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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2010

or

For the transition period from              to             

COMMISSION FILE NUMBER: 001-32836

MEDIVATION, INC.

(Exact name of registrant as specified in its charter)

201 Spear Street, 3rd floor

San Francisco, California 94105

(Address of principal executive offices) (Zip Code)

(415) 543-3470

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant 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 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.

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

As of May 5, 2010, 34,008,485 shares of the registrant’s Common Stock, $0.01 par value per share, were issued and outstanding.

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PART I — FINANCIAL INFORMATION

MEDIVATION, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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MEDIVATION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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MEDIVATION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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MEDIVATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(unaudited)

NOTE 1 — THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Medivation, Inc. (the “Company”) is a biopharmaceutical company focused on the rapid development of novel small molecule drugs to treat serious diseases for which there are limited treatment options. The Company’s product candidates in clinical development are dimebon (latrepirdine), which is in Phase 3 development for the treatment of Alzheimer’s disease and Huntington disease, and MDV3100, which is in Phase 3 development for the treatment of castration-resistant prostate cancer. The Company’s dimebon program is partnered with Pfizer Inc., or Pfizer, and its MDV3100 program is partnered with Astellas Pharma Inc., or Astellas.

In September 2008, the Company announced a Collaboration Agreement with Pfizer, which became effective in October 2008. Under the terms of the agreement, the Company and Pfizer agreed to develop and commercialize dimebon for the treatment of Alzheimer’s disease and Huntington disease. The Company and Pfizer will share the costs and expenses of developing and commercializing dimebon for the United States market on a 60% Pfizer/40% Medivation basis, and will share profits (or losses) resulting from commercialization of dimebon in the United States in the same proportions. Outside the United States, Pfizer will bear all development and commercialization costs, and will pay the Company tiered royalties on aggregate net sales of dimebon. In the fourth quarter of 2008, the Company received a non-refundable, up-front cash payment of $225.0 million pursuant to its Collaboration Agreement with Pfizer.

In March 2010, the Company and Pfizer reported negative results from the CONNECTION study, a randomized, double-blind, placebo-controlled, six-month Phase 3 study of dimebon in patients with mild-to-moderate Alzheimer’s disease. In the CONNECTION trial, dimebon failed to show a statistically significant improvement over placebo on any of the primary or secondary efficacy endpoints, and thus did not meet any of the study’s efficacy endpoints. Given the negative results in the CONNECTION trial, Pfizer has the right to terminate the Collaboration Agreement with the Company at any time. The Company does not know at this time if or when Pfizer will ultimately elect to terminate the collaboration.

In October 2009, the Company entered into a Collaboration Agreement with Astellas. Under the terms of the agreement, the Company and Astellas agreed to develop and commercialize MDV3100 for the treatment of both late- and early-stage prostate cancer. The Company and Astellas will share equally the costs and expenses of developing and commercializing MDV3100 for the United States market, except that development costs for studies useful in both the United States market and either Europe or Japan will be shared two-thirds by Astellas and one-third by the Company. The Company and Astellas will share equally profits (or losses) resulting from commercialization of MDV3100 in the United States. Outside the United States, Astellas will bear all development and commercialization costs, and will pay the Company tiered royalties on aggregate net sales of MDV3100. In the fourth quarter of 2009, the Company received a non-refundable, up-front cash payment of $110.0 million pursuant to its Collaboration Agreement with Astellas, ten percent of which the Company paid to the academic institution from which it licensed its rights to MDV3100.

The Company has funded its operations primarily through private and public offerings of its common stock, and from the up-front and cost-sharing payments from its Collaboration Agreements with Pfizer and Astellas. As of March 31, 2010, the Company had an accumulated deficit of $194.9 million and the Company expects to incur substantial additional losses in the future as it continues research and development activities designed to support potential approval of its present and potential future product candidates.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for the fair statement of results for the periods presented, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period.

The preparation of unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the recorded amounts reported therein. A change in facts or circumstances surrounding the estimate could result in a change to estimates and impact future operating results.

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MEDIVATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2010

(unaudited)

The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim unaudited condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2009 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the Commission, on March 15, 2010.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Medivation Neurology, Inc., Medivation Prostate Therapeutics, Inc. and Medivation Therapeutics, Inc. and reflect the elimination of intercompany accounts and transactions.

Reference is made to “Summary of Significant Accounting Policies” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. As of the date of the filing of this Quarterly Report, the Company did not identify any significant changes to the critical accounting policies discussed in its Annual Report for the year ended December 31, 2009.

Recently Issued Accounting Pronouncements

In March 2010, the Financial Accounting Standards Board (FASB) ratified Emerging Issues Task Force (EITF) Issue No. 08-9, “Milestone Method of Revenue Recognition” (Issue 08-9). The Accounting Standards Update resulting from Issue 08-9 amends Accounting Standards Codification (ASC) 605-28. The Task Force concluded that the milestone method is a valid application of the proportional performance model when applied to research or development arrangements. Accordingly, the consensus states that an entity can make an accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is defined in the consensus as an event: (1) that can only be achieved based in whole or in part on either (a) the entity’s performance or (b) on the occurrence of a specific outcome resulting from the entity’s performance; (2) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved; and (3) that would result in additional payments being due to the entity. Issue 08-9 is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2010, and may be applied either prospectively to milestones achieved after the adoption date, or; retrospectively for all periods presented. The Company does not expect Issue 08-9 to have any material impact on its consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-06, Fair Value Measurements and Disclosures (ASU 2010-06), which amends ASC 820, adding new requirements for disclosures for Levels 1 and 2, separate disclosures of purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010. The Company adopted this statement on January 1, 2010, analyzed its impact on its consolidated financial statements and concluded that there was no such impact .

In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13, “Multiple-Deliverable Revenue Arrangements” (ASU 2009-13). This update removes the criterion that entities must use objective and reliable evidence of fair value in separately accounting for deliverables and provides entities with a hierarchy of evidence that must be considered when allocating arrangement consideration. The new guidance also requires entities to allocate arrangement consideration to the separate units of accounting based on the deliverables’ relative selling price. The provisions will be effective for revenue arrangements entered into or materially modified in the Company’s fiscal year 2011. The Company is currently evaluating the impact on its consolidated financial statements of the provisions of ASU 2009-13 but does not intend to early adopt.

In June 2009, the FASB issued the consolidation guidance for variable-interest entities to replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable-interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable-interest entity that most significantly impact the entity’s economic performance. The Company adopted this standard on January 1, 2010, analyzed its impact on its consolidated financial statements and concluded that there was no such impact.

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MEDIVATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2010

(unaudited)

NOTE 2 — COLLABORATION AGREEMENTS

a) Collaboration Agreement with Pfizer

In September 2008, the Company announced a Collaboration Agreement with Pfizer. Under this agreement, the Company and Pfizer agreed to collaborate on the development of dimebon for Alzheimer’s disease and Huntington disease for the United States market, including associated regulatory filings with the FDA. In addition, if approved by the FDA, following such approval and the launch of dimebon in the United States, the Company, at its option, and Pfizer will co-promote dimebon to specialty physicians in the United States, and Pfizer will promote dimebon to primary care physicians in the United States. Pfizer will be responsible for development and seeking regulatory approval for, and commercialization of, dimebon outside the United States. Pfizer is responsible for all manufacture of product for both clinical and commercial purposes. Both the Company and Pfizer have agreed not to commercialize for the treatment of specified indications any other products directed to the same primary molecular target as dimebon for a specified time period, subject to certain exceptions.

The agreement establishes several joint committees consisting of an equal number of representatives from both parties that operate by consensus to oversee the collaboration. In the event that a joint committee is unable to reach consensus on a particular issue, then, depending on the issue, a dispute may be decided at the joint committee level by the party with the final decision on the issue or escalated to senior management of the parties. If a dispute is escalated to senior management and no consensus is reached, then the dispute may be decided by the party to whom the contract grants final decision on such issue. Other issues can only be decided by consensus of the parties, and unless and until the parties’ representatives reach agreement on such issue, no decision on such issue will be made, and the status quo will be maintained.

Under the Pfizer Collaboration Agreement, Pfizer paid the Company an up-front cash payment of $225.0 million in the fourth quarter of 2008. The Company is also eligible to receive payments of up to $500 million upon the attainment of development and regulatory milestones plus additional milestone payments upon the achievement of certain net sales levels for the product. The Company and Pfizer will share the costs and expenses of developing and commercializing dimebon for the United States market on a 60%/40% basis, with Pfizer assuming the larger share, and the Company and Pfizer will share profits (or losses) resulting from the commercialization of dimebon in the United States in such proportions. Outside the United States, Pfizer will bear all development and commercialization costs and will pay the Company tiered royalties on the aggregate net sales of dimebon.

The Company is permitted to terminate the Pfizer Collaboration Agreement for an uncured material breach by Pfizer. Pfizer has the right to terminate the Pfizer Collaboration Agreement unilaterally at any time. In the event of an uncured material breach of the Pfizer Collaboration Agreement by the Company, Pfizer may elect either to terminate the Pfizer Collaboration Agreement or to keep the Pfizer Collaboration Agreement in place, but terminate the Company’s right to participate in development, commercialization (other than co-promoting dimebon) and other activities for dimebon, including the joint committees and decision making for dimebon. However, such termination would not affect the Company’s financial return or, unless the Company commits an uncured material breach of its co-promotion obligations, the Company’s co-promotion rights. Following any termination of the Pfizer Collaboration Agreement, all rights to develop and commercialize dimebon will revert to the Company, and Pfizer will grant a license to the Company to enable the Company to continue such development and commercialization, remain responsible for its ongoing financial and other obligations under the Collaboration Agreement for a transition period of six months following termination, and is obligated to supply product to the Company for a reasonable period of time, not to exceed eighteen months following termination, on terms to be negotiated between the parties in good faith.

        For the three months ended March 31, 2010 and 2009, collaboration revenue recognized pursuant to the Pfizer Collaboration Agreement was $10.5 million and $16.3 million, respectively, representing the amortized portion of the $225.0 million up-front payment received from Pfizer. The remaining $136.5 million of the up-front payment has been recorded as deferred revenue, and will be amortized on a straight-line basis over the expected performance period of the Company’s deliverables under the Collaboration Agreement. Given the negative results in the CONNECTION trial and the subsequent revisions to the dimebon development plan, management revised its estimate of the performance period under the Pfizer Collaboration Agreement to extend the estimated completion date from the first quarter of 2012 to the second quarter of 2013. Management applied this revised estimate for revenue amortization purposes on a prospective basis beginning in the first quarter of 2010. The change in estimate will result in a decrease in amortized revenue related to the Pfizer Collaboration Agreement of $5.8 million per quarter beginning in the first quarter of 2010. Any milestone payments received by the Company pursuant to the Pfizer Collaboration Agreement will be recognized as revenue in the period in which the underlying milestone event is achieved, other than milestone payments triggered by events that occur during the performance period and do not qualify as substantive milestones, which will be amortized on a straight-line basis over the period beginning on the date such triggering event occurs and ending on completion of the performance period. Any profit sharing and royalty payments received by the Company pursuant to the Pfizer Collaboration Agreement will be recognized as revenue in the period in which the underlying product sales occur.

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MEDIVATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2010

(unaudited)

The Company’s policy is to present true-up payments of development and commercialization costs, whether to or from the Company, within the applicable expense line in the statement of operations. True-up payments by the Company to Pfizer are thus presented as an increase in expense in the Company’s statement of operations, while true-up payments by Pfizer to the Company are presented as a reduction in expense. For the three months ended March 31, 2010, the Company recorded development cost true-up payments receivable from Pfizer of $4.8 million and commercialization cost true-up payments payable to Pfizer of $0.2 million, and a corresponding reduction in research and development expense and increase in selling, general and administrative expense. For the three months ended March 31, 2009, the Company recorded development and commercialization cost true-up payments receivable from Pfizer of $5.4 million and $0.4 million, respectively, and corresponding reductions in research and development expense and selling, general and administrative expense.

(b) Collaboration Agreement with Astellas

In October 2009, the Company announced a Collaboration Agreement with Astellas. Under the Astellas Collaboration Agreement, the Company and Astellas agreed to collaborate on the development of MDV3100 for prostate cancer for the United States market, including associated regulatory filings with the FDA. In addition, if approved by the FDA, following such approval and the launch of MDV3100 in the United States, the Company, at its option, and Astellas will co-promote MDV3100 in the United States. Astellas is responsible for development of, seeking regulatory approval for and commercialization of MDV3100 outside the United States. Astellas will be responsible for commercial manufacture of MDV3100 on a global basis. Both Medivation and Astellas have agreed not to commercialize certain other products having a similar mechanism of action as MDV3100 for the treatment of specified indications for a specified time period, subject to certain exceptions.

The agreement establishes several joint committees consisting of an equal number of representatives from both parties that operate by consensus to oversee the collaboration. In the event that a joint committee is unable to reach consensus on a particular issue, then, depending on the issue, a dispute may be decided at the joint committee level by the party with the final decision on the issue or escalated to senior management of the parties. If a dispute is escalated to senior management and no consensus is reached, then the dispute may be decided by the party to whom the contract grants final decision on such issue. Other issues can only be decided by consensus of the parties, and unless and until the parties’ representatives reach agreement on such issue, no decision on such issue will be made, and the status quo will be maintained.

Under the Astellas Collaboration Agreement, Astellas paid the Company an up-front cash payment of $110.0 million in the fourth quarter of 2009. The Company is also entitled to receive up to $335.0 million in development milestone payments, plus up to an additional $320.0 million in commercial milestone payments. The Company is required to share 10% of the up-front payment and any development milestone payments received under the Astellas Collaboration Agreement with the academic institution from which it licensed its rights to MDV3100. The Company paid 10% of the up-front payment, or $11.0 million, to the academic institution in the fourth quarter of 2009. The Company and Astellas will share equally the costs and expenses of developing and commercializing MDV3100 for the United States market, except that development costs for studies useful in both the United States market and either Europe or Japan will be shared two-thirds by Astellas and one-third by the Company. The Company and Astellas will share profits (or losses) resulting from the commercialization of MDV3100 in the United States equally. Outside the United States, Astellas will bear all development and commercialization costs and will pay the Company tiered, double-digit royalties on the aggregate net sales of MDV3100.

The Company and Astellas each are permitted to terminate the Astellas Collaboration Agreement for an uncured material breach by, or the insolvency of, the other party. Astellas has a right to terminate the Astellas Collaboration Agreement unilaterally by advance written notice to the Company, but except in certain specific circumstances, generally cannot exercise that termination right until the first anniversary of MDV3100’s first commercial sale. Following any termination of the Astellas Collaboration Agreement in its entirety, all rights to develop and commercialize MDV3100 will revert to the Company, and Astellas will grant a license to the Company to enable the Company to continue such development and commercialization. In addition, except in the case of a termination by Astellas for an uncured material breach, Astellas will supply MDV3100 to the Company during a specified transition period.

        For the three months ended March 31, 2010, collaboration revenue recognized pursuant to the Astellas Collaboration Agreement was $5.2 million, representing the amortized portion of the $110.0 million up-front payment received from Astellas in the fourth quarter of 2009. The remaining $100.9 million of the up-front payment has been recorded as deferred revenue, and will be amortized on a straight-line basis over the expected performance period of the Company’s deliverables under the Astellas Collaboration Agreement. Management currently expects this performance period to end in the fourth quarter of 2014. Any milestone payments received by the Company pursuant to the Astellas Collaboration Agreement will be recognized as revenue in the period in which the underlying milestone event is achieved, other than milestone payments triggered by events that occur during the performance period and do not qualify as substantive milestones, which will be amortized on a straight-line basis over the period beginning on the date such triggering event occurs and ending on completion of the performance period. Any profit sharing and royalty payments received by the Company pursuant to the Astellas Collaboration Agreement will be recognized as revenue in the period in which the underlying product sales occur.

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MEDIVATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2010

(unaudited)

The Company’s policy is to present true-up payments of development and commercialization costs, whether to or from the Company, within the applicable expense line in the statement of operations. True-up payments by the Company to Astellas are thus presented as an increase in expense in the Company’s statement of operations, while true-up payments by Astellas to the Company are presented as a reduction in expense. For the three months ended March 31, 2010, the Company recorded development and commercialization cost true-up payments receivable from Astellas of $6.0 million and $0.1 million, respectively, and corresponding reductions in research and development expense and selling, general and administrative expense. There were no such payments receivable in the prior year period.

NOTE 3 — BASIC AND DILUTED NET LOSS PER SHARE

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed similarly to basic net loss per share, except that the denominator is increased to include all dilutive potential common shares, including outstanding options, warrants and common stock subject to repurchase. Potentially dilutive common shares have been excluded from the diluted loss per common share computations in all periods presented because such securities have an anti-dilutive effect on loss per common share due to the Company’s net loss. There are no reconciling items used to calculate the weighted average number of total common shares outstanding for basic and diluted net loss per share data. At March 31, 2010 and 2009 these potentially dilutive securities were as follows:

NOTE 4 — COMPREHENSIVE LOSS

Comprehensive loss is comprised of net loss adjusted for changes in market values of securities available-for-sale. Below is a reconciliation of net loss to comprehensive loss for the periods presented.

NOTE 5 — STOCK-BASED COMPENSATION

The Company’s Amended and Restated 2004 Equity Incentive Award Plan, or the Plan, which is stockholder-approved, provides for the issuance of options and other stock-based awards, including restricted stock and stock appreciation rights, covering up to 7,500,000 shares of the Company’s common stock. Shares issued upon exercise of stock-based awards are new shares that have been reserved for issuance under the Plan. The amendment and restatement of the Plan was approved by the Board and by the stockholders in March and May 2007, respectively.

The Plan is administered by the Board, or a committee appointed by the Board, which determines recipients and types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. The term of stock options granted under the Plan cannot exceed ten years. Options generally have an exercise price equal to the fair market value of the common stock on the grant date and generally vest over a period of four years. The options may contain an early exercise feature,

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MEDIVATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2010

(unaudited)

pursuant to which the optionee may exercise the option before it has vested. However, so long as an option remains unvested, all shares purchased upon early exercise remain subject to repurchase by the Company at the option exercise price if the optionee’s service with the Company terminates. For purposes of the following disclosures, early exercise options are not considered to have been exercised, or to be exercisable, until this repurchase right has lapsed. To date, the Company has not issued any shares upon early exercise of stock options. In addition, all outstanding awards under the Plan will accelerate and become immediately exercisable upon a “change of control” of the Company, as defined in the Plan.

The following table summarizes stock option activity for the three months ended March 31, 2010:

The following table summarizes information about restricted stock award activity for the three months ended March 31, 2010:

The Company estimates the fair value of stock options and warrants using the Black-Scholes option valuation model. Estimated volatility is based on the historical stock price volatility of the Company’s common stock, the historical stock price volatility of comparable companies’ common stock and the implied volatility of the Company’s common stock inherent in the market prices of publicly traded options in its common stock. Estimated dividend yield is 0%. The risk-free rate is estimated to equal U.S. Treasury security rates for the applicable terms. Prior to the first quarter of 2010, due to its limited history of option exercise behavior, the Company used the simplified method of estimating option term provided for in the Commission’s Staff Accounting Bulletins 107 and 110 for options granted to employees and directors, which resulted in an estimated option term of six years. Beginning in the first quarter of 2010, the Company changed to a method based on its actual exercise experience and an assumption that unexercised options will remain outstanding for a period equal to the midpoint between the date the option vests in full and the contractual option termination date. For the first quarter of 2010, this new methodology produced an estimated term of 5.81 years for options granted to employees and directors. For options granted to consultants, the Company uses an estimated option term of four years, which is equal to the period required for the options to vest in full. Different estimates of volatility, dividend yield, risk-free rate and expected term could materially change the value of an option and the resulting expense.

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MEDIVATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2010

(unaudited)

Stock-based awards granted to employees and directors are valued at their respective grant dates and expensed over the remaining vesting period of the award. Stock-based awards granted to consultants are valued at their respective measurement dates and recognized as expense based on the portion of the total consulting services provided during the applicable period. As further consulting services are provided in future periods, the Company will revalue the associated awards and recognize additional expense based on their then-current fair values

Total stock-based compensation recognized by the Company in the three months ended March 31, 2010 and 2009 was as follows:

Unearned stock-based compensation attributable to employee and director awards totaled $33.7 million at March 31, 2010 and will be recognized as expense over a weighted-average period of 2.6 years.

NOTE 6 — SHORT-TERM INVESTMENTS

As of March 31, 2010, short-term investments consisted of certificates of deposit and United States treasury notes maturing in July and August 2010. The amortized cost, gross unrealized gain and estimated fair value of short-term investments at March 31, 2010 were $134.9 million, $0.0 million and $134.9 million, respectively. As of December 31, 2009, short-term investments consisted solely of United States treasury notes maturing in February, July and August 2010. The amortized cost, gross unrealized gain and estimated fair value of short-term investments at December 31, 2009 were $220.8 million, $0.0 million and $220.8 million, respectively.

NOTE 7 — FAIR VALUE DISCLOSURES

The Company determines fair value for marketable securities with Level 1 inputs through quoted market prices in active markets for identical assets. The following table presents the Company’s assets that are measured at fair value on a recurring basis as of March 31, 2010 (in thousands):

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MEDIVATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2010

(unaudited)

NOTE 8 — ACCRUED EXPENSES

At March 31, 2010 and December 31, 2009, accrued expenses consisted of the following (in thousands):

NOTE 9 — DEFERRED REVENUE

Deferred revenue at March 31, 2010 and December 31, 2009 consisted of the following (in thousands):

NOTE 10 — INCOME TAXES

The Company calculates its quarterly tax provision consistent with the guidance provided by ASC 740-270 whereby the Company forecasts its estimated annual effective tax rate and then applies that rate to its year-to-date pre-tax book income (loss). The Company has established and continues to maintain a full valuation allowance against its deferred tax assets as the Company does not currently believe that realization of those assets is more likely than not. The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception. As a result of the Company’s net operating loss carryforwards, all of its tax years are subject to federal and state tax examination. The Company has not recorded any tax provision for the first quarter of 2010 because it expects to be in a taxable loss position for 2010 and has a full valuation allowance on its deferred tax assets.

NOTE 11 — RESTRUCTURING

In response to the negative CONNECTION data, the Company implemented a restructuring in March 2010 in which it eliminated 23 full-time positions and vacated approximately 3,700 square feet of office space. Terminated individuals were eligible for a package consisting of a severance payment, continuing medical coverage and outplacement services. Aggregate restructuring charges, all of which were recorded in the period ended March 31, 2010, were $0.9 million, of which $0.4 million was classified as selling, general and administrative expense and $0.5 million was classified as research and development expense.

The following table summarizes the restructuring charges discussed above, as well as the remaining unpaid balance at March 31, 2010 (in thousands):

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MEDIVATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2010

(unaudited)

NOTE 12 — CONTINGENCIES

Two purported securities class action lawsuits have been filed against the Company based on the negative CONNECTION data reported in March 2010. The lawsuits are substantially identical, and allege violations of the Securities Exchange Act of 1934 in connection with allegedly false and misleading statements made by the Company related to dimebon. The plaintiffs allege, among other things, that the defendants disseminated false and misleading statements about the effectiveness of dimebon for the treatment of Alzheimer’s disease making it impossible for stockholders to gain a realistic understanding of the drug’s progress toward FDA approval. The plaintiffs seek to represent a class of stockholders who purchased the Company’s common stock between July 17, 2008 and March 2, 2010. The plaintiffs seek damages, an award of their costs and injunctive and/or equitable relief. It is possible that additional suits will be filed, or allegations received from stockholders, with respect to these same matters and also naming the Company and/or its officers and directors as defendants. This lawsuit and any other related lawsuits are subject to inherent uncertainties, and the actual cost will depend upon many unknown factors. The outcome of the litigation is necessarily uncertain, the Company could be forced to expend significant resources in the defense of those suits and it may not prevail. The Company has not established any reserve for any potential liability relating to this lawsuit. The Company’s management believes that the Company has meritorious defenses and intends to defend the lawsuit vigorously. The Company believes it is entitled to coverage under its relevant insurance policies, subject to a $350,000 retention, but coverage could be denied or prove to be insufficient.

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The following discussion should be read in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2009, included in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Commission on March 15, 2010. The following 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 and Section 21E of the Securities Exchange Act of 1934. We intend that these forward-looking statements be subject to the safe harbors created by those provisions. Forward-looking statements are generally written in the future tense and/or are preceded by words such as “may,” “should,” “forecast,” “could,” “expect,” “suggest,” “believe,” “anticipate,” “intend,” “plan,” or other similar words. The forward-looking statements contained in this Quarterly Report on Form 10-Q involve a number of risks and uncertainties, many of which are outside of our control. Factors that could cause actual results to differ materially from projected results include, but are not limited to, those discussed in “Risk Factors” in Item 1A of Part II below. Readers are expressly advised to review and consider those Risk Factors, which include risks associated with (1) the negative results we reported from our CONNECTION trial in March 2010 and the potential impact of those results on continued clinical development of dimebon, including risks associated with Pfizer’s potential termination of our dimebon collaboration agreement, which Pfizer has the right to do at any time, as well as the risk that we and/or Pfizer may determine to further curtail or discontinue the development of dimebon, (2) our ability to successfully conduct clinical and preclinical trials for our product candidates, (3) our ability to obtain required regulatory approvals to develop and market our product candidates, (4) our ability to raise additional capital on favorable terms, (5) our ability to execute our development plan on time and on budget, (6) our ability to obtain commercial partners, (7) our ability, whether alone or with commercial partners, to successfully commercialize any of our product candidates that may be approved for sale, and (8) our ability to identify and obtain additional product candidates. Although we believe that the assumptions underlying the forward-looking statements contained in this Quarterly Report on Form 10-Q are reasonable, any of the assumptions could be inaccurate, and therefore we cannot be certain that such statements will be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Furthermore, past performance in operations and share price is not necessarily indicative of future performance. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The Company

We are a biopharmaceutical company focused on the rapid development of novel small molecule drugs to treat serious diseases for which there are limited treatment options. Our product candidates in clinical development are dimebon (latrepirdine), which is in Phase 3 development for the treatment of Alzheimer’s disease and Huntington disease, and MDV3100, which is in Phase 3 development for the treatment of castration-resistant prostate cancer. Our dimebon program is partnered with Pfizer Inc., or Pfizer, and our MDV3100 program is partnered with Astellas Pharma Inc., or Astellas.

In September 2008, we announced a Collaboration Agreement with Pfizer, which became effective in October 2008. Under the terms of the agreement, we and Pfizer agreed to develop and commercialize dimebon for the treatment of Alzheimer’s disease and Huntington disease. We and Pfizer will share the costs and expenses of developing and commercializing dimebon for the United States market on a 60% Pfizer/40% Medivation basis, and will share profits (or losses) resulting from commercialization of dimebon in the United States in the same proportions. Outside the United States, Pfizer will bear all development and commercialization costs, and will pay us tiered royalties on aggregate net sales of dimebon. In the fourth quarter of 2008, we received a non-refundable, up-front cash payment of $225.0 million pursuant to our Collaboration Agreement with Pfizer.

In March 2010, we and Pfizer reported negative results from the CONNECTION study, a randomized, double-blind, placebo-controlled, six-month Phase 3 study of dimebon in patients with mild-to-moderate Alzheimer’s disease. In the CONNECTION trial, dimebon failed to show a statistically significant improvement over placebo on any of the primary or secondary efficacy endpoints, and thus did not meet any of the study’s efficacy endpoints. Given the negative results in the CONNECTION trial, Pfizer has the right to terminate the Collaboration Agreement with us at any time. We do not know at this time if or when Pfizer will ultimately elect to terminate the collaboration.

In response to the negative CONNECTION data, we implemented a restructuring in March 2010 in which we eliminated 23 full-time positions and vacated approximately 3,700 square feet of office space. Terminated individuals were eligible for a package consisting of a severance payment, continuing medical coverage and outplacement services. Aggregate restructuring charges, all of which were recorded in the period ended March 31, 2010, were $0.9 million, of which $0.4 million was classified as selling, general and administrative expense and $0.5 million was classified as research and development expense.

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In October 2009, we entered into a Collaboration Agreement with Astellas. Under the terms of the agreement, we and Astellas agreed to develop and commercialize MDV3100 for the treatment of both late- and early-stage prostate cancer. We and Astellas will share equally the costs and expenses of developing and commercializing MDV3100 for the United States market, except that development costs for studies useful in both the United States market and either Europe or Japan will be shared two-thirds by Astellas and one-third by us. We and Astellas will share equally profits (or losses) resulting from commercialization of MDV3100 in the United States. Outside the United States, Astellas will bear all development and commercialization costs, and will pay us tiered royalties on aggregate net sales of MDV3100. In the fourth quarter of 2009, we received a non-refundable, up-front cash payment of $110.0 million pursuant to our Collaboration Agreement with Astellas, ten percent of which we paid to the academic institution from which we licensed our rights to MDV3100.

We have funded our operations primarily through private and public offerings of our common stock, and from the up-front and cost-sharing payments from our Collaboration Agreements with Pfizer and Astellas. As of March 31, 2010, we had an accumulated deficit of $194.9 million and we expect to incur substantial additional losses in the future as we continue research and development activities designed to support potential approval of our present and potential future product candidates.

Our Pipeline

Dimebon (latrepirdine)

Alzheimer’s disease. Our product candidate dimebon (latrepirdine) is in Phase 3 development for Alzheimer’s disease, in collaboration with Pfizer. In March 2010, we reported negative results from our CONNECTION trial. CONNECTION was a randomized, double-blind, placebo-controlled six-month study of 598 patients with mild-to-moderate Alzheimer’s disease in the United States, Western Europe, Russia and Chile in which patients were randomized to receive dimebon 20 mg three times daily, dimebon 5 mg three times daily or placebo. Patients in the CONNECTION trial were not permitted to take any approved Alzheimer’s disease medicines for a period of 90 days before, or at any time during, the study. Dimebon failed to show a statistically significant improvement over placebo on any of the primary or secondary efficacy endpoints in the CONNECTION trial, and thus did not meet any of the study’s efficacy endpoints. We designed the CONNECTION trial to confirm the results of our first trial of dimebon in 183 patients with mild-to-moderate Alzheimer’s disease in Russia, or the Russian Study, the results of which were published in 2008 in The Lancet. In the Russian Study, dimebon showed a statistically significant improvement over placebo on all of the same primary and secondary efficacy endpoints used in the CONNECTION trial. Thus, the CONNECTION trial failed to replicate the efficacy results seen in the Russian Study.

Huntington disease. Dimebon is also in Phase 3 clinical development for Huntington disease, also in collaboration with Pfizer. In July 2008, we announced top-line results of a Phase 2 study showing that dimebon was well tolerated and significantly improved cognitive function in Huntington disease patients compared to those treated with a placebo. The study, which was conducted in the U.S. and the United Kingdom, met its primary endpoint of safety and tolerability; in addition, dimebon showed statistically significant benefit versus placebo in cognition as measured by the Mini-Mental State Examination, or MMSE, a secondary endpoint in the study. However, dimebon failed to show a statistically significant benefit over placebo in this study on two other cognitive endpoints—the cognitive component of the Unified Huntington Disease Rating Scale, or UHDRS, and the ADAS-cog. The study results were published in March 2010 in Archives of Neurology. In July 2009, we enrolled the first patient in a randomized, double-blind, six-month placebo-controlled Phase 3 study of dimebon to treat Huntington disease, known as the HORIZON study.

Tolerability. Dimebon has been well tolerated in all clinical trials conducted to date in both Alzheimer’s and Huntington disease, including the CONNECTION trial and a separate randomized, double-blind, placebo-controlled safety study of dimebon, or the Safety Study, also reported in March 2010, in which 742 patients in the United States and Canada were randomized to receive dimebon 20 mg three times daily or placebo and treated for three to six months. Approximately 85% of patients in the Safety Study were taking one or more approved Alzheimer’s disease medicines while on the trial.

Post-CONNECTION development plans. In April 2010, we completed a thorough analysis of the CONNECTION data and study logistics. Our analysis concluded that dimebon did not show a clinical benefit in the CONNECTION trial, and we did not identify any systematic flaws in the study logistics that could otherwise explain the negative CONNECTION results. We considered all available dimebon data generated to date, including the negative results of the 598-patient CONNECTION study in mild-to-moderate Alzheimer’s disease and the positive results of the prior 183-patient Russian study in mild-to-moderate Alzheimer’s disease and the prior 90-patient Phase 1-2 study in Huntington disease, and concluded that development of dimebon should continue, but on a streamlined basis that prioritized those trials that we believe to be the most promising. Accordingly, we intend to continue the ongoing CONCERT trial, a twelve-month, randomized, double-blind, placebo-controlled Phase 3 trial evaluating dimebon’s potential benefits in patients with mild-to-moderate Alzheimer’s disease who are taking donepezil , and the ongoing HORIZON trial, a six-month, randomized, double-blind, placebo-controlled Phase 3 trial of dimebon in patients with Huntington disease, regardless of whether Pfizer elects to terminate the Collaboration Agreement and return to us its rights to dimebon. In addition, we and Pfizer agreed to suspend development of dimebon for moderate-to-severe Alzheimer’s disease, and thus to stop the two ongoing Phase 3 trials in that indication – the CONTACT and CONSTELLATION trials. We expect those two trials to be wound down by the end of the third quarter of 2010.

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Regulatory interactions. We have not yet discussed the CONNECTION results or our proposed post-CONNECTION development plans with the U.S. Food and Drug Administration, or the FDA. Thus, we do not know if the FDA will agree with our proposed post-CONNECTION development plans, or whether and how the negative CONNECTION data may impact the FDA’s overall assessment of the existing dimebon data. In particular, the FDA informed us in January 2008 that the Russian Study and the CONNECTION trial could be used as the two pivotal studies required to support the approval of dimebon to treat mild-to-moderate Alzheimer’s disease, as long as a significant portion of the sites in the CONNECTION trial were located in the United States. Given the failure of the CONNECTION trial, we propose to rely on the Russian trial and the CONCERT trial as our two pivotal studies in support of registration for mild-to-moderate Alzheimer’s disease, and we have not yet discussed with the FDA whether that combination of studies would be acceptable. The FDA may answer this question in the negative and require one or more additional Phase 3 trials to approve dimebon in mild-to-moderate Alzheimer’s disease even if the results of the ongoing CONCERT trial are positive. Corresponding regulatory authorities in other countries may reach similar conclusions. If this or any other negative regulatory development were to occur, it may not be feasible for us to continue the development of dimebon for Alzheimer’s disease. Furthermore, even if we are able to obtain regulatory approval for mild-to-moderate Alzheimer’s disease based on the Russian Study and the CONCERT study, that approval would not include moderate-to-severe Alzheimer’s disease, which would decrease the size of the potential market opportunity for dimebon, as may the negative results of the CONNECTION trial. We intend to meet with the FDA in the second quarter of 2010 to obtain its input and guidance on the CONNECTION data and our revised dimebon development plan. If as a result of those discussions or otherwise, we and Pfizer (or either of us individually) determines that clinical development of dimebon should be further curtailed or abandoned, our potential future milestone payments and potential future revenues from the potential commercialization of dimebon would be reduced or eliminated.

MDV3100

Our product candidate MDV3100 is in Phase 3 development for castration-resistant prostate cancer, in collaboration with Astellas. In June 2009, we presented data from our ongoing Phase 1-2 clinical trial of MDV3100 at the American Society of Clinical Oncology Annual Meeting. In the 140 men enrolled in this trial, including both men who had failed prior chemotherapy and men who were chemotherapy-naïve, MDV3100 consistently demonstrated anti-tumor activity across dose levels and endpoints, as evaluated by reductions in prostate-specific antigen, or PSA, levels, radiographic findings and circulating tumor cell, or CTC, counts. In this trial, MDV3100 was generally well tolerated at doses up to and including 240 mg per day. Results of this trial were published in April 2010 in The Lancet.

With Astellas, we are currently conducting a randomized, double-blind, placebo-controlled Phase 3 study, known as the AFFIRM study, in patients with castration-resistant prostate cancer who have failed prior chemotherapy. This trial is enrolling approximately 1,200 patients in the United States, Canada, Europe, South America, Australia and South Africa. The primary endpoint in the AFFIRM trial is overall survival. In May 2010, we announced that we and Astellas intend to initiate three additional MDV3100 trials this year in earlier-stage prostate cancer: a Phase 3 trial in men with castration-resistant prostate cancer who are chemotherapy-naïve; a Phase 2 head-to-head trial comparing MDV3100 with bicalutamide, a leading marketed androgen-receptor antagonist drug; and a Phase 1 trial in hormone-naïve patients.

New Product Candidates

We remain actively engaged in identifying new product candidates, both internally and externally, to further expand our pipeline of product candidates.

Recent Accounting Pronouncements

Refer to Note 1 to our consolidated financial statements included elsewhere in this Report on Form 10-Q for a discussion of recent accounting pronouncements.

Critical Accounting Policies and the Use of Estimates

Reference is made to “Critical Accounting Policies and the Use of Estimates” included in our Annual Report on Form 10-K for the year ended December 31, 2009. As of the date of the filing of this Quarterly Report, we did not identify any significant changes to the critical accounting policies discussed in our Annual Report for the year ended December 31, 2009.

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Results of Operations

Three Months Ended March 31, 2010 and 2009

Collaboration Revenue

We recorded $15.7 million and $16.3 million of collaboration revenue in the quarters ended March 31, 2010 and 2009, respectively. The $0.6 million decrease in collaboration revenue was driven by a $5.8 million decrease in amortized collaboration revenue related to our collaboration with Pfizer due to a change in management’s estimate of the performance period under the Pfizer collaboration, partially offset by a $5.2 million increase in amortized collaboration revenue related to our collaboration with Astellas, which was not in effect in the prior year period.

Under the Pfizer Collaboration Agreement, we received a non-refundable, up-front cash payment of $225.0 million in October 2008. This payment was recorded to deferred revenue, which we are amortizing on a straight-line basis over the expected performance period of our deliverables under the Pfizer Collaboration Agreement. Given the negative results in the CONNECTION trial and the subsequent revisions to the dimebon development plan, we revised our estimate of the performance period under the Pfizer Collaboration Agreement to extend the estimated completion date from the first quarter of 2012 to the second quarter of 2013. We applied this revised estimate for revenue amortization purposes on a prospective basis beginning in the first quarter of 2010. We recorded $10.5 million and $16.3 million of amortized collaboration revenue in the three months ended March 31, 2010 and 2009, respectively, with respect to the Pfizer Collaboration Agreement. Further, we are eligible to receive payments of up to $500.0 million upon the attainment of certain development and regulatory milestones, plus certain additional undisclosed commercial milestone payments. At present, we are unable to predict the timing or likelihood of such milestone payments. (Please refer to Note 2 to our condensed consolidated financial statements included elsewhere in this Report on Form 10-Q for further details on our collaboration with Pfizer).

Under the Astellas Collaboration Agreement, we received a non-refundable, up-front cash payment of $110.0 million in November 2009. This payment was recorded to deferred revenue, which we are amortizing on a straight-line basis over the expected performance period of our deliverables under the Astellas Collaboration Agreement. We currently expect this performance period to end in the fourth quarter of 2014. We recorded $5.2 million of amortized collaboration revenue in the three months ended March 31, 2010 with respect to the Astellas Collaboration Agreement. The Astellas Collaboration was not in effect in the prior year period. Further, we are eligible to receive up to $335.0 million in development milestone payments, plus up to an additional $320.0 million in commercial milestone payments. At present, we are unable to predict the timing or likelihood of such milestone payments, except that we expect to receive a $10 million milestone payment from Astellas in 2010 based on the expected initiation of our planned Phase 3 trial of MDV3100 in castration-resistant prostate cancer patients who are chemotherapy-naïve. (Please refer to Note 2 to our condensed consolidated financial statements included elsewhere in this Report on Form 10-Q for further details on our collaboration with Astellas).

Research and Development Expense

Research and development expenses increased by 62% or $9.8 million for the three months ended March 31, 2010 as compared to the same period in 2009. The $9.8 million increase in research and development expenses was driven primarily by a $3.8 million increase in clinical and preclinical study expense, as we had six Phase 3 studies ongoing in the first quarter of 2010 versus only one ongoing in the prior year period, increases of $1.2 million and $1.9 million in payroll related expenses and occupancy and other

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operating expenses, respectively, associated with increased headcount, a $1.9 million charge from Pfizer related to the discontinuation of certain pre-launch manufacturing activities, a $0.5 million restructuring charge associated with the 20% staffing reduction we implemented in the first quarter of 2010 in response to the negative CONNECTION data, and a $0.5 million charge related to termination of an office lease. Research and development headcount at March 31, 2010 was 58 compared to 45 at March 31, 2009.

Under the Pfizer Collaboration Agreement, specified costs incurred by Pfizer and us related to the development of dimebon for the United States market are shared by the parties on a 60% Pfizer, 40% Medivation basis. Costs related to the development of dimebon for ex-U.S. markets are borne 100% by Pfizer. The parties make quarterly true-up payments to ensure that each has borne its applicable percentage of the shared development costs incurred by both companies. For the three months ended March 31, 2010 and 2009, the net development cost true-up payments payable to us from Pfizer were $4.8 million and $5.4 million, respectively.

Under the Astellas Collaboration Agreement, specified costs incurred by Astellas and us related to the development of MDV3100 for the United States market are shared equally by the parties, except for costs of clinical trials supporting development in both the United States and either Europe or Japan, including our ongoing Phase 3 AFFIRM trial and the three additional planned clinical trials in earlier-stage prostate cancer that we expect to initiate in 2010, the costs of which are borne two-thirds by Astellas and one-third by us. Costs related to the development of MDV3100 for ex-U.S. markets are borne 100% by Astellas. The parties make quarterly true-up payments to ensure that each has borne its applicable percentage of the shared development costs incurred by both companies. For the three months ended March 31, 2010, the net development cost true-up payments payable to us from Astellas were $6.0 million. There were no such payments in the prior year period.

We account for development cost true-up payments under our Collaboration Agreements as additions to research and development expense when such payments are payable by us, and as reductions to research and development expense when such payments are payable to us.

To date, we have been engaged in two major research and development programs: the development of dimebon for the treatment of Alzheimer’s disease and Huntington disease, and the development of MDV3100 for the treatment of prostate cancer. Other research and development programs consist of preclinical stage programs. Research and development costs are identified as either directly allocable to one of our research and development programs or as an indirect cost, with only direct costs being tracked by specific program. Direct costs consist primarily of clinical and preclinical study costs, cost of supplying drug substance and drug product for use in clinical and preclinical studies, contract research organization fees, and other contracted services pertaining to specific clinical and preclinical studies. Indirect costs consist of personnel costs (including both cash costs and non-cash stock-based compensation costs), corporate overhead costs, and other administrative and support costs. The following table summarizes the direct costs attributable to each program and the total indirect costs for each respective period.

Our projects or intended projects may be subject to change from time to time as we evaluate our research and development priorities and available resources.

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Selling, General and Administrative Expense

The increase in selling, general and administrative expenses of 24% or $1.5 million in the three months ended March 31, 2010 as compared to the comparable period in 2009 was due primarily to an increase of $0.7 million in payroll and related costs associated with increased headcount in support of our expanded research and development activities, a $0.4 million restructuring charge associated with the 20% workforce reduction we implemented in the first quarter of 2010 in response to the negative CONNECTION data, and a $0.3 million charge related to termination of an office lease. Selling, general and administrative headcount at March 31, 2010 was 28 compared to 27 at March 31, 2009.

Under our Collaboration Agreement with Pfizer, we share certain dimebon-related commercialization costs in the U.S., including pre-launch commercialization costs, on a 60% Pfizer, 40% Medivation basis. Costs related to the commercialization of dimebon for ex-U.S. markets are borne 100% by Pfizer. The parties make quarterly true-up payments between themselves to ensure that each has borne its applicable percentage of the shared commercialization costs. For the three months ended March 31, 2010, total commercialization cost true-up payments payable from us to Pfizer were $0.2 million. For the three months ended March 31, 2009, total commercialization cost true-up payments payable to us from Pfizer were $0.4 million.

Under our Collaboration Agreement with Astellas, we share certain MDV 3100-related commercialization costs in the U.S., including pre-launch commercialization costs, on a 50%/50% basis. Costs related to the commercialization of MDV 3100 for ex-U.S. markets are borne 100% by Astellas. The parties make quarterly true-up payments between themselves to ensure that each has borne its applicable percentage of the shared commercialization costs. No such amounts became payable in the first quarter of either 2010 or 2009.

We account for commercialization cost true-up payments as additions to selling, general and administrative expense, when such payments are made by us, and as reductions to selling, general and administrative expense, when such payments are made to us.

In the first quarter of 2010, two purported securities class action lawsuits were filed against us in response to the negative CONNECTION data. We intend to vigorously defend these lawsuits, and thus expect our legal expenses to increase in the remainder of 2010 and potentially beyond. We believe we are entitled to coverage under our relevant insurance policies, subject to a $350,000 retention, but coverage could be denied or prove to be insufficient.

Interest Income

The decrease in interest income of 78% or $0.4 million in the three months ended March 31, 2010 as compared the comparable period in 2009 was primarily attributable to lower effective interest rates.

Other Income (Expense), net

The increase in other income (expense), net of 114% or $0.1 million in the three months ended March 31, 2010 as compared to the comparable period in 2009 was due entirely to an increase in recognized gains on our payables denominated in foreign currencies.

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Income Tax Expense

The following table summarizes our effective tax rates and income tax expense for the three months ended March 31, 2010 and 2009:

The tax expense for the first quarter of 2009 of $0.4 million was mainly due to the net income generated by the recognition for tax purposes of deferred revenue from the Pfizer up-front payment under our Pfizer Collaboration Agreement, the non-deductibility of stock-based compensation expense, and the suspension of California state net operating loss carryforwards for the 2008 and 2009 tax years. Based upon the weight of available evidence, which includes our historical operating performance, reported cumulative net losses since inception and expected continuing net losses, we maintain a full valuation allowance on our net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. We have not recorded any tax provision for the first quarter of 2010 because we expect to be in a taxable loss position for 2010 and we have a full valuation allowance on our deferred tax assets.

Liquidity and Capital Resources

Sources of Liquidity

We have incurred cumulative net losses of $194.9 million through March 31, 2010, and we expect to incur substantial additional losses in the future as we continue research and development activities designed to support potential approval of our present and potential future product candidates. We have not generated any revenue from product sales to date, and we do not expect to generate product revenue for several years, if ever. All of our operations to date have been funded through the sale of our debt and equity securities, the $225.0 million up-front payment we received from Pfizer in October 2008, the $110.0 million up-front payment we received from Astellas in November 2009 and cost-sharing true-up payments from Pfizer and Astellas.

As of March 31, 2010 we had cash, cash equivalents and short-term investments of $255.5 million available to fund operations. Based upon our current expectations, we believe our capital resources at March 31, 2010 will be sufficient to fund our currently planned operations beyond 2012, regardless of whether Pfizer elects to terminate our Collaboration Agreement. This estimate is based on a number of assumptions that may prove to be wrong and we could exhaust our available cash reserves earlier than we currently anticipate. Our future capital requirements will depend on many factors, including the scope of our ongoing development activities, the timing and cost of any new development activities that we may elect to undertake, and the extent to which we are able to share development costs with our collaborators.

Pfizer Collaboration Agreement

In September 2008, we announced a Collaboration Agreement with Pfizer. Given the negative results in the CONNECTION trial, Pfizer has the right to terminate the Collaboration Agreement with us at any time. We do not know at this time if or when Pfizer will ultimately elect to terminate the collaboration. A more comprehensive discussion of the risks and uncertainties related to development of dimebon can be found in the section entitled “Risk Factors—Risks Related to Our Product Development Candidates” under Item 1A of this Quarterly Report on Form 10-Q.

Under the Pfizer Collaboration Agreement, we and Pfizer agreed to collaborate on development of dimebon for Alzheimer’s disease and Huntington disease for the United States market, including associated regulatory filings with the FDA. In addition, if approved by the FDA, following such approval and the launch of dimebon in the United States, we, at our option, and Pfizer have the right to co-promote dimebon to specialty physicians in the United States, and Pfizer has the sole right to promote dimebon to primary care physicians in the United States. Pfizer has responsibility for development and seeking regulatory approval for, and commercialization of, dimebon outside the United States. Following a period of transition from our contract manufacturers to Pfizer, Pfizer has responsibility for all manufacture of product for both clinical and commercial purposes. Both we and Pfizer have agreed not to commercialize for the treatment of specified indications any other products directed to the same primary molecular target as dimebon for a specified time period, subject to certain exceptions.

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The agreement establishes several joint committees consisting of an equal number of representatives from both parties that operate by consensus to oversee the collaboration. In the event that a joint committee is unable to reach consensus on a particular issue, then, depending on the issue, a dispute may be decided at the joint committee level by the party with the final decision on the issue or escalated to senior management of the parties. If a dispute is escalated to senior management and no consensus is reached, then the dispute may be decided by the party to whom the contract grants final decision on such issue. Other issues can only be decided by consensus of the parties, and unless and until the parties’ representatives reach agreement on such issue, no decision on such issue will be made, and the status quo will be maintained.

Under the Pfizer Collaboration Agreement, Pfizer paid us an up-front cash payment of $225 million in the fourth quarter of 2008. We are also eligible to receive payments of up to $500 million upon the attainment of development and regulatory milestones plus additional milestone payments upon the achievement of certain net sales levels for the product. We and Pfizer will share the costs and expenses of developing and commercializing dimebon for the United States market on a 60%/40% basis, with Pfizer assuming the larger share, and we and Pfizer will share profits (or losses) resulting from the commercialization of dimebon in the United States in such proportions. Outside the United States, Pfizer will bear all development and commercialization costs and will pay us tiered royalties on the aggregate net sales of dimebon.

If one of the parties merges with, or acquires or is acquired by, a third party and as a result such party must divest its interest in the dimebon collaboration due to a governmental requirement, then the other party has the first right to purchase the divesting party’s interest in the collaboration, on terms to be negotiated by the parties. In the event that the parties are unable to agree on the terms of this purchase after following the negotiation procedure outlined in the Collaboration Agreement, the divesting party will have a time-limited right to sell its interest in the collaboration to a third party. However, the terms of this sale must be more favorable than any terms offered by the non-divesting party and the third party will remain bound by the terms of the Collaboration Agreement. In the event the non-divesting party declines to purchase the divesting party’s interest, the divesting party may sell its interest in the collaboration to a third party on any terms but such third party will remain bound by the terms of the Collaboration Agreement.

We are permitted to terminate the Collaboration Agreement for an uncured material breach by Pfizer. Pfizer has a right to terminate the Collaboration Agreement unilaterally at any time. In the event of our uncured material breach of the Collaboration Agreement, Pfizer may elect either to terminate the Collaboration Agreement or to keep the Collaboration Agreement in place, but terminate our right to participate in development, commercialization (other than co-promoting dimebon) and other activities for dimebon, including the joint committees and decision making for dimebon. However, such termination would not affect our financial return or, unless we commit an uncured material breach of our co-promotion obligations, our co-promotion rights. Following any termination of the Collaboration Agreement, all rights to develop and commercialize dimebon will revert to us, and Pfizer will grant a license to us to enable us to continue such development and commercialization, remain responsible for its ongoing financial and other obligations under the Collaboration Agreement for a transition period of six months following termination, and is obligated to supply product to us for a reasonable period, not to exceed eighteen months following termination, on terms to be negotiated between the parties in good faith.

Astellas Collaboration Agreement

Under the Astellas Collaboration Agreement, which became effective in October 2009, we and Astellas agreed to collaborate on the development of MDV3100 for prostate cancer for the United States market, including associated regulatory filings with the FDA. In addition, if approved by the FDA, following such approval and the launch of MDV3100 in the United States, we, at our option, and Astellas have the right to co-promote MDV3100 in the United States. Astellas is responsible for development of, and seeking regulatory approval for, and commercialization of MDV3100 outside the United States. Astellas will be responsible for commercial manufacture of MDV3100 on a global basis. Both Medivation and Astellas have agreed not to commercialize certain other products having a similar mechanism of action as MDV3100 for the treatment of specified indications for a specified time period, subject to certain exceptions.

We and Astellas share the costs of developing and commercializing MDV3100 for the United States market on a 50%/50% basis, and we and Astellas will share profits (or losses) resulting from the commercialization of MDV3100 in the United States in such proportions. Costs of clinical trials supporting development in both the United States and in either Europe or Japan, including the ongoing AFFIRM trial and the three additional trials in earlier-stage prostate cancer that we expect to initiate in 2010, are borne two-thirds by Astellas and one-third by us. Outside the United States, Astellas will bear all development and commercialization costs and will pay to us tiered, double-digit royalties on the aggregate net sales of MDV3100.

The agreement establishes several joint committees consisting of an equal number of representatives from both parties that operate by consensus to oversee the collaboration. In the event that a joint committee is unable to reach consensus on a particular issue, then, depending on the issue, a dispute may be decided at the joint committee level by the party with the final decision on the issue or escalated to senior management of the parties. If a dispute is escalated to senior management and no consensus is reached, then the dispute may be decided by the party to whom the contract grants final decision on such issue. Other issues can only be decided by consensus of the parties, and unless and until the parties’ representatives reach agreement on such issue, no decision on such issue will be made, and the status quo will be maintained.

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Under the Astellas Collaboration Agreement, Astellas paid us a non-refundable, up-front cash payment of $110.0 million in November 2009. We are also entitled to receive up to $335.0 million in development milestone payments, plus up to an additional $320.0 million in commercial milestone payments. We are required to share 10% of the up-front payment and any development milestone payments received under the Astellas Collaboration Agreement with the academic institution from which we licensed our rights to MDV3100. We paid 10% of the up-front payment, or $11.0 million, to the academic institution in the fourth quarter of 2009.

Each of Medivation and Astellas is permitted to terminate the Astellas Collaboration Agreement for an uncured material breach by the other party or for the insolvency of the other party. Astellas has a right to terminate the Astellas Collaboration Agreement unilaterally by advance written notice to us, but, except in certain specific circumstances, generally cannot exercise that termination right until the first anniversary of MDV3100’s first commercial sale. Following any termination of the Astellas Collaboration Agreement in its entirety, all rights to develop and commercialize MDV3100 will revert to us, and Astellas will grant a license to us to enable us to continue such development and commercialization. In addition, except in the case of a termination by Astellas for our uncured material breach, Astellas will supply MDV3100 to us during a specified transition period.

Cash Flow

Operating Activities

Net cash used in operating activities was $27.5 million in the three months ended March 31, 2010, and was primarily driven by our net loss of $17.5 million, decreased deferred revenue of $15.7 million due to partial amortization of the up-front payments from our corporate partners, and increased receivables from our corporate partners of $4.4 million, partially offset by an increase in accrued expenses and accounts payable of $7.2 million, $3.5 million in non-cash stock-based compensation expense and decreased prepaid expenses and other current assets of $0.6 million and other current liabilities of $0.7 million.

Net cash used in operating activities was $20.7 million in the three months ended March 31, 2009, and was primarily driven by our net loss of $5.6 million, decreased deferred revenue of $16.3 million due to partial amortization of the up-front payment from Pfizer, increased receivables from Pfizer of $2.2 million, and increased prepaid expenses and other current assets of $1.2 million, partially offset by $2.6 million in non-cash stock-based compensation expense and decreased accrued expenses and accounts payable of $2.3 million.

Investing Activities

Net cash provided by investing activities totaled $85.9 million in the three months ended March 31, 2010, consisting primarily of maturities of short-term investment securities. Net cash used by investing activities totaled $0.1 million in the three months ended March 31, 2009, and was due to the purchase of property and equipment.

Financing Activities

Net cash provided by financing activities totaled $3.1 million and $0.1 million in the three months ended March 31, 2010 and 2009, respectively, and were due to proceeds from the exercise of employee stock options.

Commitments and Contingencies

Except as described in Part II, Item 1, Legal Proceedings, of this Quarterly Report on Form 10-Q, during the three months ended March 31, 2010, there were no material changes to our commitments and contingencies as set forth under the caption “Commitments and Contingencies” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2009.

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Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii).

During the three months ended March 31, 2010, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Annual Report on Form 10-K for the year ended December 31, 2009.

Evaluation of disclosure controls and procedures.

We maintain “disclosure controls and procedures”, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and that such information is communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet the reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also 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.

As required by Rule 13a-15(b) or Rule 15d-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2010 at the reasonable assurance level.

Changes in internal controls.

There were no changes in our internal control over financial reporting during the three months ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

In March 2010, two purported securities class action lawsuits were commenced in the United States District Court for the Northern District of California, naming as defendants us and certain of our officers. The lawsuits are largely identical and allege violations of the Securities Exchanges Act of 1934 in connection with allegedly false and misleading statements made by us related to dimebon. The plaintiffs allege among other things that the defendants disseminated false and misleading statements about the effectiveness of dimebon for the treatment of Alzheimer’s

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disease, making it impossible for stockholders to gain a realistic understanding of the drug’s progress toward FDA approval. The plaintiffs purport to seek damages, an award of its costs and injunctive relief on behalf of a class of stockholders who purchased or otherwise acquired our common stock between July 17, 2008 and March 2, 1010. It is possible that additional suits will be filed against us and/or our officers and directors with respect to these same matters.

Our management believes that we have meritorious defenses and intends to defend these lawsuits vigorously. These lawsuits and any other related lawsuits that may be filed are subject to inherent uncertainties, the actual cost may be significant, and we may not prevail. We believe we are entitled to coverage under our relevant insurance policies, subject to a $350,000 retention, but coverage could be denied or prove to be insufficient.

Our business faces significant risks, some of which are set forth below to enable readers to assess, and be appropriately apprised of, many of the risks and uncertainties applicable to our business. You should carefully consider these risk factors as each of these risks could adversely affect our business, operating results and financial condition. If any of the events or circumstances described in the following risks actually occurs, our business may suffer, the trading price of our common stock could decline and our financial condition or results of operations could be harmed. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. These risks should be read in conjunction with the other information set forth in this Quarterly Report on Form 10-Q. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently believe to be immaterial, may also adversely affect our business.

We have marked with an asterisk (*) those risks described below that reflect substantive changes from the risks described in our Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC on March 15, 2010.

Risks Related to Our Business

*We have incurred net losses since inception, expect to incur additional losses in the future as we expand our development activities and may never achieve sustained revenues or profitability. Our only revenue to date has been collaboration revenue under our collaboration agreements with Pfizer and with Astellas. We have not completed development of any of our product candidates and do not expect that any of our present or future product candidates will be commercially available for a number of years, if at all. We have incurred losses since inception and expect to continue to incur substantial additional losses for the foreseeable future as we continue to finance clinical and preclinical studies of our existing and potential future product candidates and our corporate overhead costs. Our operating losses have had, and will continue to have, an adverse impact on our working capital, total assets and stockholders’ equity. We do not know when or if we will ever generate any additional revenue, including any milestone payments, profit sharing payments or royalty payments under our collaboration agreements with Pfizer and Astellas, or become profitable because of the significant uncertainties with respect to our ability to generate product revenue from, and obtain approval from the FDA for, any of our current or future product candidates.

*Because we depend on financing from third parties for our operations, our business may fail if such financing becomes unavailable or is offered on commercially unreasonable terms. To date, we have financed our operations primarily through the sale of our debt and equity securities, and from up-front license payments and cost-sharing payments received pursuant to our collaborative arrangements with Pfizer and Astellas. As of March 31, 2010 we had cash, cash equivalents and short-term investments of $255.5 million available to fund operations. Based upon our current expectations, we believe our capital resources at March 31, 2010 will be sufficient to fund our currently planned operations beyond 2012, regardless of whether Pfizer elects to terminate our collaboration agreement. This estimate is based on a number of assumptions that may prove to be wrong and we could exhaust our available cash reserves earlier than we currently anticipate. Our future capital requirements will depend on many factors, including without limitation:

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We may not be able to obtain additional financing when we need it on acceptable terms or at all. If we cannot raise funds on acceptable terms, we may not be able to continue developing our product candidates, acquire or develop additional product candidates or respond to competitive pressures or unanticipated requirements. For these reasons, any inability to raise additional capital when we require it would seriously harm our business. In March 2010, we announced a reduction of approximately 20% of our workforce in order to reduce our operating costs and focus our resources on prioritized dimebon trials and the continued development of MDV3100, and we may need to further reduce our operating costs in the future, perhaps significantly, to preserve our cash. The cost-cutting measures we have taken and may take in the future may not be sufficient to enable us to meet our cash requirements, and they may negatively affect our business and growth prospects.

Our business strategy depends on our ability to identify and acquire additional product candidates which we may never acquire or identify for reasons that may not be in our control, or are otherwise unforeseen or unforeseeable to us. A key component of our business strategy is to diversify our product development risk by identifying and acquiring new product opportunities for development. However, we may not be able to identify promising new technologies. In addition, the competition to acquire promising biomedical technologies is fierce, and many of our competitors are large, multinational pharmaceutical, biotechnology and medical device companies with considerably more financial, development and commercialization resources and experience than we have. Thus, even if we succeed in identifying promising technologies, we may not be able to acquire rights to them on acceptable terms or at all. If we are unable to identify and acquire new technologies, we will be unable to diversify our product risk. We believe that any such failure would have a significant negative impact on our prospects because the risk of failure of any particular development program in the pharmaceutical field, including our ongoing dimebon and MDV3100 development programs, is high.

*Because we depend on our management to oversee the execution of development plans for our existing product candidates and to identify and acquire promising new product candidates, the loss of any of our executive officers would harm our business. Our future success depends upon the continued services of our executive officers. We are particularly dependent on the continued services of David Hung, M.D., our president and chief executive officer and a member of our board of directors. Dr. Hung identified all of our existing product candidates for acquisition and has primary responsibility for identifying and evaluating other potential product candidates. We believe that Dr. Hung’s services in this capacity would be difficult to replace. None of our executive officers is bound by an employment agreement for any specific term, and they may terminate their employment at any time. In addition, we do not have “key person” life insurance policies covering any of our executive officers. The loss of the services of any of our executive officers could delay the development of our existing product candidates and delay or preclude the identification and acquisition of new product candidates, either of which events could harm our business. In addition, our March 2010 workforce reduction and any future workforce reductions may negatively affect our ability to retain or attract key scientific and executive personnel.

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Our reliance on third parties for the operation of our business may result in material delays, cost overruns and/or quality deficiencies in our development programs. We rely on outside vendors to perform key product development tasks, such as conducting preclinical and clinical studies and manufacturing our product candidates at appropriate scale for preclinical and clinical trials and, in situations where we are unable to transfer those responsibilities to a corporate partner, for commercial use as well. In order to manage our business successfully, we will need to identify, engage and properly manage qualified external vendors that will perform these development activities. For example, we need to monitor the activities of our vendors closely to ensure that they are performing their tasks correctly, on time, on budget and in compliance with strictly enforced regulatory standards. Our ability to identify and retain key vendors with the requisite knowledge is critical to our business and the failure to do so could negatively impact our business. Because all of our key vendors perform services for other clients in addition to us, we also need to ensure that they are appropriately prioritizing our projects. If we fail to manage our key vendors well, we could incur material delays, cost overruns or quality deficiencies in our development programs, as well as other material disruptions to our business.

Risks Related to Our Product Development Candidates

*Given the negative results in the CONNECTION trial, our revised dimebon clinical development plan, even if completed successfully, may be inadequate to obtain approval in mild-to-moderate Alzheimer’s disease. We have not yet discussed the negative CONNECTION results or our proposed post-CONNECTION development plans with the FDA. Thus, we do not know if the FDA will agree with our proposed post-CONNECTION dimebon development plans, or whether and how the negative CONNECTION data may impact the FDA’s overall assessment of the existing dimebon data. In particular, the FDA informed us in January 2008 that our Russian Study and our CONNECTION trial could be used as the two pivotal studies required to support the approval of dimebon to treat mild-to-moderate Alzheimer’s disease, as long as a significant portion of the sites in the CONNECTION trial were located in the United States. Given the failure of the CONNECTION trial, we propose to rely on the Russian Study and the CONCERT trial as our two pivotal studies in support of registration for mild-to-moderate Alzheimer’s disease, and we have not yet discussed with the FDA whether that combination of studies would be acceptable. The FDA may answer this question in the negative and require one or more additional Phase 3 trials to approve dimebon in mild-to-moderate Alzheimer’s disease even if the results of the ongoing CONCERT trial are positive. Comparable regulatory agencies in other countries may reach similar conclusions. If this or any other negative regulatory development were to occur, it may not be feasible for us to continue the development of dimebon for Alzheimer’s disease. Furthermore, even if we are able to obtain regulatory approval for mild-to-moderate Alzheimer’s disease based on the Russian Study and the CONCERT study, that approval would not include moderate-to-severe Alzheimer’s disease, which would decrease the size of the potential market opportunity for dimebon, as may the negative results in the CONNECTION trial. We intend to meet with the FDA in the second quarter of 2010 to obtain its input and guidance on the CONNECTION data and our revised dimebon development plan. If as a result of those discussions or otherwise, we and Pfizer (or either of us individually) determines that clinical development of dimebon should be further curtailed or abandoned, our potential future milestone payments and potential future revenues from the potential commercialization of dimebon would be reduced or eliminated.

Our product candidates require extensive, time-consuming and expensive preclinical and clinical testing to establish safety and efficacy. We may never attract additional partners for our technologies or receive marketing approval in any jurisdiction. The research and development of pharmaceuticals is an extremely risky industry. Only a small percentage of product candidates that enter the development process ever receive marketing approval. Except for dimebon’s approval in Russia as an antihistamine, which is not a commercially attractive opportunity for us, none of our product candidates is currently approved for sale anywhere in the world, and none of them may ever receive such approval. The process of conducting the preclinical and clinical testing required to establish safety and efficacy and obtain marketing approval is expensive and uncertain and takes many years. If we are unable to complete preclinical or clinical trials of any of our current or future product candidates, or if the results of these trials are not satisfactory to convince regulatory authorities or partners of their safety or efficacy, we will not be able to obtain marketing approval or attract additional partners for those product candidates. Furthermore, even if we or our partners are able to obtain marketing approvals for any of our product candidates, those approvals may be for indications that are not as broad as desired or may contain other limitations that would adversely affect our ability to generate revenue from sales of those products. If this occurs, our business will be materially harmed and our ability to generate revenue will be severely impaired.

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*Positive results in the Russian Study were not predictive of results in the CONNECTION study, which was designed as a confirmatory study, and positive results seen in any of our other clinical trials, including our Phase 2 clinical trial of dimebon in Huntington disease and our Phase 1-2 clinical trial of MDV3100 in castration-resistant prostate cancer, or CRPC, may not be predictive of future clinical trial results. The CONNECTION study was designed expressly to replicate the positive results seen in the Russian Study but failed to do so. As evidenced by this example, even where we achieve positive results in clinical trials, subsequent clinical trials may fail, even if those subsequent trials are designed very similarly to their predecessors. Accordingly, despite the positive results seen in our Phase 2 clinical trial of dimebon in Huntington disease, our ongoing Phase 3 HORIZON trial of dimebon in Huntington disease may fail, and despite the positive results seen to date in our Phase 1-2 trial of MDV3100 in CRPC, our ongoing Phase 3 AFFIRM trial of MDV3100 in post-chemotherapy CRPC and our planned Phase 3 trial in chemotherapy-naïve CRPC may fail. In addition, despite the positive results seen in our Russian Study, our ongoing Phase 3 CONCERT trial may fail. Product candidates in clinical trials, including Phase 3 clinical trials, often fail to show the desired safety and efficacy traits despite having progressed successfully through prior stages of preclinical and clinical testing. In addition, we do not know whether interim results from any of our ongoing clinical trials, including the results to date in our Phase 1-2 clinical trial of MDV3100 in CRPC, will be predictive of final results of any such trial.

*We are dependent upon our collaborative relationships with Pfizer and Astellas to further develop, manufacture and commercialize dimebon and MDV3100, respectively. There may be circumstances that delay or prevent Pfizer’s or Astellas’ ability to develop, manufacture and commercialize dimebon or MDV3100, respectively, or that result in Pfizer or Astellas terminating our agreements with each of them. In September 2008, we announced that we had entered into a collaboration agreement with Pfizer for the development, manufacture and commercialization of dimebon to treat Alzheimer’s disease and Huntington disease. Under the agreement, Pfizer is responsible for development and seeking regulatory approval for, and commercialization of, dimebon outside the United States and is responsible globally for all manufacture of product for both clinical and commercial purposes. In the United States, we and Pfizer are responsible for jointly developing and commercializing dimebon, and we will share the costs, profits and losses on a 60%/40% basis, with Pfizer assuming the larger share. Under the terms of the agreement, Pfizer has the unilateral right to terminate the agreement at any time based on the negative results of the CONNECTION trial. We do not know at this time if or when Pfizer will ultimately elect to terminate the collaboration. In October 2009, we announced that we had entered into a collaboration agreement with Astellas for the development, manufacture and commercialization of MDV3100 to treat prostate cancer. Under the agreement, Astellas is responsible for developing, seeking regulatory approval for, and commercializing MDV3100 outside the United States and, following a transition period, is responsible globally for all manufacture of product for both clinical and commercial purposes. We and Astellas are jointly responsible for developing, seeking regulatory approval for, and commercializing MDV3100 in the United States. We and Astellas will share equally the costs, profits and losses arising from development and commercialization of MDV3100 in the United States. For clinical trials useful both in the United States and in Europe or Japan, including the ongoing Phase 3 AFFIRM trial and the three additional planned trials in earlier-stage prostate cancer that we expect to initiate in 2010, we will be responsible for one-third of the total costs and Astellas will be responsible for the remaining two-thirds.

We are subject to a number of risks associated with our dependence on our collaborative relationships with Pfizer and Astellas, including:

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Due to these factors and other possible disagreements with Pfizer or Astellas, we may be delayed or prevented from further developing, manufacturing or commercializing dimebon or MDV3100, respectively, or we may become involved in litigation or arbitration, which would be time consuming and expensive.

If Pfizer or Astellas were to unilaterally terminate our collaborative relationship, we would need to undertake development, manufacturing and marketing activities for dimebon or MDV3100, respectively, solely at our own expense and/or seek another partner for some or all of these activities, worldwide. If we pursued these activities on our own, it would significantly increase our capital and infrastructure requirements, might limit the indications we are able to pursue and could prevent us from effectively developing and commercializing dimebon and MDV3100. If we sought to find another pharmaceutical company partner for some or all of these activities, we may not be successful in such efforts, or they may result in a collaboration that has us expending greater funds and efforts than our current relationships with Pfizer and Astellas.

*We are dependent on the efforts of, and funding by, Pfizer and Astellas for the development of dimebon and MDV3100, respectively. Under the terms of both the Pfizer collaboration agreement and the Astellas collaboration agreement, we and each of Pfizer and Astellas must agree on any changes to the development plan for dimebon or MDV3100, respectively, that is set forth in each agreement. If we and Pfizer or we and Astellas cannot agree on any such changes, clinical trial progress could be significantly delayed or halted. Pfizer is free to terminate our collaboration agreement at its discretion on limited notice to us. If Pfizer terminates its co-funding of our dimebon program, we may be unable to fund the development and commercialization costs on our own and may be unable to find a new collaborator, which could cause our dimebon program to fail. Subject to certain limitations set forth in the Astellas Collaboration Agreement, Astellas is generally free to terminate the Astellas agreement at its discretion on limited notice to us. Similarly, in the event of an uncured material breach of the Astellas agreement by us, Astellas may elect to terminate the agreement, in which case all rights to develop and commercialize MDV3100 will revert to us. If Astellas terminates its co-funding of our MDV3100 program, we may be unable to fund the development and commercialization costs on our own and may be unable to find another partner, which could cause our MDV3100 program to fail. In the event of an uncured material breach of the Pfizer agreement by us, Pfizer may elect either to terminate the agreement or to keep the agreement in place, but terminate our right to participate in development, commercialization (other than co-promoting dimebon, which right Pfizer may terminate only if our uncured material breach pertains to our exercise of that right) and other activities for dimebon, including the joint committees and decision making for dimebon. If Pfizer terminates our right to participate in such activities, we would be entirely dependent on Pfizer’s actions with respect to the development and commercialization of dimebon. In addition, under the Pfizer agreement, Pfizer is solely responsible for the development and regulatory approval of dimebon outside the United States, so we are entirely dependent on Pfizer for the successful completion of those activities. Similarly, under the Astellas agreement, Astellas is solely responsible for the development and regulatory approval of MDV3100 outside the United States, so we are entirely dependent on Astellas for the successful completion of those activities.

The financial returns to us, if any, under our collaboration agreements with Pfizer and Astellas depend in large part on the achievement of development and commercialization milestones, plus a share of any profits from any product sales in the United States and royalties on any product sales outside of the United States. Therefore, our success, and any associated financial returns to us and our investors, will depend in large part on the performance of Pfizer and Astellas under each respective agreement. If Pfizer or Astellas fails to perform or satisfy its obligations to us, the development, regulatory approval or commercialization of dimebon or MDV3100, respectively, would be delayed or may not occur and our business and prospects could be materially and adversely affected for that reason.

We are dependent on the efforts of Pfizer and Astellas to market and promote dimebon and MDV3100, respectively. Under our collaboration with Pfizer, we and Pfizer have the right to co-promote dimebon to specialty physicians in the United States and Pfizer has the sole right to promote dimebon to primary care physicians in the United States. Outside the United States, Pfizer has the sole right to promote dimebon. We are thus solely dependent on Pfizer to successfully promote dimebon to primary care physicians in the United States and to all customers outside of the United States and are partially dependent on Pfizer to successfully promote dimebon to specialty physicians in the United States. Under our collaboration with Astellas, we and Astellas have the right to co-promote MDV3100 to all customers in the United States, and Astellas has the sole right to promote MDV3100 to all

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customers outside of the United States. We are thus partially dependent on Astellas to successfully promote MDV3100 in the United States and solely dependent on Astellas to successfully promote MDV3100 to all customers outside of the United States. We have limited ability to direct Pfizer or Astellas in its commercialization of dimebon or MDV3100, respectively, in any country, including the United States. If Pfizer or Astellas fail to adequately market and promote dimebon or MDV3100, respectively, whether inside or outside of the United States, we may be unable to obtain any remedy against Pfizer or Astellas. If this were to happen, sales of dimebon or MDV3100, respectively, may be harmed, which would negatively impact our business, results of operations, cash flows and liquidity.

We are dependent on Pfizer and Astellas to manufacture clinical and commercial requirements of dimebon and MDV3100, respectively, which could result in the delay of clinical trials or regulatory approval or lost sales. Under both of our agreements with each of Pfizer and Astellas, after a transition period, Pfizer and Astellas have the primary right and responsibility to supply dimebon and MDV3100, respectively, for clinical trials and all commercial requirements. We transitioned substantially all of the manufacturing obligations for dimebon to Pfizer in 2009, and are in the process of transitioning the manufacturing obligations for MDV3100 to Astellas. Consequently, we are, and expect to remain, dependent on Pfizer and Astellas to manufacture dimebon and MDV3100, respectively. In the event that Pfizer terminates the dimebon collaboration, at our request it will supply us with dimebon for clinical and commercial use for a reasonable period of time not to exceed eighteen months following its notice of termination, on terms to be negotiated by the parties in good faith. Pfizer or Astellas may encounter difficulties in production scale-up, including problems involving production yields, quality control and quality assurance, and shortage of qualified personnel. Pfizer or Astellas may not perform as agreed or may default in their obligations to supply clinical trial supplies and/or commercial product. Pfizer or Astellas may fail to deliver the required quantities of our products or product candidates on a timely basis. Any such failure by Pfizer or Astellas could delay our future clinical trials and our applications for regulatory approval, or could impair our ability to meet the market demand for dimebon or MDV3100, respectively, and therefore result in decreased sales. If Pfizer or Astellas does not adequately perform, we may be forced to incur additional expenses, delays, or both, to arrange for other third parties to manufacture products on our behalf, as we do not have any internal manufacturing capabilities.

*If Pfizer’s or Astellas’ business strategies change, any such changes may adversely affect our collaborative relationships with each party. Either Pfizer or Astellas may change its business strategy. Decisions by either Pfizer or Astellas to either reduce or eliminate its participation in the Alzheimer’s disease field or prostate cancer field, respectively, to emphasize other competitive agents currently in its portfolio at the expense of dimebon or MDV3100, respectively, or to add additional competitive agents to its portfolio, could reduce its financial incentives to continue to develop, seek regulatory approval for, or commercialize dimebon or MDV3100, respectively. For example, in October 2009 Pfizer completed its acquisition of Wyeth, which is co-developing an Alzheimer’s disease product candidate that, like dimebon, is currently in Phase 3 development. A change in Pfizer’s business strategy as a result of the Wyeth acquisition or for other reasons, including the negative results of the CONNECTION study or potential negative results in the ongoing CONCERT study, may adversely affect activities under our collaboration agreement with Pfizer, which could cause significant delays and funding shortfalls impacting the activities under the collaboration and seriously harming our business, or could result in changes to the terms of our collaboration or its outright termination. In addition, Astellas has partnered with us based in part on Astellas’ desire to use MDV3100 as a component of building a global oncology franchise, which Astellas presently does not have. If Astellas’ strategic objective of building a global oncology franchise were to change, such change could negatively impact any commercial prospects of MDV3100.

Our industry is highly regulated by the FDA, and comparable foreign regulatory agencies. We must comply with extensive, strictly enforced regulatory requirements in order to develop and obtain marketing approval for any of our product candidates. Before we, Pfizer, Astellas or our potential future partners can obtain regulatory approval for the sale of our product candidates, our product candidates must be subjected to extensive preclinical and clinical testing to demonstrate their safety and efficacy for humans. The preclinical and clinical trials of any product candidates that we develop must comply with regulation by numerous federal, state and local government authorities in the United States, principally the FDA, and by similar agencies in other countries. We will be required to obtain and maintain an effective investigational new drug application to commence human clinical trials in the United States and must obtain and maintain additional regulatory approvals before proceeding to successive phases of our clinical trials. Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information for each therapeutic indication to establish the product candidate’s safety and efficacy for its intended use. It takes years to complete the testing of a new drug or medical device and development delays and/or failure can occur at any stage of testing. Any of our present and future clinical trials may be delayed or halted due to any of the following:

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*Enrollment and retention of patients in clinical trials is often an expensive and time-consuming process, could be made more difficult or rendered impossible by multiple factors outside our control, including the negative results from the CONNECTION trial reported in March 2010 and the potential availability of competing drugs for the treatment of CRPC, and could result in significant delays, cost overruns, or both, in our product development activities, or could result in the failure of such activities. We may encounter delays in enrolling a sufficient number of patients to complete our clinical trials, and the negative results of the CONNECTION study may make it more difficult for us to enroll patients in other dimebon clinical trials, including our ongoing CONCERT and HORIZON trials. Patient enrollment depends on many factors, including the size of the patient population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the study drug, the number and nature of ongoing clinical trials of competing drugs for the same indication, the proximity of patients to clinical sites and the eligibility criteria for the study. For example, to be successful in our ongoing Phase 3 AFFIRM study of MDV3100 in castration-resistant prostate cancer, MDV3100 must demonstrate a statistically significant difference in survival between drug-treated and placebo-treated patients. If one or more other treatments for castration-resistant prostate cancer becomes available, either commercially or on a compassionate use basis, before completion of the AFFIRM trial, patients could elect to leave our trial and switch to an alternative treatment. The survival of these patients continues to be included in the analysis of the AFFIRM trial despite the fact that they have dropped out. Thus, use of other treatments by these patients could make it more difficult for the AFFIRM trial to succeed if such treatments prolong survival. Furthermore, because patients in the AFFIRM trial have a one-third chance of being randomized to placebo, the availability of competing treatments may make it more difficult, or impossible, to complete enrollment in our trial. Such potential competing treatments include an investigational chemotherapy drug from sanofi-aventis which demonstrated an overall survival benefit in a Phase 3 CRPC trial reported in March 2010, a prostate cancer vaccine from Dendreon which demonstrated an overall survival benefit in CRPC patients and was approved by the FDA in April 2010, and an investigational hormonal drug from Johnson & Johnson which, like MDV3100, operates through the androgen receptor pathway and is ahead of MDV3100 in clinical development. Delays or failures in planned patient enrollment and/or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop dimebon, MDV3100 or any other product candidates, or could render further development impossible.

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If our product candidates cannot be manufactured in a cost-effective manner and in compliance with current good manufacturing practices and other applicable regulatory standards, they will not be commercially successful. All pharmaceutical and medical device products in the United States, Europe and other countries must be manufactured in strict compliance with current good manufacturing practices, or cGMP, and other applicable regulatory standards. Establishing a cGMP-compliant process to manufacture pharmaceutical and medical device products involves significant time, cost and uncertainty. Furthermore, in order to be commercially viable, any such process would have to yield product on a cost-effective basis, using raw materials that are commercially available on acceptable terms. We face the risk that our contract manufacturers may have interruptions in raw material supplies, be unable to comply with strictly enforced regulatory requirements, or for other reasons beyond their or our control, be unable to complete their manufacturing responsibilities on time, on budget, or at all. Under our collaboration agreements with Pfizer and Astellas, Pfizer and Astellas are responsible for all manufacture of dimebon and MDV3100, respectively, for commercial purposes, but we cannot guarantee that either Pfizer or Astellas will be able to manufacture dimebon or MDV3100, respectively, in a timely manner or at all. Furthermore, neither dimebon nor MDV3100 has been manufactured at commercial-scale under cGMP- compliant conditions. In the event that Pfizer elects to terminate our dimebon collaboration agreement, following a period of transition assistance from Pfizer, we will be responsible for manufacturing dimebon or finding a different third party to manufacture dimebon and neither we nor any other third party have experience manufacturing dimebon at commercial scale under cGMP-compliant conditions. We thus cannot guarantee that commercial-scale cGMP manufacture of dimebon and/or MDV3100 will be possible, on a cost-effective basis or at all, which would materially and adversely affect the value of these programs.

*Any of our product development candidates that receive marketing approval will face significant competition from other approved products, including generic products and products with more convenient dosing regimens, and other products in development. The biopharmaceutical industry is intensely competitive in general. Furthermore, our business strategy is to target large unmet medical needs, and those markets are even more highly competitive. For example, there are four branded drugs and one generic drug currently marketed to treat Alzheimer’s disease. These drugs are all dosed once or twice per day, while dimebon dosing is three times daily in all of our completed and ongoing Alzheimer’s disease and Huntington disease clinical trials. This difference in dosing regimen may make dimebon less competitive than alternative drugs if dimebon receives marketing approval based on a thrice per day dosing regimen. In addition, one of the four branded Alzheimer’s disease drugs has already lost patent protection, and the other three branded drugs are expected to lose patent protection between 2010 and 2015. Such loss of patent protection typically results in the entry of generic competition for, and significant reductions in the commercial pricing of, those approved drugs. A generic version of one Alzheimer’s disease drug received FDA marketing approval in 2008. This development would put significant competitive pressure on the prices we or our potential partners could charge for dimebon should it ever be approved. Companies marketing currently approved Alzheimer’s disease therapeutics include some of the world’s largest and most experienced pharmaceutical companies, such as Novartis AG and Johnson & Johnson. Pfizer also already markets a currently approved Alzheimer’s disease drug. In addition, in October 2009 Pfizer merged with Wyeth, which is co-developing an Alzheimer’s disease product candidate that, like dimebon, is currently in Phase 3 development. There are also dozens of additional small molecule and recombinant protein candidates in development targeting the clinical indications we are pursuing, particularly Alzheimer’s disease and CRPC, including compounds already in Phase 3 clinical trials. One or more such compounds may be approved in each of our target indications before any of our product candidates could potentially be approved, including an investigational chemotherapy drug from sanofi-aventis which demonstrated an overall survival benefit in a Phase 3 CRPC trial reported in March 2010, a prostate cancer vaccine from Dendreon which demonstrated an overall survival benefit in CRPC patients and was approved by the FDA in April 2010, and an investigational hormonal drug from Johnson & Johnson which, like MDV3100, operates through the androgen receptor pathway and is ahead of MDV3100 in clinical development. Most, if not all, of these competing drug development programs are being conducted by pharmaceutical and biotechnology companies with considerably greater financial resources, human resources and experience than ours. Any of our product candidates that receives regulatory approval will face significant competition from both approved drugs and from any of the drugs currently under development that may subsequently be approved. Bases upon which our product candidates would have to compete successfully include efficacy, safety, price and cost-effectiveness. Even if dimebon were ever to receive marketing approval, the negative results from the CONNECTION trial could be included in the product label, which could negatively affect dimebon’s ability to compete. In addition, our product candidates would have to compete against these other drugs with several different categories of decision makers, including physicians, patients, government and private third-party payors, technology assessment groups and patient advocacy organizations. Even if one of our product candidates is approved, we cannot guarantee that we, Pfizer, Astellas or any of our potential future partners will be able to compete successfully on any of these bases. Any future product candidates that we may subsequently acquire will face similar competitive pressures. If we or our partners cannot compete successfully on any of the bases described above, our business will not succeed.

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*Any of our product candidates that is eventually approved for sale may not be commercially successful if not widely-covered and appropriately reimbursed by third-party payors. Third-party payors, including public insurers such as Medicare and Medicaid and private insurers, pay for a large share of health care products and services consumed in the United States. In Europe, Canada and other major international markets, third-party payors also pay for a significant portion of health care products and services and many of those countries have nationalized health care systems in which the government pays for all such products and services and must approve product pricing. Even if approved by the FDA and foreign regulatory agencies, our product candidates are unlikely to achieve commercial success unless they are covered widely by third-party payors and reimbursed at a rate which generates an acceptable commercial return for us and any collaborative partner. It is increasingly difficult to obtain coverage and acceptable reimbursement levels from third-party payors and we may be unable to achieve these objectives. Achieving coverage and acceptable reimbursement levels typically involves negotiating with individual payors and is a time-consuming and costly process. Moreover, comprehensive health care reform legislation was recently enacted in the United States that substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. The new legislation contains a number of provisions that are expected to impact our business and operations, including those relating to the increased use of comparative effectiveness research on health care products, changes to enrollment in federal healthcare programs, reimbursement changes and fraud and abuse provisions, all of which will impact existing government health care programs and will result in the development of new programs. Many of the details regarding the implementation of this legislation have yet to be determined and implementation may ultimately adversely affect our business. Further, we expect that there will continue to be a number of federal and state proposals to implement government controls over drug product pricing. We are currently unable to predict what additional legislation or regulations, if any, relating to the pharmaceutical industry or third-party payor coverage and reimbursement may be enacted in the future, or what effect the recently enacted federal health care reform legislation or any such additional legislation or regulation will or would have on our business. In addition, we would face competition in such negotiations from other approved drugs against which we compete, which may include other approved drugs marketed by Pfizer or Astellas, and the marketers of such other drugs are likely to be significantly larger than us and therefore enjoy significantly more negotiating leverage with respect to the individual payors than we may have. The competition for coverage and reimbursement level with individual payors will be particularly intense for dimebon, if approved to treat Alzheimer’s disease, because all four currently marketed Alzheimer’s disease drugs are expected to lose patent protection prior to, or shortly following, dimebon’s potential commercial launch, and thus are likely to be available at generic price levels that are more attractive to individual payors. One such drug already has lost patent protection and a generic version is on the market. Our commercial prospects would be further weakened if payors approved coverage for our product candidates only as second- or later-line treatments, or if they placed any of our product candidates in tiers requiring unacceptably high patient co-payments. Failure to achieve acceptable coverage and reimbursement levels could materially harm our or our partner’s ability to successfully market our product candidates.

We may be subject to product liability or other litigation, which could result in an inefficient allocation of our critical resources, delay the implementation of our business strategy and, if successful, materially and adversely harm our business and financial condition as a result of the costs of liabilities that may be imposed thereby. Our business exposes us to the risk of product liability claims that is inherent in the development of pharmaceutical products. If any of our product candidates harms people, or is alleged to be harmful, we may be subject to costly and damaging product liability claims brought against us by clinical trial participants, consumers, health care providers, corporate partners or others. We have product liability insurance covering our ongoing clinical trials, but do not have insurance for any of our other development activities. If we are unable to obtain insurance at an acceptable cost or otherwise protect against potential product liability claims, we may be exposed to significant litigation costs and liabilities, which may materially and adversely affect our business and financial position. If we are sued for injuries allegedly caused by any of our product candidates, our litigation costs and liability could exceed our total assets and our ability to pay. In addition, we may from time to time become involved in various lawsuits and legal proceedings which arise in the ordinary course of our business. Any litigation to which we are subject, including the purported securities class action lawsuits described in the section entitled “Legal Proceedings” under Part II, Item 1 of this Quarterly Report on Form 10-Q, could require significant involvement of our senior management and may divert management’s attention from our business and operations. Litigation costs or an adverse result in any litigation that may arise from time to time may adversely impact our operating results or financial condition.

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Risks Related to Intellectual Property

Intellectual property protection for our product candidates is crucial to our business, and is subject to a significant degree of legal risk—particularly in the life sciences industry. The success of our business will depend in part on our ability to obtain and maintain intellectual property protection—primarily patent protection—of our technologies and product candidates, as well as successfully defending these patents against third-party challenges. We and our collaborators will only be able to protect our technologies and product candidates from unauthorized use by third parties to the extent that valid and enforceable patents or trade secrets cover them. Furthermore, the degree of future protection of our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us or our potential future collaborators to gain or keep our competitive advantage.

The patent positions of life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Further, changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property rights. Accordingly, we cannot predict the breadth of claims that may be granted or enforced for our patents or for third-party patents that we have licensed. For example:

Our existing and any future patent rights may not adequately protect any of our product candidates, which could prevent us from ever generating any revenues or profits. We cannot guarantee that any of our pending or future patent applications will mature into issued patents, or that any of our current or future issued patents will adequately protect our product candidates from competitors. For example, there is a large body of prior art, including multiple issued patents and published patent applications, disclosing molecules in the same chemical class as our MDV300 series compounds. Since our MDV300 series compounds include approximately 170 specific molecules, we expect that some members of this series may not be patentable in light of this prior art, or may infringe the claims of patents presently issued or issued in the future. Furthermore, we also cannot guarantee that any of our present or future issued patents will not be challenged by third parties, or that they will withstand any such challenge. If we are not able to obtain adequate protection for, or defend, the intellectual property position of our technologies and product candidates, then we may not be able to attract collaborators to acquire or partner our development programs. Further, even if we can obtain protection for and defend the intellectual property position of our technologies and product candidates, we or any of our potential future collaborators still may not be able to exclude competitors from developing or marketing competing drugs. Should this occur, we and our potential future collaborators may not generate any revenues or profits from our product candidates or our revenue or profits would be significantly decreased.

We could become subject to litigation or other challenges regarding intellectual property rights, which could divert management attention, cause us to incur significant costs, prevent us from selling or using the challenged technology and/or subject us to competition by lower priced generic products. In recent years, there has been significant litigation in the United States and elsewhere involving pharmaceutical patents and other intellectual property rights. In particular, generic pharmaceutical manufacturers have been very aggressive in challenging the validity of patents held by proprietary pharmaceutical companies, especially if these patents are commercially significant. If any of our present or future product candidates succeed, we may face similar challenges to our existing or future patents. For example, in the prosecution of our issued United States patents claiming the use of dimebon and certain related compounds to treat neurodegenerative diseases, including Alzheimer’s disease, the prior

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owners missed a filing deadline with the U.S. Patent & Trademark Office, or PTO, which resulted in the patent application being deemed abandoned. The prior owners petitioned the PTO to revive the patent application alleging that missing the deadline was unintentional and the PTO approved the petition and issued the patent. However, as with any other decision the PTO makes, this decision could be challenged in subsequent litigation in an attempt to invalidate this issued United States patent and any other United States patent that may issue based on the same patent application. If a generic pharmaceutical company or other third party were able to successfully invalidate any of our present or future patents, any of our product candidates that may ultimately receive marketing approval could face additional competition from lower priced generic products that would result in significant price and revenue erosion and have a significantly negative impact on the commercial viability of the affected product candidate(s).

In the future, we may be a party to litigation to protect our intellectual property or to defend our activities in response to alleged infringement of a third party’s intellectual property. These claims and any resulting lawsuit, if successful, could subject us to significant liability for damages and invalidation, or a narrowing of the scope, of our proprietary rights. These lawsuits, regardless of their success, would likely be time-consuming and expensive to litigate and resolve and would divert management time and attention. Any potential intellectual property litigation also could force us to do one or more of the following:

If we are forced to take any of these actions, our business may be seriously harmed. Although we carry general liability insurance, our insurance does not cover potential claims of this type.

In addition, our patents and patent applications, or those of our licensors, could face other challenges, such as interference proceedings, opposition proceedings and re-examination proceedings. Any such challenge, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our patents and patent applications subject to the challenge. Any such challenges, regardless of their success, would likely be time-consuming and expensive to defend and resolve and would divert our management’s time and attention.

We may in the future initiate claims or litigation against third parties for infringement in order to protect our proprietary rights or to determine the scope and validity of our proprietary rights or the proprietary rights of competitors. These claims could result in costly litigation and the diversion of our technical and management personnel and we may not prevail in making these claims.

We may need to obtain licenses of third-party technology that may not be available to us or are available only on commercially unreasonable terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated. From time to time we may be required to license technology from third parties to develop our existing and future product candidates. For example, in our industry there are a large number of issued patents and published patent applications with claims to treating diseases generically through use of any product that produces one or more biological activities—such as inhibiting a specific biological target. We are aware of several such issued patents relating to Alzheimer’s disease and expect to continue to encounter such patents relating to other diseases targeted by our present and future product candidates. We have not conducted experiments to analyze whether, and we have no evidence that, any of our product candidates produce the specific biological activities covered in any of the issued patents or published patent applications of which we are presently aware. We have not sought to acquire licenses to any such patents. In addition, the commercial scale manufacturing processes that we are developing for our product candidates may require licenses to third-party technology. Should we be required to obtain licenses to any third-party technology, including any such patents based on biological activities or required to manufacture our product candidates, such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license required to develop any of our product candidates could cause us to abandon any related development efforts, which could seriously harm our business and operations.

We may become involved in disputes with Pfizer, Astellas or potential future collaborators over intellectual property ownership, and publications by our research collaborators and scientific advisors could impair our ability to obtain patent protection or protect our proprietary information, which, in either case, could have a significant impact on our business. Inventions discovered under research, material transfer or other such collaborative

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agreements, including our collaboration agreements with Pfizer and Astellas, may become jointly owned by us and the other party to such agreements in some cases and the exclusive property of either party in other cases. Under some circumstances, it may be difficult to determine who owns a particular invention, or whether it is jointly owned, and disputes could arise regarding ownership of those inventions. These disputes could be costly and time consuming and an unfavorable outcome could have a significant adverse effect on our business if we were not able to protect or license rights to these inventions. In addition, our research collaborators and scientific advisors generally have contractual rights to publish our data and other proprietary information, subject to our prior review. Publications by our research collaborators and scientific advisors containing such information, either with our permission or in contravention of the terms of their agreements with us, may impair our ability to obtain patent protection or protect our proprietary information, which could significantly harm our business.

Trade secrets may not provide adequate protection for our business and technology. We also rely on trade secrets to protect our technology, especially where we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While we use reasonable efforts to protect our trade secrets, our or our potential collaborators’ employees, consultants, contractors or scientific and other advisors may unintentionally or willfully disclose our information to competitors. If we were to enforce a claim that a third party had illegally obtained and was using our trade secrets, our enforcement efforts would be expensive and time consuming, and the outcome would be unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, if our competitors independently develop equivalent knowledge, methods or know-how, it will be more difficult or impossible for us to enforce our rights and our business could be harmed.

Risks Related to Ownership of Our Common Stock

*We have been named as a defendant in two purported securities class action lawsuits. These, and potential similar or related litigation, could result in substantial damages and may divert management’s time and attention from our business and operations. In March 2010, two purported securities class action lawsuits were commenced in the United States District Court for the Northern District of California, naming as defendants us and certain of our officers. The lawsuits are largely identical and allege violations of the Securities Exchanges Act of 1934 in connection with allegedly false and misleading statements made by us related to dimebon. The plaintiffs allege among other things that the defendants disseminated false and misleading statements about the effectiveness of dimebon for the treatment of Alzheimer’s disease, making it impossible for stockholders to gain a realistic understanding of the drug’s progress toward FDA approval. The plaintiffs purport to seek damages, an award of its costs and injunctive relief on behalf of a class of stockholders who purchased or otherwise acquired our common stock between July 17, 2008 and March 2, 2010. It is possible that additional suits will be filed against us and/or our officers and directors with respect to these same matters.

Our management believes that we have meritorious defenses and intends to defend these lawsuits vigorously. These lawsuits and any other related lawsuits that may be filed are subject to inherent uncertainties, and the actual cost will depend upon many unknown factors. The outcome of the litigation is necessarily uncertain, we could be forced to expend significant resources in the defense of these suits and we may not prevail. Monitoring and defending against legal actions is time-consuming for our management and detracts from our ability to fully focus our internal resources on our business activities. In addition, we may incur substantial legal fees and costs in connection with the litigation and, although we believe the company is entitled to coverage under the relevant insurance policies, subject to a $350,000 retention, coverage could be denied or prove to be insufficient. We are not currently able to estimate the possible cost to us from this matter, as this lawsuit is currently at an early stage and we cannot be certain how long it may take to resolve this matter or the possible amount of any damages that we may be required to pay. We have not established any reserves for any potential liability relating to this lawsuit. It is possible that we could, in the future, incur judgments or enter into settlements of claims for monetary damages. A decision adverse to our interests on these actions could result in the payment of substantial damages, or possibly fines, and could have a material adverse effect on our cash flow, results of operations and financial position. In addition, the uncertainty of the currently pending litigation could lead to more volatility in our stock price.

*Our stock price may be volatile, and our stockholders’ investment in our stock could decline in value. The market prices for our securities and those of other life sciences companies have been highly volatile and may continue to be highly volatile in the future. The following factors, in addition to other risk factors described in this Quarterly Report on Form 10-Q, may have a significant impact on the market price of our common stock:

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We do not intend to pay dividends on our common stock for the foreseeable future. We do not expect for the foreseeable future to pay dividends on our common stock. Any future determination to pay dividends on or repurchase shares of our common stock will be at the discretion of our board of directors and will depend upon, among other factors, our success in completing sales or partnerships of our programs, our results of operations, financial condition, capital requirements, contractual restrictions and applicable law.

Our principal stockholders exert substantial influence over us and may exercise their control in a manner adverse to your interests. Certain stockholders and their affiliates own a substantial amount of our outstanding common stock. These stockholders may have the power to direct our affairs and be able to determine the outcome of certain matters submitted to stockholders for approval. Because a limited number of persons controls us, transactions could be difficult or impossible to complete without the support of those persons. Subject to applicable law, it is possible that these persons will exercise control over us in a manner adverse to your interests.

Provisions of our charter documents, our stockholder rights plan and Delaware law could make it more difficult for a third party to acquire us, even if the offer may be considered beneficial by our stockholders. Provisions of the Delaware General Corporation Law could discourage potential acquisition proposals and could delay, deter or prevent a change in control. The anti-takeover provisions of the Delaware General Corporation Law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. In addition, Section 203 of the Delaware General Corporation Law, unless its application has been waived, provides certain default anti-takeover protections in connection with transactions between the company and an “interested stockholder” of the company. Generally, Section 203 prohibits stockholders who, alone or together with their affiliates and associates, own more than 15% of the subject company from engaging in certain business combinations for a period of three years following the date that the stockholder became an interested stockholder of such subject company without approval of the board or the vote of two-thirds of the shares held by the independent stockholders. Our board of directors has also adopted a stockholder rights plan, or “poison pill,” which would significantly dilute the ownership of a hostile acquirer. Additionally, provisions of our amended and restated certificate of incorporation and bylaws could deter, delay or prevent a third party from acquiring us, even if doing so would benefit our stockholders, including without limitation, the authority of the board of directors to issue, without stockholder approval, preferred stock with such terms as the board of directors may determine.

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None.

None.

None.

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SIGNATURES

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

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EXHIBIT INDEX