10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20459

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

For the quarterly period ended June 30, 2004

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

For the transition period from ___________ to _____________.

Commission file number 0-20713

ENTREMED, INC.

(Exact name of registrant as specified in its charter)

Delaware	58-1959440
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

9640 Medical Center Drive
Rockville, Maryland

(Address of principal executive offices)

20850

(Zip code)

(240) 864-2600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     YES    [X]    NO    [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     YES    [X]    NO    [   ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most recent practicable date.

Class	Outstanding at August 06, 2004
Common Stock $.01 Par Value	37,054,030

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ENTREMED, INC.
Table of Contents

	PAGE
PART I. FINANCIAL INFORMATION
Item 1 — Financial Statements
Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003		3
Consolidated Statements of Operations for the Three Months Ended June 30, 2004 and 2003, and the Six Months Ended June 30, 2004 and 2003		4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003		5
Notes to Consolidated Financial Statements		6
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
Item 3 — Quantitative and Qualitative Disclosures About Market Risk		14
Item 4 — Disclosure Controls and Procedures		14
Part II. OTHER INFORMATION
Item 1 — Legal Proceedings		15
Item 2 — Changes in Securities		15
Item 3 — Defaults upon Senior Securities		15
Item 4 — Submission of Matters to Vote of Security Holders		15
Item 5 — Other Information		16
Item 6 — Exhibits and Reports on Form 8-K		16
SIGNATURES		17

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains and incorporates by reference certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by forward-looking words such as “may,” “will,” “expect,” “anticipate” or similar words. These forward-looking statements include, among others, statements regarding the timing of our clinical trials and the expected increases in our expenses.

Our forward-looking statements are based on information available to us today, and we will not update these statements. Our actual results may differ significantly from those discussed in our forward-looking statements due to, among other factors, operating losses and anticipation of future losses; the value of our common stock; uncertainties relating to our technological approach; uncertainty of our product candidate development; our need for additional capital and uncertainty of additional funding; our dependence on collaborators and licensees; intense competition and rapid technological change in the biopharmaceutical industry; uncertainties relating to our patent and proprietary rights; uncertainties relating to clinical trials, our success in further clinical development of Panzem^®, government regulation and uncertainties of obtaining regulatory approval on a timely basis or at all; our dependence on key personnel, research collaborators and scientific advisors; uncertainties relating to health care reform measures and third-party reimbursement; risks associated with product liability; and other factors discussed in our other filings with the Securities and Exchange Commission.

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EntreMed, Inc.
Consolidated Balance Sheets

	June 30, 2004			December 31, 2003
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	13,564,928		$	34,811,847
Short-term investments		12,852,425			2,129,583
Accounts receivable		106,472			428,979
Interest receivable		152,010			262,192
Prepaid expenses and other		165,778			528,190
Total current assets		26,841,613			38,160,791
Furniture and equipment, net		1,666,858			1,991,516
Other assets		5,786			1,457
Total assets	$	28,514,257		$	40,153,764
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,183,739		$	3,952,517
Accrued liabilities		708,605			706,961
Current portion of deferred revenue		265,932			95,495
Total current liabilities		2,158,276			4,754,973
Deferred revenue, less current portion		190,988			192,993
Deferred rent		329,174			329,815
Minority interest		17,010			17,100
Stockholders’ equity:
Convertible preferred stock, $1.00 par and $1.50 liquidation value:
5,000,000 shares authorized, 3,350,000 issued and outstanding at June 30, 2004 and December 31, 2003, respectively		3,350,000			3,350,000
Common stock, $.01 par value:
90,000,000 shares authorized, 37,929,029 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively		379,290			378,480
Additional paid-in capital		272,151,510			271,977,321
Treasury stock, at cost: 874,999 shares held at June 30, 2004 and December 31, 2003, respectively		(8,034,244	)		(8,034,244	)
Accumulated deficit		(242,027,747	)		(232,812,674	)
Total stockholders’ equity		25,818,809			34,858,883
Total liabilities and stockholders’ equity	$	28,514,257		$	40,153,764

See accompanying notes.

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EntreMed, Inc.
Consolidated Statements of Operations
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2004			June 30, 2003			June 30, 2004			June 30, 2003
Revenues:
Collaborative research and development	$	—		$	230,000		$	—		$	418,000
Licensing		132,966			23,874			229,568			47,748
Grants		—			—			—			300,000
Royalties		2,163			1,958			3,528			3,631
Other		4,251			30,156			4,251			30,156
		139,380			285,988			237,347			799,535
Costs and expenses:
Research and development		2,484,426			3,918,915			5,541,396			6,549,521
General and administrative		1,963,410			1,674,517			4,056,351			3,301,721
		4,447,836			5,593,432			9,597,747			9,851,242
Interest expense		—			—			—			—
Investment income		60,733			48,546			145,327			102,193
Net Loss		(4,247,723	)		(5,258,898	)		(9,215,073	)		(8,949,514	)
Dividends on Series A convertible preferred stock		(251,250	)		(251,250	)		(502,500	)		(502,500	)
Net loss attributable to common shareholders	$	(4,498,973	)	$	(5,510,148	)	$	(9,717,573	)	$	(9,452,014	)
Net loss per share (basic and diluted)	$	(0.12	)	$	(0.19	)	$	(0.26	)	$	(0.36	)
Weighted average number of shares outstanding (basic and diluted)		36,985,476			28,583,985			36,979,244			26,506,440

See accompanying notes.

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EntreMed, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

	SIX MONTH PERIOD ENDED
	JUNE 30,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(9,215,073	)	$	(8,949,515	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		448,158			710,514
Recognition of non-cash stock compensation		174,999			33,000
Gain on sale of asset		(500	)		—
Minority interest		(89	)		(60	)
Changes in operating assets and liabilities:
Accounts receivable		322,507			(115,407	)
Interest receivable		110,182			(144,059	)
Prepaid expenses and other		358,083			96,955
Deferred rent		(641	)		—
Accounts payable		(2,768,778	)		(7,395,097	)
Accrued liabilities		1,644			(1,362,926	)
Deferred revenue		168,432			(47,748	)
Net cash used in operating activities		(10,401,076	)		(17,174,343	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short term investments		(10,722,842	)		(6,829,009	)
Reduction in ownership of MaxCyte’s Cash		—			(418,108	)
Purchases of furniture and equipment		(123,501	)		(23,842	)
Proceeds from sale of asset, net		500			—
Net cash used in investing activities		(10,845,843	)		(7,270,959	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock		—			18,291,905
Payment of principle on note payable		—			(37,469	)
Net cash provided by financing activities		—			18,254,436
Net decrease in cash and cash equivalents		(21,246,919	)		(6,190,866	)
Cash and cash equivalents at beginning of period		34,811,847			24,067,045
Cash and cash equivalents at end of period	$	13,564,928		$	17,876,179

See accompanying notes.

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ENTREMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 (unaudited)

1. Basis of Presentation

     Our accompanying 2004 unaudited consolidated financial information includes the accounts of our controlled subsidiary, Cytokine Sciences, Inc. All intercompany balances and transactions have been eliminated in consolidation.

     The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such consolidated financial statements do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of our management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. This report on Form 10-Q should be read in conjunction with our audited consolidated financial statements and footnotes thereto included in our Form 10-K for the year ended December 31, 2003.

2. Recent Accounting Standards

     In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 applies immediately to variable interest entities created after January 31, 2003. The Company has evaluated its equity investments, loans, leases, service and management contracts and other instruments whose value may change with changes in the other parties’ net assets and has concluded the adoption of FIN 46 will not have a significant impact on its financial condition, results of operations or liquidity.

3. Short-Term Investments

     Short-term investments consist of corporate debt securities, all of which mature within one year. We classify these investments as available for sale. Such securities are stated at market value. The unrealized gains and losses are nominal as of June 30, 2004. Realized gains and losses and declines in value judged to be other than temporary on securities available for sale, if any, are included in operations. The cost of securities sold is calculated using the specific identification method. As of June 30, 2004, the cost of the investments was $12,852,425. Realized gains and losses have been insignificant.

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4. Stock-Based Compensation

     The Company recognizes expense for stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Accordingly, compensation cost is recognized for the excess of the estimated fair value of the stock at the grant date over the exercise price, if any. The Company accounts for equity instruments issued to non-employees in accordance with EITF 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring Or in Conjunction with Selling, Goods, or Services.

     The following table illustrates the effect on net loss if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) , to stock-based compensation:

	Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003
Net loss, as reported	$	(4,247,725	)	$	(5,258,898	)	$	(9,215,073	)	$	(8,949,514	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(1,449,933	)		(2,475,105	)		(2,745,846	)		(4,784,235	)
Add: Stock-based non-employee compensation included in net loss		174,999						174,999			33,000
Dividend on Series A convertible preferred stock		(251,250	)		(251,250	)		(502,500	)		(502,500	)
Pro forma net loss attributable to common shareholders	$	(5,773,909	)	$	(7,985,253	)	$	(12,288,420	)	$	(14,203,249	)
Net loss per share:
Basic and diluted – as reported	$	(0.12	)	$	(0.19	)	$	(0.26	)	$	(0.36	)
Basic and diluted – pro forma	$	(0.16	)	$	(0.28	)	$	(0.33	)	$	(0.54	)

     The effect of applying SFAS No. 123 on a pro forma net loss as stated above is not necessarily representative of the effect on reported net loss for future years due to, among other things, the vesting period of the stock options and the fair value of additional stock options in future years.

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5. License Agreement

     In February 2004, we transferred certain rights for our protein-based drug candidate programs, Endostatin and Angiostatin, in an agreement with Children’s Medical Center Corporation in Boston (CMCC) and Alchemgen Therapeutics, Inc. (Alchemgen). Under the agreement, CMCC and Alchemgen are continuing the development of Endostatin and Angiostatin and bear all expenses associated with the programs, including costs that we may incur in transferring these compounds. In exchange, we receive upfront and future cash and royalty payments. Under the terms of the three-party agreement Alchemgen received exclusive rights to market Endostatin and Angiostatin in Asia. CMCC holds the license for the rest of the world, therefore, we have no future milestone payment obligations. We will receive 20% of all future proceeds (e.g. upfront, milestone and royalty payments) resulting from any subsequent CMCC license outside of Asia.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

     Since our inception in September 1991, we have devoted substantially all of our efforts and resources to sponsoring and conducting research and development on our own behalf and through collaborations. Through June 30, 2004, all of our revenues have been generated from license fees, research and development funding, royalty payments, the sale of royalty rights, and certain research grants; we have not generated any revenue from direct product sales. We anticipate our primary revenue sources for the next few years will include research grants and collaboration payments under current or future arrangements. The timing and amounts of such revenues, if any, will likely fluctuate and depend upon the achievement of specified research and development milestones. Results of operations for any period may be unrelated to the results of operations for any other period.

     Historically our research and development efforts are focused on the identification and development of new compounds utilizing our understanding of the interrelationships of cell cycle regulation, inflammation, coagulation and angiogenesis – processes vital to the treatment of multiple diseases, including cancer. Currently, our main focus is on the reformulation of our lead drug candidate Panzem^® which has been administered in capsule form to oncology patients in Phase I and Phase II trials. The goal of our reformulation effort is to increase the level of Panzem^® in the patient’s bloodstream. Based on preclinical findings and data from healthy human subjects, we have selected a new Panzem^® formulation that is a liquid suspension approach that we believe will increase the Panzem^® bloodstream levels in oncology patents. In July, we announced that we have entered into a Clinical Supply Agreement with Elan to produce reformulated Panzem^® . We expect to begin clinical trials with this new Panzem^® formulation in early 2005.

     In addition to our work with Panzem^® we are evaluating various analogs of 2ME2 in preclinical studies. We expect at least one of these compounds to progress into IND-directed development with the goal of entering clinical trials in oncology. We have three additional compounds in various stages of discovery and preclinical research. Our expenses will exceed our revenues as we continue the development of Panzem^® and bring our other drug candidates through preclinical research to clinical trials.

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     With reformulated Panzem^® moving into the clinic and other pipeline candidates moving towards IND we are changing from a fundamentally research organization to that of a product development and commercialization organization. We intend to de-emphasize early discovery activities and also reduce non essential operating expenses to devote more resources to key development activities. We also will seek product acquisitions, co-development alliances and in-licensing opportunities to build a broader portfolio of late preclinical and clinical product candidates.

RESULTS OF OPERATIONS

For the Three and Six Months Ended June 30, 2004 and June 30, 2003.

     Revenues. Revenues decreased to $139,000 in the three-month period ended June 30, 2004 compared to $286,000 in the corresponding 2003 period. For the six-month period ended June 30, 2004, revenues decreased 70% to $237,000 from $800,000 for the 2003 six-month period. Revenues recorded in 2004 reflect the amortization of the initial licensing fees received from Allergan and Alchemgen. The 2003 amount results primarily from two sources: orphan drug grant revenue of $300,000 received to support our Endostatin Phase II clinical trial in patients with neuroendocrine tumors and (2) contract revenues of $418,000 resulting from performance as a subcontractor under an NIH sponsored Malaria Vaccine program, which contract was completed during 2003. We did not record any grant or subcontract revenues in the first six months of 2004. Licensing revenues during the first six month period ended June 30, 2004 increased to $230,000 from $48,000 in the corresponding 2003 period. This increase is attributable to the recognition of amortized licensing revenues from a February 2004 agreement with Alchemgen.

     Research and Development Expenses. We are a clinical-stage biopharmaceutical company developing therapeutic candidates primarily for the treatment of cancer. Our research and development programs are designed to identify new chemical entities by understanding the interrelationships of cell cycle regulation, inflammation, coagulation and angiogenesis – processes vital to the treatment of multiple diseases, including cancer. Panzem^®, our lead drug candidate, is currently in clinical trials for cancer, as well as preclinical development for indications outside of oncology. At June 30, 2004, accumulated direct project expenses for Panzem^® totaled $26,215,000. Reflected in our 2004 R&D expenses totaling $5,541,000 for the six-month period ended June 30, 2004 are direct project expenses for Panzem^® of $1,997,000 and $781,000 related to our 2ME2 analog program. Also reflected in our 2004 R&D expenses are project costs of $378,000 related to the Endostatin and Angiostatin compounds. Pursuant to the February 2004 Alchemgen licensing agreement we are no longer responsible for the further development of these two compounds. Research and development expenses for the corresponding 2003 period were $6,550,000, including direct project costs for Panzem^®, Endostatin and Angiostatin of $2,706,000, $539,000 and $404,000, respectively. For the three-month period ended June 30, 2004, research and development expenses totaled $2,484,000, a decrease from $3,919,000 for the comparable 2003 period. Included in the 2004 three-month period are expenses related to Panzem^® of $812,000 versus $2,214,000 in 2003. The higher 2003 amounts for Panzem^® include the acquisition of bulk material to support both ongoing clinical trials and reformulation activities.

     The expenditures that will be necessary to execute our business plan are subject to numerous uncertainties, which may adversely affect our liquidity and capital resources. As of June 30, 2004,

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our proprietary product candidate, Panzem^®, is in Phase I and Phase II clinical trials. Completion of clinical trials may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.

     We estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:

	ESTIMATED
	COMPLETION
CLINICAL PHASE	PERIOD
Phase I	1 Year
Phase II	1-2 Years
Phase III	2-4 Years

     The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol, including, among others, the following:

- the number of patients that ultimately participate in the trial;

- the duration of patient follow-up that seems appropriate in view of the results;

- the number of clinical sites included in the trials; and

- the length of time required to enroll suitable patient subjects.

     We test our potential product candidates in numerous pre-clinical studies to identify indications for which they may be product candidates. We may conduct multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain product candidates or for certain indications in order to focus our resources on more promising product candidates or indications.

     An important element of our business strategy is to pursue the research and development of a range of product candidates for a variety of oncology and non-oncology indications. This allows us to diversify the risks associated with our research and development expenditures. As a result, we believe our future capital requirements and our future financial success are not substantially dependent on any one product candidate. To the extent we are unable to maintain a broad range of product candidates, our dependence on the success of one or a few product candidates would increase.

     Our proprietary product candidates also have not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our clinical data establish safety and efficacy. Historically, the results from pre-clinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials,

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but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.

     Furthermore, our business strategy includes the option of entering into collaborative arrangements with third parties to complete the development and commercialization of our products. In the event that third parties take over the clinical trial process for one of our product candidates, the estimated completion date would largely be under the control of that third party rather than us. We cannot forecast with any degree of certainty which proprietary products or indications, if any, will be subject to future collaborative arrangements, in whole or in part, and how such arrangements would affect our capital requirements.

     As a result of the uncertainties discussed above, among others, we are unable to estimate the duration and completion costs of our research and development projects. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements, when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from time to time in order to continue with our business strategy. There is no assurance that such additional capital would be available to us if needed. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

     Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, research collaborations, costs associated with internal and contract pre-clinical testing and clinical trials of our product candidates, including the costs of manufacturing the product candidates, and facilities expenses. Our 2004 research and development expenses reflect continuing preclinical costs and the cost of a Phase I clinical trial to test various dosing approaches for reformulated Panzem®. The 2004 amount also includes increased costs associated with further development of various drug candidates, including analogs of 2ME2. These expenses, however, were offset by decreased expenditures for Endostatin and Angiostatin versus the corresponding 2003 period. The decrease in R&D expenses during the quarter and six months ended June 30, 2004 was specifically impacted by the following:

- Outside Services — We utilize outsourcing to conduct our product development activities. Larger-scale small molecule synthesis, in vivo testing and data analysis are examples of the services that we outsource. In the three-month period ended June 30, 2004, we expended $368,000 on these activities versus $622,000 in the same 2003 period. For the six-month period ended June 30, 2004 outside services decreased to $733,000 from $751,000 for the comparable 2003 period. The higher 2003 expenses relate to the procurement of outside services to support the Panzem® reformulation efforts.

- Collaborative Research Agreements— We made payments to our collaborators of $122,000 and $56,000 for the three months ended June 30, 2004 and 2003 respectively, and $387,000 and $123,000 for the six months ended June 30, 2004 and 2003, respectively. Sponsored research payments to academic collaborators include payments to Children’s Hospital, Boston of $150,000 in 2004. Our 2004 collaborative efforts are primarily directed towards further exploration of Panzem® mechanism-of-action (MOA) and non-oncology applications.

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- Clinical Trial Costs—Clinical trial costs decreased to $164,000 in the three months ended June 30, 2004, from $250,000 in the three-month period ended June 30, 2003. Clinical trial costs for the six-month period ended June 30, 2004 decreased to $618,000 from $739,000 for the comparable 2003 period. The decrease reflects less overall clinical activity as we secure reformulated Panzem® liquid clinical material for use in new clinical trials. We are maintaining the ongoing trials using the solid dosage format including the supply of clinical material under our Collaborative Research and Development Agreement (CRADA) with the NCI. Costs of EntreMed sponsored clinical trials include clinical investigator site fees, monitoring costs and data management costs.

- Contract Manufacturing Costs— The costs of manufacturing the material used in clinical trials for our product candidates is reflected in contract manufacturing. These costs include bulk manufacturing, fill and finish services, and product release costs. Contract manufacturing costs for the three months ended June 30, 2004 decreased to $265,000 from $1,110,000 during the same period in 2003. For the six-month period ended June 30, 2004 manufacturing costs have decreased to $560,000 from $1,266,000 for the comparable 2003 period. The decrease reflects the 2003 acquisition of bulk material to support both ongoing clinical trials and reformulation activities.

     Also reflected in our 2004 research and development expenses for the three-month period ended June 30, 2004 are personnel costs of $789,000, patent costs of $110,000 and facility and related expenses of $351,000. In the corresponding 2003 period, these expenses totaled $763,000, $205,000 and $442,000, respectively. For the six-month period ended June 30, 2004, personnel costs were $1,608,000, patent costs were $222,000 and facility and related expenses were $458,000. In the corresponding 2003 period, these expenses totaled $1,599,000, $440,000 and $444,000, respectively. The decrease in 2004 patent costs reflects our shift in focus to small molecules, which resulted in the elimination of some programs including the associated patent coverage.

     General and Administrative Expenses. General and administrative expenses increased to $1,963,000 in the three-month period ended June 30, 2004 from $1,674,000 in the corresponding 2003 period. For the six-month period general and administrative expenses increased in 2004 to $4,056,000 from $3,302,000 for the corresponding 2003 period. The 2004 increase results from increased costs for professional services related to Sarbanes-Oxley, Nasdaq and SEC compliance, executive management changes and costs associated with settling certain disputes.

     Investment income. Investment income increased by 42% in the six-month period ended June 30, 2004 to $145,000 from $102,000 in the corresponding 2003 period as a result of higher invested balances in interest bearing cash accounts and investments during the 2004 period.

     Dividends on Series A convertible preferred stock. The Consolidated Statement of Operations for the six-month periods ended June 30, 2004 and 2003 reflect a dividend of $502,500 relating to Series A Convertible Preferred Stock held by Celgene pursuant to a Securities Purchase Agreement dated December 31, 2002. The Series A Preferred Stock will accumulate dividends at a rate of 6% and will participate in dividends declared and paid on the common stock, if any. All accrued dividends must be paid before any dividends may be declared or paid on the Common Stock.

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LIQUIDITY AND CAPITAL RESOURCES

     To date, we have been engaged primarily in research and development activities. As a result, we have incurred and expect to continue to incur operating losses for 2004 and the foreseeable future before we commercialize any products. In addition, under the terms of the Panzem® license agreement, we must be diligent in bringing potential products to market and may be required to make future milestone payments of up to $850,000. If we fail to comply with the milestones or fail to make any required sponsored research or milestone payment, we could face the termination of the relevant sponsored research or license agreements.

     We have not sold any securities during the first six months of 2004 versus the comparable period in 2003 when we raised $18.3M in net proceeds from the sale of common stock and warrants. At June 30, 2004, we had cash and short-term investments of approximately $26,417,000 with working capital of approximately $24,683,000. We invest our capital resources with the primary objective of capital preservation. As a result of increases in investment yield seen in 2004 we have invested in some securities with maturity dates of more than 90 days. As such some of our invested balances are classified as short-term investments rather than cash equivalents in our financial statements. Increases or decreases in the basis of investments classified as short-term on the reporting date are reflected on the Consolidated Statements of Cash Flows as Investing Activities.

     To accomplish our business plans, we will be required to continue to conduct substantial development activities for all of our proposed products. Under our current plans, operating expenditures are expected to be approximately $20,000,000, net of operating revenues, in 2004. Under our licensing agreements with Allergan and with Oxford Biomedica, PLC and Oxford Biomedica (UK) Limited Oxford, we are entitled to receive payments upon the achievement of certain milestones. We do not control the drug development efforts of Allergan or Oxford and have no control over when or whether such milestones will be reached. We do not believe that we will receive any developmental milestone payments under these agreements in 2004.

     Based on our assessment of our current capital resources coupled with anticipated inflows, in the absence of additional financing, we believe that we will have adequate resources to fund planned operations through 2005. Our estimate may change, however, based on our decisions with respect to future clinical trials related to Panzem®, the timing of receipt of milestone payments, developments in our business including the acquisition of additional intellectual property, other investments in new or complementary technology, and our success in executing our current business plan.

     To address our long-term capital needs we intend to continue to pursue strategic relationships to provide resources for the further development of our product candidates. There can be no assurance, however, that these discussions will result in relationships or additional funding. In addition, we may continue to seek capital through the public or private sale of securities, if market conditions are favorable for doing so. If we are successful in raising additional funds through the issuance of equity securities, stockholders likely will experience substantial dilution, or the equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. If we raise funds through the issuance of debt securities, those securities would have rights, preferences and privileges senior to those of our common stock. There can be no assurance that we will be successful in seeking additional capital.

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INFLATION AND INTEREST RATE CHANGES

     Management does not believe that our working capital needs are sensitive to inflation and changes in interest rates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The primary objective of our investment activities is to preserve our capital until it is required to fund operations while at the same time maximizing the income we receive from our investments without incurring investment market volatility risk. Our investment income is sensitive to the general level of U.S. interest rates. In this regard, changes in the U.S. interest rates affect the interest earned on our cash and cash equivalents. Due to the short-term nature of our cash and cash equivalent holdings, a 10% movement in market interest rates would not materially impact on the total fair market value of our portfolio as of June 30, 2004.

ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

     Under the supervision and with the participation of the Company’s President and Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the President and Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of June 30, 2004. There were no significant changes in our internal control over financial reporting during the quarter ended June 30, 2004 that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

     EntreMed is subject in the normal course of business to various legal proceedings in which claims for monetary or other damages may be asserted. Management does not believe such legal proceedings, except as otherwise disclosed herein, are material.

Item 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     (a) The Company’s annual meeting of stockholders was held on June 16, 2004 (“Annual Meeting”).

     (b) Not applicable.

     (c) At the Annual Meeting, the stockholders considered and approved the following proposals:

     (i) Election of Directors. The following sets forth the nominees who were elected Directors of the Company for the term expiring in the year indicated as well as the number of votes case for, against, or withheld:

Year Term Expires	Name	Votes For		Votes Withheld
2007	Donald S. Brooks		29,926,274		2,166,206
2007	Dwight L. Bush		30,744,806		1,347,674
2007	Peter S. Knight		30,683,053		1,409,427

     (ii) Approve an amendment to the Company’s 2001 Long-Term Incentive Plan increasing from 4,250,000 to 5,250,000 the number shares of Common Stock reserved for issuance thereunder. This proposal received 6,716,759 votes in favor, 1,433,535 votes against, 1,890,575 abstentions, and 22,051,611 non-broker votes.

     (iii) Ratification of Appointment of Ernst & Young LLP. At the Annual Meeting, stockholders approved and ratified the selection of Ernst & Young LLP as the independent auditors. The proposal received 31,863,913 votes in favor, 147,395 votes against, 81,172 abstentions, and 0 non-broker votes.

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     (iv) As we have previously disclosed, Celgene Corporation has the right to one vote for each share of Common Stock into which its 3,350,000 shares of Convertible Preferred Stock are convertible, currently 16,750,000 shares. In other words, Celgene was allowed to vote at the Annual Meeting as if it owned 16,750,000 shares of our Common Stock. The “votes for” numbers above include Celgene’s votes.

Item 5. OTHER INFORMATION

     Not applicable

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

10.51	Employment Agreement between EntreMed and James S. Burns effective June 15, 2004
31.1	Rule 13a-14(a) Certification of President and Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Rule 13a-14(b) Certification of Chief Executive Officer
32.2	Rule 13a-14(b) Certification of Chief Financial Officer

     (b) Reports on Form 8-K

     None

Through its website at www.entremed.com, the Company makes available, free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and all amendments thereto, as soon as reasonably practicable after such reports are filed with or furnished to the Securities and Exchange Commission.

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SIGNATURES

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

	ENTREMED, INC. (Registrant)
Date: August 9, 2004	/s/ James S. Burns
	James S. Burns
	President and Chief Executive Officer
Date: August 9, 2004	/s/ Dane R. Saglio
	Dane R. Saglio
	Chief Financial Officer

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EX-10.51

Exhibit 10.51

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made effective as of the 15th day of June, 2004 by and between ENTREMED, INC., a Delaware corporation having its principal office at 9640 Medical Center Drive, Rockville, MD 20850 (the “Company”), and James S. Burns (the “Executive”).

FOR AND IN CONSIDERATION of the mutual premises, agreements and covenants contained herein, the parties hereto, intending to be legally bound, do hereby agree as follows:

1.  Employment Position and Duties.

Subject to the terms hereof, the Company hereby agrees to employ the Executive during the Term (as hereafter defined) to act as, and to exercise all of the powers and functions of, its President and Chief Executive Officer (“CEO”) and to perform such acts and duties and to generally furnish such services to the Company and its subsidiaries (if any) as are customary for a senior management person with a similar position in like companies. At all times Executive shall report directly to the Board of Directors of the Company (“Board”) and shall have such specific powers, duties and CEO responsibilities as the Board of Directors of the Company (the “Board”) shall from time to time reasonably prescribe. Executive hereby agrees to accept such employment and shall perform and discharge faithfully, diligently, and to the best of his abilities such duties and responsibilities and shall devote full working time and efforts to the business and affairs of the Company and its subsidiaries. During the Term, it shall not be a violation of this Agreement for Executive to serve on corporate, civic or charitable boards or committees or engage in other activities that are consistent with the Company’s Code of Ethics and other Company policies, so long as Executive notifies the Board or an appropriate committee thereof in advance and such service or activities do not significantly interfere with the performance of Executive’s responsibilities hereunder.

Subject to applicable Delaware law, the Company agrees to use its best efforts to cause Executive to be appointed, as soon as practicable hereafter, as a member of the Board to the class of directors with the term expiring at the 2005 annual meeting of the shareholders. The Company shall thereafter use its best efforts to cause the Executive to be nominated for a seat on the Board at the next annual meeting of the Company’s shareholders, it being acknowledged that such nomination is subject to applicable Delaware law. If the Executive ceases to be an employee of the Company for any reason, Executive agrees that he shall immediately resign as a member of the Board.

2.  Place of Employment.

While Executive is employed by the Company during the Term, Executive shall be required to conduct his duties and responsibilities hereunder primarily from the Company’s principal offices (except for routine and customary business travel).

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3.  Compensation.

     a. Base Salary. While Executive is employed by the Company during the Term, the Company shall pay to Executive an annual minimum base salary (“Base Salary”) of $360,000, payable in accordance with the Company’s customary payroll policy for its executives.

     b. Base Salary Adjustments. Executive’s Base Salary shall be reviewed at least annually in accordance with the Company’s customary practices for its executives. The Board or a committee thereof may make such increases in Executive’s Base Salary as it deems appropriate in its discretion.

     c. Incentive Compensation. As soon as practical after the execution of this Agreement and thereafter not later than sixty (60) days after the commencement of each fiscal year during the Term, the Board or a committee thereof shall meet with the Executive and, after consulting with Executive, establish performance goals and objectives for Executive and for the Company for the fiscal year. If such performance goals and objectives are satisfied by the Executive and the Company as reasonably determined by the Board or a committee thereof, the Executive shall receive incentive compensation (“Incentive Compensation”), if Executive is employed by the Company at the end of the fiscal year, equal to forty percent (40%) of Executive’s Base Pay or such greater amount as may be determined by the Board or a committee thereof. Notwithstanding the foregoing, Executive’s Incentive Compensation opportunity for the fiscal year ending December 31, 2004 shall be prorated based on the portion of such fiscal year that is within the Tenn.

     d. Certain Other Benefits. While Executive is employed by the Company during the Term, Executive shall be entitled to participate in any and all employee benefit plans and arrangements which are available to senior executive officers of the Company, including without limitation, group medical, disability, retirement and life insurance plans, and automobile expense reimbursement allowances. Executive shall also be afforded 30 days “paid time off” per year pursuant to policies fixed by the Company.

     e. Expenses. The Company shall pay or reimburse Executive for all reasonable business expenses actually paid or incurred by Executive while Executive is employed by the Company during the Term subject to reasonable documentation and in accordance with the Company’s business expense reimbursement policy.

4.  Term.

The term of this Agreement shall be the period commencing on the date hereof and continuing through and including June 15, 2007 (the “Initial Term”); provided, however, that the term of this Agreement shall be automatically extended for successive one year periods (each one-year extension a “Successor Term” and together with the Initial Term referred to herein as the “Term”) unless written notice of nonextension is provided by either party to the other party at least sixty (60) days prior to the end of the Initial Term or

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any Successor Term. The provision by the Company of a notice of nonextension shall be deemed to be a termination without Cause under subparagraph 8(d) hereof. In the event such notice is given and this Agreement is thereby terminated and/or this Agreement is terminated for any other reason, only paragraphs 6, 7, 8(e), 8(f), 8(i) and 11 shall survive such termination, except that Executive shall be entitled to receive compensation and benefits to the extent expressly provided herein or by the terms of any of the Company’s compensation and benefit plans, programs and policies or as required by applicable law.

5.  Stock Options.

In addition to the grant described herein, the Board or a committee thereof may, in its discretion, make periodic stock and incentive stock option grants to Executive, while Executive is employed by the Company during the Term. As an initial grant, effective as of the date hereof (the “Initial Grant”), Executive shall be granted stock options covering 500,000 shares with a per share exercise price equal to the fair market value of a share of Company common stock on the date of grant, which options shall vest as to 125,000 covered shares immediately upon the date of the grant, and shall vest as to the remaining covered shares in cumulative 125,000 share increments on each of the first, second, and third anniversary dates of the Initial Grant, if Executive is then employed by the Company. The terms of the stock option grants under this paragraph 5 shall be in accordance with and subject to the terms of the Company’s 2001 Long Term Incentive Plan or successor plan and such terms and conditions as the Board or a committee thereof may specify. In the event of a termination without Cause pursuant to subparagraph 8(d) hereof or a resignation for Good Reason pursuant to paragraph 9 hereof, stock option grants to Executive, if any, which by their terms would have vested during the twelve (12) month or eighteen (18) month, as applicable, severance period set forth in subparagraph 8(d) if Executive had been employed by the Company during such severance period will continue to vest (subject to the accelerated vesting provided by subparagraph 8(d) hereof in the event of a termination without Cause occurring after the first anniversary of the commencement of the Term and paragraph 9 hereof in the event of a resignation for Good Reason) during such period and be exercisable in accordance with the terms of such grants until the first anniversary of the Executive’s termination, but in no event beyond the full term of the relevant option.

6.  Unauthorized Disclosure.

During the Term and at all times thereafter, Executive shall not, without the written consent of the Company or except as required by applicable law, disclose to any person, other than a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by Executive of his duties as an executive officer of the Company, any confidential information obtained by Executive while in the employ of the Company with respect to the businesses of the Company or any of its subsidiaries, including but not limited to, operations, pricing, contractual or personnel data, products, discoveries, improvements, trade secrets, license agreements, marketing information, suppliers, dealers, principals, customers, or methods of distribution, or any other confidential information the disclosure of which Executive knows, or in the exercise of reasonable care should know, will be damaging to the Company; provided, however, that

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confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by Executive) or any information so otherwise considered by the Company not to be confidential.

7.  Indemnification.

     a. The Company shall indemnify and hold harmless Executive if he is made a party, or threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative (a “Proceeding”), because he is or was an officer or director of the Company or any of its subsidiaries, affiliates, or successors, or because he is or was serving in a fiduciary capacity with respect to employee benefit plans of the Company, whether or not the basis of such Proceeding is alleged action in an official capacity or otherwise, against all Expenses incurred or suffered by him in connection with such Proceeding to the fullest extent authorized by the General Corporation Law of the State of Delaware and any other applicable law in effect from time to time, and such indemnification shall continue as to Executive even if he ceases to be an officer or director or is no longer employed by the Company, and shall inure to the benefit of Executive’s heirs, executors and administrators.

     b. As used in this Agreement, the term “Expenses” shall include, without limitation, damages, losses, judgments, liabilities, fines, penalties, excise taxes, settlements and reasonable costs, reasonable attorneys’ fees, reasonable accountants’ fees, and reasonable disbursements and costs of attachment or similar bonds, investigations, and any reasonable expenses of establishing a right to indemnification under the Agreement.

     c. Expenses incurred by Executive in connection with any Proceeding shall be paid by the Company upon presentation of appropriate documentation and a giving by Executive of any undertakings required by applicable law.

8.  Termination

     a. Termination Upon Death. If Executive dies while employed by the Company during the Term, his estate shall be entitled to receive payment of Base Salary through the last day of the twelve (12) months following the month in which his death occurred, payable over such twelve (12) months at the Company’s normal pay periods. If, in respect of the fiscal year in which Executive dies, the Board or a committee thereof determines in its discretion that he would otherwise have been entitled to receive Incentive Compensation under subparagraph 3(c) by reason of the operations of the Company during such fiscal year, Executive’s estate shall be entitled to receive a pro rata portion of his Incentive Compensation for such fiscal year. Such pro rata portion shall equal the product of (x) the full amount of such Incentive Compensation, and (y) a fraction, the numerator of which is the number of days in the fiscal year of Executive’s death prior to the date of death, and the denominator of which is the total number of days in such fiscal year.

     b. Termination Upon Disability. The Company may terminate Executive’s employment hereunder during the Term at the end of any calendar month in the event of

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his Disability by giving to Executive written notice of termination. In the event of any such termination pursuant to this subparagraph 8(b), Executive shall be entitled to receive his Base Salary, payable in accordance with the Company’s customary payroll policy for its executives, through the last day of the twelve (12) months following the month in which the date of termination occurred.

     If, in respect of the fiscal year in which Executive’s employment terminates pursuant to this subparagraph 8(b), the Board or a committee thereof determines in its discretion that he would otherwise have been entitled to receive Incentive Compensation under subparagraph 3(c) by reason of the operations of the Company during such fiscal year, Executive shall be entitled to receive a pro rata portion of his Incentive Compensation for such year. Such pro rata portion shall equal the product of (x) the full amount of such Incentive Compensation, and (y) a fraction, the numerator of which is the number of days in the fiscal year of Executive’s termination on account of Disability prior to the date of termination, and the denominator of which is the total number of days in such fiscal year.

     c. Termination for Cause. The Company may terminate Executive’s employment hereunder at any time during the Term for Cause. The effective date of any such termination shall be the date specified by the Company which date may be any date on or after the date notice of such termination is provided to Executive. Executive’s employment may be terminated for Cause only by a resolution of the Board finding that in the good faith opinion of the Board that Executive engaged in conduct that constitutes Cause. Prior to adoption of any such resolution, Executive shall (i) be given reasonable notice of the proposed resolution upon which the proposed termination for Cause is based, and (ii) have the opportunity to be heard before the Board. Upon any such termination for Cause under this subparagraph 8(c), the Company shall pay to him his Base Salary through the date of termination, and the Company shall have no further obligations under this Agreement.

     d. Termination Without Cause. The Company may terminate Executive’s employment with the Company at any time during the Term, for any reason and without Cause, by giving him prior written notice which specifies the date of termination. Until the effective date of any such termination, the Company shall continue to pay to him the full compensation specified in this Agreement. Following termination, Executive shall make himself reasonably available to members of the Board and to senior managers and officers of the Company to assist in the transition of responsibilities and information to others and to facilitate the orderly conduct of business operations. Upon termination, the Company shall have no other financial obligations to Executive under any compensation or benefit plan, program or policy and Executive’s participation in the Company’s compensation and benefit plans, programs and policies shall cease as of the date of Executive’s termination except as set forth herein or as expressly provided under the terms of any such plans, programs or policies, or as required by applicable law. If Executive is terminated pursuant to this subparagraph 8(d) or the Company provides written notice on nonextension of this Agreement in accordance with Section 4 hereof, the Company shall (i) pay Executive a severance amount equal to twelve (12) months Base Salary over the following twelve (12) month period at the Company’s normal pay periods, and (ii) provide Executive, at no charge to Executive, COBRA continuation coverage under the Company’s health insurance

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program for a period of twelve (12) months or until he has obtained substantially equivalent new coverage, as determined by the Board or a committee thereof in its discretion, through successor employment, whichever occurs sooner. If, during the Term, Executive is terminated without Cause within eighteen (18) months of the effective date of this Agreement, the phrase “twelve (12) months” in the preceding sentence shall be replaced in each place it appears with the phrase “eighteen (18) months.” If, in respect of the fiscal year in which Executive’s employment terminates pursuant to this subparagraph 8(d), the Board or a committee thereof determines in its discretion that he would otherwise have been entitled to receive Incentive Compensation under subparagraph 3(c) by reason of the operations of the Company during such fiscal year, Executive shall be entitled to receive a pro rata portion of his Incentive Compensation for such year. Such pro rata portion shall equal the product of (x) the full amount of such Incentive Compensation, and (y) a fraction, the numerator of which is the number of days in the fiscal year of Executive’s termination without Cause prior to the date of termination, and the denominator of which is the total number of days in such fiscal year. If, during the Term, Executive is terminated without Cause after the first anniversary of the effective date of this Agreement, notwithstanding anything in this Agreement to the contrary, all of Executive’s unexpired and unvested stock options shall become vested on the effective date of such termination.

     e. Non-competition. For a period of twelve (12) months after termination of Executive’s active employment with the Company, Executive shall not, as an individual, principal, agent, employee, consultant or otherwise, directly or indirectly, in the United States or, with respect to any company or entity in Europe or Canada with whom Executive or the Company has concluded partnership, licensing or other similar business development agreements on behalf of and during his employment with the Company, render any services to any firm or company or any division or subsidiary of any firm or company engaged in the research, development or commercialization of compounds, analogs or derivatives of those compounds that compete directly with those being researched, developed and/or commercialized by the Company during the Term. Moreover, for a period of twelve (12) months after the termination of Executive’s employment with the Company, Executive shall not take any action, without the prior written consent of the Company, to assist Executive’s successor employer or any other entity in recruiting or hiring any other employee who was an employee of the Company during Executive’s employment. This prohibition includes (i) identifying to such successor employer or its agents or such other entity, the person or persons who have special knowledge concerning the Company or its inventions, processes, methods or confidential affairs. (ii) commenting to Executive’s successor employer or its agents or such other entity about the quantity of work, quality of work, special knowledge or personal characteristics of any person who is still employed by the Company. Executive also agrees that he will not provide such information to a prospective employer or to an executive search firm during interviews preceding possible employment.

     f. Non-Disparagement. During the Term and thereafter, Executive shall not communicate negatively about or otherwise disparage the Company or its products or each and any of the released parties described in subparagraph 8(i) in any way whatsoever,

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except as may be required for truthful sworn testimony or in connection with a legal or administrative proceeding, report, claim or dispute. The Company, acting in its official capacity, shall not communicate negatively about or otherwise disparage Executive in any way, except as may be required for truthful sworn testimony or in connection with a legal or administrative proceeding, report, claim or dispute. In the event Executive breaches any of the conditions set forth herein or in any other paragraph of this Agreement, the Company shall discontinue the provision of any payment or benefits to him under this Agreement and he shall forfeit his entitlement to any further payments or benefits under this Agreement.

     g. Resignation for Other than Good Reason. Executive may voluntarily terminate his employment with the Company during the Term for any reason upon at least thirty (30) days prior written notice which specifies the date of termination. Until the effective date of such termination, the Company shall continue to pay him the full compensation specified in this Agreement, provided he continues to perform his duties during this period. Thereafter, the Company shall have no further obligations to him under this Agreement, except as expressly provided herein or as provided under the terms of any of the Company’s compensation and benefit plans, programs or policies, or as required by applicable law. This subparagraph 8(g) shall not apply to the Executive’s resignation for Good Reason pursuant to paragraph 9 hereof.

     h. No Mitigation. The parties hereto acknowledge and agree that, in the event Executive’s employment with the Company is terminated pursuant to this paragraph 8, or he resigns for Good Reason pursuant to paragraph 9 hereof, he shall not be required to mitigate his damages by affirmatively seeking other employment. Further, except as provided in subparagraph 8(d)(ii) above, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by him or benefit provided to him as the result of employment by another employer or otherwise.

     i. Release. In consideration of Executive’s receipt of severance benefits subject to and in accordance with subparagraphs 8(b) and (d) and paragraph 9 of this Agreement, Executive agrees that, upon his first receipt and acceptance of any such benefits, he shall have released and forever discharged the Company, its subsidiaries and affiliates, successors and assigns, predecessors and all of their respective officers, directors, employees and agents and employee benefit plans from all claims, demands, liabilities and causes of action arising out of facts or occurrences arising or occurring at any time, up to an including the time of Executive’s termination, whether known or unknown, and the parties hereto contemplate that this release shall be broadly construed.

9.  Resignation for Good Reason.

If Executive has Good Reason during the Term, Executive may resign at any time during the Term by providing written notice to the Company that specifies the reason for, and the effective date of, his termination. If Executive resigns during the Term for Good Reason, such resignation shall be deemed a termination without Cause under subparagraph 8(d) hereof and Executive shall receive the compensation and benefits provided under

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subparagraph 8(d) hereof as if he had been terminated without Cause and, notwithstanding anything in this Agreement to the contrary, all of Executive’s unexpired and unvested stock options shall become vested on the effective date of such resignation.

10.  Definitions.

     a. “Cause” shall mean Executive’s (i) refusal to perform any material duties reasonably required of the Executive by the Board (other than by reason of disability), after reasonable demand for substantial performance is delivered by or on behalf of the Board specifically identifying the manner in which the Board believes the Executive has not performed his duties; (ii) conviction involving personal dishonesty or moral turpitude; (iii) perpetration of a dishonest act against or breach of fiduciary duty toward the Company; (iv) willful act or omission that is injurious in any material respect to the financial condition or business reputation of the Company; or (v) habitual drunkenness or drug addiction.

     b. “Disability” shall mean the Executive’s incapacity due to physical or mental illness which prevents the proper performance of Executive’s duties as set forth herein or established pursuant hereto for ninety (90) consecutive days in any twelve (12) month period of the Term. Any questions as to the existence or extent of illness or incapacity of Executive, upon which the Company and Executive cannot agree, shall be determined by a qualified independent physician selected by the Company and approved by the Executive. The determination of such physician certified in writing to the Company and to the Executive shall be final and conclusive for all purposes of this Agreement. For purposes of the disability provisions of this Agreement, if the Executive is unable to act on his own behalf due to incapacity, any person legally authorized to do so may act on the Executive’s behalf.

     c. “Change of Control” shall mean (i) any Person or Persons acting together, excluding the employee benefit plans of the Company, acquire or become the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act or any successor provisions thereto), directly or indirectly of securities of the Company representing fifty one percent (51%) or more of the combined voting power of the Company’s then outstanding securities; (ii) the Company consummates a merger, consolidation, share exchange, division or other reorganization or transaction of the Company ( a “Fundamental Transaction”) with any other corporation, other than a Fundamental Transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least sixty percent (60%) of the combined voting power immediately after such Fundamental Transaction of (A) the Company’s outstanding securities, (B) the surviving entity’s outstanding securities or (C) in the case of a division, the outstanding securities of each entity resulting from the division; (iii) the shareholders of the Company approve a plan of complete liquidation or winding-up of the Company or the Company consummates the sale or disposition (in one transaction or a series of transactions) of all or substantially all of the Company’s assets; or (iv) during any period of twenty-four consecutive months, individuals who at the beginning of such period

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constituted the Board (including for this purpose any new director whose election or nomination for election by the Company’s shareholders was approved by a vote of at least two thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board.

     d. “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

     e. "Good Reason” shall mean the occurrence of any of the following events after a Change of Control: (A) the assignment to Executive of any duties inconsistent in any material respect with Executive’s position, authority, duties or responsibilities immediately prior to the Change of Control or any other action by the Company which results in a diminution in any material respect in such position, duties or responsibilities, excluding for this purpose an isolated and inadvertent action not taken in bad faith that is remedied by the Company promptly after receipt of written notice thereof given by Executive; (B) a reduction by the Company in Executive’s annual Base Salary as in effect on the date hereof; (C) the Company’s requiring Executive to be based at any office or location that is more than fifty (50) miles from Executive’s office or location as of immediately prior to the Change of Control; (D) the failure by the Company to continue to provide Executive with benefits substantially similar to those enjoyed by him under any of the Company’s pension, life insurance, medical, health and accident, disability or other welfare plans in which he was participating as of immediately prior to the Change of Control, unless such change was applicable to all senior executives of the Company; (E) the failure by the Company to pay to Executive any deferred compensation when due under any deferred compensation plan or agreement applicable to him; or (F) the failure by the Company to honor in any material respect the terms and provisions of this Agreement.

     f. “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act and shall also include any syndicate or group deemed to be a “person under Section 13(d)(3) of the Exchange Act.

11.  Miscellaneous

     a. Assignments and Binding Effect. The respective rights and obligations of the parties under this Agreement shall be binding upon the parties hereto and their heirs, executors, administrators, successors, and assigns, including, in the case of the Company, any other corporation or entity with which the Company may be merged or otherwise combined and, in the case of Executive, his estate or other legal representatives.

     b. No Assignment of Benefits. Except as otherwise provided herein or by applicable law, no right or interest of the Executive under this Agreement shall be assignable or transferable, in whole or in part, either directly or by the operation of law or otherwise, including without limitation execution, levy, garnishment, attachment, pledge or in any manner; no attempted transfer thereof shall be effective.

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     c. Governing Law. This Agreement shall be governed as to its validity, interpretation and effect by the laws of the State of Delaware, without reference to its conflict of laws provisions.

     d. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid, illegal, or unenforceable for any reason, the remaining provisions and portions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. Such invalid, illegal or unenforceable provision(s) shall be deemed modified to the extent necessary to make it (them) valid, legal, and enforceable.

     e. Withholding. All amounts payable hereunder shall be paid net of any applicable withholding required under federal, state or local laws and any additional withholding to which Executive has agreed.

     f. Entire Agreement Amendments. This Agreement constitutes the entire Agreement and understanding of the Company and Executive with respect to the terms of Executive’s employment with the Company and supersedes all prior discussions, understandings and agreements with respect thereto except with respect to those agreements relating to the assignment of patents and inventions and a Combined Non-disclosure and Patent Employee Agreement to which Executive acknowledges signing and which will remain in effect.

     g. Captions. All captions and heading used herein are for convenient reference only and do not form part of this Agreement.

     h. Waiver. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board or its delegee. The Company’s or the Executive’s failure to insist upon strict compliance with the terms of this Agreement or the failure of the Company or the Executive to assert any right the Company or the Executive may have hereunder shall not be deemed a waiver of such provision or right or any other provision of this Agreement.

     i. Notice. Any notice or communication required or permitted under this Agreement shall be made in writing and shall be delivered by hand, or mailed by registered or certified mail, return receipt requested, first class postage prepaid, addressed as follows:

If to Executive:

James S. Burns
c/o EntreMed, Inc.
9640 Medical Center Drive
Rockville, Maryland 20850

With a copy to:

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Paul Skelly, Esq.
Hogan & Hanson LLP
555 13th St N.W.
Washington, DC 20004

If to the Company:

EntreMed, Inc.
9640 Medical Center Drive
Rockville, Maryland 20850
Attn.: General Counsel

     j. Counterparts. This Agreement may be executed in counterparts, each of which shall constitute one and the same agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first above written.

/s/ James S. Burns

Executive

EntreMed, Inc.

/s/ Michael Tarnow

By:

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EX-31.1

Exhibit 31.1

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER

I, James S. Burns, certify that:

1. I have reviewed this quarterly report on Form 10-Q of EntreMed, Inc.:

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

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

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

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

b) [omitted pursuant to the guidance of Release No. 33-8283 (June 5, 2003)]

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

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

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

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

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

Date: August 9, 2004

/s/ James S. Burns

James S. Burns

President and Chief Executive Officer

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EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Dane R. Saglio, certify that:

1. I have reviewed this quarterly report on Form 10-Q of EntreMed, Inc.;

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

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

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

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

b) [omitted pursuant to the guidance of Release No. 33-8283 (June 5, 2003)]

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

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

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

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

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

Date: August 9, 2004

/s/ Dane R. Saglio

Dane R. Saglio

Chief Financial Officer

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EX-32.1

Exhibit 32.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

          In connection with the Annual Report of EntreMed, Inc. (the “Company”) on Form 10-Q as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James S. Burns, as Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1)	The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report.

          This certificate is being made for the exclusive purpose of compliance by the Chief Executive Officer of the Company (or equivalent) with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be used by any person or for any reason other than as specifically required by law.

	/s/ James S. Burns
August 9, 2004	James S. Burns
	President and CEO

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EX-32.2

Exhibit 32.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

          In connection with the Annual Report of EntreMed, Inc. (the “Company”) on Form 10-Q as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dane R. Saglio, as Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1)	The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report.

          This certificate is being made for the exclusive purpose of compliance by the Chief Financial Officer of the Company with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be used by any person or for any reason other than as specifically required by law.

	/s/ Dane R. Saglio
August 9, 2004	Dane R. Saglio
	Chief Financial Officer

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