##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
 For the quarterly period ended June 30, 2006
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the transition period from  to .
 Commission File Number 
000-50438
 Myogen, Inc.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    84-1348020
(I.R.S. Employer
Identification No.)
 7575 West 103rd Avenue, Suite 102
Westminster, CO 80021
(303) 410-6666
 þ o
  o þ o
 o þ




---



##### Table of Contents



MYOGEN, INC.
FORM 10-Q
 INDEX
 Page NumberPART I. Financial Information
    
    
    3ITEM 1. Consolidated Financial Statements (unaudited)
    
    
    3Consolidated Balance Sheets
As of June 30, 2006 and December 31, 2005
    
    
    3Consolidated Statements of Operations
For the Three Months and Six Months Ended June 30, 2006 and 2005
    
    
    4Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2006 and 2005
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    17ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33ITEM 4. Controls and Procedures
    
    
    33PART II. Other Information
    
    
    34ITEM 1. Legal Proceedings
    
    
    34ITEM 1A. Risk Factors
    
    
    34ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    54ITEM 3. Defaults Upon Senior Securities
    
    
    54ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    54ITEM 5. Other Information
    
    
    55ITEM 6. Exhibits
    
    
    55SIGNATURES
    
    
    56EXHIBIT INDEX
    
    
    57Amended and Restated Collaboration and Opinion AgreementForm of License, Development and Commercialization AgreementForm of License, Development and Commercialization AgreementCertification of Principal Executive OfficerCertification of Principal Financial OfficerSection 1350 Certification
 2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 MYOGEN, INC.
 
 CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    157,941
    
    
    $
    138,380Short-term investments
    
    
    30,112
    
    
    
    38,575Accounts receivable, net
    
    
    10,766
    
    
    
    Prepaid expenses, accrued interest receivable
and other current assets
    
    
    4,522
    
    
    
    2,752Assets of discontinued operations
    
    
    
    
    
    
    1,289Total current assets
    
    
    203,341
    
    
    
    180,996Long-term investments
    
    
    
    
    
    
    5,362Property and equipment, net
    
    
    2,950
    
    
    
    2,622Other assets
    
    
    42
    
    
    
    27Total assets
    
    $
    206,333
    
    
    $
    189,007LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    25,660
    
    
    $
    10,345Accrued liabilities
    
    
    2,819
    
    
    
    2,797Current portion of deferred revenue
    
    
    4,801
    
    
    
    1,187Current portion of other liabilities
    
    
    161
    
    
    
    142Current portion of notes payable, net of discount
    
    
    
    
    
    
    172Liabilities of discontinued operations
    
    
    
    
    
    
    264Total current liabilities
    
    
    33,441
    
    
    
    14,907Deferred revenue, net of current portion
    
    
    23,293
    
    
    
    1,656Other long term liabilities, net of current portion
    
    
    211
    
    
    
    220Commitments and contingencies (See Note 9)Stockholders equity:Preferred Stock, $0.001 par value; 5,000,000
shares authorized at June 30, 2006 and December
31, 2005, no shares issued or outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 100,000,000
shares authorized and 42,552,834 and 41,962,587
shares issued and outstanding as of June 30,
2006 and December 31, 2005, respectively
    
    
    43
    
    
    
    42Additional paid-in-capital
    
    
    422,938
    
    
    
    412,862Deferred stock-based compensation
    
    
    
    
    
    
    (1,406
    )Other comprehensive loss
    
    
    (88
    )
    
    
    (88
    )Accumulated deficit
    
    
    (273,505
    )
    
    
    (239,186
    )Total stockholders equity
    
    
    149,388
    
    
    
    172,224Total liabilities and stockholders equity
    
    $
    206,333
    
    
    $
    189,007
  3




---



##### Table of Contents



MYOGEN, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Research and development contracts
    
    $
    1,797
    
    
    $
    1,580
    
    
    $
    3,593
    
    
    $
    3,286Product sales, net
    
    
    1,570
    
    
    
    
    
    
    
    1,570
    
    
    
    Sublicense revenues
    
    
    737
    
    
    
    
    
    
    
    2,709
    
    
    
    4,104
    
    
    
    1,580
    
    
    
    7,872
    
    
    
    3,286Costs and expenses:Research and
development
(including
stock-based
compensation
expense of $1,700,
$266, $2,930 and $530, respectively)
    
    
    14,521
    
    
    
    20,957
    
    
    
    30,748
    
    
    
    38,627Selling, general
and administrative
(including
stock-based
compensation
expense of $3,907,
$252, $5,819 and
$504, respectively)
    
    
    10,245
    
    
    
    2,935
    
    
    
    17,457
    
    
    
    6,16624,766
    
    
    
    23,892
    
    
    
    48,205
    
    
    
    44,793Loss from operations
    
    
    (20,662
    )
    
    
    (22,312
    )
    
    
    (40,333
    )
    
    
    (41,507
    )Interest income, net
    
    
    2,156
    
    
    
    611
    
    
    
    4,079
    
    
    
    1,174Loss from continuing operations before
cumulative effect of a change in
accounting principle
    
    
    (18,506
    )
    
    
    (21,701
    )
    
    
    (36,254
    )
    
    
    (40,333
    )Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    172
    
    
    
    Loss from continuing operations
    
    
    (18,506
    )
    
    
    (21,701
    )
    
    
    (36,082
    )
    
    
    (40,333
    )Gain on the sale of discontinued
operations
    
    
    
    
    
    
    
    
    
    
    1,763
    
    
    
    Discontinued operations, net of income
taxes
    
    
    
    
    
    
    182
    
    
    
    
    
    
    
    512Net loss
    
    $
    (18,506
    )
    
    $
    (21,519
    )
    
    $
    (34,319
    )
    
    $
    (39,821
    )Basic and diluted net loss per common
share attributable to common
stockholders:Continuing operations before
cumulative effect of a change in
accounting principle
    
    
    (0.44
    )
    
    
    (0.61
    )
    
    
    (0.85
    )
    
    
    (1.13
    )Cumulative effect of a change in
accounting principle
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00Discontinued operations, net of
income taxes
    
    
    0.00
    
    
    
    0.01
    
    
    
    0.04
    
    
    
    0.02$
    (0.44
    )
    
    $
    (0.60
    )
    
    $
    (0.81
    )
    
    $
    (1.11
    )Weighted average common shares
outstanding
    
    
    42,484,853
    
    
    
    35,767,018
    
    
    
    42,327,432
    
    
    
    35,762,163
  4




---



##### Table of Contents



MYOGEN, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 For the Six Months EndedJune 30,2006
    
    
    2005Cash Flows From Operating Activities:Net loss
    
    $
    (34,319
    )
    
    $
    (39,821
    )Adjustments to reconcile net loss to net cash used in operating activities:Cumulative effect of a change in accounting principle
    
    
    (172
    )
    
    
    Gain on the sale of discontinued operations
    
    
    (1,763
    )
    
    
    Depreciation and amortization
    
    
    577
    
    
    
    461Amortization of deferred stock-based compensation
    
    
    8,749
    
    
    
    1,034Amortization of debt discount
    
    
    
    
    
    
    69Amortization of investment discount
    
    
    (111
    )
    
    
    (60
    )Loss on disposal of property and equipment
    
    
    1
    
    
    
    21Changes in operating assets and liabilities:Trade accounts receivable
    
    
    
    
    
    
    (95
    )Research and development contract amounts
    
    
    
    
    
    
    (1,000
    )Accounts receivable, net
    
    
    (10,766
    )
    
    
    Inventories
    
    
    
    
    
    
    (53
    )Prepaid expenses, accrued interest and other assets
    
    
    (718
    )
    
    
    (787
    )Accounts payable
    
    
    15,234
    
    
    
    11,587Deferred revenue
    
    
    26,752
    
    
    
    214Accrued liabilities
    
    
    (9
    )
    
    
    (1,332
    )Net cash provided by (used in) operating
activities
    
    
    3,455
    
    
    
    (29,762
    )Cash Flows From Investing Activities:Acquisitions of property and equipment
    
    
    (823
    )
    
    
    (598
    )Purchases of investments
    
    
    (7,839
    )
    
    
    (20,271
    )Proceeds from maturities of short-term investments
    
    
    21,786
    
    
    
    31,862Net cash provided by investing activities
    
    
    13,124
    
    
    
    10,993Cash Flows From Financing Activities:Proceeds from issuance of common stock, net of issuance costs
    
    
    2,905
    
    
    
    150Payments on notes payable
    
    
    (172
    )
    
    
    (956
    )Payments on capital leases
    
    
    (39
    )
    
    
    (33
    )Net cash provided by (used in) financing
activities
    
    
    2,694
    
    
    
    (839
    )Effect of exchange rates on cash
    
    
    
    
    
    
    (50
    )Net increase (decrease) in cash and cash equivalents
    
    
    19,273
    
    
    
    (19,658
    )Cash and cash equivalents, beginning of period
    
    
    138,380
    
    
    
    70,669Cash and cash equivalents of discontinued operations, beginning of period
    
    
    288
    
    
    
    589Net increase (decrease) in cash and cash equivalents
    
    
    19,273
    
    
    
    (19,658
    )Less: Cash and cash equivalents of discontinued operations, end of period
    
    
    
    
    
    
    (134
    )Cash and cash equivalents, end of period
    
    $
    157,941
    
    
    $
    51,466Supplemental Disclosure of Non-Cash Financing Activities:Acquisition of property and equipment under capital leases
    
    $
    83
    
    
    
    1
  5




---



##### Table of Contents



MYOGEN, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except share and per share amounts)
 Note 1: Basis of Presentation
     Accounting and Reporting by Development Stage Enterprises.
 Reclassifications
 Accounting for the
Impairment or Disposal of Long-Lived Assets
 Stock-based Compensation
  6




---



##### Table of Contents



Accounting for Stock Issued to Employees
  Accounting for Stock Appreciation Rights and Other Variable Stock
Option or Award Plans, an Interpretation of APB Opinions No. 15 and 25 Accounting for Stock-Based
CompensationTransition and Disclosurean amendment of FASB Statement No. 123
 Note 2: Liquidity
   Note 3: Stock Options and Stock-based Compensation
   7




---



##### Table of Contents



Impact of the Adoption of FAS 123(R)
  Three
    
    
    SixMonths
    
    
    MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2006
    
    
    2006Research and development
    
    $
    1,700
    
    
    $
    2,930General and administrative
    
    
    3,907
    
    
    
    5,819$
    5,607
    
    
    $
    8,749
    Valuation Assumptions
  2006Risk-free interest rate
    
    
    4.45-5.1
    %Expected life (in years)
    
    
    6Weighted-average volatility
    
    
    75%Expected dividend yield
    
    
    0%
 8




---



##### Table of Contents



WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual Life
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    (in years)
    
    
    Intrinsic ValueOutstanding at January 1, 2006
    
    
    3,517,745
    
    
    $
    5.49Granted (at market)
    
    
    1,280,800
    
    
    
    36.53Exercised
    
    
    (545,900
    )
    
    
    4.83Forfeited/expired/cancelled
    
    
    (9,017
    )
    
    
    15.76Outstanding at June 30, 2006
    
    
    4,243,628
    
    
    $
    14.92
    
    
    
    7.58
    
    
    $
    69,382Vested and expected to vest
at June 30, 2006
    
    
    4,027,907
    
    
    $
    14.37
    
    
    
    7.50
    
    
    $
    67,684Vested at June 30, 2006
    
    
    2,041,943
    
    
    $
    4.14
    
    
    
    6.14
    
    
    $
    50,754
      Pro forma Information for Periods Prior to the Adoption of FAS 123(R)
 Accounting For Stock
Issued to Employees Accounting for Stock-Based Compensation Accounting for Equity Instruments That Are
Issued to Other Than
 9




---



##### Table of Contents



Employees for Acquiring, or in Conjunction with Selling, Goods or Services
  ThreeMonths
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2005
    
    
    2005Net loss attributable to common stockholders, as reported
    
    $
    (21,519
    )
    
    $
    (39,821
    )Add: Total stock-based employee compensation expense included
in reported net loss
    
    
    490
    
    
    
    985Deduct: Total stock-based employee compensation expense
determined under fair value based method
    
    
    (1,450
    )
    
    
    (2,732
    )Pro forma net loss
    
    $
    (22,479
    )
    
    $
    (41,568
    )Pro forma basic and diluted net loss per common share
    
    $
    (0.63
    )
    
    $
    (1.16
    )Basic and diluted net loss per common share, as reported
    
    $
    (0.60
    )
    
    $
    (1.11
    )
  2005Risk-free interest rate
    
    
    3.69-4.17
    %Expected life (in years)
    
    
    5Expected volatility
    
    
    100%Expected dividend yield
    
    
    0%
  Employee Stock Purchase Plan
 provided
 10




---



##### Table of Contents



2006
    
    2005Risk-free interest rate
    
    
    4.52-4.82
    %
    
    
    2.72-3.27
    %Expected life (in years)
    
    
    0.5-2
    
    
    
    0.5-2Expected volatility
    
    
    76%
    
    
    
    100%Expected dividend yield
    
    
    0%
    
    
    
    0%
   Note 4: Discontinued Operations
 Accounting for the Impairment or Disposal
of Long-Lived Assets
  Cash and cash equivalents
    
    $
    288Trade accounts receivable
    
    
    508Finished products
    
    
    167Raw materials
    
    
    34Prepaid expenses and other assets
    
    
    274Property and equipment, net
    
    
    18Assets of discontinued operations
    
    $
    1,289Accounts payable
    
    $
    189Other liabilities
    
    
    75Liabilities of discontinued operations
    
    $
    264
  Three Months
    
    
    Six Months EndedEnded June
    
    
    June 30,30, 2005
    
    
    2005Product sales
    
    $
    752
    
    
    $
    1,661Pre-tax income from operations
    
    
    176
    
    
    
    512Income taxes
    
    
    6
    
    
    
    Discontinued operations, net of income taxes
    
    $
    182
    
    
    $
    512
   11




---



##### Table of Contents



Three
    
    
    Six MonthsMonths
    
    
    Ended JuneEnded June
    
    
    30,30, 2005
    
    
    2005Netherlands
    
    $
    277
    
    
    $
    640Germany
    
    
    259
    
    
    
    521United Kingdom
    
    
    152
    
    
    
    355France
    
    
    52
    
    
    
    122Other
    
    
    12
    
    
    
    23$
    752
    
    
    $
    1,661
    Note 5: Comprehensive Loss
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (18,506
    )
    
    $
    (21,519
    )
    
    $
    (34,319
    )
    
    $
    (39,821
    )Change in unrealized gain (loss)
on investments available for
sale
    
    
    17
    
    
    
    53
    
    
    
    10
    
    
    
    30Foreign currency translation
adjustment
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    (29
    )Total comprehensive loss
    
    $
    (18,489
    )
    
    $
    (21,484
    )
    
    $
    (34,309
    )
    
    $
    (39,820
    )
 Note 6: Revenue Recognition
 Revenue
Arrangements with Multiple Deliverables Reporting
Revenue Gross as a Principal Versus Net as an Agent, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors
Products)
 12




---



##### Table of Contents



Product Sales, Net
      Product returns
   Rebates
 13




---



##### Table of Contents



Prompt pay discounts
  Product Sales (Perfan I.V.)
  Research and development contracts
    14




---



##### Table of Contents



Reporting Revenue Gross as Principal Versus Net as an
Agent
   Note 7: Net Loss Per Common Share
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Common stock related to options
    
    
    2,215,533
    
    
    
    1,345,272
    
    
    
    2,371,398
    
    
    
    1,461,168Warrants
    
    
    1,093,885
    
    
    
    1,253
    
    
    
    1,121,885
    
    
    
    2,948Employee stock purchase plan
    
    
    60,684
    
    
    
    
    
    
    
    61,795
    
    
    
    Total
    
    
    3,370,102
    
    
    
    1,346,525
    
    
    
    3,555,078
    
    
    
    1,464,116
 Note 8: Accounts Payable
  June 30,
    
    
    December 31,2006
    
    
    2005Trade accounts payable
    
    $
    11,199
    
    
    $
    10,234Supply price payable to
licensor
    
    
    14,446
    
    
    
    Related parties
    
    
    15
    
    
    
    111$
    25,660
    
    
    $
    10,345
 15




---



##### Table of Contents



Note 9: Commitments and Contingencies
 Accounting for Contingencies.
 Note 10: Subsequent Events
  16




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    the development of ambrisentan and darusentan, including projected regulatory,
commercialization and clinical trial timelines;
    
    expected trends and projections relating to sales of Flolan and our income and expense
line items; and
    
    expectations regarding our financial condition and liquidity, including the adequacy of
our existing capital resources.
  Overview
    17




---



##### Table of Contents



Results of Operations for the Three Months Ended June 30, 2006 and 2005
 Revenues
 Three Months EndedJune 30,2006
    
    
    2005(In thousands)Revenues:Research and development contracts
    
    $
    1,797
    
    
    $
    1,580Product sales, net
    
    
    1,570
    
    
    
    Sublicense revenues
    
    
    737
    
    
    
    $
    4,104
    
    
    $
    1,580
 Research and development contracts revenue
   18




---



##### Table of Contents



Product sales, net
  Three MonthsEndedJune 30, 2006Gross product sales
    
    $
    28,852Supply price
    
    
    (24,189
    )Distribution costs
    
    
    (1,444
    )Government program rebates
    
    
    (1,153
    )Prompt pay discounts and product return allowances
    
    
    (496
    )Product sales, net
    
    $
    1,570
  Sublicense revenues
   Costs and Expenses
 Three Months EndedJune 30,2006
    
    
    2005(In thousands)Costs and expenses:Research and development (including
stock-based compensation expense)
    
    $
    14,521
    
    
    $
    20,957Selling, general and administrative
(including stock-based compensation
expense)
    
    
    10,245
    
    
    
    2,935$
    24,766
    
    
    $
    23,892
 19




---



##### Table of Contents



Research and Development
  Three Months EndedJune 30,2006
    
    
    2005(In thousands)DevelopmentEnoximone
    
    $
    (906
    )
    
    $
    11,673Flolan
    
    
    41
    
    
    
    Ambrisentan
    
    
    5,581
    
    
    
    5,504Darusentan
    
    
    6,167
    
    
    
    1,895Total development
    
    
    10,883
    
    
    
    19,072Discovery research
    
    
    1,938
    
    
    
    1,619Stock-based compensation expense
    
    
    1,700
    
    
    
    266Total research and development
    
    $
    14,521
    
    
    $
    20,957
   
    
    $780,000 due to increased numbers of patients enrolled in the ongoing ARIES
extension trial;
    
    $520,000 in expenses for several Phase 1 ambrisentan studies initiated in the
second half of 2005 that carried over into 2006; and
    
    $1.1 million for increased internal expenses associated with an increase in the
number of employees for the management of the ambrisentan trials.
    
    
    $3.2 million in expenses for set-up activities for Phase 3 clinical trials of
darusentan;
    
    $1.0 million for manufacturing process development, analytical testing and regulatory
compliance;
    
    $540,000 for preclinical testing; and
    
    $420,000 for increased internal expenses associated with an increase in the number of
employees for the management of the darusentan trials.
     20




---



##### Table of Contents



Selling, General and Administrative
  
    
    $1.3 million increase in advertising and market research costs related to preparations
for the planned launch of ambrisentan and the initiation of activities related to Flolan
sales;
    
    $1.5 million related to increased staffing, relocation and related recruiting costs;
    
    $230,000 increase in meetings and conferences and travel costs;
    
    $150,000 increase in insurance and professional service costs; and
    
    $3.7 million increase in stock-based compensation expense related to the adoption of
FAS 123(R), see discussion below.
  Stock-Based Compensation
  Three Months EndedJune 30,2006
    
    
    2005(In thousands)Research and development
    
    $
    1,700
    
    
    $
    266Selling, general and administrative
    
    
    3,907
    
    
    
    252$
    5,607
    
    
    $
    518
 Share-Based Payment Accounting for
Stock Issued to Employees,
    21




---



##### Table of Contents



Interest Income, Net
  Discontinued Operations
   Three Months EndedJune 30,2006
    
    
    2005(In thousands)Product sales
    
    $
    
    
    
    $
    752Operating expenses
    
    
    
    
    
    
    (570
    )Income taxes
    
    
    
    
    
    
    $
    
    
    
    $
    182
 Results of Operations for the Six Months Ended June 30, 2006 and 2005
 Revenues
 Six Months EndedJune 30,2006
    
    
    2005(In thousands)Revenues:Research and development contracts
    
    $
    3,593
    
    
    $
    3,286Product sales, net
    
    
    1,570
    
    
    
    Sublicense revenues
    
    
    2,709
    
    
    
    $
    7,872
    
    
    $
    3,286
 Research and development contracts revenue
   22




---



##### Table of Contents



Product sales, net
  Six MonthsEndedJune 30, 2006Gross product sales
    
    $
    28,852Supply price
    
    
    (24,189
    )Distribution costs
    
    
    (1,444
    )Government program rebates
    
    
    (1,153
    )Prompt pay discounts and product return allowances
    
    
    (496
    )Product sales, net
    
    $
    1,570
  Sublicense revenues
   Costs and Expenses
 Six Months EndedJune 30,2006
    
    
    2005(In thousands)Costs and expenses:Research and development (including
stock-based compensation expense)
    
    $
    30,748
    
    
    $
    38,627Selling, general and administrative
(including stock-based compensation
expense)
    
    
    17,457
    
    
    
    6,166$
    48,205
    
    
    $
    44,793
 23




---



##### Table of Contents



Research and Development
  Six Months EndedJune 30,2006
    
    
    2005(In thousands)DevelopmentEnoximone
    
    $
    (1,132
    )
    
    $
    21,695Flolan
    
    
    55
    
    
    
    Ambrisentan
    
    
    16,344
    
    
    
    10,042Darusentan
    
    
    8,496
    
    
    
    3,115Total development
    
    
    23,763
    
    
    
    34,852Discovery research
    
    
    4,055
    
    
    
    3,245Stock-based compensation expense
    
    
    2,930
    
    
    
    530Total research and development
    
    $
    30,748
    
    
    $
    38,627
   
    
    $5.3 million in expenses for several Phase 1 ambrisentan studies initiated in
the second half of 2005 that carried over into 2006;
    
    $1.6 million for increased numbers of patients enrolled the ongoing ARIES extension trial;
    
    $325,000 for the Phase 2 trial designated AMB-222; and
    
    $2.0 million for increased internal expenses associated with an increase in the
number of employees for the management of the ambrisentan trials.
    
    
    $4.3 million in expenses for set-up activities for Phase 3 clinical trials of
darusentan, the first of which commenced in June 2006;
    
    $1.5 million for manufacturing process development, analytical testing and regulatory
compliance;
    
    $655,000 for preclinical testing; and
    
    $870,000 for increased internal expenses associated with an increase in the number of
employees for the management of the darusentan trials.
    24




---



##### Table of Contents



Selling, General and Administrative
  
    
    $2.2 million increase in advertising and market research costs related to preparations
for the planned launch of ambrisentan and the initiation of activities related to Flolan
sales;
    
    $2.2 million related to increased staffing, relocation and related recruiting costs;
    
    $795,000 increase in insurance and professional service costs;
    
    $390,000 increase in meetings and conferences and travel costs; and
    
    $5.3 million increase in stock-based compensation expense related to the adoption of
FAS 123(R), see discussion below.
  Stock-Based Compensation
  Six Months EndedJune 30,2006
    
    
    2005(In thousands)Research and development
    
    $
    2,930
    
    
    $
    530Selling, general and administrative
    
    
    5,819
    
    
    
    504$
    8,749
    
    
    $
    1,034
 25




---



##### Table of Contents



Share-Based Payment Accounting for
Stock Issued to Employees,
     Interest Income, Net
  Cumulative effect of a change in accounting principle
 Share-Based Payment Accounting for
Stock Issued to Employees,
 Discontinued Operations
  26




---



##### Table of Contents



Six Months EndedJune 30,2006
    
    
    2005(In thousands)Product sales
    
    $
    
    
    
    $
    1,661Operating expenses
    
    
    
    
    
    
    (1,149
    )Income taxes
    
    
    
    
    
    
    $
    
    
    
    $
    512
 Liquidity and Capital Resources
        27




---



##### Table of Contents



Critical Accounting Policies
   
    
    revenue recognition;
    
    accounting for research and development expenses;
    
    estimating the value of our equity instruments for use in deferred stock-based
compensation calculations; and
    
    accounting for income taxes.
 Revenue Recognition
 Revenue
Arrangements with Multiple Deliverables Reporting
Revenue Gross as a Principal Versus Net as an Agent, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors
Products)
 Product Sales, Net
   28




---



##### Table of Contents



Product returns
   Rebates
    29




---



##### Table of Contents



Prompt pay discounts
  Product Sales (Perfan I.V.)
  Research and development contracts
     30




---



##### Table of Contents



Reporting Revenue Gross as Principal Versus Net as an Agent
   Accounting for research and development expenses.
  Valuation of equity instruments. Accounting for Stock Appreciation Rights and
Other Variable Stock Option or Award Plans, an Interpretation of APB Opinions No. 15 and 25
 31




---



##### Table of Contents



Accounting for income taxes.
 32




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      
 ITEM 4. CONTROLS AND PROCEDURES
   33




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 Our business faces significant risks. These risks include those described below and may
include additional risks of which we are not currently aware or which we currently do not believe
are material. If any of the events or circumstances described in the following risks actually
occurs, our business, financial condition or results of operations could be materially adversely
affected and such events or circumstances could cause our actual results to differ materially from
the results contemplated by the forward-looking statements contained in this report. These risks
should be read in conjunction with the other information set forth in this report as well as in our
Annual Report on Form 10-K for the year ended December 31, 2005 and in our other periodic reports
on Form 10-Q and Form 8-K . We consistently update and include our risk factors in our Quarterly
Reports on Form 10-Q . Risk factors which have been substantively changed from those set forth in
our Quarterly Report on Form 10-Q for the period ended
March 31, 2006 have been marked with an
asterisk immediately following the heading of such risk factor.
 Risks Related to Our Business
 We are at an early stage of development as a company and we do not have, and may never have, any
products that generate significant revenues. *
  
    
    our product candidates may not prove to be safe and effective in clinical trials;
    
    we may not be able to obtain regulatory approvals for our product candidates, or
approvals may take longer than anticipated, or approvals may be narrower than we seek;
    
    we may not have adequate financial or other resources to complete the development and
commercialization of our product candidates; or
    
    any products that are approved may not be accepted in the marketplace.
  We
have a history of operating losses and we may never become
profitable. *
  34




---



##### Table of Contents



If we fail to obtain additional financing, we may be unable to complete the development and
commercialization of our product candidates or continue our research and development programs.
  
    
    seek collaborators for our product candidates at an earlier stage than otherwise would
be desirable and on terms that are less favorable than might otherwise be available; and
    
    relinquish, license or otherwise dispose of rights to technologies, product candidates
or products that we would otherwise seek to develop or commercialize ourselves on terms
that are less favorable than might otherwise be available.
 We may experience delays in our clinical development programs that could adversely affect our
financial position and our commercial prospects. *
     35




---



##### Table of Contents



Adverse events in our clinical trials may force us to stop development of our product candidates or
prevent regulatory approval of our product candidates.
  If our product candidates do not meet safety or efficacy endpoints in clinical evaluations, they
will not receive regulatory approval and we will be unable to market them.*
       There can be no assurance that our Phase 3 clinical development program for darusentan will be
acceptable to the FDA, EMEA or other similar agencies for regulatory
approval of the compound. *
  36




---



##### Table of Contents



Our Phase 3 clinical trial designs for darusentan differ from the design of our prior Phase 2b
trial of darusentan.*
    Even if our products meet safety and efficacy endpoints in clinical trials, regulatory authorities
may not approve them or we may face post-approval problems that require withdrawal of our products
from the market.*
  
    
    a product candidate may not be safe or effective;
    
    the risk profile of a product candidate (e.g., teratogenicity) may outweigh the
potential or perceived benefits of the product candidate;
    
    the manufacturing processes or facilities we have selected may not meet the applicable
requirements; and
    
    changes in their approval policies or adoption of new regulations may require
additional work.
   37




---



##### Table of Contents



Abnormal liver function test results have been reported as complications in trials of ERAs.*
  Journal of the American College of Cardiology
 ERAs, including ambrisentan and darusentan, have demonstrated toxicity, including teratogenicity,
in animals.
  ERAs
have been shown to increase peripheral edema and cardiovascular
adverse events. *
  38




---



##### Table of Contents



If approved, our products may be subject to significant restrictions or we may be subject to
stringent post-marketing commitments that could affect our ability to
market our products. *
    39




---



##### Table of Contents



Market size and market acceptance of our product candidates is uncertain.
    Our applications for regulatory approval could be delayed or denied due to problems with studies
conducted before we in-licensed our product candidates.
  If we become subject to product liability claims, the damages may exceed our insurance.
  40




---



##### Table of Contents




    
    decreased demand for our products and product candidates;
    
    negative publicity and injury to our reputation;
    
    withdrawal of clinical trial participants;
    
    costs of related litigation;
    
    substantial monetary awards to patients and others;
    
    loss of revenues; and
    
    the inability to commercialize our products and product candidates.
  If we are unable to develop adequate sales, marketing or distribution capabilities or enter into
agreements with third parties to perform some of these functions, we will not be able to
commercialize our products effectively.*
  41




---



##### Table of Contents



Since we will rely on third-party manufacturers, we may be unable to control the availability or
cost of producing our products.
  Our third-party manufacturers and their manufacturing facilities and processes are subject to
regulatory review, which may delay or disrupt our development and commercialization efforts.
  Due to our reliance on contract research organizations and other third parties to conduct clinical
trials, we are unable to directly control the timing, conduct and expense of our clinical trials.
  42




---



##### Table of Contents



If we do not find development and commercialization collaborators for our product candidates, we
may have to reduce or delay product development and commercialization and increase our
expenditures.*
    
    
    collaborators may not pursue further development and commercialization of compounds
resulting from collaborations or may elect to terminate or not to renew research and
development or distribution programs;
    
    collaborators may delay, underfund or stop product development, including clinical
trials or abandon a product candidate, repeat or conduct new clinical trials or require the
development of a new formulation of a product candidate for clinical testing;
    
    a collaborator with marketing and distribution rights to one or more of our products
may not commit enough resources to the marketing and distribution of our products, limiting
our potential revenues from the commercialization of these products; and
    
    disputes may arise delaying or terminating the research, development or
commercialization of our product candidates, or resulting in significant legal proceedings.
 Even if we receive regulatory approval for our product candidates, we will be subject to ongoing
regulatory obligations and review.
  43




---



##### Table of Contents



Our success depends on retention of our President and Chief Executive Officer and other key
personnel.
   If our discovery research program is not successful, we may be unable to develop additional product
candidates.*
   Our operations may be impaired unless we can successfully manage our growth.*
  44




---



##### Table of Contents



If we engage in any acquisition, we will incur a variety of costs, and we may never realize the
anticipated benefits of the acquisition.
  Our corporate compliance program cannot guarantee that we are in compliance with all potentially
applicable regulations.
    45




---



##### Table of Contents



Our operations involve hazardous materials, and compliance with environmental laws and regulations
is expensive.
  Changes in the economic, political, legal and business environments in foreign countries in which
we do business could limit or disrupt our international sales and operations.
  
    
    economic problems that disrupt foreign healthcare payment systems;
    
    the imposition of governmental controls, including price controls, and changes in
regulatory requirements;
    
    less favorable intellectual property or other applicable laws;
    
    the inability to obtain any necessary foreign regulatory approvals of products in a
timely manner, if at all;
    
    import and export license requirements;
    
    economic weakness, including inflation, or political instability in particular foreign
economies and markets;
    
    business interruptions resulting from geo-political actions, including war and
terrorism;
    
    difficulties complying with foreign tax, employment, immigration and labor laws and
pharmaceutical regulations;
    
    unexpected changes in tariffs, trade barriers and regulatory requirements;
    
    difficulties in staffing and managing international operations; and
    
    slower collection experience outside the United States.
 Currency fluctuations may negatively affect our financial condition.*
  46




---



##### Table of Contents



Risks Related to Our Industry
 Our competitors may develop and market drugs that are less expensive, more effective or safer than
our products and product candidates.
  ® ® ® ® ® ®
  Our products may face significant price pressures due to competition from similar products.
   47




---



##### Table of Contents



The status of reimbursement from third-party payors for newly approved health care drugs is
uncertain and failure to obtain adequate reimbursement could limit our ability to generate revenue.
  
    
    government and health administration authorities;
    
    private health insurers;
    
    managed care programs; and
    
    other third-party payors.
  Health care reform measures could adversely affect our business.
     48




---



##### Table of Contents



Failure to obtain regulatory approval in international jurisdictions would prevent us from
marketing our products abroad.
  Ambrisentans orphan drug designation may be challenged by competitors or withdrawn by the FDA or
the EMEA.
    Changes in or interpretations of accounting rules and regulations, including recently implemented
changes relating to the expensing of stock options, could result in unfavorable accounting charges
or require us to change our compensation policies.
  49




---



##### Table of Contents



Risks Related to Our Intellectual Property
 We rely on compounds and technology licensed from third parties and termination of any of those
licenses would result in the loss of significant rights.
   If we are unable to protect our proprietary technology, we may not be able to compete effectively.
   
    
    we or the party from whom we licensed such patents might not have been the first to
make the inventions covered by each of our pending patent applications and issued patents;
 50




---



##### Table of Contents




    
    we or the party from whom we licensed such patents might not have been the first to
file patent applications for these inventions;
    
    others may independently develop similar or alternative technologies or duplicate any
of our technologies;
    
    it is possible that none of our pending patent applications will result in issued
patents;
    
    the claims of our issued patents may be unenforceable or narrower than as filed and not
sufficiently broad to prevent third parties from circumventing them;
    
    we may not develop additional proprietary technologies or drug candidates that are
patentable;
    
    our patent applications or patents may be subject to interference, opposition or
similar administrative proceedings;
    
    any patents issued to us or our potential strategic partners may not provide a basis
for commercially viable products or may be challenged by third parties in the course of
litigation or administrative proceedings such as reexaminations or interferences; and
    
    the patents of others may have an adverse effect on our ability to do business.
     51




---



##### Table of Contents



We may be accused of infringing on the proprietary rights of third parties, which could impair our
ability to successfully commercialize our product candidates.
  
    
    defending a lawsuit, which is very expensive and time consuming;
    
    defending against an interference proceeding in the United States Patent and Trademark
Office, which also can be very expensive and time consuming;
    
    an adverse decision in a lawsuit or in an interference proceeding resulting in the loss
of some or all of our rights to our intellectual property;
    
    paying a large sum for damages if we are found to be infringing;
    
    being prohibited from making, using, selling or offering for sale our product
candidates or our products, if any, until we obtain a license from the patent holder. Such
a license may not be granted to us on satisfactory terms, if at all, and even if we are
granted a license, we may have to pay substantial royalties or grant cross-licenses to our
patents; and
    
    redesigning the manufacturing methods or the use claims of our product candidates so
that they do not infringe on the other partys patent in the event that we are unable to
obtain a license, which, even if possible, could require substantial additional capital,
could necessitate additional regulatory approval, and could delay commercialization.
 Risks Related to Our Stock
 The market price of our common stock has been and may continue to be highly volatile.
  
    
    actual or anticipated results of our clinical trials or those of our potential competitors;
    
    actual or anticipated regulatory approvals of our products or of competing products;
    
    changes in laws or regulations applicable to our products;
    
    changes in the expected or actual timing of our development programs or those of our
potential competitors;
    
    actual or anticipated variations in quarterly operating results;
    
    actual or anticipated sales of Flolan;
    
    announcements of technological innovations by us, our collaborators or our competitors;
    
    new products or services introduced or announced by us or our competitors;
    
    changes in financial estimates or recommendations by securities analysts;
    
    conditions or trends in the biotechnology and pharmaceutical industries;
    
    changes in the market valuations of similar companies;
 52




---



##### Table of Contents




    
    announcements by us of significant acquisitions, strategic partnerships, joint ventures
or capital commitments;
    
    additions or departures of key personnel;
    
    disputes or other developments relating to proprietary rights, including patents,
litigation matters and our ability to obtain patent protection for our technologies;
    
    the loss of a collaborator, including GlaxoSmithKline or Novartis;
    
    developments concerning our collaborations;
    
    trading volume of our common stock;
    
    sales of our common stock by us; and
    
    sales or distributions of our common stock by our stockholders, including our officers
and directors.
  Issuance of shares in connection with financing transactions or under stock plans and outstanding
warrants will dilute current stockholders.
   Some provisions of our charter documents and Delaware law may have anti-takeover effects that could
discourage, delay or prevent a change of control or management, even if such changes would be
beneficial to our stockholders.
  
    
    authorizing the issuance of blank check preferred stock;
 53




---



##### Table of Contents




    
    limiting the removal of directors by the stockholders to removal for cause;
    
    prohibiting stockholder action by written consent, thereby requiring all stockholder
actions to be taken at a meeting of our stockholders;
    
    eliminating the ability of stockholders to call a special meeting of stockholders; and
    
    establishing advance notice requirements for nominations for election to the Board of
Directors or for proposing matters that can be acted upon at stockholder meetings.
  
 ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
    
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  54




---



##### Table of Contents



1.
    
    Proposal to elect directors to serve for the ensuing year and until their successors are
elected:
 Director
    
    For
    
    Against
    
    AbstainJ. William Freytag
    
    
    33,195,420
    
    
    
    
    
    
    
    920,921Michael R. Bristow
    
    
    34,089,265
    
    
    
    
    
    
    
    27,076Kirk K. Calhoun
    
    
    34,070,855
    
    
    
    
    
    
    
    45,486Jerry T. Jackson
    
    
    33,781,427
    
    
    
    
    
    
    
    334,914Daniel J. Mitchell
    
    
    34,070,556
    
    
    
    
    
    
    
    45,785Arnold L. Oronsky
    
    
    33,988,747
    
    
    
    
    
    
    
    127,594Michael J. Valentino
    
    
    34,067,783
    
    
    
    
    
    
    
    48,558Judith A. Hemberger
    
    
    34,089,914
    
    
    
    
    
    
    
    26,427
 2.
    
    Proposal to ratify the selection by the Audit Committee of the Board of Directors of Ernst &
Young LLP as independent registered public accounting firm of the Company for its fiscal year
ending December 31, 2006: 34,081,310 For, 27,299 Against, and 7,732 Abstain.
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 10.39+
    
    
    Amended and Restated Collaboration and Option Agreement between Myogen
and Novartis Institutes for BioMedical Research, Inc., dated July 7,
2006.10.40+
    
    
    Form of License, Development and Commercialization Agreement between
Myogen and Novartis Institutes for BioMedical Research, Inc.10.41+
    
    
    Form of License, Development and Commercialization Agreement (for HDAC
Inhibitor Compounds) between Myogen and Novartis Institutes for
BioMedical Research, Inc.31.1
    
    
    Certification of principal executive officer required by Rule 13a-14(a).31.2
    
    
    Certification of principal financial officer required by Rule 13a-14(a).32.1#
    
    
    Section 1350 Certification.
 
 +
    
    We have applied for confidential treatment with respect to portions of this agreement. Omitted
portions have been filed separately with the Securities and Exchange Commission.#
    
    The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are
not deemed filed with the Securities and Exchange Commission and are not to be incorporated by
reference into any filing of Myogen, Inc. under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form
10-Q, irrespective of any general incorporation language contained in such filing. 55




---



##### Table of Contents



SIGNATURES
  Date: August 7, 2006
    
    MYOGEN, INC./s/ Joseph L. TurnerJoseph L. Turner
Senior Vice President, Finance and Chief
Financial Officer(Principal Financial and Accounting Officer)
 56




---



##### Table of Contents



EXHIBITS
 10.39+
    
    
    Amended and Restated Collaboration and Option Agreement between Myogen
and Novartis Institutes for BioMedical Research, Inc., dated July 7,
2006.10.40+
    
    
    Form of License, Development and Commercialization Agreement between
Myogen and Novartis Institutes for BioMedical Research, Inc.10.41+
    
    
    Form of License, Development and Commercialization Agreement (for HDAC
Inhibitor Compounds) between Myogen and Novartis Institutes for
BioMedical Research, Inc.31.1
    
    
    Certification of principal executive officer required by Rule 13a-14(a).31.2
    
    
    Certification of principal financial officer required by Rule 13a-14(a).32.1#
    
    
    Section 1350 Certification.
 
 +
    
    We have applied for confidential treatment with respect to portions of this agreement. Omitted
portions have been filed separately with the Securities and Exchange Commission.#
    
    The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are
not deemed filed with the Securities and Exchange Commission and are not to be incorporated by
reference into any filing of Myogen, Inc. under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form
10-Q, irrespective of any general incorporation language contained in such filing. 57