,829,646		$	248,398

Non-Cash Financing Activities:

     In connection with the Company’s adjustment to the terms of certain outstanding warrants on March 2, 2006, the Company recorded a deemed dividend of approximately $488,000 in the nine months ended September 30, 2006. The deemed dividend was recorded as a charge to retained earning and a corresponding credit to additional paid-in capital.

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

CYTRX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007
(Unaudited)

1. Description of Company and Basis of Presentation

     CytRx Corporation (“CytRx,” the “Company,” “we,” “our” or “us”) is a biopharmaceutical research and development company engaged in developing human therapeutic products based primarily upon its small-molecule molecular “chaperone” amplification technology. The Company has completed a three-month Phase IIa clinical trial and six-month open-label trial extension of that trial for its lead small-molecule product candidate, arimoclomol, for the treatment of amyotrophic lateral sclerosis, which is commonly known as ALS or Lou Gehrig’s disease. Arimoclomol for the treatment of ALS has received Orphan Drug and Fast Track designation from the U.S. Food and Drug Administration, or FDA, and orphan medicinal product status from the European Commission. The Company plans to initiate a Phase IIb efficacy trial of arimoclomol for this indication before the end of 2007, subject to FDA clearance. Based on preliminary discussions with the FDA, CytRx also plans to conduct a second efficacy clinical trial for ALS, possibly in parallel with the upcoming Phase IIb trial, to provide additional efficacy data to support a possible approval decision by the FDA. Additionally, the Company has announced plans to commence a Phase II clinical trial for arimoclomol in stroke recovery in the first half of 2008, subject to FDA clearance. The Company has also announced plans to commence a Phase II clinical trial with its next drug candidate, iroxanadine, for diabetic ulcers in the first half of 2008, subject to FDA clearance. In addition, the Company recently opened a research and development facility in San Diego, California to provide it with a dedicated laboratory to accelerate its molecular chaperone drug development programs.

     Prior to 2007, the Company also was engaged directly in developing therapeutic products based upon ribonucleic acid interference, or RNAi, which has the potential to effectively treat a broad array of diseases by interfering with (sometimes referred to as silencing) the expression of targeted disease-associated genes. In order to fully realize the potential value of its RNAi technologies, in January 2007, the Company transferred to RXi Pharmaceuticals Corporation (“RXi”), its majority-owned subsidiary, substantially all of its RNAi-related technologies and assets in exchange for equity in RXi. RXi is dedicated to developing and commercializing therapeutic products based upon RNAi technologies for the treatment of human diseases, with an initial focus on neurodegenerative diseases, cancer, type 2 diabetes and obesity. In furtherance of the Company’s strategy for RXi, the Company announced earlier this year its plan to distribute approximately 36% of the outstanding shares of common stock of RXi to the CytRx stockholders.

     On October 30, 2007, RXi filed a registration statement on Form S-1 with the Securities and Exchange Commission (SEC) to register the shares of RXi common stock that will be distributed to CytRx stockholders. The registration statement filed by RXi also covers shares of RXi common stock that will be awarded by the Company to some of its directors, officers and other employees. Following the distribution and award transactions, CytRx will own 6,212,861 shares of RXi common stock, or approximately 49% of the outstanding RXi shares, all of which have been registered for resale by the Company pursuant to the registration statement filed by RXi.

     To date, the Company has relied primarily upon sales of its equity securities and upon proceeds received upon the exercise of options and warrants and, to a much lesser extent, upon payments from its strategic partners and licensees, to generate funds needed to finance its business and operations. See Note 5 — Liquidity and Capital Resources.

     In August 2006, the Company received approximately $24.3 million in proceeds from the privately-funded ALS Charitable Remainder Trust (“ALSCRT”) in exchange for the commitment to continue research and development of arimoclomol and other potential treatments for ALS and a one percent royalty in the worldwide sales of arimoclomol. Under the arrangement, the Company retains the rights to any developments funded by the arrangement and the proceeds of the transaction are non-refundable. Further, the ALS Charitable Remainder Trust has no obligation to provide any further funding to the Company. Management has concluded that due to the research and development components of the transaction that it is properly accounted for under SFAS No. 68, Research and Development Arrangements (“SFAS No. 68”). Accordingly, the Company has recorded the value received under the arrangement as deferred service revenue and will recognize service revenue using the proportional performance method of revenue recognition, meaning that service revenue is recognized on a dollar-for-dollar basis for each dollar of expense incurred for the research and development of arimoclomol and other potential ALS treatments.

6

     The accompanying condensed consolidated financial statements at September 30, 2007 and for the three-month and nine-month periods ended September 30, 2007 and 2006 are unaudited, but include all adjustments, consisting of normal recurring entries, which management believes to be necessary for a fair presentation of the periods presented. Interim results are not necessarily indicative of results for a full year. Balance sheet amounts as of December 31, 2006 have been derived from our audited financial statements as of that date.

     The consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The financial statements should be read in conjunction with the Company’s audited consolidated financial statements in its Form 10-K for the year ended December 31, 2006. The Company’s operating results will fluctuate for the foreseeable future. Therefore, period-to-period comparisons should not be relied upon as predictive of the results in future periods.

2. Recent Accounting Pronouncements

     On July 13, 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN No. 48”), to create a single model to address accounting for uncertainty in tax positions. FIN No. 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold in which a tax position be reached before financial statement recognition. FIN No. 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN No. 48 as of January 1, 2007, as required. The adoption of FIN No. 48 did not have an impact on the Company’s financial position and results of operations.

     On September 15, 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not expand the use of fair value in any new circumstances. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not expect SFAS No. 157 will have a significant impact on the Company’s consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect SFAS No. 159 will have a significant impact on the Company’s consolidated financial statements.

     In June 2007, the FASB ratified the consensus on Emerging Issues Task Force (“EITF”) Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards (“EITF 06-11”). EITF 06-11 requires companies to recognize the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for non-vested equity-classified employee share-based payment awards as an increase to additional paid-in capital. EITF 06-11 is effective for fiscal years beginning after September 15, 2007. The adoption is not expected to have a significant impact on the Company’s consolidated financial statements.

     In June 2007, the FASB ratified the consensus reached on EITF Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (“EITF 07-3”), which requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and amortized over the period that the goods are delivered or the related services are performed, subject to an assessment of recoverability. EITF 07-3 will be effective for fiscal years beginning after December 15, 2007. The Company does not expect that the adoption of EITF 07-3 will have an impact on the Company’s consolidated financial statements.

3. Short-term Investments

     The Company has purchased zero coupon U.S. Treasury Bills at a discount. These securities mature within the next twelve months. They are classified as held-to-maturity and under Statement of Financial Accounting Standards No. 115, Investments in Debt

7

Securities, are measured at amortized cost since the Company has the intent and ability to hold these securities to maturity. The interest income has been amortized at the effective interest rate.

4. Basic and Diluted Loss Per Common Share

     Basic net loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares primarily consist of stock options and warrants. Common share equivalents which potentially could dilute basic earnings per share in the future, and which were excluded from the computation of diluted loss per share, as the effect would be anti-dilutive, totaled approximately 27.3 million and 29.5 million shares at September 30, 2007 and 2006, respectively.

     In connection with the Company’s adjustment to the exercise terms of certain outstanding warrants to purchase common stock on March 2, 2006, the Company recorded a deemed dividend of approximately $488,000. The deemed dividend is reflected as an adjustment to net loss for the first quarter of 2006, to arrive at net loss applicable to common stockholders on the Condensed Consolidated Statement of Operations and for purposes of calculating basic and diluted loss per share.

5. Stock Based Compensation

CytRx Corporation

     The Company has a stock option plan, the 2000 Stock Option Incentive Plan, under which, as of September 30, 2007, an aggregate of 10,000,000 shares of common stock were reserved for issuance, including approximately 6,303,000 shares subject to outstanding stock options and approximately 2.4 million shares available for future grant. Options granted under these plans generally vest and become exercisable as to 33% of the option grants on each anniversary of the grant date until fully vested. The options expire, unless previously exercised, not later than ten years from the grant date.

     The Company’s stock-based employee compensation plans are described in Note 13 to our financial statements contained in our Annual Report on Form 10-K filed for the year ended December 31, 2006.

     The Company adopted the provisions of SFAS No. 123(R), Share-Based Payment (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and non-employee directors.

     For stock options paid in consideration of services rendered by non-employees, the Company recognizes compensation expense in accordance with the requirements of SFAS No. 123(R), Emerging Issues Task Force Issue No. 96-18 (“EITF 96-18”), Accounting for Equity Instruments that are Issued to other than Employees for Acquiring, or in Conjunction with Selling Goods or Services and EITF 00-18, Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees, as amended.

     Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the performance period. At the end of each financial reporting period prior to performance, the value of these options, as calculated using the Black-Scholes option pricing model, will be determined, and compensation expense recognized during the period will be adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change in the future, the amount of the future compensation expense is subject to adjustment until the common stock options are fully vested.

8

     The following table sets forth the total stock-based compensation expense resulting from stock options included in the Company’s unaudited interim consolidated statements of operations:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Research and development — employee	$	181,000	$	69,000	$	413,000	$	230,000
General and administrative — employee		593,000		310,000		1,252,000		845,000
Total employee stock-based compensation	$	774,000	$	379,000	$	1,665,000	$	1,075,000
Research and development — non-employee	$	111,000	$	92,000	$	1,426,000	$	196,000
General and administrative — non-employee		0		0		0		32,000
Total non-employee stock-based compensation	$	111,000	$	92,000	$	1,426,000	$	228,000

     During the first nine months of 2007, the Company issued stock options to purchase 1,188,000 shares of its common stock. The fair value of the stock options granted in the nine-month period listed in the table below was estimated using the Black-Scholes option-pricing model, based on the following assumptions:

	Nine Months Ended
	September 30,
	2007			2006
Risk-free interest rate		4.07% – 4.84	%		4.27% – 5.23	%
Expected volatility		108.7	%		111.1	%
Expected lives (years)		6			6
Expected dividend yield		0.00	%		0.00	%

     The Company’s computation of expected volatility is based on the historical daily volatility of its publicly traded stock. For option grants issued during the nine-month periods ended September 30, 2007 and 2006, the Company used a calculated volatility for each grant. The Company’s computation of expected life were estimated using the simplified method provided for under Staff Accounting Bulletin 107, Share-Based Payment (“SAB 107”), which averages the contractual term of the Company’s options of ten years with the average vesting term of three years for an average of six years. The dividend yield assumption of zero is based upon the fact the Company has never paid cash dividends and presently has no intention of paying cash dividends. The risk-free interest rate used for each grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life. Based on historical experience, for the nine-month periods ended September 30, 2007 and 2006, the Company has estimated an annualized forfeiture rate of 11.2% and 3.5%, respectively, for options granted to its employees and 1.0% for each period for options granted to senior management and directors. Compensation costs will be adjusted for future changes in estimated forfeitures. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated. No amounts relating to employee stock-based compensation have been capitalized. Under provisions of SFAS 123(R), the Company recorded $368,000 and $931,000 of employee stock-based compensation for the three and nine month periods ended September 30, 2007, respectively.

     At September 30, 2007, there remained approximately $3.6 million of unrecognized compensation expense related to unvested stock options granted to employees, directors, scientific advisory board members and consultants, to be recognized as expense over a weighted-average period of 1.55 years. Presented below is the Company’s stock option activity:

	Nine Months Ended
	September 30, 2007
	Number of Options			Number of Options			Total Number			Weighted Average
	(Employees)			(Non-Employees)			of Options			Exercise Price
Outstanding at January 1, 2007		4,150,000			2,708,000			6,858,000		$	1.66
Granted		1,188,000			—			1,188,000		$	4.15
Exercised		(785,000	)		(144,000	)		(929,000	)	$	2.00
Forfeited		(150,000	)		(582,000	)		(732,000	)	$	1.73
Outstanding at September 30, 2007		4,403,000			1,982,000			6,385,000		$	2.07
Options exercisable at September 30, 2007		2,798,000			1,732,000			4,530,000		$	1.73

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     A summary of the activity for non-vested stock options as of September 30, 2007, is presented below:

										Weighted Average
	Number of Options			Number of Options			Total Number of			Grant Date Fair
	(Employees)			(Non-Employees)			Options			Value per Share
Non-vested at January 1, 2007		1,183,000			917,000			2,100,000		$	1.19
Granted		1,188,000			—			1,188,000		$	3.49
Forfeited		(150,000	)		(563,000	)		(713,000	)	$	1.52
Vested		(616,000	)		(104,000	)		(720,000	)	$	1.44
Non-vested at September 30, 2007		1,605,000			250,000			1,855,000		$	2.43

     The following table summarizes significant ranges of outstanding stock options under the Company’s plans at September 30, 2007:

			Weighted Average
			Remaining				Number of
Range of			Contractual Life		Weighted Average		Options		Weighted Average		Weighted Average
Exercise Prices	Number of Options		(years)		Exercise Price		Exercisable		Contractual Life		Exercise Price
$0.25 — 1.00		995,000		6.90	$	0.80		792,000		6.71	$	0.80
$1.01 — 2.00		3,039,000		7.22	$	1.53		2,472,000		6.87	$	1.58
$2.01 — 2.50		1,161,000		5.77	$	2.45		1,161,000		5.77	$	2.45
$2.51 — 3.00		2,000		1.69	$	2.63		2,000		1.69	$	2.63
$3.01 — 4.51		1,188,000		9.65	$	4.15		103,000		9.55	$	4.46
		6,385,000		7.36	$	2.07		4,530,000		6.62	$	1.73

     The aggregate intrinsic value of outstanding options as of September 30, 2007 was $9.7 million, of which $7.8 million was related to exercisable options. The aggregate intrinsic value was calculated based on the positive difference between the closing fair market value of the Company’s common stock on September 30, 2007 ($3.44) and the exercise price of the underlying options. The intrinsic value of options exercised was $1,123,000 for the nine-month period ended September 30, 2007, and the intrinsic value of options that vested was approximately $1,438,000 for the same period.

RXi Pharmaceuticals

     RXi is a majority owned subsidiary of CytRx and has its own stock option plan named the RXi Pharmaceuticals Corporation 2007 Incentive Plan. As of September 30, 2007, an aggregate of 2,750,000 shares of common stock were reserved for issuance under the Plan, including approximately 1,340,000 shares subject to outstanding stock options granted under this plan and approximately 1,410,000 shares available for future grant. The administrator of the plan determines the times which an option may become exercisable. Vesting periods of options granted to date range from immediate vesting upon grant to vesting at the end of a five year period.

     RXi adopted SFAS No. 123(R), Share-Based Payments, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and non-employee directors. In March 2005, the SEC issued SAB 107, Share-Based Payment, relating to SFAS 123(R). RXi has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

     For stock options paid in consideration of services rendered by non-employees, the Company recognizes compensation expense in accordance with the requirements of SFAS No. 123(R), Emerging Issues Task Force Issue No. 96-18 (“EITF 96-18”), Accounting for Equity Instruments that are Issued to other than Employees for Acquiring, or in Conjunction with Selling Goods or Services and EITF 00-18, Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees, as amended.

     Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the performance period. At the end of each financial reporting period prior to performance, the value of these options, as calculated using the Black-Scholes option pricing model, will be determined and the compensation expense recognized during the period will be adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change in the future, the amount of the future compensation expense is subject to adjustment until the common stock options are fully vested. Because RXi common stock is not yet publicly-traded, management estimated the fair market value of RXi common stock and the fair market value of RXi options with input from an independent third-party valuation firm. Based on those estimates, RXi recognized approximately $31,000 and

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$1,043,000 of stock based compensation expense related to non-employee stock options for the three and nine-month periods ended September 30, 2007, respectively.

     During the first nine months of 2007, RXi issued options to purchase 1,340,000 shares of its common stock. The fair value of the stock options granted in the nine-month period listed in the table below was estimated using the Black-Scholes option-pricing model, based on the following assumptions:

	Nine Months Ended
	September 30, 2007
Risk-free interest rate		4.39% – 4.57	%
Expected volatility		108.7% – 109.5	%
Expected lives (years)		6
Expected dividend yield		0.00	%

     The fair value of RXi’s common stock and RXi’s expected common stock price volatility assumption is based upon an independent third-party valuation that determined the RXi corporate valuation and analyzed the volatility of a basket of comparable companies. The expected life assumptions were based upon the simplified method provided for under SAB 107, which averages the contractual term of RXi’s options of ten years with the average vesting term of three years for an average of six years. The dividend yield assumption of zero is based upon the fact that RXi has never paid cash dividends and presently has no intention of paying cash dividends. The risk-free interest rate used for each grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life. Based on CytRx’s historical experience, for the nine-month period ended September 30, 2007, RXi has estimated an annualized forfeiture rate of 15% for options granted to its employees, 8% for options granted to senior management and no forfeiture rate for the directors. RXi will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated. Under provisions of SFAS 123(R), RXi recorded $406,000 and $734,000 of employee stock-based compensation for the three and nine-month periods ended September 30, 2007, respectively. No amounts relating to employee stock-based compensation have been capitalized.

     At September 30, 2007, there was $3,339,000 of unrecognized compensation expense related to unvested common stock options granted to employees, directors, scientific advisory board members and consultants is expected to be recognized as expense over a weighted-average period of 1.79 years. Presented below is RXi’s common stock option activity:

	Nine Months Ended September 30, 2007
	Number of Options		Number of Options		Total Number		Weighted Average
	(Employees)		(Non-Employees)		of Options		Exercise Price
Outstanding at January 1, 2007		—		—		—		—
Granted		993,000		347,000		1,340,000	$	5.00
Exercised		—		—		—		—
Forfeited		—		—		—		—
Outstanding at September 30, 2007		993,000		347,000		1,340,000	$	5.00
Options exercisable at September 30, 2007		200,000		218,000		418,000	$	5.00

     A summary of the activity for non-vested stock options as of September 30, 2007, is presented below:

										Weighted Average
	Number of Shares			Number of Shares			Total Number of			Grant Date Fair
	(Employees)			(Non-Employees)			Shares			Value per Share
Non-vested at January 1, 2007		—			—			—			—
Granted		993,000			347,000			1,340,000		$	3.56
Forfeited		—			—			—			—
Vested		(200,000	)		(218,000	)		(418,000	)	$	3.55
Non-vested at September 30, 2007		793,000			129,000			922,000		$	3.56

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     The following table summarizes significant ranges of outstanding common stock options under the plan at September 30, 2007:

Weighted Average

Remaining

Number of

Range of

Contractual Life

Weighted Average

Options

Weighted Average

Weighted Average

Exercise Prices

Number of Options

(years)

Exercise Price

Exercisable

Contractual Life

Exercise Price

$5.00

1,340,000

9.64

$

5.00

418,000

9.62

$

5.00

     The aggregate intrinsic value of outstanding options as of September 30, 2007 is negligible. The aggregate intrinsic value is calculated based on the positive difference between the closing fair market value of RXi’s common stock on September 30, 2007 and the exercise price of the underlying options.

6. Liquidity and Capital Resources

     At September 30, 2007, the Company had cash, cash equivalents and short-term investments of $66.2 million. Management believes that the Company has adequate financial resources to support its currently planned level of operations into the second half of 2009, based, in part, upon projected expenditures for the remainder of 2007 and the first nine months of 2008 of $30.1 million, including $5.0 million for the Company’s planned clinical program for arimoclomol for ALS and related studies, $5.5 million for our other ongoing and planned clinical programs, including a planned Phase II clinical trial of arimoclomol in stroke patients and a planned Phase II clinical trial of iroxanadine for diabetic ulcers, $8.2 million for the operations of the Company’s research laboratory in San Diego and $8.8 million for other general and administrative expenses. The Company estimates that RXi separately will expend approximately $9.1 million for the remainder of 2007 and the first nine months of 2008. The Company will be required to obtain additional funding in order to execute its long-term business plans, although it does not currently have commitments from any third parties to provide it with capital. The Company cannot assure that additional funding will be available on favorable terms, or at all. If the Company fails to obtain additional funding when needed, it may not be able to execute its business plans and its business may suffer, which would have a material adverse effect on its financial position, results of operations and cash flows.

7. Equity Transactions

     On March 2, 2006, the Company completed a $13.4 million private equity financing in which it issued 10.6 million shares of its common stock and warrants to purchase an additional 5.3 million shares of its common stock at an exercise price of $1.54 per share. Net of investment banking commissions, legal, accounting and other expenses related to the transaction, we received proceeds of approximately $12.4 million.

     In connection with the March 2006 financing, the Company adjusted the price and number of underlying shares of warrants to purchase approximately 2.8 million shares that had been issued in prior equity financings in May and September 2003. The adjustment was made as a result of anti-dilution provisions in those warrants that were triggered by the Company’s issuance of common stock in that financing at a price below the closing market price on the date of the transaction. The Company accounted for the anti-dilution adjustments as deemed dividends analogous with the guidance in Emerging Issues Task Force Issue (“EITF”) No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and EITF 00-27, Application of 98-5 to Certain Convertible Instruments, and recorded an approximate $488,000 charge to retained earnings and a corresponding credit to additional paid-in capital.

     In connection with the March 2006 private equity financing, the Company entered into a registration rights agreement with the purchasers of its common stock and warrants. That agreement provides, among other things, for cash penalties, up to a maximum of 16% (approximately $2.1 million) of the purchase price paid for the securities in the event that the Company failed to initially register or maintain the effective registration of the securities until the sooner of two years or the date on which the securities could be sold pursuant to Rule 144 of the Securities Act of 1933, as amended. The Company has evaluated the penalty provisions of the March 2006 registration rights agreement in light of FASB Staff Position No. EITF 00-19-2, Accounting for Registration Payment Arrangements, which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies, pursuant to which a contingent obligation must be accrued only if it is reasonably estimable and probable. In management’s estimation, the contingent payments related to the registration payment arrangement are not probable to occur, and thus no amount need be accrued.

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     On April 19, 2007, the Company completed a $37.0 million private equity financing in which it issued approximately 8.6 million shares of its common stock at a price of $4.30 per share. Net of investment banking commissions, legal, accounting and other expenses related to the transaction, the Company received proceeds of approximately $34.2 million. On April 30, 2007, the Company contributed $15.0 million, net of reimbursed expenses estimated at $2.0 million paid by RXi to the Company, in exchange for equity in RXi, to satisfy the initial funding requirements under its agreements with the University of Massachusetts Medical School (“UMMS”). In September 2007, the actual reimbursed expenses paid by RXi to the Company were finally determined to be approximately $3.0 million, and on September 25, 2007, RXi issued to CytRx additional equity as reimbursement of the excess expenses. Following those transaction, CytRx owned as of September 30, 2007 approximately 86% of the outstanding capital stock of RXi.

     In connection with the private equity financing, the Company adjusted the price and number of underlying shares of warrants to purchase approximately 1.4 million shares that had been issued in prior equity financings in May and September 2003. The adjustment was made as a result of anti-dilution provisions in those warrants that were triggered by the Company’s issuance of common stock in the April 2007 financing at a price below the closing market price on the date of the transaction. For the reasons described above, the Company accounted for the anti-dilution adjustments as deemed dividends. Because the fair value of the outstanding warrants decreased as a result of the anti-dilution adjustment, no deemed dividend was recorded, and thus the Company did not record a charge to retained earnings or a corresponding credit to additional paid-in capital.

     In connection with the April 2007 private equity financing, the Company entered into a registration rights agreement with the purchasers of its common stock and warrants. That agreement provides, among other things, for cash penalties, up to a maximum of 16% (approximately $5.9 million) of the purchase price paid for the securities in the event that the Company failed to initially register or maintain the effective registration of the securities until the sooner of two years or the date on which the securities could be sold pursuant to Rule 144 of the Securities Act of 1933, as amended. The Company has evaluated the penalty provisions of the April 2007 registration rights agreement in light of FASB Staff Position No. EITF 00-19-2, Accounting for Registration Payment Arrangements, which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies, pursuant to which a contingent obligation must be accrued only if it is reasonably estimable and probable. In management’s estimation, the contingent payments related to the registration payment arrangement are not probable to occur, and thus no amount need be accrued.

     During the three-month period ended September 30, 2007, the Company issued 434,351 shares of its common stock, and received $491,350, upon the exercise of stock options and warrants. During the three-month period ended September 30, 2006, the Company issued no common stock, and no stock options and warrants were exercised. During the nine-month period ended September 30, 2007, the Company issued 9,954,780 shares of its common stock, and received $16,401,312, upon the exercise of stock options and warrants. For the comparative 2006 period, the Company issued 683,903 shares of its common stock and received $339,193 upon the exercise of stock options and warrants.

     RXi issued 45,000 shares of its common stock at $5.00 per share in the third quarter of 2007. In the nine-month period ended September 30, 2007, RXi has issued at total of approximately 507,000 shares of its common stock, 462,000 in connection with licensing agreements with UMMS. The shares issued to UMMS were valued at $2.3 million, which was recorded as a charge to research and development expense in the second quarter. In the third quarter of 2007, RXi granted options to purchase 163,000 shares of RXi common stock at an exercise price of $5.00 per share to certain officers, employees, directors and scientific advisory board members. For the nine-month period ended September 30, 2007, RXi has granted a total of 1,340,000 options to purchase shares of common stock at an exercise price of $5.00 per share.

8. Other Income

     In June 2007, we recognized $1.5 million of income arising from a fee received pursuant to a change-in-control provision included in the purchase agreement for our 1998 sale of our animal pharmaceutical unit. Management concluded that the fee did not represent revenue generated from our normal course of our business, and accordingly we recorded this fee as other income.

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9. Minority Interest

     The Company offset $77,092 and $255,228 of minority interest in losses of its subsidiary, RXi, against its net loss in the three-month and nine-month periods ended September 30, 2007, respectively. During 2006, no comparable entry was necessary. This loss was the minority shareholders’ portion of the loss attributed to RXi.

10. Subsequent Events

     As of November 1, 2007, the Company had received approximately $2.2 million in connection with the exercise of warrants and options since September 30, 2007.

     On October 30, 2007, RXi filed a registration statement with the SEC on Form S-1 to register the shares of RXi common stock that will be distributed to CytRx stockholders. The registration statement filed by RXi also covers shares of RXi common stock that will be awarded by the Company to some of its directors, officers and other employees. Following the planned distribution and award transactions, CytRx will own 6,212,861 shares of RXi common stock, or approximately 49% of the outstanding RXi shares, all of which have been registered for resale by the Company pursuant to the registration statement filed by RXi.

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

Forward Looking Statements

     From time to time, we make oral and written statements that may constitute “forward-looking statements” (rather than historical facts) as defined in the Private Securities Litigation Reform Act of 1995 or by the SEC in its rules, regulations and releases, including Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. We desire to take advantage of the “safe harbor” provisions in the Private Securities Litigation Reform Act of 1995 for forward-looking statements made from time to time, including, but not limited to, the forward-looking statements made in this Quarterly Report, as well as those made in our other filings with the SEC.

     All statements in this Quarterly Report, including statements in this section, other than statements of historical fact are forward-looking statements for purposes of these provisions, including statements of our current views with respect to the recent developments regarding our majority-owned subsidiary, RXi Pharmaceuticals Corporation, our business strategy, business plan and research and development activities, our future financial results, and other future events. These statements include forward-looking statements both with respect to us, specifically, and the biotechnology industry, in general. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential” or “could” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements.

     All forward-looking statements involve inherent risks and uncertainties, and there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, those factors set forth in this Quarterly Report under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” all of which you should review carefully. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we anticipate. Please consider our forward-looking statements in light of those risks as you read this Quarterly Report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Overview

     We are a biopharmaceutical research and development company engaged in developing human therapeutic products based primarily upon our small-molecule molecular “chaperone” amplification technology. We have completed a three-month Phase IIa clinical trial and six-month open-label trial extension of that trial for our lead small-molecule product candidate, arimoclomol, for the treatment of amyotrophic lateral sclerosis, which is commonly known as ALS or Lou Gehrig’s disease. Arimoclomol for the treatment of ALS has received Orphan Drug and Fast Track designation from the U.S. Food and Drug Administration, or FDA, and orphan medicinal product status from the European Commission. We plan to initiate a Phase IIb efficacy trial of arimoclomol for this indication before the end of 2007, subject to FDA clearance. Based on preliminary discussions with the FDA, we also plan to conduct a second efficacy clinical trial for ALS, possibly in parallel with the upcoming Phase IIb trial, to provide additional efficacy data to support a possible approval decision by the FDA. Additionally, we have announced plans to commence a Phase II clinical trial for arimoclomol in stroke recovery in the first half of 2008, subject to FDA clearance. We have also announced plans to commence a Phase II clinical trial with our next drug candidate, iroxanadine, for diabetic ulcers in the first half of 2008, subject to FDA clearance.

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In addition, we recently opened a research and development facility in San Diego, California to provide us with a dedicated laboratory to accelerate our molecular chaperone drug development programs.

     We also were engaged directly in developing therapeutic products based upon ribonucleic acid interference, or RNAi, which has the potential to effectively treat a broad array of diseases by interfering with (sometimes referred to as silencing) the expression of targeted disease-associated genes. In order to fully realize the potential value of our RNAi technologies, in January 2007, we transferred to RXi Pharmaceuticals Corporation (“RXi”), our majority-owned subsidiary, substantially all of our RNAi-related technologies and assets in exchange for equity in RXi. RXi is dedicated to developing and commercializing therapeutic products based upon RNAi technologies for the treatment of human diseases, with an initial focus on neurodegenerative diseases, cancer, type 2 diabetes and obesity. In furtherance of our strategy for RXi, we announced earlier this year our plan distribute approximately 36% of the outstanding shares of common stock of RXi to CytRx’s stockholders.

     On October 30, 2007, RXi filed a registration statement with the SEC on Form S-1 to register the shares of RXi common stock that will be distributed to our stockholders. The registration statement filed by RXi also covers shares of RXi common stock that will be awarded by us to some of our directors, officers and other employees. Following the distribution and award transactions, we will own 6,212,861 shares of RXi common stock, or approximately 49% of the outstanding RXi shares, all of which have been registered for resale by us pursuant to the registration statement filed by RXi.

     We have relied primarily upon proceeds from sales of our equity securities and the exercise of options and warrants, and to a much lesser extent upon payments from our strategic partners and licensees, to generate funds needed to finance our business and operations. At September 30, 2007, we had cash, cash equivalents and short-term investments of $66.2 million, and as of November 1, 2007, we had received approximately $2.2 million in connection with the exercise of warrants and options since September 30, 2007. We believe that we have adequate financial resources to support our currently planned level of operations into the second half of 2009, based, in part, upon projected expenditures for the remainder of 2007 and the first nine months of 2008 of $30.1 million, including $5.0 million for our planned clinical program for arimoclomol for ALS and related studies, $5.5 million for our other ongoing and planned clinical programs, including a planned Phase II clinical trial of arimoclomol in stroke patients and a planned Phase II clinical trial of iroxanadine for diabetic ulcers, $8.2 million for the operations of our research laboratory in San Diego and $8.8 million for other general and administrative expenses. We estimate that RXi separately will expend approximately $9.1 million for the remainder of 2007 and the first nine months of 2008. We will be required to obtain additional funding in order to execute our long-term business plans, although we do not currently have commitments from any third parties to provide us with capital. We cannot assure that additional funding will be available on favorable terms, or at all. If we fail to obtain additional funding when needed, we may not be able to execute our business plans and our business may suffer, which would have a material adverse effect on our financial position, results of operations and cash flows.

     RXi began operating as a stand-alone company with its own management, business, and operations in January 2007. On October 30, 2007, RXi filed a registration statement with the SEC on Form S-1 to register the shares of RXi common stock that will be distributed to CytRx stockholders. The registration statement filed by RXi also covers shares of RXi common stock that will be awarded by us to some of our directors, officers and other employees. Following the planned distribution and award transactions, CytRx will own 6,212,861 shares of RXi common stock, or approximately 49% of the outstanding RXi shares. During the time that RXi is majority-owned (i.e. until the planned distribution and award transactions are consummated), the consolidated financial statements of CytRx will include 100% of the assets and liabilities of RXi and the ownership of the interests of the minority shareholders will be recorded as “minority interests.” In the future, if CytRx owns more than 20% but less than 50% of the outstanding shares of RXi, CytRx would account for its investment in RXi using the equity method. Under the equity method, CytRx would record its pro-rata share of the gains or losses of RXi against its historical basis investment in RXi. For the year ending December 31, 2007, we expect RXi’s expenses will be approximately $10.0 million.

Critical Accounting Policies and Estimates

     Management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, impairment of long-lived assets, including finite lived intangible assets, research and development expenses and clinical trial expenses and stock-based compensation expense.

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We base our estimates on historical experience and on various other assumptions that are believed 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 materially from these estimates under different assumptions or conditions.

     Our significant accounting policies are summarized in Note 2 to our financial statements contained in our Annual Report on Form 10-K filed for the year ended December 31, 2006. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition

     Biopharmaceutical revenues consist of license fees from strategic alliances with pharmaceutical companies as well as service and grant revenues. Service revenues consist of contract research and laboratory consulting. Grant revenues consist of government and private grants.

     Monies received for license fees are deferred and recognized ratably over the performance period in accordance with Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition. Milestone payments will be recognized upon achievement of the milestone as long as the milestone is deemed substantive and we have no other performance obligations related to the milestone and collectability is reasonably assured, which is generally upon receipt, or recognized upon termination of the agreement and all related obligations. Deferred revenue represents amounts received prior to revenue recognition.

     Revenues from contract research, government grants, and consulting fees are recognized over the respective contract periods as the services are performed, provided there is persuasive evidence or an arrangement, the fee is fixed or determinable and collection of the related receivable is reasonably assured. Once all conditions of the grant are met and no contingencies remain outstanding, the revenue is recognized as grant fee revenue and an earned but unbilled revenue receivable is recorded.

     In August 2006, we received approximately $24.3 million in proceeds from the privately-funded ALS Charitable Remainder Trust (“ALSCRT”) in exchange for the commitment to continue research and development of arimoclomol and other potential treatments for ALS and a one percent royalty in the worldwide sales of arimoclomol. Under the arrangement, we retain the rights to any products or intellectual property funded by the arrangement and the proceeds of the transaction are non-refundable. Further, the ALSCRT has no obligation to provide any further funding to us. We have concluded that due to the research and development components of the transaction that it is properly accounted for under Statement of Financial Accounting Standards No. 68, Research and Development Arrangements. Accordingly, we have recorded the value received under the arrangement as deferred service revenue and will recognize service revenue using the proportional performance method of revenue recognition, meaning that service revenue is recognized on a dollar-for-dollar basis for each dollar of expense incurred for the research and development of arimoclomol and other potential ALS treatments. We believe that this method best approximates the efforts expended related to the services provided. We adjust our estimates of expense incurred for this research and development on a quarterly basis. As of December 31, 2006, we recognized approximately $1.8 million of service revenue related to this transaction. For three-month and nine-month periods ended September 30, 2007, we recognized approximately $2.0 million and $5.9 million, respectively, in service revenue. Any significant change in ALS related research and development expense in any particular quarterly or annual period will result in a change in the recognition of revenue for that period and consequently affect the comparability or revenue from period to period.

     The amount of “deferred revenue, current portion” is the amount of deferred revenue that is expected to be recognized in the next twelve months and is subject to fluctuation based upon management’s estimates. Management’s estimates include an evaluation of what pre-clinical and clinical trials are necessary, the timing of when trials will be performed and the estimated clinical trial expenses. These estimates are subject to changes and could have a significant effect on the amount and timing of when the deferred revenues are recognized.

Research and Development Expenses

     Research and development expenses consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies, including licenses, that are utilized in research and development and that have no alternative future use are expensed when incurred. Technology developed for use in its products is expensed as incurred until technological feasibility has been established.

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Clinical Trial Expenses

     Clinical trial expenses, which are included in research and development expenses, include obligations resulting from our contracts with various clinical research organizations in connection with conducting clinical trials for our product candidates. We recognize expenses for these activities based on a variety of factors, including actual and estimated labor hours, clinical site initiation activities, patient enrollment rates, estimates of external costs and other activity-based factors. We believe that this method best approximates the efforts expended on a clinical trial with the expenses we record. We adjust our rate of clinical expense recognition if actual results differ from our estimates.

Stock-Based Compensation

          Effective January 1, 2006, we adopted the provisions of SFAS 123(R), “Share-Based Payment.” SFAS 123(R) requires that companies recognize compensation expense associated with stock option grants and other equity instruments to employees in the financial statements. SFAS 123(R) applies to all grants after the effective date and to the unvested portion of stock options outstanding as of the effective date. We adopted SFAS 123(R) using the modified-prospective method and use the Black-Scholes valuation model for valuing share-based payments. We will continue to account for transactions in which services are received in exchange for equity instruments based on the fair value of such services received from non-employees, in accordance with SFAS 123(R), Emerging Issues Task Force Issue No. 96-18 (“EITF 96-18”), Accounting for Equity Instruments that are Issued to other than Employees for Acquiring, or in Conjunction with Selling Goods or Services and EITF 00-18, Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees, as amended.

          Non-employee share-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances, option grants to non-employees are immediately vested and have no future performance requirements by the non-employee and the total share-based compensation charge is recorded in the period of the measurement date.

     The fair value of each CytRx and RXi common stock option grant is estimated using the Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model, based on an expected forfeiture rate that is adjusted for actual experience. If our Black-Scholes option pricing model assumptions or our actual or estimated forfeiture rate are different in the future, that could materially affect compensation expense recorded in future periods.

Impairment of Long-Lived Assets

     We review long-lived assets, including finite lived intangible assets, for impairment on an annual basis, as of December 31, or on an interim basis if an event occurs that might reduce the fair value of such assets below their carrying values. An impairment loss would be recognized based on the difference between the carrying value of the asset and its estimated fair value, which would be determined based on either discounted future cash flows or other appropriate fair value methods.

Earnings Per Share

     Basic and diluted loss per common share are computed based on the weighted-average number of common shares outstanding. Common share equivalents (which consist of options and warrants) are excluded from the computation of diluted loss per share since the effect would be anti-dilutive. Common share equivalents which could potentially dilute basic earnings per share in the future, and which were excluded from the computation of diluted loss per share, totaled approximately 27.3 million shares and 29.5 million shares at September 30, 2007 and 2006, respectively. In connection with our adjustment to the exercise terms of certain outstanding warrants to purchase common stock on March 2, 2006, we recorded a deemed dividend of $488,000. The deemed dividend was reflected as an adjustment to net loss for the first quarter of 2006, to arrive at net loss applicable to common stockholders on the consolidated statement of operations and for purposes of calculating basic and diluted loss per shares.

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Liquidity and Capital Resources

     We have relied primarily upon proceeds from sales of our equity securities and the exercise of options and warrants, and to a much lesser extent upon payments from our strategic partners and licensees, to generate funds needed to finance our business and operations. At September 30, 2007, we had cash and cash equivalents and short-term investments of $66.2 million and total assets of $68.1 million, compared to $30.4 million and $31.6 million, respectively, at December 31, 2006. Working capital totaled $54.6 million at September 30, 2007, compared to $20.3 million at December 31, 2006. As of November 1, 2007, we had received approximately $2.2 million in connection with the exercise of warrants and options since September 30, 2007. We believe that we have adequate financial resources to support our currently planned level of operations into the second half of 2009, based, in part, upon projected expenditures for the remainder of 2007 and the first nine months of 2008 of $30.1 million, including $5.0 million for our planned clinical program for arimoclomol for ALS and related studies, $5.5 million for our other ongoing and planned clinical programs, including a planned Phase II clinical trial of arimoclomol in stroke patients and a planned Phase II clinical trial of iroxanadine for diabetic ulcers, $8.2 million for the operation of our research laboratory in San Diego and $8.8 million for other general and administrative expenses. We estimate that RXi separately will expend approximately $9.1 million for the remainder of 2007 and the first nine months of 2008. We have no significant revenue, and we expect to have no significant revenue and to continue to incur significant losses over the next several years. Our net losses may increase from current levels primarily due to expenses related to our ongoing and planned clinical trials, research and development programs, possible technology acquisitions, and other general corporate activities. In the event that actual costs of our clinical program for ALS, or any of our other ongoing research activities, are significantly higher than our current estimates, we may be required to significantly modify our planned level of operations.

     In the future, we will be dependent on obtaining financing from third parties in order to maintain our operations, including completion of the clinical development arimoclomol for ALS and our ongoing research and development efforts related to our other small-molecule drug candidates. We cannot assure that additional funding will be available to us on favorable terms, or at all. If we fail to obtain additional funding when needed in the future, we would be forced to scale back, or terminate, our operations, or to seek to merge with or to be acquired by another company.

     Our net loss, which includes non-cash charges relating to (1) common stock, stock option and warrants issued for services (2) common stock issued related to the acquisition of licensing rights and (3) expenses related to employee stock options, increased by approximately $1.6 million from the quarter ended September 30, 2006 to the quarter ended September 30, 2007. This increase was due to several factors, including an additional $2.2 million in research and development expenditures associated with our clinical programs, increased professional fees of $716,000 associated with compliance with provisions of the Sarbanes-Oxley Act and professional fees related to RXi’s recently filed registration statement on Form S-1 to register RXi’s common stock, and option expense of $437,000 related to the issuance of options to purchase RXi common stock to RXi’s employees, members of its board of directors and scientific advisory board. These charges were offset in part by the recognition of $1.3 million in deferred revenue relating to our $24.3 million sale to the ALSCRT of a 1% royalty interest in worldwide sales of arimoclomol in August 2006.

     In the nine-month periods ended September 30, 2007 and 2006, net cash used in investing activities consisted of approximately $11.8 million and $0, respectively, for the purchase of short-term investments, and approximately $218,000 and $82,000, respectively, for the purchase of equipment. We manage our cash, cash equivalents and short-term investments interchangeably and at the present time do not anticipate any significant changes to our holdings in investments and cash equivalents. We expect capital spending to increase due to additional laboratory equipment necessary for our new San Diego, California laboratory.

     Cash provided by financing activities in the nine months ended September 30, 2007 was $50.8 million. During the 2007 period, we raised $34.2 million, net of offering expenses of $2.8 million, from the issuance of 8.6 million shares of common stock in a private equity financing in April of 2007, and received proceeds from the exercise of stock options and warrants of approximately $16.4 million. Cash provided by financing activities in the nine months ended September 30, 2006 was approximately $12.7 million. During the 2006 period, we raised $12.4 million, net of expenses, from the issuance of common stock in a private equity financing in March of 2006, and received proceeds from the exercise of stock options and warrants of approximately $339,000.

     We are evaluating other potential future sources of capital as we do not currently have commitments from any third parties to provide us with capital. The results of our technology licensing efforts and the actual proceeds of any fund-raising activities will determine our ongoing ability to operate as a going concern. Our ability to obtain future financings through joint ventures, product licensing arrangements, royalty sales, equity financings, gifts, and grants or otherwise is subject to market conditions and our ability to

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identify parties that are willing and able to enter into such arrangements on terms that are satisfactory to us. Depending upon the outcome of our fundraising efforts, the accompanying consolidated financial information may not necessarily be indicative of future operating results or future financial condition.

     We expect to incur significant losses for the foreseeable future and there can be no assurance that we will become profitable. Even if we become profitable, we may not be able to sustain that profitability.

Results of Operations

     We recorded a net loss applicable to common shareholders of approximately $4.6 million and $15.4 million for the three-month and nine-month periods ended September 30, 2007, respectively, as compared to $3.0 million and $13.1, respectively, for the same periods in 2006.

     We recognized $2.0 million and $6.0 million of revenue for the three-month and nine-month periods ended September 30, 2007, respectively, and $0.8 million and $0.8 million, respectively, for the same periods in 2006. We recognized $2.0 million and $5.9 million during those periods, respectively, from our $24.3 million sale to the ALSCRT of a 1% royalty interest in worldwide sales of arimoclomol in August 2006. Additionally during the three-month and nine-month periods ended September 30, 2007, we recognized $0 and $1.5 million, respectively, of other income related to a change-in-control provision included in the purchase agreement for our 1998 sale of our animal pharmaceutical unit. There was no comparable other income in 2006. All future licensing fees under our current licensing agreements are dependent upon successful development milestones being achieved by the licensor. During 2007, we do not anticipate receiving any significant service or licensing fees. We will continue to recognize the balance of the deferred revenue recorded from the royalty transaction with the ALSCRT over the development period of our arimoclomol research.

Research and Development

	Three Month Period				Nine Month Period
	Ended September 30,				Ended September 30,
	2007		2006		2007		2006
	(In thousands)				(In thousands)
Research and development expense	$	3,566	$	1,472	$	10,496	$	6,637
Non-cash research and development expense		111		92		3,736		197
Employee stock option expense		181		69		413		230
Depreciation and amortization		49		53		155		140
	$	3,907	$	1,686	$	14,800	$	7,204

     Research expenses are expenses incurred by us in the discovery of new information that will assist us in the creation and the development of new drugs or treatments. Development expenses are expenses incurred by us in our efforts to commercialize the findings generated through our research efforts.

     Research and development expenses incurred during the first three-month and nine-month periods of 2007 and 2006 related primarily to (i) our Phase II clinical program for arimoclomol in ALS, (ii) our ongoing research and development related to other molecular chaperone drug candidates, (iii) our acquisition of technologies covered by the UMMS license agreements acquired by RXi, (iv) our prior collaboration and invention disclosure agreement pursuant to which UMMS had agreed to disclose certain inventions to us and provide us with the right to acquire an option to negotiate exclusive licenses for those disclosed technologies, and (v) the small-molecule drug discovery and development operations at our Massachusetts and California laboratories. All research and development costs related to the activities of RXi and our laboratories were expensed.

     As compensation to members of our scientific advisory board and consultants, and in connection with the acquisition of technology, we and RXi sometimes issue shares of common stock, stock options and warrants to purchase shares of common stock. For financial statement purposes, we value these shares of common stock, stock options, and warrants at the fair value of the common stock, stock options or warrants granted, or the services received, whichever is more reliably measurable. We recorded non-cash charges of $111,000 and $3.7 million, respectively, for the three month and nine-month periods ended September 30, 2007, and $92,000 and $197,000, respectively, for the same periods ended September 30, 2006. Included in the non-cash research and development charges for the 2007 nine-month period were $2.3 million of expense related to RXi’s issuance of 462,112 shares of common stock to UMMS related for certain license agreement rights and the new invention disclosure agreement and $1.0 million for

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non-qualifying stock options to scientific advisory board members (“SAB”) of RXi. We recorded $181,000 and $413,000 of employee stock option expense during the three-month and nine-month periods ended September 30, 2007, respectively, as compared with $69,000 and $230,000, respectively, for the related periods in 2006.

     Over the coming twelve months, we expect our research and development expenses to increase primarily as a result of our ongoing Phase II clinical program for arimoclomol and related studies for the treatment of ALS, our potential Phase II clinical trial of arimoclomol for stroke recovery, our further development of iroxanadine for diabetic ulcers and the continued development of our RNAi assets by our majority-owned subsidiary RXi.

General and Administrative Expenses

	Three Month Period				Nine Month Period
	Ended September 30,				Ended September 30,
	2007		2006		2007		2006
	(In thousands)				(In thousands)
General and administrative expenses	$	3,071	$	1,908	$	8,989	$	5,747
Non-cash general and administrative expenses		0		0		0		32
Employee stock option expense		593		310		1,252		846
Depreciation and amortization		5		0		20		52
	$	3,669	$	2,218	$	10,261	$	6,677

     General and administrative expenses include all salaries and general corporate expenses, including legal expenses associated with the prosecution and acquisition of our intellectual property. General and administrative expenses increased by approximately $1.5 million and $3.6 million for the three-month and nine-month periods ended September 30, 2007, respectively, as compared to the same time periods in 2006. The increase in general and administrative expenses for the three month period ended September 30, 2007 is attributable primarily to additional audit fees of $716,000 due to compliance with provisions of the Sarbanes-Oxley Act and professional fees related to RXi’s recently filed registration statement on Form S-1 to register RXi’s common stock, $294,000 in increased employee stock option expense associated with new hires, $158,000 in consulting expenses related primarily to RXi’s registration statement on Form S-1, $134,000 in legal fees associated with the Form S-1, as well as ongoing patent-related costs, and increased Board of Director fees primarily attributable to the addition of RXi’s director costs. The $3.6 million increase for the nine month period in 2007 relates primarily to additional audit fees associated with our annual audit, compliance with provisions of the Sarbanes-Oxley Act and professional fees related to RXi’s registration statement on Form S-1 totaling $1.1 million, additional legal costs associated with RXi’s registration statement on Form S-1, increased patent work, license negotiation fees and other significant projects totaling $1.1 million, a $448,000 increase in employee stock option expense relating to new hires, increased consulting and recruiting fees of $574,000 relating to the registration statement on Form S-1 and an increase in Board fees of $206,000.

     We recorded approximately $593,000 and $1,252,000 of employee stock option expense during the three month and nine month periods ended September 30, 2007, respectively, as compared to approximately $310,000 and $846,000, respectively during the three month and nine month periods ended September 30, 2006. The increase in employee stock option expense relates primarily to stock option grants by RXi and the overall increase in our common share price.

Depreciation and Amortization

     Depreciation and amortization expenses for the three-month and nine-month periods ended September 30, 2007 were approximately $54,000 and $175,000, as compared to $53,000 and $192,000 for the three-month and nine-month periods ended September 30, 2006, respectively. The depreciation expense reflects the depreciation of our equipment and furnishings and the amortization expenses related to our molecular library, which was placed in service in March 2005. These expenses are classified as Research and Development or General and Administrative expenses depending upon the associated business activity.

Interest Income

     Interest income was $857,000 and $1,897,000 for the three and nine months ended September 30, 2007, respectively, compared to $296,000 and $580,000, respectively for the comparable periods of 2006. The differences between periods is attributable primarily to the cash available for investment each year and, to a lesser extent, changes in prevailing market rates.

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Minority Interest in Losses of Subsidiary

     We offset $77,092 and $255,228 of minority interest in losses of our subsidiary, RXi, against our net loss in the three-month and nine-month periods ended September 30, 2007, respectively. During 2006, no comparable entry was necessary. This loss was the minority shareholders’ portion of the loss attributed to RXi.

Related Party Transactions

     RXi was incorporated jointly in April 2006 by CytRx and the four current members of RXi’s scientific advisory board for the purpose of pursuing the possible development or acquisition of RNAi-related technologies and assets.

     We have entered into several agreements and arrangements with RXi, including the following:

     Contribution Agreement of January 8, 2007

     On January 8, 2007, we entered into a contribution agreement with RXi under which we assigned and contributed to RXi substantially all of our RNAi-related technologies and assets consisting primarily of licenses from UMMS and the Carnegie Institution of Washington relating to fundamental RNAi technologies, as well as equipment situated at our Worcester, Massachusetts, laboratory. In exchange for the contribution, RXi assumed primary responsibility for all payments to UMMS and other obligations under the licenses and other assets contributed by us and issued to us 7,040,318 shares of RXi common stock, which represented approximately 85% of RXi’s outstanding shares immediately following the issuance.

     Reimbursement Agreement

     On January 8, 2007, we also entered into a letter agreement with RXi under which RXi agreed to reimburse us for organizational and operational expenses incurred by us in connection with RXi’s formation and initial operations, and to bear or reimburse us for an allocable share of any investment banking fees, placement agent fees and other offering expenses incurred by us in connection with RXi’s fundraising activities.

     Stockholder and Preemptive Rights Agreement

     On February 15, 2007, we entered into a letter agreement with CytRx and some of RXi’s current stockholders under which RXi agreed to grant to us preemptive rights to acquire any “new securities” (as defined) that RXi proposes to sell or issue so that we may maintain our percentage ownership in RXi. The preemptive rights will become effective at any time that we own less than 50% of the outstanding shares of RXi common stock and will expire on January 8, 2012 or such earlier time at which we own less than 10% of RXi’s outstanding common stock.

     Under this letter agreement, we also undertake, during the term of RXi’s licenses with UMMS, to vote our shares of stock of RXi in the election of RXi’s directors to ensure that a majority of the board of directors of RXi are independent of us and to reduce our ownership of shares of RXi stock to less than a majority as soon as reasonably practicable. We intend to satisfy this obligation by undertaking the distribution to CytRx stockholders of a portion of our RXi shares pursuant to the registration statement on Form S-1 filed with the SEC by RXi on October 30, 2007. We further agree in this letter agreement to approve of actions that may be adopted and recommended by the RXi board of directors to facilitate any future financing by RXi.

     Contribution Agreement of April 30, 2007

     On April 30, 2007, we entered into another contribution agreement with RXi under which we contributed to RXi $17.0 million in exchange for 3,273,292 shares of RXi common stock. RXi used $2.0 million of this amount to reimburse us for the estimated amount of expenses that we had incurred as of April 30, 2007 pursuant to the January 8, 2007 reimbursement agreement described above. In September 2007, the actual expenses incurred by us were determined to be approximately $3.0 million, and on September 25, 2007, RXi issued to us 188,387 shares of RXi common stock as reimbursement of the excess expenses.

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     Registration Rights Agreement

     On April 30, 2007, we entered into a registration rights agreement with RXi under which RXi agrees, upon our request, to use its best efforts to cause to be registered under the Securities Act all of the RXi shares issued to us pursuant to our contribution agreements with RXi and to bear expenses incurred in connection with any such registration. Pursuant to the registration rights agreement, all of our RXi shares have been included as part of the registration statement filed on Form S-1 with the SEC by RXi on October 30, 2007.

     Relationship with Tod Woolf, Ph.D.

     Tod Woolf, Ph.D., the President and Chief Executive Officer of RXi, is one of our executive officers. Under the terms of Dr. Woolf’s employment agreement he is entitled to base annual compensation and other employee benefits. Additionally, he received a grant by RXi of options to purchase 317,000 shares of RXi common stock. Dr. Woolf may be deemed to have a material interest in our transactions with RXi described above, and in its future dealings with RXi, by reason of his status as RXi’s President and Chief Executive Officer and in light of the stock options granted to him by RXi.

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

     Our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in the general level of United States interest rates, particularly because a significant portion of our investments are in short-term debt securities issued by the U.S. government and institutional money market funds. The primary objective of our investment activities is to preserve principal. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure. We do not have any derivative financial instruments or foreign currency instruments. If interest rates had varied by 10% in the three-month period ended September 30, 2007, it would not have had a material effect on our results of operations or cash flows for that period.

Item 4 — Controls and Procedures

     Evaluation of Disclosure Controls and Procedures

     Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of the end of the quarterly period covered by this Quarterly Report and identified deficiencies, discussed below, that it considered to be material weaknesses in the effectiveness of our internal controls over financial reporting related to the recording of journal entries and our accounting for equity transactions. Pursuant to standards established by the Public Company Accounting Oversight Board, a “material weakness” is a “deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.”

     For the quarter ended June 30, 2007, we originally reported additional paid-in capital of $2.3 million attributable to RXi’s issuance to the University of Massachusetts Medical School, or UMMS, of approximately 462,000 shares of RXi common stock in payment for RXi’s acquisition of four technology licenses and an invention disclosure agreement entered into with UMMS in January 2007 that should have been accounted for on our consolidated balance sheet as minority interest in RXi. This accounting correction resulted in a corresponding reduction of $2.3 million in our additional paid-in capital and stockholders’ equity as of June 30, 2007, as well as an increase in loss attributable to minority interests and a decrease in our consolidated net loss of $176,000 for both the three-month and six-month periods ended June 30, 2007. Additionally, for the quarter ended June 30, 2007, we originally reported $227,000 in amounts withheld from employees for income taxes on compensation derived from exercises of options to purchase our common stock as an offset to general and administrative expenses in our consolidated statement of operations for the three-month and six-month periods ended June 30, 2007. The $227,000 is properly classified as a current liability as of June 30, 2007, which correction resulted in an increase in our consolidated net loss by the same amount for both the three-month and six-month periods ended June 30, 2007. The net effect of the correction of both of these items was a $51,000 increase in our consolidated net loss for the three-month and six-month periods ended June 30, 2007. Our reported earnings per share for these periods were not affected by these corrections.

     Based on the evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, our Chief Executive Officer and new Chief Financial Officer concluded that our disclosure

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controls and procedures related to the recording of journal entries and our accounting for equity transactions were not effective as of September 30, 2007.

     Changes in Controls over Financial Reporting

     During the quarterly period covered by this Quarterly Report, we made changes to our internal controls designed to strengthen our financial reporting in light of a material weakness in that regard reported in our original Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. During the quarterly period covered by this Quarterly Report, we hired a new Chief Financial Officer who has extensive SEC reporting experience, and on October 26, 2007, we hired a Chief Accounting Officer, to bolster our accounting and financial reporting functions, including the closing of our books and records for purposes of preparing our quarterly financial statements and our internal review of transactions relating to the business and operations of RXi.

     We are continuing our efforts in these regards in order to fully remedy the material weaknesses described above and to ensure that all of our controls and procedures are adequate and effective. Any failure to implement and maintain improvements in the controls over our financial reporting could cause us to fail to meet our reporting obligations under the SEC’s rules and regulations. Any failure to improve our internal controls to address the weaknesses we have identified could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our common stock.

PART II— OTHER INFORMATION

Item 1A — Risk Factors

     We Have Operated at a Loss and Will Likely Continue to Operate at a Loss For the Foreseeable Future

     We have operated at a loss due to substantial expenditures for research and development of our product candidates and for general and administrative purposes and our lack of significant recurring revenue. We incurred net losses of $16.8 million, $15.1 million and $16.4 million for the years ended December 31, 2006, 2005 and 2004, respectively. Our net losses applicable to common shareholders for the three-month and nine-month periods ended September 30, 2007 were $4.6 million and $15.4 million, respectively, as compared to $3.0 million and $13.1 million, respectively, for the same periods in 2006. We had an accumulated deficit as of September 30, 2007 of approximately $155 million, and we are likely to continue to incur losses unless and until we are able to commercialize one or more of our products. There is no assurance that we will ever become profitable.

     We Have No Source of Significant Recurring Revenue, Which Makes Us Dependent on Financing to Sustain Our Operations

     Our revenue was $2.0 million and $6.0 million, respectively, for three-month and nine-month periods ended September 30, 2007, of which $2.0 and $5.9, respectively, was deferred revenue recognized from our sale in August 2006 of a one-percent royalty interest in worldwide sales of arimoclomol. We will have no other significant recurring revenue until at least one of the following occurs:

• We are able to commercialize one or more of our products in development, which may require us to first enter into license or other arrangements with third parties.

• One or more of our licensed products is commercialized by our licensees, thereby generating royalty revenue for us.

• We are able to acquire products from third parties that are already being marketed or are approved for marketing.

     We have relied primarily upon proceeds from sales of our equity securities and the exercise of options and warrants, and to a much lesser extent upon payments from our strategic partners and licensees, to generate funds needed to finance our business and operations. At September 30, 2007, we had cash, cash equivalents and short-term investments of $66.2 million, and as of November 1, 2007, we had received approximately $2.2 million in connection with the exercise of warrants and options since September 30, 2007. We believe that we have adequate financial resources to support our currently planned level of operations into the second half of 2009, based, in part, upon projected expenditures for the remainder of 2007 and the first nine months of 2008 of $30.1 million, including $5.0 million for our planned clinical program for arimoclomol for ALS and related studies, $5.5 million for our other ongoing and planned clinical programs, including a planned Phase II clinical trial of arimoclomol in stroke patients and a planned Phase II clinical trial of iroxanadine for diabetic ulcers, $8.2 million for the operations of our research laboratory in San Diego and

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$8.8 million for other general and administrative expenses. We estimate that RXi separately will expend approximately $9.1 million for the remainder of 2007 and the first nine months of 2008.

     We anticipate it will take a minimum of three years, and possibly longer, for us to generate significant recurring revenue, and we will be dependent on future financing until such time, if ever, as we can generate significant recurring revenue. We have no commitments from third parties to provide us with any additional financing, and we may not be able to obtain future financing on favorable terms, or at all. If we are unable to obtain needed future financing, we may have to modify our long-term business plans.

     Our Current Financial Resources May Be Diminished If We Elect To Provide RXi with Additional Future Funding

     We have no obligation to provide any additional funding to RXi, but we might seek to do so in order to protect our investment in RXi if RXi is unable to obtain sufficient funding on its own. We have the right to provide additional funding to RXi only in connection with the exercise of our preemptive rights to purchase any new securities that may be sold or issued by RXi. If we provide RXi with any additional funding, we will have less funds available for our own business and operations.

     We Will Be Reliant Upon Third Parties for the Development and Eventual Marketing of Our Products

     Our business plan is to enter into strategic alliances, license agreements or other collaborative arrangements with other pharmaceutical companies under which those companies will be responsible for the commercial development and eventual marketing of our products. We currently plan to continue the development of arimoclomol for the treatment of ALS under our Master Agreement for clinical trials management services with Pharmaceutical Research Associates (PRA), and we may seek to market it ourselves if it is approved by the FDA; however, the completion of the development of arimoclomol and our other product candidates, as well as the marketing of these products, will likely require us to enter into strategic arrangements with other pharmaceutical or biotechnology companies.

     There can be no assurance that any of our products will have sufficient potential commercial value to enable us to secure strategic arrangements with suitable companies on attractive terms, or at all. If we are unable to enter into such arrangements, we may not have the financial or other resources to complete the development of any of our products. We do not have a commercial relationship with the company that provided an adjuvant for the vaccine for the Phase I clinical trial of our HIV vaccine candidate conducted by UMMS and Advanced BioScience Laboratories. If we are not able to enter into such a relationship, we may be unable to use some or all of the results of the clinical trial as part of our clinical data for obtaining FDA approval of this vaccine, which would delay the development of the vaccine.

     To the extent we enter into collaborative arrangements, we will be dependent upon the timeliness and effectiveness of the development and marketing efforts of our contractual partners. If these companies do not allocate sufficient personnel and resources to these efforts or encounter difficulties in complying with applicable FDA and other regulatory requirements, the timing of receipt or amount of revenue from these arrangements may be materially and adversely affected. By entering into these arrangements rather than completing the development and then marketing these products on our own, we may suffer a reduction in the ultimate overall profitability for us of these products. In addition, if we are unable to enter into these arrangements for a particular product, we may be required to either sell our rights in the product to a third party or abandon it unless we are able to raise sufficient capital to fund the substantial expenditures necessary for development and marketing of the product.

We Will Incur Substantial Expenses and May Be Required to Pay Substantial Milestone Payments Relating to Our Product Development Efforts

     We estimate that during the next two to three years we will incur significant expenses in connection with our planned Phase IIb clinical trial for arimoclomol for the treatment of ALS, including the completion of our planned Phase IIb efficacy trial and related activities. We are also planning to undertake a second efficacy clinical trial of arimoclomol for ALS, possibly in parallel with our planned Phase IIb trial, in order to provide additional efficacy data to support a possible approval decision by the FDA. The actual costs of our planned Phase IIb efficacy trial and any additional efficacy trial we undertake could significantly exceed our current estimates due to a variety of factors associated with the conduct of clinical trials generally, including those described below in this section below under “If Our Products Are Not Successfully Developed and Approved by the FDA, We May Be Forced to Reduce or Curtail Our Operations.”

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     Our agreement by which we acquired arimoclomol and our other molecular chaperone co-induction product candidates provides for milestone payments by us based on the occurrence of certain regulatory filings and approvals related to the acquired products. In the event that we successfully develop arimoclomol or any of these other product candidates, these milestone payments could aggregate as much as $3.7 million, with the most significant payments due upon the first commercialization of any of these products.

If Our Products Are Not Successfully Developed and Approved by the FDA, We May Be Forced to Reduce or Curtail Our Operations

     All of our products in development must be approved by the FDA or similar foreign governmental agencies before they can be marketed. The process for obtaining FDA and foreign government approvals is both time-consuming and costly, with no certainty of a successful outcome. This process typically includes the conduct of extensive pre-clinical and clinical testing, which may take longer or cost more than we or our licensees anticipate, and may prove unsuccessful due to numerous factors. Product candidates that may appear to be promising at early stages of development may not successfully reach the market for a number of reasons. The results of preclinical and initial clinical testing of these products may not necessarily indicate the results that will be obtained from later or more extensive testing. Companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier trials.

     Numerous factors could affect the timing, cost or outcome of our drug development efforts, including the following:

• Difficulty in securing centers to conduct trials.

• Difficulty in enrolling patients in conformity with required protocols or projected timelines.

• Unexpected adverse reactions by patients in trials.

• Difficulty in obtaining clinical supplies of the product.

• Changes in FDA or foreign governmental product testing, manufacturing or marketing requirements.

• Inability to generate statistically significant data confirming the efficacy of the product being tested.

• Modification of the product during testing.

• Inability to generate statistically significant data confirming the efficacy of the product being tested.

• Reallocation of our limited financial and other resources to other clinical programs.

     It is possible that none of the products we develop will obtain the appropriate regulatory approvals necessary for us to begin selling them. The time required to obtain FDA and foreign governmental approvals is unpredictable but often can take years following the commencement of clinical trials, depending upon the complexity of the drug candidate. Any analysis we perform of data from clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. Any delay or failure in obtaining required approvals could have a material adverse effect on our ability to generate revenue from the particular drug candidate.

Our Molecular Chaperone Co-Induction Drug Candidates May Not Receive Regulatory Marketing Approvals

     Our Phase IIa clinical trial and open-label trial extension of arimoclomol for the treatment of ALS indicated that arimoclomol was safe and well-tolerated in patients. We plan to initiate a Phase IIb efficacy trial of arimoclomol for this indication before the end of 2007, and plan to undertake a second efficacy trial of arimoclomol for ALS, possibly in parallel with our planned Phase IIb trial, to provide additional data to support a possible approval decision by the FDA. In addition, we are planning to conduct a Phase II clinical trial of arimoclomol in stroke patients, and we plan to conduct clinical development of iroxanadine for diabetic ulcers, both of which would require significant and costly additional testing. There is no guarantee that additional clinical testing of our product candidates will be successful, or that the FDA will approve marketing of any of our products and allow them to be sold in the United States.

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     We Have Recently Identified Material Weaknesses in Our Internal Controls Over Financial Reporting

     In this Quarterly Report, we identify material weaknesses in the effectiveness of our internal controls over financial reporting related to our accounting for an equity transaction by our RXi subsidiary and our tax withholding in connection with exercises of employee stock options that prompted us to restate our financial statements for the quarter ended June 30, 2007. In our original Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, we identified a material weakness related to our process for closing our quarterly books and records. In our amended Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, we restated our financial statements for the first three quarters of fiscal 2006 to reflect the proper accounting for transactions at our former laboratory facility. In our most recent Annual Report on Form 10-K, we also identified material weaknesses in the effectiveness of our internal controls over financial reporting related to the application of generally accepted accounting principles arising from our accounting for historical warrant anti-dilution adjustments as deemed dividends and in the effectiveness of our internal controls over quarterly and annual financial statement reporting arising from our accounting for research and development expenses related to our laboratory facility in Worcester, Massachusetts. These matters are described in more detail under the heading “Controls and Procedures” in this Quarterly Report and in our prior reports referred to above.

     Despite our efforts to ensure the integrity of our financial reporting process, we cannot guarantee that we will not identify other material weaknesses in the future. Any material weaknesses in our internal control over financial reporting could result in errors in our financial statements, which could erode market confidence in our company, adversely affect the market price of our common stock and, in egregious circumstances, result in possible claims based upon such financial information.

We Are Subject to Intense Competition, and There is No Assurance That We Can Compete Successfully

     We and our strategic partners or licensees may be unable to compete successfully against our current or future competitors. The pharmaceutical, biopharmaceutical and biotechnology industry is characterized by intense competition and rapid and significant technological advancements. Many companies, research institutions and universities are working in a number of areas similar to our primary fields of interest to develop new products. There also is intense competition among companies seeking to acquire products that already are being marketed. Many of the companies with which we compete have or are likely to have substantially greater research and product development capabilities and financial, technical, scientific, manufacturing, marketing, distribution and other resources than at least some of our present or future strategic partners or licensees.

     As a result, these competitors may:

• Succeed in developing competitive products sooner than us or our strategic partners or licensees.

• Obtain FDA or foreign governmental approvals for their products before we can obtain approval of any of our products.

• Obtain patents that block or otherwise inhibit the development and commercialization of our product candidates.

• Develop products that are safer or more effective than our products.

• Devote greater resources than us to marketing or selling products.

• Introduce or adapt more quickly than us to new technologies and other scientific advances.

• Introduce products that render our products obsolete.

• Withstand price competition more successfully than us or our strategic partners or licensees.

• Negotiate third-party strategic alliances or licensing arrangements more effectively than us.

• Take better advantage than us of other opportunities.

     We are aware of only one drug, Rilutek, which was developed by Aventis Pharma AG, that has been approved by the FDA for the treatment of ALS. Many companies are working to develop pharmaceuticals to treat ALS, including Aeolus Pharmaceuticals, Celgene Corporation, Mitsubishi Pharma Corporation, Ono Pharmaceuticals, Trophos SA, Faust Pharmaceuticals SA, Oxford BioMedica plc, Phytopharm plc and Teva Pharmaceutical Industries Ltd., as well as RXi. ALS belongs to a family of diseases called neurodegenerative diseases, including Alzheimer’s, Parkinson’s and Huntington’s disease. Due to similarities between these diseases,

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a new treatment for one such disease potentially could be useful for treating others. There are many companies producing and developing drugs used to treat neurodegenerative diseases other than ALS, including Amgen, Inc., Biogen Idec, Bohringer Ingelhaim, Cephalon, Inc., Ceregene, Inc., Elan Pharmaceuticals, plc, Forest Laboratories, Inc., H. Lundbeck A/S, Phytopharm plc, UCB Group and Wyeth.

     A number of companies are working to develop proprietary pharmaceuticals and cell-based therapies to treat diabetic wound healing, including Agennix, Inc., BioSyntech, Inc., CardioVascular BioTherapeutics, Inc., Cardium Therapeutics, Inc., Genentech Inc., KeraCure, Inc., King Pharmaceuticals, Inc. MacroChem Corporation, Oculus Innovative Sciences, Inc., Rovi Pharmaceutical Laboratories, SanuWave, Inc. and Wyeth.

     Companies developing HIV vaccines that could compete with our HIV vaccine technology include Merck, GlaxoSmithKline, Sanofi Pasteur, VaxGen, Inc., AlphaVax, Inc. and Immunitor Corporation. Most of our competitors have substantially greater research and product development capabilities and financial, technical, scientific, manufacturing, marketing, distribution and other resources than us.

     We Will Rely Upon Third Parties for the Manufacture of Our Clinical Product Supplies

     We do not have the facilities or expertise to manufacture supplies of any of our product candidates, including the clinical supply of arimoclomol used in our Phase II clinical trials. Accordingly, we are dependent upon contract manufacturers or our strategic alliance partners to manufacture these supplies. We have a manufacturing supply arrangement in place with respect to the clinical supplies for the Phase II clinical program for arimoclomol for ALS. We have no manufacturing supply arrangements for any of our other product candidates, and there can be no assurance that we will be able to secure needed manufacturing supply arrangements on attractive terms, or at all. Our failure to secure these arrangements as needed could have a materially adverse effect on our ability to complete the development of our products or to commercialize them.

We May Be Unable to Protect Our Intellectual Property Rights, Which Could Adversely Affect the Value of Our Assets

     We believe that obtaining and maintaining patent and other intellectual property rights for our technologies and potential products is critical to establishing and maintaining the value of our assets and our business. Although we have patents and patent applications directed to our molecular chaperone co-induction technologies, there can be no assurance that these patents and applications will prevent third parties from developing or commercializing similar or identical technologies, that the validity of our patents will be upheld if challenged by third parties or that our technologies will not be deemed to infringe the intellectual property rights of third parties. In particular, although we conducted certain due diligence regarding the patents and patent applications related to our molecular chaperone co-induction drug candidates, and received certain representations and warranties from the seller in connection with the acquisition, the patents and patent applications related to our molecular chaperone co-induction drug candidates were issued or filed, as applicable, prior to our acquisition and thus there can be no assurance that the validity, enforceability and ownership of those patents and patent applications will be upheld if challenged by third parties.

     Any litigation brought by us to protect our intellectual property rights or by third parties asserting intellectual property rights against us, or challenging our patents, could be costly and have a material adverse effect on our operating results or financial condition, make it more difficult for us to enter into strategic alliances with third parties to develop our products, or discourage our existing licensees from continuing their development work on our potential products. If our patent coverage is insufficient to prevent third parties from developing or commercializing similar or identical technologies, the value of our assets is likely to be materially and adversely affected.

     We Are Subject to Potential Liabilities From Clinical Testing and Future Product Liability Claims

     If any of our products are alleged to be defective, they may expose us to claims for personal injury by patients in clinical trials of our products or by patients using our commercially marketed products. Even if the commercialization of one or more of our products is approved by the FDA, users may claim that such products caused unintended adverse effects. We currently do not carry product liability insurance covering the commercial marketing of these products. We obtained clinical trial insurance for our Phase IIa clinical trial of arimoclomol for the treatment of ALS, and will seek to obtain similar insurance for the planned Phase IIb clinical trial of arimoclomol and any other clinical trials that we conduct, as well as liability insurance for any products that we market. There can be no assurance that we will be able to obtain additional insurance in the amounts we seek, or at all. We anticipate that our licensees who

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are developing our products will carry liability insurance covering the clinical testing and marketing of those products. There is no assurance, however, that any insurance maintained by us or our licensees will prove adequate in the event of a claim against us. Even if claims asserted against us are unsuccessful, they may divert management’s attention from our operations and we may have to incur substantial costs to defend such claims.

     We May Be Unable to Acquire Products Approved For Marketing

     In the future, we may seek to acquire products from third parties that already are being marketed or have been approved for marketing. We have not identified any of these products, and we do not have any prior experience in acquiring or marketing products and may need to find third parties to market any products that we might acquire. We may also seek to acquire products through a merger with one or more companies that own such products. In any such merger, the owners of our merger partner could be issued or hold a substantial, or even controlling, amount of stock in our company or, in the event that the other company is the surviving company, in that other company.

Risks Associated With Our Ownership of RXi

     RXi is Subject to Risks of a New Business

     RXi is a development-stage company with limited operating history. RXi began operating on a stand-alone basis in February 2007, and is focused initially on developing and commercializing therapeutic products based upon its RNAi technologies. There is no assurance that RXi will be able to successfully implement its business plan. While RXi’s management collectively possesses substantial business experience, there is no assurance that they will be able to manage RXi’s business effectively, or that they will be able to identify, hire and retain any needed additional management or scientific personnel, to develop and implement RXi’s product development plans, obtain third-party contracts or any needed financing, or achieve the other components of RXi’s business plan.

The Approach RXi is Taking to Discover and Develop Novel Therapeutics Using RNAi is Unproven and May Never Lead to Marketable Products

     The scientific discoveries that form the basis for RXi’s efforts to discover and develop new drugs are relatively new. The RNAi technologies that RXi has licensed from UMMS have not yet been clinically tested by RXi, nor are we aware of any clinical trials having been completed by third parties involving similar technologies. The scientific evidence to support the feasibility of developing drugs based on these discoveries is both preliminary and limited, and no company has received regulatory approval to market therapeutics utilizing RNAi. Successful development of RNAi-based products by RXi will require solving a number of issues, including providing suitable methods of stabilizing the RNAi drug material and delivering it into target cells in the human body. RXi may expend large amounts of money trying to solve these issues, and never succeed in doing so. In addition, any compounds that RXi develops may not demonstrate in patients the chemical and pharmacological properties ascribed to them in laboratory studies, and they may interact with human biological systems in unforeseen, ineffective or even harmful ways.

     The Distribution of RXi Common Stock to Our Stockholders May be Taxable to CytRx

     On October 29, 2007, RXi filed a registration statement with the SEC to register the shares of RXi common stock that will be distributed to CytRx stockholders. The registration statement filed by RXi also covers shares of RXi common stock that will be awarded by us to some of our directors, officers and other employees. Following the distribution and award transactions, we will own 6,212,861 shares of RXi common stock, or approximately 49% of the outstanding RXi shares, all of which have been registered for resale by us pursuant to the registration statement filed by RXi. We will recognize gain on the distribution of shares of RXi common stock in an amount equal to the excess of the fair market value of the stock distributed over our basis. This gain will be included in determining whether we have current year earnings and profits.

The FDA Approval Process May be Delayed for Any Drugs RXi Develops That Require the Use of Specialized Drug Delivery Devices or Vehicles

     Some drug candidates that RXi may develop may need to be administered using specialized vehicles that deliver RNAi therapeutics to diseased parts of the body. While RXi expects to rely on drug delivery vehicles that have been approved by the FDA or other regulatory agencies, RXi may need to modify the design or labeling of these delivery vehicles for products that it may develop.

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In such event, the FDA may regulate the product as a combination product of a drug and a device, or require additional approvals or clearances for the modified delivery. To the extent any specialized delivery vehicle is owned by another, RXi would need that company’s cooperation to implement the necessary changes to the vehicle, or its labeling, and to obtain any additional approvals or clearances. Any delays in finding suitable drug delivery vehicles to administer RNAi therapeutics directly to diseased parts of the body could negatively affect RXi’s ability to successfully commercialize its RNAi therapeutics.

RXi May Be Unable to Protect Its Intellectual Property Rights Licensed From UMMS or May Need to License Additional Intellectual Property from Others.

     The assets we contributed to RXi include a non-exclusive license to the fundamental Fire & Mello foundational patent owned by UMMS and the Carnegie Institution of Washington, which claims various aspects of RNAi (sometimes referred to as gene silencing), or genetic inhibition by double-stranded RNA. The license continues to be available to third parties and, as such, it does not provide RXi with the ability to exclude others from its use or protect RXi from competition. Therapeutic applications of gene silencing technology and other technologies that RXi licenses from UMMS are also claimed in a number of UMMS pending patent applications, but there is no assurance that these applications will result in any issued patents or that any such issued patents would withstand possible legal challenges or effectively insulate RXi’s technologies from competition. We are aware of a number of third party-issued patents directed to various forms and compositions of RNAi-mediating molecules, or therapeutic methods using them, that RXi does not currently expect to use. Third parties may, however, hold or seek to obtain additional patents that could make it more difficult or impossible for RXi to develop products based on the gene silencing technology that RXi has licensed.

     In addition, others may challenge the patent owned by UMMS and the Carnegie Institution of Washington or other patents that RXi currently licenses or may license in the future. As a result, these patents could be narrowed, invalidated or rendered unenforceable, which would negatively affect RXi’s ability to exclude others from use of RNAi technologies described in these patents.

     RXi has entered into an invention disclosure agreement with UMMS under which UMMS has agreed to disclose to RXi certain inventions it makes and to give RXi the exclusive right to negotiate licenses to the disclosed inventions. There can be no assurance, however, that any such inventions will arise, that RXi will be able to negotiate licenses to any inventions on satisfactory terms, or at all, or that any negotiated licenses will prove commercially successful.

     RXi may need to license additional intellectual property rights from third parties in order to be able to complete the development or enhance the efficacy of its product candidates or avoid possible infringement of the rights of others. There is no assurance that RXi will be able to acquire any additional intellectual property rights on satisfactory terms, or at all.

RXi May Not Be Able to Obtain Sufficient Financing, and Our Ownership Interest in RXi May be Diluted by Additional Funding

     On April 30, 2007, we provided to RXi $15.0 million, net of approximately $3.0 million of expenses reimbursed to us by RXi, to satisfy the initial funding requirements under its agreements with UMMS. Management of RXi believes this initial funding will be sufficient to fund RXi’s planned business and operations into the first quarter of 2009. It is possible, however, that RXi may need to incur debt or issue equity in order to fund these requirements or to make acquisitions and other investments. We anticipate that RXi will need to raise substantial amounts of money to fund a variety of future activities integral to the development of its business, including, but not limited to, conducting research and development of its RNAi technologies and obtaining regulatory approval for its products.

     We contributed to RXi all of our RNAi-related technologies to RXi in order to accelerate the development and commercialization of drugs based upon these and RXi’s other RNAi technologies. Although we believe that this will facilitate obtaining additional financing to pursue RXi’s RNAi development efforts, RXi has no commitments or arrangements for any financing, and there is no assurance that it will be able to obtain any future financing.

     Under our agreement with RXi and its other current stockholders, with some exceptions, CytRx will have preemptive rights to acquire a portion of any new securities sold or issued by RXi so as to maintain our percentage ownership of RXi. Depending upon the terms and provisions of any proposed sale of new securities by RXi, we may be unable or unwilling to exercise our preemptive rights, in which event our percentage ownership interest in RXi would be diluted.

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We May Be Required To Dispose of Some of Our RXi Shares, and May Not Be Able To Do So On Attractive Terms

     If the value of RXi shares owned by us from time to time were to exceed 40% of the value of our total assets, we may be deemed an “investment company” within the meaning of the Investment Company Act of 1940 and become subject to the stringent regulations applicable to investment companies. In this event, we would likely seek to sell or otherwise dispose of shares of our common stock in order to avoid becoming an inadvertent investment company. There is no assurance that we would be able to sell or divest of RXi shares at attractive prices, and any such sales or other disposition by us, or the possibility of such sales or disposition, could adversely affect the market price of our RXi shares.

     RXi Retains Discretion Over Its Use of Any Funds That We Provide To It

     We do not and will not control the day-to-day operations of RXi. Accordingly, all funds provided by us to RXi may be used by RXi in any manner its management deems appropriate, for its own purposes, including the payment of salaries and expenses of its officers and other employees, amounts called for under the UMMS licenses and invention disclosure agreement, and for other costs and expenses of its RNAi research and development activities.

We Will Not Control RXi, And the Officers, Directors and Other RXi Stockholders May Have Interests That Are Different From Ours

     We have entered into a letter agreements with UMMS and RXi and its other current stockholders under which we agree to vote our shares of RXi common stock for the election of directors of RXi and to take other actions to ensure that a majority of the RXi board of directors are independent of us. The other stockholders of RXi may have interests that are different from ours. Accordingly, RXi may engage in actions or develop its business and operations in a manner that we believe is not in our best interests.

Products Developed by RXi Could Eventually Compete With Our Products For ALS, Type 2 Diabetes and Obesity and Other Disease Indications

     RXi is focusing its initial efforts on developing an RNAi therapeutics for the treatment of a specific form of ALS caused by a defect in the SOD1 gene. Although we are developing arimoclomol for treatment for all forms of ALS, it is possible that any products developed by RXi for the treatment of ALS could compete with any ALS products that we may develop. RXi also plans to pursue the development of RNAi therapeutics for the treatment of obesity and type 2 diabetes, which could compete with any products that we may develop for the treatment of these diseases. The potential commercial success of any products that we may develop for these and other diseases may be adversely affected by competing products that RXi may develop.

     RXi Will Be Subject to Competition, and It May Not Be Able To Compete Successfully

     A number of medical institutions and pharmaceutical companies are seeking to develop products based on gene silencing technologies. Companies working in this area include Alnylam Pharmaceuticals, Sirna Therapeutics (which was recently acquired by Merck), Acuity Pharmaceuticals, Nastech Pharmaceutical Company Inc., Cequent Pharmaceuticals, Inc., Nucleonics, Inc., Tacere Therapeutics Inc., Benitec Ltd., Opko Corp., Silence Therapeutics plc (formerly SR Pharma plc), Quark Pharmaceuticals, Inc., Rosetta Genomics Ltd., Calanda Pharmaeuticals, Inc. and Isis Pharmaceuticals, Inc., and a number of multinational pharmaceutical companies. These competitors have substantially greater research and development capabilities and financial, scientific, technical, manufacturing, marketing, distribution, and other resources than RXi, and RXi may not be able to compete successfully. In addition, even if RXi is successful in developing its product candidates, in order to compete successfully, it may need to be first to market or to demonstrate that its RNAi-based products are superior to therapies based on different technologies. If RXi is not “first to market” or is unable to demonstrate such superiority, its products may be not successful.

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Risks Associated with Our Common Stock

Our Anti-Takeover Provisions May Make It More Difficult to Change Our Management or May Discourage Others From Acquiring Us and Thereby Adversely Affect Stockholder Value

     We have a stockholder rights plan and provisions in our bylaws that are intended to protect our stockholders’ interests by encouraging anyone seeking control of our company to negotiate with our board of directors, and that may discourage or prevent a person or group from acquiring us without the approval of our board of directors.

     We have a classified board of directors, which means that at least two stockholder meetings, instead of one, will be required to effect a change in the majority control of our board of directors. This provision applies to every election of directors, not just an election occurring after a change in control. The classification of our board increases the amount of time it takes to change majority control of our board of directors and may cause our potential purchasers to lose interest in the potential purchase of us, regardless of whether our purchase would be beneficial to us or our stockholders. The additional time and cost to change a majority of the members of our board of directors makes it more difficult and may discourage our existing stockholders from seeking to change our existing management in order to change the strategic direction or operational performance of our company.

     Our bylaws provide that directors may only be removed for cause by the affirmative vote of the holders of at least a majority of the outstanding shares of our capital stock then entitled to vote at an election of directors. This provision prevents stockholders from removing any incumbent director without cause. Our bylaws also provide that a stockholder must give us at least 120 days notice of a proposal or director nomination that such stockholder desires to present at any annual meeting or special meeting of stockholders. Such provision prevents a stockholder from making a proposal or director nomination at a stockholder meeting without us having advance notice of that proposal or director nomination. This could make a change in control more difficult by providing our directors with more time to prepare an opposition to a proposed change in control. By making it more difficult to remove or install new directors, the bylaw provisions may also make our existing management less responsive to the views of our stockholders with respect to our operations and other issues such as management selection and management compensation.

Our Outstanding Options and Warrants and the Availability for Resale of Our Shares Issued in Our Private Financings May Adversely Affect the Trading Price of Our Common Stock

     As of September 30, 2007, there were outstanding stock options and warrants to purchase approximately 26.9 million shares of our common stock at a weighted-average exercise price of $2.68 per share. Our outstanding options and warrants could adversely affect our ability to obtain future financing or engage in certain mergers or other transactions, since the holders of options and warrants can be expected to exercise them at a time when we may be able to obtain additional capital through a new offering of securities on terms more favorable to us than the terms of outstanding options and warrants. For the life of the options and warrants, the holders have the opportunity to profit from a rise in the market price of our common stock without assuming the risk of ownership. To the extent the trading price of our common stock at the time of exercise of any such options or warrants exceeds the exercise price, such exercise will also have a dilutive effect on our stockholders. Many of our outstanding warrants contain anti-dilution provisions pertaining to dividends or distributions with respect to our common stock. Our outstanding warrants to purchase approximately 1.4 million shares also contain anti-dilution provisions that are triggered upon any issuance of securities by us below the prevailing market price of our common stock. In the event that these anti-dilution provisions are triggered by us in the future, we would be required to reduce the exercise price, and increase the number of shares underlying, those warrants, which would have a dilutive effect on our stockholders.

     As of October 31, 2007, we had registered with the SEC for resale by the holders a total of approximately 89 million outstanding shares of our common stock and approximately 27.7 million shares of our common stock issuable upon exercise of outstanding options and warrants. The availability of these shares for public resale, as well as actual resales of these shares, could adversely affect the trading price of our common stock.

We May Issue Preferred Stock in the Future, and the Terms of the Preferred Stock May Reduce the Value of Our Common Stock

     We are authorized to issue up to 5,000,000 shares of preferred stock in one or more series. Our board of directors may determine the terms of future preferred stock offerings without further action by our stockholders. If we issue preferred stock, it could affect your rights or reduce the value of our outstanding common stock. In particular, specific rights granted to future holders of preferred

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stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party.

We May Experience Volatility in Our Stock Price, Which May Adversely Affect the Trading Price of Our Common Stock

     The market price of our common stock has ranged from $1.38 to $5.49 per share during the 52-week period ended October 31, 2007, and may continue to experience significant volatility from time to time. Factors such as the following may affect such volatility:

• Announcements of regulatory developments or technological innovations by us or our competitors.

• Changes in our relationship with our licensors and other strategic partners.

• Changes in our ownership or other relationships with RXi.

• Our quarterly operating results.

• Developments in patent or other technology ownership rights.

• Public concern regarding the safety of our products.

• Government regulation of drug pricing.

     Other factors which may affect our stock price are general changes in the economy, the financial markets or the pharmaceutical or biotechnology industries.

Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds

     Since our Quarterly Report on Form 10-Q filed with the SEC on August 9, 2007, we have issued a total of 814,910 shares of our common stock in unregistered sales of our equity securities. The 814,910 shares were issued to two warrant holders in connection with the exercise of outstanding common stock purchase warrants as follows: 175,000 shares were issued on October 26, 2007 upon the payment of a warrant exercise price of $1.69 per share; 406,504 shares were issued on October 26, 2007 upon the payment of a warrant exercise price of $2.00 per share; and 233,406 shares were issued on September 12, 2007 pursuant to the cashless exercise provisions of the warrants through the surrender of the right to purchase 326,000 shares. We received approximately $1.1 million in the aggregate upon the exercise of the foregoing warrants.

     The warrants were issued by us in private placements exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of the Securities Act of 1933 and Regulation D under the Act. The issuance of the foregoing shares of common stock upon exercise of the warrants also was exempt from registration under Section 4(2) and Regulation D.

Item 6. — Exhibits

     The exhibits listed in the accompanying Index to Exhibits are filed as part of this Quarterly Report on Form 10-Q and incorporated herein by reference.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CYTRX CORPORATION (Registrant)
Date: November 13, 2007	By:	/s/ MITCHELL K. FOGELMAN
		Mitchell K. Fogelman
		Chief Financial Officer (Principal Financial Officer)

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INDEX TO EXHIBITS

Exhibit
Number	Description
10.1 *	Employment Agreement dated September 11, 2007, between CytRx Corporation and Mitchell K. Fogelman
10.2	Lease dated September 25, 2007, between RXi Pharmaceuticals Corporation and Newgate Properties, LLC
10.3 *	Employment Letter dated October 26, 2007, between CytRx Corporation and John Y. Caloz
31.1	Certification of Chief Executive Officer Pursuant to 17 CFR 240.13a-14(a)
31.2	Certification of Chief Financial Officer Pursuant to 17 CFR 240.13a-14(a)
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Indicates a management contract or compensatory plan or arrangement.

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EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This Employment Agreement (this “Agreement”) is made and entered into as of September 11, 2007 (the “Effective Date”) by and between CytRx Corporation, a Delaware corporation (“Employer”), and Mitchell K. Fogelman, an individual and resident of the State of California (“Employee”).

     WHEREAS, Employer desires to engage Employee as an employee, and Employee is willing to be so engaged by Employer, on the terms set forth in this Agreement.

     NOW, THEREFORE, upon the above premises, and in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows.

     1. Employment. Effective as of the Effective Date, Employer shall employ Employee, and Employee shall serve, as Employer’s Chief Financial Officer on the terms set forth herein.

     2. Duties; Place of Employment. Employee shall perform in a professional and business-like manner, and to the best of his ability, the duties described on Schedule 1 to this Agreement and such other duties as are assigned to him from time to time by Employer’s Chief Executive Officer. Employee understands and agrees that his duties, title and authority may be changed from time to time in the discretion of Employer’s Chief Executive Officer. Employee’s services hereunder shall be rendered at Employer’s principal executive offices, except for travel when and as required in the performance of Employee’s duties hereunder.

     3. Time and Efforts. Employee shall devote all of his business time, efforts, attention and energies to Employer’s business and to discharge his duties hereunder.

     4. Term. The term (the “Term”) of Employee’s employment hereunder shall commence on the Effective Date and shall expire on December 31, 2008, unless sooner terminated in accordance with Section 6. Neither Employer nor Employee shall have any obligation to extend or renew this Agreement. In the event this Agreement shall not be extended or renewed, Employer shall continue to pay Employee his salary as provided for in Section 5.1 during the period commencing on the final date of the Term and ending on (a) June 30, 2009 or (b) the date of Employee’s re-employment with another employer, whichever is earlier.

     5. Compensation. As the total consideration for Employee’s services rendered hereunder, Employer shall pay or provide Employee the following compensation and benefits:

          5.1. Salary. Employee shall be entitled to receive an annual salary of Two Hundred Fifty Thousand Dollars ($250,000), payable in 24 semi-monthly

S2 -1

installments on the 15^th day and the last day of each calendar month during the Term, with the first such prorated installment due on September 15, 2007.

          5.2. Discretionary Bonus. Employee may be eligible for a bonus for his services during the Term. Employee’s eligibility to receive a bonus, any determination to award Employee such a bonus and, if awarded, the amount thereof shall be in Employer’s sole discretion.

          5.3. Stock Options. Employer shall grant Employee as of the Effective Date a nonqualified stock option under Employer’s 2000 Long-Term Incentive Plan (the “Plan”) to purchase 150,000 shares of Employer’s common stock (the “Option”). The Option shall vest and become exercisable in 36 equal monthly installments beginning on the one-month anniversary of the date of grant, provided, in each case, that Employee remains in the continuous employ of Employer through such anniversary date. The Option shall (a) be exercisable at an exercise price equal to $3.40 per share, (b) have a term of ten years, and (c) be on such other terms as shall be determined by Employer’s Board of Directors (or the Compensation Committee of the Board) and set forth in a customary form of stock option agreement under the Plan evidencing the Option. Notwithstanding anything to the contrary in Section 6.2 or other provision of this Agreement or of the stock option agreement evidencing the Option, upon the occurrence of a “Change in Control” (as defined in the Plan), the Option shall thereupon vest and become exercisable as to all of the shares covered thereby in accordance with the terms of the Plan.

          5.4. Expense Reimbursement. Employer shall reimburse Employee for reasonable and necessary business expenses incurred by Employee in connection with the performance of Employee’s duties in accordance with Employer’s usual practices and policies in effect from time to time.

          5.5. Vacation. Employee shall be entitled to fifteen business days of vacation each year during the Term in accordance with California law.

          5.6. Employee Benefits. Employee shall be eligible to participate in any medical insurance and other employee benefits made available by Employer to all of its employees under its group plans and employment policies in effect during the Term. Schedule 2 hereto sets forth a summary of such plans and policies as currently in effect. Employee acknowledges and agrees that, any such plans or policies now or hereafter in effect may be modified or terminated by Employer at any time in its discretion.

          5.7. Payroll Taxes. Employer shall have the right to deduct from the compensation and benefits due to Employee hereunder any and all sums required for social security and withholding taxes and for any other federal, state, or local tax or charge which may be in effect or hereafter enacted or required as a charge on the compensation or benefits of Employee.

     6. Termination. This Agreement may be terminated as set forth in this Section 6.

          6.1. Termination by Employer for Cause. Employer may terminate Employee’s employment hereunder for “Cause” upon notice to Employee. “Cause” for this purpose shall mean any of the following:

               (a) Employee’s breach of any material term of this Agreement; provided that the first occasion of any particular breach shall not constitute such Cause unless Employee shall have previously received written notice from Employer stating the nature of such breach and affording Employee at least ten days to correct such breach;

               (b) Employee’s conviction of, or plea of guilty or nolo contendere to, any misdemeanor, felony or other crime of moral turpitude;

               (c) Employee’s act of fraud or dishonesty injurious to Employer or its reputation;

               (d) Employee’s continual failure or refusal to perform his material duties as required under this Agreement after written notice from Employer stating the nature of such failure or refusal and affording Employee at least ten days to correct the same;

               (e) Employee’s act or omission that, in the reasonable determination of Employer’s Board of Directors (or a Committee of the Board), indicates alcohol or drug abuse by Employee; or

               (f) Employee’s act or personal conduct that, in the judgment of Employer’s Board of Directors (or a Committee of the Board), gives rise to a material risk of liability of Employee or Employer under federal or applicable state law for discrimination, or sexual or other forms of harassment, or other similar liabilities to subordinate employees.

     Upon termination of Employee’s employment by Employer for Cause, all compensation and benefits to Employee hereunder shall cease and Employee shall be entitled only to payment, not later than three days after the date of termination, of any accrued but unpaid salary and unused vacation as provided in Sections 5.1 and 5.5 as of the date of such termination and any unpaid bonus that may have been awarded Employee as provided in Section 5.2 prior to such date.

          6.2. Termination by Employer without Cause. Employer may also terminate Employee’s employment without Cause upon ten days notice to Employee. Upon termination of Employee’s employment by Employer without Cause, all compensation and benefits to Employee hereunder shall cease and Employee shall be entitled to payment of (1) any accrued but unpaid salary and unused vacation as of the date of such termination as required by California law, which shall be due and payable upon the effective date of such termination, and (2) an amount, which shall be due and payable within ten days following the effective date of such termination, equal to six months’ salary as provided in Section 5.1.

          6.3. Death or Disability. Employee’s employment will terminate automatically in the event of Employee’s death or upon notice from Employer in event of his permanent disability. Employee’s “permanent disability” shall have the meaning ascribed to such term in any policy of disability insurance maintained by Employer (or by Employee, as the case may be) with respect to Employee or, if no such policy is then in effect, shall mean Employee’s inability to fully perform his duties hereunder for any period of at least 75 consecutive days or for a total of 90 days, whether or not consecutive. Upon termination of Employee’s employment as aforesaid, all compensation and benefits to Employee hereunder shall cease and Employer shall pay to the Employee’s heirs or personal representatives, not later than ten days after the date of termination, any accrued but unpaid salary and unused vacation as of the date of such termination as required by California law.

     7. Confidentiality. While this Agreement is in effect and for a period of five years thereafter, Employee shall hold and keep secret and confidential all “trade secrets” (within the meaning of applicable law) and other confidential or proprietary information of Employer and shall use such information only in the course of performing Employee’s duties hereunder; provided, however, that with respect to trade secrets, Employee shall hold and keep secret and confidential such trade secrets for so long as they remain trade secrets under applicable law. Employee shall maintain in trust all such trade secrets or other confidential or proprietary information, as Employer’s property, including, but not limited to, all documents concerning Employer’s business, including Employee’s work papers, telephone directories, customer information and notes, and any and all copies thereof in Employee’s possession or under Employee’s control. Upon the expiration or earlier termination of Employee’s employment with Employer, or upon request by Employer, Employee shall deliver to Employer all such documents belonging to Employer, including any and all copies in Employee’s possession or under Employee’s control.

     8. Equitable Remedies; Injunctive Relief. Employee hereby acknowledges and agrees that monetary damages are inadequate to fully compensate Employer for the damages that would result from a breach or threatened breach of Section 7 of this Agreement and, accordingly, that Employer shall be entitled to equitable remedies, including, without limitation, specific performance, temporary restraining orders, and preliminary injunctions and permanent injunctions, to enforce such Section without the necessity of proving actual damages in connection therewith. This provision shall not, however, diminish Employer’s right to claim and recover damages or enforce any other of its legal or equitable rights or defenses.

     9. Indemnification; Insurance. Employer and Employee acknowledge that, as the Chief Financial Officer of the Employer, Employee shall be a corporate officer of Employer and, as such, Employee shall be entitled to indemnification to the full extent provided by Employer to its officers, directors and agents under the Employer’s Certificate of Incorporation and Bylaws as in effect as of the date of this Agreement. Subject to his insurability thereunder, effective the Effective Date, Employer shall add Employee as an additional insured under its current policy of directors and officers liability insurance and shall use commercially reasonable efforts to continue to insure

Employee thereunder, or under any replacement policies in effect from time to time, during the Term.

     10. Severable Provisions. The provisions of this Agreement are severable and if any one or more provisions is determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions, and any partially unenforceable provisions to the extent enforceable, shall nevertheless be binding and enforceable.

     11. Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon Employer, its successors and assigns and Employee and his heirs and representatives; provided, however, that neither party may assign this Agreement without the prior written consent of the other party.

     12. Entire Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement that are not set forth otherwise herein. This Agreement supersedes any and all prior or contemporaneous agreements, written or oral, between Employee and Employer relating to the subject matter hereof. Any such prior or contemporaneous agreements are hereby terminated and of no further effect, and Employee, by the execution hereof, agrees that any compensation provided for under any such agreements is specifically superseded and replaced by the provisions of this Agreement.

     13. Amendment. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto and unless such writing is made by an executive officer of Employer (other than Employee). The parties hereto agree that in no event shall an oral modification of this Agreement be enforceable or valid.

     14. Governing Law. This Agreement is and shall be governed and construed in accordance with the laws of the State of California without giving effect to California’s choice-of-law rules.

     15. Notice. All notices and other communications under this Agreement shall be in writing and mailed, telecopied (in case of notice to Employer only) or delivered by hand or by a nationally recognized courier service guaranteeing overnight delivery to a party at the following address (or to such other address as such party may have specified by notice given to the other party pursuant to this provision):

If to Employer:

CytRx Corporation
11726 San Vicente Boulevard, Suite 650
Los Angeles, California 90049
Facsimile: (310) 826-5529
Attention: Chief Executive Officer

If to Employee:

Mitchell K. Fogelman
____________________
____________________

     16. Survival. Sections 7 through 16 shall survive the expiration or termination of this Agreement.

     17. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same agreement.

     18. Attorney’s Fees. In any action or proceeding to construe or enforce any provision of this Agreement the prevailing party shall be entitled to recover its or his reasonable attorneys’ fees and other costs of suit (up to a maximum of $15,000) in addition to any other recoveries.

     IN WITNESS WHEREOF, this Agreement is executed as of the day and year first above written.

“EMPLOYER” CytRx Corporation
By:	/s/ STEVEN A. KRIEGSMAN
	Steven A. Kriegsman
	Chief Executive Officer
“EMPLOYEE”
/s/ MITCHELL K. FOGELMAN
Mitchell K. Fogelman

EX-10.2

Exhibit 10.2

L E A S E

     THIS LEASE is dated as of September 25, 2007, 2007 between the Landlord and the Tenant named below, and is of space in the Building described below.

ARTICLE 1
BASIC DATA; DEFINITIONS

     1.1 Basic Data. Each reference in this Lease to any of the following terms shall be construed to incorporate the data for that term set forth in this Section:

     Landlord: Newgate Properties, LLC

     Landlord’s Address: 100 Institute Road, Worcester, MA 01609

     Tenant: RXI Pharmaceuticals Corporation

     Tenant’s Address: One Innovation Drive, Worcester, MA

     Property: 60-68 Prescott Street, One Gateway Place, Worcester, MA

     Building: The building commonly known and numbered as 60 Prescott Street, Worcester, MA.

     Premises: The portion of the first floor of the Building consisting of approximately 2,882 usable square feet of office space and a portion of the third floor consisting of approximately 2,425 usable square feet of laboratory space, all as more particularly shown on Exhibit A attached hereto. The specific area of the Premises shall be determined by the registered architect for the Landlord in accordance with the methodology set forth in Exhibit A-1.

     Basic Rent: The Basic Rent for the Premises is as follows:

RENTAL PERIOD	MONTHLY BASIC RENT
Rent Commencement Date to July 31, 2009	$	15,036.50

          Security Deposit. Upon the execution of the Lease, the Tenant shall be obligated to pay to the Landlord one month’s rent (the “Security Deposit”) in the manner described at Section 1.1 hereof, which shall be held as security for the Tenant’s performance as herein provided and refunded to the Tenant at the end of the Lease subject to the Tenant’s satisfactory compliance with the conditions hereof. The Landlord shall not be obligated to pay interest on or segregate such amount from other funds of the Landlord.

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     Lease Commencement Date: Upon Substantial Completion of the Landlord’s Improvements described herein by the Landlord and delivery to the Tenant in accordance with the terms of this Lease. The parties shall acknowledge the Lease Commencement Date on the form attached hereto as Exhibit B.

     Rent Commencement Date: Upon the later of: (i) Landlord’s Substantial Completion of the Landlord’s Improvements described herein by the Landlord; or (ii) December 1, 2007.

     Term: One term of approximately twenty (20) months (“Initial Term”), commencing on the Lease Commencement Date and expiring on the last day of the calendar month after the expiration of twenty (20) calendar months after the Rent Commencement Date. Notwithstanding anything to the contrary herein, Tenant shall have the options (i) to terminate this Lease effective on any date at least six (6) months after the Term Commencement Date as may be specified by at least ninety (90) days’ notice to Landlord (in which event this Lease shall terminate on such effective date with the same effect as if such effective date were the date originally specified herein for the expiration hereof); and (ii) in the event Tenant has signed a lease of other space in Gateway Park to which Tenant intends to relocate its operations from the Premises, by notice to Landlord, either to extend the Term of this Lease on a month-to-month basis until, or to terminate this Lease early when, such other leased space has been prepared for and Tenant has accomplished such relocation and Tenant’s occupancy.

     Option Space: During the term of this Lease, the Tenant shall have the option to add to the Premises that portion of the Building in Exhibit D marked as “Option Space” upon not less than sixty (60) days written notice to the Landlord. It is agreed that the Option Space consists of approximately 1,030 usable square feet of floor area. Upon such exercise, the Option Space shall be deemed to be a part of the Premises and the Basic Rent shall be increased at a rate of usable square footage of the Option Space multiplied by $34.00 per annum. In addition, Tenant shall have full access to Room 3238, the common area immediately across the corridor from the open lab space. Tenant shall not have the right to use the Option Space absent exercise of the option by written notice to the Landlord. In addition, in the event Blue Sky Biotech vacates the office space set forth in blue and marked “Blue Sky” on Exhibit E, Tenant shall have a first right of refusal to occupy such space. It is agreed that the Blue Sky space is approximately 500 usable square feet.

     Initial General Liability Insurance: $1,000,000 per occurrence/$2,000,000 aggregate (combined single limit) for property damage, bodily injury or death.

     Permitted Uses: General office uses and scientific laboratory space for research and development in the life sciences field of study which shall be conducted in compliance with all applicable municipal, state and federal laws, rules and regulations and in all events the Permitted Uses shall be conducted in a manner so as to not be unreasonably disruptive in any manner to any other tenant or occupant in the Building. Tenant will procure and maintain in full force and effect all licenses and permits which may be required for any use made of the Premises.

     1.2 Definitions. In addition to the terms defined throughout this Lease, when used in Lease, the capitalized terms set forth below shall bear the meanings set forth below.

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     Business Day: All days except Saturdays, Sundays, local, state and federal holidays.

     Force Majeure: Collectively and individually, strikes or other labor trouble, fire or other casualty, acts of God, governmental preemption of priorities or other controls in connection with a national or other public emergency or shortages of fuel, supplies or labor resulting therefrom, or any other cause, whether similar or dissimilar, beyond the reasonable control of the party required to perform an obligation.

     Substantial Completion: Shall mean that the Landlord’s Improvements have been completed in accordance with Exhibit A and the plans and specifications approved by Tenant so that either a temporary or a permanent certificate of occupancy has been issued by the City of Worcester, subject to minor items of repair, correction, adjustment or completion set forth in a so-called “punch list” signed by Landlord and Tenant, the incompletion of which do not and the subsequent completion of which will not, adversely affect or interfere with Tenant’s use of the Premises or the completion of Tenant’s Work. Landlord will complete the punch list items within thirty (30) days after the Lease Commencement Date. In the event the punch list items are not complete within thirty (30) days after the Lease Commencement Date, Tenant shall have the right to withhold thirty percent of the Monthly Basic Rent until such punch list items are completed.

     1.3 Enumeration of Exhibits. The following Exhibits are a part of this Lease, are incorporated herein by reference attached hereto, and are to be treated as a part of this Lease for all purposes. Undertakings contained in such Exhibits are agreements on the part of Landlord and Tenant, as the case may be, to perform the obligations stated therein.

Exhibit A	—     Plan of the Premises and Landlord Improvements
Exhibit A-1	—     Measurement Methodology
Exhibit B	—     Lease Commencement Date Acknowledgment
Exhibit C	—     WPI Equipment and Vivarium Space Subject to Tenant Use
Exhibit D	—     Option Space
Exhibit E	—     First Floor Option Office Space

ARTICLE 2
PREMISES AND APPURTENANT RIGHTS

     2.1 Lease of Premises. Landlord hereby leases and demises to Tenant and Tenant hereby leases from Landlord the Premises for the Term and upon the terms and conditions hereinafter set forth.

     2.2 Appurtenant Rights and Reservations.

          (a) Tenant shall have, as appurtenant to the Premises, the non-exclusive right to use, and permit its invitees, employees and authorized subtenants to use in common with Landlord and others, public or common walkways necessary for access to the Building and the Premises and the access roads, driveways, loading areas, pedestrian sidewalks, landscaped areas,

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bathrooms and other areas or facilities, if any, which are located in or on the Property (the “Common Facilities”); but such rights shall always be subject to reasonable rules and regulations from time to time established by Landlord pursuant to Section 14.5 (the “Rules and Regulations”) and to the right of Landlord to designate and change from time to time areas and facilities so to be used, provided, however, that any newly designated or changed Common Facilities shall be substantially similar to those in existence on the Lease Commencement Date.

          (b) Landlord shall have the right to place in the Premises (but in such manner as to cause no interference with Tenant’s use of the Premises) utility lines, equipment, stacks, pipes, conduits, ducts and the like.

          (c) Tenant shall have the right, as appurtenant to the Premises, the non-exclusive and subordinate right to utilize the kitchen area, conference rooms and auditorium within that portion of the Building leased and occupied by Worcester Polytechnic Institute (“WPI”) as may be reasonably required by Tenant and in all events subject to the scheduling requirements of WPI.

          (d) In conjunction with the Lease, Tenant shall be provided the opportunity to utilize certain pieces of equipment and space owned by WPI, including but not limited to the Vivarium located within that portion of the Building leased by WPI. A list of such equipment and a plan of such space as are subject to this provision is attached as Exhibit C. Tenant shall be obligated to coordinate the use of the equipment and the Vivarium with WPI and shall pay to WPI a reasonable rate to be agreed to on a per hour or per animal basis for the use of such equipment and the Vivarium.

ARTICLE 3
BASIC RENT AND SECURITY DEPOSIT

     3.1 Payment of Basic Rent.

          (a) Tenant agrees to pay the Basic Rent to Landlord, or as directed by Landlord, commencing on the Rent Commencement Date, without offset, abatement, deduction or demand except as set forth in this Lease. Basic Rent shall be payable in equal monthly installments, in advance, on the first day of each and every calendar month during the Term of this Lease, to Landlord at Landlord’s Address or at such other place as Landlord shall from time to time designate by notice, in lawful money of the United States. In the event that any installment of Basic Rent is not paid within twenty (20) business days of when due, Tenant shall pay, in addition to any charges under the Lease, an administrative fee equal to five (5%) percent of the overdue payment. Landlord and Tenant agree that all amounts due from Tenant under or in respect of this Lease shall be considered as rental reserved under this Lease for all purposes, including without limitation regulations promulgated pursuant to the Bankruptcy Code, and including further without limitation Section 502(b) thereof.

          (b) Basic Rent for any partial month shall be pro-rated on a daily basis, and if the first day on which Tenant must pay Basic Rent shall be other than the first day of a calendar month, the first payment which Tenant shall make to Landlord shall be equal to a proportionate

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part of the monthly installment of Basic Rent for the partial month from the first day on which Tenant must pay Basic Rent to the last day of the month in which such day occurs.

          (c) Basic Rent is full service gross rent and includes all real estate taxes, insurance, utilities, operating expenses and other costs and expenses except as herein expressly provided.

ARTICLE 4
CONDITION OF THE PREMISES

     4.1 Condition of the Premises. Subject to the completion of Landlord’s Improvements by the Landlord, at Landlord’s expense, relative to the office space portion of the Premises and the work described in this Section and (the “Landlord’s Improvements”), the Premises are being leased in their “AS IS” condition. The Landlord agrees that at the time of delivery (i) the Premises shall be in conformity with all applicable laws, ordinances, rules and regulations, (ii) the Premises shall be free of latent defects, (iii) the Landlord’s Improvements and the work described in this Section shall be completed in a good and workmanlike manner, using only new materials, (iv) the Landlord, at the Landlord’s expense, shall have obtained all permits required for the completion and occupancy of the Landlord’s Improvements and the work described in this Section, (v) all base building mechanical, electrical, plumbing and other Building systems shall be in good operating condition and repair, and (vi) the Premises shall be free and clear of all tenants and occupants. If the Landlord’s Improvements and the work described in this Section are not substantially completed by December 15, 2007, the Landlord will credit one-half day’s Basic Rent for each day after December 15, and one full day’s Basic Rent for each day after December 31, that the office space is not Substantially Completed, excluding, any delays that are attributable to RXi. If the Landlord’s Improvements and the work described in this Section are not complete by February 1, 2008, then the Tenant may terminate this Lease by delivering written notice to the Landlord, in which case this Lease shall terminate on the date set forth in the notice. There are no Landlord’s Improvements contemplated or anticipated to the laboratory portion of the Premises and any such work shall be conducted by Tenant pursuant to Section 5.2.

ARTICLE 5
USE OF PREMISES

     5.1 Permitted Use.

          (a) Tenant agrees that the Premises shall be used and occupied by Tenant and its authorized subtenants only for Permitted Uses (defined hereinabove) and for no other use without Landlord’s express written consent which consent may be withheld or conditioned in the sole and unfettered discretion of the Landlord. It shall be the Tenant’s responsibility and obligation to obtain and maintain the proper licenses and permits for the Tenant’s business at the Tenant’s expense and the Landlord makes no representation with respect to the availability or

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non-availability of such licenses or permits. Landlord represents and warrants that the Premises may be used for the Permitted Uses under applicable zoning and other land use laws.

          (b) Tenant agrees for itself and its authorized subtenants to conform to the following provisions during the Term of this Lease:

               (i) Tenant will not place on the exterior of the Premises, Property or on any part of the Building, any sign, symbol, advertisement or the like, other than the existing signs located on the Property, without first obtaining Landlord’s consent, which shall not be unreasonably withheld, for interior signs. Landlord agrees to cooperate with Tenant as to sign locations. With regard to the installation of any signs, the Tenant shall comply with all provisions of Section 5.2 herein. The Tenant shall maintain and repair the Tenant’s signs located on the Property as of the date of this Lease and shall bear all costs and expenses associated therewith. Tenant agrees to have a sign installed in the lobby of the Building prior to the Rent Commencement Date and to permit Landlord to advertise the tenancy of the Tenant in the Building in accordance with Section 14.10 (the “Publicity Restrictions”):

               (ii) Tenant shall not perform any act or carry on any practice which may injure the Premises, or any other part of the Building and shall operate the Premises in a reputable manner;

               (iii) Tenant shall, in its use of the Premises, comply with the requirements of all applicable governmental laws, rules and regulations, including, without limitation, the Americans With Disabilities Act of 1990 and the regulations of the Massachusetts Architectural Access Board, subject to Tenant’s right to contest the same in good faith and postpone such compliance during the pendency of such contest; provided, that Tenant shall not be responsible for ensuring the Premises complies with such laws when (i) such legal requirements are imposed on a Building-wide basis or would be generally applicable to any office space and do not relate to Tenant’s particular manner of use of the Premises, (ii) a notice of violation or order was issued prior to the date Tenant is given possession of the Premises, or (iii) such legal requirements require investigating, certifying, monitoring, encapsulating, removing or in any way dealing with asbestos or hazardous substances unless such asbestos or hazardous substances were introduced into the Premises by Tenant; and

               (iv) Tenant agrees that the Premises and any other part of the Building will be used and occupied in a careful, reasonably safe and proper manner and that Tenant will not permit waste therein that results from negligence or breach hereof on the part of Tenant, its employees, agents, invitees and others acting on its behalf.

     5.2 Installations and Alterations by Tenant.

          (a) Tenant shall be responsible for any and all alterations, additions and improvements (“Improvements”) that are required to complete the Premises such that the Premises can be used for the Tenant’s purposes, with the sole exclusion being the Landlord’s

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Improvements. Prior to any structural Improvements being made, the Tenant shall provide any and all plans and specifications and a list of contractors for the prior consent and approval of the Landlord, which shall not be unreasonably withheld, delayed or conditioned. All work shall be (i) performed in a good and workmanlike manner and in compliance with all applicable laws, ordinances and regulations; (ii) be made at Tenant’s sole cost and expense (excluding the Landlord’s Improvements); (iii) other than Tenant’s Removable Property, become part of the Premises and the property of Landlord; and (iv) be coordinated with any work being performed by Landlord in such a manner as not to damage the Building or interfere with the construction or operation of the Building.

          (b) Tenant shall be responsible for the installation and payment of all phone systems desired by the Tenant at the Premises.

          (c) All articles of personal property and all laboratory hoods and other business and trade fixtures, inventory, machinery and equipment and furniture owned or installed by Tenant solely at its expense in the Premises (“Tenant’s Removable Property”) shall remain the property of Tenant and may be removed by Tenant at any time prior to the expiration or earlier termination of the Term, provided that Tenant, at its expense, shall repair any damage to the Building caused by such removal.

          (d) Notice is hereby given that Landlord shall not be liable for any labor or materials furnished or to be furnished to Tenant upon credit, and that no mechanic’s or other lien for any such labor or materials shall attach to or affect the reversion or other estate or interest of Landlord in and to the Premises, the Building or the Property. Tenant agrees that if, any lien is filed against all or any part of the Property for work claimed to have been done for, or materials claimed to have been furnished to, Tenant or its agents, employees or independent contractors, Tenant, at its sole cost and expense, shall cause such lien to be dissolved within ten (10) business days after receipt of notice that such lien has been filed, by the payment thereof or by the filing of a bond sufficient to accomplish the foregoing. If Tenant shall fail to discharge any such lien within ten (10) business days’ notice, Landlord may, at its option, discharge such lien and treat the cost thereof (including reasonable attorneys’ fees incurred in connection therewith) as payable within ten (10) days of demand, it being expressly agreed that such discharge by Landlord shall not be deemed to waive or release the Event of Default in not discharging such lien. Tenant shall indemnify and hold Landlord harmless from and against any and all expenses, liens, claims, liabilities and damages based on or arising, directly or indirectly, by reason of the making of any alterations, additions or improvements by or on behalf of Tenant to the Premises under this Section, which obligation shall survive the expiration or termination of this Lease.

          (e) In the course of any work being performed by Tenant (including, without limitation, the “field installation” of any Tenant’s Removable Property), Tenant agrees to use labor compatible with that being employed by Landlord for work in the Building or on the Property or other buildings owned by Landlord or its affiliates (which term, for purposes hereof, shall include, without limitation, entities which control or are under common control with or are controlled by Landlord or, if Landlord is a partnership or limited liability company, by any partner or member of Landlord and which may include Consigli Construction Co., Inc.) and not to employ or permit the use of any labor or otherwise take any action which might result in a

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labor dispute involving personnel providing services in the Building or on the Property pursuant to arrangements made by Landlord. Tenant intends to use Conlangelo & Son as its contractor and Landlord has no objection to same.

          (f) No Improvements shall be performed in a manner that is unreasonably disruptive to other tenants, or invitees of Landlord in the Building, or to the public in general, or which causes unreasonable noise, vibration, dust or is unreasonably unclean or unsightly. Upon notice from the Landlord, subject to Sections 10.4 and 11.2, the Tenant shall, at its sole cost and expense, repair any damage to the Building or the Property caused by or resulting from any Improvements.

          (g) To the fullest extent permitted by law, Tenant shall indemnify and hold harmless Landlord and its agents and employees from and against all claims, damages, losses and expenses (except if arising in whole or in part from the negligence, willful misconduct or breach hereof on the part of Landlord or its agents, employees or contractors) including, but not limited to, reasonable attorneys’ fees, to the extent arising out of or resulting from any Improvements, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property, including loss of use resulting therefrom, but only to the extent caused in whole or in part by negligent acts or willful misconduct of Tenant or its contractors or anyone for whose acts they may be liable. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity elsewhere in this Lease or which would otherwise exist as to a party or person described in this Article.

          (h) Tenant shall ensure that all contractors (which include sub-contractors of any contractor) who will enter the Premises or the Building, and others employed directly or indirectly by them, shall purchase insurance which, at a minimum, shall be consistent with the following:

(a)	insurance covering workers’ or workmen’s compensation claims.
(b)	commercial general liability insurance covering claims for personal injury and property damage.
(c)	During the period of any construction of the Tenant’s Improvements or alterations pursuant to this Section, contractor’s or builder’s “all risk” insurance covering property damage and loss of use claims.

The insurance required by this Article shall be written for not less than limits specified herein for Tenant’s Insurance. Coverages, whether written on an occurrence or claims-made basis, shall be maintained without interruption from date of commencement of the Work until date of final payment and termination of any coverage required to be maintained after final payment.

Original certificates of insurance evidencing full compliance with this Article shall be delivered to Landlord prior to commencement of the Improvements. These certificates and the insurance

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policies required by this Article shall expressly name Landlord and Landlord’s mortgagee as additionally insured, and shall contain a provision that coverages afforded under the policies will not be canceled or allowed to expire until at least thirty (30) days’ prior written notice has been given to Landlord.

     5.3 Cleanliness, Maintenance of Certain Equipment, Trash

     The Landlord shall be responsible for storage and disposing of any non-hazardous trash and waste. Tenant shall be responsible for placing all such trash in the appropriate receptacles provided by the Landlord. With regard to any hazardous or infectious materials defined in any federal or state laws, rules or regulations, used in the Premises by Tenant or any of Tenant’s officers, employees, contractors or agents, the Tenant shall be responsible for disposing such materials within or from the Premises at its sole cost and expense and in accordance with all applicable law, rule or regulation. The Tenant shall be required to comply with any and all municipal, state or federal regulations or laws with regard to the storage, handling and disposal of hazardous material and with any reasonable guidelines as developed for the Property by the Landlord.

ARTICLE 6
ASSIGNMENT AND SUBLETTING

     6.1 Terms and Conditions.

          (a) Tenant and Landlord covenant and agree that, except in the case of a sublease or assignment in connection with a merger, consolidation or sale of substantially all of its assets by the Tenant, the Tenant may not sublet or assign all or a portion of the Premises without the express written consent of the Landlord, which consent shall not be unreasonably withheld, delayed or conditioned.

          (b) Notwithstanding any assignment or subletting, Tenant shall remain fully and primarily liable for all of its obligations hereunder.

          (c) All of the provisions of this Lease shall be fully binding on any assignee or sublessee, except wherever in this Lease a provision is expressly stated to be inapplicable to an assignee or sublessee, in which event such provision shall be considered deleted from this Lease as applicable to such assignee or sublessee. Without limiting the generality of the foregoing, no assignee or sublessee may itself assign this Lease or sublet the Premises.

          (d) Tenant shall deliver to Landlord a fully executed counterpart of any purported assignment permitted under this Section within ten (10) days of the execution thereof. In the event that Tenant fails to execute and deliver any assignment to which Landlord shall have consented within sixty (60) days after the giving of such consent, then Landlord’s consent automatically shall be deemed revoked and of no further force and effect.

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ARTICLE 7
RESPONSIBILITY FOR REPAIRS AND CONDITION OF PREMISES; SERVICES TO BE FURNISHED BY LANDLORD

     7.1 Landlord Repairs. Subject to Section 7.2 below, Landlord, at Landlord’s expense, agrees to keep in good order, condition, and repair, and make all required replacements to, the roof, exterior walls and structure of the Building, the interior walls of the Building and the Property, the foundation of the Building, the HVAC systems and components, electric, water and sewer systems and components, the Common Facilities and the elevators, all as are necessary to maintain the same in a safe and tenantable condition for the Permitted Uses, except that Landlord shall in no event be responsible for any condition in the Premises or the Building caused by any willful misconduct, neglect or breach hereof on the part of Tenant, its invitees or contractors. Landlord, at Landlord’s expense, shall also keep and maintain all Common Facilities in a good and clean order, condition and repair, free of snow and ice and accumulation of dirt and rubbish, and shall keep and maintain all landscaped areas on the Property in a neat and orderly condition. Landlord shall make the repairs and replacements to maintain the Building in a condition comparable to other first class mixed-office/laboratory buildings in the Worcester area. Landlord shall not be responsible to make any improvements or repairs to the Building other than as expressly described in this Section 7.1 provided, unless expressly provided otherwise in this Lease.

     7.2 Tenant Repairs. Subject to Section 7.1 above, Tenant shall be responsible for making repairs to the Premises necessary to keep the Premises and every part thereof neat and clean, and will maintain the same, excluding the HVAC, plumbing, mechanical and electrical systems, in good order, condition and repair, excepting only those repairs for which Landlord is responsible under the terms of this Lease, reasonable wear and tear of the Premises, and damage by fire or other casualty or due to Landlord’s negligence, willful misconduct or breach hereof, occurring as a consequence of the exercise of the power of eminent domain; and Tenant shall surrender the Premises, at the end of the Term, in such condition. Subject to Sections 10.4 and 11.2, Tenant shall be responsible for the cost of repairs which may be made necessary by reason of damage to the Building caused by any willful misconduct, neglect or breach hereof on the part of Tenant or its contractors.

     7.3 Interruption of Service. Landlord reserves the right to curtail, suspend, interrupt and/or stop the supply of water, sewage, electrical current, cleaning, and other services, and to curtail, suspend, interrupt and/or stop use of entrances and/or lobbies serving access to the Building, or other portions of the Property, without thereby incurring any liability to Tenant, when necessary by reason of accident or emergency, or for repairs, alterations, replacements or improvements in the judgment of Landlord, reasonably exercised, desirable or necessary, or when prevented from supplying such services or use due to any willful misconduct, neglect or breach hereof on the part of Tenant or Tenant’s agents, employees or contractors or by Force Majeure, including, but not limited to, strikes, lockouts, difficulty in obtaining materials, accidents, laws or orders, or inability, by exercise of reasonable diligence, to obtain electricity, water, gas, steam, coal, oil or other suitable fuel or power. Notwithstanding anything to the contrary contained herein, if any essential services (such as HVAC, electricity, water, passenger elevators if necessary for reasonable access to the Premises, etc.) supplied by Landlord are

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interrupted rendering a material portion of the Premises untenantable, or if a material portion of the Premises are rendered untenantable in whole or in part as a result of a default by Landlord, a constructive eviction, contamination of the Premises, Building or Property, or any other cause, and such untenantability does not result in whole or in part from the negligence, willful misconduct or breach hereof on the part of Tenant, its employees, contractors, or agents, Tenant shall be entitled to an equitable abatement of Basic Rent beginning on the day a material portion of the Premises were first rendered untenantable in whole or in part. The abatement shall end when tenantability is restored by Landlord and Tenant is able to use the entire Premises to conduct its business operations therein. During any such untenantability, Landlord shall use commercially reasonable efforts to restore the services and render the entire Premises tenantable.

ARTICLE 8
REAL ESTATE TAXES

     Not applicable.

ARTICLE 9
OPERATING AND UTILITY EXPENSES

     Not applicable.

ARTICLE 10
INDEMNITY AND PUBLIC LIABILITY INSURANCE

     10.1 Tenant’s Indemnity. Except if arising in whole or in part from the negligence or willful misconduct or breach hereof on the part of Landlord or its agents, contractors or employees, Tenant agrees to indemnify and save harmless Landlord and Landlord’s partners, members, shareholders, officers, directors, managers, employees, agents and contractors and any Holder from and against all claims, losses, cost, damages, liability or expenses of whatever nature to the extent arising: (i) from any accident, injury or damage whatsoever to any person, or to the property of any person, occurring in or about the Premises (ii) from any accident, injury or damage whatsoever to any person, or to the property of any person, occurring outside of the Premises but on or about the Property, where such accident, damage or injury results or is claimed to have resulted from any negligence or willful misconduct or breach hereof on the part of Tenant or Tenant’s agents, employees, contractors or sublessees; or (iii) the use or occupancy of the Premises or of any business conducted therein or any thing or work whatsoever done or any condition created (other than by or on behalf of Landlord) in or about the Premises, and, in any case, occurring after the Commencement Date (or such earlier date as of which Tenant takes possession of the Premises) until the expiration of the Term of this Lease and thereafter so long as Tenant is in occupancy of any part of the Premises. This indemnity and hold harmless agreement shall include indemnity against all losses, costs, damages, expenses and liabilities incurred in or in connection with any such claim or any proceeding brought thereon, and the defense thereof, including, without limitation, reasonable attorneys’ fees and costs at both the

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trial and appellate levels. The provisions of this Section 10.1 shall survive the expiration or earlier termination of this Lease.

     10.2 Tenant Insurance. Tenant agrees to maintain in full force from the date upon which Tenant first enters the Premises for any reason, throughout the Term of this Lease, and thereafter so long as Tenant is in occupancy of any part of the Premises, a policy of commercial general liability and property damage insurance (including broad form contractual liability, independent contractor’s hazard and completed operations coverage), fire and extended coverage with Tenant named as an insured and Landlord, and, at Landlord’s request, Landlord’s property manager, any Holder, and such other persons as Landlord reasonably may request are named as additional insureds. Each policy required hereunder shall be non-cancelable and non-amendable with respect to Landlord and Landlord’s said designees without thirty (30) days’ prior notice, shall be written on an “occurrence” basis, and shall be in at least the amounts of the Initial General Liability Insurance specified in Section 1.1, and a duplicate original or certificates thereof satisfactory to Landlord, shall be delivered to Landlord. All such policies shall contain a clause that such policy and the coverage evidenced thereby shall be primary with respect to any insurance policies carried by the Landlord and shall be obtained from responsible companies qualified to do business and in good standing in the Commonwealth of Massachusetts and rated A- or better in the most current issue of Best’s Insurance Reports. Tenant shall procure and pay for any and all renewals of such insurance from time to time during the term of the Lease and shall provide such renewal policies or certificates.

     10.3 Tenant’s Risk. Tenant agrees to use and occupy the Premises and to use such other portions of the Property as Tenant is herein given the right to use at Tenant’s own risk. Except in the event of negligence, willful misconduct or breach hereof on the part of Landlord, or any of its agents, contractors or employees, Landlord shall not be liable to Tenant, its employees, agents, invitees or contractors for any damage, injury, loss, compensation, or claim (including, but not limited to, claims for the interruption of or loss to Tenant’s business) based on, arising out of or resulting from any cause whatsoever, including, but not limited to, repairs to any portion of the Premises or the Property, any fire, robbery, theft, mysterious disappearance and/or any other crime or casualty, the actions of any other tenants of the Building or of any other person or persons, or any leakage in any part or portion of the Premises or the Building, or from water, rain or snow that may leak into, or flow from any part of the Premises or the Building, or from drains, pipes or plumbing fixtures in the Building. Any goods, property or personal effects stored or placed in or about the Premises shall be at the sole risk of Tenant, and neither Landlord nor Landlord’s insurers shall in any manner be held responsible therefor. Landlord shall not be responsible or liable to Tenant, or to those claiming by, through or under Tenant, for any loss or damage that may be occasioned by or through the acts or omissions of persons occupying adjoining premises or any part of the premises adjacent to or connecting with the Premises or any part of the Property or otherwise. Notwithstanding the foregoing, Landlord shall not be released from liability for any injury, loss, damages or liability to the extent arising from any negligence, willful misconduct or breach hereof on the part of Landlord, its servants, employees or agents acting within the scope of their authority on or about the Premises. The provisions of this Section 10.3 shall be applicable from and after the execution of this Lease and until the end of the Term of this Lease, and during such further period as Tenant may use or be in occupancy of any part of the Premises or of the Building.

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     10.4 Waiver of Subrogation. Notwithstanding anything to the contrary contained herein, Landlord and Tenant each hereby waives on behalf of itself and its property insurers (none of which shall ever be assigned any such claim or be entitled thereto due to subrogation or otherwise) any and all rights of recovery, claim, action, or cause of action against the other, its agents, officers, servants, partners, shareholders, contractors or employees for any loss or damage that may occur to the Building or the Premises, or any improvements thereto, or any personal property of such party therein, by reason of fire, the elements, or any other cause or origin, which is insured against under any property insurance policy actually being maintained from time to time, even if not required hereunder, or which would be insured against under the terms of any so-called “all risk” or “broad form” policy or any other property insurance policy required to be carried or maintained by the waiving party hereunder, whether or not such insurance coverage is actually being maintained and regardless of the cause or origin, including, in every instance, negligence by the other party hereto, its agents, officers, partners or employees. Landlord and Tenant each agrees to cause appropriate clauses to be included in its property insurance policies necessary to implement the foregoing provisions.

ARTICLE 11
FIRE, EMINENT DOMAIN, ETC.

     11.1 Landlord’s Right of Termination. If the Premises or the Building are substantially damaged by fire or casualty (the term “substantially damaged” meaning damage of such a character that the same cannot, in the ordinary course, reasonably be expected to be repaired within ninety (90) days from the date of the fire or casualty), or if any part of the Building is taken by any exercise of the right of eminent domain, then Landlord shall have the right to terminate this Lease (even if Landlord’s entire interest in the Premises may have been divested) by giving notice of Landlord’s election so to do prior to the expiration of the said ninety (90) days, whereupon this Lease shall terminate thirty (30) days after the date of such notice with the same force and effect as if such date were the date originally established as the expiration date hereof.

     11.2 Restoration; Tenant’s Right of Termination. If the Premises or the Building are damaged by fire or other casualty (or the Premises or access to the Premises are taken by the power of eminent domain), and this Lease is not terminated pursuant to Section 11.1, Landlord shall thereafter use reasonable efforts to restore the Building and the Premises (excluding any Alterations made by Tenant pursuant to Section 5.2) to proper condition for Tenant’s use and occupation, provided that Landlord shall have no obligation to restore damage that would not be covered by a property insurance policy of the sort referred to in Section 10.4. If, for any reason, including Force Majeure, such restoration shall not be substantially completed within 180 days after the date of the fire or other casualty, Tenant shall have the right to terminate this Lease by giving notice to Landlord thereof. This Lease shall cease and come to an end without further liability or obligation on the part of either party on the date specified in such notice from Tenant. Such right of termination shall be Tenant’s sole and exclusive remedy at law or in equity for Landlord’s failure so to complete such restoration, and time shall be of the essence with respect thereto. Notwithstanding the forgoing, Tenant’s termination rights set forth in Section 1.1 Term shall remain in full force and effect.

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     11.3 Abatement of Rent. If the Premises or the Building are damaged by fire or other casualty, Basic Rent payable by Tenant shall abate proportionately for the period during which, by reason of such damage, there is substantial interference with Tenant’s use of the Premises, having regard for the extent to which Tenant may be required to discontinue Tenant’s use of all or any undamaged portion of the Premises due to such damage, but such abatement or reduction shall end if and when Landlord shall have completed sufficient restoration that Tenant is reasonably able to use the Premises and the Premises are in substantially the condition in which they were prior to such damage. If the Premises shall be affected by any exercise of the power of eminent domain, Basic Rent payable by Tenant shall be justly and equitably abated and reduced according to the nature and extent of the loss of use thereof suffered by Tenant. In no event shall Landlord have any liability for damages to Tenant for inconvenience, annoyance, or interruption of business arising from any fire or other casualty or eminent domain.

     11.4 Condemnation Award. Landlord shall have and hereby reserves and accepts, and Tenant hereby grants and assigns to Landlord, all rights to recover for damages to the Property and the leasehold interest hereby created, and to compensation accrued or hereafter to accrue by reason of any taking, by exercise of the right of eminent domain, and by way of confirming the foregoing, Tenant hereby grants and assigns, and covenants with Landlord to grant and assign to Landlord, all rights to such damages or compensation, and covenants to deliver such further assignments and assurances thereof as Landlord may from time to time request, and Tenant hereby irrevocably appoints Landlord its attorney-in-fact to execute and deliver in Tenant’s name all such assignments and assurances. Nothing contained herein shall be construed to prevent Tenant from prosecuting in any condemnation proceedings a claim for the value of any of Tenant’s Removable Property installed in the Premises by Tenant at Tenant’s expense and for relocation expenses.

ARTICLE 12
HOLDING OVER; SURRENDER

     12.1 Holding Over. Any holding over by Tenant after the expiration of the Term of this Lease shall be treated as a daily tenancy at sufferance at a rate equal to one and one-half (1 1/2) times the Basic Rent then in effect (prorated on a daily basis). In all other respects, such holding over shall be on the terms and conditions set forth in this Lease as far as applicable.

     12.2 Surrender of Premises. Subject to the provisions of Section 7.2, upon the expiration or earlier termination of the Term of this Lease, Tenant shall peaceably quit and surrender to Landlord the Premises together with all alterations, additions and improvements other than Tenant’s Removable Property which may have been made or installed in, on or to the Premises prior to or during the Term of this Lease by either Landlord or Tenant or any authorized subtenant (except as hereinafter provided) in neat and clean condition and in such order, condition and repair as Tenant is required to maintain the same hereunder. Tenant shall remove all of Tenant’s Removable Property and shall repair any damages to the Premises or the Building caused by such removal. Any Tenant’s Removable Property which shall remain in the Building or on the Premises after the expiration or termination of the Term of this Lease shall be deemed conclusively to have been abandoned, and either may be retained by Landlord as its

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property or may be disposed of in such manner as Landlord may see fit, at Tenant’s sole cost and expense.

ARTICLE 13
DEFAULT; REMEDIES

     13.1 Tenant’s Default.

     (a) If at any time subsequent to the date of this Lease any one or more of the following events (herein referred to as an “Event of Default”) shall occur:

          (i) Tenant shall fail to pay the Basic Rent or any other charges hereunder when due and such failure shall continue for five (5) Business Days after the date due and written notice thereof; or

          (ii) Tenant shall neglect or fail to perform or observe any other covenant herein contained on Tenant’s part to be performed or observed and Tenant shall fail to remedy the same within thirty (30) days after written notice to Tenant specifying such neglect or failure, or if such failure is of such a nature that it cannot reasonably remedy the same within such thirty (30) day period, Tenant shall fail to commence promptly (and in any event within such thirty (30) day period) to remedy the same and to prosecute such remedy to completion with diligence and continuity, subject to the Force Majeure; or

          (iii) Tenant’s leasehold interest in the Premises shall be taken on execution or by other process of law directed against Tenant; or

          (iv) Tenant shall make an assignment for the benefit of creditors or shall be adjudicated insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future Federal, State or other statute, law or regulation for the relief of debtors (other than the Bankruptcy Code, as hereinafter defined), or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties, or shall admit in writing its inability to pay its debts generally as they become due; or

          (v) A petition shall be filed against Tenant under any law (other than the Bankruptcy Code) seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any present or future Federal, State or other statute, law or regulation and shall remain undismissed or unstayed for an aggregate of sixty (60) days (whether or not consecutive), or if any trustee, conservator, receiver or liquidator of Tenant or of all or any substantial part of its properties shall be appointed without the consent or acquiescence of Tenant and such appointment shall remain unvacated or unstayed for an aggregate of sixty (60) days (whether or not consecutive).

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then in any such case Landlord may terminate this Lease as hereinafter provided and exercise any other rights or remedies available under this Lease, at law or in equity.

     13.2 Landlord’s Remedies.

          (a) Upon the occurrence of an Event of Default, Landlord may terminate this Lease by notice to Tenant, specifying a date not less than thirty (30) days after the giving of such notice on which this Lease shall terminate and this Lease shall come to an end on the date specified therein as fully and completely as if such date were the date herein originally fixed for the expiration of the Term of this Lease, and Tenant will then quit and surrender the Premises to Landlord, but Tenant shall remain liable as hereinafter provided.

          (b) If this Lease shall have been terminated as provided in this Article, or if any execution or attachment shall be issued against Tenant or any of Tenant’s property whereupon the Premises shall be taken or occupied by someone other than Tenant, then Landlord may re-enter the Premises, either by summary proceedings, ejectment or otherwise, and remove and dispossess Tenant and all other persons and any and all property from the same, as if this Lease had not been made.

          (c) If this Lease shall have been terminated as provided in this Article, Tenant shall pay the Basic Rent, or charges and other sums payable hereunder up to the time of such termination, and thereafter Tenant, until the end of what would have been the Term of this Lease in the absence of such termination, shall be liable to Landlord for, and shall pay to Landlord, as liquidated current damages: the Basic Rent, or charges and other sums that would be payable hereunder if such termination had not occurred, less the net proceeds, if any, of any reletting of the Premises, after deducting all expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, reasonable legal expenses, reasonable attorneys’ fees, advertising, expenses of employees, alteration costs and expenses of preparation for such reletting. Tenant shall pay the portion of such current damages referred to above to Landlord monthly on the days which the Basic Rent would have been payable hereunder if this Lease had not been terminated. Landlord shall use commercially reasonable efforts to mitigate its damages.

          (d) At any time within two (2) months after termination of this Lease as provided in this Article, whether or not Landlord shall have collected any such current damages, as liquidated final damages and in lieu of all such current damages beyond the date of such demand, at Landlord’s election Tenant shall pay to Landlord an amount equal to the excess, if any, of the Basic Rent, for what would be the then unexpired Term of this Lease if the same remained in effect, over the then fair net rental value of the Premises for the same period (discounted to present value).

          (e) In case of any Event of Default, re-entry, expiration and dispossession by summary proceedings or otherwise, Landlord may (i) re-let the Premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord’s option be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term of this Lease and may grant concessions or free rent to the extent that Landlord considers advisable and necessary to re-let the same and (ii) make such

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alterations, repairs and decorations in the Premises as Landlord considers advisable and necessary for the purpose of reletting the Premises; and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of the Premises, by reason of the violation by Tenant of any of the covenants and conditions of this Lease.

     13.3 Intentionally Omitted.

     13.4 Remedying Defaults. Landlord shall have the right, but shall not be required, to pay such sums or do any act which may be necessary to cure any Event of Default on the part of Tenant under any of the provisions of this Lease, and in the event of the exercise of such right by Landlord, Tenant agrees to pay to Landlord forthwith within ten (10) days of demand all such sums or the reasonable costs of such cure, together with interest thereon at a rate equal to 3% plus the prime rate published from time to time in The Wall Street Journal or its successor publication, as Additional Rent. Any payment of Basic Rent or other sums payable hereunder not paid within ten (10) days of due shall, at the option of Landlord, bear interest at a rate equal to 3% over the prime rate published from time to time in The Wall Street Journal or its successor publication from the due date thereof and shall be payable forthwith within ten (10) days of demand by Landlord, as Additional Rent.

     13.5 Remedies Cumulative. The specified remedies to which Landlord may resort hereunder are not intended to be exclusive of any remedies or means of redress to which Landlord may at any time be entitled lawfully, and Landlord may invoke any remedy (including the remedy of specific performance) allowed at law or in equity as if specific remedies were not herein provided for.

     13.6 Enforcement Costs. Tenant shall pay all out-of-pocket costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses at both the trial and appellate levels) incurred by or on behalf of Landlord in connection with the successful enforcement of any rights of Landlord or obligations of Tenant hereunder, whether or not occasioned by an Event of Default. In the event of any other litigation between the parties related to this Lease or the Premises the prevailing party shall be entitled to receive from the other a full reimbursement of its legal fees and expenses incured in such litigation.

     13.7 Waiver.

          (a) Failure on the part of Landlord or Tenant to complain of any action or non-action on the part of the other, no matter how long the same may continue, shall never be a waiver by Tenant or Landlord, respectively, of any of the other’s rights hereunder. Further, no waiver at any time of any of the provisions hereof by Landlord or Tenant shall be construed as a waiver of any of the other provisions hereof, and a waiver at any time of any of the provisions hereof shall not be construed as a waiver at any subsequent time of the same provisions. The consent or approval of Landlord or Tenant to or of any action by the other requiring such consent or approval shall not be construed to waive or render unnecessary Landlord’s or Tenant’s consent or approval to or of any subsequent similar act by the other.

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          (b) No payment by Tenant, or acceptance by Landlord, of a lesser amount than shall be due from Tenant to Landlord shall be treated otherwise than as a payment on account of the earliest installment of any payment due from Tenant under the provisions hereof. The acceptance by Landlord of a check for a lesser amount with an endorsement or statement thereon, or upon any letter accompanying such check, that such lesser amount is payment in full, shall be given no effect, and Landlord may accept such check without prejudice to any other rights or remedies which Landlord may have against Tenant.

     13.8 Landlord’s Default. Landlord shall in no event be in default under this Lease unless Landlord shall neglect or fail to perform any of its obligations hereunder and shall fail to remedy the same within ten (10) days after notice to Landlord specifying such neglect or failure, or if such failure is of such a nature that Landlord cannot reasonably remedy the same within such ten (10) day period, Landlord shall fail to commence promptly (and in any event within such ten (10) day period) to remedy the same and to prosecute such remedy to completion with diligence and continuity.

ARTICLE 14
MISCELLANEOUS PROVISIONS

     14.1 Rights of Access, Inspection. Landlord or its representatives shall have the right without charge to it and without reduction in Base Rent during regular business hours, after at least 24 hours’ prior notice and in the presence of a representative of the Tenant, enter to view the Premises for any reasonable purpose (including, without limitation, showing the Premises to prospective purchasers, tenants and lenders, and, in case of an emergency, whether resulting from circumstances in the Premises or elsewhere in the Landlord’s Property, Landlord or its representatives may enter the Premises (forcibly, if necessary) at any time to take such measures as may be needed to cope with such emergency. Such access shall include, but not be limited to, the right to open floors, walls, ceilings, and building systems for the foregoing purposes. Landlord may, during the six (6) months next preceding the expiration of the Lease Term, show the Premises to parties wishing to lease the Premises. Landlord shall use good faith efforts as is practical under the circumstances not to materially and adversely interfere with Tenant’s use during Landlord’s access as described in this Section and to provide Tenant with reasonable notice of the Landlord’s intentions to enter, and Tenant agrees to use good faith efforts to cooperate and assist Landlord in its access as described in this Section.

     14.2 Covenant of Quiet Enjoyment. Subject to the terms and conditions of this Lease, on payment of the Basic Rent and other charges and observing, keeping and performing all of the other terms and conditions of this Lease on Tenant’s part to be observed, kept and performed, in both instances within any applicable grace or cure period after notice, Tenant shall lawfully, peaceably and quietly enjoy the Premises for the Permitted Use during the term hereof, without hindrance or ejection by any persons lawfully claiming under Landlord to have title to the Premises superior to Tenant. The foregoing covenant of quiet enjoyment is in lieu of any other covenant, express or implied.

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     14.3 No Liability for Consequential Damages.

          (a) In no event shall Landlord or Tenant ever be liable to the other under or for any breach of any provision of this Lease for any loss of business or any other indirect or consequential damages suffered by the other, from whatever cause.

     14.4 Estoppel Certificate. Tenant and Landlord shall each, at any time and from time to time, upon not less than ten (10) business days prior written notice from the other, execute, acknowledge and deliver to the requesting party an estoppel certificate containing such statements of fact as the requesting party reasonably requests.

     14.5 Rules and Regulations. Tenant shall abide by reasonable Rules and Regulations from time to time established by Landlord by notice to Tenant, it being agreed that such Rules and Regulations shall be established and applied by Landlord in a non-discriminatory fashion, shall be generally applicable to other office and laboratory tenants of the Building. Landlord agrees to use reasonable efforts to insure that any such Rules and Regulations are uniformly enforced, but Landlord shall not be liable to Tenant for violation of the same by any other tenant or occupant of the Building, or persons having business with them. In the event that there shall be a conflict between such Rules and Regulations and the provisions of this Lease, the provisions of this Lease shall control.

     14.6 Invalidity of Particular Provisions. If any term or provision of this Lease, or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.

     14.7 Provisions Binding, Etc. Except as herein otherwise provided, the terms hereof shall be binding upon and shall inure to the benefit of the successors and assigns, respectively, of Landlord and Tenant (except in the case of Tenant, only such successors and assigns as may be permitted hereunder) and, if Tenant shall be an individual, upon and to his heirs, executors, administrators, successors and permitted assigns. Any reference in this Lease to successors and assigns of Tenant shall not be construed to constitute a consent to assignment by Tenant.

     14.8 Notice. All notices or other communications required hereunder shall be in writing and shall be deemed duly given if sent by reputable overnight delivery or courier service (e.g., Federal Express) providing for receipted delivery prepaid, to the following address:

(a) if to Landlord at Landlord’s Address to

Newgate Properties, LLC
c/o Worcester Polytechnic Institute
100 Institute Road
Worcester, MA 01609
Attn: Jeffrey Solomon, Executive Vice President

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With a copy to:
Mark L. Donahue, Esquire
Fletcher, Tilton & Whipple, P.C.
370 Main Street
Worcester, MA 01608
Tel: (508) 459-8000
Fax: (508) 459-8329

(b) if to Tenant Attn: Tod Woolf, CEO at the Premises, except that prior to Tenant’s taking occupancy of the Premises at Tenant’s current address:

RXi Pharmaceuticals Corporation
One Innovation Drive
Worcester, Massachusetts 01605

With a copy to:
Christopher F. Dunn, Esq.
Ropes & Gray LLP
One International Place
Boston, MA 02110-2624

Receipt of notice or other communication shall be conclusively established with receipt or evidence that delivery was first attempted. Either party may change its address for the giving of notices by notice given in accordance with this Section.

     14.9 Waiver of Jury Trial. Landlord and Tenant hereby each waive trial by jury in any action, proceeding or counterclaim brought by either against the other, on or in respect of any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant or Tenant’s use or occupancy of the Premises.

     14.10 Publicity Restrictions. In no event shall Landlord or Tenant ever use the name of the other party (or any of its officers, employees, advisors, or agents, or any adaptation of their names), or any terms of this Agreement in any promotional material or other public announcement or disclosure without the prior written consent of said party.

     14.11 Multiple Counterparts. This Lease may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document.

     14.12 Governing Law. This Lease shall be governed by the laws of the Commonwealth of Massachusetts without regard to its conflict of laws provision.

     14.13 Access. The Tenant shall have access to the Premises 24 hours a day 7 days a week. Provided that the Tenant has complied with the insurance provisions of this Lease, and provided further that the Tenant does not unreasonably interfere with the performance of the Landlord’s Improvements to be completed as part of this Lease, then the Tenant may access the

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Premises prior to the Lease Commencement Date for the purpose of installing Tenant’s Improvements, Tenant’s cabling and wiring and Tenant’s fixtures and equipment.

     14.14 Landlord’s Title and Authority. Landlord covenants and agrees that the Landlord is the record owner of the Premises and has full right and title to lease the Premises to the Tenant under this Lease.

     14.15 Recording. The Tenant may record a Notice of Lease pursuant to G.L. c. 183, §4 and the Landlord agrees to execute such a notice if requested by the Tenant within five (5) business days of the date of the Tenant’s request.

     14.16. Parking. The Tenant shall have the right to use one parking space per employee in the card access parking lot adjacent to the Property on a non-exclusive and non-reserved basis for Tenant’s employees and Tenant’s visitors shall have the right to park in the designated visitor parking spaces in the parking lot adjacent to the Property. One (1) space shall be specifically designated reserved for Dr. Craig Mello as a principal of the Tenant and shall be as near the Building as is reasonably practicable. There shall be no additional fee for the use of the parking spaces.

     14.17. Expression of Interest. Tenant hereby affirms and ratifies the letter of Tod Woolf, CEO of Tenant, to D’Anne Hurd dated August 8, 2007, referencing “Gateway Park, Worcester-Indication of Interest in 100,000 sq. ft. building (Building #1).”

     IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be duly executed, under seal, by persons hereunto duly authorized, as of the date first set forth above.

LANDLORD:
Newgate Properties, LLC
 

By:  

TENANT:
RXI Pharmaceutical Corporation
 

By:  

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EX-10.3

Exhibit 10.3

Mr. John Caloz

Dear Mr. Caloz:

     On behalf of CytRx Corporation (the “Company”), I am pleased to offer you the position of Chief Accounting Officer for CytRx Corporation. Speaking for myself, as well as the other members of the Company’s management team, we are all very impressed with your credentials and we look forward to your future success in this position.

     Your responsibilities will be those assigned to you from time to time by your supervisor, Mitchell Fogelman, including but not limited to those described in Schedule 1.

     You will be paid a semi-monthly salary of $8,333.33 less all applicable deductions, which is equivalent to a gross sum of $200,000.00 on an annualized basis. Your salary will be payable pursuant to the Company’s regular payroll policy. You will also be eligible for a discretionary bonus opportunity, payable in cash, stock or any combination thereof. Any salary change and bonus will be determined by the Board of Directors of the Company based upon your personal performance, the Company’s financial performance, achieving your milestones and other factors. The determinations of the Board of Directors of the Company with respect to such bonus and any salary review shall be final and binding.

     The Company will provide you with the opportunity to participate in the standard benefits plans currently available to other similarly situated employees, including medical, dental and vision insurance, subject to any eligibility requirements imposed by such plans. In addition, you will be entitled to three (3) weeks vacation your first year, in addition to the Company’s standard paid holidays, as such holidays may change from time to time.

     In connection with the commencement of your employment, the Board of Directors of the Company will grant you an option to purchase 75,000 shares of CytRx Common Stock (NASDAQ: CYTR) with an exercise price equal to the fair market value at the close of business on your first day of employment. This option shall vest over a three-year period, with one-third of the option shares vesting on each of the first three anniversaries of the first day of your employment. Vesting will, of course, depend on your continued employment with the Company. The option will be a non-qualified stock option and will be subject to the terms of the Company’s stock option plan and the Stock Option Agreement between you and the Company, a copy of which you will be required to execute as a condition of the grant. In addition, you will be required to comply with any Company policies governing securities trades by Company personnel.

     As an employee of the Company, you will have access to certain Company confidential information and you may, during the course of your employment, develop certain information or

inventions, which will become the property of the Company. As a condition of your employment, you will be required to sign the Company’s Confidential Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the “Confidentiality Agreement”), prior to or on your Start Date (as defined below). We wish to impress upon you that we do not wish you to bring with you any confidential and proprietary material of any former employer or to violate any other obligation to your former employers. Also, by accepting this offer, you represent that you are not subject to any restrictions that prevent you from working at the Company.

     As a condition of employment, you will be required to authorize the Company to conduct a background investigation. This offer is contingent upon a positive outcome of such an investigation, as well as your ability to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of the Start Date, or our employment relationship with you will be terminated.

     Your employment with the Company will be on an “at will” basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability. This is the full and complete agreement between us on this term.

     In the event that we terminate you without “cause” (as defined in Attachment A) we agree to pay you severance equal to 26 weeks salary as of the date of your termination.

     You hereby represent that you are not presently bound by any employment agreement, confidential or proprietary information agreement or similar agreement with any current or previous employer that would impose any restriction on your acceptance of this offer or that would interfere with your ability to fulfill the responsibilities of your position with the Company. You agree to abide by the Company’s strict policy that prohibits any new employee from using or bringing with them from any prior employer any confidential information, trade secrets, proprietary materials or processes of such former employers.

     While you render services to the Company you agree that you will not engage in any other employment, consulting or other business activity without the prior written consent of the Company. While you render services to the Company, you also will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring any employees or consultants of the Company.

     You agree that there were no promises or commitments made to you regarding your employment with the Company except as set forth in this letter. This letter, together with the Confidentiality Agreement, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you.

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     We are all delighted to be able to extend you this offer and look forward to working with you. To indicate your acceptance of the Company’s offer and to acknowledge that you have read, understood and agreed to the terms and conditions of this offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement, on or before Monday, October 29, 2007. The Company requests that you begin work in this new position on or before Friday, October 26, 2007. Please indicate the date (either on or before the aforementioned date) on which you expect to begin work in the space provided below (the “Start Date”).

Very truly yours, CYTRX CORPORATION.
By:	/s/ STEVEN A. KRIEGSMAN
	Steven A. Kriegsman
	Chief Executive Officer

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I HAVE READ AND I UNDERSTAND THE TERMS OF THE OFFER SET OUT ABOVE. AS INDICATED BY MY SIGNATURE BELOW, I ACCEPT THE OFFER AS OUTLINED ABOVE. I FURTHER ACKNOWLEDGE AND AGREE THAT, AS A CONDITION OF MY EMPLOYMENT, FROM TIME TO TIME, I MAY BE REQUIRED TO REVIEW AND ACKNOWLEDGE OTHER DOCUMENTS WHICH MAY INCLUDE, WITHOUT LIMITATION, THE COMPANY’S EMPLOYEE HANDBOOK AND POLICIES GOVERNING SECURITIES TRADES BY COMPANY PERSONNEL. NO FURTHER COMMITMENTS WERE MADE TO ME AS A CONDITION OF EMPLOYMENT:

John Caloz
 

/s/ JOHN CALOZ  

Signature 

October 26, 2007  

Date  

Anticipated Start Date: October 26, 2007

Attachment A: Definition of “Cause”
Attachment B: Confidential Information and Invention Assignment Agreement

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Steven A. Kriegsman, Chief Executive Officer of CytRx Corporation, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: November 13, 2007	/s/ STEVEN A. KRIEGSMAN
	Steven A. Kriegsman
	Chief Executive Officer

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EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Mitchell K. Fogelman, Chief Financial Officer of CytRx Corporation, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: November 13, 2007	/s/ MITCHELL K. FOGELMAN
	Mitchell K. Fogelman
	Chief Financial Officer

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EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of CytRx Corporation (the “Company”) hereby certifies based on his knowledge that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.

Date: November 13, 2007	/s/ STEVEN A. KRIEGSMAN
	Steven A. Kriegsman
	Chief Executive Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 (Section 906), or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to CytRx Corporation and will be retained by CytRx Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished to the Securities and Exchange Commission as an Exhibit to the Form 10-Q and shall not be considered filed as part of the Form 10-Q.

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EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of CytRx Corporation (the “Company”) hereby certifies based on his knowledge that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.

Date: November 13, 2007	/s/ MITCHELL K. FOGELMAN
	Mitchell K. Fogelman
	Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 (Section 906), or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to CytRx Corporation and will be retained by CytRx Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished to the Securities and Exchange Commission as an Exhibit to the Form 10-Q and shall not be considered filed as part of the Form 10-Q.

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