0001385830 us-gaap:AdditionalPaidInCapitalMember 2010-01-01 2010-12-31 0001385830 us-gaap:CommonStockMember 2010-01-01 2010-12-31 0001385830 us-gaap:RetainedEarningsMember 2011-12-31 0001385830 us-gaap:AdditionalPaidInCapitalMember 2011-12-31 0001385830 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2011-12-31 0001385830 us-gaap:RetainedEarningsMember 2010-12-31 0001385830 us-gaap:AdditionalPaidInCapitalMember 2010-12-31 0001385830 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2010-12-31 0001385830 us-gaap:RetainedEarningsMember 2009-12-31 0001385830 us-gaap:AdditionalPaidInCapitalMember 2009-12-31 0001385830 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2009-12-31 0001385830 us-gaap:RetainedEarningsMember 2008-12-31 0001385830 us-gaap:DeferredCompensationShareBasedPaymentsMember 2008-12-31 0001385830 us-gaap:AdditionalPaidInCapitalMember 2008-12-31 0001385830 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2008-12-31 0001385830 us-gaap:CommonStockMember 2011-12-31 0001385830 us-gaap:CommonStockMember 2010-12-31 0001385830 us-gaap:CommonStockMember 2009-12-31 0001385830 us-gaap:CommonStockMember 2008-12-31 0001385830 ngsx:VestingOfEarlyExercisedStockOptionsMember 2009-01-01 2009-12-31 0001385830 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2011-01-01 2011-12-31 0001385830 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2010-01-01 2010-12-31 0001385830 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2009-01-01 2009-12-31 0001385830 us-gaap:RetainedEarningsMember 2011-01-01 2011-12-31 0001385830 us-gaap:RetainedEarningsMember 2010-01-01 2010-12-31 0001385830 us-gaap:RetainedEarningsMember 2009-01-01 2009-12-31 0001385830 2009-12-31 0001385830 2008-12-31 0001385830 us-gaap:CommonStockMember 2011-01-01 2011-12-31 0001385830 us-gaap:AdditionalPaidInCapitalMember 2011-01-01 2011-12-31 0001385830 us-gaap:CommonStockMember 2009-01-01 2009-12-31 0001385830 us-gaap:AdditionalPaidInCapitalMember 2009-01-01 2009-12-31 0001385830 2010-01-01 2010-12-31 0001385830 us-gaap:DeferredCompensationShareBasedPaymentsMember 2009-01-01 2009-12-31 0001385830 2009-01-01 2009-12-31 0001385830 2011-12-31 0001385830 2010-12-31 0001385830 2011-06-30 0001385830 2012-02-29 0001385830 2011-01-01 2011-12-31 iso4217:USD xbrli:shares iso4217:USD xbrli:shares false --12-31 FY 2011 2011-12-31 10-K 0001385830 32896871 Yes Smaller Reporting Company 21000000 NeurogesX Inc No No 582000 282000 2000 2000 <div> 3. Cash and Cash Equivalents and Short-Term Investments The following are summaries of cash, cash equivalents and short-term investments (in thousands):   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="62%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Amortized Cost</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Gross Unrealized Gains</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Gross Unrealized Losses</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Estimated Fair Value</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> As of December 31, 2011:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Cash and money market funds</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,908</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,908</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Government sponsored enterprise debt securities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,900</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,901</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> U.S. Treasury securities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,500</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,500</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">34,308</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(1</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">34,309</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Reported as:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Cash and cash equivalents</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">9,148</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Short-term investments</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">25,161</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">34,309</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> As of December 31, 2010:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Cash and money market funds</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,705</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,705</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Commercial paper</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> U.S. Treasury securities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">38,127</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">38,125</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">46,832</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(3</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">46,830</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Reported as:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Cash and cash equivalents</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">8,705</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Short-term investments</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">38,125</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">46,830</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>   At December 31, 2011 and 2010, the contractual maturities of investments held were one year or less. The Company sold $7.1 million of its investments prior to the maturity date in the twelve months ended December 31, 2011 and recorded an immaterial gain on the sale. The Company did not sell any of its investments prior to maturity during 2010. The Company's short-term restricted cash of $0.2 million at December 31, 2011 is related to its obligation under the sublease for its corporate headquarters which is secured by a certificate of deposit. The Company's long-term restricted cash of $0.3 million at December 31, 2011 is related to its corporate credit card program. </div> 2006000 7578000 8878000 146000 7242000 7261000 32359000 25098000 1213000 -1213000 -397000 -87000 -300000 46843000 -7242000 -7242000 678000 -613000 437000 2000 2000 785 1140000 1140000 6699000 6699000 0.14 <div> 10. License Agreements Collaboration Agreement—Astellas In June 2009, NeurogesX entered into the Astellas Agreement granting Astellas an exclusive license to commercialize Qutenza in the Licensed Territory. The Astellas Agreement provided for an upfront payment for past development and the commercialization rights granted, of 30 million Euro, or $41.8 million. In addition, the agreement provided for an upfront payment of 5 million Euro, or $7.0 million, for future development expenses and an option to license NGX-1998, a product candidate in Phase 1 development at that time. Other elements of the Astellas Agreement include future payments of up to 65 million Euro if certain pre-defined sales thresholds of the products licensed under the agreement are met and royalties, as a percentage of net sales made by Astellas of products under the agreement, with such royalties starting in the high teens and escalating into the mid twenties as revenues increase. The Company is participating on a joint steering committee with Astellas to oversee the development and commercialization activities related to Qutenza and NGX-1998 during the term of the agreement, not to exceed ten years. On the seventh anniversary of the Astellas Agreement, the Company has the unilateral right to opt-out of participation on the joint steering committee. The Astellas Agreement further provides that upon delivery of certain data related to NGX-1998, Astellas may pay two additional NGX-1998 option payments totaling 5 million Euro. Subsequent to Astellas' exercise of the option to exclusively license NGX-1998 in the Territory, both companies would cooperate on Phase III clinical trials and will share such costs equally. The Company commenced recognizing revenue related to the upfront and option payments upon transfer of the Marketing Authorization for Qutenza to Astellas, which occurred in September 2009. For the years ended December 31, 2011, 2010 and 2009, the Company recognized $7.2 million, $7.2 million and $1.9 million as Collaboration revenue related to the upfront and option payments, respectively. As of December 31, 2011, the Company had deferred revenue totaling $32.4 million, of which $7.3 million is reflected as current. The Astellas upfront license fee and option payments are accounted for as a single unit of accounting, and accordingly, such payments will be recognized ratably through June 2016, which is the Company's estimate of its substantive performance obligation period related to the joint steering committee. Subsequent option exercise payments received, if any, are expected to be recognized ratably over the remaining estimated period of performance. The agreement will remain effective on a country-by-country and product-by-product basis until the later of ten years after the first commercial sale, expiration or abandonment of the last valid patent claim or expiration of all applicable periods of regulatory exclusivity. Astellas may terminate the agreement for any reason without penalty, consequence or compensation on a country-by-country and product-by-product basis upon written notice to the Company. Pursuant to the Supply Agreement, the Company has agreed to provide Astellas with a sufficient supply of Qutenza to support their commercialization efforts until Astellas can establish a direct supply relationship with product vendors. These products will be charged to Astellas at contractually agreed upon costs per unit which are intended to reflect the Company's direct cost of goods and related internal labor and overhead costs without mark-up for profit. The Company reported amounts received from product transactions net of direct costs incurred as a component of Collaboration revenue. For the years ended December 31, 2011, 2010 and 2009, the Company included in Collaboration revenue $0.8 million, $0.3 million and $0.1 million from product transactions, net of direct costs incurred as a component of Collaboration revenue, respectively. For the years ended December 31, 2011 and 2010, the Company recognized $0.9 million and a nominal amount, respectively, in royalty revenue related to the Astellas Agreement as a component of Collaboration revenue. There was no royalty revenue in 2009. University Of California In October 2000 and as amended, the Company licensed certain patents, including a method patent, from the University of California ("UC") for prescription strength capsaicin for neuropathic pain. Under the terms of the agreement, the Company is required to pay royalties on net sales of the licensed product up to a maximum of $1.0 million per annum, as well as a percentage of upfront and milestone payments received by the Company from sublicensing the Company's rights under the agreement ("Sublicense Fee"). As a result of the Astellas license payment received in July 2009, the Company accrued a $1.2 million sublicense fee to research and development expense during the third quarter of 2009, which was paid in February 2010. The Company recognized $14,000 and $4,000, respectively, in royalty expense due to UC for the years ended December 31, 2011 and 2010 related to Qutenza product sales in the United States. Two of the three inventors named in the method patent did not assign their patent rights to UC. These non-assigning inventors have made various claims related to inventorship and other matters. In 2010, the Company entered into negotiations with these non-assigning inventors to settle any and all claims and to have them assign their rights related to the method patent and any other related patent rights that may exist at the time we enter into a final binding settlement agreement. The Company anticipates that a final settlement may include the Company issuing stock or stock options to the two non-assigning inventors and making current and future cash payments. The Company anticipates that approximately 50% of the cash settlement amount will be recovered over time, through a reduction in amounts due to the University of California under the Company's license agreement with them. During the year ended December 31, 2010, the Company recorded a $1.0 million charge within selling, general and administrative expense representing its estimate of the potential settlement. In 2011, the Company continued negotiations and has revised its estimate of the potential settlement down to $0.7 million, which is the current cash and estimated fair value of the stock or stock options to be issued as part of a potential settlement. The estimated amount to be paid is included in Other accrued expenses on the consolidated balance sheets. LTS Lohmann Therapie-Systeme AG In January 2007, the Company entered into a Commercial Supply and License Agreement ("LTS Agreement") with LTS Lohmann Therapie-Systeme AG ("LTS") to manufacture commercial and clinical supply of Qutenza. Under the terms of the agreement, the Company is required to pay a transfer price for product purchased, as well as a royalty on net sales of product purchased under the LTS Agreement. In addition, upon first market approval of Qutenza, the Company is required to make a one-time milestone payment of 100,000 Euros. During the second quarter of 2009, the Company received market approval of Qutenza in the European Union and as a result, paid LTS a one-time milestone payment of 100,000 Euros, or approximately $140,000, which was charged to research and development expense. The Company recognized $47,000 and $12,000, respectively, in royalty expense due to LTS Lohmann Therapie-Systeme AG for the years ended December 31, 2011 and 2010 related to Qutenza product sales in the United States. The Company's December 31, 2011 consolidated balance sheet includes a liability for royalties due UC and LTS totaling $21,000 related to gross product shipments in the year ended December 31, 2011. </div> 65000 502000 159000 7016000 17610796 17768881 23011015

1544000

1321000

607000

1166000

-130000

-520000

-677000

3011000

2245000

-2000

1000

215220000

238181000

123000

54000

620000

50850000

39227000

49660000

38155000

38125000

25161000

10435000

29695000

8705000

9148000

19260000

-20990000

443000

<div> 8. Commitments and Contingencies Operating Leases The Company entered into an operating lease in September 2007 for its corporate headquarters, consisting of approximately 26,386 square feet of office space in San Mateo, California. The lease, which expires in July 2012, includes total base rent of $2.3 million, a period of free rent and rent escalation, all of which are accounted for on a straight-line basis over the lease term. Also included in the terms of the lease is a tenant improvement allowance of $106,000, which was received in 2009, was recorded to deferred rent and is being amortized on a straight-line basis over the remaining term of the lease. The Company's obligation under the sublease is secured by a letter of credit in the original amount of $240,000, and in accordance with the provisions of the sublease agreement, the Company can reduce the letter of credit, if certain conditions are met, by $40,000 on each of the first three anniversaries of the lease commencement date. As a result of having met these conditions, the Company reduced the letter of credit to $160,000 at December 31, 2010, of which the full amount is secured by a certificate of deposit that is included in the Company's consolidated balance sheet at December 31, 2011 as Restricted cash in current assets. The Company has a deferred rent liability of $115,000 as of December 31, 2011, of which the full amount is classified as a current liability. Total rent expense under all operating leases, which also includes rent expense for certain office equipment, was $0.5 million for each of the years ended December 31, 2011, 2010 and 2009. Future minimum payments under all non-cancellable operating lease obligations are as follows as of December 31, 2011 (in thousands):   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="94%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom" nowrap="nowrap"> Year End December 31,</td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2012</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">391</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> 2013</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">16</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2014</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> 2015 and beyond</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total minimum lease payments</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">407</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> Purchase Obligations The Company has issued non-cancellable purchase orders to third-party manufacturers of Qutenza and NGX-1998 for manufacturing, stability and related services including reimbursable amounts from Astellas for the supply of Qutenza based on the Astellas Agreement. These purchase orders totaled $1.5 million as of December 31, 2011 and included $1.0 million for stability and related services, $0.2 million related to Qutenza product manufacturing costs for the U.S. market and NGX-1998 clinical supply development cost along with $0.3 million of commitments related to supply of Qutenza to Astellas. Actual payments for purchases from these third-party manufacturers, a portion of which were made to satisfy Astellas supply requests, were $2.9 million, $3.2 million and $1.7 million during the years ended December 31, 2011, 2010 and 2009, respectively. Indemnifications In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and generally provide for various indemnifications including indemnification from claims resulting from clinical trial activities and intellectual property matters. The Company's liability under these agreements is unknown because it involves the potential for future claims that may be made against the Company, but have not yet been made. To date, the Company has not received any claims under its various indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. The Company, as permitted under Delaware law and in accordance with its bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company's request in such capacity. The Company may terminate the indemnification agreements with its officers and directors upon 90 days written notice, but termination will not affect claims for indemnification relating to events occurring prior to the effective date of termination. The maximum amount of potential future indemnification is unlimited, however, the Company's director and officer insurance policy reduces the Company's exposure and may enable the Company to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of December 31, 2011. Legal Matters The Company is subject to various legal disputes that arise in the normal course of business which include or may include employment matters, contract disputes, intellectual property matters, product liability actions, and other matters. The Company does not know whether it would prevail in these matters nor can it be assured that any remedy could be reached on commercially viable terms, if at all. Based on currently available information, the Company does not believe that any of these disputes will have a material adverse impact on the Company's results of operations, liquidity or financial position. The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company recorded a $1.0 million charge in 2010 related to intellectual property matters as discussed in Note 10, and subsequently reversed $0.3 million of such accrual in 2011. </div>

0.001

100000000

17869108

29897186

17869108

29897186

18000

30000

541000

685000

577000

1075000

184000

343000

376000

-1.24

-2.51

-2.15

1867000

2084000

<div> 4. Fair Value Measurements The Company discloses its cash equivalents and short-term investments under a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. In accordance with ASC 820, the following table represents the Company's financial assets (cash equivalents and short-term investments) measured at fair value on a recurring basis and their level within the fair value hierarchy as of December 31, 2011 and December 31, 2010 (in thousands):   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="60%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Quoted Prices in Active Markets for Identical Assets (Level 1)</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Significant Other Observable Inputs (Level 2)</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Significant Unobservable Inputs (Level 3)</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Fair Value Measurements at December 31, 2011:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Components of cash equivalents and short-term investments measured at fair value:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Money market funds</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,855</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,855</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> U.S. Treasury securities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,500</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6,500</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Government sponsored enterprise debt securities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,901</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,901</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Total financial assets measured at fair value</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,855</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">30,401</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">34,256</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Components of cash and cash equivalents not measured at fair value:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Operating cash</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">53</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total cash and cash equivalents and short-term investments</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">34,309</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Fair Value Measurements at December 31, 2010:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Components of cash equivalents and short-term investments measured at fair value:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Money market funds</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,370</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,370</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Commercial paper</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> U.S. Treasury securities</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">38,125</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">38,125</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total financial assets measured at fair value</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,370</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">40,125</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">46,495</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Components of cash and cash equivalents not measured at fair value:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Operating cash</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">335</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Total cash and cash equivalents and short-term investments</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">46,830</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> The Company revised its 2010 disclosure to indicate that commercial paper and U.S. treasury securities are valued using Level 2 inputs as opposed to Level 1 inputs as originally reported. In addition to Level 1 and Level 2 assets held by the Company at December 31 2011, the Company measures its contingent put option liability related to the loan agreement with Hercules (see Note 7), utilizing Level 3 measurements. The fair value of the contingent put option of $0.1 million was determined by evaluating multiple potential outcomes of an event of default, including a change of control, using an income approach and discounting the values back to December 31, 2011. </div>

-2000

<div> 12. Income Taxes Due to the ongoing operating losses and the inability to recognize any income tax benefit, there is no provision for income taxes. Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryovers and the temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows (in thousands):   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr><td width="77%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Deferred revenue</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">13,450</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">16,392</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Accrued expenses and other current assets</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,714</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,103</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net operating loss carryforward</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">69,808</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">48,451</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Capitalized research</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,167</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,944</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Research and development and other credits</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">7,076</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,867</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Basis difference in fixed assets</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">256</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">260</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Stock options</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,341</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,641</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Total deferred tax assets</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">97,812</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">77,658</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Valuation allowance</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(97,812</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(77,658</td> <td valign="bottom" nowrap="nowrap">)</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Net deferred tax assets</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">   </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">   </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $20.2 million and $18.8 million during 2011 and 2010, respectively. The Company's deferred tax assets reflect an estimate of the potential limitation of its utilization of its net operating loss carryforwards and research and development and other credits. As of December 31, 2011, the Company had net operating loss carryforwards for federal income tax purposes of approximately $196.6 million which will begin to expire in the year 2020 and federal research and development tax credits of approximately $4.7 million which will begin to expire in the year 2020. The Company also had orphan drug credits of approximately $4.9 million which will begin to expire in the year 2029. As of December 31, 2011, the Company had net operating loss carryforwards for state income tax purposes of approximately $183.4 million which will begin to expire in the year 2012 and state research and development tax credits of approximately $4.5 million which have no expiration date. Utilization of the net operating losses may be subject to substantial annual limitation due to federal and state ownership limitations. The annual limitation could result in the expiration of the net operating losses before utilization. The Company received payments of $46.8 million from Astellas related to the License Agreement in 2009 and deferred that amount to future years for book purposes. For tax purposes, the Company elected to use the deferral method to reflect the upfront payments from Astellas for tax purposes. In accordance with IRS Revenue Procedure 2004-34, the deferral method allowed the Company to defer this advance payment to 2010 for tax purposes. The Company utilizes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company classifies interest and penalties as a component of tax expense. The Company had unrecognized tax benefits of $2.3 million and $2.1 million as of December 31, 2011 and December 31, 2010, respectively, all of which are offset by a full valuation allowance. These unrecognized tax benefits, if recognized, would not affect the effective tax rate for the periods presented. No interest or penalties have been accrued. The Company does not believe it is reasonably possible that its unrecognized tax benefits will significantly change within the next twelve months. The Company files income tax returns in the U.S. federal and various state tax jurisdictions. The tax years 2000 to 2011 remain open to examination by the U.S. and state tax authorities. A reconciliation of the change in the unrecognized tax benefits balance from January 1, 2010 to December 31, 2011 is as follows:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr><td width="87%"> </td> <td valign="bottom" width="9%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom" nowrap="nowrap"> (In thousands)</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Federal and State Tax</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance at December 31, 2009</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,794</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Additions for tax positions related to current year</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">255</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Additions for tax positions related to prior years</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">24</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Balance at December 31, 2010</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,073</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Additions for tax positions related to current year</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">268</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Reductions for tax positions related to prior years</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(19</td> <td valign="bottom" nowrap="nowrap">) </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance at December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,322</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> </div>

-305000

1479000

-223000

607000

559000

1118000

-289000

-145000

577000

498000

5306000

8457000

58000

729000

-132000

585000

1735000

-703000

114000

-123000

-176000

310000

344000

-38000

-40000

250000

2000

276000

5413000

10405000

181000

53000

1325000

<div> 5. Inventories The components of inventories are as follows (in thousands):   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="84%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Raw materials</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">10</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">7</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Work-in-process(1)</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">591</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">581</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Finished goods</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">53</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">198</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">654</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">786</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td valign="top" width="4%" align="left">(1)</td> <td valign="top" align="left">Included in work-in-process at December 31, 2011 and 2010 is $0.2 million and $0.2 million, respectively, of product awaiting final packaging. </td></tr></table> The above inventory balances relate to the manufacturing of Qutenza and are costs capitalized since the Company received FDA approval for the sale of Qutenza in the US market in the fourth quarter of 2009. Prior to FDA approval, all manufacturing and product related costs for Qutenza and for the Company's other development programs were expensed to research and development. On a quarterly basis, the Company analyzes its inventory levels and writes down inventory that has become obsolete, inventory that has a cost basis in excess of the expected net realizable value and inventory that is in excess of expected requirements based upon anticipated product revenues. In each of the years ended December 31, 2011 and 2010, the Company recorded a charge to Cost of goods sold of $0.4 million for Qutenza patches which the Company does not expect to sell prior to their expiration date. </div>

786000

654000

89000

98000

79000

50850000

39227000

17045000

19097000

75096000

87990000

2222000

4829000

<div> 7. Long-Term Obligations The following table summarizes the carrying amount of the Company's borrowings under various long-term obligations (in thousands):   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="84%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Cowen Financing Agreement</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">53,344</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">44,844</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Hercules Technology Growth Capital, Inc.—Term loan</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">14,231</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">67,575</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">44,844</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Less: Long-term obligations—current portion</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,829</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,222</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Long-term obligations</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">62,746</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">42,622</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> Cowen Financing Agreement On April 30, 2010, the Company entered into a Financing Agreement (the "Financing Agreement") with Cowen Healthcare Royalty Partners, L.P., a limited partnership organized under the laws of the State of Delaware ("Cowen"). Under the terms of the Financing Agreement, the Company borrowed $40.0 million from Cowen (the "Borrowed Amount") and the Company agreed to repay such Borrowed Amount together with a return to Cowen, as described below, out of royalty, milestone, option and certain other payments (collectively, "Revenue Interest") that the Company may receive under the Astellas Agreement or a replacement licensee, as a result of commercializing the Company's product, Qutenza, in the Licensed Territory, including payments that Astellas may make to the Company to maintain its option to commercialize NGX-1998 in the Licensed Territory. Under the Financing Agreement, the Company is obligated to pay to Cowen:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> All of the Revenue Interest payments due to the Company under the Astellas Agreement, until Cowen has received $90.0 million of Revenue Interest payments; and </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> 5% of the Revenue Interest payments due to the Company under the Astellas Agreement for Revenue Interest received by Cowen over $90.0 million and until Cowen has received $106.0 million of Revenue Interest payments. </td></tr></table> The Company also has the option to pay a prepayment amount to terminate the Financing Agreement at the Company's election at any time or in connection with a change of control of the Company. Such amount is set at a base amount of $76.0 million (or $68.0 million if it is being exercised in connection with a change of control), or, if higher, an amount that generates a specified internal rate of return, as noted below, on the Borrowed Amount as of the date of prepayment, in each case reduced by the Revenue Interest payments received by Cowen up to the date of prepayment. The obligation of the Company to pay Revenue Interest during the term of the Financing Agreement (which is defined below) is secured by rights that the Company has to Revenue Interest under the Astellas Agreement, and by intellectual property and other rights of the Company to the extent necessary or used to commercialize products covered by the Astellas Agreement in the Licensed Territory. Unless terminated earlier pursuant to a prepayment, the Financing Agreement terminates on the earlier of:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> The time when Cowen has received at least $106.0 million of Revenue Interest payments; or </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> The maturity date, which is the latest to occur of 10 years following the first commercial sale of Qutenza in the Licensed Territory or the last to expire of any patents or regulatory exclusivity covering the products commercialized under the Astellas Agreement in the Licensed Territory. </td></tr></table>   If Cowen has not received Revenue Interest payments totaling at least $40.0 million by the maturity date, the Company will be obligated to pay to Cowen the difference between such amount and the Revenue Interest paid to Cowen under the Financing Agreement up to such date. This represents the Company's minimum financial obligation under the Financing Agreement. In addition, in the event of the Company's default under the Financing Agreement, the Company is obligated to pay to Cowen the borrowed amount together with interest accrued thereon from the effective date of the Financing Agreement, to the date of repayment at an internal rate of return equal to the lesser of a 19% rate of interest or the maximum rate permitted by law, less any Revenue Interest payments received by Cowen. Under the Financing Agreement, an event of default includes standard insolvency and bankruptcy terms, including a failure to maintain liquid assets equal to at least the Company's liabilities due and payable during the following three months. The upfront cash receipt of $40.0 million less a discount of $0.5 million in cost reimbursements paid to Cowen was recorded in Long-term obligations at issuance. The Company is accreting the discount to interest expense over the term of the related debt. The carrying value of the Long-term obligation at December 31, 2011, including accrued interest of $13.8 million, is $53.3 million. The carrying value of the Long-term obligation at December 31, 2010, including accrued interest of $5.4 million, was $44.8 million. The Company received $0.9 million of royalty payments from Astellas in the year ended December 31, 2011, and consistent with the provisions of the arrangement, the Company paid that amount to Cowen as a reduction of the obligation. The Company made payments to Cowen of less than $0.1 million in the year ended December 31, 2010. The best estimate of future payments, the timing of which determines the short- and long-term classification of the obligation under the Financing Agreement, was based upon returning to Cowen an internal rate of return of 19% through Revenue Interest payments. Under this methodology, the Company recorded interest expense of $9.4 million and $5.4 million for the years ended December 31, 2011 and 2010, respectively. The accrued interest on the Long-term debt obligation is presented on the consolidated balance sheets as of December 31, 2011 in two components, the Long-term obligation—current portion, which totals $2.5 million and the remaining $11.3 million included in Long-term obligation. At December 31, 2010, the Long-term obligation—current portion was $2.2 million of accrued interest and the remaining $3.1 million of accrued interest was included in Long-term obligations. The Company capitalized $0.3 million of debt issuance costs related to the Financing Agreement which are being amortized over the term. At both December 31, 2011 and December 31, 2010, the unamortized debt issuance cost was $0.3 million, and is included in "Prepaid expenses and other current assets" and "Other assets" on the Company's consolidated balance sheets. The estimated fair value of the Cowen Borrowed Amount at December 31, 2011 and December 31, 2010 was $43.6 million and $40.9 million, respectively, and the fair value was measured using Level 3 inputs. The estimated fair market value was calculated using the income method of valuation. The key assumptions required for the calculation were an estimate of the amount and timing of future royalty revenues to be received from Astellas and an estimated cost of capital. Management's estimate of the future royalty revenues to be received from Astellas is subject to significant variability due to the recent product launch, regulatory process still to be conducted for significant portions of the Astellas territory and the extended time period associated with the Cowen Financing Agreement, and thus is subject to significant uncertainty. Hercules Loan Agreement In August 2011, the Company entered into a loan agreement with Hercules, which includes both a $5.0 million accounts receivable line and a $15.0 million term loan. Under the terms of the loan agreement, the $15.0 million term loan is required to be repaid over the course of the 42-month maturity period, which includes a 12-month interest only period at the beginning of the term. Interest on the term loan has a minimum rate of 9.5%, which can increase based on fluctuations in the prime rate. The $5.0 million accounts receivable line is a revolving line that is available until December 31, 2012 and then is renewable at the option of Hercules each year thereafter. The accounts receivable line bears interest at a minimum interest rate of 6.75%, which can also increase based on fluctuations in the prime rate, and the maximum borrowing availability under the revolving line is based upon a percentage of eligible accounts receivable of the Company. The Company may prepay and terminate the term loan at any time, subject to certain prepayment fees, and is obligated to also pay a fee of $0.6 million when the term loan is repaid and which is being accrued to interest expense over the term of the loan. The obligations of the Company under the loan agreement are secured by certain personal property of the Company. The loan agreement also contains customary negative covenants and is subject to customary events of default, such as a failure to make a scheduled principal or interest payment, insolvency, and breaches of covenants under loan agreement and agreements and instruments entered into in connection with the loan agreement, including covenants in the Hercules warrant. Upon an event of default, including a change of control, Hercules has the option to accelerate repayment of the loan, including payment of any applicable prepayment charges, which range from 1%-3% of the outstanding loan balance and accrued interest, as well as a final payment fee of $0.6 million. This option is considered a contingent default provision liability as the holder of the loan may exercise the option in the event of default and, is a derivative which must be bifurcated and valued separately in the Company's financial statements. As of December 31, 2011, the estimated fair value of the contingent put option upon an event of default liability was $0.1 million which was determined by evaluating multiple potential outcomes of an event of default, including a change of control, using an income approach and discounting the values back to December 31, 2011. As of December 31, 2011, the contingent put option liability is included in Other long-term liabilities on the consolidated balance sheets and the fair value of the warrants at the time of issuance resulted in a debt discount. The contingent put option liability will be revalued at the end of each reporting period and any change in the fair value will be recognized in the statements of operations. In connection with the entry of the Company into the loan agreement, Hercules was issued a warrant for 791,667 shares of the Company's common stock (representing an aggregate exercise price equal to approximately 7.125% of the maximum aggregate funds potentially available to the Company under the loan agreement) (the Hercules Warrant). The warrants have a term of five years, contains a net-exercise provision, and has an exercise price of $1.80 per share. The fair value of the warrants issued was approximately $1.1 million based on a Black-Scholes valuation model; $0.8 million of which was attributable to the warrants issued in connection with the term loan, and $0.3 million of which was attributable to warrants issued in connection with the accounts receivable line. The fair value of the warrants issued in connection with the term loan resulted in a debt discount, which is being amortized to interest expense over the life of the loan using the effective interest method. The fair value of the warrants issued in connection with the accounts receivable line was recorded in Prepaid and other current assets and Other assets, respectively. The Company will amortize these assets over the initial term of the accounts receivable line that ends December 31, 2012 on a straight-line basis. The Company also paid $0.4 million in issuance costs which were allocated to the term loan and accounts receivable line and accounted for consistent with the warrants as described above. In March 2012, the Company entered into an amendment to the Hercules Warrant in which the Company amended the covenant with respect to the requirement to maintain its listing on the NASDAQ Global Market to allow for the NASDAQ Capital Market and certain over-the-counter markets to be permissible alternative markets on which the Company can list its shares of common stock. Under the terms of the amendment, the number of shares underlying the warrant was increased to 1,950,000 and the exercise price per share of common stock was reduced to $0.50.   The recorded value of the term loan is $13.8 million after deducting expenses of $0.3 million paid to Hercules, $0.8 million for the value of the warrants allocated to the term loan and $0.1 million for the value ascribed to the default provision of the agreement. The estimated fair value of the Hercules term loan and the default provision was $15.0 million and $0.1 million, respectively, at December 31, 2011 and the liabilities were measured at fair value using Level 3 inputs. The Company had $0.8 million available for draw-down on the accounts receivable line at December 31, 2011 based upon a percentage of the then eligible accounts receivable of the Company. The Company has not drawn any funds from the accounts receivable line. </div>

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<div> 1. The Company Nature of Operations NeurogesX, Inc. (the "Company") is a specialty pharmaceutical company focused on developing and commercializing a portfolio of novel non-opioid, pain management therapies to address unmet medical needs and improve patients' quality of life. The Company's first commercial product, Qutenza, became commercially available in the United States and in certain European countries in the first half of 2010. Qutenza is a dermal delivery system designed to topically administer capsaicin to treat certain neuropathic pain conditions and was approved by the Food and Drug Administration, or FDA, in November 2009 for the management of neuropathic pain associated with postherpetic neuralgia, or PHN. Qutenza is also approved in the European Union for the treatment of peripheral neuropathic pain in non-diabetic adults. Qutenza is the first prescription strength capsaicin product approved in the United States. The Company's most advanced drug candidate is NGX-1998. NGX-1998 is a topical liquid formulation of high concentration capsaicin that the Company is developing to treat neuropathic pain conditions. In November 2011, the Company announced positive top-line results from its Phase 2 clinical study of NGX-1998, in patients with PHN. The 12-week, multicenter, randomized, double-blinded, placebo-controlled clinical trial met its protocol-specified objectives, which include the primary endpoint of a percentage change from baseline, as compared to placebo in a patient-reported numeric pain rating scale, or NPRS, score during weeks two through eight of the trial. The Company believes that the Phase 2 data support moving forward to a NGX-1998 Phase 3 clinical trial. The Company plans to have an End-of-Phase 2 meeting with the FDA, which the Company believes could occur in the second half of 2012. The Company is presently examining a range of potential indications for NGX-1998, including but not limited to PHN, HIV associated peripheral neuropathy, or HIV-PN, painful diabetic neuropathy, or PDN, chemo-induced peripheral neuropathy, CIPN, and post-traumatic (e.g. surgical) pain, or PTP. The Company's decision as to which indications to pursue in Phase 3 clinical trials is expected to be based on a number of criteria including, but not limited to, its assessments of probability of clinical development success, market size and potential regulatory pathways to possible approval. As a result of the opportunity, the Company believes exists with NGX-1998, in March 2012, the Company decided to focus its resources on the preparation for advancing NGX-1998 into a Phase 3 clinical trial. To do so, the Company significantly restructured its operations, including eliminating most of sales and marketing expenditures in support of Qutenza, while continuing to maintain product availability of Qutenza for patients and physicians. While the Company believes a market opportunity exists for Qutenza, it believes that the resources required to attain that potential are better utilized to speed the development of NGX-1998. The Company is evaluating a number of alternative commercialization strategies which include the potential to license Qutenza to a commercialization partner in the United States and in other territories of the world outside of the Astellas Territory. In May 2009, Qutenza received a marketing authorization ("MA") in the European Union for the treatment of peripheral neuropathic pain in non-diabetic adults, either alone or in combination with other medicinal products for pain. In June 2009, the Company entered into a Distribution, Marketing and License Agreement (the "Astellas Agreement") with Astellas Pharma Europe Ltd. ("Astellas" or "Collaboration Partner"), under which Astellas was granted an exclusive license to commercialize Qutenza in the European Economic Area, which includes the 27 countries of the European Union, Iceland, Norway, and Liechtenstein as well as Switzerland, certain countries in Eastern Europe, the Middle East and Africa ("Licensed Territory"). Qutenza was made available on a country by country basis commencing in April 2010 and by year end was available in 21 European countries. At December 31, 2011, the Company had $34.3 million in cash, cash equivalents and short-term investments. The Company anticipate that cash used in operating activities will decrease in 2012 as a result of the organization restructure that was announced on March 8, 2012. The Company anticipate that our existing cash and investments will be sufficient to meet its projected operating requirements through at least December 31, 2012. To date, the Company has incurred recurring net losses and negative cash flows from operations, after excluding the upfront cash received from Astellas in 2009. Until the Company can generate significant cash from its operations, if ever, the Company expects to continue to fund its operations with existing cash resources generated from the proceeds of offerings of its equity securities and proceeds from one or more collaboration agreements, as well as potentially through royalty monetization, debt financing or the sale of other equity securities. However, the Company may not be successful in obtaining additional collaboration agreements, or in receiving milestone or royalty payments under those agreements. In addition, the Company cannot be sure that its existing cash and investment resources will be adequate or that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to the Company or its stockholders. Having insufficient funds may require the Company to delay or potentially eliminate some or all of its development programs, relinquish some or even all rights to product candidates at an earlier stage of development or negotiate less favorable terms than it would otherwise choose. Failure to obtain adequate financing also may adversely affect the launch of the Company's product candidates or its ability to continue in business. If the Company raises additional funds by issuing equity securities, substantial dilution to existing stockholders would likely result. If the Company raises additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations, as well as covenants and specific financial ratios that may restrict its ability to operate its business. The Company was incorporated in California as Advanced Analgesics, Inc. on May 28, 1998 and changed its name to NeurogesX, Inc. in September 2000. In February 2007, the Company reincorporated into Delaware. The Company is located in San Mateo, California. All of the Company's assets are located within the United States. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform to the current-year presentation. Recent Event The Company's common stock is currently listed on the NASDAQ Global Market and to maintain its listing, it must meet certain financial requirements in accordance with the rules of Nasdaq. On October 18, 2011, the Company received a notification from Nasdaq that it failed to maintain the required minimum market value of listed securities level of $50.0 million for a 30 consecutive business day period. The Company has until April 16, 2012 in which to cure this non-compliance by meeting such requirement for a minimum of ten consecutive business days. On January 27, 2012, the Company received a notification from Nasdaq that it failed to maintain the required $1.00 minimum bid price for a 30 consecutive business day period. The Company has until July 28, 2012 in which to cure this non-compliance by meeting such requirement for a minimum of ten consecutive business days. Any potential delisting of the Company's common stock could adversely affect the liquidity of its common stock and its ability to raise additional capital. In addition, delisting from the NASDAQ Global Market would have triggered an event of default under the Company's loan agreement with Hercules Technology Growth Capital, Inc. ("Hercules"), which would have provided Hercules the option to accelerate repayment of amounts due under such agreement. As a result, in March 2012, the Company entered into an amendment to the Hercules warrant, in which it amended the covenant with respect to the requirement to maintain its listing on the NASDAQ Global Market to allow for the NASDAQ Capital Market and certain over the counter markets to be permissible alternative markets on which the Company can list its shares of common stock. Under the terms of the amendment, the number of shares underlying the warrant was increased to 1,950,000 and the exercise price per share of common stock was reduced to $0.50. Principles of Consolidation The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiary, NeurogesX UK Limited, which was incorporated as of June 1, 2004. NeurogesX UK Limited was established for the purposes of conducting clinical trials in the UK and marketing approval submission. The subsidiary has no assets other than the initial formation capital totaling one Pound Sterling. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. </div>

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<div> 6. Property and Equipment Property and equipment consists of the following (in thousands):   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="84%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Computer equipment</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">828</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">745</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Leasehold improvements</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">275</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">275</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Software</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">520</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">373</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Office furniture and equipment</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">327</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">327</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Marketing related equipment</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">149</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">149</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Research equipment</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">56</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">46</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Construction in progress</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">20</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">146</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,175</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,061</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Less: accumulated depreciation and amortization</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,628</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,252</td> <td valign="bottom" nowrap="nowrap">)</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Property and equipment, net</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">547</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">809</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> Depreciation expense was $0.4 million, $0.3 million and $0.2 million for the years ended December 31, 2011, 2010 and 2009, respectively. Construction in progress primarily represents software that was not yet placed into service by yearend. As a result of the Company's re-organization in March 2012, it expects to write-down certain of its property and equipment in the first quarter of 2012. </div>

809000

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<div> 14. Unaudited Quarterly Information Certain unaudited quarterly financial information for the years ended December 31, 2011 and 2010 is presented below:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="64%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">First Quarter</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Second Quarter</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Third Quarter</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Fourth Quarter</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="14" align="center">(In thousands, except per share amounts)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Product revenue</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">575</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">486</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">763</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">801</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Collaboration revenue</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,595</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,997</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,128</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,158</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Net loss</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(13,363</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(14,567</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(11,375</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(10,240</td> <td valign="bottom" nowrap="nowrap">)</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Basic and diluted net loss per share</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.75</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.81</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.43</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.34</td> <td valign="bottom" nowrap="nowrap">)</td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr><td valign="top"> 2010</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Product revenue</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">   </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">33</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">197</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">458</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Collaboration revenue</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,786</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,051</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,854</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,887</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Net loss</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(9,163</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(10,233</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(12,760</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(12,360</td> <td valign="bottom" nowrap="nowrap">)</td></tr> <tr><td valign="top"> Basic and diluted net loss per share</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.52</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.58</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.72</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(0.69</td> <td valign="bottom" nowrap="nowrap">)</td></tr></table> </div>

2913000

191000

11235000

11151000

13566000

290000

160000

120000

251000

<div> 9. Restructuring In October 2011, the Company's board of directors approved a restructuring plan whereby the Company's workforce was reduced by 26 individuals. The Company communicated the plan to the impacted employees on October 28, 2011 and the last day of employment for a majority of the affected employees was November 2, 2011. The restructuring decision resulted from the Company's evaluation of the U.S. Qutenza launch. The restructuring plan reduced the Company's sales force from 40 to 25 employees and eliminated an additional 11 positions across all functions. The Company recorded a charge of approximately $0.8 million in the fourth quarter of 2011 related to this restructuring, which is presented in research and development and selling, general and administrative expenses in the consolidated statements of operations. In March 2012 the Company undertook an additional restructuring. See Note 13. </div>

-256527000

-306072000

2006000

8266000

11503000

688000

2625000

12420000

36383000

36408000

2492000

2354000

3426000

1.2

0.9

1.2

7.54

3.75

8.32

3.75

17568402

17725959

17869108

29897186

<div> 2. Summary of Significant Accounting Policies Cash and Cash Equivalents and Short-Term Investments The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. The Company invests its available cash balances in bank deposits, money market funds, U.S. government securities and other investment grade debt securities that have strong credit ratings. Management determines the appropriate classification of securities at the time of purchase. To date, all marketable securities have been classified as available-for-sale, and are carried at fair value as determined based on quoted market prices or other observable market inputs with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders' deficit. The Company views its available-for-sale portfolio as available for use in current operations. Accordingly, the Company has classified all investments as short-term. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary for available-for-sale securities, if any, are included in other income (expense), net and have not been significant to date. Realized gains and losses are computed on a specific identification basis. Interest and dividends are included in interest income. Concentrations of Credit Risk and Financial Instruments The Company invests cash that is not currently being used for operational purposes in accordance with its investment policy. The policy allows for the purchase of low risk debt securities issued by U.S. government agencies and highly rated corporations subject to concentration limits of 10% of any one issuer or group of issuers at the time of purchase, with the exception of debt securities issued by U.S. government agencies where the Company is not subject to any concentration limit. The maturities of these securities on a weighted-average basis may be no longer than 12 months. The Company believes that it has established guidelines for investment of its excess cash that maintains safety and liquidity through its policies on diversification and investment maturity. Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and short-term investments, available for sale investment securities in high-credit quality corporate debt, and debt securities issued by the U.S. government and government-sponsored enterprises. The Company utilizes a network of seven specialty distributors and specialty pharmacies to distribute Qutenza. For the year ended December 31, 2011, four of the distributors each accounted for 10% or more of the Company's 2011 gross product shipments. As of December 31, 2011, the Company had accounts receivable balances due from four of the distributors in amounts in excess of 10% of the Company's total accounts receivable balance and one such distributor's accounts receivable balance represented 43% of the total. If any of these distributors were to discontinue distributing Qutenza, the Company's product revenue could be negatively impacted, at least in the short term. The Company currently depends on four contract manufacturers as single source suppliers for the components of Qutenza. The Company has entered into long-term commercial supply agreements for these components. In addition, the Company entered into a long-term agreement for the assembly of the Qutenza treatment kits in the United States. If relationships with any of these manufacturers is terminated, or if any manufacturer is unable to produce required quantities on a timely basis or at all, the Company's operations would be negatively impacted and our business harmed. Trade Receivables Trade accounts receivable are recorded net of allowances for customer chargebacks related to government rebate programs, doubtful accounts and sales returns. Estimates for customer chargebacks for government rebates and sales returns are based on contractual terms, historical trends and the Company's expectations regarding the utilization rates for these programs. The Company's estimate for allowance for doubtful accounts is determined based on existing contractual payment terms, historical payment patterns of its customers and individual customer circumstances. To date, sales returns and rebates have been insignificant, therefore, the Company has determined that an allowance for uncollectible accounts receivable is not required. The Company does not require collateral in support of its trade receivables. Inventories Inventories are determined at the lower of cost or market value with cost determined under the specific identification method. Inventories consist of raw materials, work-in-process and finished goods. Raw materials include certain starting materials used in the production of the active pharmaceutical ingredient of Qutenza. Work-in-process includes the bulk inventory of the active pharmaceutical ingredient, patches and cleansing gel of Qutenza that are in the process of being manufactured or have completed manufacture and are awaiting final packaging, including related internal labor and overhead costs. Finished goods include the final packaged kits that contain the Qutenza patch and cleansing gel and that are ready for commercial sale. Qutenza received FDA approval for sale in the United States during the fourth quarter of 2009; costs incurred prior to FDA approval had been recorded as research and development expense on the Company's consolidated statements of operations. On a quarterly basis, the Company analyzes its inventory levels and writes down inventory that has become obsolete, inventory that has a cost basis in excess of the expected net realizable value and inventory that is in excess of expected requirements based upon anticipated product revenues. For each of the years ended December 31, 2011 and 2010, the Company recorded a charge to Cost of goods sold of $0.4 million for Qutenza patches, which the Company does not expect to sell prior to their expiration date. As a result of the Company's re-organization in March 2012 which has resulted in a significant reduction of its expected revenue for United States Qutenza sales, the Company anticipates additional write-downs of inventory in the first quarter of 2012 to reflect these lower anticipated revenue levels. Expected inventory requirements based on product revenue and the timing of production runs are subject to significant judgment and management estimate. The Company expects that its sales forecast will change over time and thus it will continue to review the quantities of inventories on hand compared to the sales forecast. Prepaid Collaboration Supplies Costs to manufacture product under the supply agreement with Astellas, including internal labor costs and third-party manufacturing, packaging and transportation costs are classified as prepaid collaboration supplies, which are included in Prepaid expenses and other current assets on the Company's consolidated balance sheets, until such time as those supplies are delivered to Astellas. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Depreciation is determined using the straight-line method and recorded over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized over the life of the lease or the useful economic life, whichever is shorter. Product Revenue In April 2010, the Company made Qutenza commercially available in the United States to its specialty distributor and specialty pharmacy customers. Under the Company's agreements with its customers, the customers take title to the product upon shipment and only have the right to return damaged product, product shipped in error and expired or short-dated product. As Qutenza is new to the marketplace, the Company is currently assessing the flow of product through its distribution channel, and cannot reasonably estimate returns. Until such time as an estimate of returns can be made, the Company is recognizing Qutenza product revenue, and related product costs, at the later of:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> the time the product is shipped by the customer to healthcare professionals, and </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> the date of cash collection. </td></tr></table> Healthcare professionals are generally ordering Qutenza in small quantities only after they have identified a patient for treatment. The Company believes that revenue recognition upon the later of customer shipment to the end user and the date of cash collection is appropriate until the Company has sufficient data on the cash collection and return patterns of its customers. The Company is performing additional procedures to further analyze shipments made by its customers by utilizing shipping data provided by its customers to determine when product is shipped by customers to healthcare professionals and are evaluating ending inventories at the Company's customers each month to assess the risk of product returns. The Company has established terms pursuant to distribution agreements with its customers providing for payment within 120 days of the date of shipment to its specialty distributor customers and 30 days of the date of shipment to its specialty pharmacy customers. Such distribution agreements generally have a term of three years. The application of the Company's revenue recognition policy resulted in the recognition of net revenue of $2.6 million from gross shipments of $3.4 million for the year ended December 31, 2011. The Company's gross shipments are reduced for chargebacks, certain fees paid to distributors and product sales allowances including rebates to qualifying federal and state government programs. At December 31, 2011, net deferred product revenue totaled $1.1 million. Revenue from the Astellas Agreement In June 2009, NeurogesX entered into the Astellas Agreement which provides for an exclusive license by the Company to Astellas for the promotion, distribution and marketing of Qutenza in the Licensed Territory, an option to license NGX-1998, a product candidate that is a non-patch liquid formulation of capsaicin, in the Licensed Territory, participation on a joint steering committee and, through a related supply agreement entered into with Astellas (the "Supply Agreement"), supply of product until direct supply arrangements between Astellas and third-party manufacturers are established. The Company anticipates certain of the direct supply arrangements will be established in the first half of 2012. Revenue under this arrangement includes upfront non-refundable fees and may also include additional option payments for the development of and license to NGX-1998, contingent event-based payments upon achievement of certain product sales levels and royalties on product sales. The Company analyzes multiple-element arrangements, such as the Astellas Agreement, to determine whether the various performance obligations, or elements, can be separated or whether they must be accounted for as a single unit of accounting. The determination of whether an element can be separated or accounted for as a single unit of accounting is based on the availability of evidence with regard to standalone value of each delivered element. If the fair value of all undelivered performance obligations can be determined, then all obligations would then be accounted for separately as performed. If any delivered element is considered to either: 1) not have standalone value or 2) have standalone value but the fair value of any of the undelivered performance obligations are not determinable, then any delivered elements of the arrangement would be accounted for as a single unit of accounting and the multiple elements would be grouped and recognized as revenue over the longest estimated performance obligation period. Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the performance obligations are estimated to be completed. In addition, if the Company is involved in a joint steering committee as part of a multiple-element arrangement that is accounted for as a single unit of accounting, an assessment is made as to whether the involvement in the steering committee constitutes a performance obligation or a right to participate. Revenue recognition of non-refundable upfront license fees commences when there is a contractual right to receive such payment, the contract price is fixed or determinable, the collection of the resulting receivable is reasonably assured and there are no further performance obligations under the license agreement. The Company views the Astellas Agreement and related agreements, as a multiple-element arrangement with the key deliverables consisting of an exclusive license to Qutenza in the Licensed Territory, an obligation to conduct certain development activities associated with NGX-1998, participation on a joint steering committee and supply of Qutenza components to Astellas until such time that Astellas can establish a direct supply relationship with product vendors. Because not all of these elements have both standalone value and objective and reliable evidence of fair value, the Company is accounting for such elements as a single unit of accounting. Further, the agreement provides for the Company's mandatory participation in a joint steering committee, which the Company believes represents a substantive performance obligation and also the estimated last delivered element under the Astellas Agreement and related agreements. Therefore, the Company is recognizing revenue associated with upfront payments and license fees ratably over the term of the joint steering committee performance obligation. The Company estimates this performance obligation will be delivered ratably through June 2016. At the inception of the Astellas Agreement, the upfront license fees were subject to a refund right, which expired upon transfer of the Company's MA for Qutenza in the European Union to Astellas. In September 2009, the transfer of the MA to Astellas was completed and, therefore, the upfront license fees became non-refundable and revenue recognition of the upfront license fees commenced.   In the accompanying financial statements, Collaboration revenue represents revenue associated with the Astellas Agreement and related agreements. Deferred collaboration revenue arises from the excess of cash received or receivable over cumulative revenue recognized for the period. Under the terms of the Astellas Agreement, the Company earns royalties based on each sale of Qutenza into the Licensed Territory. The royalty rate is tiered based on the level of sales achieved. These royalties are considered contingent consideration as there is no remaining contract performance obligation of the Company and, therefore, the royalties are excluded from the single unit of accounting treatment discussed above. The Company reports royalty revenue based upon Astellas' reported net sales of Qutenza in the Licensed Territory. The Company recognizes royalty revenue from Astellas on a quarter lag basis due to the timing of Astellas reporting such royalties to the Company. Additionally, the Company can earn contingent event-based payments from Astellas if Astellas achieves certain sales levels as outlined in the Astellas Agreement. As these payments are contingent on Astellas' performance, they are excluded from the single unit of accounting treatment discussed above. The contingent event-based payments will be recorded as revenue when earned as there is no remaining contractual performance obligation of the Company. The Company recognizes revenue net of related costs for collaboration supplies sold to Astellas upon product being delivered to Astellas. The revenue and related costs of the product supplied to Astellas are included in Collaboration revenue. Prior to delivery to Astellas, the costs accumulated for the manufacturing of the collaboration supplies are included as Prepaid expenses and other current assets on the Company's consolidated balance sheets. Cost of Goods Sold Cost of goods sold includes costs to procure, manufacture and distribute Qutenza including certain shipping and handling costs incurred in the distribution channel, as well as royalties payable to The Regents of the University of California, or UC, and Lohmann Therapie-Systeme AG or LTS. Costs associated with the manufacture of Qutenza prior to FDA approval were previously expensed as research and development in the period incurred. Cost of goods sold associated with deferred product revenue will be deferred and recognized in the same period as the associated product revenue. At December 31, 2011, the Company had deferred Cost of goods sold of $0.1 million. During the years ended December 31, 2011 and 2010, the Company recorded charges of $0.4 million and $0.4 million, respectively, for Qutenza patches which the Company does not expect to sell prior to their expiration date. Research and Development The Company expenses research and development costs as incurred. Research and development expenses include personnel and personnel related costs, costs associated with pre-clinical and clinical development activities, such as clinical trials, including amounts paid to clinical research organizations and clinical investigators; product and manufacturing costs, such as process development, clinical product supply costs and the cost of commercially saleable product that is manufactured prior to market approval for that product candidate; internal and external costs associated with the Company's regulatory compliance and quality assurance functions including the costs of outside consultants and contractors that assist in the process of submitting and maintaining regulatory filings; and overhead costs including allocated facility and related expenses. Clinical Trials The Company accrues and expenses costs for clinical trial activities performed by third parties, including clinical research organizations and clinical investigators, based upon estimates of the work completed over the life of the individual study in accordance with agreements established with contract research organizations and clinical trial sites. The Company determines these estimates through discussion with internal personnel and outside service providers as to progress or stage of completion of trials or services pursuant to contracts with numerous clinical trial centers and clinical research organizations and the agreed upon fee to be paid for such services. Advertising Costs The Company expenses both the production costs and the placement costs of advertising as incurred. Advertising expense which includes Qutenza's website development, eLearning, eMarketing, media campaigns, patient testimonial videos and other items was $2.3 million, $5.8 million and $0.7 million for the years ended December 31, 2011, 2010 and 2009, respectively. Interest Expense Interest expense is comprised of interest relating to the Company's long-term obligations, the accretion of the debt discount, and the amortization of debt issuance costs recorded as Prepaid expenses and other current assets and Other assets on the consolidated balance sheets. Interest expense includes both currently payable interest charges and interest charges that accrue but are not currently due as a result of the terms of the underlying debt agreement. See Note 7 for a discussion of the Cowen Healthcare Royalty debt facility. Other Income (Expense), Net Other income (expense), net, in 2011 was a net expense of $0.1 million primarily related to investment advisory fees. Other income (expense), net, was a net income of $0.6 million in 2010 that resulted primarily from income tax credits earned under Section 48D of the Internal Revenue Code (as enacted on March 23, 2010 by the "Patient Protection and Affordable Care Act"). The Company applied for a credit based upon certain of its 2009 and 2010 research and development activities. The payment for the 2009 credit of $0.4 million was received in 2010 whereas the payment for the 2010 credit of $0.2 million was received in 2011. Income Taxes The Company utilizes the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Uncertain tax positions are evaluated and if appropriate, the amount of unrecognized tax benefits are recorded within deferred tax assets, as further described in Note 12. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Currently, there is no provision for income taxes as the Company has incurred operating losses to date. Comprehensive (Loss)/Income Comprehensive (loss)/income includes net loss and other comprehensive (loss)/income. For each of the years ended December 31, 2011, 2010 and 2009, the difference between comprehensive loss and net loss represented net unrealized gains or losses on available-for-sale securities.   Net Loss Per Share Basic and diluted net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period less the weighted-average unvested common shares subject to repurchase. For purposes of this calculation, warrants and options to purchase common stock are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive.   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="64%"> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center">Year Ended December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="10" align="center">(in thousands except share and per share data)</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Numerator:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Net loss</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(49,545</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(44,516</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(21,867</td> <td valign="bottom" nowrap="nowrap">)</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Denominator:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Weighted-average common shares outstanding</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,011,015</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">17,768,881</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">17,611,189</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Less: Weighted-average unvested common shares subject to repurchase</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(393</td> <td valign="bottom" nowrap="nowrap">)</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Denominator for basic and diluted net loss per share</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">23,011,015</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">17,768,881</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">17,610,796</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Basic and diluted net loss per share</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(2.15</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(2.51</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(1.24</td> <td valign="bottom" nowrap="nowrap">)</td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Outstanding securities not included in diluted net loss per share:</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Options to purchase common stock</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,037,039</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,002,493</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,264,535</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Warrants outstanding</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">7,932,295</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,265,846</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,265,846</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Restricted stock units</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">781,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">11,750,334</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4,268,339</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,530,381</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> Recently Issued and Adoption of New Accounting Standards Not Yet Adopted In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-05, "Presentation of Comprehensive Income" an update to Accounting Standards Codification ("ASC") Topic 220, "Comprehensive Income". The amendments of this update require that comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update is to be applied retroactively and is effective for financial statements issued for fiscal years, and interim periods within those years, beginning after December 15, 2011, and interim and annual periods thereafter. This update will be effective for the Company January 1, 2012. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements. Adopted in 2011 In October 2009, FASB issued ASU No. 2009-13, Revenue Recognition (ASC Topic 605)—Multiple-Deliverable Revenue Arrangements. This guidance modifies previous guidance for multiple element arrangements by allowing the use of the "best estimate of selling price" in the absence of vendor-specific objective evidence ("VSOE") or third-party evidence ("TPE") of selling price for determining the selling price of a deliverable. A vendor is now required to use its best estimate of the selling price when VSOE or TPE of the selling price is not available. In addition, the residual method of allocating arrangement consideration is no longer permitted. This ASU is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and early adoption was permitted. The Company adopted this ASU on January 1, 2011 on a prospective basis and the adoption of the new guidance did not have a material impact on the Company's consolidated financial statements. The Company currently only has one revenue agreement with multiple elements, the Astellas Agreement. If the Company was to enter into new multiple element arrangements or make a material modification to the Astellas Agreement after January 1, 2011, the contract would be accounted for under the provisions of ASU No. 2009-13. In April 2010, the FASB issued ASU No. 2010-17, Revenue Recognition—Milestone Method (ASC Topic 605): Milestone Method of Revenue Recognition ("ASU No. 2010-17"). This ASU codifies the consensus reached in EITF Issue No. 08-9, "Milestone Method of Revenue Recognition." The amendments to the Codification provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Consideration that is contingent on the achievement of a milestone in its entirety may be recognized as revenue in the period in which the milestone is achieved only if the milestone is judged to meet certain criteria to be considered substantive. Milestones should be considered substantive in their entirety and may not be bifurcated. An arrangement may contain both substantive and non-substantive milestones, and each milestone should be evaluated individually to determine if it is substantive. ASU No. 2010-17 is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2010, and may be applied prospectively to milestones achieved after the adoption date or retrospectively for all periods presented. On January 1, 2011, the Company prospectively adopted and elected the Milestone Method of Revenue Recognition as its accounting policy for substantive milestones achieved after the adoption date. The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements. </div>

19274000

32000

209370000

18000

-2000

-190144000

253000

-8000

212254000

18000

-212011000

-41291000

-2000

215220000

18000

-256527000

-67860000

1000

238181000

30000

-306072000

<div> 11. Stockholders' Equity Common Stock On July 26, 2011, the Company completed a private placement under a Securities Purchase Agreement pursuant to which the Company issued "Units" for an aggregate purchase price of approximately $20.2 million, at a per Unit price of $1.72. Each Unit was comprised of one share of common stock and a warrant to purchase 0.5 shares of common stock (representing 50% warrant coverage on the shares to be issued) (the "Warrants"). The price of each Unit was based on the July 21, 2011 consolidated closing bid price of the Company's common stock on the NASDAQ Global Market of $1.65 per share, and represented a purchase price of $1.65 for the one share of common stock issued for each Unit and a Warrant purchase price of $0.07 for the 0.5 shares of common stock underlying the Warrants issued for each Unit (resulting in a purchase price for the Warrants of $0.14 per whole share of common stock underlying such Warrants). The total number of Units issued in connection with the transaction was 11,749,552, representing an aggregate issuance of 11,749,552 shares of common stock and Warrants to purchase an aggregate of 5,874,782 shares of common stock. The Warrants have a term of five years, contain a net-exercise provision, and have an exercise price of $1.65 per share. In addition, the Warrants contain terms that prevent the Warrants from being exercised to the extent that such exercise would cause a stockholder's beneficial ownership (along with its affiliates and others with whom such stockholder's holdings would be aggregated for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended) to exceed 19.999% of the total number of then issued and outstanding shares of common stock of the Company. The fair value of the warrants issued was approximately $5.9 million based on a Black-Scholes valuation model. The net proceeds to the Company in connection with the Securities Purchase Agreement were $18.6 million, after deducting expenses of approximately $1.6 million. Pursuant to a Registration Rights Agreement entered into in connection with the Securities Purchase Agreement, the Company filed a registration statement covering the resale of the common stock and the shares of common stock underlying the Warrants issued and issuable to the purchasers of Units on August 24, 2011. The registration statement was declared effective on September 8, 2011. Warrants to Purchase Common Stock In May 2007, the Company completed its IPO as a result of which all of the existing shares of the Company's preferred stock were converted to common stock. At the time of the completion of the IPO, the Company had outstanding warrants to purchase 33,600 shares of its Series A preferred stock, 20,000 shares of its Series B preferred stock, and 840,000 shares of its Series C2 preferred stock. Upon closing of the Company's IPO, warrants to purchase 893,600 shares of its preferred stock converted to warrants to purchase 59,573 shares of the Company's common stock. These warrants remain outstanding at December 31, 2011. Of these warrants to purchase 59,573 shares of the Company's stock, warrants to purchase 56,000 shares of the Company's common stock automatically exercise in the event of an acquisition of the Company. The Company performed a final re-measurement to determine the fair value of such financial instruments immediately prior to the conversion. The resulting fair value of $0.4 million was reclassified to additional paid-in capital during the year ended December 31, 2007. In connection with private placements of common stock in December 2007 and January 2008, the Company issued to the investors warrants to purchase 1,206,273 shares of common stock at $8.034 per share. The warrants became exercisable immediately upon issuance and expire five years from issuance. The fair value of the warrants to purchase 1,091,622 shares of common stock issued in conjunction with the first closing of the private placement in December 2007 was approximately $3.4 million and was determined using the Black-Scholes method with the following assumptions: expected volatility of 67%, a dividend yield of 0%, a risk-free interest rate of 3.52%, and an expected life of five years. The fair value of the warrants to purchase 114,651 shares of common stock issued in conjunction with the second closing of the private placement in January 2008 was approximately $0.4 million and was determined using the Black-Scholes method with the following assumptions: expected volatility of 67%, a dividend yield of 0%, a risk-free interest rate of 3.26%, and an expected life of five years. The fair value of the warrants issued was allocated from the proceeds of the financing. All of the 1,206,273 warrants remain outstanding at December 31, 2011. 2000 Stock Incentive Plan The Company's 2000 Stock Incentive Plan (the "2000 Plan") provides for the grant of incentive and nonstatutory stock options by the board of directors to employees, officers, directors, and consultants of the Company. Incentive stock options may be granted with exercise prices not less than estimated fair value, and nonstatutory stock options may be granted with an exercise price of not less than 85% of the estimated fair value of the common stock on the date of grant. Options granted under the 2000 Plan expire no later than 10 years from the date of grant. Options granted and shares underlying stock purchase rights issued under the 2000 Plan vest over periods determined by the board of directors, generally over four to six years. Unvested shares of common stock purchased under stock purchase rights are subject to a repurchase option by the Company upon termination of the purchaser's employment or services. The repurchase right lapses over a period of time, as determined by the board of directors. At December 31, 2011 and 2010, there were no stock purchase rights outstanding that were subject to a repurchase right by the Company. For certain options, vesting accelerates upon the achievement of specified milestones. The 2000 Plan automatically terminated on June 5, 2010 as the plan provisions included an automatic termination 10 years after its adoption by the board of directors. The termination does not impact unexercised stock options outstanding. The 2000 Plan allowed for the early exercise of stock options prior to vesting. The Company issued an aggregate of 11,945 shares of common stock pursuant to the early exercise of stock options, which were not deemed to be issued until those shares vested. As of December 31, 2011 and 2010, all early exercised shares were fully vested. 2007 Stock Plan The Company's 2007 Stock Plan provides for the grant of incentive stock options by the Company's board of directors to employees and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to its employees, directors and consultants. The Company's board of directors has the authority to determine the terms of the awards, including exercise price, the number of shares subject to each such award, the exercisability of the awards and consideration payable upon exercise. Incentive stock options may be granted with exercise prices at least equal to the fair market value of the Company's common stock on the date of grant. The term of an incentive stock option granted under this plan may not exceed ten years, except that with respect to any participant who owns 10% of the voting power of all classes of the Company's outstanding stock as of the grant date, the term must not exceed five years and the exercise price must equal at least 110% of the fair market value on the date of grant. Upon adoption of the plan, the Company reserved 1,333,333 shares of its common stock for issuance under the 2007 Stock Plan. Any shares returned to the 2000 Plan as a result of termination of options or the repurchase of shares issued under the 2000 Plan are added to the 2007 Stock Plan. In addition, the 2007 Stock Plan provides for annual increases in the number of shares available for issuance thereunder on the first day of each fiscal year, beginning with the Company's 2008 fiscal year, equal to the lesser of:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> 5% of the outstanding shares of the Company's common stock on the last day of the immediately preceding fiscal year; </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> 1,333,333 shares; or </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> such other amount as the Company's board of directors may determine. </td></tr></table>   The Company's 2007 Stock Plan also provides for the automatic grant of non-statutory options to the Company's non-employee directors. Each non-employee director that is newly appointed to the board of directors will receive an initial option to purchase 20,000 shares upon such appointment. Additionally, non-employee directors who have been directors for at least six months will receive a subsequent option to purchase 10,000 shares immediately following each annual meeting of the Company's stockholders. The following table summarizes stock option activity under both the 2000 Plan and 2007 Stock Plan:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="58%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom" colspan="2"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center">Options Outstanding</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Shares Available for Grant</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Number of Shares</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center">Weighted-Average Exercise Price</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance at December 31, 2008</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,578,202</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,393,545</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5.31</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Additional shares authorized</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">878,459</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Options granted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,061,642</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,061,642</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3.85</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Options exercised</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(105,247</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2.76</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Options canceled</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">85,405</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(85,405</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">7.68</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Balance at December 31, 2009</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,480,424</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,264,535</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">4.65</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Additional shares authorized</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">886,297</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Options granted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,109,539</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,109,539</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">7.39</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Options exercised</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(79,869</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3.23</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Options canceled</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">291,712</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(291,712</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">7.08</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance at December 31, 2010</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,548,894</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,002,493</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5.47</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Additional shares authorized</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,893,455</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Options granted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(3,017,468</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,017,468</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2.70</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Options exercised</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(22,207</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1.84</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Options canceled</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,960,715</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(2,960,715</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5.46</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Balance at December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,385,596</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,037,039</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2.75</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr></table> The options granted in 2011 in the table above include options granted to certain employees and officers to purchase a total of 580,000 shares of the Company's common stock in the form of market-based stock options with vesting tied to stock price targets. The grant date fair value of these options was $2.1 million as estimated using a Monte Carlo valuation methodology, using the following assumptions: expected volatility of 88.7%; expected risk-free interest rate of 1.45%; median range of expected life of 3.7 years to 4.3 years; and expected dividend yield of zero percent. The fair value of these options is expected to be amortized through 2015. Employees were granted 90,000 market-based stock options with a fair value of $0.3 million, and officers were granted 490,000 market-based stock options with a fair value of $1.8 million. For the year ended December 31, 2011, the Company recognized $0.5 million of stock-based compensation expense related to these market-based options. The options granted and canceled in 2011 in the table above include options that were exchanged and replaced under the Company's option exchange program executed in December 2011. Under the exchange offer, the Company accepted for cancellation options to purchase an aggregate of 2,110,821 shares of its common stock, which were cancelled as of December 12, 2011, and, in exchange, granted new options to purchase an aggregate of 1,225,468 shares of its common stock. The exercise price per share of the new options granted in the offer was $1.07, the closing price of the Company's common stock as reported by the NASDAQ Global market on December 12, 2011. The unamortized value of the cancelled grants was added to the incremental grant date fair value of the replacement grants, and the combined value will be amortized over the vesting period of the new grant. The incremental grant date fair value of the replacement grants is approximately $0.4 million. On April 29, 2011, the Company announced the planned retirement of Anthony DiTonno, the Company's President and Chief Executive Officer, by December 31, 2011. In connection with Mr. DiTonno's retirement, the Company's board of directors approved accelerating the vesting of options to purchase the Company's common stock held by Mr. DiTonno by 12 months upon termination of his employment or consulting services, if any, and the extension of time to exercise such options up to 24 months. The Company recorded a non-cash charge of $0.1 million in the 2011 selling, general and administration expense related to the acceleration. The Company's board of directors granted 899,000 restricted common stock units ("RSUs") to its officers and employees. The RSUs vest 50% on September 1, 2012 and 12.5% on each of December 1, 2012, March 10, 2013, June 1, 2013 and September 1, 2013. The fair market value of the Company's common stock on the date of grant was $1.60. The grant date fair value of these RSUs was $1.4 million and it is being amortized over the vesting period. Employees were granted 809,000 RSUs with a fair value of $1.3 million, and officers were granted 90,000 RSUs with a fair value of $0.1 million. In addition, the Company's board of directors granted 75,000 RSUs to an officer, in which the fair market value of the Company's common stock on the date of grant was $1.07. These RSUs vest 25% per year on the anniversary grant date. The following table summarizes restricted stock unit activity under the 2007 Stock plan:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr><td width="65%"> </td> <td valign="bottom" width="12%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="11%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Number of RSUs</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center">Weighted-Average Grant Date Fair Value</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Non-vested balance at December 31, 2010</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Awards granted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">974,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1.56</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Awards released</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(159,000</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1.60</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Awards canceled</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(34,000</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1.60</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Balance at December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">781,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1.55</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr></table> In October 2011, the Company's board of directors approved a restructuring plan whereby it reduced its workforce by 26 individuals. The Company communicated the plan to the impacted employees on October 28, 2011 and their last day of employment was November 2, 2011. The impacted employees are eligible to receive severance contingent on their signing of a general release with the Company. Part of the severance given included a full acceleration of vesting on their RSUs and an extension of the exercise period for vested stock options. The Company recorded a non-cash charge of $0.2 million in 2011 related to these modifications. In March 2012, the Company undertook an additional restructuring. The severance associated with such restructuring included acceleration of RSU vesting for terminated employees in addition to other modifications of equity grants. 2011 Inducement Stock Plan On September 20, 2011, the Company's board of directors adopted the 2011 Inducement Stock Plan (the "Inducement Plan"). The purposes of the Inducement Plan are to provide a material inducement for the best available individuals to enter into the employment of the Company and thereby to promote the success of the Company's business. The Inducement Plan provides for the grant of nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares by the Company's board of directors its employees. The term of the Inducement Plan is ten years from the date adopted by the board of directors. The Company's independent compensation committee has the authority to determine the terms of the awards, including exercise price, the number of shares subject to each such award, individuals to whom awards may be granted, the exercisability of the awards and consideration payable upon exercise.   Upon adoption of the plan, the Company reserved 1,000,000 shares of its common stock for issuance under the Inducement Plan. At December 31, 2011, 1,000,000 shares were available for grant. In connection with the hiring of the Company's new Chief Executive Officer on January 2, 2012, the Company has issued 600,000 shares under the Inducement Plan. Stock-Based Compensation Expense The Company recognizes stock-based compensation expense for all share-based payments granted subsequent to December 31, 2005. Stock-based compensation expense for awards made to employees and directors is measured at the date of grant, based on the fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period. The following table summarizes stock-based compensation expense for the years ended December 31, 2011, 2010 and 2009:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr><td width="73%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center">Year Ended December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Research and development</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">877</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">679</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,068</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td height="8"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td> <td height="8" colspan="4"> </td></tr> <tr><td valign="top"> Selling, general and administrative</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,549</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,675</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,424</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,426</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,354</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2,492</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> The fair value for the Company's employee stock options was estimated at the date of grant using the Black-Scholes valuation model with the following average assumptions:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr><td width="78%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="6%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center">Year Ended December 31,</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2011</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2010</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">2009</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Expected volatility</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">67</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">66</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">70</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr><td valign="top"> Expected term (years)</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6.0</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6.0</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6.0</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Risk-free interest rate</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1.8</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2.8</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2.2</td> <td valign="bottom" nowrap="nowrap">% </td></tr> <tr><td valign="top"> Dividend yield</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td valign="bottom" nowrap="nowrap">% </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td valign="bottom" nowrap="nowrap">% </td></tr></table> The Company's computation of expected volatility for the years ended December 31, 2011, 2010 and 2009 is based on an average of the historical volatility of a peer-group of similar companies. The Company's computation of expected term in the years ended December 31, 2011, 2010 and 2009 utilizes the simplified method. The risk-free interest rate for periods within the term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Stock compensation expense relating to options with acceleration of vesting dependent upon the achievement of milestones is recognized on a straight-line basis over a period which is the shorter of:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> the Company's evaluation of the probability of achievement of each respective milestone and the related estimated date of achievement; or </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> the otherwise stated time-based vesting period. </td></tr></table> The following table represents stock options activity for the year ended December 31, 2011:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr><td width="64%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Number of Shares</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted- Average Exercise Price</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted- Average Remaining Contract Life</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Aggregate Intrinsic Value</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Outstanding options at beginning of period</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,002,493</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">5.47</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Granted</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,017,468</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2.70</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Exercised</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(22,207</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1.84</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Forfeited</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,396,840</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5.46</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Expired</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(1,563,875</td> <td valign="bottom" nowrap="nowrap">)</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5.45</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td></tr> <tr><td valign="top"> Outstanding options at end of period</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3,037,039</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2.75</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6.9</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Vested and expected to vest at December 31, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,858,590</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">2.77</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">6.8</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td valign="top"> Exercisable options at end of period</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1,259,845</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3.41</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5.2</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> The weighted-average grant date fair value of stock options granted during the years ended December 31, 2011, 2010 and 2009 was $1.75, $4.53 and $2.47 per share, respectively. Total intrinsic value of options exercised for the years ended December 31, 2011, 2010 and 2009 was less than $0.1 million, $0.3 million, and $0.5 million, respectively. Cash received from stock option exercises and employee stock purchases under the employee stock purchase plan for the years ended December 31, 2011, 2010 and 2009 was $0.2 million, $0.6 million and $0.4 million, respectively. Because of the Company's net operating losses, it did not realize any tax benefits for the tax deductions from share-based payment arrangements during the years ended December 31, 2011, 2010 and 2009. As of December 31, 2011, the total unamortized compensation expense related to stock-based awards granted to employees and directors was $5.0 million and it is expected to be amortized over the next 4.3 years. As of December 31, 2011, the total unamortized compensation expense related to RSUs granted to employees and directors was $0.9 million and it is expected to be amortized over the next 1.08 years. 2007 Employee Stock Purchase Plan Under the Company's 2007 Employee Stock Purchase Plan (the "Purchase Plan"), eligible employees can participate and purchase common stock semi-annually through accumulated payroll deductions. The Purchase Plan is administered by the Company's board of directors or a committee appointed by the Company's board of directors. Under the Purchase Plan eligible employees may purchase stock at 85% of the lower of the fair market value of a share of Common Stock on the offering date or the exercise date. The Purchase Plan provides for consecutive, overlapping twelve-month offering periods generally starting on the first trading day on or after May 15 and November 15 of each year. There are two 6-month purchase periods in each offering period. Eligible employees may contribute up to 15% of their eligible compensation which includes a participant's straight time gross earnings, commissions, overtime and shift premium, exclusive of payments for incentive compensation, bonuses and other compensation. A participant may purchase a maximum of 1,333 shares of common stock per purchase period. If the fair market value of the Company's common stock at the end of a purchase period is less than the fair market value at the beginning of the offering period, participants will be withdrawn from the then current offering period following the purchase of shares on the purchase date and automatically will be re-enrolled in a new offering period.   The Purchase Plan was effective upon the completion of the Company's IPO, at which time a total of 333,333 shares of the Company's common stock were made available for sale. Annual increases in the number of shares available for issuance will be made on the first day of each fiscal year, beginning with the Company's 2008 fiscal year. The annual increases will be equal to the lesser of:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> 2% of the outstanding shares of the Company's common stock on the first day of the fiscal year; </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> 533,333 shares; or </td></tr></table>   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr><td width="4%"> </td> <td valign="top" width="3%" align="left"></td> <td valign="top" width="1%"> </td> <td valign="top" align="left"> such other amount as may be determined by the Company's board of directors. During the years ended December 31, 2011, 2010 and 2009, 97,319, 63,280 and 52,510 shares were issued, respectively. </td></tr></table> The Company accounts for its Purchase Plan as a compensatory plan and recorded compensation expense of approximately $0.2 million, $0.2 million and $0.1 million for the years ended December 31, 2011, 2010 and 2009, respectively. The estimated fair value of shares granted under the Purchase Plan was determined at the date of grant using the Black-Scholes pricing model with the following assumptions:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr><td width="65%"> </td> <td valign="bottom" width="5%"> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="5" align="center">Year Ended December 31,</td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" align="center">2011</td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" align="center">2010</td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" align="center">2009</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Expected dividend yield</td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap" align="center">0%</td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap" align="center">0%</td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap" align="center">0%</td></tr> <tr><td valign="top"> Expected volatility</td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap" align="center">55 – 58%</td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap" align="center">50 – 89%</td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap" align="center">56 – 89%</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Expected life (in years)</td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap" align="center">0.5 to 1.0</td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap" align="center">0.5 to 1.0</td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap" align="center">0.5 to 1.0</td></tr> <tr><td valign="top"> Risk-free interest rate</td> <td valign="bottom">  </td> <td valign="bottom" nowrap="nowrap" align="center">0.1 – 0.4%</td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap" align="center">0.21 – 0.5%</td> <td valign="bottom"> </td> <td valign="bottom" nowrap="nowrap" align="center">0.2 – 2.1%</td></tr></table> As of December 31, 2011, 1,458,906 shares were reserved for future issuance under the Purchase Plan. </div>

52510

63280

97319

11749552

104262

79869

22207

77000

354000

162000

11866000

11854000

12000

2517000

2354000

3065000

288000

258000

41000

<div> 13. Subsequent Events On February 3, 2012, the Company completed a private placement of its common stock under a Securities Purchase Agreement, dated as of January 31, 2012, by and among the Company and the Purchasers (as defined therein), pursuant to which the Company issued shares of common stock for an aggregate purchase price of $3.0 million, at a per share price of $1.01. The price of each share of common stock is based on the January 31, 2012 consolidated closing bid price of the Company's common stock on the NASDAQ Global Market of $1.01 per share. The net proceeds to the Company, after deducting expenses of less than $0.1 million, were $3.0 million. The total number of shares of common stock issued in connection with the transaction was 2,969,685. On March 5, 2012, the Company's board of directors committed to a restructuring plan whereby the Company proposed to reduce its workforce by 43 individuals. The restructuring plan was approved in connection with the Company's plan to focus its resources on NGX-1998 development program. The Company communicated the plan to the impacted employees on March 7, 2012 with the expectation that the restructuring would be effective and completed on or about such date. The Company expects to record a cash charge for severance and other payroll related termination costs of approximately $1.6 million in the first quarter of 2012. The Company also expects that there will be an additional non-cash compensation charge related to modifications to the impacted employee's equity awards under the 2000 Stock Incentive Plan and 2007 Stock Plan, as well as charges related to excess inventory, capital equipment write-downs and other miscellaneous restructure charges that in total will be in the range of $0.5 million to $0.8 million. </div>