UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2009

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

For the transition period from to

COMMISSION FILE NO. 000-50573

Anesiva, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

77-0503399

(State or Other Jurisdiction of

Incorporation or Organization)

(IRS Employer Identification Number)

400 Oyster Point, Suite 502

South San Francisco, California 94080

(650) 624-9600

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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


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

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

The total number of shares outstanding of the registrant’s common stock as of October 30, 2009 was 40,465,030.

TABLE OF CONTENTS


		Page
	PART I – FINANCIAL INFORMATION	3
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets at September 30, 2009 and December 31, 2008	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

	PART II – OTHER INFORMATION	34
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults upon Senior Securities	53
Item 4.	Submission of Matters to a Vote of Security Holders	53
Item 5.	Other Information	53
Item 6.	Exhibits	53
	Signatures	57

PART I - FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Anesiva, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)


	September 30, 2009			December 31, 2008
	(Unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	8		$	658
Prepaid expenses and other current assets		504			1,021
Restricted cash		—			589
Assets held-for-sale		191			217

Total current assets		703			2,485
Property, plant and equipment, net		96			218
Other assets		308			350

Total assets	$	1,107		$	3,053

Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	5,940		$	8,016
Accrued clinical trial liabilities		375			1,218
Accrued compensation		85			297
Other accrued liabilities		5,215			1,522
Debt obligations		9,829			—

Total current liabilities		21,444			11,053
Other long-term liabilities		253			—
Commitments
Stockholders’ equity (deficit):
Preferred stock, $0.001 par value; 5,000 shares authorized		—			—
Common stock, $0.001 par value; 100,000 shares authorized at September 30, 2009 and December 31, 2008; 40,465 and 40,469 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively		41			41
Additional paid-in capital		304,508			303,937
Accumulated deficit		(325,139	)		(311,978	)

Total stockholders’ equity (deficit)		(20,590	)		(8,000	)

Total liabilities and stockholders’ equity (deficit)	$	1,107		$	3,053

See accompanying notes to condensed consolidated financial statements.

Anesiva, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2009			2008			2009			2008
Contract revenues	$	—		$	1		$	—		$	304
Operating expenses:
Research and development		537			9,860			4,118			29,832
General and administrative		1,764			2,801			8,933			11,328

Total operating expenses		2,301			12,661			13,051			41,160

Loss from operations		(2,301	)		(12,660	)		(13,051	)		(40,856	)
Gain (Loss) on sale of assets		(1	)		—			79			—
Interest and other expense		(346	)		(280	)		(848	)		(959	)
Interest and other income		176			176			219			992
Loss from debt extinguishment		—			(656	)		—			(656	)

Loss before discontinued operations		(2,472	)		(13,420	)		(13,601	)		(41,479	)
Gain (Loss) from discountinued operations		160			(9,450	)		440			(24,833	)

Net income (loss)	$	(2,312	)	$	(22,870	)	$	(13,161	)	$	(66,312	)

Basic income (loss) per common share:
Continuing operations	$	(0.06	)	$	(0.34	)	$	(0.34	)	$	(1.02	)
Discountinuing operations	$	0.00		$	(0.23	)	$	0.01		$	(0.62	)

Basic net income (loss) per common share	$	(0.06	)	$	(0.57	)	$	(0.33	)	$	(1.64	)

Diluted net income (loss) per common share:
Continuing operations	$	(0.06	)	$	(0.34	)	$	(0.34	)	$	(1.02	)
Discountinuing operations	$	0.00		$	(0.23	)	$	0.01		$	(0.62	)

Diluted net income (loss) per common share	$	(0.06	)	$	(0.57	)	$	(0.33	)	$	(1.64	)

Weighted average shares used to compute basic net income (loss) per common share		40,466			40,366			40,454			40,321

Weighted average shares used to compute diluted net income (loss) per common share		40,641			40,366			40,595			40,321

See accompanying notes to condensed consolidated financials statements.

Anesiva, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	For the Nine Months Ended September 30,
	2009			2008
Net loss	$	(13,161	)	$	(66,312	)
Adjustments to reconcile net loss to net cash used in operating activities:
Minority interest in loss of the CJV		—			(108	)
Depreciation and amortization		102			1,117
Provision in inventory		—			3,476
Stock-based compensation		569			4,042
Amortization of debt discount		367			30
Loss (gain) on disposal of equipment		(676	)		77
Non-cash portion of loss on debt extinguishment		—			110
Changes in assets and liabilities:
Accounts receivable		—			(84	)
Inventories		—			139
Prepaid expenses and other current assets		1,037			(5,363	)
Other assets		—			(58	)
Accounts payable		(1,719	)		1,833
Accrued clinical trial liabilities		(843	)		(101	)
Accrued compensation		(211	)		(274	)
Other accrued liabilities		4,054			662

Net cash used in operating activities		(10,481	)		(60,814	)

Investing activities
Cash from consolidation of the CJV		—			1,071
Purchases of property, plant and equipment		—			(4,105	)
Proceeds from disposal of equipment		236			7
Purchases of marketable securities		—			(1	)

Net cash provided by (used in) investing activities		236			(3,028	)

Financing activities
Repayment of equipment loans and capital lease obligations		—			(11,399	)
Proceeds from issuance of common stock		2			382
Proceeds from term loans		9,593			20,065

Net cash provided by financing activities		9,595			9,048

Net increase (decrease) in cash and cash equivalents		(650	)		(54,794	)
Effect of foreign exchange rates on cash and cash equivalents		—			31

Cash and cash equivalents at beginning of period		658			90,840

Cash and cash equivalents at end of period	$	8		$	36,077

See accompanying notes to condensed consolidated financial statements.

Anesiva, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

1. Summary of Significant Accounting Policies

Basis of Presentation and Going Concern

Anesiva, Inc. (“we” or “Anesiva” or the “Company”) was incorporated on January 19, 1999 in Delaware. We are a biopharmaceutical company focused on the development and commercialization of novel therapeutic treatments for pain management.

Our portfolio of products includes:

•

Adlea™, a long-acting, site-specific, non-opioid analgesic, is being developed for moderate to severe pain, and has completed multiple Phase 2 trials in post-surgical, musculoskeletal and neuropathic pain and Phase 3 trials in bunionectomy and total knee arthroplasty (TKA, or total knee replacement surgery). We are initially pursuing an indication for Adlea for the management of acute post-operative pain associated with orthopedic surgeries.

•

Zingo™ (lidocaine hydrochloride monohydrate) powder intradermal injection system, was approved by the Food and Drug Administration (the “FDA”) in August 2007 to reduce the pain associated with peripheral intravenous (“IV”) insertions or blood draws in children three to 18 years of age. Zingo was approved in January 2009 to reduce the pain associated with blood draws in adults. On November 8, 2008, our board of directors approved the restructuring of our operations and discontinuing Zingo manufacturing and commercial operations as a result of manufacturing challenges and limited market penetration.

Adlea and Zingo are different drugs, each with its own mechanisms of action. Adlea is a novel non-opioid drug candidate that is a vanilloid receptor 1 agonist, or TRPV1 agonist, based on the compound capsaicin which provides analgesia from weeks to months. Zingo is comprised of microcrystals of lidocaine delivered into the skin by compressed gas and employs a proprietary needle-free dispenser.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had incurred recurring operating losses and negative cash flows from operations. At September 30, 2009, the Company has a negative working capital and a stockholders’ deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. If the Company is unsuccessful in its efforts to raise additional capital in the near term, the Company will be required to significantly reduce its research, development, and administrative operations, including further reduction of its employee base, or the Company may be required to cease operations completely, or liquidate in order to offset the lack of available funding. The financial statements do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our continuance as a going concern is dependent on our future profitability and on the on-going support of our shareholders, affiliates and creditors and our future product commercialization and profitability. In order to mitigate the going concern issues, we are actively pursuing business partnerships, merger, sale or other combination of the company, managing our continuing operations, and seeking capital funding on an ongoing basis via the issuance of securities and private placements.

We believe that our existing cash and cash equivalents, including amounts received subsequent to September 30, 2009, will be sufficient to fund our activities into December 2009. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development or we may need to cease operations completely or liquidate. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed in “Risk Factors.” Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidate we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials.

Our capital requirements depend on numerous factors, including: our ability to continue implementing our restructuring plan, our management of continuing operations, completion of our clinical development plan and whether we determine to pursue other indications for Adlea. Our announcement that we have discontinued Zingo manufacturing and commercial operations and that the ACTIVE-1 Phase 3 clinical trial evaluating Adlea for use in bunionectomy surgeries did not meet its primary end point have significantly depressed our stock price and severely impaired our ability to raise additional funds. It could be difficult or impossible for us to raise additional capital.

If we do proceed with raising funds in the future, we may be required to raise those funds through public or private financings, strategic relationships or other arrangements. The sale of additional equity and debt securities may result in additional dilution to our stockholders. Additional financing may not be available in amounts or on terms acceptable to us or at all. As a consequence if we are unable to obtain any additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned development and commercialization activities, which could materially harm our business. In addition, we have already significantly reduced our workforce and may need to further reduce or curtail our current workforce or may even cease operations completely, or liquidate if we do not obtain any additional funding. At September 30, 2009, we had higher total liabilities compared to total assets on our consolidated balance sheets.

The accompanying unaudited condensed consolidated financial statements of Anesiva and its subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the opinion of management these unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to fairly present Anesiva’s financial position at September 30, 2009 and Anesiva’s results of operations for the three and nine month periods ended September 30, 2009 and 2008, and cash flows for the nine month periods ended September 30, 2009 and 2008. Interim-period results are not necessarily indicative of results of operations and cash flows for a full-year period.

Balance sheet data as of December 31, 2008 were derived from audited financial statements, but do not include all disclosures required by U.S. generally accepted accounting principles.

These unaudited condensed consolidated financial statements and the notes accompanying them should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission. Stockholders are encouraged to review the Form 10-K for a broader discussion of Anesiva’s business and the risks inherent therein.

Principles of Consolidation

The consolidated financial statements include the accounts of Anesiva, Inc., our wholly owned subsidiaries, AlgoRx Pharmaceuticals, Inc. and Anesiva Hong Kong Ltd. In addition, we consolidate variable interest entities (VIEs) for which we are deemed the primary beneficiary. Specifically, during 2008, we consolidated the results of our joint venture with Wanbang Biopharmaceutical Corporation Limited, Wanbang, China, and an individual investor that was determined to be a VIE. We had determined that we were the primary beneficiary of the VIE until the restructuring of the Cooperative Joint Venture (CJV) operations in December 2008. We use the equity method to account for investments in entities in which we have a substantial ownership interest (20% to 50%), but for which do not require consolidation because we do not have significant influence over the operating and financial decisions of the investee. Our consolidated statement of operations includes our share of the earnings and losses of these entities during such periods. Intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management makes estimates when preparing the consolidated financial statements including those related to accrued but unbilled expenses for clinical trials, accrued liabilities, stock-based compensation, fair value, asset impairment and contingencies.

Cash and Cash Equivalents and Marketable Securities

We invest our excess cash in money market funds and in highly liquid debt instruments of the U.S. government, its agencies and municipalities and corporate notes. All highly liquid investments with stated maturities of 90 days or less from date of purchase are classified as cash equivalents; highly liquid investments with stated maturities of greater than 90 days are classified as marketable securities.

We determine the appropriate classification of investments in debt securities at the time of purchase. Cash equivalents and marketable securities are classified as available-for-sale securities as we do not intend to hold securities with stated maturities greater than twelve months until maturity. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss). Any realized gains or losses on the sale of marketable securities are determined on a specific identification method, and such gains and losses are reflected as a component of interest income or expense.

Concentration of Credit Risks and Fair Value of Financial Instruments

The carrying values of our financial instruments, which include cash and cash equivalents, other assets, accounts payable, accrued expenses and debt obligations, approximate their fair values. We have not recognized any realized or unrealized gains or losses during the period.

Fair Value Measurement

In September 2006, the FASB issued guidance regarding fair value measurement. The guidance established a framework for measuring fair value for financial assets and liabilities as well as for non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis in the financial statements. In February 2008, the FASB issued additional guidance which deferred the effective date related to fair value measurements and disclosure for all other non-financial assets and liabilities to fiscal years beginning November 15, 2008.

We adopted the measurement and disclosure requirements for financial assets and liabilities as well as non-financial assets and liabilities that are measured on a recurring basis in the financial statements effective January 1, 2008 on a prospective basis. We do not hold any non-financial assets and liabilities that are recognized or disclosed at fair value. The adoption of this new FASB guidance did not have a material impact on our consolidated results of operations and financial condition.

Our accounting policy requires that we determine the fair value of assets and liabilities using the fair value hierarchy under three levels of inputs that may be used to measure fair value, as follows:

•

Level 1 - Quoted prices in active markets for identical assets or liabilities.

•

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3 - Unobservable inputs that are supported by little or no market activity.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs consist of salaries, employee benefits, laboratory supplies, consulting services, manufacturing products and services, preclinical and clinical services, and facility costs.

Discontinued Operations

The manufacturing and commercial activities relating to Zingo have been accounted for as discontinued operations as it could be clearly distinguished operationally and for financial reporting purposes from the rest of our continued operations by meeting the following two conditions: (1) the operations and cash flows for Zingo have been eliminated from the ongoing operations of our company as approved by our board of directors, and (2) we will not have any significant continuing involvement in the operations of Zingo after a disposal transaction.

Discontinued operations consist primarily of compensation, including stock-based compensation; for employees in sales, marketing, manufacturing and development; marketing and advertising expenses, consulting expenses, product registration fees and manufacturing-related costs related to the Zingo manufacturing and commercial activities. Manufacturing costs associated with Zingo include certain costs associated with our manufacturing process, including depreciation and personnel costs for activities such as quality assurance and quality control that were not capitalized in inventory, asset impairment of long-lived assets, losses from asset disposal, scrap during the manufacturing process, idle facility, operating expenses relating to the CJV operations, expenses related to unusable inventories and the lower of cost or market determinations. Gains are recognized on sale of previously written off Zingo related assets.

Net Income (Loss) Per Share

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding (excluding unvested founders’ shares subject to repurchase). Diluted net income (loss) per common share is computed by dividing net loss by the weighted-average number of common shares and dilutive common shares equivalents then outstanding. Common equivalent shares consist of the incremental common shares issuable upon the conversion of preferred stock, convertible debt, shares issuable upon the exercise of stock options, and unvested founders’ shares subject to repurchase. Diluted loss per share is identical to basic loss per share since common equivalent shares are excluded from the calculation, as their effect is anti-dilutive.

Stock-Based Compensation Expense

Share-based payment, the value of the portion of the award that is ultimately expected to vest, is recognized as expense on a straight-line basis over the requisite service periods in our condensed consolidated statements of operations.

Employee Stock Plans

The 1999 Equity Incentive Plan was adopted in July 1999 and provides for the issuance of stock options. The Anesiva board of directors adopted in December 2003 and the stockholders approved in January 2004 the reservation of an additional 250,000 shares of common stock for issuance under the 1999 Equity Incentive Plan and to rename it the 2003 Equity Incentive Plan (the “2003 Plan”), which became effective upon the effective date of the registration statement. Shares reserved under the 2003 Plan are increased annually for the life of the 2003 Plan on January 1 beginning in 2006, by the lesser of (a) 5% of the number of shares of common stock outstanding on such date and (b) 2,500,000 shares of common stock. However, the board of directors has the authority to designate a smaller number of shares by which the authorized number of shares of common stock will be increased on such date.

Stock options granted under the 2003 Plan may be either incentive stock options, nonstatutory stock options, stock bonuses, or rights to acquire restricted stock. Incentive stock options may be granted to employees with exercise prices of no less than the fair value of the common stock on the grant date and nonstatutory options may be granted to employees, directors, or consultants at exercise prices of no less than 50% of the fair value of the common stock on the grant date, as determined by the board of directors. If, at the time we grant an option, the optionee directly or by attribution owns stock possessing more than 10% of the total combined voting power of all classes of our stock, the option price shall be at least 110% of the fair value and shall not be exercisable more than five years after the date of grant. Options may be granted with vesting terms as determined by the board of directors. Except as noted above, options expire no more than 10 years after the date of grant or earlier if employment is terminated. Stock options granted under the 2003 Plan have vesting terms as determined by the board of directors.

The board of directors adopted in December 2003 and the stockholders approved in January 2004 the 2003 Nonemployee Directors’ Stock Option Plan (the “Directors’ Plan”). The Directors’ Plan provides for the automatic grant of nonstatutory stock options to purchase shares of common stock to non-employee directors. Shares reserved under the plan are increased annually on January 1, from 2006 until 2014, by the number of shares of common stock subject to options granted during the prior calendar year. However, the board of directors has the authority to designate a smaller number of shares by which the authorized number of shares of common stock will be increased. Stock options granted under the Directors’ Plan vest as follows: initial grants vest in 48 equal monthly installments from the date of grant; and annual grants vest in 12 equal monthly installments from the date of grant.

As of January 1, 2009, we did not have any participants in the Employee Stock Purchase Plan.

Stock compensation

We estimate the fair value of each option grant to employees on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2008		2008		2009		2008		2008
	Stock option plans		ESPP		Stock option plans				ESPP
Dividend yield	—		—		—		—		—
Risk-free interest rate	3.3	%	1.9	%	2.1	%	3.0	%	1.9	%
Volatility	74	%	74	%	161	%	73	%	74	%
Expected life (in years)	5.3		0.5		5.4		5.3		0.5

During the three months ended September 30, 2009 we did not grant any options to purchase common stock to employees. During the three months ended September 2008, we granted options to purchase 619,000 shares of common stock to employees. The weighted fair value of the options granted during the three months ended September 2008 was $1.30. During the nine months ended September 30, 2009 and 2008, we granted options to purchase 179,000 and 1.8 million shares of common stock to employees, respectively. During the nine months ended September 30, 2009 and 2008, the weighted average fair value of the options granted was $0.35 and $3.83, respectively. During the nine months ended September 30, 2009, options were exercised for 18,000 shares of common stock at a weighted average fair value of $0.09 and options were cancelled for a total of 2.5 million shares of common stock at a weighted average fair value of $5.53. During the nine months ended September 30, 2009, we did not grant any restricted stock awards to employees. During the nine months ended September 30 2009, 5,000 shares of restricted stock awards were vested at weighted average fair value of $0.27 and 22,000 shares of restricted stock awards were forfeited at a weighted average grant date fair value of $6.75.

Employee stock-based compensation expense recognized for the three and nine months ended September 30, 2009 and 2008 was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Financial Accounting Standards Board (“FASB”) guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Employee stock-based compensation expense recognized for the three and nine months ended September 30, 2009 and 2008 was as follows (in thousands):


	For the Three Months Ended September 30,											For the Nine Months Ended September 30,
	Stock options				ESPP		Restricted stock					Stock options				ESPP		Restricted stock
	2009		2008		2008		2009		2008			2009		2008		2008		2009		2008
Research and development	$	30	$	118	$	16	$	5	$	38		$	197	$	605	$	—	$	7	$	71
General and administrative		106		511		16		3		(24	)		348		2,382		64		7		80
Discontinued operations		—		190		—		—		—			—		483		56		—		—

	$	136	$	819	$	32	$	8	$	14		$	545	$	3,470	$	120	$	14	$	151

At September 30, 2009, the unrecognized compensation expense related to unvested outstanding stock options was approximately $308,000 which will be recognized through 2012, and the weighted-average remaining recognition period was 2.91 years. Since January 1, 2009, we did not have any participants in the Employee Stock Purchase Plan.

We also grant restricted stock awards and stock options to consultants. Stock awards to non-employees are accounted for at their respective fair values using the Black-Scholes option-pricing model unless a more readily determinable fair value is available. The fair value of options granted to non-employees is remeasured during the performance period as the underlying options vest or as milestones are reached. During the three and nine months ended September 30, 2009, we did not grant any shares of restricted stock or stock options to purchase common stock

to non-employees. During the three months ended September 30, 2009, we did not record any stock-based compensation expense for stock options previously granted to non-employees. During the nine months ended September 30, 2009, we recorded approximately $5,000 and $6,000 in stock-based compensation expense for restricted stock and stock options granted to non-employees, respectively, for previously granted options. During the three months ended September 30, 2008, we did not grant any shares of restricted stock or stock options to purchase common stock to non-employees. During the nine months ended September 30, 2008, we granted 7,000 shares of restricted stock and stock options to purchase 10,000 shares of common stock to one non-employee and recorded approximately $96,000 and $204,000 in stock-based compensation expense, respectively.

Recent Accounting Pronouncements

In May 2009, the FASB established general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. We have determined that the adoption of this standard does not have a material effect on our consolidated financial statements.

The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the FASB ASC did not materially impact our financial statements, however our references to accounting literature within our notes to the condensed consolidated financial statements have been revised to conform to the Codification beginning with the quarter ended September 30, 2009.

2. Merger with Arcion Therapeutics, Inc.

Merger Agreement

Amendment to Securities Purchase Agreement

On August 4, 2009, the Company entered into a second amendment (the “Amendment”) to the securities purchase agreement, dated as of January 20, 2009 and amended on April 1, 2009 (the “Securities Agreement”), by and between the Company and Sofinnova Venture Partners VII, L.P., Alta California Partners III, L.P., Alta Embarcadero Partners III, LLC, Alta Partners VIII, LP, CMEA Ventures VII, L.P., CMEA Ventures VII (Parallel), L.P., InterWest Partners VIII, LP, InterWest Investors VIII, LP, and InterWest Investors Q VIII, LP (each an “Investor” and collectively, the “Investors”) which, among other things, provides that in connection with the Merger the Company shall redeem, on or following the consummation of the Merger, all of the outstanding securities issued pursuant to the Securities Agreement for a price equal to only 100% of the aggregate principal amount of such securities plus all accrued but unpaid returns thereon (see Note 8).

Reinvestment Agreement

On August 4, 2009, the Company entered into a reinvestment agreement with Arcion and the Investors (the “Reinvestment Agreement”), contingent upon consummation of the Merger. The Reinvestment Agreement provides that immediately following the redemption by the Company of all of the outstanding securities held by the Investors issued pursuant to the Securities Purchase Agreement at a redemption price in cash equal to 100% of the aggregate outstanding principal amount of and all accrued but unpaid returns on such securities being redeemed, each Investor, upon receipt of the redemption price for the securities, will reinvest the proceeds of such redemption by purchasing unregistered common stock of the Company at a fixed price of $0.30 per share. The Reinvestment Agreement further provides that following the consummation of the Merger, and upon the repurchase by the Company of all of the 7% senior notes due 2010 (the “Notes”) held by the Investors and outstanding under that certain Supplemental Indenture dated April 2, 2009, as supplemented by that Second Supplemental Indenture, dated April 28, 2009, by and between the Company and the Bank of New York Mellon Trust Company, N.A., each Investor will reinvest the proceeds of the repurchase of its outstanding Notes, together with any accrued by unpaid returns and interest thereon, by purchasing unregistered common stock of the Company at a fixed price of $0.30 per share. The transactions contemplated by the Reinvestment Agreement are referred to as the “Reinvestment.”

3. Net Income (loss) Per Share

income (loss) per common share is computed by dividing net loss by the weighted-average number of common shares and dilutive common shares equivalents then outstanding. Common equivalent shares consist of the incremental common shares issuable upon the conversion of preferred stock, convertible debt, shares issuable upon the exercise of stock options, and unvested founders’ shares subject to repurchase. Diluted loss per share is identical to basic loss per share since common equivalent shares are excluded from the calculation, as their effect is anti-dilutive.

The following table sets forth the computation of basic and diluted net income (loss) attributable to common stockholders per share (in thousands, except share and per share amounts):


	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Numerator for basic and diluted net income (loss) per share:
Net income (loss) from continuing operations	$	(2,472	)	$	(13,420	)	$	(13,601	)	$	(41,479	)

Net income (loss) from discontinued operations	$	160		$	(9,450	)	$	440		$	(24,833	)

Net income (loss)	$	(2,312	)	$	(22,870	)	$	(13,161	)	$	(66,312	)


Denominator for basic net income (loss) per share:
Weighted-average shares of common stock outstanding		40,465,954			40,365,569			40,454,029			40,321,175
Effects of diluted stock options		174,749			—			141,434			—

Weighted-average shares used in computing diluted net income (loss) per share		40,640,703			40,365,569			40,595,464			40,321,175


Basic income (loss) per common share:
Continuing operations	$	(0.06	)	$	(0.34	)	$	(0.34	)	$	(1.02	)
Discountinuing operations	$	0.00		$	(0.23	)	$	0.01		$	(0.62	)

Basic net income (loss) per common share	$	(0.06	)	$	(0.57	)	$	(0.33	)	$	(1.64	)


Diluted net income (loss) per common share:
Continuing operations	$	(0.06	)	$	(0.34	)	$	(0.34	)	$	(1.02	)
Discountinuing operations	$	0.00		$	(0.23	)	$	0.01		$	(0.62	)

Diluted net income (loss) per common share	$	(0.06	)	$	(0.57	)	$	(0.33	)	$	(1.64	)

The following table shows dilutive common share equivalents outstanding, which are included in the above historical calculations of diluted income per common share but excluded from the diluted loss per common share as the effect of their inclusion in diluted loss per common share is anti-dilutive during each period in which we had a loss. Restricted stock that is not yet vested is included as dilutive common share equivalents because we consider such securities as the equivalent of stock options.


	Nine Months Ended September 30,
	2009	2008
Restricted stock	—	57,147
Warrants	1,193,388	1,855,294
Options	1,072,941	3,665,227

Total	2,266,329	5,577,668

4. Restructurings

In October 2006, we announced the closure of a former AlgoRx Pharmaceuticals, Inc. office space in Secaucus, New Jersey to further reduce ongoing operational costs. As a result, we incurred a charge of approximately $176,000 primarily related to severance costs for five employees. Also in October 2006, we recorded a charge of approximately $487,000 related to vacating our office space in Secaucus, New Jersey and discontinuing other office equipment operating leases. In September 2007, we recorded an additional charge of $579,000 due to the elimination of any future sublease income, as a result of a worsening of the office rental market in Secaucus, New Jersey. The lease related to this office space expired July 2009 and the remaining leases related to the office equipment expired January 2009. In September 2009, we recorded an additional charge of $165,000 as a result of a judgment against the Company. At September 30, 2009, the remaining accrued liability related to this lease of the Secaucus office was approximately $333,000. The following table sets forth the activity in the accrued liability related to exiting the lease of our office space in Secaucus, New Jersey, which is included in other accrued liabilities at September 30, 2009 (in thousands):


	Exit Costs of Secaucus Office
Accrued liabilities at December 31, 2007	$	657
Payment against accrued liability		(383	)

Accrued liabilities at December 31, 2008		274
Payment against accrued liability		(106	)
Additional accrual for liability		165

Accrued liabilities at September 30, 2009	$	333

On September 2, 2008, we announced that we were realigning our operations. Accordingly, we reduced our workforce by 21 employees to focus primarily on sales, marketing, late-stage clinical development and outsourced manufacturing. We recorded an expense of $551,000 in severance salaries and other termination-related benefits related to the termination of 21 employees. During the year ended December 31, 2008, we made payments of $478,000 related to the restructuring. During the nine months ended September 30, 2009, we made payments of $9,000 related to restructuring. During the three months ended September 30, 2009, we also recorded an additional charge of $38,000 as a result of a judgment against the Company. At September 30, 2009, we had approximately $102,000 accrued for severance salaries and other termination-related benefits relating to the reduction-in-force. The following table sets forth the activity in the accrued liability related to severance costs, which is included in other accrued liabilities at September 30, 2009 (in thousands):


	Employee Severance Costs
Accrued liabilities at September 2, 2008	$	551
Payment against accrued liability		(478	)

Accrued liabilities at December 31, 2008		73
Payment against accrued liability		(9	)
Additional accrual for liability		38

Accrued liabilities at September 30, 2009	$	102

On November 8, 2008, our board of directors approved the restructuring of our operations to focus on the clinical and commercial development of Adlea, our novel, capsaicin-based product candidate currently in late-stage clinical development for the management of acute post-operative pain following orthopedic surgery, and to discontinue Zingo manufacturing and commercial operations as a result of manufacturing challenges and limited market penetration. In connection with the restructuring, we reduced our workforce and eliminated our sales and marketing functions of 23 employees relating to Zingo commercial activities. We offered severance benefits to the terminated employees, and recorded a restructuring charge of approximately $500,000, primarily associated with personnel-related termination costs during the fourth quarter of fiscal 2008. In conjunction with the discontinued Zingo operations, we recorded a charge of approximately $242,000 related to vacating our sales and marketing office space in Conshohocken, Pennsylvania as its primary purpose was to facilitate the Zingo commercial activities. The lease related to this office space expires in November 2009. There have been no payments made on this facility since November 8, 2008.

In March 2009, our board of directors approved the closure of the office and laboratory space in South San Francisco, California to further reduce ongoing operational costs. As a result, we incurred a charge of approximately $3.3 million related to vacating our office space. The lease related to this office and laboratory space expires in November 2010. On November 4, 2009, the lease was terminated. At September 30, 2009, the remaining liability related to this sublease of the South San Francisco office was approximately $3.3 million, which is included in other accrued liabilities on our condensed consolidated balance sheet.

5. Leases and Commitments

Leases

In March 2009, we entered into a sublease for office space in South San Francisco, California under a noncancelable operating lease, effective April 1, 2009 through June 2010. The future minimum payments for the operating lease as of September 30, 2009 are approximately $80,000.

Litigation

We are a party to various legal proceedings incident to the normal course of business. Management believes that adverse decisions in any pending or threatened proceedings could have a material effect on our financial position, results of operations or cash flows.

On December 23, 2008, 500 Plaza Drive Corporation (500 Plaza) exercised a termination right under Anesiva’s lease for its facility in Secaucus, New Jersey, to terminate the lease effective December 28, 2008 due to non-payment of December 2008 rent. On January 5, 2009, 500 Plaza filed a summary dispossess action against Anesiva in the Superior Court of New Jersey, Special Civil Part, in Hudson County, New Jersey. The summary dispossess action sought a ruling to remove Anesiva from the office space at 500 Plaza Drive and pay nominal attorney’s fees. On February 9, 2009, a default judgment was issued against Anesiva and Anesiva no longer has possession of the Secaucus facility. After termination of the lease, 500 Plaza drew down on the security deposit in the form of a letter of credit for their benefit in the amount of approximately $112,000. On March 9, 2009, 500 Plaza served a further complaint seeking more than $242,200 for amounts allegedly due under the terminated lease. On September 25, 2009, the Superior Court of New Jersey, in Hudson County, New Jersey, awarded 500 Plaza damages and attorney’s fees totaling approximately $333,000. Anesiva has accrued the contingency in accordance with the FASB guidance as a general and administrative expense.

On January 16, 2009, Maria Monshaw filed a lawsuit against Anesiva in U.S. District Court for the Eastern District of Pennsylvania. The lawsuit alleges breach of contract and non-payment of consulting services and business expenses totaling approximately $136,000 as well as interest and legal costs. In accordance with the FASB guidance, Anesiva does not believe that there is any merit to this lawsuit and has not accrued for this contingency since it is not probable. Anesiva is unable to predict the outcome of this litigation at this time.

On March 17, 2009, Andrew Lambert, an alleged stockholder, served a derivative complaint filed in the Court of Chancery of the State of Delaware, purportedly on behalf of Anesiva (named as a nominal defendant), against Anesiva’s chief executive officer, certain members of Anesiva’s board of directors and certain stockholders of Anesiva affiliated with the directors relating to the financing transaction we completed in January 2009. On January 20, 2009, we entered into a securities purchase agreement (the “Investor Agreement”) with Sofinnova Venture Partners VII, L.P., Alta California Partners III, L.P., Alta Embarcadero Partners III, LLC, Alta Partners VIII, LP, CMEA Ventures VII, L.P., CMEA Ventures VII (Parallel), L.P., InterWest Partners VIII, LP, InterWest Investors VIII, LP, and InterWest Investors Q VIII, LP (each an “Investor” and together the “Investors”), where we agreed to sell and issue securities for a total principal amount of up to $7.0 million, subject to the terms and conditions set forth in the Investor Agreement. The complaint alleges, among other things, that the defendants breached their fiduciary duties by causing Anesiva to enter into the Investor Agreement. The plaintiff sought, among other things, a judgment voiding provisions of the Investor Agreement that require us to pay the investors who are party to the Investor Agreement seven times the amount of the outstanding principal amount of the securities purchased in the financing in the event of a change of control. This lawsuit was dismissed on October 30, 2009.

On March 19, 2009, Sheryl Gluck, an alleged stockholder, filed a derivative complaint in the Court of Chancery of the State of Delaware, purportedly on behalf of Anesiva (named as a nominal defendant), against Anesiva’s chief executive officer, certain members of Anesiva’s board of directors and certain stockholders of Anesiva affiliated with the directors relating to the Investor Agreement with the Investors. The complaint alleged, among other things, that the defendants breached their fiduciary duties by causing Anesiva to enter into the Investor Agreement. On September 8, 2009, an amended complaint was filed, which also alleges, among other things (including allegations relating to the Investor Agreement), that the defendants breached their fiduciary duties to the stockholders of Anesiva in connection with the proposed merger (the “Merger”) of Arca Acquisition Corporation (“Arca”), a wholly-owned subsidiary of Anesiva, and Arcion Therapeutics, Inc. (“Arcion”), pursuant to that certain Agreement and Plan of Merger, dated August 4, 2009, among Anesiva, Arca and Arcion and, with respect to only Articles V and IX of the agreement, each of the Arcion stockholders listed on Schedule I thereto. The amended complaint adds, among others, Arcion as a defendant to the suit. The amended complaint seeks, among other things, to enjoin the defendants from completing the Merger as currently contemplated. The amended complaint is styled both as a derivative suit and as a class action and seeks, in addition to the injunctive relief noted, damages to certain of the Anesiva stockholders based on a theory that the purchase price offered to such stockholders is less than the value of their shares. Anesiva and Plaintiff Gluck have since agreed upon a tentative settlement. The parties are now in the process of confirmatory discovery.

On April 24, 2009, Eight Tower Bridge Development Associates filed a lawsuit against Anesiva in the Court of Common Pleas of Montgomery County, Pennsylvania alleging breach of contract and seeking more than $261,000 for amounts allegedly due under Anesiva’s lease for its facility in Conshohocken Pennsylvania. Anesiva has accrued the contingency in accordance with the FASB guidance as a discontinued operations expense relating to the Zingo manufacturing and commercial operations. Anesiva is unable to predict the outcome of this litigation at this time.

On May 29, 2009, Coulter Pharmaceutical, Inc. filed a suit for damages against Anesiva in the California Superior Court, County of San Mateo alleging breach of sublease agreement and seeking more than $25,000 in damages. On November 4, 2009, Coulter Pharmaceutical, Inc. terminated the sublease agreement between Anesiva and Coulter Pharmaceutical, Inc., dated May 15, 2003, as amended on October 15, 2005 and November 10, 2006, to sublease the premises located at 650 Gateway Boulevard, South San Francisco, California effective immediately. Under the terms of the Sublease, Coulter may seek to recover from Anesiva (i) the amount of unpaid rent owed at the time of termination of up to approximately $1.2 million, plus interest; (ii) the amount of future unpaid rent for the balance of the term of the Sublease of up to approximately $2.2 million, (iii) less the amount of rental loss which it can be proven could have been reasonably avoided by Coulter; and (iv) attorneys’ fees, which cannot reasonably be estimated at this time. Anesiva has accrued the contingency in accordance with the FASB guidance as a general and administrative expense. Anesiva is unable to predict the outcome of this litigation at this time.

On June 1, 2009, John Regan filed a wage complaint claim with the Division of Labor Standards Enforcement (“DLSE”) of the California Department of Industrial Relations alleging non-payment of severance payments totaling approximately $63,000 under his separation and consulting agreement dated September 3, 2008. A hearing was held on July 27, 2009 at the DLSE. On July 29, 2009, the DLSE awarded John Regan approximately $102,000. Anesiva accrued the contingency in accordance with the FASB guidance as a discontinued operations expense relating to the Zingo manufacturing and commercial operations. Anesiva settled this matter on October 20, 2009.

of approximately $273,000 plus interest as of October 1, 2009, and post-judgment interest that will accrue until the judgment is satisfied. Anesiva has accrued the contingency in accordance with the FASB guidance as a discontinued operations expense relating to the Zingo manufacturing and commercial operations.

On August 4, 2009, Microtest Laboratories, Inc. (MTL) filed a lawsuit against us in the United States District Court, District of Massachusetts alleging the non-payment for services in the amount of approximately $1,003,000. On September 16, 2009, a default judgment was entered against Anesiva in the amount of approximately $1,003,000 plus post-judgment interest that will accrue until the judgment is satisfied. Anesiva has accrued the contingency in accordance with the FASB guidance as a discontinued operations expense relating to the Zingo manufacturing and commercial operations.

6. Discontinued Operations

Assets related to the discontinued Zingo business are classified as assets held-for-sale when certain criteria are met. In accordance with the FASB guidance, we classified these assets as assets held-for-sale on the consolidated balance sheet as of December 31, 2008, which includes certain raw material used in Zingo, prepaid and other assets, and fixed assets associated to Zingo manufacturing. In addition, since we expect to have no significant or direct involvement in future operations related to these assets after November 8, 2008, the operations related to the Zingo manufacturing and commercial activities, including the CJV, have been presented as discontinued operations. Discontinued operations are reported as a separate component within the consolidated statement of operations outside of loss from continuing operations.

On July 3, 2009, the Company, Wanbang, an individual investor and the CJV entered into a termination agreement (the “Termination Agreement”) for the termination, liquidation and dissolution of the CJV and the termination of the cooperative joint venture contract, dated October 11, 2007 (the “CJV Contract”) and any other agreements between the Company, Wanbang and the individual investor and between the Company and the CJV. Under the Termination Agreement, Wanbang released us from any and all claims and obligations under the CJV and the remaining assets of the CJV would be distributed to Wanbang and the individual investor. At December 31, 2008, the Company impaired its investment in the CJV as part of the discontinued operations for Zingo. The parties also terminated all rights, obligations, responsibilities and liabilities of the parties under the CJV Contract, the Quality Agreement between the Company and the CJV, dated July 16, 2008 and the Technology License Agreement between the Company and the CJV, dated August 6, 2008. The Company did not pay or receive any monetary considerations upon termination of the agreement.

The significant components of our Zingo manufacturing and commercial operations, which were presented as discontinued operations for the three and nine months ended September 30, 2009 and 2008, were as follows (in thousands, except per share amounts):


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2009			2008			2009			2008
Operating expenses:
Research and development		59			5,910			177			13,449
General and administrative		21			3,540			21			11,384

Total operating expenses		80			9,450			198			24,833

Gain on sale of assets		(239	)		—			(597	)		—
Interest and other expenses		37			—			81			—
Other income		(38	)		—			(122	)		—

Gain (Loss) from discontinued operations	$	160		$	(9,450	)	$	440		$	(24,833	)


Net income (loss) per common share

Basic net income (loss) per share	$	0.00		$	(0.23	)	$	0.01		$	(0.62	)

Diluted net income (loss) per share	$	0.00		$	(0.23	)	$	0.01		$	(0.62	)


Weighted average shares used to compute basic net income (loss) per common share		40,466			40,366			40,454			40,321

Weighted average shares used to compute diluted net income (loss) per common share		40,641			40,366			40,595			40,321

7. License and Distribution Agreements

In December 2007, we entered into an agreement with Medical Futures Inc. (Medical Futures) whereby we have granted an exclusive license to Medical Futures for the marketing and distribution of Zingo in Canada. Under the terms of the agreement, Medical Futures is responsible for all regulatory filings, marketing, distribution and selling in Canada. Upon regulatory approval in Canada, Medical Futures will purchase Zingo at a transfer price. We received a non-refundable $50,000 upfront payment. Upon discontinuing the manufacturing and commercial operations relating to Zingo, we commenced negotiations with Medical Futures and have classified the upfront payment as other accrued liabilities. For the years ended December 31, 2007 and 2008, we recognized an insignificant amount in revenue under this agreement. No amounts have been recognized as revenue during the nine months ended September 30, 2009 and an insignificant amount of revenue was recorded in the nine months ended September 30, 2008. On October 20, 2009, we terminated the agreement with Medical Futures with a payment of $45,000 due to Medical Futures contingent on the closing of Merger with Arcion as described in footnote 2.

In February 2008, as amended in April 2008, we entered into a license agreement with Sigma-Tau Industrie Farmaceutiche Riunite S.p.A. (Sigma-Tau). Under the terms of the agreement, Sigma-Tau is the exclusive distributor of Zingo in Italy, France, Germany, Netherlands, Belgium, Luxembourg certain French-speaking African countries, Liechtenstein, Portugal, Spain and Switzerland. We received a total of $275,000 of refundable upfront payments contingent on the achievement of certain regulatory milestones. Upon discontinuing the manufacturing and commercial operations relating to Zingo, we commenced negotiations with Sigma-Tau and have classified the upfront payment as other accrued liabilities. To date no revenue has been recognized under this arrangement.

In April 2008, we entered into an exclusive license and distribution agreement with Green Vision Company (Green Vision). Under the terms of the agreement, Green Vision is the exclusive distributor of Zingo in Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia and United Arab Emirates. The agreement provides for an upfront payment, royalty payments, and payments for the achievement of certain sales milestones. We received a non-refundable $25,000 upfront payment. Upon discontinuing the manufacturing and commercial operations relating to Zingo, we commenced negotiations with Green Vision and have classified the upfront payment as other accrued liabilities. No amounts have been recognized as revenue during the nine months ended September 30, 2009 and an insignificant amount of revenue was recorded in the nine months ended September 30, 2008. On November 10, 2009, we terminated the agreement with Green Vision with a payment of $25,000 due to Green Vision contingent on the closing of Merger with Arcion as described in footnote 2.

8. Debt

amount of the Investor Securities, plus all accrued but unpaid interest. A sale of assets of the company under a bankruptcy, chapter 7 or chapter 11, will be a change of control event, as defined. As of July 20, 2009, we are obligated to pay the outstanding principal and accrued but unpaid interest at the request of a certain majority of the Investors, which has not been received by the Company. Under the terms of the Reinvestment Agreement and upon the close of the Merger, immediately following the redemption by the Company of all of the outstanding securities held by the Investors issued pursuant to the Securities Purchase Agreement at a redemption price in cash equal to 100% of the aggregate outstanding principal amount of and all accrued but unpaid returns on such securities being redeemed, each Investor, upon receipt of the redemption price for the securities, will reinvest the proceeds of such redemption by purchasing unregistered common stock of the Company at a fixed price of $0.30 per share. Under the terms and conditions set forth in the Investor Agreement, we received an initial $3.0 million on January 20, 2009, a second tranche of $2.0 million on March 3, 2009 and the final tranche of approximately $1.3 million on April 1, 2009. At September 30, 2009, we had approximately $6.3 million principal amount and approximately $277,000 accrued interest of Investor Securities outstanding.

On April 2, 2009, we offered the holders of our common stock the Rights Offering to purchase the Rights Offering Notes subject to the terms and conditions set forth in the Indenture. On April 28, 2009, we completed the Rights Offering. We received total gross proceeds of approximately $1.1 million in exchange for the issuance of these Rights Offering Notes. The Rights Offering Notes will bear interest at a rate of 7% per annum. If we default under the Rights Offering Notes, the Rights Offering Notes will bear interest at a rate of 14% per annum. If a change of control event occurs as defined under the Rights Offering Notes, we will owe the holders of the Rights Offering Notes the lesser of seven (7) times the amount of the outstanding principal amount of the unsecured notes, plus all accrued but unpaid interest, or the same multiple (which may be less than one) of the aggregate principal amount received by the holders of the 2009 Securities, together with accrued but unpaid interest. A sale of assets of the company under a bankruptcy, chapter 7 or chapter 11, will be a change of control event, as defined. Unless we pay the principal and accrued but unpaid interest back early under a change control event, we will pay the outstanding principal and accrued but unpaid interest on April 28, 2010. At September 30, 2009, we had approximately $1.1 million principal amount and approximately $34,000 accrued interest of Rights Offering Notes outstanding.

On May 18, 2009, we entered into a secured note purchase agreement (the “Note Purchase Agreement”) with Arcion Therapeutics, Inc. (Arcion), pursuant to which we agreed to sell and issue a note (the “Arcion Note”) in the principal amount of $2.0 million, subject to the terms and conditions set forth in the Note Purchase Agreement. The Arcion Note is secured by a first priority security interest in all of the assets of the Company and AlgoRx Pharmaceuticals, Inc. (“AlgoRx”), one of our wholly-owned subsidiaries. The Arcion Note accrues interest at a continuously compounding rate of 10% per annum. During the occurrence and continuance of an event of default, the Arcion Note will accrue interest at a continuously compounding rate of 14% per annum. Unless earlier paid pursuant to the terms of the Note Purchase Agreement or accelerated in connection with an event of default, subject to the terms of the Note Purchase Agreement, the outstanding principal and accrued but unpaid returns will be immediately due and payable on December 31, 2009. We may prepay the Arcion Note at any time without penalty. An event of default is defined in the Note Purchase Agreement to include, among other things: (1) a default of the Company or a subsidiary of the Company beyond any applicable cure period under any monetary liability that results in the acceleration of payment of such obligation in an amount over $100,000; (2) any judgment(s) entered against the Company or any subsidiary which in the aggregate exceeds $100,000 and remains unsatisfied pending appeal for 45 days or more after entry; and (3) a failure to pay any principal or interest due under the Arcion Note or failure to pay any other charges due under the Note Purchase Agreement, with such failure continuing for at least three business days. On September 17, 2009 we entered into an amendment to the Arcion Note to, among other things, increase the aggregate principal amount of $200,000 and extend the maturity date to December 31, 2009. At September 30, 2009, we had $2.2 million principal amount and approximately $76,000 accrued interest of Arcion Note outstanding.

9. Subsequent Events

The Company evaluated all events or transactions that occurred after September 30, 2009 up through November 16, 2009, the date the Company issued these financial statements.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q, including particularly the sections entitled “Business Risks” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. These

statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipates,” “believes,” “continue,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “will,” or the negative of these terms or other comparable terminology. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission.

Liquidity

We have an accumulated deficit of $325.1 million as of September 30, 2009. Additionally, we have used net cash of $10.5 million and $60.8 million to fund our operating activities for the nine months ended September 30, 2009, and 2008, respectively, all of this which contributed to our ending cash and cash equivalent balance of approximately $8,000 at September 30, 2009. To date our operating losses have been funded primarily from outside sources of capital. Total assets decreased from $3.1 million at December 31, 2008 to $1.1 million at September 30, 2009.

During 2008, we initiated our commercialization activities relating to Zingo while simultaneously pursuing available financing sources to support operations and growth. We have had, and continue to have, an ongoing need to raise additional cash from outside sources to fund our operations. However, our announcement in November 2008 that we discontinued Zingo manufacturing and commercial operations and that the ACTIVE-1 Phase 3 clinical trial evaluating Adlea for use in bunionectomy surgeries did not meet its primary end point has significantly depressed our stock price. The current credit conditions and the downturn in the financial markets and the global economy may have severely impaired our ability to raise additional funds. At September 30, 2009, we had more total liabilities as compared to total assets on our condensed consolidated balance sheets. In our efforts to reduce our operating expenses, we have undergone multiple restructurings during the past year and have focused on settling with existing creditors to reduce our liabilities. For the months of September and October 2009, our current employees were furloughed to reduce our operating expenses. Accordingly, we have recorded no compensation expenses relating to the furloughed employees during the furlough period. In addition, certain key vendors have agreed to continue to work with us in anticipation of the closing of the Merger. However, there can be no assurance that our current employees will remain with us or that our key vendors will continue to work with us until the consummation of the Merger. We believe that our existing cash and cash equivalents, including amounts received subsequent to September 30, 2009, will be sufficient to fund our activities into December 2009. Accordingly, the combination of these facts raises substantial doubt as to our ability to continue as a going concern. The accompanying consolidated financial statements and financial statement schedule have been prepared assuming that we will continue as a going concern. If we are unsuccessful in our efforts to raise additional outside capital in the near term, we will be required to significantly reduce our research, development, and administrative operations, including further reduction of our employee base, or we may be required to cease operations completely, or liquidate in order to offset the lack of available funding.

We are pursuing financing opportunities through both private and public debt as well as through strategic transactions and corporate partnerships. We have an established history of raising capital through these platforms, and we are actively pursuing our options. On January 20, 2009, we entered into that certain Investor Agreement pursuant to which we sold and issued Investor Securities and received an initial $3.0 million on January 20, 2009, a second tranche of $2.0 million on March 3, 2009 and the final tranche of approximately $1.3 million on April 1, 2009. The Investor Securities are secured by a first priority security interest in all of the assets we own and are subordinate to the Arcion loan. We will pay interest at a continuously compounding rate of 7% percent per year. If we default under the Investor Agreement, we will pay interest at a continuously compounding rate of 14% per year. If a change of control event occurs as defined under the Investor Agreement, we will owe the Investors seven (7) times the amount of the outstanding principal amount of the Investor Securities, plus all accrued but unpaid interest. A sale of assets of the company under a bankruptcy, chapter 7 or chapter 11, will constitute a change of control event. As of July 20, 2009, we are obligated to pay the outstanding principal and accrued but unpaid interest at the request of a certain majority of the Investors, which has not been received by the Company.

Under the terms of that certain Reinvestment Agreement and upon the close of the Merger (discussed below), immediately following the redemption by the Company of all of the outstanding Investor Securities held by the Investors issued pursuant to the Investor Agreement at a redemption price in cash equal to 100% of the aggregate outstanding principal amount of and all accrued but unpaid returns on such securities being redeemed, each Investor, upon receipt of the redemption price for the securities, will reinvest the proceeds of such redemption by purchasing unregistered common stock of the Company at a fixed price of $0.30 per share.

occurs as defined under the rights offering notes, we will owe the holders of the rights offering notes the lesser of seven (7) times the amount of the outstanding principal amount of the unsecured notes, plus all accrued but unpaid interest or the same multiple (which may be less than one) of the aggregate principal amount received by the holders of the 2009 Securities, together with accrued but unpaid interest. A sale of assets of the company under a bankruptcy, chapter 7 or chapter 11, will constitute a change of control event. Unless we pay the principal and accrued but unpaid interest back early under a change control event, we will pay the outstanding principal and accrued but unpaid interest on April 28, 2010.

On August 4, 2009, we entered into the Merger Agreement. The Merger Agreement provides that, among other things, upon the terms and subject to the conditions set forth in the Merger Agreement, Arca will merge with and into Arcion, a privately held corporation, with Arcion as the surviving corporation of the merger (the “Merger”). As a result of the Merger, Arcion will become a wholly owned subsidiary of the Company and each outstanding share of Arcion capital stock will be converted into the right to receive shares of Company common stock as set forth in the Merger Agreement. Under the terms of the Merger Agreement, the Company will issue, and Arcion stockholders will receive in a tax-free exchange, shares of Anesiva common stock such that Arcion stockholders will own approximately 64% and our stockholders will own approximately 36% of the outstanding shares of the Company immediately following the Merger and the Reinvestment (as defined below).

On October 30, 2009, we announced that our 2009 Annual Meeting of Stockholders to vote on various matters including the approval of the issuance of shares of our common stock in the Merger with Arcion will be held on December 3, 2009 at 9:00 a.m. PST at 400 Oyster Point, Suite 107A, South San Francisco, California.

Deficiency letter from The Nasdaq Global Market

On March 27, 2009, the Company received a letter from The NASDAQ Stock Market LLC (“Nasdaq”) notifying us that we no longer met the NASDAQ Global Market requirements under Marketplace Rule 4450(a)(3) (which has since been superseded by Rule 5450(b)(1)(A)), requiring a minimum of $10.0 million in stockholders’ equity for continued listing. On July 17 2009, the Company received a letter notifying the Company that based on NASDAQ’s further review of the Company and material submitted by the Company, the Company had failed to regain compliance with Rule 5450(b)(1)(A) and, therefore, NASDAQ has determined to delist the Company’s securities from The NASDAQ Global Market. The Company requested an oral hearing before a Hearings Panel to appeal the decision during which time the Company’s securities remained listed on The NASDAQ Global Market pending a decision by the Listing Qualifications Panel following the hearing. The hearing was held on August 27, 2009.

On September 24, 2009, the Company received a letter from NASDAQ notifying us that we no longer met the NASDAQ Global Market requirements under Marketplace Rule 5450(a)(1), requiring a minimum bid price of at least $1.00 per share for continued listing. To regain compliance with Rule 5450(a)(1), the closing bid price of Anesiva’s common stock must meet or exceed $1.00 per share for at least ten consecutive business days. If the Company does not regain compliance with Rule 5450(a)(1) by March 16, 2010, NASDAQ will provide written notification to the Company that its common stock may be delisted. If the proposal for a one-for-40 reverse stock split is approved by the stockholders at the 2009 Annual Meeting of Stockholders and the Merger is consummated, the Company expects that the one-for-40 reverse stock split will increase the market price of its common stock and the Company will be able to regain compliance with Rule 5450(a)(1).

On November 5, 2009, we received a letter from Nasdaq stating that the Nasdaq Hearing Panel has granted our request for continued listing on The NASDAQ Global Market subject to the condition that Anesiva shall have completed the Merger with Arcion contemplated by the Merger Agreement on or before December 31, 2009. Unless the Merger is consummated, it is unlikely Anesiva will be able to satisfy the $1.00 per share minimum bid price requirement under Rule 5450(a)(1) and the $10.0 million stockholders’ equity requirement under Rule 5450(b)(1)(A), and its securities would therefore most likely be delisted from The NASDAQ Global Market. Notwithstanding the foregoing, there can be no assurance that the combined company’s stockholders’ equity following the Merger will remain in excess of the $10.0 million stockholders’ equity requirement or that the market price per share following the Merger and the reverse stock split will remain in excess of the minimum bid price for the requisite period of time for continued listing.

Although there can be no assurance given, we hope to successfully complete the Merger in the near-term. It could be difficult or impossible for us to raise additional capital as required under the closing condition of the Merger. Without this additional capital, current working capital and containment of operating costs will not provide adequate funding for research, clinical trials, and development activities relating to Adlea and may impact our ability to successfully partner or sell our Adlea asset. If we are able to raise funds in the near future, we may be required to raise those funds through public or private financings, strategic relationships or other arrangements. The sale of additional equity and debt securities may result in additional dilution to our stockholders. Additional financing may not be available in amounts or on terms acceptable to us or at all. If such efforts are not successful, we may need to further reduce or curtail our current workforce, or may even cease operations completely, or liquidate if we do not obtain any additional funding. Based on our recent reductions described below and impact of other actions taken by management, the cash operating requirements in the near term have been reduced. In addition, we are pursuing strategic transactions and alternatives with respect to all aspects of our business, including sales of our Zingo product and asset and seeking a partner or acquirer for our Adlea program or closing of the Merger with Arcion.

Overview

Anesiva, Inc. (“we” or “Anesiva”) is a biopharmaceutical company focused on the development and commercialization of novel therapeutic treatments for pain management. Our portfolio of products includes:

•

Adlea™, a long-acting, site-specific, non-opioid analgesic, is being developed for moderate to severe pain, and has completed multiple Phase 2 trials in post-surgical, musculoskeletal and neuropathic pain and Phase 3 trials in bunionectomy and total knee replacement surgery. We are initially pursuing an indication for Adlea for the management of acute post-operative pain associated with orthopedic surgeries.

•

Adlea and Zingo are different drugs, each with own mechanisms of action. Adlea is a novel non-opioid drug candidate that is a vanilloid receptor 1 agonist, or TRPV1 agonist, based on the compound capsaicin which provides analgesia from weeks to months. Zingo is comprised of microcrystals of lidocaine delivered into the skin by compressed gas and employs a proprietary needle-free dispenser.

Our objective is to actively seek partnership for the continued development and commercialization of Adlea for the treatment of pain and pursue other potential business combination transactions. Key elements of our strategy include:

•

Advance the Clinical Development of Adlea

•

Initiation of a Phase 2 dose-validation study in total knee arthroplasty patients;

•

Conduct a supportive study in arthroscopic shoulder surgeries; and

•

Conduct a replacement Phase 3 study in an appropriate surgical model during 2010 and 2011.

•

Be Opportunistic About Partnering our Existing Products and About Expanding Our Pain Management Franchise. Evaluate partnership opportunities for Adlea that would provide maximum exposure of the product in the marketplace. Seek to in-license product candidates that would enhance our product pipeline of pain management products.

•

Explore other Potential Business Combination Transactions. Explore and evaluate opportunities for the merger, sale or other combination of Anesiva that would provide maximum return to our creditors and stockholders.

Financial Operations Overview

Contract Revenues

Contract revenues are revenues from licensing agreements that are based on the performance requirements of the agreement. If we have an ongoing involvement or performance obligation, non-refundable up-front fees are generally recorded as deferred revenue in the balance sheet and amortized into license fees in the consolidated statement of operations over the term of the performance obligation. If we have no ongoing involvement or performance obligation, non-refundable up-front fees are generally recorded as revenue in the period in which the rights are transferred.

Research and Development Expenses

Our research and development expenses consist primarily of:

•

salaries and related expenses for personnel;

•

costs of operating facilities and equipment;

•

fees paid to regulatory agencies, consultants, and clinical research organizations in conjunction with independently monitoring our clinical trials and acquiring and evaluating data in conjunction with the clinical trials;

•

fees paid to research organizations in conjunction with preclinical studies;

•

costs to develop manufacturing processes at third-party manufacturers;

•

costs of materials used in research and development;

•

upfront and milestone payments under in-licensing agreements;

•

consulting fees paid to third parties; and

•

depreciation of capital resources used to develop products.

We expense both internal and external research and development costs as incurred.

We use our employee and infrastructure resources across several projects, and some costs are not attributable to an individually-named project but rather are directed across these research projects. The following table shows, for the three and nine months ended September 30, 2009 and 2008, the total costs associated with Adlea and other research and development activities (i.e., salary and wages, NF-kB Decoy, etc.) (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2009		2008		2009		2008
Adlea	$	164	$	6,621	$	1,731	$	20,334
Other research and development		373		3,239		2,387		9,498

Total	$	537	$	9,860	$	4,118	$	29,832

We expect that a large percentage of our research and development expenses in the future will be incurred in support of Adlea for management of pain following orthopedic surgery and osteoarthritis pain. These expenditures are subject to numerous uncertainties in timing and cost to completion. We test our product candidates in numerous preclinical studies for toxicology, safety, and efficacy. We then conduct early stage clinical trials for each drug candidate. As we obtain results from clinical trials, we may elect to discontinue or delay clinical trials for certain product candidates or programs in order to focus our resources on more promising product candidates or programs. Completion of clinical trials by us or our future collaborators may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a drug candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:

•

the number of patients included in the trials;

•

the length of time required to enroll suitable patient subjects;

•

the number of sites that participate in the trials;

•

the number of doses that patients receive;

•

the duration of patient follow-up;

•

the phase of development the product is in; and

•

the efficacy and safety profile of the product.

Adlea is still being studied in clinical trials and has not yet received approval by the FDA or any foreign regulatory authority. In order to grant marketing approval, the FDA or foreign regulatory agencies must conclude that our clinical data establish the safety and efficacy of our drug candidates.

As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will receive cash inflows from the commercialization and sale of a product.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation, including stock-based compensation, for employees in executive and operational functions, including finance and business development. Other significant costs include facilities costs and professional fees for accounting and legal services, including legal services associated with obtaining and maintaining patents.

Discontinued Operations

Discontinued operations consist primarily of Zingo related costs including: research and development, compensation, including stock-based compensation; for employees in sales, marketing, manufacturing and development; marketing and advertising expenses, consulting expenses, product registration fees and manufacturing related costs related to the Zingo manufacturing and commercial activities. Manufacturing costs associated with Zingo include certain costs associated with our manufacturing process, including depreciation and personnel costs for activities such as quality assurance and quality control that were not capitalized in inventory, asset impairment charges, losses from asset disposal, scrap during the manufacturing process, idle facility, expenses related to unusable inventories and the lower of cost or market determinations. Gains are recognized on sale of previously written off Zingo related assets.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an on-going basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the following accounting policies are most critical to a full understanding and evaluation of our reported financial results.

Contract and Other Revenues

Our revenue recognition policies require that four basic criteria be met before revenue can be recognized: (1) persuasive evidence exists of an arrangement; (2) delivery has occurred or services have been rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the fees charged for services rendered and products delivered and the collectability of those fees. Accordingly, revenues from licensing agreements are recognized based on the performance requirements of the agreement. If we have an ongoing involvement or performance obligation, non-refundable up-front fees are generally recorded as deferred revenue in the balance sheet and amortized into license fees in the consolidated statement of operations over the term of the performance obligation. If we have no ongoing involvement or performance obligation, non-refundable up-front fees are generally recorded as revenue in the period in which the rights are transferred.

In November 2006, we entered into an agreement with Lumen Therapeutics, LLC granting a non-exclusive license to our clinical data and technical information relating to the prevention of saphenous vein graft disease in exchange for future royalties on the net sales of Lumen Therapeutics lead drug candidate and an equity position in Lumen Therapeutics. In August 2007, we entered into an agreement granting Particle Therapeutics a license to incorporate our drug delivery technology into its needle-free, transdermal delivery system for glucagon, a hormone commonly used for the treatment of hypoglycemia associated with Type 1 and Type 2 diabetes. Under the terms of the license agreement, we received an up-front payment in ordinary shares of Particle Therapeutics and will receive milestone payments for certain key clinical and regulatory achievements, royalties on future sales, as well as royalties on revenues from any future sub-licensing of the technology from Particle Therapeutics to third parties. For the three months ended September 30, 2009 and 2008, we recognized no non monetary revenue. For the nine months ended September 30, 2009 and 2008, we recognized none and $100,000 in non monetary revenue, respectively.

Valuation and Impairment of Long-Lived Assets

Assets related to the discontinued Zingo business are classified as assets held-for-sale when certain criteria are met. In accordance with ASC 360-10, Long-lived assets to be held and used, we classified these assets as assets held-for-sale on the consolidated balance sheet as of December 31, 2008, which includes prepaid and other assets, fixed assets and inventories related to Zingo. Since our Zingo assets were classified as held-for-sale as of December 31, 2008, we were required to report these assets at the lower of their respective carrying amounts or their fair values less costs to sell. The net book carrying value of the Zingo assets was approximately $20.1 million and, based upon our analysis as of December 31, 2008, the estimated fair value of the Zingo assets was $183,000. For the three and nine months ended September 30, 2009 and 2008, we did not recognize any impairment of long-lived assets.

Stock Compensation

We adopted the modified prospective transition method for recognizing stock-based compensation expenses, which requires the application of our accounting policy as of January 1, 2006, which have been reflected in these financial statements. Our accounting policy requires that we estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. We value share-based awards using the Black-Scholes option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statement of operations. As stock-based compensation expense recognized in the consolidated statement of operations for the three and nine months ended September 30, 2009 and 2008 are based on awards ultimately expected to vest, they have been reduced for estimated forfeitures. Our policy requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Stock compensation is amortized on a straight-line basis over the vesting period of the underlying option, generally four years for stock options and two to three years for restricted stock.

Clinical Trial Accounting

Our expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and clinical research organizations that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Generally, these agreements set forth the scope of work to be performed at a fixed fee or unit price. Payments under the contracts depend on factors such as the successful enrollment of patients or the completion of clinical trial milestones. Expenses related to clinical trials generally are accrued based on contracted amounts applied to the level of patient enrollment and activity according to the protocol. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis.

Results of Operations

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

Contract Revenues


	Three Months Ended September 30,				Change
	2009		2008		$			%
	(in thousands, except percentage)
Contract revenues	$	—	$	1	$	(1	)	-100	%

The contract revenue decrease for the three months ended September 30, 2009 compared to the same period in 2008 was not material.

Although we are seeking licensing or acquisition partners for the needle-free drug delivery technology underlying Zingo, we anticipate that we will not generate further contract revenues in 2009 from any collaboration since we have discontinued Zingo activities.

Research and Development Expenses

The following table summarizes our research and development expenses:


	Three Months Ended September 30,				Change
	2009		2008		$			%
	(in thousands, except percentage)
Research and development	$	537	$	9,860	$	(9,323	)	-95	%

The decrease in research and development expenses for the three months ended September 30, 2009 compared to the same period in 2008 was primarily due to the following:

•

Decrease in clinical trial costs of $4.7 million primarily due to the completion of Phase 2 and Phase 3 Adlea trials for post surgical pain and osteoarthritis pain during fiscal 2008;

•

Decrease in compensation and employee related expense of $2.0 million due to lower headcount as a result of the restructuring events in fiscal 2008 and 2009 and employees being furloughed during the month of September 2009;

•

Decrease in facilities and related expenses of $1.4 million due to lower headcount and overhead allocation;

•

Decrease in other research and development expenses of $485,000; and

•

Decrease in professional services of $458,000 primarily due to lower clinical related expenses.

We expect that our research and development expenses will continue to decrease from 2008 levels due to the completion of Phase 2 and Phase 3 Adlea trials for post surgical pain and osteoarthritis pain during fiscal 2008 and the reduction in the number of employees.

General and Administrative Expenses

The following table summarizes our general and administrative expenses:


	Three Months Ended September 30,				Change
	2009		2008		$			%
	(in thousands, except percentage)
General and administrative	$	1,764	$	2,801	$	(1,037	)	-37	%

The decrease in general and administrative expenses for the three months ended September 30, 2009 compared to the same period in 2008 was primarily due to the following:

•

Decrease in compensation expenses and employee-related expenses of $747,000 million due to lower headcount as a result of the restructuring events in fiscal 2008 and 2009 and employees being furloughed during the month of September 2009;

•

Decrease in professional services of $492,000 primarily due to lower recruiting and public relations expenses;

•

Increase in facilities and related expenses of $279,000 primarily due to expense related to default judgment relating to the lease for the New Jersey facility;

•

Decrease in other corporate expenses of $50,000.

We expect that our general and administrative expenses will continue to decrease from 2008 levels due to the reduction in the number of employees.

Discontinued Operations

The following table summarizes our gains (losses) from discontinued operations:


	Three Months Ended Sept 30,					Change
	2009		2008			$		%
	(in thousands, except percentage)
Gain (Loss) from discontinued operations	$	160	$	(9,450	)	$	9,610	102	%

The gain from discontinued operations for the three months ended September 30, 2009 compared to the same period in 2008 was primarily due to the following:

•

Decrease in overall manufacturing start-up related expenses of $5.9 million due to the discontinuation of Zingo;

•

Decrease in marketing expenses in support of Zingo of $3.4 million; and

•

Increase resulting from the sale of previously written off Zingo related assets for $239,000.

Gain (Loss) on Sale of Assets. Loss on sale of assets was $1,000 for the three months ended September 30, 2009 related to the sale of computer equipment compared to none for the three months ended September 30, 2008.

Interest and Other Income. Other income was $176,000 for the three months ended September 30, 2009 reflecting tax refund and settlements on liabilities compared to $176,000 for the three months ended September 30, 2008 primarily reflecting interest income from cash and investment balances.

Interest and Other Expense. Interest and other expense was $346,000 for the three months ended September 30, 2009 primarily reflecting interest due on the Investor Securities, rights offering notes, and Arcion Note and amortization of debt discount compared to $280,000 for the three months ended September 30, 2008 reflecting interest paid on our equipment line of credit in 2008.

Debt Extinguishment. Debt extinguishment was none for the three months ended September 30, 2009 compared to $656,000 for the three months ended September 30, 2008 reflecting the early repayment of the GE equipment line of credit in 2008.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008

Contract Revenues


	Nine Months Ended September 30,				Change
	2009		2008		$			%
	(in thousands, except percentage)
Contract revenues	$	—	$	304	$	(304	)	-100	%

The contract revenue decrease for the nine months ended September 30, 2009 compared to the same period in 2008 was primarily due to recording of license revenues of $300,000 from Particle Therapeutics for drug delivery technology in 2008.

Research and Development Expenses

The following table summarizes our research and development expenses:


	Nine Months Ended September 30,				Change
	2009		2008		$			%
	(in thousands, except percentage)
Research and development	$	4,118	$	29,832	$	(25,714	)	-86	%

The decrease in research and development expenses for the nine months ended September 30, 2009 compared to the same period in 2008 was primarily due to the following:

•

Decrease in clinical trial costs of $12.6 million primarily due to the completion of Phase 2 and Phase 3 Adlea trials for post surgical pain and osteoarthritis pain during fiscal 2008;

•

Decrease in compensation and employee related expense of $6.4 million due to lower headcount as a result of the restructuring events in fiscal 2008 and 2009 and employees being furloughed during the month of September 2009;

•

Decrease in facilities and related expenses of $3.1 million due to lower headcount and overhead allocation;

•

Decrease in research and development outside services of $1.9 million; and

•

Decrease in professional services of $1.3 million primarily due lower clinical related expenses.

General and Administrative Expenses

The following table summarizes our general and administrative expenses:


	Nine Months Ended Sept 30,				Change
	2009		2008		$			%
	(in thousands, except percentage)
General and administrative	$	8,933	$	11,328	$	(2,395	)	-21	%

The decrease in general and administrative expenses for the nine months ended September 30, 2009 compared to the same period in 2008 was primarily due to the following:

•

Increase in facilities and related expenses of $4.2 million primarily due to the restructuring charge associated with vacating the office and laboratory space at our South San Francisco location of $3.3 million (net present value), idle facility charges of $479,000, and charge related to a default judgment of $165,000 for the New Jersey facility;

•

Decrease in compensation expenses and employee-related expenses of $4.8 million due to lower headcount as a result of the restructuring events in fiscal 2008 and 2009 and employees being furloughed during the month of September 2009;

•

Decrease in professional services of $1.4 million primarily due to lower expenses associated with Adlea marketing, recruiting fees, and public relations expenses; and

•

Decrease in other corporate expenses of $203,000.

We expect that our general and administrative expenses will continue to decrease from 2008 levels due to the reduction in the number of employees.

Discontinued Operations

The following table summarizes our gains (losses) from discontinued operations:


	Nine Months Ended Sept 30,					Change
	2009		2008			$		%
	(in thousands, except percentage)
Gain (Loss) from discontinued operations	$	440	$	(24,833	)	$	25,273	102	%

The gain from discontinued operations for the nine months ended September 30, 2009 compared to the same period in 2008 was primarily due to the following:

•

Decrease in marketing expenses in support of Zingo of $10.9 million;

•

Decrease in overall manufacturing start-up related expenses of $13.7 million due to the discontinuation of Zingo;

•

Increase resulting from the sale and settlement of previously written off Zingo related assets for $597,000; and

•

Increase in other income of $122,000 due to other Zingo related settlements and contract terminations.

Gain (Loss) on Sale of Assets. Gain on sale of assets was $79,000 for the nine months ended September 30, 2009 primarily related to the sale of laboratory equipment compared to none for the nine months ended September 30, 2008.

Interest and Other Income. Other income was $219,000 for the nine months ended September 30, 2009 primarily reflecting a tax refund and settlement on liabilities compared to $992,000 for the nine months ended September 30, 2008 reflecting lower interest income from cash and investment balances.

Interest and Other Expense. Interest and other expense was $848,000 for the nine months ended September 30, 2009 reflecting interest from the Investor Securities, Rights Offering, and Arcion Note and amortization of debt discount compared to $959,000 for the nine months ended September 30, 2008 reflecting interest paid on our equipment line of credit in 2008.

Debt Extinguishment. Debt extinguishment was none for the nine months ended September 30, 2009 compared to $656,000 for the nine months ended September 30, 2008 reflecting the early repayment of the GE equipment line of credit.

Capital Resources

On January 20, 2009, we entered into the Investor Agreement where we agreed to sell and issue Investor Securities for a total principal amount of up to $7.0 million, subject to the terms and conditions set forth in the Investor Agreement. The Investor Securities are secured by a first priority security interest in all of the assets we own. We will pay interest at a continuously compounding rate of 7% per year. If we default under the Investor Agreement, we will pay interest at a continuously compounding rate of 14% per year. If a change of control event occurs as defined under the Investor Agreement, we will owe the Investors seven (7) times the amount of the outstanding principal amount of the Investor Securities, plus all accrued but unpaid interest. A sale of assets of the company under a bankruptcy, chapter 7 or chapter 11, will be a change of control event, as defined. As of July 20, 2009, we are obligated to pay the outstanding principal and accrued but unpaid interest at the request of a certain majority of the Investors, which has not been received by the Company. Under the terms of the Reinvestment Agreement and upon the close of the Merger, immediately following the redemption by the Company of all of the outstanding securities held by the Investors issued pursuant to the Securities Purchase Agreement at a redemption price in cash equal to 100% of the aggregate outstanding principal amount of and all accrued but unpaid returns on such securities being redeemed, each Investor, upon receipt of the redemption price for the securities, will reinvest the proceeds of such redemption by purchasing unregistered common stock of the Company at a fixed price of $0.30 per share. Under the terms and conditions set forth in the Investor Agreement, we received an initial $3.0 million on January 20, 2009, a second tranche of $2.0 million on March 3, 2009 and the final tranche of approximately $1.3 million on April 1, 2009 under the Investor Agreement.

On April 2, 2009, we offered the holders of our common stock non-transferable subscription rights to purchase certain notes subject to the terms and conditions set forth in the indentures. On April 28, 2009, we completed the rights offering. We received total gross proceeds of approximately $1.1 million in exchange for the issuance of these rights offering notes. The rights offering notes will bear interest at a rate of 7% per annum. If we default under the rights offering notes, the rights offering notes will bear interest at a rate of 14% per annum. If a change of control event occurs as defined under the rights offering notes, we will owe the holders of the rights offering notes the lesser of seven (7) times the amount of the outstanding principal amount of the unsecured notes, plus all accrued but unpaid interest, or the same multiple (which may be less than one) of the aggregate principal amount received by the holders of the 2009 Securities, together with accrued but unpaid interest. A sale of assets of the company under a bankruptcy, chapter 7 or chapter 11, will constitute a change of control event. Unless we pay the principal and accrued but unpaid interest back early under a change control event, we will pay the outstanding principal and accrued but unpaid interest on April 28, 2010.

entry; and (3) a failure to pay any principal or interest due under the Arcion Note or failure to pay any other charges due under the Note Purchase Agreement, with such failure continuing for at least three business days. On September 17, 2009 we entered into an amendment to the Arcion Note to, among other things, increase the aggregate principal amount of $200,000 and extend the maturity date to December 31, 2009. At September 30, 2009, we had $2.2 million principal amount and approximately $76,000 accrued interest of Arcion Note outstanding.

Cash Flows

The following table summarizes our statement of cash flows (in millions):


	Nine Months Ended September 30,
	2009			2008
Cash flows provided by (used in):
Operating activities	$	(10.5	)	$	(60.8	)
Investing activities		0.2			(3.0	)
Financing activities		9.6			9.0

Net increase (decrease) in cash and cash equivalents	$	(0.7	)	$	(54.8	)

Cash Flows from Operating Activities.

Net cash used in operating activities of $10.5 million for the nine months ended September 30, 2009 was primarily driven by our net loss of $13.2 million adjusted for non-cash items of $676,000 gain on disposal of assets, $569,000 of stock-based compensation, $367,000 in amortization of debt discount, $102,000 in depreciation, and $2.3 million cash inflow related to changes in operating assets and liabilities.

Net cash used in operating activities of $60.8 million for the nine months ended September 30, 2008 was primarily driven by our net loss of $66.3 million adjusted for non-cash items of $4.0 million of stock-based compensation, $3.5 million in provision in inventory, and $1.1 million in depreciation and amortization, and $3.2 million cash outflow related to changes in operating assets and liabilities.

Cash Flows from Investing Activities.

Net cash provided by investing activities of $236,000 for the nine months ended September 30, 2009 was due to proceeds from the disposal of equipment.

Net cash used in investing activities of $3.0 million for the nine months ended September 30, 2008 was due to $4.1 million in purchases of property, plant, and equipment offset by $1.1 million of cash from consolidation of the CJV.

Cash Flows from Financing Activities.

Net cash provided by financing activities of $9.6 million for the nine months ended September 30, 2009 was due to proceeds from the Investor Securities sold pursuant to the Investor Agreement, the Rights Offering, and the Arcion Note.

Net cash provided by financing activities of $9.0 million for the nine months ended September 30, 2008 was due to $20.1 million from proceeds from term loans and $382,000 from the issuance of common stock offset by the repayment on equipment loan of $11.4 million for the equipment line of credit.

Operating Capital and Capital Expenditure Requirements

We expect to devote substantial resources to continue our research and development efforts for Adlea. We believe that the key factors that will affect our internal and external sources of cash are:

•

our ability to execute on the approved restructuring plans;

•

our ability to access capital;

•

our ability to enter into a strategic transaction;

•

the progress of preclinical development and laboratory testing and clinical trials;

•

the time and costs involved in obtaining regulatory approvals;

•

delays that may be caused by evolving requirements of regulatory agencies;

•

the number of product candidates we pursue;

•

the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims;

•

our ability to establish, enforce and maintain selected strategic alliances and activities required for product commercialization;

•

the acquisition of technologies, products and other business opportunities that require financial commitments;

•

our revenues, if any, from successful development and commercialization of Adlea; and

•

our ability to complete the Merger on a timely basis.

Our announcements that we discontinued Zingo manufacturing and commercial operations and that the ACTIVE-1 Phase 3 clinical trial evaluating Adlea versus placebo following bunionectomy surgery did not meet its primary end point have significantly depressed our stock price and severely impaired our ability to raise additional funds. It could be difficult or impossible for us to raise additional capital.

Contractual Obligations

Our outstanding contractual obligations relate to our facilities leases and debt obligation. Our contractual obligations as of September 30, 2009 were as follows (in millions):


	Payments Due by Period
Contractual Obligations	Total		Less than One Year		One to Three Years		Four to Five Years		After Five Years
Debt Obligations		10.1		10.1		—		—		—
Operating leases		2.2		2.0		0.2		—		—

Total contractual cash obligations	$	12.3	$	12.1	$	0.2	$	—	$	—

Under all of our license agreements, we could be required to pay up to a total of approximately $1.0 million in payments for milestones such as the initiation of clinical trials and the granting of patents. As of September 30, 2009, we incurred approximately $3.1 million of milestone charges, including approximately $1.6 million of cash payments and approximately $1.5 million of stock compensation, for the execution of agreements, patent approvals and the initiation of U.S. clinical trials. Milestone payments will also be due upon the first administration to a subject using licensed technology in a Phase 1 clinical trial, the first administration to a subject using licensed technology in a Phase 3 clinical trial and FDA approval of Adlea in addition to sales milestones and royalties payable on commercial sales if any occur. Dr. James N. Campbell, who was a member of the board of Anesiva from June 29, 2007 to December 19, 2008, is one of the three licensors of Adlea.

In November 2006, we amended the original sublease agreement with Coulter Pharmaceutical, Inc. to extend the term of the lease agreement for our headquarter office in South San Francisco, California from June 1, 2007 through November 12, 2010. On November 4, 2009, the lease was terminated.

chapter 11, will be a change of control event, as defined. As of July 20, 2009, we are obligated to pay the outstanding principal and accrued but unpaid interest at the request of a certain majority of the Investors, which has not been received by the Company. Under the terms of the Reinvestment Agreement and upon the close of the Merger, immediately following the redemption by the Company of all of the outstanding securities held by the Investors issued pursuant to the Securities Purchase Agreement at a redemption price in cash equal to 100% of the aggregate outstanding principal amount of and all accrued but unpaid returns on such securities being redeemed, each Investor, upon receipt of the redemption price for the securities, will reinvest the proceeds of such redemption by purchasing unregistered common stock of the Company at a fixed price of $0.30 per share. Under the terms and conditions set forth in the Investor Agreement, we received an initial $3.0 million on January 20, 2009, a second tranche of $2.0 million on March 3, 2009 and the final tranche of approximately $1.3 million on April 1, 2009 under the Investor Agreement.

In March 2009, we entered into a sublease for office space in South San Francisco, California under a noncancelable operating lease effective April 1, 2009 through June 2010. The projected minimum payments for the operating lease at September 30, 2009 are approximately $80,000.

On April 2, 2009, we offered the holders of our common stock non-transferable subscription rights to purchase certain notes subject to the terms and conditions set forth in the indentures. On April 28, 2009, we completed the rights offering. We received total gross proceeds of approximately $1.1 million in exchange for the issuance of these rights offering notes. The rights offering notes will bear interest at a rate of 7% per annum. If we default under the rights offering notes, the rights offering notes will bear interest at a rate of 14% per annum. If a change of control event occurs as defined under the rights offering notes, we will owe the holders of the rights offering notes seven the lesser of (7) times the amount of the outstanding principal amount of the unsecured notes, plus all accrued but unpaid interest, or the same multiple (which may be less than one) of the aggregate principal amount received by the holders of the 2009 Securities, together with accrued but unpaid interest. A sale of assets of the company under a bankruptcy, chapter 7 or chapter 11, will constitute a change of control event. Unless we pay the principal and accrued but unpaid interest back early under a change control event, we will pay the outstanding principal and accrued but unpaid interest on April 28, 2010.

Off-Balance Sheet Arrangements

At September 30, 2009 and 2008, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purposes entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Recent Accounting Pronouncements

In June 2009, the FASB approved the “FASB Accounting Standard Codification” (FASB ASC or the Codification) as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States. The codification changes the referencing and organization of accounting guidance and is effective for interim and annual periods ending after September 15, 2009. All guidance contained in the Codification carries an equal level of authority. The Codification supersedes existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification became nonauthoritative. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the FASB ASC did not materially impact our financial statements, however our references to accounting literature within our notes to the condensed consolidated financial statements have been revised to conform to the Codification beginning with the quarter ended September 30, 2009.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is principally limited to our cash equivalents. We currently do not invest in any short-term investments. If market interest rates were to decrease by 100 basis points, or 1 percent, the change in the fair value of our portfolio would be insignificant. The modeling technique used measures the change in fair values arising from an immediate hypothetical shift in market interest rates and assumes ending fair values include principal plus accrued interest.

During the nine months ended September 30, 2009, there were no material changes in the interest rate risk or foreign currency exchange risk disclosure set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2008.

Item 4.

Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed to provide reasonable assurance of achieving their objectives. Based on their evaluation as of September 30, 2009, our chief executive officer and chief accounting officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in reports we file with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

Limitations on the effectiveness of controls.

Our management, including our chief executive officer and chief accounting officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Anesiva have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

On December 23, 2008, 500 Plaza Drive Corporation (500 Plaza) exercised a termination right under Anesiva’s lease for its facility in Secaucus, New Jersey, to terminate the lease effective December 28, 2008 due to non-payment of December 2008 rent. On January 5, 2009, 500 Plaza filed a summary dispossess action against Anesiva in the Superior Court of New Jersey, Special Civil Part, in Hudson County, New Jersey. The summary dispossess action sought a ruling to remove Anesiva from the office space at 500 Plaza Drive and pay nominal attorney’s fees. On February 9, 2009, a default judgment was issued against Anesiva and Anesiva no longer has possession of the Secaucus facility. After termination of the lease, 500 Plaza drew down on the security deposit in the form of a letter of credit for their benefit in the amount of approximately $112,000. On March 9, 2009, 500 Plaza served a further complaint seeking more than $242,200 for amounts allegedly due under the terminated lease. On September 25, 2009, the Superior Court of New Jersey, in Hudson County, New Jersey, awarded 500 Plaza damages and attorney’s fees totaling $333,270. Anesiva has accrued the contingency in accordance with the FASB guidance as a general and administrative expense.

On May 29, 2009, Coulter Pharmaceutical, Inc. filed a suit for damages against Anesiva in the California Superior Court, County of San Mateo alleging breach of sublease agreement and seeking more than $25,000 in damages. On November 4, 2009, Coulter Pharmaceutical, Inc. terminated the sublease agreement between Anesiva and Coulter Pharmaceutical, Inc. dated May 15, 2003, as amended on October 15, 2005 and November 10, 2006, to sublease the premises located at 650 Gateway Boulevard, South San Francisco, California effective immediately. Under the terms of the Sublease, Coulter may seek to recover from Anesiva (i) the amount of unpaid rent owed at the time of termination of up to approximately $1.2 million, plus interest; (ii) the amount of future unpaid rent for the balance of the term of the Sublease of up to approximately $2.2 million, (iii) less the amount of rental loss which it can be proven could have been reasonably avoided by Coulter; and (iv) attorneys’ fees, which cannot reasonably be estimated at this time. Anesiva has accrued the contingency in accordance with the FASB guidance as a general and administrative expense. Anesiva is unable to predict the outcome of this litigation at this time.

On June 1, 2009, John Regan filed a wage complaint claim with the Division of Labor Standards Enforcement (“DLSE”) of the California Department of Industrial Relations alleging non-payment of severance payments totaling $63,000 under his separation and consulting agreement dated September 3, 2008. A hearing was held on July 27, 2009 at the DLSE. On July 29, 2009, the DLSE awarded John Regan $102,000. Anesiva accrued the contingency in accordance with the FASB guidance as a discontinued operations expense relating to the Zingo manufacturing and commercial operations. Anesiva settled this matter on October 20, 2009.

On June 8, 2009 GKD-USA, Inc. (GKD) filed a lawsuit against us in the Circuit Court for Dorchester County, Maryland alleging the non-payment for goods and services in the amount of $273,000. On October 12, 2009, Anesiva received notice that on October 6, 2009, a default judgment was entered against Anesiva in the amount of $272,868 plus interest as of October 1, 2009, and post-judgment interest that will accrue until the judgment is satisfied. Anesiva has accrued the contingency in accordance with the FASB guidance as a discontinued operations expense relating to the Zingo manufacturing and commercial operations.

On August 4, 2009, Microtest Laboratories, Inc. (MTL) filed a lawsuit against us in the United States District Court, District of Massachusetts alleging the non-payment for services in the amount of $1,003,459. On September 16, 2009, a default judgment was entered against Anesiva in the amount of $1,003,459 plus post-judgment interest that will accrue until the judgment is satisfied. Anesiva has accrued the contingency in accordance with the FASB guidance as a discontinued operations expense relating to the Zingo manufacturing and commercial operations.

Item 1A.

Risk Factors

The following risks and uncertainties may have a material adverse effect on our business, financial condition or results of operations. Investors should carefully consider the risks described below before making an investment decision. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and investors may lose all or part of their investment.

We have marked with an asterisk (*) those risks described below that reflect substantive changes from the risks described under “Item 1A. Risk Factors” included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2009.

Risk Factors Relating to Our Business

We may need to seek protection under the provisions of the U.S. Bankruptcy Code, and in that event, it is unlikely that stockholders would receive any value for their shares.*

We have not generated any revenues to date, and we have incurred losses in each year since our inception in 1999. We currently have capital resources, including amounts received subsequent to September 30, 2009, that we believe to be sufficient to support our operations into December 2009. We may not be able to raise sufficient capital to continue our existing operations beyond that time, particularly in light of our obligations under our lease and credit agreements, and we are currently evaluating our strategic alternatives with respect to all aspects of our business. We

cannot assure you that any actions that we take would raise or generate sufficient capital to fully address the uncertainties of our financial position. As a result, we may be unable to realize value from our assets and discharge our liabilities in the normal course of business. If we are unable to settle our obligations to our creditors, including our landlords, or if we are unable to obtain financing to support continued satisfaction of our leases and other debt obligations, we would likely be in default under our lease and credit agreements and may need to seek protection under the provisions of the U.S. Bankruptcy Code. In that event, we may seek to reorganize our business, or we or a trustee appointed by the court may be required to liquidate our assets. In either of these events, whether the stockholders receive any value for their shares is highly uncertain. If we needed to liquidate our assets, we would likely realize significantly less from them than the values at which they are carried on our financial statements. The funds resulting from the liquidation of our assets would be used first to pay off the debt owed to secured and unsecured creditors before any funds would be available to pay our stockholders, and any shortfall in the proceeds would directly reduce the amounts available for distribution, if any, to our creditors and to our stockholders. In the event we were required to liquidate under the federal bankruptcy laws, it is highly unlikely that stockholders would receive any value for their shares.

We may not be able to raise sufficient funds to continue our current operations, and there is substantial doubt about our ability to continue as a going concern.

If we are not able to raise additional funding, we may not be able to enter into successful collaborations under favorable terms. As a result, we may be unable to realize value from our assets and discharge our liabilities in the normal course of business. All of these factors raise substantial doubt about our ability to continue as a going concern. If we become unable to continue as a going concern, we would have to liquidate our assets, and we might realize significantly less than the values at which they are carried on our financial statements. The accompanying financial statements include adjustments to the long-lived assets to indicate impairment of those assets. However, additional adjustments or charges may be necessary should we be unable to continue as a going concern, such as additional charges related to further impairment of our long-lived assets, the recoverability and classification of assets or the amounts and classification of liabilities or other similar adjustments.

We will need additional financing, which may be difficult or impossible to obtain. If we fail to obtain necessary financing or do so on unattractive terms, our development programs and other operations could be severely harmed.*

As of September 30, 2009, we had current liabilities of $21.4 million and cash on hand of approximately $8,000. In our efforts to reduce our operating expenses, we have undergone multiple restructurings during the past year and have focused on settling with existing creditors to reduce our liabilities. For the months of September and October 2009, our current employees were furloughed to reduce our operating expenses. Accordingly, we have recorded no compensation expenses relating to the furloughed employees during the furlough period. In addition, certain key vendors have agreed to continue to work with us in anticipation of the closing of the Merger. However, there can be no assurance that our current employees will remain with us or that our key vendors will continue to work with us until the consummation of the Merger. We currently have capital resources that we believe to be sufficient to support our operations into December 2009. We are attempting to, but may not be able to raise sufficient additional capital to continue our existing operations beyond that time. We have based this estimate on assumptions that may prove to be wrong, and we may utilize our available capital resources sooner than we currently expect. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the other factors discussed in this section.

We believe that strict cost containment in the near term is essential if our current funds are to be sufficient to allow us to continue our currently planned operations. If we are unable to effectively manage our current operations, we may not be able to implement our business strategy and our financial condition and results of operations may be adversely affected. To conserve cash, we have implemented a plan and substantially reduced our workforce and reduced our monthly expenditures. We are also evaluating our alternatives with respect to the sale of equipment, inventory and other non-critical assets. We are attempting to work out settlements with our creditors at this time but there is no assurance that we will be able to do so on satisfactory terms or at all. We may be legally declared to have an inability or impairment of our ability to pay our creditors, including the filing of an involuntary petition for bankruptcy. If we are unable to effectively manage our expenses, we may find it necessary to reduce our expenses through another reduction in our workforce, which could adversely affect our operations, or we may be required to cease operations completely, or liquidate.

In addition, we are pursuing strategic transactions and alternatives with respect to all aspects of our business, including sales of our Zingo product and asset and closing the Merger with Arcion. Stockholders should recognize that, to satisfy our liabilities and fund the clinical development of Adlea, we may pursue strategic alternatives that result in the stockholders of Anesiva having little or no continuing interest in the Zingo product or Adlea or any other assets of Anesiva as stockholders or otherwise.

We will require substantial funds to further develop and commercialize Adlea. We expect to incur significant spending as we expand our development programs, manage continuing operations and partnering activities and our future capital requirements will depend on many factors, including:

•

the scope and results of our clinical trials;

•

the timing of, and the costs involved in, obtaining regulatory approvals for Adlea, and other future product candidates; and

•

the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other patent-related costs, including any litigation costs and the results of such litigation.

We cannot assure you that any actions that we take would raise or generate sufficient capital to fully address the uncertainties of our financial position. Additional financing may not be available when we need it or may not be available on favorable terms or at all. If we are unable to obtain adequate funding on a timely basis, we may be required to significantly curtail one or more of our development programs for Adlea and to further reduce our current operations. We could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to some of our technologies, product candidates or products which we would otherwise pursue on our own. In addition, we have already significantly reduced our workforce and may need to further reduce or curtail our current workforce or may even cease operations completely, or liquidate if we do not obtain any additional funding. If we raise additional funds by issuing equity securities, our then-existing stockholders will experience dilution and the terms of any new equity securities may have preference over our existing common stock. In the current economic climate, we may be unable to raise additional funds through any sources.

We may not be able to identify and successfully complete a strategic transaction for the assets related to Zingo.

We eliminated our Zingo sales and marketing functions, closed down Zingo contract manufacturing and engineering activities and implemented a substantial restructuring plan approved by our board of directors. We previously devoted a substantial amount of efforts and capital expenditures relating to these activities. We are currently exploring strategic alternatives, including the sale of the assets related to Zingo. We cannot predict whether we will be able to identify strategic transactions on a timely basis or at all. We also cannot predict whether any such transaction, once identified, will be consummated on favorable terms or at all. We anticipate that any such transaction would be time consuming and may require us to incur significant additional costs regardless even if completed. If we are unable to identify and complete an alternate strategic transaction, we may incur additional material expenses relating to writing down the remaining assets relating to Zingo.

The announcement and pendency of our agreement to merge with Arcion could adversely affect our business.*

On August 4, 2009, Anesiva, Inc. (the “Company”) entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Arca Acquisition Corporation (“Arca”), a wholly owned subsidiary of the Company, Arcion Therapeutics, Inc. (“Arcion”). The Merger Agreement provides that, among other things, upon the terms and subject to the conditions set forth in the Merger Agreement, Arca will merge with and into Arcion, a privately held corporation, with Arcion as the surviving corporation of the merger (the “Merger”). As a result of the Merger, Arcion will become a wholly owned subsidiary of the Company and each outstanding share of Arcion capital stock will be converted into the right to receive shares of Company common stock as set forth in the Merger Agreement. Under the terms of the Merger Agreement, the Company will issue, and Arcion stockholders will receive in a tax-free exchange, shares of Anesiva common stock such that Arcion stockholders will own approximately 64% and Company stockholders will own approximately 36% of the outstanding shares of the Company immediately following the Merger and the transactions contemplated by the reinvestment agreement between Arcion and the holders of the Investors Securities. Consummation of the Merger is subject to customary closing conditions, including approval by the stockholders of the Company and Arcion. In connection with the execution of the Merger Agreement, certain stockholders of the Company, including entities affiliated with certain members of the Company’s board of directors, entered into voting agreements pursuant to which they have agreed to, among other things, vote in favor of the issuance of common stock pursuant to the Merger. The announcement and pendency of the Merger could cause disruptions in our business, including affecting our relationship with our vendors and employees, which could have an adverse effect on our business, financial results and operations. Further, the Merger may divert management’s attention from day-to-day operations and resources, which could harm our business.

Failure to satisfy the closing conditions of the Merger and complete the Merger and the Reinvestment could adversely affect Anesiva’s stock price and Anesiva’s future business and operations.*

There is no assurance that the Merger with Arcion or any other transaction will occur. The Merger is subject to the satisfaction of closing conditions, including the approval by Anesiva stockholders and the condition that Anesiva must have no indebtedness other than trade payables in an amount not in excess of $3.5 million and obligations under that certain secured note purchase agreement with Arcion, dated May 18, 2009, as amended, and those certain 7% senior notes due 2010 issued by Anesiva pursuant to that certain registration statement on Form S-3 (File No. 333-133337) filed by Anesiva with the SEC. As such, Anesiva will be required to enter into settlement agreements with its creditors and resolve its ongoing litigation matters prior to the closing of the merger to reduce the fair value of its assumed liabilities to be no more than $3.5 million. All creditors who have settled claims with Anesiva will be required to sign a release foregoing any claims to funds to the extent they were not paid in full. Anesiva cannot assure you that it will be able to successfully enter into such settlement agreements with its creditors and resolve its ongoing litigation matters prior to the closing of the Merger to reduce its indebtedness in an amount not in excess of $3.5 million. Thus, there is no assurance that Anesiva will be able to satisfy the closing conditions of the Merger or that the Merger will be successfully completed. To the extent any unasserted claims against Anesiva exist at the closing date of the merger, but are asserted after the closing date of the Merger, such claims shall be the responsibility of the combined company. No indemnification will be provided pursuant to the Merger Agreement to previous stockholders of Arcion or any other third party even if such previously unasserted claims are in excess of the $3.5 million liability threshold.

If the proposed Merger or a similar transation is not completed, the share price of our common stock may change to the extent that the current market price of our common stock reflects an assumption that a transaction will be completed. In addition, under circumstances defined in the Merger Agreement, we may be required to pay a termination fee of up to approximately $1.2 million and reimburse reasonable out-of-pocket fees and expenses of Arcion of not more than $500,000 incurred with respect to the transactions contemplated by the Merger Agreement. Further, a failed transaction may result in negative publicity and a negative impression of us in the investment community.

In the event that the Merger is not consummated, substantial doubt may arise regarding the Company’s ability to continue as a going concern. If the Company is unable to continue as a going concern, the Company would have to liquidate its assets, and the Company may realize significantly less than the values at which they are carried on its financial statements. The Company currently has capital resources that it believes to be sufficient to support its operations approximately into December 2009. If the Merger is not approved by stockholders, the Company may not be able to raise sufficient capital to continue its existing operations beyond that time. For instance, in the Company’s dispute with 500 Plaza Corporation, on September 25, 2009, the Superior Court of New Jersey, in Hudson County, New Jersey, awarded 500 Plaza Corporation damages and attorney’s fees totaling approximately $333,000. Also, in the Company’s dispute with GKD-USA, Inc., on October 12, 2009, Anesiva received notice that on October 6, 2009, a default judgment was entered against the Company in the amount of approximately $273,000 plus interest as of October 1, 2009, and post-judgment interest that will accrue until the judgment is satisfied. Further, in the Company’s dispute with Microtest Laboratories, Inc., on September 16, 2009, a default judgment was entered against the Company in the amount of approximately $1,003,000 plus post-judgment interest that will accrue until the judgment is satisfied. Unless the Merger is completed, the Company will not have sufficient capital or liquidity to satisfy these court awards. Anesiva expects that it will have sufficient capital and liquidity to satisfy these court awards if the Merger and the related transactions are completed. However, Anesiva cannot assure you that any actions that it takes would raise or generate sufficient capital to fully address the uncertainties of its financial position. As a result, Anesiva may be unable to realize value from its assets and discharge its liabilities in the normal course of business. If Anesiva is unable to settle its obligations to its creditors or if it is unable to obtain financing to support continued satisfaction of its debt obligations, Anesiva would likely be in default under its lease and credit agreements and may need to seek protection under the provisions of the U.S. Bankruptcy Code. In that event, Anesiva may seek to reorganize its business, or a trustee appointed by the court may be required to liquidate its assets. In either of these events, whether the stockholders receive any value for their shares is highly uncertain. In the event Anesiva is required to liquidate under the U.S. Bankruptcy Code, it is highly unlikely that stockholders would receive any value for their shares.

The costs associated with the Merger are difficult to estimate, may be higher than expected and may harm the financial results of the Company.*

The Company estimates that it is currently incurring significant Merger-related costs. The Company will incur aggregate direct transaction costs of approximately $1.0 million in connection with the transactions associated with the Merger, and additional costs associated with the consolidation and integration of operations, which cannot be estimated accurately at this time. If the total costs of the Merger exceeds the Company’s estimates or the benefits of the merger do not exceed the total costs of the Merger, the financial results of the Company could be adversely affected.

If we do not complete an Adlea partnering, Zingo divestiture or additional financing, we may not be able to repay the loan pursuant to our Investor Agreement, the Rights Offering Notes, or the Arcion Note when they become due and we may not be able to return capital to our stockholders.*

On April 2, 2009, we offered the holders of our common stock non-transferable subscription rights to purchase certain notes subject to the terms and conditions set forth in the indentures. On April 28, 2009, we completed the rights offering. We received total gross proceeds of approximately $1.1 million in exchange for the issuance of these rights offering notes. The rights offering notes will bear interest at a rate of 7% per annum. If we default under the rights offering notes, the rights offering notes will bear interest at a rate of 14% per annum. If a change of control event occurs as defined under the rights offering notes, we will owe the holders of the rights offering notes seven, the lesser of (7) times the amount of the outstanding principal amount of the unsecured notes, plus all accrued but unpaid interest or the same multiple (which may be less than one) of the aggregate principal amount received by the holders of the 2009 Securities, together with accrued but unpaid interest. A sale of assets of the company under a bankruptcy, chapter 7 or chapter 11, will constitute a change of control event. Unless we pay the principal and accrued but unpaid interest back early under a change control event, we will pay the outstanding principal and accrued but unpaid interest on April 28, 2010.

The Investor Securities and the Rights Offering notes became due on July 20, 2009 and will become due on April 28, 2010, respectively, and bear interest at a rate of 7% per annum. Since the inception of Anesiva’s business, it has incurred significant cumulative net losses. As of September 30, 2009, we had accumulated deficit of approximately $325.1 million. As of September 30, 2009, we had current liabilities of $21.4 million and cash on hand of approximately $8,000. We currently have capital resources that we believe to be sufficient to support our operations into December 2009. We expect to continue to incur substantial net losses in order to further develop and commercialize our products and may not be able to sustain our operations. Accordingly, absent additional financing, we will likely not have sufficient funds to pay the principal amount of the Investor Securities or the Rights Offering notes when due or upon any acceleration thereof. In addition, we may not have sufficient funds to pay interest on the Investor Securities or the Rights Offering notes. If we fail to pay principal or interest when due, we will be in default under the Investment Agreement and Indenture.

Upon a change of control event under the Investor Agreement and the Indenture we may have to pay up to seven times the amount of the outstanding principal amount of the notes in change of control proceeds plus all accrued but unpaid interest. As a result, we will not have any capital to distribute to our common stockholders if the consideration received pursuant to a consummated transaction that triggers a change of control event under the Investor Agreement is less than amounts of secured and unsecured debt outstanding at that time plus the $51.8 million that will be payable pursuant to the Investor Agreement and Rights Offering Notes.

continuously compounding rate of 10% per annum. During the occurrence and continuance of an event of default, the Arcion Note will accrue interest at a continuously compounding rate of 14% per annum. Unless earlier paid pursuant to the terms of the Note Purchase Agreement or accelerated in connection with an event of default, subject to the terms of the Note Purchase Agreement, the outstanding principal and accrued but unpaid returns will be immediately due and payable on December 31, 2009. We may prepay the Arcion Note at any time without penalty. An event of default is defined in the Note Purchase Agreement to include, among other things: (1) a default of the Company or a subsidiary of the Company beyond any applicable cure period under any monetary liability that results in the acceleration of payment of such obligation in an amount over $100,000; (2) any judgment(s) entered against the Company or any subsidiary which in the aggregate exceeds $100,000 and remains unsatisfied pending appeal for 45 days or more after entry; and (3) a failure to pay any principal or interest due under the Arcion Note or failure to pay any other charges due under the Note Purchase Agreement, with such failure continuing for at least three business days. On September 17, 2009 we entered into an amendment to the Arcion Note to, among other things, increase the aggregate principal amount of $200,000 and extend the maturity date to December 31, 2009. At September 30, 2009, we had $2.2 million principal amount and approximately $76,000 accrued interest of Arcion Note outstanding.

We may not be able to maintain our listing on The Nasdaq Global Market, which would adversely affect the price and liquidity of our common stock.*

On September 24, 2009, the Company received a letter from NASDAQ notifying us that we no longer met the NASDAQ Global Market requirements under Marketplace Rule 5450(a)(1), requiring a minimum bid price of at least $1.00 per share for continued listing. To regain compliance with Rule 5450(a)(1), the closing bid price of Anesiva’s common stock must meet or exceed $1.00 per share for at least ten consecutive business days. If the Company does not regain compliance with Rule 5450(a)(1) by March 16, 2010, NASDAQ will provide written notification to the Company that its common stock may be delisted. If the reverse stock split is approved by the stockholders and the Merger is consummated, the Company expects that the one-for-40 reverse stock split will increase the market price of its common stock and the Company will be able to regain compliance with Rule 5450(a)(1).

On November 5, 2009, we received a letter from Nasdaq stating that the Nasdaq Hearing Panel has granted ours request for continued listing on The NASDAQ Global Market subject to the condition that Anesiva shall have completed on or before December 31, 2009, the Merger with Arcion contemplated by the Merger Agreement. Unless the Merger is consummated, it is unlikely Anesiva will be able to satisfy the $1.00 per share minimum bid price requirement under Rule 5450(a)(1) and the $10.0 million stockholders’ equity requirement under Rule 5450(b)(1)(A), and its securities would therefore most likely be delisted from The NASDAQ Global Market. Notwithstanding the foregoing, there can be no assurance that the combined company’s stockholders’ equity following the Merger will remain in excess of the $10.0 million stockholders’ equity requirement or that the market price per share following the Merger and the reverse stock split will remain in excess of the minimum bid price for the requisite period of time for continued listing.

Our success is dependent on the proper management of our current and future business operations, and the expenses associated with them.*

Our business strategy requires us to manage our operations to provide for the continued development and potential commercialization of Adlea. Our strategy also calls for us to undertake increased research and clinical development activities, and to manage an increasing number of relationships with collaborators and other third parties to achieve our development timelines, while simultaneously managing the expenses generated by these activities. On September 3, 2008, we announced a reduction of approximately 20% of our workforce, across our pre-clinical development and administrative functions. This reduction in force was a part of our efforts to reduce our operating expenses through prioritization of our development portfolio and streamlining our infrastructure. On November 10, 2008, we announced that the ACTIVE-1 Phase 3 clinical trial studying Adlea versus placebo following bunionectomy surgery missed its primary endpoint, a non-safety related recall potentially related to shelf life of our marketed Zingo product and the early repayment of our Oxford Loan in the amount of over $20.9 million which led to a second

reduction of approximately 80% of our workforce, across all departments. As a result of these reductions in force, we recorded a restructuring charge of approximately $1.3 million in the third and fourth quarters of 2008. In August 2009, we announced a restructuring plan to lower operating expenses and preserve capital pursuant to which five positions were eliminated. For the months of September and October 2009, our current employees were furloughed to reduce our operating expenses. Accordingly, we have recorded no compensation expenses relating to the furloughed employees during the furlough period. In addition, certain key vendors have agreed to continue to work with us in anticipation of the closing of the Merger. However, there can be no assurance that our current employees will remain with us or that our key vendors will continue to work with us until the consummation of the Merger.

We continue to believe that strict cost containment in the near term is essential if our current funds are to be sufficient to allow us to continue our currently planned operations and clinical development. If we are unable to effectively manage our current operations, we may not be able to implement our business strategy and our financial condition and results of operations may be adversely affected. If we are unable to effectively manage our expenses, we may find it necessary to reduce our expenses through another reduction in our workforce or we may need to cease operations completely, or liquidate.

We currently are, and in the future may be, subject to stockholder litigation which could hurt our business.*

On March 17, 2009, we were served with a lawsuit naming certain of our officers, directors and stockholders affiliated with certain of our directors as defendants in a purported derivative lawsuit filed in the Court of Chancery of the State of Delaware in connection with a financing transaction we completed pursuant to the Investor Agreement in January 2009, alleging, among other things, breaches of fiduciary duties. This lawsuit was dismissed on October 30, 2009. On March 19, 2009, a second lawsuit was filed in the Court of Chancery of the State of Delaware naming certain of our officers, directors and stockholders affiliated with certain of our directors in a purported derivative lawsuit in connection with the same financing transaction we completed in January 2009. The plaintiffs sought, among other things, a judgment voiding provisions of the Investor Agreement that require us to pay the investors who are party to the Investor Agreement seven times the amount of the outstanding principal amount of the securities purchased in the financing in the event of a change of control. The stockholder derivative suits are discussed in more detail in Part II, Item 1 of this Quarterly Report on Form 10-Q. On September 8, 2009, an amended complaint was filed, which also alleges, among other things (including allegations relating to the Investor Agreement), that the defendants breached their fiduciary duties to the stockholders of Anesiva in connection with the proposed Merger. The amended complaint adds, among others, Arcion as a defendant to the suit. The amended complaint seeks, among other things, to enjoin the defendants from completing the Merger as currently contemplated. The amended complaint is styled both as a derivative suit and as a class action and seeks, in addition to the injunctive relief noted, damages to certain of the Anesiva stockholders based on a theory that the purchase price offered to such stockholders is less than the value of their shares. Anesiva and its directors intend to take all appropriate actions to defend the suit. We are unable to predict the outcome of this litigation at this time. We cannot predict the outcome of this remaining lawsuit, nor can we predict the amount of time and expense that will be required to resolve it. The ongoing legal fees we are incurring in connection with this action, or any attorneys’ fees that we may be required to pay as a result of the derivative suit, could have an adverse effect on our operating results and financial condition. In addition, if this lawsuit is successful and as a result we are enjoined from completing the Merger with Arcion we may need to seek protection under the provisions of the U.S. Bankruptcy Code and there may be significant doubt as to our ability to continue as a going concern. Further, this lawsuit may divert management’s attention and resources, which could harm our business.

We have become subject to litigation and commercial disputes in multiple jurisdictions and venues that could harm our business by distracting our management from the operation of our business, by increasing our expenses and, if we do not prevail, by subjecting us to potential monetary damages and other remedies.*

From time to time we are engaged in litigation and disputes regarding our commercial transactions. These litigation matters and disputes could result in monetary damages or other remedies that could adversely impact our financial position or operations. Even if we prevail in these disputes and litigation, they may distract our management from operating our business, the cost of defending these disputes and litigation would reduce our operating results and may prevent us from moving forward and pursuing the clinical development of our products.

While we believe some of the assertions against us are without merit, we cannot assure you that the outcome of any dispute or litigation will be favorable to us. If we lose any suit against us, it will hurt our cash flow and may prevent us from developing our products. In addition, if any of these lawsuits are successful and as a result we are required to pay material damages we will likely need to significantly reduce or curtail our current workforce or may have to cease operations completely, or liquidate.

For more information on our litigation matters, see “Part II-Item 1: Legal Proceedings.”

We have a limited operating history and if we do not generate significant revenues, we will not be able to achieve profitability.*

We have a limited history of operations and we have incurred net losses since our inception. As of September 30, 2009, we had accumulated deficit of approximately $325.1 million. We expect to incur substantial net losses in order to further develop and commercialize our products and do not know whether or when we will become profitable and may not be able to sustain our operations.

As a result of our ongoing reductions in force, we will be operating with a severe shortage of personnel and may not be able to conduct even limited operations or maintain effective disclosure controls and procedures. If we fail to retain key scientific and clinical personnel, we may be unable to successfully develop Adlea or any other product candidates.*

On November 10, 2008, we announced a reduction in force to reduce our staff to approximately 16 employees. On November 10, 2008, we provided Worker Adjustment and Retraining Notification Act (WARN Act) notices to 62 employees that their employment would end on January 9, 2009. On February 18, 2009, we announced that our chief financial officer position was eliminated. In August 2009, we announced a restructuring plan to lower operating expenses and preserve capital pursuant to which five positions were eliminated. For the months of September and October 2009, our current employees were furloughed to reduce our operating expenses. Accordingly, we will be operating with a severe shortage of resources and may not be able to conduct even limited operations. Even if we are able to obtain necessary funding and continue our business beyond December 2009, we may not have adequate personnel to operate our business or be able to attract and retain qualified employees.

The reduction in force may also impact the effectiveness of our disclosure controls and procedures, including certain segregation of duties and other controls to reduce the risk that a potential material misstatement of the financial statements could occur without being prevented or detected. Effective internal controls are necessary for us to provide reliable financial reports, maintain investor confidence and prevent fraud. As a result of our restructuring, we have significantly reduced our number of employees and there can be no guarantee that we will be able to retain employees with the requisite expertise to maintain an effective system of internal controls in a timely manner. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

The competition for qualified personnel in the biotechnology field is intense and we must retain and motivate highly qualified scientific personnel. We are highly dependent upon our scientific staff, particularly those employees who are involved in the development of Adlea. The loss of services of any of these key scientific employees could delay or prevent the development of Adlea, which may have a material adverse effect on our business, financial condition and results of operations.

We will need to complete additional trials for Adlea and may need to perform additional preclinical testing and clinical trials for Adlea in children before we can submit an NDA, which may impact our registration timeline.

On November 10, 2008, we announced that the ACTIVE-1 Phase 3 trial evaluating Adlea missed its primary endpoint of reducing post-surgical pain versus placebo (p=0.07) following bunionectomy surgery at four to 32 hours post-surgery, although the same measure was highly significant at four to 48 hours post-surgery (p=0.004). On December 16, 2008, we announced that the ACTIVE -2 Phase 3 trial evaluating Adlea met its primary endpoint of reducing post-surgical pain versus placebo (p=0.03) following total knee replacement surgery at four to 48 hours post-surgery. At a minimum, we will need to repeat one Phase 3 trial, and choose to include data from three Phase 2 trials: total hip arthroplasty (for which patient enrollment is completed), an arthroscopic shoulder surgery study, and a Phase 2 dose validation study in total knee replacement to appropriately deliver a registration package suitable for the indication of post-operative orthopedic pain for NDA assessment to the FDA.

Although we plan to submit an NDA for Adlea upon the completion of a clinical trial program in adults, we may be required by the FDA to complete preclinical pediatric studies as well as provide clinical data in a pediatric population before we can submit Adlea for commercial approval in the United States. If this the case, the time to NDA submission would be significantly affected.

Even though the adult patient population treated so far with Adlea has exhibited a safety profile similar to the placebo treated population, it is possible that Adlea may exhibit signs of safety concerns in a children population, which may ultimately restrict Adlea’s label for use, or further delay Adlea’s registration timeline.

If the FDA does not accept our proposal to replace the ACTIVE-1 Phase 3 Bunionectomy study with a more robust ACTIVE-3 Phase 3 Bunionectomy study in an appropriate surgical model, our development timeline for Adlea may be significantly delayed.

On November 10, 2008, we announced that the ACTIVE-1 Phase 3 trial evaluating Adlea missed its primary endpoint of reducing post-surgical pain versus placebo (p=0.07) following bunionectomy surgery at four to 32 hours post-surgery. On December 16, 2008, we announced that the ACTIVE -2 Phase 3 trial evaluating Adlea met its primary endpoint of reducing post-surgical pain versus placebo (p=0.03) following total knee replacement surgery at four to 48 hours post-surgery. Given the positive results of our ACTIVE-2 Phase 3 study in total knee replacement, it is our intention to propose replacing the failed ACTIVE-1 study with a more robust ACTIVE-3 study in an appropriate surgical model for the purpose of filing an NDA for Adlea with the FDA. If the FDA does not accept our proposal or requires that we perform a replacement Phase 3 study in another pain model, this could introduce a significant time delay in our clinical development plan and such a delay may have a material adverse effect on our business, financial conditions or results of operations.

If we fail to successfully develop our single product candidate, or to successfully sublicense or sell our single approved product, our future revenues will be adversely affected.

At this time, Adlea is our only product candidate being actively developed and our future revenues, if any, in the foreseeable future will be derived solely from Adlea and any sublicense revenues from or sale of our only approved product, Zingo. We currently only have one sublicense for Zingo technology. If the clinical development of Adlea is unsuccessful, or if we are unable to enter into additional sublicenses for or sell the Zingo technology, our revenues will be adversely affected.

On November 10, 2008, we announced that the ACTIVE-1 Phase 3 trial evaluating Adlea missed its primary endpoint of reducing post-surgical pain versus placebo (p=0.07) following bunionectomy surgery at four to 32 hours post-surgery. The same measure was highly significant (p=0.004) from four to 48 hours post-surgery. The trial also achieved a key secondary endpoint of reducing opioid use for Adlea versus placebo (p=0.012) over the four to 32 hour period.

On December 16, 2008, we announced that the ACTIVE-2 Phase 3 trial evaluating Adlea achieved its primary efficacy endpoint of reducing post-surgical pain versus placebo (p=0.03) following total knee arthroplasty (TKA, or total knee replacement surgery) at four to 48 hours after surgery. The trial also met its key secondary endpoint with Adlea demonstrating a highly significant reduction in opioid medication consumption compared to placebo (p=0.005).

If the Adlea clinical program progresses to an FDA approval, we will most likely need a partner to commercialize Adlea successfully.*

If we obtain marketing approval for Adlea, we may not be able to build a sales and marketing organization or manufacturing operations as a result of the recent restructurings and will most likely need to seek to partner with one or more companies in order to successfully launch, distribute and market Adlea in the United States and the rest of the world. If we are not able to find a suitable partner, we may not be able to raise capital and would likely have to cease operations completely, or liquidate.

If we do not find collaborators for our product candidates, we may have to reduce or delay our rate of product development and/or increase our expenditures, and our business, results of operations and financial condition could suffer.*

Our strategy to develop, manufacture and commercialize Adlea may include entering into various relationships with other pharmaceutical companies or organizations with respect to some programs to advance such programs, finance clinical development and reduce our expenditures on such programs. Our product candidates will sometimes target highly competitive therapeutic markets in which we have limited experience and expertise. If we are unable to develop this expertise ourselves, we will need to enter into agreements with a biotechnology or pharmaceutical company to provide us with the necessary resources and experience for the development and commercialization of products in these markets. There are a limited number of companies with the resources necessary to develop our future products commercially, and we may be unable to attract any of these firms. A company that has entered into a collaboration agreement with one of our competitors may choose not to enter into a collaboration agreement with us. We may not be able to negotiate any collaboration on acceptable terms or at all. If we are not able to establish collaborative arrangements, we may have to reduce or delay further development of some of our programs and/or increase our expenditures and undertake the development activities at our own expense. If we elect to increase our expenditures to fund our development programs, we will need to obtain additional capital, which may not be available on acceptable terms or at all. If we are unable to find suitable partners or to negotiate acceptable collaborative arrangements or future sale of assets held-for-sale with respect to our existing and future product candidates or the licensing of our technology, or if any arrangements we negotiate, or have negotiated, include unfavorable commercial terms, our business, results of operations and financial condition could suffer.

In addition, there have been a significant number of recent business combinations among biotechnology and pharmaceutical companies that have reduced the number of potential future collaborators. If business combinations involving potential collaborators were to occur, the effect could be to diminish, terminate or cause delays in one or more of our product development programs.

If we are unable to establish and maintain partnerships on commercially attractive terms, our business, results of operations and financial condition could suffer.*

We intend to continue to seek partnerships with pharmaceutical and biotechnology partners to fund some of our research and development expense and develop and commercialize Adlea. We are also seeking to license the rights to the Zingo technology to third parties for use with other medications. There may be valuable opportunities to use this advanced needle-free delivery technology for the delivery of drugs other than lidocaine. We have terminated our CJV partnership in China which may affect potential Zingo partnerships. In addition, our current Zingo partners may seek damages against us as part of their negotiations to modify or terminate any existing agreements. The timing of any future partnerships, as well as the terms and conditions of the partnerships, will affect our results of operation and financial condition. If we are unable to find suitable partners or to negotiate acceptable collaborative arrangements with respect to our existing and future product candidates or the licensing of our technology, or if any arrangements we negotiate, or have negotiated, include unfavorable commercial terms, our business, results of operations and financial condition could suffer.

If we fail to obtain U.S. regulatory approval for product candidate, Adlea, we will not be able to generate revenue in the U.S. market.

We must receive FDA approval for Adlea before we can commercialize or sell this product candidate in the United States. Even if approved by the FDA, the specific approval may be significantly limited to specific disease indications, patient populations and dosages. The FDA can limit or deny its approval for many reasons, including:

•

a product candidate may be found to be unsafe or ineffective for the desired indication;

•

regulators may interpret data from preclinical testing and clinical trials differently and less favorably than we do;

•

regulators may not approve the manufacturing processes or facilities that we use; and

•

regulators may change their approval policies or adopt new regulations.

Failure to obtain FDA approval or any delay or setback in obtaining such approval would:

•

adversely affect our ability to market any drugs that we develop and our ability to generate product revenues; and

•

impose additional costs and diminish any competitive advantages that we may attain.

As to any product for which marketing approval is obtained, the labeling, packaging, adverse event reporting, storage, advertising, promotion and record keeping related to the product is subject to extensive regulatory requirements. The subsequent discovery of previously unknown problems with the product, up to and including a previously unknown or unrecognized adverse side effect, may result in restrictions on the product and/or labeling, including withdrawal of the product from the market. In addition, we may be slow to adapt, or we may never be able to adapt, to changes in existing requirements or new regulatory requirements or policies.

If we fail to comply with applicable U.S. regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Even if our products are approved by regulatory authorities, if we fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.

Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product, will be subject to continual review and periodic inspections by the FDA and other regulatory bodies. Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. Later discovery of previously unknown or unforeseeable problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturer or manufacturing processes, or failure to comply with regulatory requirements, may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recall, product returns, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties.

If our clinical trials with respect to our product candidate do not meet safety or efficacy endpoints in these evaluations, or if we experience significant delays in these tests or trials, our ability to commercialize our product and our financial position will be impaired.*

Clinical development is a long, expensive and uncertain process that is subject to significant delays. Due to the known or unknown circumstances beyond our control, it may take us several years to complete our testing, and failure can occur at any stage of testing. Patient enrollment in future clinical trials depends on many factors, including the size of the desired patient population, the nature and complexity of the trial protocol, the proximity of patients to clinical sites, and the eligibility criteria for inclusion in the study and patient compliance. Delays in patient enrollment or failure of patients to continue to participate in a planned or ongoing study may cause an increase in costs and delays, or even result in the failure of the trial. Favorable relationships with our investigators are also important in managing and maintaining a clinical development program.

On November 10, 2008, we announced that the ACTIVE-1 Phase 3 trial evaluating Adlea missed its primary endpoint of reducing post-surgical pain versus placebo (p=0.07) following bunionectomy surgery at four to 32 hours post-surgery. The same measure was highly significant (p=0.004) from four to 48 hours post-surgery. The trial also achieved a key secondary endpoint of reducing opioid use for Adlea versus placebo (p=0.012) over the four to 32 hour period.

In June 2009, topline results of a supportive blinded, randomized Phase 2 study in 122 patients undergoing total hip arthroplasty (THA) became available. The THA study was not powered to be a pivotal study, but its primary endpoint, the area under the curve (AUC) of pain scores in the postoperative period at four to 48 hours did not show a significant reduction in postoperative pain (p=0.212) compared to placebo. Opioid use in the first 48 hours was not significantly different between the groups. There was no difference in the safety profile seen between the two groups.

The results of preclinical or previous clinical studies do not necessarily predict future clinical trial results, and acceptable results in early studies may not adequately inform future risks observed in later studies. Any preclinical or clinical test may fail to produce results satisfactory to the FDA or foreign regulatory authorities. Preclinical and clinical data can be interpreted in different ways by different reviewers and regulators, which could delay, limit or prevent regulatory approval. Drug-related adverse events during a clinical trial could cause us to repeat a trial, perform an additional trial, terminate a trial or even cancel a clinical program. In addition, we are required by the FDA to conduct additional preclinical studies, including toxicology, while our clinical studies are ongoing which may identify previously unknown risks or questions that could require additional investigations.

To obtain regulatory approval to market our product candidate, we will need to conduct nonclinical studies in animals, and the results of these nonclinical studies may not demonstrate adequate safety or efficacy and, even if they do, the results may not necessarily be predictive of results in human trials.

As part of the regulatory approval process, we must conduct, at our own expense, nonclinical studies in laboratory animals as well as clinical trials in humans. The number of nonclinical trials that the regulatory authorities will require varies depending on the product candidate, the disease or condition for which the product candidate is being developed to address and the regulations applicable to the particular product candidate. We may need to perform multiple nonclinical studies in different species using various doses and formulations of our product candidate before we can begin clinical trials, continue clinical trials or obtain approval of our drugs, which could result in delays in our

ability to develop or obtain approval of our product candidate. Furthermore, nonclinical results in animal studies are not necessarily predictive of outcomes in human clinical trials. Even after we have conducted the adequate nonclinical studies in animals, we must demonstrate in clinical trials that our product candidate is safe and efficacious for use on humans, in order to receive regulatory approval for commercial sale. Even if initial results of nonclinical studies for our product candidate are positive, we may obtain different unforeseeable results in later stages of nonclinical and clinical drug development, including failure to show desired safety and efficacy.

There may be delays in developing a product candidate as a result of the necessary preclinical studies to assess the safety of the product candidate including its ability to cause cancer and interactions with other drugs.

We are required to conduct preclinical studies to evaluate the safety of our product candidate including its ability to cause cancer or negatively interact with other drugs. For example, such studies may be required for Adlea, or other future products, for the treatment of certain indications. Such studies require up to three years, or longer, to complete and report.

Failure to enroll patients for clinical trials may cause delays in developing the product candidates, and delays in the commencement of clinical testing of the current product candidates could result in increased costs to us and delay our ability to generate revenues.

We will encounter delays or possibly regulatory rejections if we are unable to enroll enough patients to complete clinical trials as planned. Patient enrollment depends on many factors, including the size of the patient population, the nature and complexity of the protocol, the proximity of patients to clinical sites and the eligibility criteria for patient inclusion in the trial. Any delays in planned patient enrollment in the future may result in increased costs and delays, which could harm or hamper our ability to develop the product candidate in the desired timelines and planning period.

Delays in the commencement of clinical testing could significantly increase product development costs and delay product commercialization beyond the period planned and disclosed publicly. The commencement of clinical trials can also be delayed for a variety of reasons, including delays in:

•

demonstrating sufficient safety and efficacy to obtain regulatory approval to commence a clinical trial;

•

reaching agreement on acceptable terms with prospective contract research organizations and individual trial sites;

•

manufacturing sufficient quantities of a product candidate; and

•

obtaining institutional review board approval to conduct a clinical trial at a prospective site.

It may require longer and larger clinical trials to study a product candidate for certain indications such as chronic conditions.

The time frame of our clinical studies for a product candidate for a chronic condition may also be affected by the International Conference on Harmonisation guidelines that state that at least 1,500 patients must be exposed to the drug prior to submission of a registration application and from 300 to 600 patients be exposed to a new drug for one year. If development of Adlea for pain resulting from any disease syndrome or indication is subject to these larger patient number guidelines, development for these indications may be longer than a development program for an acute condition such as postsurgical pain, which typically, but not always, requires a smaller patient exposure database. In addition to the time required to conduct these studies, the results of such studies may demonstrate previously unknown or undiscoverable harmful side effects of a product candidate, which could delay, impair or prevent our ability to develop such a product candidate.

If third-party clinical research organizations do not perform in an acceptable and timely manner, our clinical trials could be delayed or unsuccessful.

We do not have the ability to conduct all of our clinical trials independently. As in similar companies who operate with limited personnel and in a virtual mode within our industry, we rely on the skills and individual commitments of clinical investigators, third party clinical research organizations and consultants to perform substantially all of these functions. If we cannot locate acceptable contractors to run our clinical trials or enter into favorable agreements with them, or if these third parties do not successfully carry out their contractual duties, satisfy

FDA requirements for the conduct of clinical trials or meet expected deadlines, we will be unable to obtain required approvals and will be unable to commercialize our products on a timely basis, if at all. If we do not maintain good professional and working relationships with our clinical investigators or their clinical sites, our clinical trials may be negatively impacted. Our agreements are generally cancelable by either party with 30 days notice, with or without cause.

Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products abroad.

We intend to market our products in international markets. In order to market our products in the European Union and many other foreign jurisdictions, we or our foreign marketing partners must obtain separate regulatory approvals. The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market.

Our competitors currently offer and may develop therapies that reduce the size of our markets.

Our business has been characterized by extensive research and development efforts, rapid developments and intense competition. Our competitors may have or may develop superior technologies or approaches, which may provide them with competitive advantages. Our potential products may not compete successfully. If these competitors get to the marketplace before we do with better or less expensive drugs, our product candidates, if approved for commercialization, may not be profitable to sell or worthwhile to continue to develop. Technology in the pharmaceutical industry has undergone rapid and significant change, and we expect that it will continue to do so. Any compounds, products or processes that we develop may become obsolete or uneconomical before we recover any expenses incurred in connection with their development. The success of our product candidates will depend upon factors such as product efficacy, safety, reliability, availability, timing, scope of regulatory approval, acceptance and price, among other things. Other important factors to our success include speed in developing product candidates, completing clinical development and laboratory testing, obtaining regulatory approvals and manufacturing and selling commercial quantities of potential products to the market.

Our product candidates are intended to compete directly or indirectly with existing drugs. Even if approved and commercialized, our products may fail to achieve market acceptance with hospitals, physicians or patients. Hospitals, physicians or patients may conclude that our potential products are less safe or effective or otherwise less attractive than these existing drugs. If our product candidates do not receive market acceptance for any reason, our revenue potential would be diminished, which would materially adversely affect our ability to become profitable.

Adlea, if approved and commercialized, will face significant competition. For postsurgical pain, morphine administered by infusion pump is a common treatment method. Several other oral, injectable and patch opioids are also used, including Vicodin ^® (Abbott Labs), OxyContin ^® (Purdue Pharma), Ionsys^™ and Duragesic ^® (Johnson & Johnson) and generic versions of Duragesic that are manufactured by Mylan & Sandoz. For later-stage osteoarthritis, in addition to NSAIDs, and Celebrex ^® (Pfizer), hyaluronic acid products, including Synvisc ^® (Genzyme), are injected locally and there is some oral opioid use. For the treatment of tendonitis, glucocorticosteroids are used. TRPV1, which is involved in the transmission of pain signals to the brain and which is affected by Adlea, has become a popular target for the pharmaceutical industry. TRPV1 inhibitors, or agonists, that may also compete with Adlea are being developed by several companies, including Merck-Neurogen, Pfizer-Renovis (a subsidiary of Evotec AG), Amgen, Schwarz Pharma-Amore Pacific, Purdue Pharma, and PainCeptor. These TRPV1 inhibitors are expected to advance to clinical evaluation shortly. We believe there are other products that are in development that may compete with our current product candidates.

Most of our competitors, including many of those listed above, have substantially greater capital resources, research and development staff, facilities and experience in conducting clinical trials and obtaining regulatory approvals, as well as in manufacturing and marketing pharmaceutical products. As a result, they may achieve product commercialization or patent protection earlier than we can.

If we fail to obtain an adequate level of reimbursement for our products by third-party payors, there may be no commercially viable markets for our products or the markets may be much smaller than expected.

The availability and levels of reimbursement by governmental and other third party payors affect the market for our products. The efficacy, safety and cost-effectiveness of our products as well as the efficacy, safety and cost-effectiveness of any competing products will determine the availability and level of reimbursement. These third-party payors continually attempt to contain or reduce the costs of healthcare by challenging the prices charged for healthcare products and services. In certain countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take up to nine to 12 months or longer after the receipt of regulatory marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our products to other available therapies. If reimbursement for our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels, our revenues would be reduced.

We depend on our officers and key employees, and if we are not able to retain them or recruit additional qualified personnel, our business will suffer.

We are highly dependent on our management and key employees. Due to the specialized knowledge each of our officers and key employees possesses with respect to our product candidates and our operations, the loss of service of any of our officers or key employees could delay or prevent the successful enrollment and completion of our clinical trials. We do not carry key man life insurance on our officers or key employees.

We have an employment agreement with Michael Kranda, our president and chief executive officer. Mr. Kranda joined the Company in June 2008. For the months of September and October 2009, we have furloughed our current employees to reduce our operating expenses. Each of our officers and key employees may terminate his or her employment without notice and without cause or good reason.

In addition, our continued operations and growth will require hiring qualified executive, scientific, regulatory, manufacturing, commercial and administrative personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to our success in light of our current financial situation and past reductions in workforce. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of our activities. Our offices are located in the San Francisco Bay Area, where competition for personnel with biopharmaceutical skills is intense. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable to continue our development and commercialization activities.

Risks Related to Our Industry

We face the risk of product liability claims and may not be able to obtain insurance.

Our business exposes us to the risk of product liability claims that is inherent in the testing, manufacturing, and marketing of drugs and related devices. Although we have product liability and clinical trial liability insurance that we believe is appropriate, this insurance is subject to deductibles and coverage limitations. We may not be able to obtain or maintain adequate protection against potential liabilities. In addition, as our product candidates other than Zingo are approved for marketing, we may seek additional insurance coverage. If we are unable to obtain insurance at acceptable cost or on acceptable terms with adequate coverage or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may harm our business. These liabilities could prevent or interfere with our product commercialization efforts. Defending a suit, regardless of merit, could be costly, could divert management attention and might result in adverse publicity or reduced acceptance of our products in the market.

Our operations involve hazardous materials and we must comply with environmental laws and regulations, which can be expensive.

We have refocused our operations as a virtual company and have eliminated our basic research and pre-clinical functions by relying on outside companies and third party contractors to work on our product and clinical development and we no longer have facilities with laboratory space. However, our past research and development activities within the laboratory spaces involved the controlled use of hazardous materials, including chemicals and radioactive and biological materials. Even though we have certification from local authorities of proper decommissioning of our former facility, our past operations also produced hazardous waste products. We are subject to a variety of federal, state and local regulations relating to the use, handling, storage and disposal of these materials. We generally contract with third

parties for the disposal of such substances and store certain low-level radioactive waste at our facility until the materials are no longer considered radioactive. We cannot completely eliminate the risk of accidental contamination or injury from these materials. We may be required to incur substantial costs to comply with current or future environmental and safety regulations. If an accident or contamination occurred, we would likely incur significant costs associated with civil penalties or criminal fines and in complying with environmental laws and regulations. We do not have any insurance for liabilities arising from hazardous materials. Compliance with environmental laws and regulations is expensive, and current or future environmental regulation may impair our research, development or production efforts.

The life sciences industry is highly competitive and subject to rapid technological change.

The life sciences industry is highly competitive and subject to rapid and profound technological change. Our present and potential competitors include major pharmaceutical companies, as well as specialized biotechnology and life sciences firms in the United States and in other countries. Most of these companies have considerably greater financial, technical and marketing resources than we do. Additional mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated in our competitors. Our existing or prospective competitors may develop processes or products that are more effective than ours or be more effective at implementing their technologies to develop commercial products faster. Our competitors may succeed in obtaining patent protection and/or receiving regulatory approval for commercializing products before us. Developments by our competitors may render our product candidates obsolete or non-competitive.

We also experience competition from universities and other research institutions, and we frequently compete with others in acquiring technology from those sources. These industries have undergone, and are expected to continue to undergo, rapid and significant technological change, and we expect competition to intensify as technical advances in each field are made and become more widely known. There can be no assurance that others will not develop technologies with significant advantages over those that we are seeking to develop. Any such development could harm our business.

Legislative or regulatory reform of the healthcare system may affect our ability to sell our products profitably.

In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could impact upon our ability to sell our products profitably. In the United States in recent years, new legislation has been proposed at the federal and state levels that would effect major changes in the healthcare system, either nationally or at the state level. These proposals have included additional prescription drug benefit proposals for Medicare beneficiaries introduced in Congress and proposed changes in reimbursement and other healthcare reform measures. Legislation creating a prescription drug benefit and making certain changes in Medicare reimbursement has recently been enacted by Congress. Given this legislation’s recent enactment, it is still too early to determine its impact on the pharmaceutical industry and our business. Further federal and state proposals are likely. More recently, administrative proposals are pending that would change the method for calculating the reimbursement of certain drugs. The potential for adoption of these proposals may affect our ability to raise capital, obtain additional collaborators or market our products. Such proposals, if enacted, may reduce our revenues, increase our expenses or limit the markets for our products. In particular, we expect to experience pricing pressures in connection with the sale of our products due to the trend toward managed health care, the increasing influence of health maintenance organizations and additional legislative proposals.

Risk Factors Relating to Our Intellectual Property

If we are unable to obtain, maintain and extend protection for the intellectual property incorporated into our products, the value of our technology and products will be adversely affected.

Our success will depend in large part on our ability or the ability of our licensors to obtain, maintain and extend protection in the United States and other countries for the intellectual property incorporated into our products. The patent situation in the field of biotechnology and pharmaceuticals generally is highly uncertain and involves complex legal and scientific questions. Neither we nor our licensors may be able to obtain additional issued patents relating to our technology to extend our intellectual property portfolio to protect our products which could affect commercialization, potential partnering or sale of the product asset. Even if issued, patents may be challenged, narrowed, invalidated, or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of the term of patent protection we may have for our products. In addition, our patents and our licensors’ patents may not afford us protection against competitors with similar technology. Because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing,

or in some cases not at all, and because publications of discoveries in the scientific literature often lag behind actual discoveries, neither we nor our licensors can be certain that we or they were the first to make the inventions claimed in issued patents or pending patent applications, or that we or they were the first to file for protection of the inventions set forth in these patent applications.

Protection afforded by U.S. patents may be adversely affected by proposed changes to patent-related U.S. statutes and to U.S. Patent and Trademark Office, or USPTO, rules, especially changes to rules concerning the filing of continuation applications and other rules affecting the prosecution of our patent applications in the U.S, which were enacted August 22, 2007 and were to be effective November 1, 2007 but were successfully challenged by a third party. While the rules have not been interpreted or implemented at this time and it is unknown when and if the rules would apply to our current patent applications, the rules require that third or subsequent continuing application filings be supported by a showing as to why the new amendments or claims, argument or evidence presented could not have been previously submitted. In addition, the rules limit the numbers of Requests for Continuing Examination (RCEs) to one per application family. Other rules limit consideration by the USPTO of up to only 5 independent claims and 25 total claims per application. It is common practice to file multiple patent applications with many claims and file multiple RCEs in an effort to maximize patent protection. The USPTO rules as implemented and interpreted may limit our ability to file RCEs and continuing applications directed to our products and methods and related competing products and methods. In addition, the USPTO rules may limit our ability to patent a number of claims sufficient to cover our products and methods and related competing products and methods. Other changes to the patent statutes may adversely affect the protection afforded by U.S. patents and/or open up U.S. patents to third party attack in non-litigation settings.

We also rely on trade secrets to protect some of our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to maintain. While we use reasonable efforts to protect our trade secrets, our or our collaboration partners’ employees, consultants, contractors or scientific and other advisors may unintentionally or willfully disclose our proprietary information to competitors. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. In addition, non-U.S. courts are sometimes less willing than U.S. courts to protect trade secrets. If our competitors independently develop equivalent knowledge, methods and know-how, we would not be able to assert our trade secrets against them and our business could be harmed. We cannot be certain that we will be able to protect our trade secrets adequately. Any leak of confidential data into the public domain or to third parties could allow our competitors to learn our trade secrets.

If we lose our licenses from PowderMed Limited for Zingo or certain licenses for Adlea, we will not be able to continue development or outlicensing of our current products.

We are a party to two significant license agreements relating to patents, patent applications and know-how covering the technology relating to Zingo and Adlea. These license agreements impose various diligence, commercialization, royalty and other obligations on us. If we fail to comply with the obligations in the license agreements, the licensor may have the right to terminate the license and we may not be able to market products that were covered by the license.

The license agreement with James N. Campbell, M.D., Richard A. Meyer, M.S. and Marco Pappagallo, M.D. relates to the steps of administering capsaicin for pain reduction relating to Adlea, and our rights under this agreement can be terminated on 10 days’ written notice if we fail to make a payment or fulfill any material obligation under the agreement and the failure is not cured by us within 180 days of receiving notice of such failure. The license agreement with PowderMed Limited, now a wholly-owned subsidiary of Pfizer, Inc., relates to delivery technology underlying Zingo. The agreement with PowderMed Limited can be terminated immediately by either party if the other party ceases to do business in the ordinary course, or assigns all or substantially all of its assets for the benefit of creditors. Either party can also terminate for material breach if not cured within 60 days of notice or if not cured within 30 days of notice if the breach relates to payment provisions. To date, we believe we have met our obligations under all of these agreements.

We may incur substantial costs enforcing our patents, defending against third-party patents, invalidating third-party patents or licensing third-party intellectual property, as a result of litigation or other proceedings relating to patent and other intellectual property rights.

We may not have rights under some patents or patent applications that would be infringed by technologies that we use in our research, drug targets that we select, or product candidates that we seek to develop and commercialize. Third parties may own or control these patents and patent applications in the United States and abroad. These third parties could bring claims against us or our collaborators that would cause us to incur substantial expenses and, if

successful against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit. We or our collaborators therefore may choose to seek, or be required to seek, a license from the third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations, as a result of patent infringement claims, which could harm our business.

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. Although we are not currently a party to any patent litigation or any other adversarial proceeding for Zingo or Adlea, regarding intellectual property rights with respect to our products and technology, we may become so in the future. We are not currently aware of any actual or potential infringement claim involving our intellectual property rights. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. The outcome of patent litigation is subject to uncertainties that cannot be adequately quantified in advance, including the demeanor and credibility of witnesses and the identity of the adverse party, especially in biotechnology related patent cases that may turn on the testimony of experts as to technical facts upon which experts may reasonably disagree. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. If a patent or other proceeding is resolved against us, we may be enjoined from researching, developing, manufacturing or commercializing our products without a license from the other party and we may be held liable for significant damages. We may not be able to obtain any required license on commercially acceptable terms or at all.

Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could harm our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.

Other Risk Factors

Anti-takeover defenses that we have in place could prevent or frustrate attempts by stockholders to change the direction or management of the company.

Provisions of our certificate of incorporation and bylaws and applicable provisions of Delaware law and contractual provisions may make it more difficult for or prevent a third-party from acquiring control of us without the approval of our board of directors. These provisions:

•

establish a classified board of directors, so that not all members of our board may be elected at one time;

•

set limitations on the removal of directors;

•

limit who may call a special meeting of stockholders;

•

establish advance agreement requirements for nominations for election to our board of directors or for proposing matters that can be acted upon at stockholder meetings;

•

prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; and

•

provide our board of directors the ability to designate the terms of and issue new series of preferred stock without stockholder approval.

These provisions may have the effect of entrenching our management team and may deprive you of the opportunity to sell your shares to potential acquirers at a premium over prevailing prices. This potential inability to obtain a control premium could reduce the price of our common stock.

Our principal stockholders and management own a significant percentage of our stock and are able to exercise significant influence.*

Our executive officers, directors and principal stockholders, together with their affiliates, own approximately 40.5% of our voting stock, including shares subject to outstanding options based upon shares outstanding as of September 30, 2009. Our executive officers are not affiliated with any of our directors, principal stockholders or their affiliates. The interests of these stockholders may be different than the interests of other stockholders on these matters. This concentration of ownership could also have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could reduce the price of our common stock.

Our stockholders may be diluted, and the prices of our securities may decrease, by the exercise of outstanding stock options and warrants or by future issuances of securities.

We may issue additional common stock, preferred stock, restricted stock units, restricted stock awards, or securities convertible into or exchangeable for our common stock. Furthermore, substantially all shares of common stock for which our outstanding stock options or warrants are exercisable are, once they have been purchased, eligible for immediate sale in the public market. The issuance of additional common stock, preferred stock, restricted stock units, or securities convertible into or exchangeable for our common stock or the exercise of stock options or warrants would dilute existing investors and could adversely affect the price of our securities.

Our stock price is volatile and purchasers of our common stock could incur substantial losses.

Our stock price is volatile. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The price for our common stock may be influenced by many factors, including:

•

positive or negative results of our clinical trials;

•

failure of any of our product candidates, if approved, to achieve commercial success;

•

regulatory developments in the United States and foreign countries;

•

developments or disputes concerning patents or other proprietary rights;

•

ability to manufacture our products to commercial standards;

•

public concern over our products;

•

litigation;

•

the departure of key personnel;

•

future sales of our common stock;

•

variations in our financial results or those of companies that are perceived to be similar to us;

•

changes in corporate structure;

•

changes in the structure of healthcare payment system;

•

investors’ perceptions of us; and

•

general economic, industry and market conditions.

Our ability to use net operating loss carryforwards could be limited as a result of issuances of equity securities.

To the extent that our taxable income exceeds any current year operating losses, we may use our net operating loss carryforwards to offset income that would otherwise be taxable. However, under the Tax Reform Act of 1986, the amount of benefits from our net operating loss carryforwards may be impaired or limited if we incur a cumulative ownership change of more than 50%, as interpreted by the Internal Revenue Service, or IRS, over a three year period. As a result, our use of federal net operating loss carryforwards could be limited by the provisions of Section 382 of the

Internal Revenue Code, depending upon the timing and amount of additional equity securities that we issue. State net operating loss carryforwards may be similarly limited. Any such disallowances may result in greater tax liabilities than we would incur in the absence of such a limitation and any increased liabilities could adversely affect our business, results of operations, financial condition and cash flow.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Pursuant to Section 6.1 of the Merger Agreement, unless authorized and previously approved in writing by the majority of the members of the Operating Committee (as defined in the Merger Agreement), Anesiva may not declare, set aside, make or pay any dividend or other distribution (whether payable in cash, stock, property or a combination thereof) with respect to any of its capital stock (other than dividends paid by a wholly-owned subsidiary of the Company to the Company or to any other wholly-owned subsidiary of the Company).

Under the terms of the Secured Note Purchase Agreement, dated May 18, 2009, by and between Anesiva and Arcion as amended on September 17, 2009, while the Amended and Restated Note issued to Arcion dated September 17, 2009 remains outstanding, the consent of Arcion will be required for Anesiva to declare or pay any dividends or redeem any of its equity securities, other than dividends payable solely in common stock of the Anesiva or in connection with benefit plans.

Item 3.

Defaults upon Senior Securities

Not applicable.

Item 4.

Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5.

Other Information

Effective November 10, 2009, Anesiva and Green Vision Corporation (“GVC”) entered into a termination agreement (the “Termination Agreement”) for termination of the License and Distribution Agreement between Anesiva and GVC, dated April 16, 2008. Under the Termination Agreement, Anesiva will make a payment of $25,000 to GVC contingent on the closing of the Merger with Arcion Therapeutics, Inc. The parties will release each other from any and all additional liabilities and obligations under the License and Distribution Agreement.

The License and Distribution Agreement related to Anesiva’s Zingo^™ (lidocaine hydrochloride monohydrate) powder intradermal injection product. Under the terms of the License and Distribution Agreement, Green Vision was to be the exclusive distributor of the Zingo product in Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, and United Arab Emirates. Pursuant to the License and Distribution Agreement, Anesiva was also to receive an upfront payment, royalty payments, and payments for the achievement of certain sales milestones.

Item 6.

Exhibits


Exhibit Number		Description of Document

2.1(1)		Agreement and Plan Of Merger by and between Anesiva, Inc., Arca Acquisition Corporation, and Arcion Therapeutics and, with respect to Articles V and IX only, each of the Arcion stockholders listed on Schedule I, dated August 4, 2009.

3.1(2)		Amended and Restated Certificate of Incorporation, dated February 18, 2004.

3.2(3)		Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated December 15, 2005.

3.3(4)		Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated June 21, 2006.

3.4(5)		Restated Bylaws.

4.1		Reference is made to Exhibits 3.1 through 3.4.

4.2(6)		Specimen stock certificate.

4.3(7)		Form of Warrant to purchase shares of common stock of Anesiva, Inc.

4.4(2)		Form of Amendment to Form of Warrant to purchase shares of common stock of Anesiva, Inc.

4.5(8)		Form of Security.

4.6(9)		Registration Rights Agreement, dated September 30, 2008, by and among Anesiva, Inc., Compass Horizon Funding Company LLC, CIT Healthcare LLC, and Oxford Finance Corporation.

4.7(10)		Form of Rights Certificate

4.8(11)		Senior Debt Indenture, dated April 2, 2009, by and between Anesiva, Inc. and The Bank of New York Mellon Trust Company, N.A.

4.9(12)		Supplemental Indenture, dated April 2, 2009, by and between Anesiva, Inc. and The Bank of New York Mellon Trust Company, N.A.

4.10(13)		Second Supplemental Indenture, dated April 28, 2009, by and between Anesiva, Inc. and The Bank of New York Mellon Trust Company, N.A.

10.1(14)		Registration Rights Agreement, dated August 4, 2009 by and among Anesiva, Inc. and the entities identified on Schedule A thereto.

10.2(14)		Amendment No. 2 to Securities Purchase Agreement, dated August 4, 2009, by and among Anesiva, Inc. and Sofinnova Venture Partners VII, L.P., Alta California Partners III, L.P., Alta Embarcadero Partners III, LLC, Alta Partners VIII, LP, CMEA Ventures VII, L.P., CMEA Ventures VII (Parallel), L.P., InterWest Partners VIII, LP, InterWest Investors VIII, LP, and InterWest Investors Q VIII, LP.

10.3(14)		Reinvestment Agreement, dated August 4, 2009, by and among Anesiva, Inc. and Arcion Therapeutics, Sofinnova Venture Partners VII, L.P., Alta California Partners III, L.P., Alta Embarcadero Partners III, LLC, Alta Partners VIII, LP, CMEA Ventures VII, L.P., CMEA Ventures VII (Parallel), L.P., InterWest Partners VIII, LP, InterWest Investors VIII, LP, and InterWest Investors Q VIII, LP.

10.4(14)		Amended and Restated Executive Change in Control and Severance Benefit Plan, as amended.

10.94(15)		Termination Agreement by and among Anesiva, Inc., Wanbang Biopharmaceutical Co., Ltd, Yat Ming Lau and Wanbang Anesiva (Jiangsu) Biotech CO., Ltd. (the “CJV”) dated July 3, 2009.

10.95		Separation and Consulting Agreement between Anesiva Inc. and William Houghton, dated August 19, 2009.


Exhibit Number		Description of Document

10.96		First Amendment to Secured Note Purchase Agreement, dated May 18, 2009, by and between Anesiva, Inc. and Arcion Therapeutics, Inc., dated September 17, 2009.

10.97		Amended and Restated Note issued to Arcion Therapeutics, Inc., dated September 17, 2009.

10.98		Termination Agreement between Anesiva, Inc. and Medical Futures, Inc., effective October 20, 2009.

10.99		Termination Agreement between Anesiva, Inc. and Green Vision Company, effective November 10, 2009.

31.1		Certification of Principal Executive Officer, as required by Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended.

31.2		Certification of Principal Financial Officer, as required by Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended.

32.1*		Certification of Chief Executive Officer, as required by Rule 13a-14(b) of the Securities and Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

32.2*		Certification of Vice President, Finance, as required by Rule 13a-14(b) of the Securities and Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

(1)	Filed as Exhibit 2.1 to our Current Report on Form 8-K (File No. 000-50573), filed on August 5, 2009, and incorporated by reference herein.

(2)	Filed as the like-numbered exhibit to our Annual Report on Form 10-K (File No. 000-50573) for the year ended December 31, 2008, filed on March 25, 2009, and incorporated by reference herein.

(3)	Filed as the like-numbered exhibit to our Annual Report on Form 10-K (File No. 000-50573) for the year ended December 31, 2007, filed on March 14, 2008, and incorporated herein by reference.

(4)	Filed as Exhibit 3.2 to our Quarterly Report on Form 10-Q (File No. 000-50573), for the quarter ended June 30, 2006, filed on August 10, 2006, and incorporated by reference herein.

(5)	Filed as Exhibit 3.1 to our Current Report on Form 8-K (File No. 000-50573), filed on February 11, 2008, and incorporated by reference herein.

(6)	Filed as the like-numbered exhibit to our Registration Statement on Form S-1, as amended (File No. 333-110923), filed on December 4, 2003, and incorporated by reference herein.

(7)	Filed as the like-numbered exhibit to our Current Report on Form 8-K (File No. 000-50573), filed on October 6, 2008, and incorporated by reference herein.

(8)	Filed as Exhibit 10.75 to our Current Report on Form 8-K (File No. 000-50573), filed on January 23, 2009, and incorporated by reference herein.

(9)	Filed as Exhibit 10.71 to our Current Report on Form 8-K (File No. 000-50573), filed on October 6, 2008, and incorporated by reference herein.

(10)	Filed as Exhibit 4.1 to our Current Report on Form 8-K (File No. 000-50573), filed on April 2, 2009, and incorporated by reference herein.

(11)	Filed as Exhibit 4.2 to our Current Report on Form 8-K (File No. 000-50573), filed on April 2, 2009, and incorporated by reference herein.

(12)	Filed as Exhibit 4.3 to our Current Report on Form 8-K (File No. 000-50573), filed on April 2, 2009, and incorporated by reference herein.

(13)	Filed as Exhibit 4.4. to our Current Report on Form 8-K (File No. 000-50573), filed on April 28, 2009, and incorporated by reference herein.

(14)	Filed as the like-numbered Exhibit to our Current Report on Form 8-K (File No. 000-50573), filed on August 5, 2009, and incorporated by reference herein.

(15)	Filed as the like-numbered Exhibit to our Quarterly Report on Form 10-Q (File No. 000-50573), for the quarter ended June 30, 2009, filed on August 7, 2009, and incorporated by reference herein.

The certifications attached as Exhibit 32.1 and Exhibit 32.2 accompanying this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Anesiva, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

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.

Dated: November 16, 2009


Anesiva, Inc.

By:		/s/ Michael L. Kranda
		Michael L. Kranda
		President and Chief Executive Officer
		(Principal Executive Officer)

By:		/s/ John H. Tran
		John H. Tran
		VP, Finance and Chief Accounting Officer
		(Principal Financial Officer)

EXHIBIT INDEX


Exhibit Number		Description of Document

2.1(1)		Agreement and Plan Of Merger by and between Anesiva, Inc., Arca Acquisition Corporation, and Arcion Therapeutics and, with respect to Articles V and IX only, each of the Arcion stockholders listed on Schedule I, dated August 4, 2009.

3.1(2)		Amended and Restated Certificate of Incorporation, dated February 18, 2004.

3.2(3)		Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated December 15, 2005.

3.3(4)		Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated June 21, 2006.

3.4(5)		Restated Bylaws.

4.1		Reference is made to Exhibits 3.1 through 3.4.

4.2(6)		Specimen stock certificate.

4.3(7)		Form of Warrant to purchase shares of common stock of Anesiva, Inc.

4.4(2)		Form of Amendment to Form of Warrant to purchase shares of common stock of Anesiva, Inc.

4.5(8)		Form of Security.

4.6(9)		Registration Rights Agreement, dated September 30, 2008, by and among Anesiva, Inc., Compass Horizon Funding Company LLC, CIT Healthcare LLC, and Oxford Finance Corporation.

4.7(10)		Form of Rights Certificate

4.8(11)		Senior Debt Indenture, dated April 2, 2009, by and between Anesiva, Inc. and The Bank of New York Mellon Trust Company, N.A.

4.9(12)		Supplemental Indenture, dated April 2, 2009, by and between Anesiva, Inc. and The Bank of New York Mellon Trust Company, N.A.

4.10(13)		Second Supplemental Indenture, dated April 28, 2009, by and between Anesiva, Inc. and The Bank of New York Mellon Trust Company, N.A.

10.1(14)		Registration Rights Agreement, dated August 4, 2009 by and among Anesiva, Inc. and the entities identified on Schedule A thereto.

10.2(14)		Amendment No. 2 to Securities Purchase Agreement, dated August 4, 2009, by and among Anesiva, Inc. and Sofinnova Venture Partners VII, L.P., Alta California Partners III, L.P., Alta Embarcadero Partners III, LLC, Alta Partners VIII, LP, CMEA Ventures VII, L.P., CMEA Ventures VII (Parallel), L.P., InterWest Partners VIII, LP, InterWest Investors VIII, LP, and InterWest Investors Q VIII, LP.

10.3(14)		Reinvestment Agreement, dated August 4, 2009, by and among Anesiva, Inc. and Arcion Therapeutics, Sofinnova Venture Partners VII, L.P., Alta California Partners III, L.P., Alta Embarcadero Partners III, LLC, Alta Partners VIII, LP, CMEA Ventures VII, L.P., CMEA Ventures VII (Parallel), L.P., InterWest Partners VIII, LP, InterWest Investors VIII, LP, and InterWest Investors Q VIII, LP.

10.4(14)		Amended and Restated Executive Change in Control and Severance Benefit Plan, as amended.

10.94(15)		Termination Agreement by and among Anesiva, Inc., Wanbang Biopharmaceutical Co., Ltd, Yat Ming Lau and Wanbang Anesiva (Jiangsu) Biotech CO., Ltd. (the “CJV”) dated July 3, 2009.

10.95		Separation and Consulting Agreement between Anesiva Inc. and William Houghton, dated August 19, 2009.


Exhibit Number		Description of Document

10.96		First Amendment to Secured Note Purchase Agreement, dated May 18, 2009, by and between Anesiva, Inc. and Arcion Therapeutics, Inc., dated September 17, 2009.

10.97		Amended and Restated Note issued to Arcion Therapeutics, Inc., dated September 17, 2009.

10.98		Termination Agreement between Anesiva, Inc. and Medical Futures, Inc., effective October 20, 2009.

10.99		Termination Agreement between Anesiva, Inc. and Green Vision Company, effective November 10, 2009.

31.1		Certification of Principal Executive Officer, as required by Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended.

31.2		Certification of Principal Financial Officer, as required by Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended.

32.1*		Certification of Chief Executive Officer, as required by Rule 13a-14(b) of the Securities and Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

32.2*		Certification of Vice President, Finance, as required by Rule 13a-14(b) of the Securities and Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

(1)	Filed as Exhibit 2.1 to our Current Report on Form 8-K (File No. 000-50573), filed on August 5, 2009, and incorporated by reference herein.

(2)	Filed as the like-numbered exhibit to our Annual Report on Form 10-K (File No. 000-50573) for the year ended December 31, 2008, filed on March 25, 2009, and incorporated by reference herein.

(3)	Filed as the like-numbered exhibit to our Annual Report on Form 10-K (File No. 000-50573) for the year ended December 31, 2007, filed on March 14, 2008, and incorporated herein by reference.

(4)	Filed as Exhibit 3.2 to our Quarterly Report on Form 10-Q (File No. 000-50573), for the quarter ended June 30, 2006, filed on August 10, 2006, and incorporated by reference herein.

(5)	Filed as Exhibit 3.1 to our Current Report on Form 8-K (File No. 000-50573), filed on February 11, 2008, and incorporated by reference herein.

(6)	Filed as the like-numbered exhibit to our Registration Statement on Form S-1, as amended (File No. 333-110923), filed on December 4, 2003, and incorporated by reference herein.

(7)	Filed as the like-numbered exhibit to our Current Report on Form 8-K (File No. 000-50573), filed on October 6, 2008, and incorporated by reference herein.

(8)	Filed as Exhibit 10.75 to our Current Report on Form 8-K (File No. 000-50573), filed on January 23, 2009, and incorporated by reference herein.

(9)	Filed as Exhibit 10.71 to our Current Report on Form 8-K (File No. 000-50573), filed on October 6, 2008, and incorporated by reference herein.

(10)	Filed as Exhibit 4.1 to our Current Report on Form 8-K (File No. 000-50573), filed on April 2, 2009, and incorporated by reference herein.

(11)	Filed as Exhibit 4.2 to our Current Report on Form 8-K (File No. 000-50573), filed on April 2, 2009, and incorporated by reference herein.

(12)	Filed as Exhibit 4.3 to our Current Report on Form 8-K (File No. 000-50573), filed on April 2, 2009, and incorporated by reference herein.

(13)	Filed as Exhibit 4.4. to our Current Report on Form 8-K (File No. 000-50573), filed on April 28, 2009, and incorporated by reference herein.

(14)	Filed as the like-numbered Exhibit to our Current Report on Form 8-K (File No. 000-50573), filed on August 5, 2009, and incorporated by reference herein.

(15)	Filed as the like-numbered Exhibit to our Quarterly Report on Form 10-Q (File No. 000-50573), for the quarter ended June 30, 2009, filed on August 7, 2009, and incorporated by reference herein.

ANESIVA, INC. 10-Q