Seattle, Washington, with monthly payments of approximately $19,000. The lease on this space expired in September 2006, and the Company has not renewed the lease. The Company also leases approximately 40,500 square feet of space in Bothell, Washington, with monthly payments of approximately $80,000. The lease term on this space expires December 2010. However, activities were discontinued at the Bothell facility during the third quarter of 2005 and the Company is exploring options for the future of this facility. Market conditions for subleasing space in Bothell are currently considered poor primarily due to an overabundance of available space. Accordingly, following the Stock Purchase on March 27, 2006, the Company recorded an accrued restructuring liability which was computed as the present value of the difference between the remaining lease payments due less the estimate of net sublease income and expenses. In relation to the Bothell facility, during September 2006, the Company entered into an Exclusive Subleasing Agency Agreement under which commissions will be calculated and payable as follows: $450,000 upon sublease execution within the first six month, $350,000 upon sublease execution within the first twelve months, $250,000 upon sublease execution within the first eighteen months. The commission payable is based upon a tenant leasing the entire facility for the remaining balance of the master lease term. In the event a tenant leases either less space or for a period less than the remaining term, then a prorated fee would be applied as per the term and square footage leased. As of September 30, 2006 the accrued restructuring liability was $2.6 million. This represents the Company's best estimate of the fair value of the liability as determined under SFAS No. 146, ‘‘Accounting for Costs Associated with Exit or Disposal Activities.’’ Subsequent changes in the liability due to accretion, or changes in estimates of sublease assumptions, etc. will be recognized as adjustments to restructuring charges in future periods.

The Company records payments of rent related to the Bothell facility as a reduction in the amount of the accrued restructuring liability. Accretion expense is recognized due to the passage of time, which is also reflected as a restructuring charge. Based on our current projections of estimated sublease income and a discount rate of 7.8%, the Company expects to record additional accretion expense of approximately $423,000 over the remaining term of the lease.

In connection with the abandonment of the leasehold improvements in the Seattle and Bothell facilities and the sale of assets in late 2005 the Company has been subjected to a State sales tax audit by the Department of Revenue of the State of Washington. In January 2006, the Company received tax assessments from the Department of Revenue of the State of Washington with respect to its utilization of the high-technology sales and use tax deferral program. Under the high-technology sale and use tax deferral program qualified Washington companies, such as the Company, are allowed to defer sales tax on purchases of qualified assets used in research and development activities. The deferred sales taxes are then forgiven by the State, generally over a period of eight years. According to the assessments, if the deferral program requirements continue to be met, the tax assessment will be waived. The total tax liability assessed by the State of Washington equals approximately $1 million. The Company’s management believes that the majority of the assets which previously qualified for the State of Washington sales tax deferral program continue to qualify as they have been retained by the Company or have been or will be sold or transferred to a qualified entity for qualified purposes. We are in the process of discussing the potential sales tax liability with the Department of Revenue of the State of Washington and have appealed the assessment. The appeal is based on an evaluation of the extent to which the abandoned and disposed of assets have been rendered obsolete, sold or leased to eligible entities that continue to use the assets for purposes qualified under the program. The ultimate amount of the assessment that will be payable is dependent upon rulings and interpretations of the State tax laws related to this program. Based on an evaluation of the underlying asset dispositions and State tax law management believes that the potential loss from the ultimate settlement of the assessment ranges from $270,000 to $1 million. Based on this evaluation Xcyte accrued $270,000 as a State tax assessment in 2005 and such amount is included in the accompanying balance sheet as a component of accrued liabilities.

In October 2006, the Company entered into a 5-year lease for office space in Berkeley Heights, New Jersey. On completion of the refurbishment of this office space the Company’s corporate headquarters will be relocated from Short Hills to Berkeley Heights.

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On March 24, 2006 Xcyte completed an Asset Purchase Agreement (the ‘‘Asset Purchase Agreement’’) with Invitrogen Corporation, a Delaware corporation (‘‘Invitrogen’’), in which Invitrogen agreed to purchase Xcyte’s T cell expansion technology known as the ‘‘Xcellerate Process’’ in exchange for $5 million (the ‘‘Asset Sale’’). The purchase price is subject to a post-closing adjustment pursuant to which Xcyte can be required to refund up to $1 million to Invitrogen. The assets subject to the agreement include intellectual property, the clinical data generated by Xcyte in the course of six clinical trials of the lead product, Xcellerated T Cells, as well as raw materials and equipment.

On July 28, 2005, Cyclacel Group plc signed a convertible Loan Note Instrument constituting convertible unsecured loan notes. On July, 28, 2005, it entered into a Facility Agreement with Scottish Enterprise, as lender, whereby Scottish Enterprise subscribed for £5 million ($8.8 million) of the convertible loan notes. Upon the completion of the Stock Purchase, the convertible loan notes held by Scottish Enterprise converted into 1,231,527 preferred ‘‘D’’ shares in satisfaction of all amounts owed by Group under the convertible loan notes. The number of preferred ‘‘D’’ shares that Scottish Enterprise received was calculated by dividing the principal amount outstanding under the loan note by £4.06. Scottish Enterprise retains the ability it had under the Facility Agreement to receive a cash payment should the research operations in Scotland be significantly reduced. However, Cyclacel Limited will guarantee the amount potentially due to Scottish Enterprise which will be calculated as a maximum of £5 million less the market value of the shares held (or would have held in the event they dispose of any shares) by Scottish Enterprise at the time of any significant reduction in research facilities during the period ending on July 28, 2010.

4.    MERGER

On March 27, 2006, Xcyte completed the Stock Purchase Agreement with Group for a transaction to be accounted for as a purchase under accounting principles generally accepted in the United States. The Stock Purchase was approved by Xcyte shareholders on March 16, 2006 and Group shareholders on March 27, 2006. Under the terms of the transaction, Xcyte issued 7,761,453 shares of its common stock (equivalent to 776,145 shares after adjustment for a 1 for 10 reverse stock split which occurred on March 27, 2006) for all of Limited’s outstanding shares of common stock. For accounting purposes, the transaction is considered a ‘‘reverse merger’’ under which Limited is considered the acquirer of Xcyte. Accordingly, the purchase price was allocated among the fair values of the assets and liabilities of Xcyte, while the historical results of Limited are reflected in the results of the combined company. The 1,967,966 shares of Xcyte common stock outstanding, the 2,046,813 preferred stock outstanding and the outstanding Xcyte options, are considered as the basis for determining the consideration in the reverse merger transaction. Based on the outstanding shares of Group capital stock on March 27, 2006, each share of Group preferred stock was exchanged for approximately 0.37 shares of Xcyte common stock.

Each Limited and Group stock option and warrant that was not converted prior to the consummation of the Stock Purchase was cancelled and there were no outstanding Limited or Group options and warrants on closing.

Merger Purchase Price

The consolidated financial statements reflect the merger of Limited with Xcyte as a reverse merger wherein Limited is deemed to be the acquiring entity from an accounting perspective. Under the purchase method of accounting, Xcyte’s outstanding shares of common and preferred stock were valued using the average closing price on Nasdaq of $4.38 (as adjusted for the reverse stock split) and $3.72 per share for common stock and preferred stock, respectively, for the two days prior to through the two days subsequent to the announcement of the transaction date of December 15, 2005. There were 1,967,967 shares of common stock and 2,046,813 shares of preferred stock outstanding as of March 27, 2006. The fair values of the Xcyte outstanding stock options were determined using the Black-Scholes option pricing model with the following assumptions: stock price of $4.38 (as adjusted for the reverse stock split), volatility of 0.97; risk-free interest rate of 4.0%; and an expected life of three months.

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The purchase price is summarized as follows (in thousands):

Fair value of Xcyte outstanding common stock				$	8,620
Fair value of Xcyte outstanding preferred stock					7,618
Fair value of Xcyte outstanding stock options					17
Estimated merger costs					1,951
Total purchase price				$	18,206

Merger Purchase Price Allocation

The purchase price allocation is as follows (in thousands):

Current assets				$	21,267
Property, plant and equipment					108
Other assets					259
Current liabilities					(4,400	)
Non-current liabilities					(1,777	)
Goodwill					2,749
				$	18,206

Pro Forma Results of Operations

The results of operations of Xcyte are included in Cyclacel’s condensed consolidated financial statements from the date of the business combination transaction as of March 27, 2006. The following table presents pro forma results of operations and gives effect to the business combination transaction as if the business combination was consummated at the beginning of the period presented. The unaudited pro forma results of operations are not necessarily indicative of what would have occurred had the business combination been completed at the beginning of the retrospective periods or of the results that may occur in the future.

			For the nine months ended September 30,
			2006						2005
			$000						$000
Revenues					5,270						325
Loss before taxes					(24,540	)					(40,745	)
Net loss applicable to ordinary shareholders					(25,708	)					(48,149	)
Net loss per share-basic and diluted				$	(2.01	)				$	(6.20	)
Weighted average shares					12,806,491						7,761,453

5.    AMOUNTS DUE TO CYCLACEL GROUP PLC 

Prior to the completion of the Stock Purchase, Cyclacel Limited was a wholly owned subsidiary of Cyclacel Group plc. The amounts outstanding of $Nil and $10,467,000 as of September 30, 2006 and December 31, 2005, respectively, are a result of intercompany transactions which occurred prior to the completion of the Stock Purchase. Cyclacel Pharmaceuticals, Inc. settled the outstanding amounts and as a consequence eliminated the balance due to Cyclacel Group plc. During the three months ended September 30, 2006, Cyclacel paid certain advisors $36,000 in connection with the members' voluntary liquidation of Cyclacel Group plc with the remaining balance of $181,000 being waived and set against Additional Paid-in Capital, reducing the amounts outstanding from $217,000 at June 30, 2006 to $Nil at September 30, 2006.

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6.    STOCKHOLDERS’ EQUITY 

Reverse Stock Split and Issue of Common Stock in Connection with the Stock Purchase Agreement

In March 2006, the Board of Directors and stockholders of the Company approved an amendment to the Company’s eighth amended and restated certificate of incorporation effecting a 1-for-10 reverse stock split of common stock, (the ‘‘Reverse Stock Split’’). The Reverse Stock Split occurred immediately prior to the completion of the Stock Purchase. All issued and outstanding common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this stock split, except as specifically indicated.

Stock Purchase Agreement

In March 2006, in connection with the Stock Purchase Agreement the Company issued 7,761,453 shares of common stock (equivalent to 776,145 shares after adjustment for a 1 for 10 reverse stock split which occurred on March 27, 2006) to Cyclacel Group plc which represented 79.7% of the outstanding shares of the Company's common stock.

Stock Option Award Plan

In January 2006, the Board of Directors adopted and in March 2006, the stockholders approved the 2006 Plans. The Company had reserved a total of 986,120 shares of common stock for issuance under the 2006 Plan plus any options granted under the Company’s predecessor plans that expire unexercised or are repurchased by the Company pursuant to the terms of such options. On July 6, 2006, the stockholders approved an amendment of the 2006 Plans to increase the number of shares of common stock issuable thereunder by an additional 629,675 shares, to an aggregate of 1,615,795 shares. As of September 30, 2006, a total of 845,746 options have been issued under the 2006 Plans. A further 48,883 options have been approved for grant on October 31, 2006.

Private Placement

On April 26 2006, the Company entered into a Stock and Purchase Agreement pursuant to which it sold to certain investors, for an aggregate purchase price of $45.3 million, 6,428,572 shares of its common stock and warrants to purchase up to 2,571,429 additional shares of its common stock. The purchase price for the common stock and the exercise price for the warrants is $7.00 per share. Investors in the financing paid an additional purchase price equal to $0.125 per warrant or an additional $0.05 for each share underlying the warrants. The warrants are not exercisable until six months after the closing and have an expiration date seven years after closing.

Amounts Receivable from Directors and Officers

In connection with the issue of Group Preferred D shares to certain directors and officers in March 2006 prior to the Stock Purchase the Company was obliged to withhold payroll taxes of $248,000 and remit this amount to the UK tax authorities. As this is a non-cash item the taxes cannot be withheld from the payment but must be recovered from the employee. Under the UK Income and Taxes Act these payroll taxes are recoverable from the individuals by June 27, 2006 and all amounts were recovered prior to this date.

7.    RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued FASB Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes’’, an interpretation of SFAS 109, ‘‘Accounting for Income Taxes’’ (‘‘FIN 48’’), FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is

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effective for fiscal years beginning after December 15, 2006 and the Company will adopt FIN 48 as of January 1, 2007. The impact of adopting FIN 48 on the Company's financial position or results of operations, if any, has not yet been determined.

In September 2006, the FASB issued Statement of Financial Standards No. 157, ‘‘Fair Value Measurements’’ (‘‘SFAS 157’’). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years and will be adopted by the Company as of January 1, 2008. SFAS 157 may impact our balance sheet and statement of operations in areas including the fair value measurements for derivative instruments. The Company is currently reviewing the provisions of SFAS 157 and has not yet determined the effect, if any, that adoption of SFAS 157 will have.

In September 2006, the FASB issued Statement of Financial Standards No. 158, ‘‘Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans’’ (‘‘SFAS 158’’). SFAS 158 requires employers with defined benefit pension plans and other postretirement plans to fully recognize, as an asset or liability, the overfunded or underfunded status of its benefit plans in its statement of financial position and to recognize changes in that funded status in comprehensive income in the year in which changes occur. SFAS 158 also requires an employer to measure the funded status as of the date of its year-end statement of financial position. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer's fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The Company does not expect that the adoption of SFAS 158 will have a significant impact on the Company's financial position as the Company does not operate a defined benefit pension or similar postretirement plan.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain statements that may be deemed ‘‘forward-looking statements’’ within the meaning of United States securities laws. All statements, other than statements of historical fact, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Factors that could cause results to differ materially from those projected or implied in the forward looking statements are set forth in our Annual Report on Form 10-K for the year ended December 31, 2005, as updated below under the caption ‘‘Item 1A — Risk factors’’. 

We encourage you to read those descriptions carefully. We caution you not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless an earlier date is indicated) and we undertake no obligation to update or revise the statements except as required by law. Such forward-looking statements are not guarantees of future performance and actual results will likely differ, perhaps materially, from those suggested by such forward-looking statements.

In this report, ‘‘Cyclacel,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘us,’’ and ‘‘our’’ refer to Cyclacel Pharmaceuticals, Inc.

Overview

We are a development-stage biopharmaceutical company dedicated to the discovery, development and eventual commercialization of novel, mechanism-targeted drugs to treat human cancers and other serious disorders. We describe drugs, compounds or molecules as mechanism-targeted if they are designed to affect identified biological processes through known mechanisms and novel if they have been recently discovered using advanced technologies. Our core area of expertise is in cell cycle biology, or the processes by which cells divide and multiply. We focus primarily on the discovery and development of orally available anticancer agents that target the cell cycle with the aim of slowing the progression or shrinking the size of tumors, and enhancing quality of life and improving survival rates of cancer patients. We have been focused on the cell cycle since our inception. We were founded in 1996 by Professor Sir David Lane, a recognized leader in the field of tumor suppressor biology who discovered the p53 protein, which operates as one of the body’s own anticancer ‘‘drugs’’ by inhibiting cell cycle targets. In 1999, we were joined by Professor David Glover, a recognized leader in the mechanism of mitosis, or cell division, who discovered, among other cell cycle targets, the mitotic kinases, Polo and Aurora, enzymes that act in the mitosis phase of the cell cycle. Our expertise in cell cycle biology is at the center of our business strategy.

We are generating several families of anticancer drugs that act on the cell cycle including Cyclin Dependent kinase (CDK) and Aurora kinase (AK) inhibitors. Although a number of pharmaceutical and biotechnology companies are currently attempting to develop CDK inhibitor drugs, we believe that our lead drug candidate, seliciclib, is the only orally available CDK inhibitor drug candidate currently in Phase IIb trials.

We are advancing three of our anticancer drug candidates, seliciclib, sapacitabine and CYC116 through in-house research and development activities. On June 29, 2006 we announced that we were beginning a Phase IIb, multi-center, randomized, double-blinded trial to evaluate the efficacy and safety of seliciclib as a third line treatment in patients with non-small cell lung cancer (NSCLC). The trial is being initiated following Food and Drug Administration and central Institutional Review Board approval of the trial protocol. The APPRAISE study builds on the observation of prolonged stable disease experienced by heavily-pretreated NSCLC patients enrolled in a Phase I study of single agent seliciclib . Sapacitabine has completed two Phase I studies evaluating 87 patients in refractory solid tumors. We are currently conducting a Phase Ib dose escalation clinical trial with sapacitabine for the treatment of patients with advanced malignancies with approximately 38 patients enrolled to

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date. On June 15, 2006, we initiated a Phase I clinical trial of sapacitabine, an orally available nucleoside analogue, in patients with advanced leukemias or myelodysplastic syndromes (MDS). We are also developing CYC116, an Aurora kinase inhibitor, for the treatment of cancer, and we expect to file an investigational new drug application in the fourth quarter of 2006. We have worldwide rights to commercialize seliciclib, sapacitabine and CYC116 and our business strategy is to enter into selective partnership arrangements with these programs.

We have a further eight novel drug series: five for cancer, one for inflammation, one for Type 2 Diabetes, and one for HIV/AIDS. Taken together, our pipeline covers all four phases of the cell cycle, which we believe will improve the chances of successfully developing and commercializing novel drugs that work on their own or in combination with approved conventional chemotherapies or with other targeted drugs to treat human cancers.

Our corporate headquarters is located in Short Hills, New Jersey, with our main research facility located in Dundee, Scotland, and a second research facility located in Cambridge, England.

From our inception in 1996 through September 30, 2006, we have devoted substantially all our efforts and resources to our research and development activities. We have incurred significant net losses since inception. As of September 30, 2006, our accumulated deficit during the development stage was $132.7 million. We expect to continue incurring substantial losses for the next several years as we continue to develop our clinical, pre-clinical and other drugs currently in development. Our operating expenses comprise research and development expenses and general and administrative expenses.

To date, we have not generated any product revenue but have financed our operations and internal growth through private placements, licensing revenue, interest on investments, government grants and research and development tax credits. We have received proceeds from the issuances of equity interests of $133.5 million from inception through September 30, 2006 which includes $42.6 million raised through the private placement of common stock and warrants in the second quarter of 2006. Our revenue has consisted of collaboration and grant revenue. We have recognized revenues from inception through September 30, 2006 of $6.3 million of which $2.9 million is derived from fees under collaborative agreements and $3.4 million of grant revenue from various United Kingdom government grant awards. We have not generated any revenue from sales of commercial products and do not expect to generate any product revenue for the foreseeable future. We have also received $11.9 million from research and development tax credits since inception.

Results of Operations

As explained in detail in the Notes to Condensed Consolidated Financial Statements — Basis of Preparation, the transaction with Xcyte was accounted for as a reverse merger and Cyclacel was considered to have acquired Xcyte on March 27, 2006. As a consequence the comparative periods for the three and nine-month periods ended September 30, 2005 reflect the results of Cyclacel only while the current three and nine-month periods ended September 30, 2006 reflect the results of the combined companies from March 28, 2006 through September 30, 2006.

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Revenues

The following table summarizes the components of our revenues for the three and nine-month periods ended September 30, 2006 and 2005:

			Three months ended September 30,																								Nine months ended September 30,
			2006						2005						$ Difference						% Difference						2006						2005						$ Difference						% Difference
			(unaudited)						(unaudited)																		(unaudited)						(unaudited)
			(in thousands)
Collaboration and research and development revenue				$	27					$	102					$	(75	)					(73.53	)%				$	152					$	168					$	(16	)					(9.52	)%
Grant revenue					56						57						(1	)					(1.75	)%					118						118						—						—
Total revenue				$	83					$	159					$	(76	)					(47.80	)%				$	270					$	286					$	(16	)					(5.59	)%

Collaboration and research and development revenue for the three and nine-month periods ended September 30, 2006 and 2005 is derived from several agreements under which the Company provides compounds for evaluation for an agreed consideration.

Grant revenue is recognized as we incur and pay for qualifying costs and services under the applicable grant. Grant revenue is primarily derived from various United Kingdom government grant awards. During the three and nine-month periods ended September 30, 2006 we recognized grant revenues of $56,000 and $118,000, respectively. For the same periods in 2005 we recognized grant revenues of $57,000 and $118,000.

Future

Subject to satisfactory progress, under existing grants we are entitled to receive further grant revenue of $280,000 on qualifying expenditure.

Research and development expenses

To date, we have focused on drug discovery and development programs, with particular emphasis on orally available anticancer agents. Research and development expense represents costs incurred to discover and develop novel small molecule therapeutics, including clinical trial costs for seliciclib and sapacitabine, to advance product candidates toward clinical trials, to develop in-house research and preclinical study capabilities and to advance our biomarker program and technology platforms. We expense all research and development costs as they are incurred. Research and development expenses primarily include:

	•	payroll and personnel-related expenses, including consultants and contract research;

	•	clinical trial and regulatory-related costs;

	•	preclinical studies;

	•	screening and identification of drug candidates;

	•	laboratory supplies and materials;

	•	technology license costs;

	•	rent and facility expenses for our laboratories; and

	•	scientific consulting fees.

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The following table provides information with respect to our research and development expenditure for the three and nine-month periods ended September 30, 2006 and 2005:

			Three months ended September 30,																								Nine months ended September 30,
			2006						2005						$ Difference						% Difference						2006						2005						$ Difference						% Difference
			(unaudited)						(unaudited)																		(unaudited)						(unaudited)
			(in thousands)
Seliciclib				$	1,061					$	1,353					$	(292	)					(21.58	)%				$	2,027					$	3,844					$	(1,817	)					(47.27	)%
Sapacitabine					448						487						(39	)					(8.01	)%					1,367						1,805						(438	)					(24.27	)%
CYC116					1,679						1,299						380						29.25	%					5,230						3,989						1,241						31.11	%
Other costs related to research and development programs, management and exploratory research					707						461						246						53.36	%					2,520						2,354						166						7.05	%
				$	3,895					$	3,600					$	295						8.19	%				$	11,144					$	11,992					$	(848	)					(7.07	)%
Stock based compensation					164						(668	)					832						(124.55	)%					6,052						103						5,949						5775.73	%
Total research and development expenses				$	4,059					$	2,932					$	1,127						38.44	%				$	17,196					$	12,095					$	5,101						42.17	%

Total research and development expenses represented 60% and 64% of our operating expenses for the three and nine-month periods ended September 30, 2006, and 75% and 77% for the three and nine-month periods ended September 30, 2005, respectively.

Our research and development expenditure, excluding stock-based compensation costs increased $0.3 million from $3.6 million in the three-month period ended September 30, 2005 to $3.9 million in the three-month period ended September 30, 2006 and decreased $0.9 million from $12.0 million in the nine-month period ended September 30, 2005 to $11.1 million in the nine-month period ended September 30, 2006. These fluctuations reflect the costs of completion of Phase IIa clinical trials of seliciclib in 2005 with a period of reduced spend ahead of the announcement of the Phase IIb trial in the second quarter of 2006, followed by a gradual increase as efforts are focused on intiating the recruited sites during the third quarter of 2006. We have increased research and development expenditure on CYC116 as activities focus on IND-directed studies on this program. Filing of the IND is scheduled for the fourth quarter of 2006.

Stock-based compensation attributable to research and development was an expense of $0.2 million and $6.1 million for the three and nine-month periods ended September 30, 2006, respectively. Stock-based compensation for the three and nine-month periods ended September 30, 2005 was a credit of $0.7 million and an expense of $0.1 million, respectively. See stock-based compensation discussion below for more details.

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General and administrative expenses

General and administrative expenses include costs for administrative personnel, legal and other professional expenses and general corporate expenses. These costs are not broken out for reporting purposes. The following table summarizes the general and administrative expenses for the three and nine-month periods ended September 30, 2006 and 2005:

			Three months ended September 30,																								Nine months ended September 30,
			2006						2005						$ Difference						% Difference						2006						2005						$ Difference						% Difference
			(unaudited)						(unaudited)																		(unaudited)						(unaudited)
			(in thousands)
General and administrative expenses				$	2,418					$	1,114					$	1,304						117.06	%				$	6,194					$	3,580					$	2,614						73.02	%
Stock based compensation					93						(129	)					222