Summary of MOLECULAR INSIGHT PHARMACEUTICALS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements and Risk Factors When you read this section of this Form 10-Q, it is important that you also read the financial statements and related notes and the Risk Factors section included in this Form 10-Q and included in our Annual Report on Form 10-K for the year ended December 31, 2007.
Statements in this interim report on Form 10-Q that are not strictly historical in nature are forward-looking statements. These statements include, but are not limited to, statements about: the timing of the commencement, enrollment, and completion of our clinical trials for our product candidates; the progress or success of our product development programs; the status of regulatory approvals for our product candidates; the timing of product launches; our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; and our estimates for future performance, anticipated operating losses, future revenues, capital requirements, and our needs for additional financing. In some cases, you can identify forward-looking statements by terms such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "should," "will," "would," "goal," and similar expressions intended to identify forward-looking statements. These statements are only predictions based on current information and expectations and involve a number of risks and uncertainties. The underlying information and expectations are likely to change over time. Actual events or results may differ materially from those projected in the forward-looking statements due to various factors, including, but not limited to, those set forth in the Risk Factors section of our annual report on Form 10-K. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Overview
We are a biopharmaceutical company specializing in the emerging field of molecular medicine, applying innovations in the identification and targeting of disease at the molecular level to improve patient healthcare by addressing significant unmet medical needs. We are focused on discovering, developing and commercializing innovative and targeted radiotherapeutics and molecular imaging pharmaceuticals with initial applications in the areas of oncology and cardiology. Radiotherapeutics are radioactive drugs, or radiopharmaceuticals, that are systemically administered and selectively target cancer cells to deliver radiation for therapeutic benefit. This ability to selectively target cancer cells allows therapeutic radiation to be delivered to tumors while minimizing radiation exposure to normal tissues. Molecular imaging pharmaceuticals are radiopharmaceuticals that enable early detection of disease through the visualization of subtle changes in biochemical and biological processes.
We currently have two clinical-stage radiotherapeutic product candidates, Azedra, which has Orphan Drug status and a Fast Track designation by the U.S. Food and Drug Administration, or FDA, and Onalta, which has Orphan Drug status in the United States. We have one clinical-stage molecular imaging pharmaceutical product candidate, Zemiva. We are also developing additional product candidates by leveraging our expertise in radiochemistry and radiolabeling founded on our core proprietary technologies, including our Ultratrace technology and Single Amino Acid Chelate, or SAAC, technology. Using our proprietary technologies, we have identified potential candidates that may be useful in the detection or treatment of prostate cancer, heart failure and neurodegenerative disease, which is a disease characterized by the gradual and progressive loss of nerve cells. Additionally, several other indications relating to the future development for Zemiva have been identified, such as diabetes, chronic kidney disease and heart failure.
We have had no revenue from product sales and have funded our operations through the public offering and private placement of equity securities, debt financings and government grant funding. We have never been profitable and have incurred an accumulated deficit during the development stage of $210.6 million from inception through September 30, 2008.

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We expect to incur significant operating losses for the next several years. Research and development expenses relating to our clinical and pre-clinical product candidates will continue to increase. In particular, we expect to incur increased development costs in connection with our ongoing and expected development efforts and clinical trials for Zemiva, Azedra, Onalta, Solazed and Trofex. We expect general and administrative expense to increase as we prepare for the commercialization of our product candidates, and as we further improve our corporate administration to fulfill our responsibilities as a public company.
Financial Operations Overview
Revenue-Research and Development Grants.
Our revenue to date has been derived from National Institutes of Health, or NIH, grants. We have not had any product sales and do not expect product sales in the near future. In the future, we expect our revenue to consist of product sales and payments from collaborative or strategic relationships, as well as from additional grants. Funding of government grants is subject to government approvals, and all of our government contracts contain provisions which make them terminable at the convenience of the government. The government could terminate, reduce or delay the funding under any of our grants at any time. Accordingly, there is no assurance that we will receive funding of any grants that we may be awarded, including the approximately $1.1 million remaining portion of grants that we had been awarded as of September 30, 2008. In the event we are not successful in obtaining any new government grants or extensions to existing grants, our research and development efforts could be adversely affected.
Research and Development Expense.
Research and development expense consists of expenses incurred in developing and testing product candidates. These expenses consist primarily of salaries and related expenses for employees, as well as fees for consultants engaged in research and development activities, fees paid to professional service providers for monitoring our clinical trials and for acquiring and evaluating clinical trial data, costs of contract manufacturing services and materials used in clinical trials, depreciation of capital assets used to develop our product candidates, and facilities operating costs. We expense research and development costs as incurred. Certain research and development activities are partially funded by NIH grants described above. All costs related to such grants are included in research and development costs. We believe that significant investment in product development is necessary and plan to continue these investments as we seek to develop our product candidates and proprietary technologies.
We do not know if we will be successful in developing our drug candidates. While we expect that expenses associated with the completion of our current clinical programs would be substantial, we believe that such expenses are not reasonably certain at this time. The future timing and amount of these development expenses will depend upon the costs associated with potential future clinical trials of our drug candidates, and the related expansion of our research and development organization, regulatory requirements, the advancement of our preclinical programs and product manufacturing costs, many of which cannot be determined with accuracy at this time based on our stage of development. This is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, including regulatory requirements for government approvals, which can vary significantly over the life of a project as a result of unanticipated events arising during clinical development, including with respect to:
• the number of clinical sites included in the trial;

• the length of time required to enroll suitable subjects;

• the number of subjects that ultimately participate in the trials;

• the efficacy and safety results of our clinical trials; and

• the number of additional clinical trials that may be required as part of the government approval process.

Our expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals and the expense of filing, prosecuting, defending or enforcing any patent claims or other intellectual property rights.

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In addition, we may obtain unexpected or unfavorable results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some drug candidates or focus on others. A change in the outcome of any of the foregoing variables in the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate. For example, if the FDA or other regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in any of our clinical trials, we would be required to expend significant additional financial resources and time on the completion of clinical development. Additionally, future commercial and regulatory factors beyond our control will evolve over time, which will impact our clinical development programs and plans.
Beyond our three lead drug candidates, we anticipate that we will select drug candidates and research projects for further development on an ongoing basis in response to the preclinical and clinical success, as well as the commercial potential of such drug candidates.
General and Administrative Expense.
General and administrative expense consists primarily of salaries and other related costs for personnel in executive, finance, accounting, SEC reporting, information technology and human resource functions. Other costs include facility costs not otherwise included in research and development expense, legal fees relating to patent and corporate matters and fees for accounting consulting services.
Stock-Based Compensation Expense.
Operating expenses include stock-based compensation expense, which results from the issuance of stock-based awards, such as options and restricted stock to employees, members of our Board of Directors and consultants in lieu of cash consideration for services received. On January 1, 2006 we adopted SFAS No. 123(R) to account for stock-based awards. We use the fair value method of accounting for all other awards. Compensation expense for options and restricted stock granted to employees and non-employees is classified either as research and development expense or general and administrative expense based on the job function of the individual receiving the grant. These costs which total $528,800 and $961,733 for the three months ended September 30, 2007 and September 30, 2008, respectively, and $1,478,000 and $2,437,053 for the nine months ended September 30, 2007 and September 30, 2008, respectively, are included in the Statements of Operations.
Other (Expense) Income, Net.
Other (expense) income, net includes interest income and interest expense. Interest income consists of interest earned on our cash, cash equivalents and short and long term investments. Interest expense during 2008 is a non-cash expense relating to the Bond interest, which includes the paid-in-kind Bonds issued to the bondholders in lieu of cash interest payments, the amortization of Bond financing expenses and the amortization of the Bond discount. Significant Accounting Policies
The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect our reported amounts of assets, revenues and expenses, as well as related disclosure of contingent assets and liabilities.
There have been no significant changes in our critical accounting policies, except for those listed below, since December 31, 2007 as described in the discussion of critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2007.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value Measurements ("SFAS No. 157") as of January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This change resulted in no impact to January 1, 2008 accumulated deficit.

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In conjunction with the adoption of SFAS No. 157, the Company adopted SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities, as of January 1, 2008. SFAS No. 159 provides an option for most financial assets and liabilities to be reported at fair value on an instrument-by-instrument basis with changes in fair value reported in earnings. After initial adoption, the election is made at the acquisition of a financial asset, financial liability, or a firm commitment and it may not be revoked. The Company has not elected to report any other financial instruments and other items at fair value as permitted by SFAS No. 159. The adoption of this Statement therefore had no impact to January 1, 2008 retained earnings or the Company's financials statements through September 30, 2008.
In December 2007, the Emerging Issues Task Force (EITF) issued EITF Issue No. 07-1, Accounting for Collaborative Arrangements. EITF Issue No. 07-1 provides guidance concerning: determining whether an arrangement constitutes a collaborative arrangement within the scope of the Issue; how costs incurred and revenue generated on sales to third parties should be reported in the income statement; how an entity should characterize payments on the income statement; and what participants should disclose in the notes to the financial statements about a collaborative arrangement. The provisions of EITF Issue No. 07-1 were adopted as of January 1, 2008, which did not have a significant impact on the financial statements.
In June 2007, the EITF issued EITF Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities. EITF Issue No. 07-3 provides guidance concerning the accounting for non-refundable advance payments for goods and services that will be used in future research and development activities and requires that they be expensed when the research and development activity has been performed, and not at the time of payment. The provisions of EITF Issue No. 07-3 were adopted as of January 1, 2008, which did not have a significant impact on the financial statements.
In March 2008, the Financial Accounting Standards Board issued FASB Statement No. 161 Disclosures About Derivative Instruments and Hedging Activities. This standard is intended to improve financial reporting about derivative instruments and hedging activities by enhanced disclosures to better understand their effects on a company's financial position, results of operations and cash flows. This standard is effective for interim and annual financial statements beginning after November 15, 2008. The Company has not yet determined the impact of this new standard on its financial statements. Results of Operations
Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
Revenue - Research and Development Grants.
Revenue decreased by $0.25 million, or 78%, to $0.06 million for the three months ended September 30, 2008 from $0.32 million for the three months ended September 30, 2007. The Company receives funding under various Research and Development grants. The decrease is primarily due to the timing of grant related activities.
Research and Development Expense.
Research and development expense increased approximately $2.1 million, or 21%, to $11.9 million for the three months ended September 30, 2008 from $9.8 million for the three months ended September 30, 2007. Key components of this spending increase were the growth in the research and development staff which totaled $0.9 million including wages, benefits and other expenses and a growth of $1.3 million in clinical trial costs.

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The following table summarizes (in thousands), the expenditures by program:

                                                                            Three months ended
                                                                   September 30,           September 30,
Program                                                                2007                    2008
Azedra and Ultratrace platform                                    $         1,920         $         3,359
Onalta                                                                        775                     776
Solazed                                                                       251                     211
Trofex                                                                        322                     466
Zemiva                                                                      3,344                   2,703
Other Platform and general R&D programs                                     3,150                   4,352


Total R&D expenses, including related party R&D                   $         9,762         $        11,867

The major reasons for the Q3 increase of $2.1 million in R&D program spending over the third quarter 2007 are as follows:
• Azedra's expenses increased by approximately $1.4 million due mainly to increased clinical trial activity of $0.4 million, manufacturing increases of $0.2 million to support the clinical trials and pre-clinical testing of $0.8 million.

• Trofex program expenses represented a year over year increase of $0.1 million.

As clinical sites are initiated and patients are enrolled in our clinical programs, we anticipate incurring increased costs from professional clinical trials service firms helping to support the clinical programs by performing independent clinical monitoring, data acquisition and data evaluation. We also anticipate incurring increased costs related to the hiring of additional research and development and clinical trials personnel, and increased costs associated with production and distribution of clinical trials' material. We also expect that our research and development expense will increase as we pursue the identification and development of other product candidates, which we plan to fund through our own resources or through strategic collaborations. General and Administrative Expense.
General and administrative expense increased $3.8 million, or 90%, to $8.0 million for the three months ended September 30, 2008 from $4.2 million for the three months ended September 30, 2007. The major increases were $2.0 million for consulting costs and outside services (which includes $1.1 million for the issuance of a warrant grant for consulting services), to support corporate strategy and financial management, Sarbanes-Oxley compliance, information technology and corporate administration, $1.0 million for compensation, benefits, and expenses associated with staffing increases required as a public company, $0.5 million for Chief Executive Officer severance expense and $0.2 million for facilities costs.
Other (Expense) Income, Net.
Other expense, net increased $5.4 million to $4.9 million for the three months ended September 30, 2008 from other income, net of $0.4 million for the three months ended September 30, 2007. During the third quarter of 2007 and 2008, interest expense was $0.04 million and $6.1 million, respectively, partially offset by interest income of $0.5 million and $1.1 million, respectively. The increase in interest expense of $6.0 million for the third quarter of 2008, compared to the third quarter of 2007, was due to the payment-in-kind interest accrued of $4.5 million on the $150 million Senior Secured Floating Rate Bonds. The increase in interest income in the current quarter was the result of the increased level of invested funds received from the cash proceeds from these Bonds.

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Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007
Revenue - Research and Development Grants.
Revenue declined by approximately $0.3 million, or 50%, to $0.2 million for the nine months ended September 30, 2008 from $0.6 million for the nine months ended September 30, 2007. The Company receives funding under various Research and Development grants. The decrease is primarily due to the timing of grant related activities.
Research and Development Expense.
Research and development expense increased approximately $4.9 million, or 18%, to $32.0 million for the nine months ended September 30, 2008 from $27.1 million for the nine months ended September 30, 2007. Excluding expenditures of $3.75 million incurred in the first nine months of 2007 for the Onalta and Solazed license and technology transfer agreements, total R&D spending increased $8.6 million for the nine months ended September 30, 2008. The following table summarizes (in thousands), the expenditures by program:

                                                           Nine months ended
                                                   September 30,       September 30,
Program                                                2007                2008
Azedra and Ultratrace platform                    $         5,523     $         7,369
Onalta                                                      3,530               1,633
Solazed                                                     1,564               1,025
Trofex                                                        734               1,241
Zemiva                                                      7,476               8,950
Other Platform and general R&D programs                     8,303              11,768


Total R&D expenses, including related party R&D   $        27,130     $        31,986

The overall increase of $4.9 million for the nine months year-to-date ending September 30, 2008 is attributable to the following:
• Zemiva's program expenses increased by approximately $1.5 million to fully capture patient costs in the ongoing clinical trial, causing increases in trial costs ($0.3 million), as well as manufacturing costs that support the trials ($1.2 million).

• Trofex spending increased $0.5 million over 2007 due to costs pertaining to an ongoing Phase I clinical trial during Q3.

• Solazed program expenses increased $0.5 million after excluding a $1.0 million acquisition fee for a license from Bayer in the first quarter of 2007. Pre-clinical trial testing costs of $0.4 million drove this increase.

• Onalta program expenses increased $0.9 million after exclusion of the $2.75 million license fee incurred in early 2007. Increased trial costs
($0.1 million) and the supporting manufacturing costs ($0.3 million) contributing to the increase, as well as increased personnel costs ($0.2 million) and sponsored research ($0.2 million).

• Azedra and Ultratrace increased approximately $1.8 million which is mainly attributable to increased clinical trials costs.

• General R&D program and staffing related costs increased $0.5 million for wages, benefits and other expenses.

The Company and Certus International, Inc. entered into a Clinical Research and Consulting Master Services Agreement effective August 22, 2004 (the "Certus Agreement"). Effective February 15, 2008, the Company and Certus entered into a Settlement Agreement and Release to discontinue this contractual relationship upon mutually agreeable terms. The termination of this agreement resulted in the reversal of previously recorded research and development expense of $0.5 million in the first quarter of 2008.
As clinical sites are initiated and patients are enrolled in our clinical programs, we anticipate incurring increased costs from professional clinical trials service firms helping to support the clinical programs by performing

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independent clinical monitoring, data acquisition and data evaluation. We also anticipate incurring increased costs related to the hiring of additional research and development and clinical trials personnel, and increased costs associated with production and distribution of clinical trials' material. We also expect that our research and development expense will increase as we pursue the identification and development of other product candidates, which we plan to fund through our own resources or through strategic collaborations. General and Administrative Expense.
General and administrative expense increased $7.8 million, or 67%, to $19.5 million for the nine months ended September 30, 2008 from $11.7 million for the nine months ended September 30, 2007. The major increases were $2.3 million for compensation, benefits, and expenses associated with staffing increases required as a public company, $0.5 million for Chief Executive Officer severance expense, $2.7 million for consulting costs and outside services (which includes $1.1 million for the issuance of the warrant) to support corporate strategy and financial management, Sarbanes-Oxley compliance, information technology and corporate administration, $0.7 million for accounting fees associated with auditing and external reporting, $0.6 million for marketing and communications costs related to the Company's key products candidates' branding initiatives, $0.5 million for legal expenses associated with corporate administration and product patents and $0.4 million for other functional spend. Other (Expense) Income, Net.
Other expense, net increased $14.3 million to $14.2 million for the nine months ended September 30, 2008 from other income, net of $0.1 million for the nine months ended September 30, 2007. During the first nine months of 2007 and 2008, interest expense was $1.5 million and $17.7 million, respectively, partially offset by interest income of $1.6 million and $3.5 million, respectively. The increase in interest expense of $16.2 million for the first three quarters of 2008, compared to the first three quarters of 2007, was principally due to interest of $13.4 million on the $150.0 million Senior Secured Floating Rate Bonds. The increase in interest income in the current quarter was the result of the increased level of invested funds received from the cash proceeds from these Bonds.
Redeemable Convertible Preferred Stock Dividends and Accretion of Issuance Costs.
There was no Redeemable Convertible Preferred Stock in the first three quarters of 2008 because those securities were converted to common stock on February 1, 2007 in connection with our Initial Public Offering of common stock. Redeemable Convertible Preferred Stock's first quarter 2007 dividends and accretion of issuance costs were $1.4 million. Liquidity and Capital Resources
The Company has funded its operations from inception on January 10, 1997 through September 30, 2008 mainly through the issuance of bonds and warrants, . . .