The following discussion also should be read in conjunction with the Consolidated Financial Statements and notes thereto.

We are a development stage company with expertise in protein drug development. Our corporate office is located in Richmond, Virginia.

On February 12, 2009, we announced that we had entered into a definitive agreement with Merck & Co., Inc. ("Merck") whereby Merck, through an affiliate, would purchase all assets related to our follow-on biologics platform. On March 31, 2009, we completed the sale of these assets for an aggregate purchase price of $130 million. After fees, taxes and other costs related to the transaction, we expect net proceeds of approximately $123 million as a result of this transaction.

As part of this transaction, Merck assumed the lease of our Boulder, Colorado-based manufacturing facility and acquired ownership of all the equipment in the building. In addition, upon closing of the transaction, Merck offered positions to employees of the Boulder facility. We retain our Richmond, VA corporate office, which houses our Clinical, Regulatory, Finance, and Administrative functions, in support of the continuing IPLEX™ program.

Until the sale of our follow-on biologics platform, we pursued a dual path strategy involving entry into the follow-on biologics arena (also known as biosimilars, biogenerics and biologics) and advancing our proprietary protein platform into niche markets with unmet needs. As a result of the sale of our follow-on biologics assets, we will primarily focus on our proprietary protein platform and our product, the FDA-approved IPLEX™, which is in various stages of development for a number of serious medical conditions. Based on a comprehensive market analysis, our current resource allocation strategy for IPLEX™ is focused primarily on Myotonic Muscular Dystrophy ("MMD") followed by Amyotrophic Lateral Sclerosis ("ALS"), also known as Lou Gehrig's disease. Other areas where IPLEX™ has also shown potential include Retinopathy of Prematurity ("ROP").

We plan to use the net proceeds from the sale of our follow-on biologics platform to continue to support the development of IPLEX™ and our proprietary protein platform and we are evaluating other options for use of these proceeds including product licensing, acquisitions of complimentary businesses or technologies, mergers, share repurchase and the distribution of a portion of the proceeds to shareholders.

We have not been profitable and have accumulated deficits of approximately $346 million through December 31, 2008. While we expect that, following the sale of our FOB assets to Merck, for the balance of 2009 we will operate on a cash neutral basis as a result of anticipated revenues on our Expanded Access Program and interest on the net proceeds of the sale of our FOB assets offsetting our ongoing base costs, we expect to incur significant additional losses for at least the next several years until such time as sufficient commercial revenues are generated to offset expenses. Moving forward our major source of income is expected to be the cost recovery charges for our Expanded Access Program and our major expenses will be related to research and development. In general, our expenditures may increase as development of our product candidates progresses. However, there will be fluctuations from period to period caused by differences in project costs incurred at each stage of development.

Research and Development Activities

Since we began operations in late 1999, we have devoted substantially all of our resources to the research and development of a number of product candidates for metabolic and endocrine diseases. Until the sale of our FOB assets on March 31, 2009, our research and development efforts were principally focused on pursuing a dual path strategy involving entry into the follow-on biologics arena (also known as biosimilars, biogenerics and biologics) and advancing our proprietary protein platform into niche markets with unmet needs. Our focus is now principally on our proprietary protein platform. Our lead proprietary protein product, the FDA-approved IPLEX™, is being studied as a treatment for several serious medical conditions including MMD and ALS. We conduct very little of our own preclinical laboratory research. We have outsourced several Phase II clinical studies with IPLEX™ and our other anti-cancer product candidates, INSM-18 and rhIGFBP-3, and plan on conducting additional clinical studies in the future.

All of our research and development expenditures, whether conducted by our own staff or by external scientists on our behalf and at our expense, are recorded as expenses as incurred and amounted to approximately $188 million for the period since inception, in November 1999, through December 31, 2008, and $21.1 million, $19.2 million and $21.0 million, for the years ended December 31, 2006, 2007 and 2008, respectively. Research and development expenses consist primarily of salaries and related expenses, costs to develop and manufacture products and amounts paid to contract research organizations, hospitals and laboratories for the provision of services and materials for drug development and clinical trials.

All of our research and development expenditures related to our proprietary protein platform are interrelated as they are all associated with drugs that modulate IGF-I activity in the human body. A significant finding in any one drug for a particular indication may provide benefits to our efforts across all of these products. All of these products also share a substantial amount of our common fixed costs such as salaries, facility costs, utilities and maintenance. Given the small portion of research and development expenses that are related to products other than IPLEX™ we have determined that very limited benefits would be obtained from implementing cost tracking systems that would be necessary to allow for cost information on a product-by-product basis.

External clinical research of IPLEX™ in the MMD indication together with the development cost of the proposed IPLEX™ trial for ALS patients in the US are expected to represent our main research and development focus for 2009.

Our clinical trials with our product candidates are subject to numerous risks and uncertainties that are outside of our control, including the possibility that necessary regulatory approvals may not be obtained. For example, 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 is determined to be appropriate in view of results;

· the number of clinical sites included in the trials;

· the length of time required to enroll suitable patient subjects; and

· the efficacy and safety profile of the product candidate.

Our clinical trials may also be subject to delays or rejections based on our inability to enroll patients at the rate that we expect or our inability to produce clinical trial material in sufficient quantities and of sufficient quality to meet the schedule for our planned clinical trials.

Moreover, all of our product candidates and particularly those that are in the preclinical or early clinical trial stage must overcome significant regulatory, technological, manufacturing and marketing challenges before they can be successfully commercialized. Some of these product candidates may never reach the clinical trial stage of research and development. As preclinical studies and clinical trials progress, we may determine that collaborative relationships will be necessary to help us further develop or to commercialize our product candidates, but such relationships may be difficult or impossible to arrange. Our projects or intended projects may also be subject to change from time to time as we evaluate our research and development priorities and available resources.

Any significant delays that occur or additional expenses that we incur may have a material adverse affect on our financial position and require us to raise additional capital sooner or in larger amounts than is presently expected. In addition, as a result of the risks and uncertainties related to the development and approval of our product candidates and the additional uncertainties related to our ability to market and sell these products once approved for commercial sale, we are unable to provide a meaningful prediction regarding the period in which material net cash inflows from any of these projects is expected to become available.

Fiscal 2008 compared to Fiscal 2007

Revenues for the full-year 2008 totaled $11.7 million, up from $7.6 million in the corresponding period of 2007. This increase was primarily due to a $5.1 million improvement in cost recovery from the EAP to treat patients with ALS in Italy.

The net loss for the 12 months ended December 31, 2008 was $15.7 million or $0.13 per share, compared to $20.0 million or $0.17 per share for the 12 months ended December 31, 2007. R&D Expenses increased to $21.0 million from $19.2 million, reflecting the higher activity as our clinical trials in the FOB and IPLEX™ areas advanced. SG&A Expenses fell to $5.1 million from $8.2 million, due to the elimination of litigation expenses following the March 2007 settlement and the removal of commercial expenses associated with our business restructuring plan.

Interest income for the full-year 2008 was $0.5 million, compared to $1.2 million for the full-year 2007. This decrease was mainly due to lower interest rates and a lower average cash balance for the full-year 2008 as compared to the full-year 2007. Interest expense for the 12 months ended December 31, 2008 was $1.3 million, compared to $682,000 for the corresponding period of 2007. This higher interest expense was due to an increase in the debt discount amortization resulting from the quarterly payment of our 2005 convertible notes, which began in March 2008.

As of December 31, 2008, we had total cash, cash equivalents and short-term investments on hand of $2.4 million, compared to $16.5 million on hand as of December 31, 2007. The $14.1 million decrease in cash, cash equivalents and short-term investments mainly reflected the use of $12.0 million for operating activities and $2.2 million for principal and interest repayments of our 2005 convertible notes, which began on March 1, 2008.

Fiscal 2007 compared to Fiscal 2006

Revenues for the full-year 2007 totaled $7.6 million, up from $1.0 million in the corresponding period of 2006. This increase was due to improvements in the cost recovery from our EAP and the receipt of licensing income from our agreement with NAPO Pharmaceuticals Inc., ("NAPO"), combined with increased sales of IPLEX™ during the first quarter of 2007.

The net loss for the 12 months ended December 31, 2007 was $20.0 million or $0.17 per share, compared to $56.1 million or $0.59 per share for the 12 months ended December 31, 2006. R&D Expenses dropped to $19.2 million from $21.1 million, reflecting lower litigation expenses which were included in R&D Expenses during the first quarter of 2006, and reduced commercial manufacturing activity in 2007. SG&A Expenses fell to $8.2 million from $25.7 million, due to a combination of reduced litigation expenses, which were included in SG&A Expenses for the final three quarters of 2006, and the elimination of commercial expenses in 2007.

Interest income for the full-year 2007 was $1.2 million, compared to $1.9 million for the full-year 2006. This decrease was mainly due to lower interest rates and a lower average cash balance for the full-year 2007 as compared to the full-year 2006. Interest expense for the 12 months ended December 31, 2007 was $682,000, compared to $3.7 million for corresponding period of 2006. This decrease in interest expense resulted from lower amortization of the debt discount associated with our March 2005 financing, as a significant acceleration of the discount took place in 2006 due to the conversion of notes into shares of our common stock.

As of December 31, 2007, we had total cash, cash equivalents and short-term investments on hand of $16.5 million, compared to $24.1 million on hand as of December 31, 2006. The $7.6 million decrease in cash, cash equivalents and short-term investments mainly reflected the use of $25.3 million for operating activities and a $500,000 investment in NAPO, which was partially offset by net proceeds of $17.0 million from an offering of our common stock and warrants to purchase our common stock and $1.0 million from the reduction of an outstanding letter of credit.

Accounts payable and accrued project costs and other decreased $6.9 million, from $8.3 million in fiscal 2006 to $1.4 million in fiscal 2007 as a result of decreased litigation activity. Stockholders' equity decreased $2.4 million, from $13.9 million in fiscal 2006 to $11.5 million in fiscal 2007. In our common stock financing in May 2007, we received net proceeds of $17.0 million, but this was offset by our net loss of $20.0 million for fiscal 2007. Our accumulated deficit at December 31, 2007, increased to approximately $330.8 million from $310.8 million at December 31, 2006 due to our fiscal 2007 net loss of $20.0 million.

There is considerable time and cost associated with developing a potential drug or pharmaceutical product to the point where FDA approval for sales is received. In our financial management, we seek to raise the funds necessary for such development primarily through the issuance of equity securities in private placement transactions. However, it is our intention to pursue additional financing options, including entering into agreements with corporate partners in order to provide milestone payments, license fees and equity investments.

We have funded our operations to date through public and private placements of debt and equity securities and the proceeds from the recently announced sale of our FOB manufacturing facility to Merck. We plan to continue incurring losses as we expand our research and development and do not expect material revenues for at least the next several years. At December 31, 2008, our cash and short-term investments were approximately $2.4 million, and were invested in money market instruments and municipal bonds. This is a decrease of $14.1 million from fiscal 2007, as a result of our cash use during the year.

Expenditures in fiscal 2008 were principally related to research and development, clinical trial activity, manufacturing activity and administrative activity at our sites in Boulder, Colorado, and Richmond, Virginia. Planned expenditures in 2009 include the funding of our ongoing research and development activity, such as clinical trial costs, and general and administrative support costs.

On March 31, 2009, we completed the sale of our FOB assets for an aggregate purchase price of $130 million. After fees, taxes and other costs related to the transaction, we expect net proceeds of approximately $123 million as a result of this transaction. We believe these net proceeds will provide sufficient liquidity for us to continue as a going concern.

Even though we currently have sufficient funds to meet our financial needs for the upcoming year, our business strategy also contemplates raising additional capital through debt or equity sales. In the future, we may require additional funds for the continued development of our potential product candidates or to pursue acquisition of complementary businesses or technologies. There can be no assurance that adequate funds will be available when we need them or on favorable terms. If at any time we are unable to obtain sufficient additional funds, we will be required to delay, restrict or eliminate some or all of our research or development programs, dispose of assets or technology or cease operations.

We also plan to enter into agreements with corporate partners in order to fund operations through milestone payments, license fees and equity investments.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we believe is material to investors.

Contractual Obligations

We are obligated to make future payments under various contracts as set forth
below:

                                   Contractual Obligations
                                        (in thousands)

                                                   Payments Due by Years
                                            Less than        1 - 2       3 - 5      More than
                               Total         1 year         Years       Years        5 years

Long term debt (1)            $  2,864     $     2,307     $   557     $     -     $         -
Operating lease obligations      8,077           1,025       1,837       4,341             874

                              $ 10,941     $     3,332     $ 2,394     $ 4,341     $       874

(1) Long-term debt obligations reflect the future interest and principal payments of the Company's convertible notes outstanding as of December 31, 2008. We began repaying these notes in quarterly installments, beginning on March 1, 2008. We will continue to make payments on the notes through 2010 unless they are converted to common shares at an earlier date.

Preparation of financial statements in accordance with generally accepted accounting principles in the United States requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. We use our historical experience and other relevant factors when developing our estimates and assumptions. We continually evaluate these estimates and assumptions. The accounting policies discussed below are those we consider critical to an understanding of our consolidated financial statements because their application places the most significant demands on our judgment. Actual results could differ from our estimates. For additional accounting policies, see Note 1 to our Consolidated Financial Statements - "Description of the Business and Summary of Significant Accounting Policies."

Research and Development

Research and development costs are expensed as incurred. Research and development expenses consist primarily of salaries and related expenses, cost to develop and manufacture products, patent protection costs and amounts paid to contract research organizations, hospitals and laboratories for the provision of services and materials for drug development and clinical trials. We do not have separate accounting policies for internal or external research and development and we do not conduct any research and development for others. Our expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with third-party organizations that conduct and manage clinical trials on our behalf. These contracts set forth the scope of work to be completed at a fixed fee or amount per patient enrolled. Payments under these contracts depend on performance criteria such as the successful enrollment of patients or the completion of clinical trial milestones. Expenses are accrued based on contracted amounts applied to the level of patient enrollment and to activity according to the clinical trial protocol.

Litigation costs as they relate to our patents are recorded as research and development expenditures. However, from May through December 2006, the Company shifted from research and development operations to commercial operations, and litigation costs were recorded as a selling, general and administrative activity during this time.

Revenue Recognition

We record revenue from product sales when the goods are delivered and title passes to the customer. At the time of sale, estimates for sales deductions, including rebates to government agencies, are recorded. These provisions are provided for in the same period the related product sales are recorded. Following our settlement agreement with Tercica and Genentech on March 5, 2007, we ceased to supply IPLEX™ to patients and discontinued sales of IPLEX™ as of March 7, 2007. Revenue from our Expanded Access Program in Italy is recognized when the drugs have been provided to program patients and collectability is assured. Royalties that were paid to Tercica and Genentech are netted against Expanded Access Program revenue. License income is recognized as revenue when the milestones are achieved and payments are due. Grant revenue is recognized once payment has been received.

Stock-Based Compensation

We adopted the fair-value-based method of accounting for share-based payments effective January 1, 2006, using the "modified prospective transition method" described in SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. Currently, we use the Black-Scholes-Merton formula to estimate the value of stock options granted to employees and expect to continue to use this option valuation model. Under that transition method, compensation cost recognized during the year included: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, Share Based Payments, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair valued estimated in accordance with the provisions of SFAS 123R, Share-Based Payments.