10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


(Mark one)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2008
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 000-26534

VION PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)


Delaware			13-3671221
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

4 Science Park New Haven, Connecticut (Address of principal executive offices)			06511 (Zip Code)

Registrant’s telephone number, including area code:

(203) 498-4210

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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


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

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

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2008 was $8,808,564 based on the last sale price for the common stock on that date as reported by the Nasdaq Capital Market^®.

The number of shares outstanding of the registrant’s common stock as of March 20, 2009 was 8,036,227.

DOCUMENTS INCORPORATED BY REFERENCE

None.

When used in this Annual Report on Form 10-K, unless otherwise indicated, “Vion,” “Company,” “the registrant,” “we,” “us,” “our” and similar terms refer to Vion Pharmaceuticals, Inc. and its subsidiaries.

We own or have rights to various copyrights, trademarks and trade names used in our business including the following: Onrigin^tm, Cloretazine^®, Triapine^®, MELASYN^® and TAPET^®. This report also includes other trademarks, service marks and trade names of other companies.

All statements other than statements of historical fact included in this Annual Report on Form 10-K, including without limitation statements under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” and “Item 1. Business,” regarding our financial position, business strategy, and plans and objectives of our management for future operations, are forward-looking statements. When used in this Annual Report on Form 10-K, words such as “may,” “will,” “should,” “could,” “potential,” “seek,” “project,” “predict,” “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to our management. Forward-looking statements involve risks and uncertainties. Our actual results could differ materially. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under “Item 1A — Risk Factors,” as well as those discussed elsewhere in this Annual Report on Form 10-K. The risks that we have highlighted here are not the only ones that we face. For example, additional risks presently unknown to us or that we currently consider immaterial or unlikely to occur could also impair our operations. If any of the risks or uncertainties described in this Annual Report on Form 10-K or any of those additional risks and uncertainties actually occur, our business, financial condition or results of operations could be negatively affected. The information contained in this Annual Report on Form 10-K is believed to be current as of the date of filing with the Securities and Exchange Commission (SEC). We do not intend to update any of the forward-looking statements after the date of this filing to conform these statements to actual results or to changes in our expectations, except as required by law.

PART I


ITEM 1.	*Business*

We are a development-stage pharmaceutical company that develops therapeutics for the treatment of cancer. Our research and product development activities to date have consisted primarily of conducting preclinical trials of product candidates, obtaining regulatory approval for clinical trials, conducting clinical trials, preparing to file for regulatory approval of our lead product candidate, Onrigin^tm (laromustine) Injection, conducting pre-commercialization activities, negotiating and obtaining collaborative agreements, and obtaining financing in support of these activities. Since inception, we have generated minimal revenues and have incurred substantial operating losses from our activities. We currently have no material source of revenue and we expect to incur substantial operating losses for the next several years due to expenses associated with our activities. We will have to raise additional capital to operate the Company after the first quarter of 2010.

We have two small molecule anticancer agents in clinical development. Clinical development of a product candidate generally involves a three-phase process. In Phase I, clinical trials are conducted with a small number of subjects to determine the tolerated drug dose, early safety profile, proper scheduling and the pattern of drug distribution, absorption and metabolism. In Phase II, clinical trials are conducted with groups of patients afflicted with a specific disease in order to determine efficacy, dose-response relationships and expanded evidence of safety. In Phase III, large-scale, multi-center, controlled clinical trials are conducted in order to: (i) provide enough data for statistical proof of safety and efficacy; (ii) compare the experimental therapy to existing therapies; (iii) uncover unexpected safety problems, such as previously unobserved side-effects; and (iv) generate product labeling.

Most of our resources are focused on the development of Onrigin^tm for the treatment of acute myeloid leukemia (AML). In February 2009, we filed a New Drug Application (NDA) for Onrigin^tm with the U.S. Food and Drug Administration (FDA) based on our pivotal Phase II trial of the drug as a single agent in elderly patients with de novo poor-risk AML, supplemented by data from a previous Phase II trial of Onrigin^tm in elderly AML. In October 2005, Onrigin^tm was designated a fast track product for the treatment of patients over 60 years of age with poor-risk AML and accordingly we have requested priority review of our NDA filing. Within several months after the NDA filing date, the FDA will determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Although preliminary data from the pivotal trial indicated that we met the criteria for a successful trial based on the primary endpoint, the overall response rate, there can be no assurance that the NDA will be: (i) accepted for filing or (ii) reviewed and/or approved on a priority or timely basis by the FDA, if at all.

In May 2007, our Phase III trial of Onrigin^tm in combination with Ara-C (also known as cytarabine) in relapsed AML was put on clinical hold by the FDA after accrual of 268 patients. This decision was based on a planned interim analysis of clinical data by the trial’s data safety monitoring board (DSMB) that resulted in a recommendation that enrollment and further treatment of patients on study be suspended. The DSMB’s recommendation was based on their evaluation that any advantage in the overall response rate (the trial’s primary endpoint) was being compromised by the mortality observed on the study. In January 2008, we announced that the FDA had lifted the clinical hold on this trial, and that we had reached initial agreement with the FDA on modifications to our original Phase III study protocol resulting in the requirement to conduct a new Phase III trial in relapsed AML if we pursue regulatory approval in this indication. The original Phase III trial is now closed. There can be no assurance that we will start a new Phase III trial in relapsed AML at any time in the future.

We have limited resources to allocate to additional clinical trials of Onrigin^tm. Onrigin^tm is being evaluated in four clinical trials at this time: (i) a continuation of our pivotal Phase II trial to collect certain electrocardiogram data; and (ii) three trials sponsored by clinical investigators. We have also entered into an agreement to conduct one additional investigator-sponsored trial of Onrigin^tm in AML.

We have limited resources to apply to our second product candidate, Triapine^®. Triapine^® is under evaluation in four clinical trials sponsored by the National Cancer Institute’s (NCI) Cancer Therapy Evaluation Program. We provide Triapine^® drug products to support these trials.

We have two additional anticancer technologies that are in the preclinical development stage: (i) a small molecule that targets hypoxic or low-oxygen areas of tumors (VNP40541) and (ii) a drug delivery technology (TAPET^®). We are not developing these technologies with our own resources at this time, and are seeking development partners for these product candidates. ‘Preclinical development’ or ‘preclinical studies’ indicate that the product candidates selected for development are being evaluated for potency, specificity, manufacturability and pharmacologic activity in vitro, or cell culture, and in vivo, or animal models.

Our product development programs are based primarily on technologies that we license from Yale University (Yale) and other cancer research centers or that we have developed ourselves. We have largely engaged in product development with respect to anticancer therapeutics through in-house preclinical and clinical development and through collaboration with academic, research and governmental institutions. As our product candidates advance through trials, depending on financial and pharmaceutical market conditions and the resources required for development, we will determine the best method and/or partnership to develop, and eventually market, our products.

We were incorporated in March 1992 as a Delaware corporation and began operations on May 1, 1994. We have no material source of revenues. We have incurred operating losses since our inception. As of December 31, 2008, we had an accumulated deficit of approximately $239.0 million. We expect to incur substantial operating losses for the next several years due to expenses associated with product development, clinical testing, regulatory activities, manufacturing development, scale-up and commercial-scale manufacturing, pre-commercialization activities, developing a sales and marketing force, and other infrastructure support costs. We will need to obtain additional financing to cover these costs.

For the years ended December 31, 2008, 2007 and 2006, we spent $17.5 million, $24.2 million and $21.5 million, respectively, on company-sponsored research and development activities.

Status of Common Stock

On February 20, 2008, we effected a one-for-ten reverse split of all outstanding shares of our common stock and a corresponding decrease in the number of shares of authorized common stock. As of that date, each ten of our shares were automatically combined, converted and exchanged into one share of our common stock. All share amounts, per share amounts and common stock prices included in this Annual Report on Form 10-K are provided on a post-reverse stock split basis.

On August 15, 2008, we announced that we had been delisted from the Nasdaq Capital Market^®. Our common stock is now quoted on the OTC Bulletin Board^® under the symbol “VION.”

Overview of Cancer and Treatment Methods

According to the American Cancer Society (ACS), cancer is the second most common cause of death in the United States, exceeded only by heart disease. The ACS estimated that 1,437,180 new cancer cases would be diagnosed and about 565,650 cancer deaths would occur in the United States in 2008.

Cancer is a heterogeneous group of diseases characterized by uncontrolled cell division and growth resulting in the development of a mass of cells or tumor, as well as the invasion and spreading of these cells to other organs of the body (metastasis). Cancerous tumors can arise in any tissue or organ within the human body and generally cause clinical problems to the patient when the tumor affects the function of that organ or when the tumor spreads to other organs. Cancers which arise in the bone marrow (e.g. acute and chronic leukemias and multiple myeloma) or the lymph nodes (Hodgkin’s disease and lymphomas) spread through the bone marrow and lymphatic systems, affecting the growth of normal blood and lymphatic cells. Cancer is believed to occur as a result of a number of factors, such as genetic predisposition, chemical agents, viruses and radiation. These factors result in genetic changes affecting the ability of cells to regulate their growth and differentiation.

The most common methods of treating patients with cancer are surgery, radiation and anticancer drugs (chemotherapy). A cancer patient often receives treatment with a combination of methods. Surgery and radiation therapy are particularly effective in patients where the disease is localized. The most common method of treating patients with cancer that has spread beyond the primary site is to administer systemic chemotherapy. Chemotherapy

seeks to damage and kill cancer cells or to interfere with the molecular and cellular processes that control the development, growth and survival of malignant tumor cells. In many cases, chemotherapy consists of the administration of several different drugs in combination. Chemotherapy can cause a number of side effects in patients, including weakness, low blood count, loss of appetite, nausea and vomiting, and damage to various organs that can result in loss of normal body functions.

The effectiveness of current cancer treatments with respect to any particular patient varies greatly, depending upon the cancer diagnosis and the tolerance of the individual patient to treatment. Therefore, a significant need exists for new agents that can be used alone or in combination with existing drugs and treatment approaches and that will result in greater efficacy with less toxicity (or a more favorable benefit to risk profile) than current therapeutic options.

Products for the Treatment of Cancer in Clinical Development

The discussion below sets forth the development status of our product candidates in clinical development (except as otherwise specifically noted below) as of March 1, 2009.

Onrigin^tm

Onrigin^tm is a novel alkylating (DNA-damaging) agent. Alkylating agents directly damage DNA to prevent cancer cells from reproducing, and work in all phases of the cell cycle, affecting both dividing and non-dividing cancer cells. Alkylating agents are among the most widely used class of anticancer drugs, displaying activity across a range of both hematologic and solid tumors, including acute and chronic leukemias, non-Hodgkin’s lymphoma, Hodgkin’s disease, multiple myeloma, and lung, breast, ovarian, brain, and certain other cancers. There are a number of approved alkylating agents used in the treatment of cancer, including busulfan, cisplatin, carboplatin, chlorambucil, cyclophosphamide, ifosfamide, dacarbazine, mechlorethamine, melphalan, and temozolomide.

Preclinical data on Onrigin^tm showed broad anti-tumor activity in in vivo models. It was curative in certain preclinical leukemia models, including mice bearing certain derivatives of a leukemia cell line that was resistant to standard alkylating agents. Onrigin^tm was also active against solid tumor models, including lung, colon and brain cancer, and melanoma. Onrigin^tm was also not affected by mechanisms for multiple drug resistance which can limit the effectiveness of treatment. Onrigin^tm has been shown in preclinical studies to be capable of crossing the blood-brain barrier. The blood-brain barrier has been a common obstacle in achieving active concentrations of many anticancer drugs within the brain.

Below is a table summarizing all Onrigin^tm clinical trials conducted through, or recruiting patients, as of March 1, 2009:


			Commencement
Trial	Indication	Sponsor	Date	Status

Phase III trial in combination with remission-induction therapy	AML and MDS	Investigator	December 2008	Ongoing
Phase III trial in combination with Ara-C	AML, relapsed	Vion	March 2005	Closed
Phase II single agent trial	AML, elderly de novo poor-risk	Vion	May 2006	NDA submitted February 2009; Ongoing
Phase II single agent trial	Small cell lung cancer	Vion	September 2005	Closed
Phase II single agent trial	Brain tumors, adult	Investigator	June 2004	Completed
Phase II single agent trial	AML and high-risk myelodysplastic syndromes, elderly; AML, relapsed	Vion	March 2004	Completed
Phase I/II trial in combination with cytarabine	AML, elderly	Investigator	May 2008	Ongoing
Phase I/II trial in combination with temozolomide	Brain tumors, adult	Investigator	September 2007	Ongoing
Phase I/II single agent trial	Chronic lymphocytic leukemia	Vion	July 2005	Closed
Phase I trial in combination with stem cell transplantation	Hematologic Malignancies	Investigator	December 2007	Closed
Phase I trial	Brain tumors, pediatric	Investigator	April 2005	Completed
Phase I trial in combination with temozolomide	Hematologic malignancies	Vion	October 2004	Completed
Phase I single agent trial in combination with Ara-C	Hematologic malignancies	Vion	July 2003	Completed
Phase I single agent trial	Solid tumors	Vion	February 2003	Completed
Phase I single agent trial	Hematologic malignancies	Vion	August 2002	Completed
Phase I single agent trial	Solid tumors	Vion	June 2001	Completed

We would reevaluate Onrigin^tm if the data from any of our clinical trials raised issues relative to its safety and efficacy. In such event, we would alter the drug or dose as used in the trial, modify the clinical trial protocol, commence additional trials, or abandon the drug development project. In any such event, our business, operations and prospects would be materially adversely affected, and our ability to apply for or obtain regulatory approval might be delayed, or we might not be able to obtain regulatory approval at all.

In March 2004, we received fast track designation from the FDA for Onrigin^tm in relapsed or refractory AML. In October 2005, we received fast track designation for Onrigin^tm in elderly poor-risk AML. The FDA’s fast track programs are designed to facilitate the development of new drugs that are intended to treat serious or life-threatening conditions and demonstrate the potential to address unmet medical needs.

In October 2004, we received orphan drug designation from the FDA for Onrigin^tm in AML in the United States. Orphan drug designation may be granted to products that treat rare diseases or conditions that affect fewer than 200,000 people in the United States. Orphan drug designation does not convey any advantage or shorten the duration of the FDA review and approval process. The designation may provide eligibility for: (i) a seven-year period of market exclusivity for the indication of AML; (ii) potential tax credits for research; (iii) grant funding for research and development; (iv) reduced filing fees for marketing applications; and (v) assistance with the review of clinical trial protocols.

In January 2006, we received orphan drug designation from the European Medicines Agency (EMEA) for Onrigin^tm in AML in the European Union. Orphan drug status is granted by the European Commission to promote development of drugs to treat rare diseases or conditions. Orphan drug designation in Europe does not convey any advantage or shorten the duration of the EMEA review and approval process. Orphan drug designation in Europe may entitle Onrigin^tm to: (i) a ten-year period of market exclusivity for the indication of AML; (ii) protocol assistance from the EMEA to optimize drug development in preparing a dossier that will meet regulatory requirements; (iii) reduced fees associated with applying for market approval; and (iv) access to European Union research funding.

Onrigin^tm in Hematologic Malignancies

Most of our resources are focused on the development of Onrigin^tm for the treatment of AML. AML is a cancer characterized by the rapid proliferation of abnormal white blood cells that accumulate in the bone marrow and interfere with the production of normal blood cells. The condition is the most common acute leukemia affecting adults. The American Cancer Society estimates that 13,290 new cases of AML were diagnosed in the U.S. in 2008.

AML is primarily a disease of the elderly, with a median age at onset of 67 years. Compared to younger patients, older AML patients have a lower rate of response to currently available induction chemotherapy and shorter overall survival due, in part, to unfavorable prognostic factors such as a higher incidence of adverse cytogenetics and frequent co-morbidities. In addition, patients with risk factors such as advanced age and poor performance status tolerate current induction treatments poorly. A 2005 study by Lang et al, based on data from the National Cancer Institute’s Survey of Epidemiological and End Results (SEER) database, indicated that palliative care is given to the majority of elderly patients with AML in the U.S., providing additional evidence that new treatment options are needed for this population.

In February 2009, we submitted an NDA with the FDA based on a pivotal Phase II trial of Onrigin^tm in previously untreated elderly patients with de novo poor-risk AML. Elderly de novo poor-risk AML patients are those elderly patients with poor-risk AML that has not evolved from a prior myelodysplastic syndrome or from prior treatment with chemotherapy. Data from the pivotal trial is supplemented with data from a previous Phase II trial of Onrigin^tm in elderly AML. In October 2005, Onrigin^tm was designated a fast track product for the treatment of patients over 60 years of age with poor-risk AML and accordingly we have requested priority review of our NDA submission. Within several months of the NDA submission date, the FDA will determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Although the preliminary data from this trial indicate that we met the criteria for a successful trial based on the primary endpoint, the overall response rate, there can be no assurance that the NDA will be: (i) accepted for filing or (ii) reviewed and/or approved on a priority or timely basis by the FDA, if it all.

Our Phase III trial of Onrigin^tm in combination with cytarabine in relapsed AML was initiated in March 2005 and accrued 268 patients. In May 2007, we announced that we would suspend enrollment and patient treatment to this trial pending a detailed review of all of the data from the trial. This decision was based on a planned interim analysis of clinical data from the first 210 treated patients by the trial’s DSMB that resulted in a recommendation that enrollment and further treatment of patients on study be suspended. The DSMB’s recommendation was based on their evaluation that any advantage in the primary endpoint, the overall response rate, was being compromised by the mortality observed on the study. In May 2007, the FDA placed the trial on clinical hold. We subsequently performed a comprehensive safety and efficacy analysis with our personnel and external and independent medical consultants. In November 2007, we announced that discussions with the DSMB for the trial regarding the findings of the medical and safety review had been completed and the next step of the process was to present the findings and recommendations to the regulatory authorities. In January 2008, we announced that the FDA had lifted the clinical hold on this trial, and that we had reached initial agreement with the FDA on modifications to our original Phase III study protocol resulting in the requirement to conduct a new Phase III trial in relapsed AML, if we pursue regulatory approval in this indication. The original Phase III trial is now closed. In June 2008, we presented data from this trial at the Annual Meeting of the American Society of Clinical Oncology. Among other changes, any new trial may

include a lowered dose of Onrigin^tm in the experimental arm of the trial, and prophylactic therapy with antibiotics, anti-fungals and growth factors for all patients. There can be no assurance that we will start a new Phase III trial in relapsed AML at any time in the future.

There are additional clinical trials of Onrigin^tm in hematologic malignancies underway at this time. An investigator-sponsored Phase III trial in combination with remission-induction therapy for previously untreated patients with AML and high-risk myelodysplasia syndrome was initiated in December 2008. An investigator-sponsored Phase I/II trial in combination with cytarabine for elderly patients with previously untreated AML was initiated in May 2008.

We have entered into an agreement to conduct one additional investigator-sponsored trial of Onrigin^tm in AML: a multi-center Phase I/II trial of Onrigin^tm with remission-induction therapy in patients aged 18-60 with previously untreated AML and a poor prognosis based on their cytogenetic profile. This trial is expected to enroll its first patient in 2009.

Onrigin^tm in Solid Tumors

Although our primary focus has been to develop Onrigin^tm for the treatment of AML, we have also conducted clinical trials in solid tumors, and have provided product and financial support for three investigator-sponsored clinical trials of Onrigin^tm in pediatric and adult brain tumors.

In January 2008, our Phase II trial of Onrigin^tm as a single agent in small cell lung cancer was closed to patient enrollment due to a reallocation of resources. The trial had accrued 67 out of a planned total of 87 patients. Final data from this trial has not yet been presented at a clinical conference or published.

There is one trial of Onrigin^tm in a solid tumor underway at this time. An investigator-sponsored Phase I/II trial of Onrigin^tm in combination with temozolomide in adult brain tumors was initiated in September 2007.

Triapine^®

Triapine^® is a small molecule that in preclinical models inhibits the enzyme ribonucleotide reductase and therefore prevents the replication of tumor cells by blocking a critical step in DNA synthesis. Ribonucleotide reductase inhibition is believed to arrest the growth of, or kill, cancer cell lines, by blocking a critical step in DNA synthesis in cancer cells. Inhibition of this enzyme has also been shown in vitro and in vivo to enhance the anti-tumor activity of several standard anticancer agents. Accordingly, we believe Triapine^® has potential to be used as a single agent and in combination with anticancer drugs to prevent damaged anticancer cells from regenerating.

We have evaluated an intravenous formulation of Triapine^® in five single agent Phase I trials, three single agent Phase II trials, four Phase I combination trials, and two Phase II combination trials. All our other trials of Triapine^® are closed to accrual or completed.

Clinical trials of Triapine^® are being sponsored by the NCI’s Cancer Therapy Evaluation Program under a clinical trials agreement with the NCI’s Division of Cancer Treatment and Diagnosis for the clinical development of Triapine^®. We provide the product used in these trials. There are currently three trials open to recruiting new patients sponsored by the NCI to evaluate an intravenous formulation of Triapine^®: (i) a trial of Triapine^® in combination with gemcitabine; (ii) a trial of Triapine^® in combination with radiation; and (iii) a trial of Triapine^® in combination with fludarabine. An additional thirteen trials are closed to accrual or completed.

Clinical testing of new single agent administration schedules may be possible with the oral form of Triapine^®, which to date has been studied in a small number of patients to determine its absorption in the bloodstream following a single dose. A Phase I trial sponsored by the NCI of an oral formulation of Triapine^® is ongoing.

In October 2003, we entered into a license with Beijing Pason Pharmaceuticals, Inc. (Pason) whereby we granted Pason the exclusive rights to develop, manufacture and market Triapine^® in the People’s Republic of China, Taiwan, Hong Kong and Macao. To date, Pason has not conducted clinical trials of Triapine^®. See “— License and Research Agreements,” below.

Other Products and Product Candidates for Conditions Other than Cancer

MELASYN^®

Melanin is a pigment formed by cells in the skin that gives skin its color and protects it from sun damage by absorbing ultraviolet rays. MELASYN^® is a patented, water-soluble, synthetic version of melanin, making it a potentially useful ingredient for formulation of skin care products and cosmetics. Our MELASYN^® patent and technology are licensed from Yale. We have one non-exclusive sublicense for MELASYN^® with a sublicensee. See “— License and Research Agreements,” below.

Novel Nucleoside Analogs

We have licensed patents and patent applications related to a nucleoside analog, or synthetic molecule, known as elvucitabine (ß-L-Fd4C) from Yale. In February 2000, we entered into a sublicense agreement for elvucitabine with a sublicensee. Under the terms of the sublicense agreement, the sublicense has funded the development of elvucitabine which is currently in Phase II clinical trials as an antiviral drug for the treatment of human immunodeficiency virus (HIV). See “— License and Research Agreements,” below.

License and Research Agreements

Agreements with Yale University

We license various compounds from Yale, including Onrigin^tm and Triapine^®, which were developed in the laboratory of Dr. Sartorelli, one of our directors, through research funded in part by us. The license agreements with Yale, which are described below, grant us exclusive licenses to make, use, sell and practice the inventions covered by various patents and patent applications relating to our primary product candidates as described below. Each license agreement requires us to pay royalties and, in some cases, milestone payments to Yale. Yale has retained the right to make, use and practice the inventions for non-commercial purposes. Under the license agreements we are required to exercise due diligence in commercializing the licensed technologies. The licenses may be terminated by Yale in the event that we fail to make a payment when due, we commit a material breach of the license, we become insolvent or file a petition in bankruptcy, or we fail to exercise due diligence in commercializing the licensed products, subject to certain cure periods. In the event that the license agreement dated August 1994, described below, is terminated for breach, all rights under licenses previously granted terminate. Accordingly, a default as to one product could affect our rights in other products. We may terminate the licenses in the event of Yale’s material breach of the licenses if such breach remains uncured for 30 days. Under the license agreements, we are also required to defend and indemnify Yale for any damages arising out of the use or sale of the licensed products by us or our sublicensees.

Subsequent to entering into a license agreement with Yale in August 1994, described below, we have paid approximately $10.8 million through December 31, 2008 to fund research activities at Yale. For risks associated with research funding provided to Yale, see “— If Yale does not conduct research relating to products we would like to pursue, we may never realize any benefits from our funding provided to Yale” under “Item 1A. Risk Factors.”

License Agreement with Yale — September 1990

Under this agreement, we have an exclusive license to a U.S. patent related to a synthetic form of melanin named MELASYN^®. Under the terms of the amended license agreement, we pay a license fee to Yale based on a percentage of net sales and sublicensing revenues. The term of the license is dictated by the expiration of any patents relating to any invention or, with respect to non-patented inventions or research, 24 years from 1990 (i.e. through 2014).

We have a non-exclusive sublicense agreement for MELASYN^® with a sublicensee. Under the terms of the sublicense agreement, we receive reimbursement for certain costs and, if products including our technology are commercialized, we would receive a royalty based on a percentage of sales in the U.S. related to our issued patent.

License Agreement with Yale — August 1994

Under this amended agreement, we have a non-transferable worldwide exclusive license to make, have made, use, sell and practice inventions under certain patents and patent applications for therapeutic and diagnostic purpose. The patents and patent applications under this amended license cover Onrigin^tm and other sulfonylhydrazine compounds, Triapine^® and elvucitabine (ß-L-Fd4C). The term of the license is dictated by the expiration of any patents relating to any inventions or, with respect to non-patented inventions or research, 17 years from 1994 (i.e. through 2011). This amended agreement provides that if Yale, as a result of its own research, identifies potential commercial opportunities for the licensed inventions, we will have the first option to negotiate a commercial license for the commercial opportunities. Yale is entitled to royalties on sales, if any, of resulting products, sublicensing revenues and, with regard to several patents, milestone payments based on the status of clinical trials and/or regulatory approvals.

We have granted a sublicense for elvucitabine (ß-L-Fd4C) to a sublicensee. Under the terms of the sublicense agreement, we received a small equity payment and, when and if a product including our technology is developed and commercialized, we could receive payments based on development milestones and royalties based on product revenue.

We have also granted a sublicense to Pason granting them the exclusive rights to develop, manufacture and market Triapine^® in the People’s Republic of China, Taiwan, Hong Kong and Macao. Under the terms of the sublicense agreement, the Company received an upfront technology license fee and is entitled to receive potential milestone payments and potential royalties based on a percentage of Triapine^® revenues in those countries. Pason is required to fund the preclinical and clinical development necessary for regulatory approval of Triapine^® in those countries. To date, Pason has not conducted trials of Triapine^®.

License Agreements with Yale — December 1995

Under this amended agreement, we have a non-transferable worldwide exclusive license, expiring over the lives of the licensed patents, to three inventions relating to gene therapy for melanoma. Technology licensed by us under this agreement relates to TAPET^®. We have another license agreement with Yale pursuant to which we have a non-transferable worldwide exclusive license, expiring over the lives of the patents, to an invention relating to whitening skin. Under these licensing agreements, Yale is entitled to potential milestone payments based on the status of clinical trials and regulatory approvals. In addition, Yale is entitled to royalties on sales, if any, of resulting products and sublicense revenues.

Competition

Competition in the biopharmaceutical industry is intense and based on scientific and technological factors, the availability of patent and other protection for technology and products, the ability to finance and commercialize technological developments, and the ability to obtain governmental approval for testing, manufacturing and marketing drugs. We face competition from pharmaceutical companies and biotechnology companies. Numerous companies such as Amgen Inc., AstraZeneca PLC, Genzyme Corporation, Bristol-Myers Squibb Company, Celgene Corporation, Chiron Corporation, Cyclacel Pharmaceuticals, Inc., Eli Lilly and Co. and its subsidiary ImClone Systems Inc., Eisai, Inc., Genentech Inc., Genzyme Corporation, Johnson & Johnson, Lorus Therapeutics Inc., OSI Pharmaceuticals, Inc., Pfizer Inc., Schering-Plough Corporation, Wyeth and Xanthus Pharmaceuticals, Inc. have publicly announced their intention to develop anticancer drugs including, in some instances, agents to be used for the treatment of AML or alkylating agents like our compound Onrigin^tm, or agents that target ribonucleotide reductase like our compound Triapine^®. We are aware that one of these companies, with substantially greater financial and other resources than ours, has filed a Supplemental New Drug Application (SNDA) with the FDA for the treatment of adult patients with AML. For risks associated with competition, see “— We face intense competition in the market for anticancer products, and if we are unable to compete successfully, our business will suffer” under “Item 1A. Risk Factors.”

Patents, Licenses and Trade Secrets

Our policy is to protect our technology by, among other means, filing patent applications for technology that we consider important to the development of our business. We intend to file additional patent applications, when appropriate, relating to new developments or improvements in our technology and other specific products that we develop. We also rely on trade secrets, know-how and continuing technological innovations, as well as patents we have licensed or may license from other parties to develop and maintain our competitive position.

In connection with our license agreement with Yale dated August 1994, we are the exclusive licensee, subject to certain rights retained by Yale, of a number of issued patents and pending U.S. and foreign patent applications relating to:


	•	Onrigin^tm, and other compounds in the sulfonylhydrazine class;

	•	Triapine^® and other ribonucleotide reductase inhibitors; and

	•	Elvucitabine (ß-L-Fd4C), its composition and its use for the treatment of HIV and hepatitis B (HBV) infections, and its use in combination with other anti-viral drugs.

We are also the exclusive licensee from Yale of an issued U.S. patent and several foreign patents on KS119, a hypoxia-selective anticancer agent previously evaluated in preclinical studies. Vion has also licensed from Yale one U.S. patent relating to synthetic melanin and methods for using synthetic melanin, such as for sunscreen or self-tanning agents, relevant to our MELASYN^® technology.

Pursuant to our license agreement with Yale dated December 1995, we are the exclusive licensee of a number of issued patents and pending patent applications, U.S. and foreign, relating to our TAPET^® technology, which include claims for methods of diagnosing and/or treating various solid tumor cancers, including melanoma, lung cancer, breast cancer and colon cancer. We also have rights, either by license and/or by assignment, to issued patents and pending patent applications, U.S. and foreign, relating to our TAPET^® technology. In addition, we have filed a number of U.S. provisional and non-provisional patent applications, an international patent application and a number of foreign patent applications related to this technology.

We or our licensors are prosecuting the patent applications related to products we license both with the U.S. Patent and Trademark Office (PTO) and various foreign patent agencies, but we do not know whether any of our applications will result in the issuance of any patents or, whether any issued patent will provide significant proprietary protection or will be circumvented or invalidated. During the course of patent prosecution, patent applications are evaluated for, among other things, utility, novelty, non-obviousness, written description and enablement. The PTO may require that the claims of an initially filed patent application be amended if it is determined that the scope of the claims include subject matter that is not useful, novel, non-obvious, described adequately or enabled. Furthermore, in certain instances, the practice of a patentable invention may require a license from the holder of dominant patent rights.

We cannot predict whether our patent applications or our competitors’ patent applications will result in valid patents being issued. An issued patent is entitled to a presumption of validity. The presumption may be challenged in litigation; a court could find any patent of ours or of our competitors invalid and/or unenforceable. Litigation, which could result in substantial cost to us, may also be necessary to enforce our patent and proprietary rights and/or to determine the scope and validity of the proprietary rights of others.

The patent position of biotechnology and pharmaceutical firms generally is highly uncertain and involves complex legal and factual questions. To date, no consistent policy has emerged regarding the breadth of claims allowed in biotechnology and pharmaceutical patents.

Government Regulation

Regulation by governmental authorities in the U.S. and other countries is a significant factor in the development of our products, and will be a significant factor in the manufacture and marketing of these products, if they are successfully developed and approved for sale. All of our products will require regulatory clearances or approvals prior to commercialization. In particular, drugs, biological agents and medical devices are subject to

rigorous testing and other approval requirements by the FDA pursuant to the Federal Food, Drug, and Cosmetic Act and the Public Health Service Act and its regulations, as well as by regulatory authorities in other countries. Various statutes and regulations also govern or influence the testing, manufacturing, safety, labeling, packaging, advertising, storage, registration, listing and recordkeeping related to marketing of such products. Regulatory approval is a lengthy process and involves the expenditure of substantial resources. Approval time depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments and the risks and benefits demonstrated in clinical trials. We cannot be certain that any required FDA or other regulatory approval will be granted or, if granted, will not be withdrawn.

The development of a therapeutic drug typically first requires preclinical testing. Preclinical development of therapeutic drugs and biological agents is generally conducted in the laboratory to evaluate the safety and the potential efficacy of a compound by relevant in vitro and in vivo testing. When a product is tested prospectively to determine its safety for purposes of obtaining FDA approvals or clearances, such testing must be performed in accordance with good laboratory practices for non-clinical studies. The results of preclinical testing are submitted to the FDA as part of an Investigational New Drug Application (IND). The IND must become effective, the study must be approved by an institutional review board, and informed consent must be obtained from the clinical subjects, before human clinical trials can begin.

Typically, clinical evaluation involves a three-phase process. In Phase I, clinical trials are conducted with a small number of subjects to determine the tolerated drug dose, early safety profile, proper scheduling and the pattern of drug distribution, absorption and metabolism. In Phase II, clinical trials are conducted with groups of patients afflicted with a specific disease in order to determine efficacy, dose-response relationships and expanded evidence of safety. In Phase III, large-scale, multi-center, controlled clinical trials are conducted in order to:


	•	provide enough data for statistical proof of safety and efficacy;

	•	compare the experimental therapy to existing therapies;

	•	uncover unexpected safety problems, such as previously unobserved side-effects; and

	•	generate product labeling.

In the case of drugs for cancer and other life-threatening diseases, the initial human testing is generally conducted in patients rather than in healthy volunteers.

In May 2007, our Phase III trial of Onrigin^tm in combination with cytarabine in relapsed AML was placed on clinical hold by the FDA. The FDA places a trial on clinical hold when the FDA does not believe or cannot confirm that the trial can be conducted without unreasonable risk to patients. We had suspended accrual and treatment of patients on this trial based on an interim evaluation by the DSMB for the trial that any advantage in the trial’s primary endpoint, the overall response rate, was being compromised by the observed mortality rate on the study. We subsequently performed a comprehensive safety and efficacy analysis with our personnel and external and independent medical consultants. In November 2007, we announced that discussions with the DSMB for the trial regarding the findings of the medical and safety review had been completed and the next step of the process was to present the findings and recommendations to the regulatory authorities. In January 2008, we announced that the FDA had lifted the clinical hold on this trial, and that we have reached initial agreement with the FDA on modifications to our original Phase III study protocol resulting in the requirement to conduct a new Phase III trial in relapsed AML if we pursue this indication. The original Phase III trial is now closed. Among other changes, any new trial may include a lowered dose of Onrigin^tm in the experimental arm of the trial, and prophylactic therapy with antibiotics, anti-fungals and growth factors for all patients. There can be no assurance that we will start a new Phase III trial in relapsed AML at any time in the future.

The results of the preclinical and clinical testing are submitted to the FDA either as part of a NDA for drugs, or a biologics license application (BLA) for biologics, for approval to commence commercial distribution. For a biologic drug, the manufacturer generally must also obtain approval of an establishment license application. In responding to an NDA or BLA, the FDA may grant marketing approval, request additional information or deny the application if it determines that the application does not satisfy its regulatory approval criteria. It may take several years to obtain approval after submission of an NDA or BLA, although approval is not assured.

In February 2009, we submitted a NDA for Onrigin^tm with the FDA based on our pivotal Phase II trial of the drug as a single agent in elderly patients with de novo poor-risk AML, supplemented by data from a previous Phase II trial of Onrigin^tm in elderly AML. In October 2005, Onrigin^tm was designated a fast track product for the treatment of patients over 60 years of age with poor-risk AML and accordingly we have requested priority review of our NDA submission. Within several months of the NDA submission date, the FDA will determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Although preliminary data from the pivotal trial indicated that we met the criteria for a successful trial based on the primary endpoint, the overall response rate, there can be no assurance that the NDA will be: (i) accepted for filing or (ii) reviewed and/or approved on a priority or timely basis by the FDA, if at all.

If an NDA is accepted for filing, the FDA begins an in-depth review. Under FDA policies, a drug candidate is eligible for priority review, or review within a six-month time frame from the time a complete NDA is accepted for filing, if the drug candidate provides a significant improvement compared to marketed drugs in the treatment, diagnosis or prevention of a disease. A fast track-designated drug candidate would ordinarily meet FDA’s criteria for priority review.

We have asked for a priority review for Onrigin^tm but there can be no assurance that priority review will be granted. The FDA’s goal for reviewing non-priority NDAs is ten months. The FDA can extend the review process to consider certain information or clarification regarding information already provided in the submission. The FDA may also refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with good clinical practice (GCP). Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured or tested. The FDA will not approve the product unless compliance with current good manufacturing practices (cGMPs) is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.

After the FDA evaluates the NDA and the manufacturing facilities, it issues an approval letter, an approvable letter or a not-approvable letter. Both approvable and not-approvable letters generally outline the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA would issue an approval letter. The FDA may extend the review period of the NDA filing for such resubmissions depending on the type of information included.

An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy and may impose other conditions, including labeling restrictions which can materially affect the potential market and profitability of the drug. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

Once an NDA is approved, a product may be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, industry-sponsored scientific and educational activities and promotional activities including those involving the internet.

Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.

Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing studies, known as Phase IV studies, risk minimization action plans and surveillance to monitor the effects of an approved product that could restrict the distribution or use of the product. In addition, quality control as well as drug manufacture, packaging, and labeling procedures must continue to conform to current good manufacturing practices after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with FDA and certain state agencies, and are subject to periodic inspections by the FDA during which the agency inspects manufacturing facilities to access compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized safety concerns arise.

We also will be subject to widely varying foreign regulations governing clinical trials and pharmaceutical sales. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of other countries must be obtained before marketing the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. We intend, to the extent possible, to rely on foreign licensees to obtain regulatory approval to market our products in other countries. To date we have not entered into any such arrangements.

In October 2004, we received orphan drug designation for Onrigin^tm in AML in the United States. Under the Orphan Drug Act, a sponsor may obtain designation by the FDA of a drug or biologic as an ‘orphan’ drug for a particular indication. Orphan drug designation is granted to drugs for rare diseases or conditions, including many cancers, with a prevalence of less than 200,000 cases in the United States. The sponsor of a drug that has obtained orphan drug designation and which is the first to obtain approval of a marketing application for such drug is entitled to marketing exclusivity for a period of seven years for the designated indication. This means that no other company can market the same orphan drug for the same indication approved by the FDA for seven years after approval unless such company proves its drug is clinically superior or the approved orphan drug marketer cannot supply demand for the drug. Legislation is periodically considered that could significantly affect the Orphan Drug Act. We intend to seek additional orphan drug designations for our products where appropriate.

In January 2006, we received orphan drug designation for Onrigin^tm for the treatment of AML in Europe. Orphan drug status is granted by the European Commission to promote development of drugs to treat rare diseases or conditions. Orphan drug designation does not convey any advantage or shorten the duration of the EMEA review and approval process. Orphan drug designation may entitle Onrigin^tm to: (i) ten years of market exclusivity for the indication of AML; (ii) protocol assistance from the EMEA to optimize drug development in preparing a dossier that will meet regulatory requirements; (iii) reduced fees associated with applying for market approval; and (iv) access to European Union research funding.

In addition to regulations relating to drug development, we are subject to federal, state and local environmental laws and regulations, including those promulgated by the Occupational Safety and Health Administration (OSHA), the Environmental Protection Agency (EPA), the Nuclear Regulatory Commission (NRC) and the Federal Aviation Administration (FAA), that govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes and transport of hazardous materials. For example, by letter dated March 5, 2009, we have been informed by the Federal Aviation Administration (FAA) that we are under investigation for alleged violations of the Hazardous Materials Regulations relating to the shipment of hazardous materials that were not declared, packaged, marked, labeled or otherwise identified as containing hazardous materials. Certain of these laws also impose strict liability for the costs of cleaning up, and for damages resulting from, sites of past spills, disposals or other releases of hazardous substances and materials for the investigation and remediation of environmental contamination at properties operated by us and at off-site locations where we have arranged for the disposal of hazardous substances.

We have made, and will continue to make, expenditures for environmental compliance and protection. Expenditures for compliance with environmental laws have not had, and are not expected to have, a material effect on our capital expenditures. For risks associated with environment, see “— If environmental laws become stricter in

the future, we may face large capital expenditures in order to comply with environmental laws” under “Item 1A. Risk Factors.”

Manufacturing, Distribution and Marketing

We do not have experience in manufacturing any products for commercial use, or in marketing, distributing or selling any products, and have not yet commercially introduced any products. We do not currently have the capability to manufacture or market, distribute or sell on a commercial scale any products that we develop. We have only recently established pre-commercial capabilities in these areas.

We use single source third parties to manufacture limited quantities of our products for use in clinical activities. We manufacture our active pharmaceutical ingredient for Onrigin^tm at SAFC, a member of the Sigma-Aldrich Inc., under an amended manufacturing agreement expiring September 2009. Under the terms of a manufacturing agreement expiring in December 2011, Ben Venue Laboratories, Inc. (Ben Venue), a division of Boeringher Ingelheim, is our exclusive manufacturer of Onrigin^tm finished drug product in the United States. We will need to validate our manufacturing process for Onrigin^tm and our other products before we can sell them commercially. We expect to validate the manufacturing process for Onrigin^tm finished product at Ben Venue but will not be able to market any product until we complete the validation as part of the regulatory approval process. For risks associated with manufacturing, see “— We rely on third-party manufacturers to manufacture our product candidates. If these third-party manufacturers fail to manufacture product candidates of satisfactory quality, in a timely manner, in sufficient quantities or at acceptable costs, development and commercialization of our products could be delayed” under “Item 1A. Risk Factors.”

We are aware that Ben Venue received a Warning Letter from the FDA in November 2007 and that subsequent to that date the FDA had completed an on-site inspection of their facility that concluded with the issuance of an FDA Form 483 (483). A 483 is a form issued by the FDA to list observations made during a facility inspection. Ben Venue informed us that it submitted a response to the FDA proposing a plan to address the issues identified in the 483 and that the FDA has now indicated that Ben Venue’s compliance status has been changed in the FDA databases to “Approvable”, allowing for the approval of NDAs, ANDAs (Abbreviated New Drug Application) and the issuance of CPPs (Certificates of Pharmaceutical Product) needed for export to many foreign countries for products manufactured by Ben Venue. In June 2008, we were notified by Ben Venue that it had received a letter from the European Medicines Agency (EMEA) with observations from a recent audit of its facilities, and that it had responded to this letter with a plan to address the issues raised. If Ben Venue is not successful in completing the corrections of the observations that resulted in the issuance of the 483 or the audit letter from the EMEA on a timely basis, our ability to obtain FDA approval to manufacture Onrigin^tm for commercial purposes could be delayed. We believe that we have sufficient inventory of Onrigin^tm to conduct our current and planned clinical trials through June 2009 in Europe and beyond in the U.S. However, if Ben Venue is not able to manufacture additional supplies of Onrigin^tm in the future, we will have to establish a new source for finished product manufacturing, and our operations could be materially adversely affected.

Our pre-commercial marketing efforts for Onrigin^tm in 2008 included attendance at industry conferences, meetings with key opinion leaders, and brand development. If our products are approved for sale by regulatory authorities, we will need to develop our capabilities to market, distribute and sell our products or contract with third parties to do so. In the event we decide to establish a marketing and sales force, we will be required to hire and retain additional personnel. For risks associated with marketing and distribution, see “— If we are unable to establish sales, marketing and distribution capabilities, or to enter into agreements with third parties to do so, we will be unable to successfully market and sell future drug products” under “Item 1A. Risk Factors.”

Pharmaceutical Pricing and Reimbursement

In the U.S. and markets in other countries, sales of any products such as Onrigin^tm for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third party payors. Third party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. These third party payors are increasingly challenging the price and examining the cost-effectiveness of medical products and services. In addition, significant uncertainty exists as to

the reimbursement status of newly approved healthcare product candidates. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of Onrigin^tm. Onrigin^tm may not be considered cost-effective. Adequate third party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

The marketability of any products such as Onrigin^tm for which we receive regulatory approval for commercial sale may suffer if the government and third party payors fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the U.S. has increased and will continue to increase the pressure on pharmaceutical pricing.

Employees

As of March 1, 2009, we had 43 employees.

Executive Officers of the Registrant

The executive officers of the Company and their respective ages and positions with the Company are as follows:


Name	Age		Position

Alan Kessman		62	Chief Executive Officer and Director
Howard B. Johnson		49	President and Chief Financial Officer
Ann Lee Cahill		48	Vice President, Clinical Development
William F. Hahne, M.D.		55	Vice President, Medical
Ivan King, Ph.D.		53	Vice President, Research and Development
Tanya Lewis		38	Vice President, Regulatory Affairs and Quality Assurance
Karen Schmedlin		46	Vice President, Finance, Chief Accounting Officer and Secretary
James Tanguay, Ph.D.		47	Vice President, Chemistry, Manufacturing and Controls

Business Experience

Alan Kessman has been our Chief Executive Officer since January 1999 and has served on our Board of Directors since October 1998. Mr. Kessman also served as our President from April 1999 to January 2004. Mr. Kessman is a partner of PS Capital LLC, an international investment and management advisor. From 1983 to 1998, Mr. Kessman was chairman, chief executive officer and president of Executone Information Systems, Inc., a developer and marketer of voice and data communications systems.

Howard B. Johnson has been our President since January 2004 and our Chief Financial Officer since March 2002. Mr. Johnson was a vice president and a consultant for Nutrition 21, Inc., from November 2001 until March 2002. From May 1999 until February 2001, Mr. Johnson was chief financial officer of IBS Interactive, Inc. (now Digital Fusion, Inc.). Mr. Johnson founded and from 1996 to 1999 was chairman and chief executive officer of MedWorks Corporation, a privately held medical device company. From 1983 to 1993, Mr. Johnson was an investment banker at PaineWebber Group, Inc.

Ann Lee Cahill has been our Vice President, Clinical Development since October 2004. Ms. Cahill was our Senior Director of Clinical Affairs from October 2003 to October 2004 and Director of Clinical Affairs from January 2002 to October 2003. From 1997 to 2002, Ms. Cahill was a member of the project management group of Schering-Plough Corporation, including leadership roles in clinical affairs for hepatitis and medical oncology. From 1985 to 1997, Ms. Cahill was a physician associate in a medical oncology practice.

William F. Hahne, M.D. has been our Vice President, Medical since February 2008. Prior to joining Vion, Dr. Hahne was Vice President, Clinical Development, and then Vice President of Clinical Development and Medical Affairs of Celsion Corporation from January 2006 to December 2007. From 2003 to 2005, Dr Hahne was

Vice President of Clinical Development for CuraGen Corporation. From 1986 to 2002, Dr. Hahne worked in various positions in medical affairs for Glaxo Inc., Merrell Dow Research Institute, Marion Merrell Dow, Hoechst Marion Rousel, and Eisai, Inc. Dr. Hahne received his medical degree from Cornell University Medical College and conducted his residency in general surgery at Emory University Affiliated Hospitals in Atlanta, Georgia.

Ivan King, Ph.D. has been our Vice President, Research and Development since January 2004. Dr. King was our Vice President of Research from July 1998 to January 2004, Senior Director of Biology from April 1997 to July 1998 and Director of Biology from October 1995 to April 1997. From 1990 to 1995, Dr. King was a section leader in the department of tumor biology at Schering-Plough Research Institute in charge of the cell biology and in vivo biology groups where he was responsible for identifying targets, developing high throughput assays, evaluating in vitro and in vivo activities of drug candidates and recommending candidates for clinical development. Dr. King’s first industrial position was as a senior research scientist at Bristol-Myers Squibb Company.

Tanya Lewis has been our Vice President, Regulatory Affairs and Quality Assurance since December 1, 2008. Prior to joining Vion, Ms. Lewis headed her own consulting firm from August 2008 to November 2008 and was a consultant to us. From October 2007 to June 2008, Ms. Lewis was employed by Millennium Pharmaceuticals, Inc. where she held increasing roles of responsibility in regulatory affairs. From April 2007 to June 2008, Ms. Lewis was Senior Director of Regulatory Affairs, Oncology; from April 2006 to April 2007, she was Director of Regulatory Affairs, Oncology; from November 2005 to April 2006, she was Associate Director, Regulatory Affairs, Oncology; from September 2004 to November 2005, she served as Associate Director of Inflammation and from June 2003 to April 2004, she was Associate Director of Cardiovascular.

Karen Schmedlin has been our Vice President, Finance and Chief Accounting Officer since March 2006 and our Secretary since April 2001. Ms. Schmedlin was our Controller from October 2000 to March 2006. From 1990 to 2000, Ms. Schmedlin held various finance and marketing positions at Executone Information Systems, Inc., a developer and marketer of voice and data communications systems, including director of marketing operations, division controller and manager of financial reporting. From 1984 to 1990, Ms. Schmedlin was a senior auditor with Arthur Andersen & Co.

James Tanguay, Ph.D. has been our Vice President, Chemistry, Manufacturing and Controls since April 2007. From October 2003 to April 2007, Dr. Tanguay was Vice President, Technical Operations at Kos Pharmaceuticals, acquired by Abbott Laboratories in 2006. In that capacity, he was responsible for strategic planning and administration of all domestic and international commercial manufacturing, testing and distribution. Dr. Tanguay started at Kos Pharmaceuticals in 1996, and held several positions in quality control and analytical sciences while rising to his final position in senior management.

Directors

The directors of the Company and their respective ages are as follows:


Name	Age		Position

William R. Miller(1)		80	Director
George Bickerstaff		53	Director
Alan Kessman		62	Chief Executive Officer and Director
Kevin Rakin(1,3)		48	Director
Alan C. Sartorelli, Ph.D.(2)		77	Director
Ian Williams, D. Phil.(2,3)		55	Director
Gary K. Willis(1,3)		63	Director


(1)		Member of the Audit Committee of the Board of Directors.

(2)		Member of the Nominating and Governance Committee of the Board of Directors.

(3)		Member of the Compensation Committee of the Board of Directors.

Our directors are elected annually to serve until the next annual meeting of stockholders and until their successors shall have been duly elected and shall qualify. Our executive officers are appointed annually by our

Board of Directors and serve for such period or until their earlier resignation or removal by the Board. No family relationships exist among any of the executive officers, directors or director nominees.

Business Experience

William R. Miller has been Chairman of our Board since April 1995. From February 1995 until April 1995, Mr. Miller was Chairman of the Board of OncoRx, Inc., which merged into the Company (then known as MelaRx, Inc.) in April 1995. From 1964 until his retirement in 1991, Mr. Miller was employed by Bristol-Myers Squibb Company in various positions, including vice chairman of the board commencing in 1985.

George Bickerstaff has been a director since June 2005. Mr. Bickerstaff has been a managing director of CRT Investment Banking LLC since January 2009 and with CRT Capital Group LLC, both investment banking companies, from June 2005 until December 2008. Mr. Bickerstaff has been a member of the board of directors of BMP Sunstone Corp., a U.S. listed Chinese pharmaceutical and distribution company, since May 2008. From October 2000 to May 2004, Mr. Bickerstaff held various positions with Novartis, including chief financial officer of Novartis Pharma AG. From 1998 to September 2000, Mr. Bickerstaff held senior finance and operating roles in venture-funded businesses and, prior to that, held various financial positions with the Dun and Bradstreet Corporation, including Chief Financial Officer of IMS Healthcare.

Kevin Rakin has been a director since January 2007. He has been a member of the board of directors of Ipsogen S.A., a molecular diagnostics company since March 2006. Mr. Rakin has been chairman and chief executive officer of Advanced BioHealing, Inc.,a regenerative medicine company, since February 2007. Mr. Rakin was previously an executive-in-residence at Canaan Partners from January 2006 to February 2007. From August 2002 to October 2005, he was president and chief executive officer of Genaissance Pharmaceuticals, Inc., a biotechnology company he co-founded. Mr. Rakin also served as a member of the board of directors of Genaissance until it was acquired by Clinical Data, Inc. in October 2005. Mr. Rakin also serves on the board of directors of Connecticut United for Research Excellence (CURE), Connecticut’s Bioscience Cluster.

Alan C. Sartorelli, Ph.D. has been a director since 1995. Dr. Sartorelli has been an Alfred Gilman Professor of Pharmacology at Yale University School of Medicine since 1967 and Chairman of our Scientific Advisory Board since April 1995. Dr. Sartorelli was Chairman of the OncoRx, Inc. Scientific Advisory Board from May 1993 to April 1995 and director of Yale Comprehensive Cancer Center from 1984 to 1993.

Ian Williams, D. Phil. has been a director since June 2006. From 1981 until his retirement in 2004, he was employed at Pfizer, Inc. in various leadership positions in pharmaceutical research and development and strategic planning. He retired as Executive Director of the Strategic Management Group where he was responsible for worldwide strategy for Pfizer Research and Development. Dr. Williams now heads his own consulting company.

Gary K. Willis has been a director since June 2005. Mr. Willis is also a member of the board of directors of Rofin-Sinar Technologies and Plug Power Inc. From 1992 to 2000, Mr. Willis was chairman, president and chief executive officer of the Zygo Corporation, a developer and marketer of optical systems and components. From 1984 to 1990, Mr. Willis was chairman, president and chief executive officer of the Foxboro Company, a supplier of instruments, systems, and services for industrial process automation.

Available Information

The following information can be found on our website at http://www.vionpharm.com or may be obtained free of charge by contacting our Investor Relations Department at (203) 498-4210 or by sending an email message to info@vionpharm.com:


	•	our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after such material is electronically filed with the SEC;

	•	our policies related to corporate governance, including the charter for the Nominating and Governance Committee of our Board of Directors, our code of ethics and business conduct applying to our directors,


		officers and employees, and our code of ethics applying to our chief executive officer, chief financial officer and senior financial officials; and


	•	the charters of the Audit Committee and the Compensation Committee of our Board of Directors.

Copies of our filings with the SEC can be obtained from the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information can be obtained about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.


ITEM 1A.	*Risk Factors*

There are many risks and uncertainties that can affect our future business, financial performance or share price. Before you invest in our Company, you should carefully consider the risks described below which could materially affect our business, financial condition or operating results. The risks and uncertainties described below are not the only ones we face. For example, additional risks presently unknown to us or that we currently consider immaterial or unlikely to occur could also impair our operations. If any of the risks or uncertainties described below or any of those additional risks and uncertainties actually occur, our business, results of operations or financial condition could be negatively affected.

We have incurred substantial losses since our inception, expect to continue to incur operating losses, may never be profitable, and we may be unable to continue our operations.

We have incurred losses since inception. As of December 31, 2008, we had an accumulated deficit of approximately $239.0 million. If we continue to incur operating losses and fail to become a profitable company, we may be unable to continue our operations. Since we began our business, we have focused on research, development and preclinical and clinical trials of product candidates. We expect to continue to incur losses for at least the next several years as we pursue regulatory approval of Onrigin^tm, continue to conduct clinical trials, continue our other research and development efforts, and develop manufacturing, sales, marketing and distribution capabilities. Our future profitability depends on our receiving regulatory approval of our product candidates and our ability to successfully manufacture and market approved drugs. The extent of our future losses and the timing of our profitability are highly uncertain.

We do not have any products approved for sale. If the FDA does not accept our NDA for Onrigin^tm or if the FDA delays approval or does not approve the NDA for Onrigin^tm, at all, we will not be able to sell Onrigin^tm and the value of our company and our financial results will be materially adversely affected.

We cannot sell or market our drugs without regulatory approval. If we cannot obtain regulatory approval for our products, the value of our company and our financial results will be materially adversely affected. In the United States, we must obtain approval from the FDA for each drug that we intend to sell.

Accordingly, if and when we complete the several required phases of clinical testing for any drug candidate, we will submit our test results to the FDA. FDA review may generally take up to two years and approval is not assured. Foreign governments also regulate drugs distributed outside the United States. A delay in obtaining regulatory approvals for any of our drug candidates will also have a material adverse effect on our business.

In particular, we filed an NDA in February 2009 based upon our pivotal Phase II trial of Onrigin^tm in previously untreated elderly patients with de novo poor-risk AML, supplemented by data from a previous Phase II trial of Onrigin^tm in elderly AML. Within several months of the NDA filing date, the FDA will determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Although preliminary data from the pivotal trial indicate that we met the criteria for a successful trial based on the primary endpoint, the overall response rate, there can be no assurance that the NDA will be (i) accepted for filing or (ii) reviewed and/or approved on a timely basis by the FDA, if it all. If the FDA does not accept the NDA for filing, or if the FDA delays approval to a time when we would no longer be in a cash position to commercialize the drug or does not approve the NDA filed by us, our business will be materially adversely affected.

Regulatory approval of Onrigin^tm in combination with cytarabine in relapsed AML has already been delayed in light of the fact that our Phase III trial of Onrigin^tm in combination with cytarabine in relapsed AML was put on clinical hold by the FDA in May 2007, and may be further delayed. Although in January 2008 the FDA lifted the clinical hold on the trial, there can be no assurance that we will start a new Phase III trial in relapsed AML at any time in the future, or that any new trial would not in the future be put on regulatory hold or that the new trial will result in regulatory approval of Onrigin^tm in combination with cytarabine in relapsed AML, or what the timing of that approval might be.

We are heavily dependent on the success of our lead product candidate Onrigin^tm which is still under development. If Onrigin^tm is not successful in clinical trials or we do not obtain FDA approval of Onrigin^tm, or if FDA delays approval or narrows the indications for which we may market Onrigin^tm, our business will be materially adversely affected.

We anticipate that our ability to generate revenues in the foreseeable future will depend on the successful development and commercialization of Onrigin^tm and, in particular and in the nearer term, for the treatment of previously untreated elderly patients with de novo poor-risk AML. We have focused substantially all of our resources on the development of Onrigin^tm for the treatment of AML. The commercial success of Onrigin^tm will depend on several factors, including filing an NDA based on our pivotal Phase II clinical trial for Onrigin^tm in elderly patients with de novo poor-risk AML; receipt of approvals from the FDA and similar foreign regulatory authorities; establishing commercial manufacturing capabilities through third party manufacturers; successfully launching commercial sales and distribution of the products, either ourselves or through third parties; and acceptance of the products in the medical community and by third party payors, none of which can be assured. If the FDA and similar foreign regulatory authorities do grant approval for Onrigin^tm, they may narrow the indications for which we are permitted to market it, may impose other restrictions on the use or marketing of the product, or may require us to conduct additional post-marketing trials. A narrowed indication or other restrictions may limit the market potential for Onrigin^tm and any obligation to conduct additional clinical trials would result in increased expenditures and lower revenues. If we are not successful in commercializing our lead product candidate Onrigin^tm, or are significantly delayed or limited in doing so, our business will be materially adversely affected and we may need to curtail or cease operations.

We filed an NDA based on our pivotal Phase II clinical trial in February 2009, supplemented by data from a previous Phase II trial of Onrigin^tm in elderly AML. Within several months of the NDA filing date, the FDA will determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. If the FDA does not accept the NDA filed by us, or if the FDA delays review and/or approval or does not approve the NDA filed by us, our business will be materially adversely affected. In addition, as a result, we may have to conduct additional clinical trials of or provide additional information for Onrigin^tm before regulatory approval may be obtained. These additional trials or compilation of requested information may take substantial time, if not years, to complete and require substantial additional financing. There can be no assurance that we will be able to start or complete additional clinical trials or that additional financing can be raised to conduct them.

In May 2007, we announced that we would suspend enrollment and patient treatment of our Phase III trial of Onrigin^tm in combination with cytarabine in relapsed AML pending a detailed review of all of the data from the trial. This decision was based on a planned interim analysis of clinical data by the trial’s DSMB that resulted in a recommendation that enrollment and further treatment of patients on study be suspended. The DSMB’s recommendation was based on their evaluation that any advantage in the primary end point, the response rate, was being compromised by the mortality observed on the study. In May 2007, the FDA placed the trial on clinical hold. We subsequently performed a comprehensive safety and efficacy analysis with our personnel and external and independent medical consultants. In November 2007, we announced that discussions with the DSMB for the trial regarding the findings of the medical and safety review had been completed and the next step of the process was to present the findings and recommendations to the regulatory authorities. In January 2008, we announced that the FDA had lifted the clinical hold on the trial and that we had reached initial agreement with the FDA on modifications to the original Phase III study protocol resulting in the requirement to conduct a new Phase III

trial in relapsed AML, if we pursue regulatory approval in this indication. The original Phase III trial is now closed. There can be no assurance that we will start a new Phase III trial in relapsed AML at any time in the future.

We would need to reevaluate the development of Onrigin^tm if: (i) the FDA did not accept our NDA for filing, (ii) the FDA asked us for more information or additional clinical trials of Onrigin^tm, or (iii) data from any of Onrigin^tm’s clinical trials raised issues relative to its safety and efficacy. In such event, we would alter the drug or dose as used in the trial, modify the clinical trial protocol, commence additional trials, or abandon the drug development project. In any such event, our business, operations and prospects would be materially adversely affected, and our ability to apply for or obtain regulatory approval might be delayed, or we might not be able to obtain regulatory approval at all.

Even though we have filed an NDA, Onrigin^tm continues to be evaluated in clinical trials. If these trials are delayed or achieve unfavorable results, we might not be able to obtain regulatory approval for Onrigin^tm or our efforts to expand the product label for Onrigin^tm could be delayed.

Our product candidates are all pharmaceutical products. We must conduct extensive testing of our product candidates, including in human clinical trials, before we can apply for or obtain regulatory approval to sell our products or to expand the product label. These tests and trials may not achieve favorable results. We would need to reevaluate any drug that did not test favorably and either alter the drug or dose, modify the trial protocol, commence additional trials, or abandon the drug development project completely. In such circumstances, we would not be able to apply for or obtain regulatory approval or expand the product label for a product for an extended period of time, if ever.

Factors that can cause delay or termination of our clinical trials include:


	•	slow patient enrollment;

	•	long treatment time required to demonstrate safety and effectiveness;

	•	lack of sufficient supplies of the product candidate;

	•	adverse medical events or side effects in treated patients;

	•	lack of effectiveness of the product candidate being tested;

	•	negative or equivocal findings of the DSMB for a trial; and

	•	lack of sufficient funds.

If we fail to obtain the capital necessary to fund our operations, we will be unable to continue or complete our product development, regulatory approval or commercialization efforts.

We will need to raise substantial additional capital to fund operations and complete our product development. As of December 31, 2008, we had $38 million in cash and cash equivalents to fund our operations and continue our product development. We have determined to focus substantially all of our resources on the development and commercialization of Onrigin^tm. However, we will not have an approved and marketable product unless and until we receive regulatory approval from the FDA or European regulatory authorities. There can be no assurance that we will be approved by the FDA or European regulatory authorities. Under our current operating plan, we will need to raise substantial additional capital to fund our operations after the first quarter of 2010.

The current global economy and capital markets have been challenging for any issuer to raise capital through public offerings or private placements of securities, and especially so with respect to the small cap biotech sector that we operate in. This situation makes the timing and potential for future equity financings uncertain. We may not get funding when we need it or on terms that are agreeable to us, if at all. We believe that our stock price and the number of shares we have authorized and available to satisfy any equity portion of such financing will have a significant impact on our ability to obtain such financing. If we cannot raise adequate funds to satisfy our capital requirements, we may have to delay, scale-back or eliminate our research and development activities, clinical studies or future operations. The delisting of our common stock from the Nasdaq Capital Market^® may also make it more difficult for us to raise additional capital.

We might have to license our technology to others. This could result in sharing revenues which we might otherwise retain for ourselves. Any of these actions may harm our business, financial condition and results of operations.

The amount of capital we may need depends on many factors, including:


	•	the progress, timing and scope of our product development programs;

	•	the progress, timing and scope of our clinical trials;

	•	the time and cost necessary to obtain regulatory approvals;

	•	the time and cost necessary to further develop manufacturing processes, arrange for contract manufacturing facilities and obtain the necessary regulatory approvals for those facilities;

	•	the time and cost necessary to develop sales, marketing and distribution capabilities;

	•	our ability to enter into and maintain collaborative, licensing and other commercial relationships; and

	•	our partners’ commitment of time and resource to the development of our products.

We are significantly leveraged.

In February 2007, we issued $60 million principal amount of our convertible senior notes due February 15, 2012. The degree to which we are leveraged could, among other things:


	•	make it difficult for us to make payments on our notes;

	•	make it difficult for us to obtain financing for working capital, acquisitions or other purposes on favorable terms, if at all;

	•	make us more vulnerable to industry downturns and competitive pressures;

	•	limit our flexibility in planning for, or reacting to changes in, our business; and

	•	limit our ability to merge with or acquire other companies.

Our ability to meet our debt service obligations on the notes will depend upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control.

If the testing or use of our product candidates harms people, we could be subject to costly and damaging product liability claims.

Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing and marketing of drug products. These risks are particularly inherent in human trials of our proposed products. Unacceptable side effects may be discovered during preclinical and clinical testing of one or more of our potential products. Side effects and other liability risks could give rise to viable product liability claims against us. While we have obtained insurance coverage for patients enrolled in clinical trials, we may not be able to maintain this insurance on acceptable terms; insurance may not provide adequate coverage against potential liabilities, and we may need additional insurance coverage for expanded clinical trials and commercial activity. As a result, product liability claims, even if successfully defended, could have a material adverse effect on our business, financial condition and results of operations. If the side effects are determined to be unacceptable, we will not be able to commercialize our products.

The commercial success of Onrigin^tm will depend upon the degree of market acceptance by physicians, patients, third party payors and others in the medical community.

If Onrigin^tm receives marketing approval, it may not gain market acceptance by physicians, patients, third party payors and others in the medical community. If Onrigin^tm does not achieve an adequate level of acceptance,

we may not generate sufficient product revenue and we may not ever become profitable. The degree of market acceptance of Onrigin^tm, if approved for commercial sale, will depend on a number of factors, including:


	•	the prevalence and severity of any side effects or toxicity;

	•	any limitations or warnings in the product’s approved labeling;

	•	the efficacy and potential advantages over alternative treatments;

	•	pricing;

	•	relative convenience and ease of administration;

	•	the willingness of the target population to try new therapies;

	•	the willingness of physicians to try new therapies.

	•	the strength of marketing and distribution support and timing of market introduction; and

	•	sufficient third party insurance coverage or reimbursement;

Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical trials, market acceptance of the product will not be known until after it is launched. Our efforts to educate the medical community and third party payors on the benefits of Onrigin^tm may never be successful and, in any event would require the expenditure of significant resources, which resources we currently do not have and may never be successful in raising. If we are not successful in building market acceptance for Onrigin^tm we may never generate sufficient revenue or achieve or maintain profitability.

If we are unable to obtain adequate reimbursement from governments or third party payors for Onrigin^tm or if we are unable to obtain an acceptable price for Onrigin^tm, our prospects for generating revenue and achieving profitability will suffer.

Our prospects for generating revenue and achieving profitability will depend significantly upon the availability of adequate reimbursement for the use of Onrigin^tm from governmental and other third party payors in the U.S. Reimbursement by a third party payor may depend upon a number of factors, including the third party payor’s determination that use of Onrigin^tm is appropriate for the specific patient and cost-effective.

Obtaining reimbursement approval for Onrigin^tm from each government or other third party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use Onrigin^tm to each payor. We may not be able to provide data sufficient to gain acceptance with respect to reimbursement or we might need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of Onrigin^tm to such payors’ satisfaction. Such studies might require us to commit a significant amount of management time and financial and other resources. Even when a payor determines that a product is eligible for reimbursement, the payor may impose coverage limitations that preclude payment for some uses that are approved by the FDA. In addition, there is a risk that full reimbursement may not be available for high priced products. Moreover, eligibility for coverage does not imply that any product will be reimbursed in all cases or at a rate that allows us to make a profit or even cover our costs. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent.

A primary trend in the U.S. healthcare industry and elsewhere is toward cost containment. We expect recent changes in the Medicare program and increasing emphasis on managed care to continue to put pressure on pharmaceutical product pricing. If Onrigin^tm reaches commercialization, such changes may have a significant impact on our ability to set a price we believe is fair for Onrigin^tm and may affect our ability to generate revenue and achieve or maintain profitability.

If we are found to be infringing on patents or trade secrets owned by others, we may be forced to cease or alter our drug development efforts, obtain a license to continue the development or sale of our products, and/or pay damages.

Our manufacturing processes and potential products may conflict with patents that have been or may be granted to competitors, universities or others, or the trade secrets of those persons and entities. As the drug development industry expands and more patents are issued, the risk increases that our processes and potential products may give rise to claims that they infringe the patents or trade secrets of others. These other persons could bring legal actions against us claiming damages and seeking to enjoin clinical testing, manufacturing and marketing of the affected product or process. If any of these actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to conduct clinical tests, manufacture or market the affected product or use the affected process. Required licenses may not be available on acceptable terms, if at all, and the results of litigation are uncertain. If we become involved in litigation or other proceedings, it could consume a substantial portion of our financial resources and the efforts of our personnel.

We rely on confidentiality agreements to protect our trade secrets. If these agreements are breached by our employees or other parties, our trade secrets may become known to our competitors.

We rely on trade secrets that we seek to protect through confidentiality agreements with our employees and other parties. If these agreements are breached, our competitors may obtain and use our trade secrets to gain a competitive advantage over us. We may not have any remedies against our competitors and any remedies that may be available to us may not be adequate to protect our business or compensate us for the damaging disclosure. In addition, we may have to expend resources to protect our interests from possible infringement by others.

A substantial portion of our technology is subject to limited retained rights of our licensors, and we may not be able to prevent the grant of similar rights to third parties.

A substantial portion of our technology is licensed from academic institutions which technology license agreements are subject to the federal Bayh Dole Act, pursuant to which the federal government has certain limited rights to use the technology and to even require us to grant a license to one or more third parties if we are not fully developing the technology.

In certain cases we also have the right to practice improvements on the licensed technology to the extent they are encompassed by the licensed patents and within our field of use. Our licensors may currently own and may in the future obtain additional patents and patent applications that are helpful for the development, manufacture and commercial sale of our anticipated products. We may be unable to agree with one or more academic institutions from which we have obtained licenses that certain intellectual property developed by researchers at these academic institutions is covered by our existing licenses. In the event that the new intellectual property is not covered by our existing licenses, we would be required to negotiate a new license agreement. We may not be able to reach agreement with current or future licensors on commercially reasonable terms, if at all, or the terms may not permit us to sell our products at a profit after payment of royalties, which could harm our business.

Our licenses generally also may be terminated by the licensor if we default in performance of our obligations or become bankrupt. If any of our licenses are terminated, we may lose certain rights to manufacture, sell, market and distribute products which would significantly reduce our actual and potential revenues and have a material and negative impact on our operations.

Our proprietary rights may not adequately protect our technologies.

Our commercial success will depend in part on our obtaining and maintaining patent, trade secret, copyright and trademark protection of our technologies in the United States and other jurisdictions as well as successfully enforcing this intellectual property and defending this intellectual property against third-party challenges. We will only be able to protect our technologies from unauthorized use by third parties to the extent that valid and enforceable intellectual property protections, such as patents or trade secrets, cover them. In particular, we place considerable emphasis on obtaining patent and trade secret protection for significant new technologies, products and processes. Furthermore, the degree of future protection of our proprietary rights is uncertain because legal

means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. Moreover, the degree of future protection of our proprietary rights is uncertain for products that are currently in the early stages of development because we cannot predict which of these products will ultimately reach the commercial market or whether the commercial versions of these products will incorporate proprietary technologies.

Our patent position is highly uncertain and involves complex legal and factual questions. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. For example:


	•	we or our licensors might not have been the first to make the inventions covered by each of our pending patent applications and issued patents;

	•	we or our licensors might not have been the first to file patent applications for these inventions;

	•	others may independently develop similar or alternative technologies or duplicate any of our technologies;

	•	it is possible that none of our pending patent applications or the pending patent applications of our licensors will result in issued patents;

	•	our issued patents and issued patents of our licensors may not provide a basis for commercially viable technologies, or may not provide us with any competitive advantages, or may be challenged and invalidated by third parties; and

	•	we may not develop additional proprietary technologies that are patentable.

As a result, our owned and licensed patents may not be valid and we may not be able to obtain and enforce patents and to maintain trade secret protection for our technology. The extent to which we are unable to do so could materially harm our business.

We or our licensors have applied for and will continue to apply for patents for certain products. Such applications may not result in the issuance of any patents, and any patents now held or that may be issued may not provide us with adequate protection from competition. Furthermore, it is possible that patents issued or licensed to us may be challenged successfully. In that event, if we have a preferred competitive position because of such patents, any preferred position held by us would be lost. If we are unable to secure or to continue to maintain a preferred position, we could become subject to competition from the sale of generic products.

Patents issued or licensed to us may be infringed by the products or processes of others. The cost of enforcing our patent rights against infringers, if such enforcement is required, could be significant, and the time demands could interfere with our normal operations. There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical, biotechnology and medical technology industries. We may become a party to patent litigation and other proceedings. The cost to us of any patent litigation, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation more effectively than we can because of their substantially greater financial resources. Litigation may also absorb significant management time.

Unpatented trade secrets, improvements, confidential know-how and continuing technological innovation are important to our scientific and commercial success. Although we attempt to and will continue to attempt to protect our proprietary information through reliance on trade secret laws and the use of confidentiality agreements with our corporate partners, collaborators, employees and consultants and other appropriate means, these measures may not effectively prevent disclosure of our proprietary information, and, in any event, others may develop independently, or obtain access to, the same or similar information.

Certain of our patent rights are licensed to us by third parties. If we fail to comply with the terms of these license agreements, our rights to those patents may be terminated, and we will be unable to conduct our business.

If we fail to recruit and retain key personnel, our research and development programs may be delayed.

We are highly dependent upon the efforts of our senior management and scientific personnel, particularly, Alan Kessman, our chief executive officer and director; Howard B. Johnson, our president and chief financial officer; Ann Lee Cahill, our vice president, clinical development; William F. Hahne, M.D., our vice president, medical; Ivan King, Ph.D., our vice president, research and development; Tanya Lewis, our vice president of regulatory and quality affairs, and James Tanguay, Ph.D., our vice president, chemistry, manufacturing & control. There is intense competition in the drug development industry for qualified scientific and technical personnel. Since our business is very technical and specialized, we need to continue to attract and retain such people. We may not be able to continue to attract and retain the qualified personnel necessary for developing our business, particularly in light of our need to raise additional financing in order to continue our operations after the first quarter of 2010. We have no key man insurance policies on any of the officers listed above and we only have an employment agreement with Mr. Kessman. Although we adopted a retention plan in July 2008 covering all our employees through January 31, 2009, we have not adopted a retention plan covering the period subsequent to that date, and accordingly, there can be no assurance that any of our senior management or scientific personnel will remain with the company. If we lose the services of our management and scientific personnel or fail to recruit other scientific and technical personnel, our research and product development programs will be significantly and detrimentally affected. For example, the elements of our intended plan of operations for the next twelve months, which include, among other elements, pursuing regulatory approval for Onrigin^tm in the U.S., could be delayed in the event of management departures.

We face intense competition in the market for anticancer products, and if we are unable to compete successfully, our business will suffer.

We face competition from pharmaceutical companies and biotechnology companies. Numerous pharmaceutical and biotechnology companies have publicly announced their intention to develop drugs for the treatment of cancer including, in some instances, the development of agents which treat AML and/or are alkylating agents similar to our compound Onrigin^tm and agents which target ribonucleotide reductase similar to our compound Triapine^®. These companies include, but are not limited to, Amgen Inc., AstraZeneca PLC, Bristol-Myers Squibb Company, Celgene Corporation, Chiron Corporation, Cyclacel Pharmaceuticals, Inc., Eli Lilly and Co. and its subsidiary ImClone Systems Inc., Eisai, Inc., Genentech Inc., Genzyme Corporation, Johnson & Johnson, Lorus Therapeutics Inc., OSI Pharmaceuticals, Inc., Pfizer Inc., Schering-Plough Corporation, Wyeth, and Xanthus Pharmaceuticals, Inc. We are aware that one of these companies has filed a SNDA with the FDA for the treatment of adult patients with AML. These and other large pharmaceutical companies have substantially greater financial and other resources and development capabilities than we do and have substantially greater experience in undertaking preclinical and clinical testing of products, obtaining regulatory approvals, and manufacturing and marketing pharmaceutical products. In addition, our competitors may succeed in obtaining approval for products more rapidly than us and in developing and commercializing products that are safer and more effective than those that we propose to develop. The existence of these products, other products or treatments of which we are not aware or products or treatments that may be developed in the future may adversely affect the marketability of our products by rendering them less competitive or obsolete. In addition to competing with universities and other research institutions in the development of products, technologies and processes, we may compete with other companies in acquiring rights to products or technologies from universities.

If our corporate partners, licensors, licensees, collaborators at research institutions and others do not conduct activities in accordance with our arrangements, our research and development efforts may be delayed.

Our strategy for the research, development and commercialization of our products entails entering into various arrangements with corporate partners, licensors, licensees, collaborators at research institutions and others. We currently depend on the following third parties:


	•	Healthcare facilities in the United States and other countries to perform human clinical trials of our products;

	•	Clinical research organizations in the United States and other countries to monitor and collect data related to human clinical trials;


	•	The NCI to perform human clinical trials of Triapine^®;

	•	Contract manufacturers to produce our products for use in clinical and potential commercial activities;

	•	Consultants to assist with the preparation of our NDA and our commercialization efforts; and

	•	Yale for technologies that are licensed by them to us.

If the third parties do not conduct activities in accordance with the arrangements we have with them, or if these arrangements are terminated, our product development efforts may be delayed. We may also rely on other collaborative partners to obtain regulatory approvals and to manufacture and market our products. The amount and timing of resources to be devoted to these activities by these other parties may not be within our control.

If Yale does not conduct research relating to products we would like to pursue, we may never realize any benefits from our funding provided to Yale.

We have paid approximately $10.8 million to fund research at Yale (including research activities of one of our directors, an affiliate of Yale) through December 31, 2008. We may continue to support certain research projects at Yale. We generally do not have the right to control the research that Yale conducts with our funding, and our funds may not be used to conduct research relating to products that we would like to pursue. Additionally, if the research conducted by Yale results in technologies that Yale has not already licensed or agreed to license to us, we may need to negotiate additional license agreements or we may be unable to utilize those technologies.

If we are unable to establish sales, marketing and distribution capabilities, or to enter into agreements with third parties to do so, we will be unable to successfully market and sell future drug products.

We have no experience with marketing, sales and distribution of drug products and have only recently established pre-commercial capability in those areas. If we are unable to establish capabilities to sell, market and distribute our products, either by developing our own capabilities or entering into agreements with others, we will not be able to successfully sell our future drug products. In that event, we will not be able to generate significant revenues. We cannot guarantee that we will be able to hire the qualified sales and marketing personnel we need. We may not be able to enter into any marketing or distribution agreements with third-party providers on acceptable terms, if at all.

We rely on third-party manufacturers to manufacture our product candidates. If these third-party manufacturers fail to manufacture product candidates of satisfactory quality, in a timely manner, in sufficient quantities or at acceptable costs, development and commercialization of our products could be delayed.

We have no manufacturing facilities, and we have no experience in the commercial manufacturing of drugs or in validating drug manufacturing processes. We have contracted with two third-party manufacturers, SAFC, a member of the Sigma-Aldrich Inc., and Ben Venue Laboratories, Inc. (Ben Venue), to produce our product candidates for regulatory approvals and clinical trials. We have limited supplies of our product candidates for clinical trials. If our supplies are damaged or destroyed, either during storage or shipping or otherwise, our clinical trials may be delayed, which could have a material adverse effect on our business. We further intend to rely on third-party contract manufacturers to manufacture, supply, store and distribute commercial quantities of our product candidates. We will also rely on our third-party manufacturing partners to work with us to complete the Chemistry, Manufacturing and Control, or CMC, section of any marketing approval application we may file.

Contract manufacturers are obliged to operate in accordance with government mandated obligations, including FDA-mandated current good manufacturing practices (cGMPs). A failure of any of our contract manufacturers to establish and follow cGMPs or any other regulatory requirements, or to document their adherence to such practices, may lead to significant delays in the availability of material for clinical trials and may delay or prevent filing or approval of marketing applications for our products. In any such event, our business would be materially adversely affected.

Changing contract manufacturers may be difficult, and the number of potential manufacturers is limited. Changing manufacturers requires validation of the manufacturing processes and procedures in accordance with

government mandated obligations, including FDA-mandated cGMPs. Such validation may be costly and time-consuming. It may be difficult or impossible for us to find replacement manufacturers on acceptable terms quickly, if at all. Either of these factors could delay or prevent the completion of our clinical trials, the approval of our product candidates by the FDA or other regulatory agencies, or the commercialization of our products, result in higher costs, or cause a decline in potential product revenues.

Drug manufacturers are subject to on-going, periodic unannounced inspections by the FDA and corresponding state and foreign agencies to ensure strict compliance with cGMPs, other government regulations and corresponding foreign standards. While we are obligated to audit the performance of third-party contractors, we do not have control over our third-party manufacturers’ compliance with these regulations and standards. Failure by our third-party manufacturers or us to comply with applicable regulations could result in sanctions being imposed on us or them, including fines, injunctions, civil penalties, failure of the government to grant market approval of drugs, delays, suspension of clinical trials, withdrawal of approvals, seizures, detentions or recalls of product, operating restrictions and criminal prosecution.

We are aware that Ben Venue, our manufacturer of Onrigin^tm finished drug product, received a Warning Letter from the FDA in November 2007 and that subsequent to that date the FDA had completed an on-site inspection of their facility that concluded with the issuance of an FDA Form 483 (483). A 483 is a form issued by the FDA to list observations made during a facility inspection. Ben Venue informed us that it submitted a response to the FDA proposing a plan to address the issues identified in the 483 and that the FDA has now indicated that Ben Venue’s compliance status has been changed in the FDA databases to “Approvable”, allowing for the approval of NDAs, ANDAs (Abbreviated New Drug Application) and the issuance of CPPs (Certificates of Pharmaceutical Product) needed for export to many foreign countries for products manufactured by Ben Venue. In June 2008, we were notified by Ben Venue that it had received a letter from the European Medicines Agency (EMEA) with observations from a recent audit of its facilities, and that it had responded to this letter with a plan to address the issues raised. If Ben Venue is not successful in completing the corrections of the observations that resulted in the issuance of the 483 or the audit letter from the EMEA on a timely basis, our ability to obtain FDA approval to manufacture Onrigin^tm for commercial purposes could be delayed. We believe that we have sufficient inventory of Onrigin^tm to conduct our current and planned clinical trials through June 2009 in Europe and beyond in the U.S. However, if Ben Venue is not able to manufacture additional supplies of Onrigin^tm in the future, we will have to establish a new source for finished product manufacturing, and our operations could be materially adversely affected.

Our product candidates for preclinical and clinical trials are manufactured in small quantities by third-party manufacturers. We have not validated the manufacturing process for Onrigin^tm to date. In order to obtain marketing approval for any of these product candidates, we will need to enter into and maintain long-term supply agreements with our existing or new third-party manufacturers, such as our agreements with SAFC or Ben Venue, and demonstrate that we can manufacture sufficient quantities under a validated manufacturing process for commercial sale. Our third-party manufacturers may terminate our agreements, may not be able to successfully increase their manufacturing capacity, validate our manufacturing process, or apply at commercial scale the current manufacturing process for any of our product candidates in a timely or economic manner, or at all. If this occurs, we may be required to seek out additional manufacturing partners requiring additional validation studies, which the relevant government regulator must review and approve. If we are unable to successfully validate or increase the manufacturing capacity for a product candidate, the regulatory approval or commercial launch of that product candidate may be delayed or there may be a shortage in the supply of the product candidate. Our product candidates require precise, high-quality manufacturing. The failure of our third-party manufacturers to achieve and maintain these high manufacturing standards, including the incidence of manufacturing errors, could result in patient injury or death, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business.

The conduct of our operations may subject us to liabilities under environmental laws, and we may face large capital expenditures in order to comply with such laws.

We cannot accurately predict the outcome or timing of future expenditures that we may be required to expend to comply with comprehensive federal, state and local environmental laws and regulations. We must comply with environmental laws that govern, among other things, all emissions, waste water discharge and solid and hazardous

waste disposal, and the remediation of contamination associated with generation, handling and disposal activities. To date, we have not incurred significant costs and are not aware of any significant liabilities associated with our compliance with federal, state and local laws and regulations. However, by letter dated March 5, 2009, we have been informed by the FAA that we are under investigation for alleged violations of the Hazardous Materials Regulations relating to the shipment of hazardous materials that were not declared, packaged, marked, labeled or otherwise identified as containing hazardous materials. Under the provisions of Title 49, United States Code 5123 (a)(1), Vion could be subject to civil penalties, although we cannot predict with certainty the ultimate resolution of the investigation.

Environmental laws have changed in recent years and we may become subject to stricter environmental standards in the future and may face large capital expenditures to comply with environmental laws. We have limited capital and are uncertain whether we will be able to pay for significantly large capital expenditures. Also, future developments, administrative actions or liabilities relating to environmental matters may have a material adverse effect on our financial condition or results of operations.

All of our operations are performed under strict environmental and health safety controls consistent with the Occupational Safety and Health Administration, the Environmental Protection Agency and the Nuclear Regulatory Commission regulations. We cannot be certain that we will be able to control all health and safety problems. If we cannot control those problems, we may be held liable and may be required to pay the costs of remediation. These liabilities and costs could be material.

We may expand our business through new acquisitions that could disrupt our business, harm our financial condition and may also dilute current stockholders’ ownership interests in our company.

We may seek acquisitions to expand our access to products and capabilities. Acquisitions involve numerous risks, including:


	•	substantial cash expenditures;

	•	potentially dilutive issuance of equity securities;

	•	incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;

	•	difficulties in assimilating the operations of the acquired companies;

	•	diverting our management’s attention away from other business concerns;

	•	risks of entering markets in which we have limited or no direct experience; and

	•	the potential loss of our key employees or key employees of the acquired companies.

We cannot assure you that any acquisition will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired company or business. In addition, our future success would depend in part on our ability to manage the rapid growth associated with some of these acquisitions. We cannot assure you that we will be able to make the combination of our business with that of acquired businesses or companies work or be successful. Furthermore, the development or expansion of our business or any acquired business or companies may require a substantial capital investment by us. We may not have these necessary funds or they might not be available to us on acceptable terms or at all. We may also seek to raise funds by selling shares of our common stock, which could dilute current stockholder’s ownership interest in our company.

The terms of our outstanding notes and warrants, as well as any additional funding we raise in the future could cause extreme dilution to our stockholders. Further, the large number of our shares that may be held in the market may depress the market price of our stock.

Our payment of interest or make-whole premiums on the notes under certain circumstances with shares of common stock, the conversion of some or all of our outstanding notes, and the exercise of the warrants issued in connection with the sale of the notes, will dilute the ownership interests of existing stockholders. In particular, if we

issue the approximately 15.9 million shares of common stock we currently have registered for payment of interest, we will have issued nearly twice as many shares as we currently have outstanding.

Additional shares of common stock will be issued upon the exercise of other outstanding warrants and options, as well as for awards under our 2005 Stock Incentive Plan and purchases under our 2000 Employee Stock Purchase Plan. Further, to the extent we determine that we need additional financing and we encounter additional opportunities to raise cash, we would likely sell additional equity or debt securities.

Depending on our stock price and market conditions at the time of any capital raise, and the amount of capital we need, such debt or equity securities may be sold at relatively low prices, including prices which are below the market price of our common stock, and may have substantial rights to control us. Stockholders would experience extreme dilution. Other than as set forth in the indenture governing the notes, we do not have any contractual restrictions on our ability to incur debt. Any indebtedness could contain covenants that restrict our operations.

Any sales in the public market of the common stock paid as interest or as a make-whole premium, issuable upon conversion of the notes or exercise of warrants, the exercise of outstanding options or the issuance of equity pursuant to our 2005 Stock Incentive Plan and 2000 Employee Stock Purchase Plan, could adversely affect prevailing market prices of our common stock. Future sales of substantial amounts of our common stock in the public market, or the perception that such sales are likely to occur, could also affect prevailing trading prices of our common stock and could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.

Our common stock has been delisted from the Nasdaq Capital Market^®. Among other things, delisting from the Nasdaq Capital Market^® may make it more difficult for investors to trade in our securities and may make it more difficult for us to raise additional capital.

On August 15, 2008, our common stock was delisted from the Nasdaq Capital Market^® for failure to meet certain of Nasdaq’s continued listing requirements. Our common stock is now quoted on the OTC Bulletin Board^® under the symbol “VION.” As a result, an investor may find it more difficult to dispose of our common stock or obtain accurate quotations as to the market value of our common stock. In addition, we are subject to a rule promulgated by the SEC that, if we fail to meet criteria set forth in such rule, imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transactions prior to the sale. Consequently, the rule may have a materially adverse effect on the ability of broker-dealers to sell our securities, which may materially affect the ability of stockholders to sell our securities in the secondary market. The fact of our common stock is being quoted on the OTC Bulletin Board^® may make it more difficult for investors to trade in our securities, which could lead to further declines in our share price. Our shares being quoted on the OTC Bulletin Board^® also makes it more difficult for us to raise additional capital, as we may incur additional costs under state blue-sky laws if we were to sell additional securities.

The delisting from the Nasdaq Capital Market^® also made us ineligible to use Form S-3 to register the sale of shares of our common stock or to register the resale of our securities held by certain of our security holders with the SEC, thereby making it more difficult and expensive for us to register our common stock or other securities and raise additional capital. We are party to a registration rights agreement which requires us to use our best efforts to maintain the effectiveness of our registration statement relating to the resale of our convertible senior notes, shares of common stock issuable upon the exercise of outstanding warrants and upon conversion of our outstanding notes by holders of such warrants and notes. We may need to file and make effective amendments and supplements to such registration statement from time to time in the future. If we fail to maintain an effective registration statement through February 15, 2010, we could become subject to certain liquidated damages in the form of additional interest on the principal amount of the notes outstanding, subject to a maximum rate of 8.25% per annum for the duration of such failure until the event giving rise to the additional interest has been cured.

Our common stock price has been highly volatile, and an investment in our common stock could suffer a decline in value.

The trading price of our common stock has been highly volatile and could continue to be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:


	•	positive or adverse developments with respect to obtaining regulatory approval of our proposed products;

	•	positive or adverse developments with respect to our drug trials;

	•	actual or anticipated period-to-period fluctuations in financial results;

	•	litigation or threat of litigation;

	•	failure to achieve, or changes in, financial estimates by securities analysts;

	•	announcements of new products or services or technological innovations by us or our competitors;

	•	comments or opinions by securities analysts or major stockholders;

	•	conditions or trends in the pharmaceutical, biotechnology and life science industries;

	•	announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

	•	additions or departures of key personnel;

	•	sales of our common stock and issuances of common stock to pay interest on our outstanding convertible senior notes;

	•	economic and other external factors or disasters or crises;

	•	limited daily trading volume; and

	•	developments regarding our patents or other intellectual property or that of our competitors.

In addition, the stock market in general, and the OTC Bulletin Board^® and the market for biotechnology companies in particular, have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Further, there has been significant volatility in the market prices of securities of life science companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs, potential liabilities and the diversion of management’s attention and resources.

We do not currently pay dividends on our common stock and we do not intend to do so in the future.

We have never declared or paid any dividends on our common stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.

Provisions of our outstanding convertible senior notes could discourage an acquisition of us by a third party.

Certain provisions of our outstanding convertible senior notes could make it more difficult or more expensive for a third party to acquire us, including a provision requiring an acquirer to assume all of our obligations under the notes and the indenture. Upon the occurrence of certain transactions constituting a fundamental change under the indenture relating to the notes, holders of the notes will have the right, at their option, to require us to repurchase all of their notes or any portion of the principal amount of such notes.


ITEM 1B.	*Unresolved Staff Comments*

Not applicable.

ITEM 2. Properties

Our principal facility consists of approximately 21,500 square feet of leased laboratory and office space in New Haven, Connecticut. The facility lease runs through December 31, 2010, unless sooner terminated or extended pursuant to the terms of the lease. We have the right to extend the term of the lease for two successive terms of five years each. The current annual rental rate is approximately $236,500. We believe our existing facilities are adequate for our product development and administrative activities.

ITEM 3. Legal Proceedings

In the normal course of business, we may be subject to proceedings, lawsuits and other claims. By letter dated March 5, 2009, we have been informed by the FAA that we are under investigation for alleged violations of the Hazardous Materials Regulations relating to the shipment of hazardous materials that were not declared, packaged, marked, labeled or otherwise identified as containing hazardous materials. Under the provisions of Title 49, United States Code 5123(a)(1), Vion could be subject to civil penalties, although we cannot predict with certainty the ultimate resolution of the investigation. We are not otherwise party to any legal proceeding that may have a material adverse effect on our business, financial condition or results of operations.

ITEM 4. Submission of Matters to a Vote of Security Holders

At our annual meeting of stockholders held on December 10, 2008, three proposals were voted upon by our stockholders. A description of each proposal and a tabulation of the votes for each of the proposals follows:

1. To elect seven directors to hold office until the 2009 annual meeting of stockholders or until their successors are elected and qualified. All seven nominees were elected:


			Authority
			Withheld
			From
	For Nominee		Nominee

William R. Miller		4,779,438		1,550,507
George Bickerstaff		4,795,738		1,534,207
Alan Kessman		4,753,026		1,576,919
Kevin Rakin		4,784,284		1,545,661
Alan C. Sartorelli, Ph.D.		4,775,179		1,554,766
Ian Williams, D. Phil.		4,785,304		1,544,641
Gary K. Willis		4,783,838		1,546,107

2. To approve an amendment to the Company’s Restated Certificate of Incorporation, as amended, to increase the authorized shares of common stock from 30 million shares to 60 million shares. The amendment was approved:


			Abstentions and
For	Against		Broker Non-Vote

4,067,235		2,203,310		59,400

3. Ratification of the appointment of Ernst & Young LLP as the Company’s independent auditors for the year ending December 31, 2008. The appointment of Ernst & Young LLP was ratified:


			Abstentions and
For	Against		Broker Non-Vote

5,479,472		586,344		264,129

PART II


ITEM 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*

Market Information for Common Stock

Our common stock is quoted in the OTC Bulletin Board^® under the symbol “VION.” Our common stock traded on the Nasdaq Capital Market^® under the symbol “VION” until August 15, 2008. The following table reflects for the periods shown the range of high and low bid or sales prices of our common stock as quoted by the OTC Bulletin Board^® and Nasdaq Capital Market^®. OTC Bulletin Board^® bid prices represent inter-dealer prices, without retail mark-up, mark down or commissions, and may not necessarily represent actual transactions. Our common stock prices set forth below have been adjusted, as applicable, to reflect the one-for-ten reverse stock split effected on February 20, 2008.


	2008				2007
	High		Low		High		Low

First Quarter	$	8.27	$	1.22	$	19.90	$	13.00
Second Quarter		1.85		1.02		23.00		8.60
Third Quarter		1.18		0.32		12.10		6.80
Fourth Quarter		0.65		0.25		11.00		5.40

Common Stockholders

As of March 18, 2009, there were 150 holders of record of our common stock, one of which is Cede & Co., a nominee for Depository Trust Company (DTC). We estimate that there are approximately 11,800 beneficial holders of our common stock.

Dividends

No dividends have been paid on our common stock. We currently intend to retain all future earnings for use in the operation of our business and therefore do not anticipate paying cash dividends in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

For a description of securities authorized for issuance under the Company’s equity compensation plans, see Part III, Item 12 of this Annual Report on Form 10-K.


ITEM 6.	*Selected Financial Data*

The following selected consolidated financial data for each of the five years in the period ended December 31, 2008, and for the period from May 1, 1994 (inception) through December 31, 2008, are derived from our audited consolidated financial statements. The selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto included in Item 8 of this Annual Report on Form 10-K. Per share amounts reflect our one-for-ten reverse stock split effected February 20, 2008.


																For the period
																from May 1,
																1994
																(Inception)
																through
																December 31,
	2008			2007			2006			2005			2004			2008
	(In thousands, except per share data)

Consolidated Statement of Operations Data:
Total revenues	$	43		$	66		$	22		$	23		$	275		$	13,073
Loss from operations(1)		(25,093	)		(32,561	)		(27,249	)		(19,821	)		(16,501	)		(223,032	)
Net loss(1,2)		(29,848	)		(33,993	)		(25,347	)		(18,041	)		(16,055	)		(220,250	)
Preferred stock dividends and accretion		—			—			—			—			—			(18,489	)
Loss applicable to common shareholders(1,2)		(29,848	)		(33,993	)		(25,347	)		(18,041	)		(16,055	)		(238,739	)
Basic and diluted loss applicable to common shareholders per share(1,2)		(4.04	)		(5.05	)		(3.83	)		(2.77	)		(3.00	)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	37,994		$	61,098		$	31,014		$	52,762		$	41,729
Total assets		39,474		$	63,195			31,856			53,719			42,644
Long-term obligations(2)		55,443		$	54,275			—			—			—
Cash dividends declared per common share		—			—			—			—			—


(1)		Since January 1, 2006, we have recorded stock-based compensation expense in our consolidated financial statements in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), ”Share-Based Payment,” (SFAS 123R), which had the following impact on operating results in 2008, 2007 and 2006: net loss and loss applicable to common shareholders were increased by $3.0 million, $4.5 million and $1.9 million, respectively, and basic and diluted loss per share was increased by $0.40, $0.67 and $0.29, respectively. No employee stock-based compensation expense was recognized in reported amounts prior to January 1, 2006.

(2)		We issued convertible senior notes, a long-term obligation, in February 2007. We recorded interest expense related to the notes which had the following impact on operating results in 2008 and 2007: net loss and loss applicable to common shareholders were increased by $6.1 million and $5.1 million, respectively, and basic and diluted loss per share were increased by $0.82 and $0.76, respectively.


ITEM 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operation*

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the related notes. Our discussion contains forward-looking statements based upon our current expectations that involve risks, and our plans, objectives, expectations

and intentions. As discussed under “Note Regarding Forward-Looking Statements,” actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under “Item 1A. Risk Factors,” “Item 1. Business” and elsewhere in this Annual Report on Form 10-K.

Overview

We are a development-stage pharmaceutical company that develops therapeutics for the treatment of cancer. Our research and product development activities to date have consisted primarily of conducting preclinical trials of product candidates, obtaining regulatory approval for clinical trials, conducting clinical trials, preparing to file for regulatory approval of our lead product candidate, Onrigin^tm, conducting pre-commercialization activities, negotiating and obtaining collaborative agreements, and obtaining financing in support of these activities. Since inception, we have generated minimal revenues and have incurred substantial operating losses from our activities. We currently have no material source of revenue and we expect to incur substantial operating losses for the next several years due to expenses associated with our activities. We will have to raise additional capital to operate the Company beyond the first quarter of 2010.

We have two small molecule anticancer agents in clinical development. Most of our resources are focused on the development of Onrigin^tm for the treatment of acute myeloid leukemia (AML). In February 2009, we filed a New Drug Application (NDA) for Onrigin^tm with the U.S. Food and Drug Administration (FDA) based on our pivotal Phase II trial of the drug as a single agent in elderly patients with de novo poor-risk AML, supplemented by data from a previous Phase II trial of Onrigin^tm in elderly AML. Within several months of the NDA filing date, the FDA will determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Although preliminary data from the pivotal trial indicated that we met the criteria for a successful trial based on the primary endpoint, the overall response rate, there can be no assurance that the NDA will be (i) accepted for filing or (ii) reviewed and/or approved on a timely basis by the FDA, if at all.

In May 2007, our Phase III trial of Onrigin^tm in combination with cytarabine in relapsed AML was put on clinical hold by the FDA after accrual of 268 patients. This decision was based on a planned interim analysis of clinical data by the trial’s data safety monitoring board (DSMB) that resulted in a recommendation that enrollment and further treatment of patients on study be suspended. The DSMB’s recommendation was based on their evaluation that any advantage in the primary endpoint, the overall response rate, was being compromised by the mortality observed on the study. In January 2008, we announced that the FDA had lifted the clinical hold on this trial, and that we had reached initial agreement with the FDA on modifications to the original Phase III study protocol resulting in the requirement to conduct a new Phase III trial in relapsed AML, if we pursue regulatory approval in this indication. The original Phase III trial is now closed. There can be no assurance we will start a new Phase III trial in AML at any time in the future.

Our plan of operations for the next twelve months currently includes the following elements:


	•	Pursue regulatory approval for Onrigin^tm in the U.S.;


	•	Conduct pre-launch commercialization activities for Onrigin^tm;

	•	Conduct Vion-sponsored and support investigator-sponsored clinical studies of Onrigin^tm as a single agent or in combination with chemotherapy or other anti-cancer treatments;

	•	Support clinical studies sponsored by the NCI of Triapine^®; and

	•	Continue to seek development partners, collaborative partnerships, joint ventures, co-promotional agreements or other arrangements with third parties for all of our product development programs.

Our plan of operations could be revised or amended by us as a result of many factors, including, among other things, developments with respect to our NDA for Onrigin^tm, our clinical trials, and the amount of cash and other resources available to us. We would need to reevaluate the development of Onrigin^tm if (i) the FDA does not accept our NDA for filing, requests more information or additional clinical trials of Onrigin^tm, or does not review our NDA or approve Onrigin^tm on a timely basis, or (ii) data from any of our clinical trials raised issues relative to its safety and efficacy. In such event, we would alter the drug or dose as used in the trial, modify the clinical trial protocol, commence additional trials, or abandon the drug development project. In any such event, our business, operations and prospects would be materially adversely affected.

Completion of clinical trials may take several years or more and the length of time can vary substantially according to the type, complexity, novelty and intended use of a product candidate. Factors that can cause delay or termination of our clinical trials include:


	•	slow patient enrollment;

	•	long period of time required to track safety and effectiveness;

	•	lack of sufficient supplies of the product candidate;

	•	adverse medical events or side effects in treated patients;

	•	lack of effectiveness of the product candidate being tested;

	•	negative or equivocal findings of the data safety monitoring board, or DSMB, for a trial; and

	•	lack of sufficient funds.

The amount and types of costs incurred during a clinical trial vary depending upon the type of product candidate, the disease treated and the nature of the study.

We budget and monitor our research and development costs by category, as opposed to by product or study. Significant categories of costs include personnel, clinical, third party research and development services, and laboratory supplies. The cost to take a product candidate through clinical trials is dependent upon, among other things, the targeted disease indications, the timing, size and dosing schedule of the clinical trials for such product candidate, the number of patients enrolled in each trial and the speed at which patients are enrolled and treated. We could incur increased product development costs if we experience delays in trial enrollment, the evaluation of clinical trial results, or in applying for or obtaining regulatory approvals for any reason including the possible reasons for delay described above. These uncertainties and variability make it difficult to accurately predict the future cost of or timing to complete our product development projects.

We cannot be certain that any of our products will prove to be safe or effective, will achieve the safety and efficacy needed to proceed through Phase III or registration clinical trials, will receive regulatory approvals, or will be successfully commercialized. Our clinical trials might prove that our product candidates may not be effective in treating disease or may have undesirable or unintended side effects, toxicities or other characteristics that require us to cease further development of the product.

We expect that we will need to enter into and complete Phase III or registration clinical trials of our products in order to apply for regulatory approval. If we achieve successful completion of Phase III or registrational trials, which have commenced or which we may in the future commence, of which there can be no certainty, we intend to submit the results to the FDA to support an application for regulatory approval of the product.

Given the uncertainties related to pharmaceutical product development, we are currently unable to reliably estimate when, if ever, our product candidates will generate revenue and cash flows. We do not expect to receive net cash inflows from any of our major research and development projects until and unless a product candidate becomes a profitable commercial product.

Status of Common Stock

On August 15, 2008, we announced that we had been delisted from the Nasdaq Capital Market^®. Our common stock is now quoted on the OTC Bulletin Board^® under the symbol “VION.”

Critical Accounting Policies and Estimates

The accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the related disclosures, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. These estimates form the basis for making judgments about the carrying values of assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates.

We believe the following policies to be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain.

Revenue Recognition

Technology License Fees. We record revenue under technology license agreements in accordance with the following:


	•	Nonrefundable upfront license fees for which no further performance obligations exist are recognized as revenue on the earlier of when payments are received or collection is assured;

	•	Nonrefundable upfront license fees including guaranteed, time-based payments that require continuing involvement in the form of development or other efforts by us are recognized as revenue ratably over the performance period;

	•	Milestone payments are recognized as revenue when milestones, as defined in the applicable agreement, are achieved; and

	•	Royalty revenues based on licensees’ sales of our products or technologies are recognized as earned in accordance with the contract terms when royalties from licensees can be reliably measured and collectibility is reasonably assured. Royalty estimates are made in advance of amounts collected based on historical and forecasted trends.

Actual license fees received may vary from recorded estimated revenues. The effect of any change in revenues from technology license agreements would be reflected in revenues in the period such determination was made. Historically, such adjustments have been insignificant.

Research and Laboratory Support Fees. We recognize revenue from research and laboratory support as the services are performed. Since 2005, we have not received any research and laboratory support fees.

Contract Research Grants. We recognize revenue from grants received for research projects as earned in accordance with the grant terms. Since 2004, we have not received any contract research grants.

Research and Development Expenses

We record research and development expenses as incurred. We disclose clinical trials expenses and other research and development expenses as separate components of research and development expense in our consolidated statements of operations to provide more meaningful information to our investors. These expenses are based, in part, on estimates of certain costs when incurred. The effect of any change in the clinical trials expenses and other research and development expenses would be reflected in the period such determination was made.

Stock-Based Compensation

Since January 1, 2006, we have recognized stock-based compensation expense in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R). Under SFAS 123R, the fair value of stock-based compensation is estimated at the date of grant and is recognized ratably over the requisite service period in our consolidated financial statements. Prior to January 1, 2006, we accounted for stock-based compensation arrangements in accordance with the intrinsic value method provided by the Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and, as such, generally recognized no stock-based compensation expense in our consolidated financial statements.

Our consolidated financial statements for periods prior to January 1, 2006 have not been restated to reflect, and do not include, the impact of SFAS 123R. We have provided pro forma disclosure in the notes to our consolidated financial statements of share-based payments for the period presented prior to January 1, 2006 in accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure” (SFAS 148).

Our last award of stock options was made in November 2005. Compensation expense for all stock options will be fully recognized as of June 2009. Compensation expense recorded for stock options is based on the fair value of the awards at the date of grant determined using the Black-Scholes option valuation model using assumptions based, in part, on historical experience of expected stock price volatility, expected term until exercise, expected forfeiture rate and risk-free interest rate. Once stock option fair values are determined, they may not be changed. SFAS 123R requires forfeitures estimated at the time of grant to be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

For additional disclosures regarding stock-based compensation, see Note 8.

Income Taxes

Deferred income taxes are provided for the future tax consequences of temporary differences between the income tax and financial reporting bases of assets and liabilities, and on operating loss and tax credit carryforwards. Except for the tax provisions recorded for state capital taxes and the tax benefits recorded for the sale of certain research and development tax credits to the State of Connecticut, we have not recorded a provision or benefit for income taxes in our consolidated financial statements due to recurring historical losses. Accordingly, we have provided a full valuation allowance for our deferred tax assets as of December 31, 2008. In the event we determined that we would be able to realize deferred tax assets in the future, an adjustment would be made to reduce the valuation allowance in the period of determination.

Recently Issued Accounting Standards

In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (FSP 14-1) which is effective for financial statements issued for fiscal years beginning after November 15, 2008. FSP 14-1 requires the issuer of certain convertible debt instruments, such as our convertible senior notes, that may be settled in cash on conversion to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s

nonconvertible debt borrowing rate. We are evaluating the impact of adopting FSP 14-1 as of January 1, 2009 on our consolidated financial statements related to our convertible senior notes issued in February 2007.

EITF Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock, (EITF 07-5) was issued in June 2008 to clarify how to determine whether certain instruments or features were indexed to an entity’s own stock under EITF Issue No. 01-6, The Meaning of “Indexed to a Company’s Own Stock” (EITF 01-6). It also resolved issues related to proposed Statement 133 Implementation Issue No. C21, Scope Exceptions: “Whether Options (Including Embedded Conversion Options) Are Indexed to both an Entity’s Own Stock and Currency Exchange Rates” (Implementation Issue C21). The consensus will replace EITF 01-6 as a critical component of the literature applied to evaluating financial instruments for debt or equity classification and embedded features for bifurcation as derivatives.

EITF 07-5 will become effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The consensus must be applied to all instruments outstanding on the date of adoption and the cumulative effect of applying the consensus must be recognized as an adjustment to the opening balance of retained earnings at transition. Therefore, any company that previously evaluated equity-linked financial instruments under the pre-existing financial instruments literature will need to once again carefully analyze the appropriate classification of those financial instruments and analyze any equity-linked embedded features for bifurcation under the new guidance. We are evaluating the impact of adopting EITF 07-5 as of January 1, 2009 on our consolidated financial statements related to our convertible senior notes issued in February 2007.

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or not significant to our consolidated financial statements.

Results of Operations

Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007

Revenues. Revenues from technology license fees for the year ended December 31, 2008 were $43,000 as compared to $66,000 for 2007. We have no material source of revenues.

Research and Development Expenses. Total research and development (R&D) expenses were $17.5 million for the year ended December 31, 2008, compared to $24.2 million for 2007 as a result of a decrease in clinical trials expenses of $4.1 million and a decrease in other R&D expenses of $2.6 million. The decrease in clinical trials expenses was primarily due to lower costs associated with our Phase III trial of Onrigin^tm which was closed to patient accrual in May 2007 and lower drug production costs for Onrigin^tm. Other R&D expenses were lower due to completion of preclinical and toxicology testing performed by external vendors necessary for a potential NDA filing for Onrigin^tm and the reversal of stock-based compensation expense for unvested restricted stock awards canceled in 2008.

Marketing, General and Administrative Expenses. Marketing, general and administrative expenses were $7.6 million for the year ended December 31, 2008, compared to $8.4 million in 2007. The decrease was due to lower stock-based compensation expense and lower professional fees.

Interest Income. Interest income was $1.1 million for the year ended December 31, 2008, compared to $3.4 million for 2007. The decrease was primarily due to lower rates and, to a lesser extent, lower invested balances in 2008.

Interest Expense. Interest expense, which included amortization of deferred issuance costs, original issue discount and assigned warrant value, of $6.1 million was recorded for the year ended December 31, 2008 as compared to $5.1 million for 2007 related to our convertible senior notes and warrants issued in February 2007.

Other Expense. Other expense related to foreign currency transaction losses was $8,000 for the year ended December 31, 2008, compared to $30,000 for 2007. The foreign currency transaction losses were related to contracts with a vendor outside the U.S. denominated in a foreign currency.

Income Taxes. A benefit for state income taxes of $258,000 and $343,000 was recorded for the years ended December 31, 2008 and 2007, respectively, for the sale of certain research and development tax credits to the State of Connecticut, net of a 2007 provision of $12,000 for state capital taxes.

Net Loss. As a result of the foregoing decreases in expenses, the net loss was $29.8 million, or $4.04 per share based on weighted-average shares outstanding of 7.4 million, for the year ended December 31, 2008, compared to $34.0 million, or $5.05 per share based on weighted-average shares outstanding of 6.7 million, for 2007.

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

Revenues. Revenues from technology license fees for the year ended December 31, 2007 were $66,000 as compared to $22,000 for 2006. We have no material source of revenues.

Research and Development Expenses. Total research and development (R&D) expenses were $24.2 million for the year ended December 31, 2007, compared to $21.5 million for 2006 as a result of an increase in other R&D expenses of $2.2 million and higher clinical trials expenses of $557,000. The increase in other R&D expenses was primarily due to higher development costs incurred in 2007, including hiring additional personnel and engaging consultants, in support of a potential registration filing for Onrigin^tm, a research gift to Yale of $200,000 and higher stock-based compensation expense for employees included in the other R&D group of $844,000. The increase in clinical trials expenses was primarily comprised of higher drug production costs of $564,000, higher clinical consulting fees of $563,000, and higher stock-based compensation expense for employees of the clinical development group of $386,000, partially offset by lower costs for Onrigin^tm and Triapine^® clinical trials of $855,000.

Marketing, General and Administrative Expenses. Marketing, general and administrative expenses were $8.4 million for the year ended December 31, 2007, compared to $5.8 million in 2006. The increase was primarily due to higher stock-based compensation expense for directors and employees included in the marketing, general and administrative group of $1.3 million, higher costs associated with pre-commercial marketing activities for Onrigin^tm and higher professional fees related to patents.

Interest Income. Interest income was $3.4 million for the year ended December 31, 2007, compared to $2.0 million for 2006. The increase was primarily due to higher invested balances in 2007 as a result of our issuance of convertible senior notes and warrants in February 2007.

Interest Expense. Interest expense, which included amortization of deferred issuance costs, original issue discount and assigned warrant value, of $5.1 million was recorded for the year ended December 31, 2007 related to our convertible senior notes and warrants issued in February 2007.

Other Expense. Other expense related to foreign currency transaction losses was $30,000 for the year ended December 31, 2007, compared to $50,000 for 2006. The foreign currency transaction losses were related to contracts with a vendor outside the U.S. denominated in a foreign currency.

Income Taxes. A (benefit) provision for state income taxes of ($343,000) and $42,000 were recorded for the years ended December 31, 2007 and 2006, respectively. Included in the 2007 amount was a state tax benefit of $355,000 for the sale of certain research and development tax credits to the State of Connecticut.

Net Loss. As a result of the foregoing increases in expenses, the net loss was $34.0 million, or $5.05 per share based on weighted-average shares outstanding of 6.7 million, for the year ended December 31, 2007, compared to $25.3 million, or $3.83 per share based on weighted-average shares outstanding of 6.6 million, for 2006.

Liquidity and Capital Resources

Since our inception in 1994, our primary source of cash is through public and private debt and equity offerings. Other sources have included research and laboratory support fees, technology license fees and grants. Our primary use of cash is for our product development activities.

As of December 31, 2008, we had cash and cash equivalents of $38.0 million, compared to $61.1 million at December 31, 2007. The decrease in 2008 was the result of cash used to fund operating activities of $23.0 million and acquisitions of capital equipment of $56,000, partially offset by net proceeds of $3,000 from common stock

issuances under employee stock plans. Cash used in operations was primarily to fund product development activities as well as for working capital and general corporate purposes.

Cash Used in Operating Activities

Cash used in operating activities is primarily a result of our net loss. However, operating cash flows differ from net loss as a result of non-cash charges, differences in the timing of cash flows and earnings/expense recognition, and changes in operating assets and liabilities. Significant changes in operating assets and liabilities were as follows:

Receivables and prepaid expenses decreased by $84,000 during the year ended December 31, 2008 compared to an increase of $126,000 for 2007. The decrease in 2008 was primarily due to collection of 2007 receivables under technology license agreements. The increase in 2007 was primarily due to higher receivables under technology license agreements and an increase in prepaid insurance expense as the timing of insurance premium payments differs from the recognition of insurance expense.

Current liabilities decreased $281,000 during the year ended December 31, 2008 compared to an increase of $1.3 million for the year ended December 31, 2007. The decrease in 2008 was due to lower liabilities for outside vendor costs associated with our planned NDA filing and clinical trials, partially offset by a higher payroll-related accrual for a 2009 payment under our 2008 retention plan covering all employees. The increase in 2007 was due to interest accrued for our convertible senior notes issued in February 2007, partially offset by a decrease in the accrual for clinical trial costs as the timing of payments to clinical vendors differs from the recognition of clinical trials expenses.

Cash Used in Investing Activities

Cash used in investing activities relates to the acquisition of capital equipment. Capital expenditures of $56,000 and $396,000 for the years ended December 31, 2008 and 2007, respectively, were primarily for computer hardware and software, leasehold improvements, and office equipment, furniture and fixtures. Capital expenditures for fiscal 2009 are not expected to exceed $500,000.

Cash Provided by Financing Activities

Cash provided by financing activities is primarily related to capital raised and proceeds from common stock issuances under our employee stock plans. For the year ended December 31, 2008, we received net proceeds of $3,000 from common stock issuances under employee stock plans. For the year ended December 31, 2007, we received net proceeds of $55.2 million from a private placement of convertible senior notes and warrants, described below, and $23,000 from common stock issuances under employee stock plans. All proceeds are being and will be used to fund product development activities as well as for working capital and general corporate purposes.

On February 20, 2007, we completed the sale of $60 million aggregate principal amount of our 7.75% convertible senior notes due 2012 and warrants to purchase up to 780,000 additional shares of our common stock to an initial purchaser for resale in a private placement to qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended, or the Act, to persons outside the United States under Regulation S under the Act and to institutional investors that are accredited investors within the meaning of Rule 501 of Regulation D under the Act.

We are obligated to pay the principal amount of the notes in cash on the maturity date, February 15, 2012. On or after, but not prior to, February 15, 2010, we have the right to redeem some or all of the notes for cash at any time, at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest to, but not including, the redemption date. Upon certain fundamental changes (as described below), holders of notes will have the right, subject to various conditions and restrictions, to require us to repurchase their notes, in whole or in part, at 100% of the principal amount plus accrued and unpaid interest up to, but not including, the repurchase date.

The notes bear interest at a rate of 7.75% per year, payable on February 15 and August 15 of each year. Interest may be paid at our option in cash or registered shares of our common stock or some combination of cash and registered shares of our common stock having a fair market value equal to the interest payment due, in each case at

our option subject to compliance with Nasdaq shareholder approval rules, from the date of issuance until repayment in full or until an earlier conversion, redemption or repurchase.

The notes and the Indenture under which they were issued restrict us from incurring indebtedness or other obligations, including senior secured indebtedness or other secured obligations, in the future.

The notes shall automatically convert at any time prior to maturity if the closing price per share of our common stock has exceeded 150% of the conversion price then in effect for at least 20 trading days within any 30-consecutive trading day period, provided that only those notes as to which we are then able to make the make-whole payment (defined below) under Nasdaq shareholder approval rules shall be automatically converted; and further provided that only those notes (i) for which a shelf registration statement was in effect with respect to the resale of the shares of common stock issuable upon automatic conversion for each day during such 30-consecutive trading day period or (ii) for which the shares issuable upon automatic conversion may be freely transferred pursuant to Rule 144(k) under the Act, shall be automatically converted. Upon any automatic conversion of the notes, we shall pay to holders an amount equal to $232.50 per $1,000 principal amount of notes so converted, less the amount of any interest paid on such notes prior to the conversion date. This payment may be made at the Company’s option in cash, registered shares of common stock or some combination of cash and registered shares of common stock having a fair market value equal to the make-whole payment due.

Upon certain fundamental changes, holders of notes will have the right, subject to various conditions and restrictions, to require us to repurchase the notes, in whole or in part, at 100% of the principal amount plus accrued and unpaid interest up to, but not including, the repurchase date. If a fundamental change occurs prior to February 15, 2010, we may be required to pay a make-whole premium on the notes converted and not repurchased in connection with the fundamental change by issuing additional shares of common stock upon conversion of such notes.

If there is an event of default on the notes, the principal amount of the notes, plus accrued and unpaid interest may be declared immediately due and payable, subject to certain conditions set forth in the Indenture.

We are party to a registration rights agreement, which requires us to use our best efforts to maintain the effectiveness of our registration statement relating to the resale of our convertible senior notes, shares of common stock issuable upon the exercise of outstanding warrants and upon conversion of our outstanding notes by holders of such warrants and notes. We may need to file and make effective amendments and supplements to such registration statement from time to time in the future. We believe we are in compliance with our registration obligation. However, if we fail to maintain an effective registration statement through February 15, 2010, we could become subject to certain liquidated damages in the form of additional interest on the principal amount of the notes outstanding, subject to a maximum rate of 8.25% per annum for the duration of such failure until the event giving rise to the additional interest has been cured. In the event of a failure, once we regained compliance with our registration obligation with respect to all of the registrable securities, the interest payable on the notes would return to the initial interest rate of 7.75%.

The warrants are exercisable into shares of our common stock at the option of the holder of warrants prior to the close of business on February 15, 2010, or earlier upon redemption, at a current exercise price of $20.00 per share. The exercise price is subject to adjustment in accordance with the terms of the warrant. The Company may redeem the outstanding warrants in whole or in part for $0.01 per warrant at any time after the warrants become exercisable if, and only if, the last sales price of our common stock equals or exceeds 150% of the exercise price per share of the warrants then in effect for any 20 trading days within a 30-consecutive trading day period and at all times during such period there is an effective registration statement relating to the resale of all the shares of common stock issuable upon exercise of the warrants.

We had outstanding warrants to purchase an aggregate of 1,136,730.9 shares of our common stock as of December 31, 2008. All of the outstanding warrants were issued in connection with our private placements. In addition to the warrants to purchase 780,000 shares issued in connection with our sale of notes in February 2007, we had outstanding warrants to purchase 356,730.9 shares of common stock at $32.50 per share that subsequently expired on February 11, 2009.

Future Cash Requirements

Based on our current operating plan, we estimate that our existing cash and cash equivalents totaling $38.0 million at December 31, 2008 will be sufficient to fund our operations through the first quarter of 2010. Our current operating plan includes limited expenses for the commercial infrastructure and personnel necessary for us to launch Onrigin^tm as a product for the treatment of elderly patients with de novo poor-risk AML in the United States, if and when we receive regulatory approval to do so from the FDA. We will have to raise additional capital if we do not identify a sales and marketing partner and need to commercialize the product ourselves.

Our current plan of operations and cash requirements may vary materially from planned estimates due to results of preclinical development, clinical trials, product testing, relationships with strategic partners, changes in focus and direction of our preclinical and clinical development programs, competitive and technological advances, the regulatory process in the United States and abroad, our commercialization strategy and other factors. Based on these and other factors, we may change our plan of operations and re- allocate our resources to or from certain drug development programs, or terminate or delay drug development programs.

Unless we have a sales and marketing partner or we are able to generate cash from other sources, we will need to raise substantial capital to commercialize Onrigin^tm, to continue our product development and clinical trials, and to fund our operations beyond the first quarter of 2010. We cannot assure you that we will be able to raise additional capital, nor can we predict what the terms of any financing might be.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have a material current effect or are reasonably likely to have a material future effect on our financial position or results of operations.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2008 and the effect such obligations and commitments are expected to have on our liquidity and cash flows in future periods.


	Payments Due by Period
			Less than						More than
Contractual Obligations	Total		1 year		1-3 years		3-5 years		5 years
	(In thousands)

7.75% convertible notes due February 2012(1)	$	60,000	$	—	$	—	$	60,000	$	—
Interest expense on convertible notes(1)		14,531		4,650		9,300		581		—
Operating leases(2)		546		296		250		—		—
Employment agreement(2)		412		412		—		—		—
Purchase obligations(3)		1,035		1,035		—		—		—

Total	$	76,524	$	6,393	$	9,550	$	60,581	$	—


(1)		See Note 6 to Item 8 of this Annual Report on Form 10-K.

(2)		See Note 11 to Item 8 of this Annual Report on Form 10-K.

(3)		Purchase obligations include commitments related to contract drug manufacturing.

Under our license agreements described in Note 4 to Item 8 of this Annual Report on Form 10-K, we are obligated to make contingent milestone payments totaling $2,625,000 and to pay potential future royalties on commercial sales to our licensors. These contingent milestone and royalty payment obligations are not included in the above table.

In the event of termination, certain of our agreements require that we pay cancellation fees and reimburse noncancellable commitments that may have been entered into on our behalf. These potential cancellation fees are not included in the above table.


ITEM 7A.	*Quantitative and Qualitative Disclosures About Market Risk*

We are exposed to market risk, including changes to interest rates associated with our cash equivalents and foreign currency exchange rates.

Our cash equivalents are highly liquid investments in money market funds and U.S. government securities. These financial instruments are subject to interest rate risk and, as such, our interest income is sensitive to changes in interest rates. However, the conservative nature of our investments, which are held for purposes other than trading, mitigates our interest rate exposure. The weighted-average interest rate on cash equivalents held at December 31, 2008 was approximately 0.42%. We estimate that an increase of 100 basis points in interest rates would result in an increase of approximately $221,000 in our interest income for the year ending December 31, 2009 and a decrease of 100 basis points in interest rates would result in a decrease of approximately $92,000 in our interest income for the year ending December 31, 2009.

We have contracts with a vendor outside the U.S. that are denominated in a foreign currency. To date, fluctuations in this currency have not materially impacted our results of operations. We have no derivative financial instruments. We do not believe we have material exposures to changes in foreign currency exchange rates.

Our 7.75% convertible senior notes due February 15, 2012 bear interest at a fixed rate. As such, our results of operations would not be affected by interest rate changes. We pay interest on our notes in cash or registered shares of our common stock or some combination of cash and registered shares of our common stock, in each case at our option and subject to certain restrictions. Interest payments made in stock are computed based on the fair market value of our common stock. Accordingly, the number of shares of our common stock that we may issue in payment of interest on our notes may vary depending on the closing bid price of our common stock on the interest payment date.


ITEM 8.	Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Vion Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of Vion Pharmaceuticals, Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, shareholders’ (deficit) equity and cash flows for each of the three years in the period ended December 31, 2008 and for the period from May 1, 1994 (inception) to December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vion Pharmaceuticals, Inc. and subsidiaries at December 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 and the period from May 1, 1994 (inception) to December 31, 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 3 to the consolidated financial statements, in 2006 the Company adopted Statement of Financial Accounting Standards No. 123(R) (revised 2004), “Share-Based Payment.”

/s/ Ernst & Young LLP

Hartford, Connecticut

March 16, 2009

Vion Pharmaceuticals, Inc.
(A Development Stage Company)

Consolidated Balance Sheets


	December 31,
	2008			2007
	(In thousands, except
	share and per share data)

ASSETS
Current assets:
Cash and cash equivalents	$	37,990		$	61,067
Available-for-sale securities		4			31
Accounts receivable		12			75
Prepaid expenses		242			263
Deferred issuance costs		250			250

Total current assets		38,498			61,686
Deferred issuance costs, net of current portion		531			780
Property and equipment, net		420			704
Security deposits		25			25

Total assets	$	39,474		$	63,195


LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accrued expenses	$	3,306		$	3,716
Accounts payable		945			1,116
Accrued payroll and payroll-related expenses		1,114			814
Interest payable		1,744			1,744
Deferred revenue		18			18

Total current liabilities		7,127			7,408
Deferred revenue, net of current portion		288			305
Convertible senior notes		55,443			54,275

Total liabilities		62,858			61,988

Shareholders’ (deficit) equity:
Preferred stock, $0.01 par value, authorized: 5,000,000 shares; issued and outstanding: none		—			—
Common stock, $0.01 par value, authorized: 60,000,000 shares; issued and outstanding: 8,036,227 and 7,551,602 shares at December 31, 2008 and 2007, respectively		80			76
Additional paid-in capital		215,526			210,246
Accumulated other comprehensive income		4			31
Deficit accumulated during the development stage		(238,994	)		(209,146	)

Total shareholders’ (deficit) equity		(23,384	)		1,207

Total liabilities and shareholders’ (deficit) equity	$	39,474		$	63,195

See Notes to Consolidated Financial Statements

Vion Pharmaceuticals, Inc.
(A Development Stage Company)

Consolidated Statements of Operations


										For the
										Period
										from May 1,
										1994
										(Inception)
	For the Year Ended									through
	December 31,									December 31,
	2008			2007			2006			2008
	(In thousands, except share and per share data)

Revenues:
Technology license fees	$	43		$	66		$	22		$	4,640
Research and laboratory support fees		—			—			—			5,932
Contract research grants		—			—			—			2,501

Total revenues		43			66			22		$	13,073

Operating expenses:
Clinical trials		9,552			13,627			13,070			82,757
Other research and development		7,995			10,571			8,414			100,595

Total research and development		17,547			24,198			21,484			183,352
Marketing, general and administrative		7,589			8,429			5,787			52,753

Total operating expenses		25,136			32,627			27,271			236,105

Loss from operations		(25,093	)		(32,561	)		(27,249	)		(223,032	)
Interest income		1,062			3,390			1,994			13,694
Interest expense		(6,067	)		(5,135	)		—			(11,416	)
Other expense, net		(8	)		(30	)		(50	)		(210	)

Loss before income taxes		(30,106	)		(34,336	)		(25,305	)		(220,964	)
Income tax (benefit) provision		(258	)		(343	)		42			(714	)

Net loss		(29,848	)		(33,993	)		(25,347	)		(220,250	)
Preferred stock dividends and accretion		—			—			—			(18,489	)

Loss applicable to common shareholders	$	(29,848	)	$	(33,993	)	$	(25,347	)	$	(238,739	)

Basic and diluted loss applicable to common shareholders per share	$	(4.04	)	$	(5.05	)	$	(3.83	)

Weighted-average number of shares of common stock outstanding		7,379,707			6,737,166			6,619,619

See Notes to Consolidated Financial Statements

Vion Pharmaceuticals, Inc.
(A Development Stage Company)

Consolidated Statements of Cash Flows


										For the
										Period
										from May 1,
										1994
										(Inception)
										through
	For the Year Ended December 31,									December 31,
	2008			2007			2006			2008
	(In thousands)

Cash flows from operating activities:
Net loss	$	(29,848	)	$	(33,993	)	$	(25,347	)	$	(220,250	)
Adjustments to reconcile net loss to net cash used in operating activities —
Stock-based compensation		2,957			4,496			1,947			10,494
Stock issued in payment of interest		2,325			2,260			—			4,585
Amortization of convertible senior notes issuance costs, original issue discount and assigned warrant value		1,417			1,130			—			2,547
Depreciation and amortization		334			297			212			3,897
Loss on equipment disposals		6			—			—			18
Purchased research and development		—			—			—			4,481
Stock issued for services		—			—			—			600
Amortization of financing costs		—			—			—			346
Extension/reissuance of placement agent warrants		—			—			—			168
Changes in operating assets and liabilities —
Receivables and prepaid expenses		84			(126	)		14			(253	)
Other assets		—			—			—			(22	)
Current liabilities		(281	)		1,330			1,340			7,074
Deferred revenue		(17	)		(19	)		(18	)		306

Net cash used in operating activities		(23,023	)		(24,625	)		(21,852	)		(186,009	)

Cash flows from investing activities:
Acquisition of equipment		(56	)		(396	)		(111	)		(3,391	)
Purchases of marketable securities		—			—			—			(321,052	)
Maturities of marketable securities		—			—			—			321,052

Net cash used in investing activities		(56	)		(396	)		(111	)		(3,391	)

Cash flows from financing activities:
Net proceeds from placement of notes and warrants		—			55,151			—			55,151
Net proceeds from issuance of common stock		2			23			115			112,371
Net proceeds from initial public offering		—			—			—			9,696
Net proceeds from issuance of preferred stock		—			—			—			20,716
Net proceeds from exercise of warrants		—			—			—			30,669
Repayment of equipment capital leases		—			—			—			(927	)
Other financing activities, net		—			—			—			(286	)

Net cash provided by financing activities		2			55,174			115			227,390

Change in cash and cash equivalents		(23,077	)		30,153			(21,848	)		37,990
Cash and cash equivalents, beginning of period		61,067			30,914			52,762			—

Cash and cash equivalents, end of period	$	37,990		$	61,067		$	30,914		$	37,990

Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,325		$	2		$	—		$	2,541

Cash paid for taxes	$	—		$	13		$	69		$	149

See Notes to Consolidated Financial Statements

Vion Pharmaceuticals, Inc.
(A Development Stage Company)

Consolidated Statement of Changes in Shareholders’ (Deficit) Equity


													Accumulated						Total
							Additional						Other						Shareholders’
	Common Stock						Paid-in			Deferred			Comprehensive			Accumulated			(Deficit)
	Shares			Amount			Capital			Compensation			Income (Loss)			Deficit			Equity
	(In thousands, except share data)

BALANCE AT DECEMBER 31, 2005		6,617,789		$	66		$	198,512		$	(133	)	$	—		$	(149,806	)	$	48,639
Stock-based compensation expense								1,947												1,947
Restricted stock awards, net		502,454			5			(5	)											—
Reversal of deferred compensation								(133	)		133									—
Exercise of stock options		12,527			—			69												69
Issuances under employee benefit plan		3,880						46												46
Change in net unrealized gains and losses														100						100
Net loss																	(25,347	)		(25,347	)

Comprehensive loss																				(25,247	)

BALANCE AT DECEMBER 31, 2006		7,136,650		$	71		$	200,436		$	—		$	100		$	(175,153	)	$	25,454
Stock-based compensation expense								4,496												4,496
Restricted stock awards		157,713			2			(2	)											—
Issuances under employee benefit plan		3,393			—			23												23
Issuance of warrants — February 2007								3,036												3,036
Issuance for interest payment		253,920			3			2,257												2,260
Reverse stock split adjustment		(74	)																	—
Change in net unrealized gains and losses														(69	)					(69	)
Net loss																	(33,993	)		(33,993	)

Comprehensive loss																				(34,062	)

BALANCE AT DECEMBER 31, 2007		7,551,602		$	76		$	210,246		$	—		$	31		$	(209,146	)	$	1,207
Stock-based compensation expense								2,957												2,957
Restricted stock awards, net		(56,016	)		(1	)		1												—
Exercise of stock options		200			—			—												—
Issuances under employee benefit plan		2,319						2												2
Issuance for interest payment		538,122			5			2,320												2,325
Change in net unrealized gains and losses														(27	)					(27	)
Net loss																	(29,848	)		(29,848	)

Comprehensive loss																				(29,875	)

BALANCE AT DECEMBER 31, 2008		8,036,227		$	80		$	215,526		$	—		$	4		$	(238,994	)	$	(23,384	)

See Notes to Consolidated Financial Statements

Vion Pharmaceuticals, Inc.
(A Development Stage Company)

Consolidated Statement of Changes in Shareholders’ (Deficit) Equity
From the Period from May 1, 1994 (Inception) through December 31, 2005


	Class A						Class B															Total
	Convertible						Convertible								Additional							Shareholders’
	Preferred Stock						Preferred Stock		Common Stock					Treasury	Paid-in			Deferred	Accumulated			(Deficit)
	Shares			Amount			Shares	Amount	Shares			Amount		Stock	Capital			Compensation	Deficit			Equity
				(In thousands, except share data)

Issuance of common stock — July and August 1994										285,255		$	3		$	26			$	(21	)	$	8
Reverse acquisition of MelaRx Pharmaceuticals, Inc. — April 1995										200,000			2			4,318							4,320
Shares repurchased pursuant to employment agreements— 1995										(27,486	)		—			(3	)			2			(1	)
Private placement of common stock — April 1995										7,635			—			205							205
Warrants issued with bridge notes — April 1995																200							200
Initial public offering of Unit Purchase Options — August and September 1995										287,500			3			9,693							9,696
Public offering of common stock — August 2001										250,000			3			11,408							11,411
Private placement — June 2003										384,615			4			4,470							4,474
Private placement — September 2003										647,500			6			10,399							10,405
Private placement — February 2004										1,355,385			14			32,913							32,927
Private placement — January 2005										1,000,000			10			30,184							30,194
Class A convertible preferred stock —
Issuance — 1996		1,250,000			13											22,890				(11,371	)		11,532
Dividend — 1996		21,998			—											256				(256	)		—
Dividend — 1997		47,592			—											623				(623	)		—
Dividend — 1998		34,005			—											329				(329	)		—
Dividend — 1999		26,150			—											385				(385	)		—
Dividend — 2000		5,279			—											248				(248	)		—
Conversion — 1996		(164,970	)		(1	)				45,825			—			1							—
Conversion — 1997		(396,988	)		(4	)				110,275			1			3							—
Conversion — 1998		(174,981	)		(2	)				48,606			—			2							—
Conversion — 1999		(144,612	)		(1	)				40,171			—			1							—
Conversion — 2000		(502,928	)		(5	)				139,704			1			4							—
Redemption — 2000		(545	)		—											(5	)						(5	)
Issuances of common stock —
1995										125			—			1							1
1996										2,942			—			104							104
1997										59,834			1			3,469							3,470
1999										342,574			3			14,986							14,989
Issuances under employee benefit plan —
2001										1,019			—			62							62
2002										2,510			—			38							38
2003										4,118			—			14							14
2004										669			—			9							9
2005										2,217			—			41							41

See Notes to Consolidated Financial Statements

Vion Pharmaceuticals, Inc.
(A Development Stage Company)

Consolidated Statement of Changes in Shareholders’ (Deficit) Equity
From the Period from May 1, 1994 (Inception) through December 31, 2005 (continued)


	Class A				Class B																						Total
	Convertible				Convertible													Additional									Shareholders’
	Preferred Stock				Preferred Stock					Common Stock					Treasury			Paid-in			Deferred			Accumulated			(Deficit)
	Shares		Amount		Shares			Amount		Shares			Amount		Stock			Capital			Compensation			Deficit			Equity
	(In thousands, except share data)

Class B convertible preferred stock —
Issuance — 1997						4,850		$	—									$	4,852					$	(370	)	$	4,482
Conversion — 1997						(258	)		—		6,464		$	—					—									—
Conversion — 1998						(4,592	)		—		120,518			1					(1	)								—
Accretion of dividends payable — 1997 and 1998																			425						(425	)		—
Premium on conversion dividend — 1998											58,590			1					2,049						(2,049	)		1
Series 1998 convertible preferred stock —
Discount — 1998																			1,597						(1,597	)		—
Accretion — 1998																									(151	)		(151	)
Accretion — 1999																									(325	)		(325	)
Accretion — 2000																									(358	)		(358	)
Conversion — 2000											150,702			2					5,536									5,538
Extension/reissuance of underwriter warrants — 1997																			168									168
Exercise of warrants —
1997											24			—					—									—
1998											1,627			—					11									11
1999											2,630			—														—
2000											437,106			4					23,310									23,314
2001											401			—					14									14
2004											298,757			3					7,338									7,341
Issuance in exchange for cancellation of warrants —
1998											179,295			2					(45	)								(43	)
1999											10			—														—
Exercise of stock options —
1997											5,000			—					20									20
1998											3,275			—					120									120
1999											47,089			1		(196	)		654						(40	)		419
2000											65,041			1					2,874									2,875
2001											19,153			—					779									779
2002											1,039			—					32									32
2003											555			—					3									3
2004											3,545			—					71									71
2005											21,780			—					204									204
Retirement of treasury stock											(3,566	)		—		196									(196	)		—
Stock-based compensation expense																			1,068		$	(190	)					878
Restricted stock awards — 2005											7,761			—					159			(159	)					—
Amortization of deferred compensation																						216						216
Net loss and comprehensive loss																									(131,064	)		(131,064	)

BALANCE AT DECEMBER 31, 2005		—	$	—		—		$	—		6,617,789		$	66	$	—		$	198,512		$	(133	)	$	(149,806	)	$	48,639

See Notes to Consolidated Financial Statements

Vion Pharmaceuticals, Inc.
(A Development Stage Company)

Notes to Consolidated Financial Statements


1.	The Company

Vion Pharmaceuticals, Inc. (the “Company”) is a development-stage company that develops therapeutics for the treatment of cancer. The Company was incorporated in March 1992 as a Delaware corporation and began operations on May 1, 1994. In April 1995, the Company changed its name to OncoRx, Inc. in connection with a merger with OncoRx Research Corp., a wholly-owned subsidiary of MelaRx Pharmaceuticals Inc. (“MelaRx”). The Company, as the acquirer, recorded the transaction as a purchase in its financial statements, which include the results of operations of the Company from inception and MelaRx from the date of acquisition. In August 1995, the Company completed an initial public offering. In April 1996, the Company changed its name to Vion Pharmaceuticals, Inc.

The Company has established wholly-owned subsidiaries in the United Kingdom and Australia to act as the Company’s legal representatives for clinical trials sponsored by the Company in the European Union and Australia, respectively.

From inception (May 1, 1994) through December 31, 2008, the Company has raised net proceeds of $227.4 million through its financing activities which have included issuance of convertible senior notes, common stock, preferred stock and warrants.


2.	Liquidity

Based on the Company’s current operating plan, management estimates that its existing cash and cash equivalents totaling $38.0 million at December 31, 2008 will be sufficient to fund operations through the first quarter of 2010. The Company’s current operating plan includes limited expenses for the commercial infrastructure and personnel necessary for it to launch Onrigin^tm as a product for the treatment of elderly patients with de novo poor-risk acute myeloid leukemia (AML) in the United States, if and when the Company receives regulatory approval to do so from the FDA.

Unless the Company has a sales and marketing partner for Onrigin^tm or it is able to generate cash from other sources, the Company will need to raise substantial capital to commercialize Onrigin^tm, to continue its product development and clinical trials and to fund its operations beyond the first quarter of 2010. If the Company cannot raise adequate funds to satisfy its capital requirements, the Company may have to delay, scale-back or eliminate the commercialization of Onrigin^tm, research and development activities, clinical studies or future operations.

There can be no assurance that the Company will be able to raise additional capital if and when needed, nor what the terms of any financing might be. The current global economy and capital markets have been challenging for any issuer to raise capital through public offerings or private placements of securities, and especially so with respect to the small cap biotech sector in which the Company operates. On August 15, 2008, the Company’s common stock was delisted from the Nasdaq Capital Market^® and is now quoted on the OTC Bulletin Board^®. The delisting from the Nasdaq Capital Market^® made the Company ineligible to use Form S-3 to register the sale of shares of its common stock or to register the resale of its securities held by certain of its security holders with the SEC, thereby making it more difficult and expensive for the Company to register its common stock or other securities and raise additional capital, and to maintain the effectiveness of its registration statement relating to the resale of shares of common stock issuable upon the exercise of outstanding warrants and upon conversion of its outstanding notes by holders of such warrants and notes (the Registrable Securities). The Company may need to file and make effective amendments and supplements to such registration statement for the Registrable Securities from time to time in the future.

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)


3.	Summary of Significant Accounting Policies

Principals of Consolidation

The consolidated financial statements of the Company include the accounts of Vion Pharmaceuticals, Inc. and its subsidiaries after elimination of intercompany accounts and transactions.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes thereto. Actual results may differ materially from those estimates.

Cash Equivalents

Cash equivalents include investments with maturities of three months or less when purchased. Cash equivalents are carried at cost which approximated market value.

Available-for-Sale Securities

Available-for-sale securities consist of equity securities and are carried at fair value. Unrealized holding gains and losses, net of the related income taxes, are reported as a separate component of shareholders’ equity until realized. As of December 31, 2008 and 2007, the Company’s available-for-sale securities had a cost of $0 and gross unrealized holding (losses) gains of approximately ($27,000), ($69,000), $100,000 and $4,000 for the years ending December 31, 2008, 2007 and 2006, and for period from May 1, 1994 (inception) through December 31, 2008, respectively. There have been no realized investment gains or losses incurred through December 31, 2008.

Fair Value of Financial Instruments

The estimated fair value of amounts reported in the consolidated financial statements has been determined by using available market information and appropriate valuation methodologies. Carrying values for all financial instruments included in current assets and current liabilities approximate fair value, because of their short-term nature.

Fair Value Measurement

On January 1, 2008, the Company adopted Statement of Accounting Standards No. 157, “Fair Value Measurements,” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 for all financial assets and liabilities, and any other assets and liabilities that are recognized or disclosed at fair value on a recurring basis. For nonfinancial assets and liabilities, SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company’s adoption of SFAS 157 did not have a material effect on its results of operations, financial position or cash flows.

SFAS 157 defines fair value as the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. The statement establishes a three-level hierarchy to prioritize the inputs used in measuring fair value with Level 1 having the highest priority and Level 3 having the lowest. The estimated fair values of cash equivalents and available-for-sale securities reported in the consolidated financial statements have been determined using Level 1 which represents quoted prices in active markets for identical assets.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits entities to

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)

choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 for the year ended December 31 2008 did not have a material impact on the Company’s results of operations, financial position and cash flows.

Property and Equipment

Property and equipment are stated at cost. Depreciation of equipment is computed under the straight-line method over the estimated useful lives of the assets ranging from three to seven years. Leasehold improvements are carried at cost and amortized on a straight-line basis over the shorter of the lease term or the estimated useful lives of the assets.

The following is a summary of property and equipment as of December 31 (in thousands):


	2008			2007

Office and computer equipment	$	915		$	936
Furniture and fixtures		190			286
Laboratory equipment		1,638			2,201
Leasehold improvements		330			464

		3,073			3,887
Accumulated depreciation and amortization		(2,653	)		(3,183	)

Property and equipment, net	$	420		$	704

Depreciation expense was approximately $334,000, $297,000 and $212,000 for the years ended December 31, 2008, 2007 and 2006, respectively, and $3.9 million for the period from May 1, 1994 (inception) through December 31, 2008.

Income Taxes

Deferred income taxes are provided for the future tax consequences of temporary differences between the income tax and the financial reporting bases of assets and liabilities, and for net operating loss and tax credit carryforwards. A valuation allowance is provided to reduce deferred income tax assets to an estimated realizable value.

Revenue Recognition

Technology License Fees. The Company has recognized revenues from fees, including non-refundable upfront fees, under license agreements (see Note 4) totaling $43,000, $66,000, $22,000, and $4.6 million for the years ended December 31, 2008, 2007 and 2006, and for the period from May 1, 1994 (inception) through December 31, 2008, respectively. Non-refundable upfront fees are recognized as revenue ratably over the performance period.

Research and Laboratory Support Fees. The Company has recognized revenue of $5.9 million for the period from May 1, 1994 (inception) through December 31, 2008 from research and laboratory support as the services were performed. Since 2005, the Company has not received any research and laboratory support fees.

Contract Research Grants. The Company has received grants for various research projects that provided reimbursement of certain project costs. Revenues from grants of $2.5 million have been recognized as the costs were incurred for the period from May 1, 1994 (inception) to December 31, 2008, respectively. Since 2004, the Company has not received any contract research grants.

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)

Research and Development Expenses

The Company records research and development expenses as incurred. The Company discloses clinical trials expenses and other research and development expenses as separate components of research and development expense in its consolidated statements of operations to provide more meaningful information to investors. The classification of expenses into these components of research and development expense are based, in part, on estimates of certain costs when incurred. The effect of any change in the clinical trials expenses and other research and development expenses would be reflected in the period such determination was made.

Stock-Based Compensation

Since January 1, 2006, the Company has recognized stock-based compensation expense in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R) that requires the recognition of expense related to the fair value of stock-based compensation in the Company’s consolidated financial statements. Prior to January 1, 2006, the Company accounted for stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and provided pro forma disclosures required by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (SFAS 148). Under APB 25, no stock-based employee compensation cost was reflected in reported net loss when options granted to employees had an exercise price at least equal to the market value of the underlying common stock at the date of grant.

The Company adopted SFAS 123R using the modified prospective method and as such the consolidated financial statements for periods prior to January 1, 2006 have not been restated to reflect, and do not include, the impact of SFAS 123R.

For additional disclosures regarding stock-based compensation, see Note 8.

Other Expense

Other expense of $8,000, $30,000, $50,000, and $202,000 for the years ended December 31, 2008, 2007 and 2006, and for the period from May 1, 1994 (inception) through December 31, 2008, respectively, represents foreign currency transaction losses related to contracts that are denominated in a foreign currency with a vendor outside the U.S.

Per Share Data

The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share data):


	2008			2007			2006

Net loss	$	(29,848	)	$	(33,993	)	$	(25,347	)
Weighted-average number of shares of common stock outstanding		7,380			6,737			6,620

Basic and diluted loss per share	$	(4.04	)	$	(5.05	)	$	(3.83	)

As the Company has generated net losses in the periods presented, there is no dilutive per share calculation and therefore options outstanding, warrants outstanding and unvested restricted shares of common stock have been excluded from the per share computations presented. For additional disclosures regarding warrants, see Note 7. For additional disclosures regarding stock options and restricted stock, see Note 8.

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)

Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive income (OCI). OCI includes certain changes in stockholders’ (deficit) equity that are excluded from net loss. Specifically, the Company includes in OCI any unrealized gains and losses on its available-for-sale securities. Comprehensive loss for the years ended December 31, 2008, 2007 and 2006 has been reflected in the consolidated statements of changes in shareholders’ equity.

Recently Issued Accounting Standards

In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (FSP 14-1) which is effective for financial statements issued for fiscal years beginning after November 15, 2008. FSP 14-1 requires the issuer of certain convertible debt instruments, such as the Company’s convertible senior notes, that may be settled in cash on conversion to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The Company is evaluating the impact of adopting FSP 14-1 as of January 1, 2009 on its consolidated financial statements related to its convertible senior notes issued in February 2007.

EITF 07-5 will become effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The consensus must be applied to all instruments outstanding on the date of adoption and the cumulative effect of applying the consensus must be recognized as an adjustment to the opening balance of retained earnings at transition. Therefore, any company that previously evaluated equity-linked financial instruments under the pre-existing financial instruments literature will need to once again carefully analyze the appropriate classification of those financial instruments and analyze any equity-linked embedded features for bifurcation under the new guidance. The Company is evaluating the impact of adopting EITF 07-5 as of January 1, 2009 on its consolidated financial statements related to its convertible senior notes issued in February 2007.

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or not significant to the Company’s consolidated financial statements.


4.	License Agreements

License Agreements with Yale University

The Company licenses various compounds from Yale University (Yale), including Onrigin^tm and Triapine^®, which were developed by the laboratory of Dr. Sartorelli, one of the Company’s directors, through research funded in part by the Company. The license agreements with Yale grant the Company exclusive licenses to make, use, sell and practice the inventions covered by various patents and patent applications relating to its primary product candidates as described below. Each license agreement requires the Company to pay royalties and, in some cases, milestone payments to Yale. The licenses may be terminated by Yale in the event of default by the Company with respect to certain financial or other obligations, subject to certain cure periods. Under the license agreements, the

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)

Company is also required to defend and indemnify Yale for any damages arising out of use or sale of licensed products by the Company or its sublicensees.

Subsequent to entering into a license agreement with Yale in August 1994, described below, which covers Onrigin^tm and other compounds, the Company has paid approximately $10.8 million through December 31, 2008 to fund certain research at Yale.

License Agreement with Yale — September 1990. Under this agreement, the Company has an exclusive license to a U.S. patent related to a synthetic form of melanin named MELASYN^®. The term of the license is dictated by the expiration of any patents relating to any inventions or, with respect to non-patented inventions or research, 24 years from 1990 (i.e. through 2014). Under the terms of the amended license agreement, the Company pays a license fee to Yale based on a percentage of net sales and sublicensing revenues. Through December 31, 2008, the Company has paid or accrued royalties to Yale of $86,000 under this agreement.

The Company has granted a non-exclusive sublicense for MELASYN^® to a sublicensee. Under the terms of the amended sublicense agreement, the Company receives minimum annual royalties and, if products including the Company’s technology are developed, will receive a royalty based on a percentage of sales in the U.S. related to its issued patent.

License Agreement with Yale — August 1994. Under this agreement, the Company has a non-transferable worldwide exclusive license to make, have made, use, sell and practice inventions under certain patents and patent applications for therapeutic and diagnostic purposes. The patents and patent applications under this amended license cover Onrigin^tm and other sulfonylhydrazine compounds, Triapine^® and ß-L-Fd4C (elvucitabine). The term of the license is dictated by the expiration of any patents relating to any inventions or, with respect to non-patented inventions or research, 17 years from 1994 (i.e. through 2011).

Pursuant to the original agreement in 1994, the Company issued to Yale 15,930 shares of the Company’s common stock and made a payment of $50,000. Pursuant to an amendment to this agreement in 1997, certain amounts payable by the Company under the original agreement were reduced in exchange for 10,000 additional shares of its common stock issued to Yale valued at $600,000. Under the terms of the amended license agreement, the Company pays a license fee to Yale based on a percentage of net sales and sublicensing revenues and, with regard to several patents, potential milestones totaling $850,000 based on the status of clinical trials and/or regulatory approvals. Through December 31, 2008, the Company has paid royalties to Yale of $107,000 under this agreement.

The Company has granted a sublicense for ß-L-Fd4C (elvucitabine) to a sublicensee. Under the terms of the sublicense agreement, the Company received common stock reflected as available-for-sale securities in its consolidated balance sheet and will receive milestone payments and royalties based on product revenue, when and if a product including the licensed technology is developed and commercialized. The Company has also granted a sublicense to Beijing Pason Pharmaceuticals, Inc. (“Pason”) granting them the exclusive rights to develop, manufacture and market Triapine^® in the People’s Republic of China, Taiwan, Hong Kong and Macao (the “Territory”). Under the terms of the sublicense agreement, the Company received an upfront payment of $500,000 and is entitled to receive potential milestone payments of $4.75 million and potential license fees based on a percentage of Triapine^® revenues in the Pason Territory. In accordance with the SEC’s Staff Accounting Bulletin No. 104, Revenue Recognition, the Company is recognizing revenue of approximately $400,000, which represents the initial payment received from Pason net of royalties paid to Yale, over the life of the agreement. The Company recognized revenue related to this agreement of approximately $18,000 for each of the years ended December 31, 2008, 2007 and 2006, and $94,000 for the period from May 1, 1994 (inception) through December 31, 2008, respectively.

License Agreements with Yale — December 1995. Under this agreement, the Company entered into a license agreement with Yale pursuant to which the Company received a non-transferable worldwide exclusive license, expiring over the lives of the patents, to three inventions relating to gene therapy for melanoma. Technology

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)

licensed by the Company under this agreement relates to TAPET^®. Pursuant to the original license agreement, the Company paid Yale a $100,000 fee. In June 1997, pursuant to an amendment to this license agreement, Yale agreed to reduce certain royalties payable on sublicense income and make certain other amendments to the license in exchange for 5,000 shares of the Company’s common stock issued to Yale. The Company has another license agreement with Yale pursuant to which the Company has a non-transferable worldwide exclusive license, expiring over the lives of the patents, to an invention relating to whitening skin. Under these licensing agreements, Yale is entitled to potential milestone payments totaling $1,000,000 based on the status of clinical trials and regulatory approvals. In addition, Yale is entitled to royalties on sales, if any, of resulting products and sublicense revenues. Through December 31, 2008, no amounts have been paid or are due under these amended license agreements.


5.	Accrued Expenses

The following is a summary of accrued expenses as of December 31 (in thousands):


	2008		2007

Clinical trials	$	2,418	$	2,827
Professional fees		307		221
Gift to Yale		—		50
Other		581		618

Total Accrued Expenses	$	3,306	$	3,716


6.	Convertible Senior Notes and Warrants

In February 2007, the Company completed a private placement of $60 million aggregate principal amount of 7.75% convertible senior notes due February 15, 2012 (the “Notes”) and warrants to purchase up to an additional 780,000 shares of its common stock. The Company is required to pay interest on the Notes semi-annually on February 15 and August 15. The Company may pay interest at its option in cash or registered shares of its common stock.

The Company received net proceeds after debt discount and issuance costs of approximately $55.2 million from the sale of the Notes and warrants. The Notes were recorded in the consolidated financial statements at an initial carrying value of approximately $53.4 million, which represented the principal amount of the Notes of $60 million less the original issue discount (OID) of $3.6 million given to the initial purchaser of the Notes and the proceeds of approximately $3.0 million allocated to the warrants based on their relative fair value. Deferred issuance costs of approximately $1.2 million were also recorded in the consolidated financial statements. The deferred issuance costs, OID and assigned warrant value are being amortized as a component of interest expense using the effective interest method over the five-year term of the Notes. For the years ended December 31, 2008 and 2007, and for the period from May 1, 1994 (inception) to December 31, 2008, the Company incurred interest expense of $6.1 million, $5.1 million and $11.2 million, respectively, which included amortization expense of $1.4 million, $1.1 million and $2.5 million, respectively, related to the costs and discounts incurred in connection with the issuance of the Notes and warrants. The Company issued 538,122 shares and 253,920 shares of its common stock in payment of interest on February 15, 2008 and August 15, 2007, respectively.

The Notes are convertible into shares of the Company’s common stock at the option of the note holders prior to the close of business on February 15, 2012, at a current conversion rate of 52.0833 shares of common stock per $1,000 principal amount of Notes, which is equivalent to a conversion price of approximately $19.20 per share. The conversion price is subject to adjustment under certain circumstances. If the Notes are called for redemption, the note holders will be entitled to convert the Notes at any time before the close of business on the date immediately preceding the date fixed for redemption. On or after February 15, 2010, the Company has the right to redeem some or all of the Notes for cash at a redemption price equal to 100% of the principal amount, plus accrued and unpaid

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)

interest to, but not including, the redemption date. Upon certain fundamental changes, holders of Notes will have the right, subject to various conditions and restrictions, to require the Company to repurchase their Notes, in whole or in part, at 100% of the principal amount, plus accrued and unpaid interest up to, but not including, the repurchase date.

The warrants are exercisable into shares of the Company’s common stock at the option of the warrant holders prior to the close of business on February 15, 2010, at a current exercise price of $20.00 per share. Upon 30 days written notice, the Company may redeem the warrants, in whole or in part, at a price of $0.01 per warrant; provided that, the last sales price of the Company’s common stock equals or exceeds 150% of the exercise price per share of the warrants then in effect for any 20 trading days within a 30-consecutive trading day period ending three days before the Company sends the notice of redemption; and provided further that, at all times during such 30-consecutive trading day period there is an effective registration statement relating to the resale of all of the shares of common stock issuable to warrant holders upon exercise of the warrants.

In connection with the placement of the Notes and warrants, the Company entered into a registration rights agreement with the initial purchaser which requires the Company to use its best efforts to maintain the effectiveness of its registration statement relating to the resale of its convertible senior notes, shares of common stock issuable upon the exercise of outstanding warrants and upon conversion of its outstanding notes by holders of such warrants and notes (the Registrable Securities). The Company may be required to file and make effective amendments and supplements to such registration statement from time to time in the future. The Company believes it is currently in compliance with its registration obligation. However, if the Company fails to maintain an effective registration statement through February 15, 2010, the expiration date of the warrants, it could become subject to certain liquidated damages up to $300,000 (assuming an event of failure would have occurred as of December 31, 2008 and continued through February 15, 2010). Such damages would be paid as additional interest on the principal amount of the Notes outstanding, subject to a maximum rate of 8.25% per annum for the duration of such failure until the event giving rise to the additional interest has been cured. Once the Company regained compliance with its registration obligation with respect to all of the Registrable Securities, the interest payable on the Notes would return to the initial interest rate of 7.75%.


7.	Shareholders’ (Deficit) Equity

Preferred and Common Stock

On February 20, 2008, the Company effected a one-for-ten reverse split of all outstanding shares of its common stock and a corresponding decrease in the number of shares of authorized common stock. All share and per share amounts included in the accompanying consolidated financial statements and footnotes have been restated for all periods presented to reflect the reverse stock split. Shareholders’ equity as of December 31, 2007 reflects the reverse stock split by reclassifying from “Common Stock” to “Additional Paid-In Capital” an amount equal to the change in par value for the decrease in the number of shares of outstanding common stock resulting from the reverse stock split.

The Company’s authorized capital stock consists of 60,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of December 31, 2008, the Company had 8,036,227 shares of common stock outstanding and no shares of preferred stock outstanding. As of December 31, 2008, the Company has reserved 5,130,070.9 shares for possible future issuance as follows:


	•	an aggregate of 1,136,730.9 shares of common stock for issuance upon the exercise of outstanding warrants (see below);

	•	an aggregate of 3,124,998 shares of common stock for issuance upon the conversion of its outstanding convertible notes (see Note 6);

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)


	•	an aggregate of 388,443 shares of common stock for issuance upon the exercise of options outstanding under its stock option plans (see Note 8);

	•	an aggregate of 451,793 shares of common stock for issuance under its 2005 Stock Incentive Plan (see Note 8); and

	•	an aggregate of 28,106 shares of common stock for issuance under its Employee Stock Purchase Plan (see Note 8).

Warrants

A summary of the outstanding warrants to purchase shares of the Company’s common stock as of December 31, 2008 is as follows:

Number of

Shares

of Common

Stock

Exercise

to be Issued

Price

upon Exercise of

Per Share of

Outstanding

Expiration

Warrants issued in connection with a

Warrants

Date

Private equity placement — February 2004

356,730.9

32.50

2/11/2009

Private debt placement — February 2007

780,000.0

20.00

2/15/2010

Total

1,136,730.9


8.	Stock-Based Compensation

The Company incurs stock-based compensation costs in connection with the following equity compensation plans:

2005 Stock Incentive Plan. The amended plan provides for the issuance of up to 1,063,691 shares of common stock for a range of awards. As of December 31, 2008, there were 451,794 shares of common stock available for award. To date, the Company has made awards of only restricted stock under the plan. The Company generally issues new shares for awards of restricted shares. No award may be made under the plan after October 25, 2015. Awards vest according to time-based and performance-based criteria. Awards which are not vested expire immediately upon termination of service.

Employee Stock Purchase Plan. A total of 45,000 shares of common stock are authorized for issuance under the plan of which 16,894 shares have been issued through December 31, 2008. The Company generally issues new shares for purchases under the plan.

Stock Option Plans. As of December 31, 2008, the Company had stock options outstanding to purchase 388,443 shares of common stock under its following stock option plans: (i) the 2003 Stock Option Plan; (ii) the Amended and Restated 1993 Stock Option Plan; and (iii) the Senior Executive Stock Option Plan. There are no additional shares available for award under these plans. The last stock option award was made in October 2005. The options outstanding will continue to vest through June 2009 or earlier upon a change of control as defined in the plans. Incentive options expire the earlier of: (i) ten years after the date of grant, or (ii) three months after termination of service, if vested. Incentive options which are not vested expire immediately upon termination of service. The Company generally issues new shares upon exercise of options.

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)

Stock-Based Compensation Expense

The Company recognized stock-based compensation expense of $3.0 million, $4.5 million, $1.9 million and $10.5 million for the years ended December 31, 2008, 2007 and 2006, and for the period from May 1, 1994 (inception) through December 31, 2008, respectively.

Since January 1, 2006, the Company has recognized stock-based compensation expense in accordance with SFAS 123R that requires the recognition of expense related to the fair value of stock-based compensation in the Company’s consolidated financial statements. Stock-based compensation expense has been recognized using the straight-line attribution method for awards of restricted stock, purchases under its employee stock purchase plan and unvested stock options based on the grant-date fair value of the portion of the stock-based payment award that is ultimately expected to vest. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The consolidated financial statements for periods prior to January 1, 2006 have not been restated to reflect, and do not include, the impact of SFAS 123R. The following table shows the pro forma net loss as if the Company had accounted for stock-based compensation expense under the fair value method prescribed by SFAS 123 for the period from inception through December 31, 2005 (in thousands, except per share amounts):


	From
	Inception
	(May 1,
	1994) to
	December 31,
	2005

Reported net loss	$	(131,062	)
Add: Stock-based compensation expense included in reported net loss		795
Deduct: Stock-based compensation expense determined under the fair value based method for all awards		(22,707	)

Pro forma net loss		(152,974	)
Pro forma preferred stock dividend and accretion		(18,489	)

Pro forma loss applicable to common shareholders	$	(171,463	)

Restricted Stock

The Company recognized net compensation expense for restricted stock of $2.7 million, $4.2 million and $1.3 million for the years ended December 31, 2008, 2007 and 2006, respectively. As of December 31, 2008, there was unrecognized compensation cost of $135,000 related to non-vested restricted stock awards that is expected to

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)

be recognized ratably over the vesting period of the awards through December 2010. A summary of the activity for non-vested restricted stock is as follows:


	2008					2007			2006
				Weighted-
	Number of			Average		Number of			Number of
	Shares			Grant Date		Shares			Shares
	(in 000’s)			Fair Value		(in 000’s)			(in 000’s)

Non-vested restricted stock at beginning of year		651		$	14.98		500			7
Shares granted		55			1.02		158			511
Shares vested		(474	)		14.70		(7	)		(10	)
Shares forfeited		(111	)		15.07		—			(8	)

Non-vested restricted stock at end of year		121		$	9.69		651			500

Weighted-average fair value of shares granted				$	1.02	$	15.16		$	14.90

The estimated fair value of restricted shares that vested during 2008, 2007 and 2006, and for the period from May 1, 1994 (inception) through December 31, 2008 was $7.0 million, $92,000, $198,000 and $7.3 million, respectively.

An initial restricted stock grant is made to a non-employee director upon initial appointment or election to the board which shares will vest in three equal annual installments on the anniversary of the grant date or upon a change in control, as defined in the plan. Further, on the first trading day following each annual stockholder meeting, each eligible director will receive an automatic grant of restricted stock which shares will fully vest one year after the date of each grant or upon a change in control. Restricted stock grants to directors totaled 6,780 shares, 11,380 shares and 9,120 shares in 2008, 2007 and 2006, respectively.

Employee Stock Purchase Plan

A total of 45,000 shares of common stock are authorized for issuance under the Company’s employee stock purchase plan. The plan permits eligible employees to purchase up to 200 shares of common stock at the lower of 85% of the fair market value of the common stock at the beginning or at the end of each six-month offering period. In 2008, 2007 and 2006, 2,319 shares, 3,392 shares and 3,880 shares, respectively, were issued under the plan. The Company recorded compensation expense of $0, $4,000 and $8,000 for issuances under the plan for the years ended December 31, 2008, 2007 and 2006, respectively.

Stock Options

The Company recognized compensation expense related to stock options of $314,000, $263,000 and $611,000 for the years ended December 31, 2008, 2007 and 2006, respectively. As of December 31, 2008, there was $5,000 of unrecognized compensation cost related to unvested stock option awards. That cost is expected to be recognized on a straight-line basis over the service period of the entire awards through October 31, 2009. The amount of stock-based compensation recognized during a period is based on the fair value of the portion of the awards that vests during the period and has been reduced for estimated forfeitures. The Company has applied an annual forfeiture rate of 0.44% to all unvested options as of December 31, 2008 based on an analysis of the Company’s historical forfeitures. This forfeiture rate is re-evaluated quarterly and adjusted, as necessary. The actual expense recognized over the vesting period is only for those shares that vest.

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)

Stock Option Activity

A summary of the activity under the Company’s stock option plans is as follows:


	2008									2007					2006
				Weighted-		Weighted-		Aggregate					Weighted-
				Average		Average		Intrinsic					Average
	Options			Exercise		Remaining		Value		Options			Exercise		Options			Options
	(in 000’s)			Price		Life (Years		(in 000’s)		(in 000’s)			Price		(in 000’s)			(in 000’s)

Outstanding at beginning of year		419		$	47.39						423		$	47.34		493		$	48.09
Granted		—			—						—			—		—			—
Exercised		—			—						—			—		(13	)		5.50
Forfeited		(1	)		34.64						(2	)	$	42.16		(2	)		33.43
Expired		(30	)		45.13						(2	)	$	42.17		(55	)		63.98

Outstanding at end of year		388		$	47.62		2.69	$	—		419		$	47.39		423		$	47.34

Exercisable at end of year		388		$	47.62		2.69	$	—

The intrinsic value of options exercised during 2006 was $194,000. The estimated fair value of option shares vested during 2008, 2007 and 2006 was $303,000, $335,000 and $898,000, respectively.

The following table presents weighted-average price and life information about significant option groups outstanding as of December 31, 2008:


	Options Outstanding and Exercisable
			Weighted-		Weighted-
	Number		Average		Average
	of Shares		Remaining		Exercise
Range of Exercise Prices	(in 000’s)		Life (Years)		Price

$3.60 – $17.87		89		3.93	$	9.60
$17.88 – $35.74		6		6.42	$	21.33
$35.75 – $53.62		168		3.42	$	45.82
$53.63 – $71.50		79		0.09	$	58.09
$71.51 – $89.37		21		2.02	$	74.03
$89.38 – $107.25		1		1.37	$	98.75
$107.26 – $142.99		3		1.82	$	122.50
$143.00 – $160.87		20		1.15	$	148.75
$160.88 – $178.75		1		1.76	$	178.75

Total		388		2.69	$	47.62

Under the provisions of the option plans, automatic grants of non-qualified stock options to purchase shares of common stock were made through June 2005 to directors of the Company who were not employees or principal stockholders. The exercise price for each share subject to a director option was equal to the fair market value of the common stock on the date of grant. Director options vested after one year under the 2003 Plan and two years under the 1993 Plan, or earlier upon a change of control, as defined in the plans. Generally, director options will expire the earlier of: (i) 10 years after the date of grant, or (i) one year after termination of service as a director under the 2003 Plan or 90 days after termination of service as a director under the 1993 Plan.

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)


9.	401(k) Savings Plan

The Company makes matching contributions in cash under a 401(k) Savings Plan up to an annual maximum match of $1,000 per employee. The expense for the matching contribution was $19,000, $36,000, $33,000 and $308,000 for the years ended December 31, 2008, 2007 and 2006, and for the period from May 1, 1994 (inception) through December 31, 2008, respectively.


10.	Income Taxes

At December 31, 2008, the Company has available for federal tax purposes, net operating loss carryforwards, subject to review by the Internal Revenue Service, of $170.1 million and general business tax credit carryforwards of $19.2 million expiring in 2010 through 2028. The difference between the deficit accumulated during the development stage for financial reporting purposes and the net operating loss carryforwards for tax purposes is primarily due to certain costs which are not currently deductible for tax purposes and differences in accounting and tax bases resulting from the merger described in Note 1. The ability of the Company to realize a future tax benefit from a portion of its net operating loss carryforwards and general business credits may be limited due to changes in ownership of the Company.

For the years ended December 31, 2008 and 2007, the Company recorded state tax benefits of $258,000 and $343,000, respectively for the sale of certain research and development tax credits to the State of Connecticut, net of a 2007 provision of $12,000 for state capital taxes. For the year ended December 31, 2006, the Company recorded a state tax provision of approximately $42,000 related to state capital taxes. Except for the provisions recorded for state capital taxes and the benefits recorded for sales of certain research and development tax credits to the State of Connecticut, the Company has not recorded a provision or benefit for income taxes in the consolidated financial statements due to recurring historical losses.

The components of deferred income tax assets are as follows (in thousands):


	December 31,
	2008			2007

Operating loss carryforwards	$	66,273		$	63,535
General business tax credit carryforwards		19,153			15,963
AMT tax credit carryforwards		10			10
Contributions		258			414
Compensation related		900			2,352
Other		354			320

Deferred income tax assets		86,948			82,594
Deferred income tax liabilities		—			—

		86,948			82,594
Valuation allowance		(86,948	)		(82,594	)

Deferred income tax assets, net	$	—		$	—

The Company provides a full valuation allowance for its deferred tax assets due to historical losses since inception. The valuation allowance increased by $4.4 million and $14.4 million during 2008 and 2007, respectively.

The Company and its subsidiaries file a consolidated U.S. federal income tax return, as well as income tax returns in Connecticut and foreign jurisdictions. With limited exceptions, and due to the impact of net operating loss and other credit carryforwards, the Company may effectively be subject to U.S. federal and Connecticut state income tax examinations for periods beginning in 1993. The Company’s foreign affiliates are subject to examination by tax authorities for periods beginning in 2004.

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)

The Company recognizes accrued interest and penalties related to unrecognized taxes as additional tax expense. During the three years ended December 31, 2008, the Company did not recognize any such interest and penalties.


11.	Commitments and Contingencies

Leases

The Company has non-cancelable operating leases for its facility and its laboratory and office equipment expiring through 2010. Rental expense for the facility lease is recognized on a straight-line basis. Rental expense for operating leases was approximately $333,000, $311,000, $261,000 and $3.6 million for the years ended December 31, 2008, 2007 and 2006, and for the period from May 1, 1994 (inception) through December 31, 2008, respectively. As of December 31, 2008, future minimum lease payments remaining under non-cancelable operating lease agreements with initial terms in excess of one year are $296,000 for 2009 and $250,000 for 2010.

Agreements

Under the terms of an employment agreement, as amended, with the Company’s Chief Executive Officer CEO) expiring December 31, 2009, in the event that his employment is terminated by the Company for any reason other than cause or disability, or if he terminates for good reason, as defined in the agreement, the Company is obligated to pay him an amount equal to (a) two times his current base salary, (b) two times his average annual bonus for the prior two years, (c) two times the annual amounts for his personal insurance policies as well as to pay his deferred 2007 bonus and to continue payment of life and disability policies on his behalf for a period of two years.

The Company has entered into severance agreements with its officers pursuant to which each of these officers would be entitled to certain payments in the event such officer loses his employment during the twelve-month period following a “change of control,” as defined in the agreement. Specifically, the officer would be entitled to a lump sum severance payment equal to the sum of twelve months of the officer’s monthly base salary plus the average of the last two cash bonus payments made to the officer, and to the continuation of group health insurance benefits for up to eighteen months. The foregoing amounts are not payable if termination of the officer is because of the officer’s death, by the Company for cause, or by the officer other than for good reason.

In July 2008, the Company adopted a retention plan (the Plan) covering each Company employee, including its executive officers. Under the Plan, which was approved by the Company’s board of directors, each employee became entitled to a retention payment payable in three installments through January 31, 2009, subject only to the employee’s continuous employment with the Company through the applicable retention payment date. Retention payments due under this Plan are being expensed ratably over 2008 and the accrual for such payments is included in the consolidated balance sheet. Under the Plan, each employee is also entitled to severance of a certain amount, if they are terminated without cause or following a change of control of the Company prior to December 31, 2009.

A former director of the Company is a party to a Consulting and Finder’s Agreement with the Company dated June 4, 1992, and amended February 17, 1995. This agreement entitles him to receive an annual fee equal to 10% of the net after-tax profits of the Company attributable to the sale or licensing of products or technology related to TAPET^® licensed pursuant to the Company’s December 1995 license agreement with Yale (see Note 4), until the cumulative total of such fees equals $3 million. Such fee continues to be payable notwithstanding the director’s death until the $3 million has been paid. Through December 31, 2008, no amounts are due or have been paid under this agreement.

The Company has various commitments relating to its research and license agreements (see Note 4).

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)

The Company enters into indemnification provisions under its agreements with other companies in the ordinary course of business, typically clinical sites, suppliers and business partners. Pursuant to these agreements, we generally indemnify, hold harmless and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified parties in connection with use or testing of our product candidates, or with any U.S. patent or any copyright or other intellectual property infringement claim by any third party with respect to products. The term of these indemnification agreements is generally perpetual. The potential amount of future payments we could be required to make under these indemnification agreements is unlimited. We have not incurred any costs to defend lawsuits or settle claims related to these indemnification agreements. We have no liabilities recorded for costs associated with these agreements as of December 31, 2008.


12.	Related Party Transactions

The Company licenses various compounds from Yale, including Onrigin^tm and Triapine^®, which were developed by the laboratory of Dr. Sartorelli, one of the Company’s directors, through research funded in part by the Company’s gifts. In accordance with Statement of Financial Accounting Standards No. 116, Accounting for Contributions Received and Contributions Made, the Company has recorded a gift made in 2007 as research and development expense for the year ended December 31, 2007.

Mr. Bickerstaff, one of the Company’s directors, is a principal of CRT Capital Group LLC (“CRT”), which was the initial purchaser of the Company’s 7.75% convertible senior notes and warrants in a private placement in February 2007 (see Note 6). CRT received a purchase discount of $3.6 million which represented 6% of the $60 million principal amount of the notes.


13.	Selected Quarterly Financial Data (Unaudited)

The following is a summary of unaudited selected quarterly financial data for the years ended December 31, 2008 and 2007 (in thousands, except per share amounts):


	Quarter
2008	First			Second			Third			Fourth			Year

Revenues	$	14		$	13		$	8		$	8		$	43
Net loss		(8,195	)		(7,903	)		(6,844	)		(6,906	)	$	(29,848	)
Basic and diluted loss per share		(1.14	)		(1.06	)		(0.92	)		(0.93	)		(4.04	)


	Quarter
2007	First			Second			Third			Fourth			Year

Revenues	$	5		$	5		$	6		$	50		$	66
Net loss		(7,955	)		(8,842	)		(9,037	)		(8,159	)		(33,993	)
Basic and diluted loss per share		(1.20	)		(1.33	)		(1.33	)		(1.18	)		(5.05	)


14.	Regulatory Matters

The Company is aware that Ben Venue Laboratories, Inc. (Ben Venue), its manufacturer of Onrigin^tm finished product, received a Warning Letter from the U.S. Food and Drug Administration (FDA) in November 2007 and that subsequent to that date the FDA had completed an on-site inspection of their facility that concluded with the issuance of an FDA Form 483 (483). A 483 is a form issued by the FDA to list observations made during a facility inspection. Ben Venue informed the Company that it submitted a response to the FDA proposing a plan to address the issues identified in the 483 and that the FDA has now indicated that Ben Venue’s compliance status has been changed in the FDA databases to “Approvable”, allowing for the approval of NDAs (New Drug Application),

Vion Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements — (Continued)

ANDAs (Abbreviated New Drug Application) and the issuance of CPPs (Certificates of Pharmaceutical Product) needed for export to many foreign countries for products manufactured by Ben Venue. In June 2008, the Company was notified by Ben Venue that it had received a letter from the European Medicines Agency (EMEA) with observations from a recent audit of its facilities, and that it had responded to this letter with a plan to address the issues raised. If Ben Venue is not successful in completing the corrections of the observations that resulted in the issuance of the 483 or the audit letter from the EMEA on a timely basis, the Company’s ability to obtain FDA approval to manufacture Onrigin^tm for commercial purposes could be delayed. The Company believes that it has sufficient inventory of Onrigin^tm to conduct its current and planned clinical trials through June 2009 in Europe and beyond in the U.S. However, if Ben Venue is not able to manufacture additional supplies of Onrigin^tm in the future, the Company will have to establish a new source for finished product manufacturing, and its operations could be materially adversely affected.


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*

None.


Item 9A(T).	*Controls and Procedures*

Evaluation of Disclosure Controls and Procedures

Based on their review and evaluation as of December 31, 2008, our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on the assessment using those criteria, our management concluded that, as of December 31, 2008, our internal control over financial reporting was effective. This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this Annual Report.

There was no change in our internal control over financial reporting during the quarter ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.


Item 9B.	*Other Information*

None.

PART III


ITEM 10.	*Directors, Executive Officers and Corporate Governance*

Executive Officers and Directors

Information concerning our executive officers and directors is set forth in Part I of this Annual Report on Form 10-K.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than ten percent of our Common Stock to file initial reports of ownership and reports of changes in ownership with the SEC and the Nasdaq Stock Market. Executive officers, directors and beneficial owners of more than ten percent of our Common Stock are required by the SEC to furnish us with copies of all Section 16(a) forms they file.

Based upon a review of the forms furnished to us and written representations from our executive officers and directors, we believe that during fiscal 2008 all Section 16(a) filing requirements applicable to our executive officers, directors and beneficial owners of more than ten percent of our Common Stock were complied with.

Code of Ethics

We have adopted a Code of Ethics and Business Conduct applicable to our directors, officers and employees, as well as a Code of Ethics that applies to our chief executive officer and senior financial officers. The codes have been posted on our website, www.vionpharm.com. In the event we amend or waive any of the provision of the Code of Ethics and Business Conduct applicable to our principal executive officer, principal financial officer or principal accounting officer that relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K, we intend to disclose any such amendment or waiver on our website set forth above.

Audit Committee of the Board of Directors

Our Board of Directors has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)A of the Securities Exchange Act of 1934. The Audit Committee currently consists of three non-employee directors, Mr. Rakin, as Chairman, Mr. Miller and Mr. Willis. The Board of Directors has determined that all members of the Audit Committee are “independent directors” as defined by the Nasdaq Stock Market^®. Our Board of Directors has determined that Mr. Rakin qualifies as “audit committee financial expert” (as that term is defined in the rules promulgated by the SEC pursuant to the Sarbanes-Oxley Act of 2002).


ITEM 11.	*Executive Compensation*

Compensation Discussion and Analysis

Overview

Our executive compensation program for our Chief Executive Officer, our President and Chief Financial Officer, and our three other most highly compensated executive officers, whom we collectively refer to as our named executive officers, consists of (i) base salary and (ii) incentive compensation in the form of non-equity incentive compensation bonus awards and equity-based incentive compensation awards under the Vion 2005 Stock Incentive Plan. Our executive compensation program has historically included and continues to include very few perquisites. The Company’s Compensation Committee is responsible for reviewing and approving the compensation paid by us to the named executive officers.

In 2005, the Compensation Committee retained Buck Consultants, Inc. (f/k/a Mellon Consultants, LLC), an executive compensation consulting firm, to assist it in conducting an evaluation of our compensation arrangements for our senior executives, including our named executive officers, with the goal of designing our compensation arrangements to be competitive with those offered by similar public companies in the pharmaceutical development industry. Since 2005, our compensation program has reflected in large part the recommendations of Buck Consultants, Inc. in particular by emphasizing the use of incentive-based compensation (including restricted stock awards) to reward the named executive officers and members of senior management for contributions to the achievement of the Company’s business, research and product development objectives. However in July 2008, in response to concerns regarding the departures and potential departure of certain of our key employees as we proceed with the new drug application (NDA) process for Onrigin^tm, we revised our incentive compensation program for 2008 to emphasize retention of employees, including the named executive officers, by linking incentive compensation payments in 2008 to continuous employment with the Company through the payment date rather than attainment of corporate targets.

Prior to the adoption of our 2005 Stock Incentive Plan, we issued options to purchase our common stock to our named executive officers and others under our 2003 Stock Option Plan, which was, together with all of our previous option plans, superseded by our 2005 Stock Incentive Plan. Our last option grant to our named executive officers under the 2003 Stock Option Plan was on December 8, 2004. To date, we have not granted any options under the 2005 Stock Incentive Plan, though we have granted restricted stock under that plan and are permitted to grant options and other stock-based awards under that plan. Except for Dr. Hahne who received restricted stock related to

his hire on February 1, 2008, we have not granted any equity awards to the named executive officers since March 2007.

Compensation Objectives

The Compensation Committee’s philosophy is to establish executive compensation policies linked to the creation of shareholder value. Our compensation program is designed to:


	•	Adequately and fairly compensate executive officers in relation to their responsibilities, capabilities and contributions to the Company and in a manner that is commensurate with compensation paid by companies of comparable size and at a comparable stage of development within our industry;

	•	Align the interests of the executive officers with those of the stockholders with respect to short-term operating goals and long-term increases in the value of our common stock;

	•	Reward executive officers for the achievement of short-term goals and for the enhancement of the long-term value of the Company;

	•	Provide a strong emphasis on equity-based compensation and equity ownership, creating a direct link between shareholder and management interests; and

	•	Incentivize executive officers to remain in the employ of the Company as we proceed with filing the NDA and seeking regulatory approval for Onrigin^tm.

These objectives serve as the guiding principles for all the decisions the Compensation Committee makes and has made with respect to the amount and type of compensation payable to our named executive officers.

Components of Compensation

Elements of Executive Compensation. Except with respect to the non-equity (i.e., cash) incentive compensation bonus percentage targets set for each named executive officer as described below, the Compensation Committee does not have a specific mix of compensation components that it tries to achieve, but the intent is to make each component of total direct compensation (including base salary, annual cash bonus incentive, and long-term equity incentives) competitive with other companies of similar size and stage of development operating in our industry, while taking into account our relative performance and our own strategic goals. In making determinations on the mix and amount of executive compensation, the Compensation Committee reviews all components of the executive’s compensation, including base salary, annual cash bonuses, equity-based compensation and any other form of compensation received from the Company to ensure such compensation meets the goals of the program. As we have done in the past, in setting compensation for the year ended December 31, 2008, we used the Radford Biotechnology Survey as a basis for comparison of compensation. The Compensation Committee’s philosophy, in general, has been to set base salary and bonus levels between the 50th and 75th percentiles of compensation as reported in the Radford Biotechnology Survey. The primary components of compensation paid by the Company to its executive officers and senior management personnel, and the relationship of such components of compensation to the Company’s performance, are discussed below:

Base Salary. The base salaries for the Company’s named executive officers for the year ended December 31, 2008 were established in December 2007 except for Dr. Hahne who joined the Company as its Vice President, Medical, on February 1, 2008. The Compensation Committee approved 4% salary increases for 2008 for Ms. Cahill and Dr. King. Mr. Kessman and Mr. Johnson’s base salaries remained the same between 2007 and 2008. Adjustments to base salaries are generally determined based upon a number of factors, including the Company’s performance (to the extent such can fairly be attributed or related to each executive’s performance), as well as the nature of each executive’s responsibilities, capabilities and contributions, and whether their salary fairly reflect job responsibilities and prevailing market conditions and rates of pay. The Compensation Committee considered each of these factors but did not assign a specific value to each factor in raising base salaries for 2008. The Compensation Committee believes that base salaries for the Company’s named executive officers have historically been reasonable in relation to the Company’s size and performance in comparison with the compensation paid by

similarly sized companies or companies within the Company’s industry as determined by reference to the Radford Biotechnology Survey.

Incentive Compensation. We have typically followed a process where at the beginning of each year, Mr. Kessman, our Chief Executive Officer, recommends and the Compensation Committee considers, adjusts and adopts performance targets for the Company’s executive officers on which to base non-equity bonus compensation for the year. With the assistance of Mr. Kessman, the Compensation Committee determines the level of corporate attainment of the targets which are in turn used to calculate the annual non-equity incentive compensation bonus payments. The targeted cash bonus to be paid based upon the achievement of all of the performance criteria is generally between 25% and 50% of the named executive officer’s salary with the actual amount paid as a non-equity incentive compensation cash bonus being such maximum amount prorated to reflect the level of attainment of the performance targets.

For 2006 and 2007, the Compensation Committee adopted performance targets tied to corporate, clinical, research and development, commercial, regulatory, administrative and financial goals. These goals were particularly focused on accruing patients to, and completing clinical trials of our lead product candidate, Onrigin^tm. The Compensation Committee originally approved 2008 performance targets that were tied to similar goals, but with an emphasis on completing clinical trials and completing regulatory filing requirements, including in particular, an NDA for Onrigin^tm for the treatment of elderly patients with de novo poor-risk AML. While we generally have not adjusted or altered these performance targets after they have been adopted, in July 2008 we did adjust the criteria as described below to incentivize and retain our employees as we proceed with the NDA process for Onrigin^tm.

On July 17, 2008, we announced to our employees that we had adopted a bonus and retention plan (the Retention Plan) covering each employee, including the named executive officers. The Retention Plan replaced our existing non-equity incentive compensation plan for fiscal 2008 and tied incentive compensation payments for 2008 to continuous employment with the Company through the payment date rather than attainment of corporate targets. The Compensation Committee believes the Retention Plan was an appropriate way to incentivize key employees to remain with the Company as we proceed with the process to file our NDA for Onrigin^tm in 2009. The Compensation Committee also thought it important to emphasize non-equity compensation (i.e., cash) in the Retention Plan in light of the rapid decline in the economy and the equity markets during 2008.

Under the Retention Plan, each named executive officer became entitled to non-equity incentive compensation as specified below payable in three installments: (i) 20% on September 30, 2008, (ii) 30% on November 30, 2008, and (iii) 50% on January 30, 2009, subject only to his or her continuous employment with the Company through the applicable bonus payment date:


	Non-Equity
	Incentive
	Compensation
Name	Paid

Alan Kessman	$	229,494
Howard B. Johnson	$	108,000
Ann Lee Cahill	$	100,000
William Hahne, M.D.	$	100,000
Ivan King, Ph.D.	$	75,000

Restricted Stock. Our 2005 Stock Incentive Plan allows the Board of Directors or the Compensation Committee to grant stock-based awards of our common stock to executive officers and employees. Under the terms of the 2005 Stock Incentive Plan, the Board of Directors and the Compensation Committee have authority to select the executive officers and employees who will be granted stock-based awards and to determine the timing, pricing and number of shares of stock to be awarded. The Compensation Committee has historically believed that equity-based incentive awards are an integral part of total compensation for our named executive officers each of whom has significant responsibility for the Company’s long-term results. To date the Compensation Committee has granted awards of restricted stock only under the 2005 Stock Incentive Plan. Restricted stock awards provide an effective means of delivering incentive compensation while fostering stock ownership on the part of management. The restricted stock awards include vesting criteria that focus on rewarding executive officers when stockholders

have likely also benefited from increases in the value of the Company and its common stock. This process serves to align the interests of named executive officers with those of stockholders. The Compensation Committee also believes that restricted stock awards motivate the named executive officers’ commitments to and successful execution of productivity, innovation, growth and business objectives aligned with shareholders’ interests. The Compensation Committee has also determined that granting certain of our named executive officers restricted stock was more attractive to executives than granting stock options because, unlike stock options, there is no money required to exercise them.

Except for Dr. Hahne who received restricted stock related to his hire on February 1, 2008, we have not granted any equity awards to the named executive officers since March 2007. With the exception of significant promotions, new hires and/or certain special adjustments and/or circumstances, we generally make restricted stock awards at a meeting of the Compensation Committee held at the end of our fiscal year or shortly thereafter. This timing was selected because it enables us to consider the current fiscal year performance of the Company and the participants as well as the Compensation Committee’s expectations for the coming year. The Compensation Committee’s schedule is determined in advance at the beginning of each fiscal year, subject to adjustment, thus the proximity of any awards to earnings announcements or other market events is coincidental.

No shares of restricted stock were granted to our executive officers, including our named executive officers, at the end of fiscal 2008. This is in large part due to the magnitude of previous awards made in 2006 and 2007 which awards vested on December 31, 2008 and January 1, 2009, and in order to conserve the 451,793 shares of common stock that remain available for grant under our 2005 Stock Incentive Plan and in light of current market conditions. The values for such stock awards reported below in the Summary Compensation Table for fiscal 2006 through 2008 for our named executive officers represent the compensation expense recorded in our financial statements based on a grant date fair value of $1.60 (for Dr. Hahne) and grant date fair values ranging from $13.80 to $17.00 for all other named executive officers, which are significantly higher than the vesting date fair values of $0.37 on December 31, 2008 and January 1, 2009 for the named executive officers (except for Dr. Hahne). As such, the actual compensation reported to the Internal Revenue Service for the value upon vesting of the stock awards was $66,106 in the case of Mr. Kessman, $31,141 in the case of Mr. Johnson, $26, 516 in the of Ms. Cahill and $16,711 in the case of Dr. King. Dr. Hahne’s shares have not yet vested.

We paid additional compensation on December 31, 2008 and on January 8, 2009 to certain of our employees and officers, including the named executive officers (except Dr. Hahne), to cover the associated withholding for federal, state and local income and employment taxes on their restricted stock awards that vested on December 31, 2008 and January 1, 2009. We also reimbursed our non-executive directors for their 2008 taxes payable with respect to their restricted stock awards. We decided to pay these taxes to encourage long-term stock ownership by our employees, officers and directors by eliminating the need for award recipients to sell shares to pay taxes related to the awards. We also believe this step served to motivate employees and officers to assert their best efforts on behalf of the Company as it prepared to submit the NDA for Onrigin^tm in February 2009. The total expense with respect to these payments is approximately $133,000 for all employees, officers and directors, of which approximately $96,000 was paid to our named executive officers and approximately $9,000 was paid to our directors.

Accounting and Tax Treatment

The accounting treatment of our compensation plans is not a significant factor in how we design our executive compensation plans. Section 162(m) of the Internal Revenue Code of 1986, as amended, generally denies publicly-held corporations a federal income tax deduction for compensation exceeding $1,000,000 paid to named executive officers, excluding performance-based compensation. Through December 31, 2008, we have not paid compensation to any of our named executive officers in excess of $1,000,000, thus Section 162(m) has not limited our ability to deduct executive compensation, however, the Compensation Committee will continue to monitor the potential impact of this provision on our ability to deduct executive compensation.

Perquisites; Other Compensation

We annually review any perquisites that our Chief Executive Officer and the other named executive officers may receive. In general, we do not provide our executives with many of the types of perquisites that other

companies offer their executives, such as club memberships or vehicle allowances. In addition to the equity and non-equity incentive compensation described above, we provide our named executive officers with the same benefit package available to all of our salaried employees. This package includes:


	•	Cafeteria plan — health and dental insurance, life insurance, disability insurance and long term care coverage (portion of costs), flexible spending pre-tax reimbursement plans for health and dependent care;

	•	Participation in 401k plan, including matching contribution, and employee stock purchase plan which allows purchase of our stock at a 15% discount; and

	•	Tuition reimbursement.

The named executive officers are entitled to severance in various circumstances upon a change in control as described below under “ — Potential Payments Upon Termination or Change in Control.” In addition, we provide assistance with tax planning and compliance of up to $6,000 per annum for our Chief Executive Officer and $600 per annum for each of the other named executive officers. We have also agreed to reimburse Mr. Johnson for his commuting expenses. Pursuant to the terms of his employment agreement, we pay life and disability insurance policy premiums for Mr. Kessman.

Stock Ownership Guidelines

Though the Compensation Committee seeks to align shareholder and management interests through restricted stock awards, the Company does not have specific established stock ownership guidelines for any of its officers.

The foregoing discussion describes the compensation objectives and policies which were utilized with respect to our named executive officers during the year ended December 31, 2008. In the future, as the Compensation Committee continues to review each element of the executive compensation program with respect to our named executive officers, the objectives of our executive compensation program, as well as the methods which the Compensation Committee utilizes to determine both the types and amounts of compensation to award to our named executive officers, may change.

Summary Compensation Table

The following table sets forth information relating to total compensation awarded to, earned by or paid to our Chief Executive Officer, our Chief Financial Officer, and our three other most highly compensated executive officers during the three fiscal years ended December 31, 2008:


											Non-Equity
							Stock		Option		Incentive Plan		All Other			Total
Name and			Salary(3)		Bonus(4)		Awards(5)		Awards(6)		Compensation(7)		Compensation			Compensation
Principal Position	Year		($)		($)		($)		($)		($)		($)			($)

Alan Kessman		2008	$	458,988	$	61,666	$	1,150,371		—	$	114,747	$	64,745	(8)	$	1,850,517
— Chief Executive Officer(1)		2007	$	458,988		—	$	1,131,830		—		—	$	24,020		$	1,614,838
		2006	$	445,619		—	$	310,462		—	$	95,000	$	30,167	(9)	$	881,248
Howard B. Johnson		2008	$	297,440	$	29,291	$	539,934	$	69,163	$	54,000	$	19,518		$	1,009,346
— President and Chief		2007	$	297,440		—	$	532,210	$	75,458	$	38,325	$	219		$	943,652
Financial Officer		2006	$	286,000		—	$	147,470	$	175,798	$	61,150	$	11,433	(10)	$	681,851
Ann Lee Cahill		2008	$	262,080	$	24,666	$	462,001		63,122	$	50,000	$	16,375		$	878,244
— Vice President, Clinical		2007	$	252,000		—	$	454,277	$	75,787	$	27,059	$	1,129		$	810,252
Development		2006	$	240,000		—	$	124,185	$	81,008	$	52,000	$	1,486		$	498,679
William Hahne, M.D.		2008	$	260,000	$	20,000	$	8,727		—	$	50,000	$	10,449	(11)	$	349,176
— Vice President, Medical(2)
Ivan King, Ph.D.		2008	$	257,088	$	15,416	$	289,130	$	34,578	$	37,500	$	11,387	(12)	$	645,099
— Vice President, Research		2007	$	247,200		—	$	283,731	$	37,729	$	26,543	$	1,204		$	596,407
and Development		2006	$	240,000		—	$	88,019	$	57,268	$	42,762	$	1,886		$	429,935


(1)		We are a party to an employment agreement with Mr. Kessman, described below.

(2)		Dr. Hahne has been our Vice President, Medical since February 1, 2008.


(3)		Includes amounts earned but deferred at the election of the named executive officer under the Company’s qualified 401(k) Plan.

(4)		Cash bonuses to named executive officers paid under an incentive plan are reported in the column “Non-Equity Incentive Plan Compensation.”

(5)		Reflects compensation expense for all restricted common stock awards recognized for financial reporting purposes under SFAS 123(R) for fiscal year 2008. The compensation expense recognized was based on a grant date fair value of $1.60 (for Dr. Hahne) and grant date fair values ranging from $13.80 to $17.00 for all other named executive officers, which are significantly higher than the vesting date fair values of $0.37 on December 31, 2008 and January 1, 2009 for the named executive officers (except for Dr. Hahne). As such, the actual compensation reported to the Internal Revenue Service for the value upon vesting of the restricted stock awards for years 2006 through 2008 reported in this column was $66,106 in the case of Mr. Kessman, $31,141 in the case of Mr. Johnson, $26, 516 in the of Ms. Cahill and $16,711 in the case of Dr. King. Dr. Hahne’s shares have not yet vested.

		See the “Outstanding Equity Awards at Fiscal Year-End” table for a description of restricted stock awards. For information regarding our valuation of stock-based compensation, see “Critical Accounting Policies and Estimates — Stock-Based Compensation Expense” contained in Item 7 as well as Notes 3 and 8 to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

(6)		Reflects compensation expense for all stock option awards recognized for financial reporting purposes (exclusive of any assumptions for forfeitures) under SFAS 123(R) for fiscal year 2008. The compensation expense was based on grant date fair values ranging from $27.67 to $30.18, which are significantly higher than the fair value of our common stock of $0.37 at December 31, 2008. The fair values of the stock options awards were calculated using a Black-Scholes option valuation model with the assumptions listed below.


	Risk-Free			Expected		Expected			Dividend			Exercise
Grant Date	Interest Rate			Life		Volatility			Yield			Price

10/15/2004		3.67	%		5.96 years		69	%		0	%	$	43.10
12/8/2004		3.67	%		5.96 years		69	%		0	%	$	47.00


		For information regarding our methodologies used to determine these assumptions, see Note 8 to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

(7)		The amounts shown in the column were earned in the fiscal year shown pursuant to non-equity incentive plan compensation arrangements with our named executive officers and, in the case of our Chief Executive Officer, set forth in an employment agreement. Such amounts earned in 2008 were paid 50% in fiscal 2008 and 50% in fiscal 2009 and such amounts earned in fiscal years 2007 and 2006 were paid in the following fiscal year. Though the Compensation Committee awarded Mr. Kessman a non-equity bonus of $98,568 for 2007 (reflecting the level of attainment of target criteria and his 50% bonus target), at Mr. Kessman’s instigation the payment of his bonus has been deferred, and as such is not reflected in this column for fiscal 2007, in order to preserve cash which he and the Compensation Committee believed to be in the best interests of the Company and its stockholders.

(8)		Includes company-paid income and employment taxes on restricted stock awards of $40,600 and premiums on life and disability insurance of $23,145.

(9)		Includes company-paid income and employment taxes on restricted stock awards of $19,285.

(10)		Includes company-paid income and employment taxes on restricted stock awards of $16,240.

(11)		Includes income of $8,813 paid in fiscal 2008 to Dr. Hahne in his capacity as a consultant prior to his hire date.

(12)		Includes company-paid income and employment taxes on restricted stock awards of $10,150.

We entered into an employment agreement effective January 1, 2004 with Alan Kessman, our Chief Executive Officer which has been amended, most recently on June 23, 2008. The termination date of Mr. Kessman’s extended employment agreement is December 31, 2009. Pursuant to this agreement, Mr. Kessman receives a minimum base salary of $412,000 per year and is eligible for a bonus of up to 50% of his base salary based on the achievement of specified objectives. In addition, we pay for his personal insurance policies.

Except for change in control severance agreements as described below, we do not have formal employment agreements with any of our named executive officers except Mr. Kessman; however, base pay, equity and non-equity incentive compensation arrangements, and other arrangements are set forth in offer letters provided to each of our named executive officers as of the date of hire or promotion. Since the date of these offer letters, the compensation paid to each of these executives has been increased.

Grants of Plan-Based Awards

Our Compensation Committee approved an award of restricted common stock under our 2005 Stock Incentive Plan to our named executive officer as set forth in the table below during the year ended December 31, 2008. Under the Retention Plan, our named executive officers became entitled to a non-equity incentive compensation payable on January 31, 2009 as set forth in the table below subject to their remaining in the employ of the Company through the payment date. All such amounts were paid.


															Grant
			Estimated Future Payouts						Estimated Future Payouts						Date
			under Non-Equity Incentive Plan Awards						under Equity Incentive Plan Awards						Fair Value
			Threshold		Target		Maximum		Threshold		Target		Maximum		of Stock
Name	Grant Date		($		($)		($)		(#)		(#)		(#)		Award

Alan Kessman		7/17/2008		—	$	114,747		—		—		—		—		—
Howard B. Johnson		7/17/2008		—	$	54,000		—		—		—		—		—
Anne Lee Cahill		7/17/2008		—	$	50,000		—		—		—		—		—
William Hahne, M.D.		4/1/2008 7/17/2008		—	$	50,000		—		—		20,000		—	$	32,000
Ivan King, Ph.D.		7/17/2008		—	$	37,500		—		—		—		—		—

Our 2005 Stock Incentive Plan is administered by our Compensation Committee. The objectives of the plan include attracting, motivating and retaining key personnel and promoting our success by linking the interests of our employees, directors and consultants with our success. As of December 31, 2008, there were 1,063,691 shares of common stock authorized for awards under the plan and 451,793 shares of common stock available for grant under the plan.

The term of the 2008 restricted common stock award to Dr. Hahne is ten years from the date of the grant. The award will vest upon the earliest of (i) 11 equal monthly increments on the first of the month beginning February 1, 2010 and ending December 1, 2010; (ii) the approval of an NDA to market Onrigin^tm, or (iii) the occurrence of a Change of Control, as defined in our 2005 Stock Incentive Plan. The 2005 Stock Incentive Plan requires that the recipient of an award be continuously employed or otherwise provide service to us. Failure to be continuously employed or in another service relationship generally results in the forfeiture of stock not vested at the time the employment or other service relationship ends.

The restricted stock awards granted to the named executive officers other than Dr. Hahne are no longer subject to vesting, the last shares having vested on January 1, 2009.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth the outstanding equity award holdings held by our named executive officers at December 31, 2008.


	Option Awards								Stock Awards
												Equity
												Incentive
												Plan Awards:
									Equity Incentive			Market or
									Plan Awards:			Payout
									Number of			Value of
	Number of		Number of						Unearned			Unearned
	Securities		Securities						Shares,			Shares,
	Underlying		Underlying						Units or			Units or
	Unexercised		Unexercised		Option				Other Rights			Other Rights
	Options		Options		Exercise		Option		That Have			That Have
	(#)		(#)		Price		Expiration		Not Vested			Not Vested
Name	Exercisable		Unexercisable		($)		Date		(#)			($)

Alan Kessman		20,090		—	$	52.50		1/11/2009		12,000	(1,5)	$	4,440
		74,725		—	$	57.75		1/11/2009
		4,999		—	$	148.75		2/24/2010
		3,000		—	$	73.75		12/5/2010
		11,478		—	$	47.50		12/6/2011
		15,000		—	$	5.50		7/30/2012
		8,000		—	$	15.70		12/10/2013
		14,999		—	$	47.00		12/8/2014
Howard B. Johnson		34,999		—	$	38.79		3/18/2012		5,000	(2,5)	$	1,850
		7,250		—	$	5.50		7/30/2012
		6,000		—	$	15.70		12/10/2013
		9,999		—	$	47.00		12/8/2014
Ann Lee Cahill		1,500		—	$	47.09		1/7/2012		5,000	(2,5)	$	1,850
		2,000		—	$	5.50		7/30/2012
		1,000		—	$	15.70		12/10/2013
		5,500		—	$	43.09		10/15/2014
		5,000		—	$	47.00		12/8/2014
William Hahne, M.D.		—		—		—		—		20,000	(3)	$	7,400
Ivan King, Ph.D.		1,400		—	$	46.87		3/4/2009		3,500	(4,5)	$	1,295
		1,730		—	$	60.63		5/20/2009
		5,999		—	$	148.75		2/24/2010
		4,500		—	$	73.75		12/5/2010
		5,357		—	$	47.50		12/6/2011
		6,500		—	$	5.50		7/30/2012
		3,999		—	$	15.70		12/10/2013
		4,999		—	$	47.00		12/8/2014


(1)		Reflects 12,000 restricted shares of common stock awarded on March 12, 2007 at a grant date fair value of $17.00 per share.

(2)		Reflects 5,000 restricted shares of common stock awarded on March 12, 2007 at a grant date fair value of $17.00 per share.

(3)		Reflects 20,000 restricted shares of common stock awarded on April 1, 2008 at a grant date fair value of $1.60 per share. The restricted common stock award vests upon the earliest of (i) in 11 equal monthly installments on the first of the month beginning February 1, 2010 and ending December 1, 2010, (ii) a Change in Control, as


		defined in the Company’s 2005 Stock Incentive Plan, or (iii) the Company receiving approval of an NDA to market Onrigin^tm.

(4)		Reflects 3,500 shares awarded on March 12, 2007 at a grant date fair value of $17.00 per share.

(5)		Restricted common stock awards vested on January 1, 2009.

Option Exercises and Stock Vested

During the year ended December 31, 2008, there were no exercises of stock options by our named executive officers. The following table sets forth the vestings of restricted common stock for our named executive officers at December 31, 2008.


	Stock Awards
	Number of Shares		Value Realized
	Acquired on Vesting		on Vesting
Name	(#)		($)

Alan Kessman		166,666	$	61,666
Howard B. Johnson		79,166	$	29,291
Ann Lee Cahill		66,666	$	24,666
William Hahne, M.D.		—	$	—
Ivan King, Ph.D.		41,665	$	15,416

Pension Benefits

We do not sponsor any plans that provide for payments or other benefits at, following, or in connection with retirement, excluding a tax-qualified defined contribution plan.

Nonqualified Deferred Compensation

We currently do not sponsor any non-qualified defined contribution or other non-qualified deferred compensation plans.

Potential Payments upon Termination or Change in Control

The following summaries set forth potential payments payable to our named executive officers upon termination of employment or a change in control of us under their current employment or severance agreements:

(i) Under the terms of our employment agreement, as amended, with Mr. Kessman, in the event that his employment is terminated by us for any reason other than cause or disability, or if he terminates for good reason, we are obligated (A) to pay him an amount equal to (a) two times his current base salary, (b) two times his average annual bonus for the prior two years, (c) two times the annual amounts for his personal insurance policies, and (d) his deferred 2007 bonus, as well as (B) to continue payment of certain insurance costs on his behalf for a period of two years. Under this employment agreement, it shall constitute “good reason” for Mr. Kessman to terminate his employment and receive the amounts described above if there is a change in control and the Company or its successors, as the case may be, fails to agree in writing to extend the expiration date of Mr. Kessman’s employment agreement to the two-year anniversary of the change of control.

(ii) We entered into severance agreements with certain of our named executive officers, including Mr. Johnson, Ms. Cahill, Dr. Hahne and Dr. King, pursuant to which each of these officers would be entitled to certain payments in the event such officer loses his or her employment during the twelve-month period following a “change in control,” as defined in the agreement. Specifically, if a “change in control” occurs, the officer shall be entitled to a lump sum severance payment equal to the sum of twelve months of the officer’s monthly base salary as in effect as of the date of termination or immediately prior to the change in control, whichever is greater, plus the average of the last two cash bonus payments made to the officer prior to the change in control. The Company would also make all payments due under COBRA to provide each officer with group health insurance benefits substantially similar to those which the officer was receiving immediately prior to the date of termination until the earlier of 18 months after such termination or the date the officer has

obtained new full-time employment. The foregoing amounts are not payable if termination of the officer is because of the officer’s death, for cause, or by the officer other than for good reason. Under the Retention Plan, Mr. Johnson, Ms. Cahill, Dr. Hahne and Dr. King also became entitled to severance of a certain amount, if they are terminated without cause prior to December 31, 2009.

The table below sets forth the estimated current value of payments and benefits to each of our named executive officers under the circumstances summarized above pursuant to these employment and severance agreements, as well as the value of accelerated unvested restricted stock and stock options that would immediately vest in the event of a change of control, as defined in the equity plan agreements. The amounts shown assume that the triggering events occurred on December 31, 2008 and do not include other benefits that are available to all salaried employees, primarily accrued vacation.


							Intrinsic
					Value of		Value of
			Health and		Accelerated		Accelerated
			Welfare		Unvested		Unvested
			Benefits		Restricted		Stock
Name	Severance		Continuation		Stock(1)		Options(2)		Total

Alan Kessman —
Change of control	$	1,395,907	$	94,212	$	4,440		—	$	1,494,559
Termination	$	1,395,907	$	94,212		—		—	$	1,490,119
Howard B. Johnson —
Change of control	$	324,440	$	28,412	$	1,850		—	$	354,702
Termination	$	297,440		—		—		—	$	297,440
Ann Lee Cahill —
Change of control	$	287,080	$	27,766	$	1,850		—	$	316,696
Termination	$	262,080		—		—		—	$	262,080
William Hahne, M.D. —
Change of control	$	285,000	$	29,670	$	7,400		—	$	322,070
Termination	$	260,000		—		—		—	$	260,000
Ivan King, Ph.D. —
Change of control	$	275,838	$	27,977	$	1,295		—	$	305,110
Termination	$	257,088		—		—		—	$	257,088


(1)		Value of unvested restricted stock was calculated using the closing price of our common stock on December 31, 2008 ($0.37).

(2)		As the exercise prices of the non-vested stock options exceeded the closing price of our common stock on December 31, 2008 ($0.37), there was no intrinsic value of accelerated unvested stock options at December 31, 2008.

Director Compensation

We currently have six non-employee directors that qualify for compensation under our director compensation plan. Non-employee directors receive annual cash compensation of $15,000, except for the chairman of the Board of Directors who receives $40,000 per annum, plus additional cash compensation, ranging from $500 to $1,500 per meeting, for meetings attended, and reimbursement of actual out-of-pocket expenses incurred in connection with attendance at meetings. In addition, the chairman of each committee of the board receives annual cash compensation of $5,000, except for the chairman of the audit committee who receives $10,000 per annum. Non-employee directors receive an initial restricted common stock award under our 2005 Stock Incentive Plan, such restricted common stock to vest in three equal annual installments on the grant anniversary, and annual restricted common stock awards upon re-election to the Board of Directors, such restricted common stock to vest on the first anniversary of the date of grant. The Company does not pay employee members of the board separately for their service on the board.

The following table sets forth total compensation of our non-employee directors for the fiscal year ended December 31, 2008.


	Fees Earned Or		Stock
	Paid In Cash		Awards(2)		Total
Name	($)		($)		($)

George Bickerstaff	$	19,500	$	5,275	$	24,775
Stephen K. Carter, M.D.(1)	$	7,500	$	5,231	$	12,731
William R. Miller	$	46,500	$	5,275	$	51,775
Kevin Rakin	$	36,000	$	21,468	$	57,468
Alan C. Sartorelli, Ph.D.	$	23,000	$	5,275	$	28,275
Ian Williams, D. Phil.	$	30,000	$	20,890	$	50,890
Gary K. Willis	$	29,000	$	5,275	$	34,275


(1)		Dr. Carter is no longer a member of our Board of Directors effective as of our 2008 annual meeting held on December 10, 2008.

(2)		Represents the dollar amount recognized for financial reporting purposes for fiscal year 2008 in accordance with SFAS 123(R) for the fair value of restricted common stock awards. The awards for fiscal year 2008 include: (i) 1,130 restricted shares of common stock with a December 11, 2008 grant date fair value of $531 that will vest on December 11, 2009 awarded to each of Mr. Bickerstaff, Mr. Miller, Mr. Rakin, Dr. Sartorelli, Dr. Williams and Mr. Willis. At December 31, 2008, the aggregate number of restricted common stock awards that have not vested was: (i) 1,130 shares for each of Mr. Bickerstaff, Mr. Miller, Dr. Sartorelli and Mr. Willis; (ii) 3,444 shares for Mr. Rakin; and (iii) 2,287 shares for Dr. Williams. Unvested restricted stock immediately vests in the event of a change of control, as defined in the equity plan agreement. At December 31, 2008, the aggregate number of shares of common stock underlying unexercised options (all of which are exercisable) was: 2,000 for Mr. Bickerstaff; 8,202 for Dr. Carter; 7,971 for Mr. Miller; 10,648 for Dr. Sartorelli; and 2,000 for Mr. Willis. For information regarding our valuation of stock-based compensation, see “Critical Accounting Policies and Estimates — Stock-Based Compensation Expense” contained in Item 7 as well as Notes 3 and 8 to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee consists of Gary Willis, Kevin Rakin and Ian Williams. No member of the Compensation Committee was an officer or employee of the Company during 2008 or was formerly an officer or employee of the Company. In addition, during 2008 no executive officer of the Company served as a member of another entity’s board of directors or as a member of the compensation committee of another entity (or other board committee performing equivalent functions) during 2008, which entity had an executive officer serving on the Board of Directors of the Company.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section of this Annual Report on Form 10-K with management and, based on such review and discussion, the Compensation Committee recommends to the Board of Directors that it be included in this Annual Report on Form 10-K.

COMPENSATION COMMITTEE

Gary K. Willis (Chair)

Kevin Rakin

Ian Williams, D. Phil.


ITEM 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

The following table sets forth information as of March 1, 2009 (except as otherwise noted in the footnotes) regarding the beneficial ownership (as defined by the SEC) of our Common Stock: (i) each person known by us to own beneficially more than five percent of our outstanding Common Stock; (ii) each of our current directors; (iii) each executive officer named in the Summary Compensation Table under Item 11; and (iv) all of our current directors and executive officers as a group. Except as otherwise specified, the named beneficial owner has the sole voting and investment power over the shares listed and the address of each beneficial owner is c/o Vion Pharmaceuticals, Inc., 4 Science Park, New Haven, Connecticut 06511.

Beneficial ownership is determined in accordance with the rules of the SEC. The number of shares of common stock used to calculate the percentage ownership of each listed person includes the shares of common stock underlying options, warrants or other convertible securities held by that person that are exercisable within 60 days of March 1, 2009. The percentage of beneficial ownership is based on 8,036,227 shares of our common stock outstanding as of March 1, 2009.


	Number of			Percent of
	Shares			Outstanding
	Beneficially			Shares of
Directors and Officers	Owned			Common Stock

George Bickerstaff		11,683	(1)		*
William R. Miller		41,942	(2)		*
Kevin Rakin		7,229	(3)		*
Alan C. Sartorelli, Ph.D.		55,350	(4)		*
Ian Williams. D. Phil.		6,229	(3)		*
Gary K. Willis		11,683	(1)		*
Ann Lee Cahill		87,072	(5)		1.1	%
William Hahne, M.D.		20,000	(6)		*
Howard B. Johnson		144,094	(7)		1.8	%
Alan Kessman		243,728	(8)		3.0	%
Ivan King, Ph.D.		80,757	(9)		1.0	%
All directors and executive officers as a group (14 persons)		782,305	(10)		9.5	%
Other Beneficial Owners
Bruce & Co., Inc. 20 N. Wacker Drive Suite 2414 Chicago, Il 60606		781,017	(11)		8.9	%


*		Less than one percent

(1)		Includes 2,000 shares issuable upon exercise of options.

(2)		Includes 7,971 shares issuable upon exercise of options.

(3)		Includes restricted shares of our common stock not vested as of March 1, 2009 as follows:


	•	On June 28, 2006, Dr. Williams received an initial grant following his election to our Board of Directors of 3,470 shares of restricted stock;

	•	On January 15, 2007, Mr. Rakin received an initial grant following his appointment to our Board of Directors of 3,470 shares of restricted stock; and

	•	On December 11, 2008, Mr. Bickerstaff, Mr. Miller, Mr. Rakin, Dr. Sartorelli, Dr. Williams and Mr. Willis each received an annual grant of 1,130 shares of restricted stock.

Annual director grants will vest (i) one year after date of grant; or (ii) upon a Change of Control, as defined in our 2005 Stock Incentive Plan. Initial director grants will vest (i) in three equal annual installments on the anniversary of the date of grant; or (ii) upon a Change of Control, as defined in our 2005 Stock Incentive Plan.


(4)		Includes 19,087 shares beneficially owned by Dr. Sartorelli’s wife, as to which Dr. Sartorelli disclaims beneficial ownership. Also includes 10,648 shares issuable upon exercise of options.

(5)		Includes 15,000 shares issuable upon exercise of options.

(6)		Includes 20,000 shares of restricted stock granted to Dr. Hahne on April 1, 2008 and not vested as of March 1, 2009. Shares will vest upon the earliest of (i) 11 equal monthly increments on the first of each month beginning February 1, 2010 and ending December 1, 2010; (ii) the approval of an NDA to market Onrigin^tm; or (iii) the occurrence of a Change of Control, as defined in our 2005 Stock Incentive Plan.

(7)		Includes 58,248 shares issuable upon exercise of options.

(8)		Includes 1,275 shares held by a family trust of which Mr. Kessman is a controlling member. Also includes 57,476 shares issuable upon exercise of options.

(9)		Includes 34,484 shares issuable upon exercise of options.

(10)		Includes 195,970 shares issuable upon exercise of options.

(11)		Based on data set forth in Schedule 13G filed with the SEC on March 13, 2009, 781,017 shares of common stock reported in such Schedule 13G are held by Bruce & Co., Inc., consisting of 132,580 shares of common stock and 648,437 shares of common stock underlying convertible senior notes. Bruce & Co., Inc. has sole dispositive and voting power over the shares in its capacity as the investment manager for Bruce Ford, Inc., a Maryland registered investment company, and other clients.

Equity Compensation Plan Information

The following table provides information about shares of our common stock that may be issued upon the exercise of options and rights under all of the Company’s existing equity compensation plans as of December 31, 2008.


	Number of
	Securities to			Weighted-		Number of
	be Issued			Average		Securities
	Upon			Exercise		Available
	Exercise of			Price of		for Future
	Outstanding			Outstanding		Issuance
	Options,			Options,		Under Equity
	Warrants			Warrants		Compensation
Plan Category	and Rights			and Rights($)		Plans

Plans approved by security holders —
Vion 2005 Stock Incentive Plan		—			—		451,793
Vion 2003 Stock Option Plan		102,777		$	34.15		—
Vion 1993 Stock Option Plan		190,851		$	50.39		—
Vion 2000 Employee Stock Purchase Plan		—	(1)		—		28,106

		293,628		$	44.71		479,899
Plan not approved by security holders —
Vion 1999 Senior Executive Option Plan		94,815	(2)	$	56.64		—

Total		388,443					479,899


(1)		Under our 2000 Employee Stock Purchase Plan, participants are permitted to purchase our common stock during the stock offering period. Accordingly, the number of shares of common stock to be issued under our 2000 Employee Stock Purchase Plan is not determinable and is not included.

(2)		Reflects outstanding options to purchase 94,815 shares of our common stock granted under our Senior Executive Stock Option Plan (the “Senior Plan”) to Mr. Kessman in January 1999 at exercise prices ranging from $52.50 to $57.75 in connection with his employment agreement. The shares of common stock issuable upon exercise of the options granted to Mr. Kessman under the Senior Plan have not been registered. The following summarizes the principal terms of the Senior Plan, which was adopted by our Board of Directors on January 11, 1999 and terminated on January 11, 2009. Options were granted under the Senior Plan to our Chief Executive Officer. The Board appointed its Compensation Committee to administer the plan, including determination of pricing and terms of awards under the plan. The maximum number of shares of common stock authorized for issuance under the Senior Plan was 98,000, subject to customary antidilution and other adjustments provided for in the Senior Plan. All options outstanding as of December 31, 2008 expired upon the plan’s termination on January 11, 2009.


ITEM 13.	*Certain Relationships and Related Transactions, and Director Independence*

We license various compounds from Yale University, including Onrigin^tm and Triapine^®, which were developed by the laboratory of Dr. Sartorelli, one of our directors, through research funded in part by our gifts. In March 2007, we made a gift of $200,000 to support research projects through March 31, 2008 at Dr. Sartorelli’s laboratory at Yale.

Mr. Bickerstaff, one of our directors, is a principal of CRT Capital Group LLC, which was the initial purchaser of our notes and warrants in the private placement in February 2007. CRT received a purchase discount of $3.6 million which represented 6% of the $60 million principal amount of the notes.

Our Board of Directors has reviewed the materiality of any relationship that each of our directors has with the Company, either directly or indirectly. Based on this review, the Board has determined that all of the directors are “independent directors” as defined by the Nasdaq Stock Market^®, except Mr. Kessman, our Chief Executive Officer, and Mr. Bickerstaff, who is not independent by virtue of his relationship with CRT Capital Group and the transaction described in the immediately preceding paragraph. Neither Mr. Kessman nor Mr. Bickerstaff serves on any committee of our Board of Directors.


ITEM 14.	*Principal Accountant Fees and Services*

The following table presents the aggregate fees for professional audit services and other services rendered by Ernst & Young LLP, our independent registered public accountants, in 2008 and 2007:


	Years Ended December 31,
	2008					2007
			% Approved					% Approved
			by the Audit					by the Audit
	Fees		Committee			Fees		Committee

Audit fees(1)	$	198,415		100	%	$	206,294		100	%
Audit related fees(2)		—		100	%		63,547		100	%
Tax fees(3)		33,470		100	%		49,547		100	%
All other fees(4)		1,515		100	%		1,515		100	%

Total	$	233,400				$	320,903


(1)		Represents fees for the audit of our annual consolidated financial statements, review of the consolidated financial statements included in our Forms 10-Q and other audit services including the issuance of consents and the review of documents filed with the SEC. The fees for 2008 include $77,185 of accrued audit fees for the 2008 year-end audit that were not billed until 2009. The fees for 2007 include $61,087 of accrued audit fees for the 2007 year-end audit that were not billed until 2008.


(2)		Represents fees billed for accounting consultations and transaction reviews.

(3)		Represents fees billed for tax compliance services and transaction reviews.

(4)		Represents a subscription fee for an online accounting research database.

Audit Committee Pre-approval Policies and Procedures

The Audit Committee of our Board of Directors is responsible, among other matters, for the oversight of the external auditor. The Audit Committee has adopted a policy regarding pre-approval of audit and permissible non-audit services provided by our independent registered public accountants (the “Policy”).

Under the Policy, proposed services either (i) may be pre-approved by the Audit Committee without consideration of specific case-by-case services as “general pre-approval”; or (ii) require the specific pre-approval of the Audit Committee as “specific pre-approval”. The Audit Committee may delegate either type of pre-approval authority to one or more of its members. The Policy sets out the audit, audit-related, tax and other services that have received the general pre-approval of the Audit Committee, including those described in the footnotes to the table, above; these services are subject to annual review by the Audit Committee. All other audit, audit-related, tax and other services must receive a specific pre-approval from the Audit Committee.

The Audit Committee establishes budgeted fee levels annually for each of the four categories of audit and non-audit services that are pre-approved under the Policy, namely, audit, audit-related, tax and other services. Requests or applications to provide services that require specific approval by the Audit Committee are submitted to the Audit Committee by both the external auditor and the chief financial officer. At each regular meeting of the Audit Committee, the external auditor provides a report in order for the Audit Committee to review the services that the external auditor is providing, as well as the status and cost of those services.

PART IV


ITEM 15.	*Exhibits, Financial Statement Schedules*

(a) 1. Financial Statements

The following is a list of the Financial Statements included in Item 8 of Part II of this Report:


	Page

Report of Independent Registered Public Accounting Firm		45
Consolidated Balance Sheets as of December 31, 2008 and 2007		46
Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006 and for the Period from May 1, 1994 (Inception) through December 31, 2008		47
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006 and for the Period from May 1, 1994 (Inception) through December 31, 2008		48
Consolidated Statement of Changes in Shareholders’ Equity for the Period from May 1, 1994 (Inception) Through December 31, 2008		49
Notes to Consolidated Financial Statements		52

2. Financial Statement Schedules

Schedules not included herein are omitted because they are inapplicable or not required or because the required information is given in the financial statements and notes thereto.

3. Exhibits

The exhibits required by this item and included in this Report or incorporated herein by reference are as follows:


Exhibit
No.			Description

	3	.1	Restated Certificate of Incorporation, as Amended, of Vion Pharmaceuticals, Inc. dated August 8, 2007(1)
	3	.2	Certificate of Amendment to the Restated Certificate of Incorporation of Vion Pharmaceuticals, Inc. dated as of February 20, 2008(2)
	3	.3	Certificate of Amendment to the Restated Certificate of Incorporation of Vion Pharmaceuticals, Inc. dated as of December 10, 2008(3)
	3	.4	By-laws, as amended(4)
	10	.1	Indenture between Vion Pharmaceuticals, Inc. and U.S. Bank National Association, as Trustee (including Form of Note attached thereto) dated February 20, 2007(5)
	10	.2	Registration Rights Agreement between Vion Pharmaceuticals, Inc. and CRT Capital Group LLC, as Initial Purchaser dated February 20, 2007(5)
	10	.3	Placement Agency Agreement by and among Vion Pharmaceuticals, Inc., CIBC World Markets Corp. and Leerink Swann & Company, dated January 25, 2005(6)
	10	.4	Securities Purchase Agreement dated February 9, 2004(7)
	10	.5	Registration Rights Agreement dated February 9, 2004(7)
	10	.6	Form of Warrant(7)
	10	.7	Form of Warrant(5)
	10	.8	Senior Executive Stock Option Plan(8)†
	10	.9	Vion Pharmaceuticals, Inc. Amended and Restated 1993 Stock Option Plan, as Amended(9)†
	10	.10	Vion Pharmaceuticals, Inc. 2003 Stock Option Plan, as Amended(10)†
	10	.11	Vion Pharmaceuticals, Inc. 2003 Stock Option Plan, Form of Stock Option Agreement for Executive Officers(10)†
	10	.12	Vion Pharmaceuticals, Inc. 2005 Stock Incentive Plan, as Amended and Restated(1)†
	10	.13	Vion Pharmaceuticals, Inc. 2005 Stock Incentive Plan, Form of Restricted Stock Agreement for Non-Employee Directors (11)†
	10	.14	Vion Pharmaceuticals, Inc. 2005 Stock Incentive Plan, Form of Restricted Stock Agreement under 2005 Stock Incentive Plan for Executive Officers (12)†
	10	.15	Employment Agreement between Vion Pharmaceuticals, Inc. and Alan Kessman dated November 3, 2003(13)†
	10	.16	Amendment No. 1, dated September 13, 2005, to the Employment Agreement with Alan Kessman dated November 3, 2003 (14)†
	10	.17	Amendment No. 2, dated January 3, 2006, to the Employment Agreement with Alan Kessman dated November 3, 2003 (12)†
	10	.18	Amendment No. 3, dated February 13, 2008, to the Employment Agreement with Alan Kessman dated November 3, 2003 (15)†
	10	.19	Amendment No. 4 to Employment Agreement of Alan Kessman, dated June 23, 2008(16)†
	10	.20	Employment Offer Letter to James Tanguay dated March 9, 2007(17)†
	10	.21	Employment Offer Letter to William F. Hahne dated December 23, 2007(18)†
	10	.22	Employment Offer Letter to Tanya Lewis dated November 21, 2008(3)†
	10	.23	Form of Severance Agreement between the Company and Ann Lee Cahill, William F. Hahne, Howard B. Johnson, Ivan King, Tanya Lewis, Karen Schmedlin and James Tanguay(8)†
	10	.24	Form of Retention Plan Agreement between the Company and Ann Lee Cahill, William F. Hahne, Howard B. Johnson, Alan Kessman, Ivan King, Karen Schmedlin and James Tanguay (19)†
	10	.25	Lease between Science Park Development Corporation and Vion Pharmaceuticals, Inc. dated November 1, 2001(9)


Exhibit
No.			Description

	10	.26	First Amendment to Lease by and between Vion Pharmaceuticals, Inc. and Science Park Development Corporation dated January 25, 2006(22)
	10	.27	Second Amendment to Lease by and between the registrant and Science Park Development Corporation dated June 27, 2007(23)
	10	.28	Third Amendment to Lease by and between Vion Pharmaceuticals, Inc. and Science Park Development Corporation dated October 1, 2008(24)
	10	.29	License Agreement between Yale University and Vion Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated August 31, 1994(25)
	10	.30	License Agreement between Yale University and Vion Pharmaceuticals, Inc. (f/k/a OncoRx Corporation) dated November 15, 1995(26)
	10	.31	License Agreement between Yale University and Vion Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated December 15, 1995(26)
	10	.32	Amendment No. 1 to a License Agreement between Yale University and Vion Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated June 12, 1997(27)
	10	.33	Amendment No. 2 to a License Agreement between Yale University and Vion Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated June 12, 1997(27)
	10	.34	Amendment No. 3 to a License Agreement between Yale University and Vion Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated September 25, 1998(28)
	10	.35	Amendment No. 4 to a License Agreement between Yale University and Vion Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated January 31, 2000 (29)(*)
	10	.36	Amendment No. 5 to a License Agreement between Yale University and Vion Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated March 3, 2003 (30)(*)
	10	.37	License Agreement between Vion Pharmaceuticals, Inc. and Beijing Pason Pharmaceuticals, Inc. dated September 12, 2003 (13)(*)
	10	.38	Research Collaboration and Option Agreement with a group of inventors from the Institute of Pharmacy and the Institute of Medical Chemistry and Biochemistry at the University of Innsbruck, and Austria Wirtschaftsservice Gesellschaft m.b.H. and Vion Pharmaceuticals, Inc. dated November 24, 2003 (31)(*)
	10	.39	Amended Exclusive License Agreement, by and among Dr. Johnny Easmon, Prof. Dr. Gottfried Heinisch, Dr. Gerhard Purstinger, Prof. Dr. Heinz-Herbert Fiebig, Prof. Dr. Johann-Hofmann, Austria Wirtschaftsservice Gesellschaft m.b.H. and Vion Pharmaceuticals, Inc., dated June 30, 2005 (32)(*)
	10	.40	License Agreement between Johnson & Johnson Consumer Companies, Inc. and Vion Pharmaceuticals, Inc. dated March 1, 2004 (33)(*)
	10	.41	First Amendment to a License Agreement between Johnson & Johnson Consumer Companies, Inc. and Vion Pharmaceuticals, Inc. dated December 31, 2007 (18)(*)
	10	.42	Consulting and Finder’s Agreement between MelaRx Pharmaceuticals, Inc. and Jacob A. Melnick, dated June 4, 1992, as Amended by Agreement dated February 17, 1995 (25)
	10	.43	Clinical Trials Agreement between Vion Pharmaceuticals, Inc. and the Division of Cancer Treatment and Diagnosis, NCI dated January 9, 2003(26)
	10	.44	Amendment 1 to Clinical Trials Agreement between Vion Pharmaceuticals, Inc. and the Division of Cancer Treatment and Diagnosis, NCI dated March 2, 2006
	10	.45	Amendment 2 to Clinical Trials Agreement between Vion Pharmaceuticals, Inc. and the Division of Cancer Treatment and Diagnosis, NCI dated January 8, 2008
	10	.46	Manufacturing and Service Contract for Commercial and Development Products between Vion Pharmaceuticals, Inc. and BenVenue Laboratories, Inc., dated November 28, 2006 (34)(*)
	10	.47	Master Supply Agreement for Commercial and Developmental Products, effective as of September 29, 2003, by and between Vion Pharmaceuticals, Inc. and Sigma Aldrich Five Chemicals, Inc. (f/k/a Tetrionics Inc.), as amended by that certain first amendment dated March 13, 2007 (17)(*)
	21	.1	Subsidiaries of the registrant
	23	.1	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm


Exhibit
No.			Description

	24	.1	Power of Attorney (included on signature page)
	31	.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32	.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


(1)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

(2)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 20, 2008.

(3)		Incorporated by reference to the Company’s Post-Effective Amendment No. 1 to Form S-3 on Form S-1 Registration Statement (File No. 333-141849), filed with the Commission on January 7, 2009.

(4)		Incorporated by reference to the Company’s Annual Report on Form 10-K (File No. 000-26534) for the fiscal year ended December 31, 2000.

(5)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 20, 2007.

(6)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 26, 2005.

(7)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 11, 2004.

(8)		Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB (File No. 000-26534) for the quarter ended March 31, 1999.

(9)		Incorporated by reference to the Company’s Annual Report on Form 10-K (File No. 000-26534) for the fiscal year ended December 31, 2001.

(10)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.

(11)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on October 31, 2005.

(12)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 9, 2006.

(13)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q (File No. 000-26534) for the quarter ended September 30, 2003.

(14)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 13, 2005.

(15)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 15, 2008.

(16)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 25, 2008.

(17)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.

(18)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

(19)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.

(20)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 31, 2006.

(21)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 28, 2007.

(22)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on October 17, 2008.

(23)		Incorporated by reference to the Company’s Registration Statement on Form SB-2 (File No. 33-93468), effective August 14, 1995.

(24)		Incorporated by reference to the Company’s Annual Report on Form 10-K (File No. 000-26534) for the fiscal year ended December 31, 2002.

(25)		Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB (File No. 000-26534) for the quarter ended September 30, 1997.


(26)		Incorporated by reference to the Company’s Annual Report on Form 10-KSB (File No. 000-26534) for the fiscal year ended December 31, 1998.

(27)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q (File No. 000-26534) for the quarter ended June 30, 2001.

(28)		Incorporated by reference to the Company’s Annual Report on Form 10-K/A(File No. 000-26534) for the fiscal year ended December 31, 2002.

(29)		Incorporated by reference to the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2003.

(30)		Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 28, 2005.

(31)		Incorporated by reference to the Company’s Current Report on Form 8-K/A filed on March 18, 2004.

(32)		Incorporated by reference to the Company’s Current Report on Form 8-K/A filed on February 14, 2007.

*		Certain portions of this exhibit have been omitted pursuant to an order granting confidential treatment by the Securities and Exchange Commission.

†		Management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

VION PHARMACEUTICALS, INC.

Registrant


	By:	/s/ Alan Kessman

Alan Kessman

Chief Executive Officer

Date: March 23, 2009

POWER OF ATTORNEY

KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alan Kessman and Howard B. Johnson, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date


/s/ William R. Miller William R. Miller	Chairman of the Board	March 23, 2009

/s/ Alan Kessman Alan Kessman	Chief Executive Officer and Director (Principal Executive Officer)	March 23, 2009

/s/ Howard B. Johnson Howard B. Johnson	President and Chief Financial Officer (Principal Financial Officer)	March 23, 2009

/s/ Karen Schmedlin Karen Schmedlin	VP Finance and Chief Accounting Officer (Principal Accounting Officer)	March 23, 2009

/s/ George Bickerstaff George Bickerstaff	Director	March 23, 2009

/s/ Kevin Rakin Kevin Rakin	Director	March 23, 2009


			Page

PART I
	Item 1	Business		2
	Item 1A	Risk Factors		18
	Item 1B	Unresolved Staff Comments		30
	Item 2	Properties		31
	Item 3	Legal Proceedings		31
	Item 4	Submission of Matters to a Vote of Security Holders		31

PART II
	Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		32
	Item 6	Selected Financial Data		34
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		34
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk		44
	Item 8	Financial Statements and Supplementary Data		45
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		68
	Item 9A(T)	Controls and Procedures		68
	Item 9B	Other Information		68

PART III
	Item 10	Directors, Executive Officers and Corporate Governance		68
	Item 11	Executive Compensation		69
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		80
	Item 13	Certain Relationships and Related Transactions, and Director Independence		82
	Item 14	Principal Accountant Fees and Services		82

PART IV
	Item 15	Exhibits, Financial Statement Schedules		83
SIGNATURES
EX-10.44: AMENDMENT 1 TO CLINICAL TRIALS AGREEMENT
EX-10.45: AMENDMENT 2 TO CLINICAL TRIALS AGREEMENT
EX-21.1: SUBSIDIARIES
EX-23.1: CONSENT OF ERNST & YOUNG LLP
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION


For the National Cancer Institute:

/s/ James Doroshow		February 13, 2006

James Doroshow, M.D., FACP		Date
Director, Division of Cancer Treatment and Diagnosis

For Vion Pharmaceuticals:

/s/ Ann Cahill		March 2, 2006

Ann Cahill PA-C		Date
Vice President, Clinical Development


For the National Cancer Institute:

/s/ James Doroshow		December 14, 2007

James Doroshow, M.D.		Date
Director, Division of Cancer Treatment and Diagnosis


For Vion Pharmaceuticals, Inc.:

/s/ Ann Cahill		January 8, 2008

(name) Ann Cahill		Date
(title) VP, Clinical Development


Name of Subsidiary		Incorporated In

Vion (UK) Limited		United Kingdom
Vion Australia PTY Ltd		Victoria, Australia