UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







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

For the quarterly period ended March 31, 2008

OR



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

Commission File Number: 000-30039





ADOLOR CORPORATION

(Exact Name of Registrant as Specified in its Charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 31-1429198                             
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)

700 Pennsylvania Drive

Exton, Pennsylvania 19341

(Address of Principal Executive Offices and Zip
Code)

484-595-1500

(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. x Yes  ̈ No

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

Large accelerated
filer   ̈            Accelerated filer  x            Non-accelerated filer   ̈            Smaller reporting company   ̈

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

Number of shares outstanding of the issuers Common Stock, par value $0.0001 per share, as of
April 16, 2008: 46,028,332 shares.









---

ADOLOR CORPORATION

FORM 10-Q

March 31, 2008

INDEX



|         |  |                                                                                                                                                                                                         |  |         
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                                                                                                                                                                                                         |  | Page No.
|PART I.  |  | FINANCIAL INFORMATION                                                                                                                                                                                   |  |         
|         |  |                                                                                                                                                                                                        
|ITEM 1.  |  | Financial Statements (Unaudited):                                                                                                                                                                       |  |         
|         |  |                                                                                                                                                                                                        
|         |  | Balance Sheets as of March 31, 2008 and December 31, 2007                                                                                                                                               |  | 3       
|         |  |                                                                                                                                                                                                        
|         |  | Statements of Operations for the three months ended March 31, 2008 and 2007, and the period from August 9, 1993 (inception) to March 31, 2008                                                           |  | 4       
|         |  |                                                                                                                                                                                                        
|         |  | Statements of Stockholders Equity for the period from August 9, 1993 (inception) to December 31, 2004, for the years ended December 31, 2005, 2006 and 2007, and the three months ended March 31, 2008 |  | 5       
|         |  |                                                                                                                                                                                                        
|         |  | Statements of Cash Flows for the three months ended March 31, 2008 and 2007, and the period from August 9, 1993 (inception) to March 31, 2008                                                           |  | 8       
|         |  |                                                                                                                                                                                                        
|         |  | Notes to Financial Statements                                                                                                                                                                           |  | 9       
|         |  |                                                                                                                                                                                                        
|ITEM 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                   |  | 13      
|         |  |                                                                                                                                                                                                        
|ITEM 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                              |  | 22      
|         |  |                                                                                                                                                                                                        
|ITEM 4.  |  | Controls and Procedures                                                                                                                                                                                 |  | 22      
|         |  |                                                                                                                                                                                                        
|PART II. |  | OTHER INFORMATION                                                                                                                                                                                       |  |         
|         |  |                                                                                                                                                                                                        
|ITEM 1.  |  | Legal Proceedings                                                                                                                                                                                       |  | 22      
|         |  |                                                                                                                                                                                                        
|ITEM 1A. |  | Risk Factors                                                                                                                                                                                            |  | 23      
|         |  |                                                                                                                                                                                                        
|ITEM 6.  |  | Exhibits                                                                                                                                                                                                |  | 35      
|         |  |                                                                                                                                                                                                        
|         |  | Signatures                                                                                                                                                                                              |  | 36      



2



---

ADOLOR CORPORATION

(A Development Stage Company)

Balance Sheets

(Unaudited)



|                                                                                                                                                                             |  |               |              |   |                  |   |              |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------------ | - | ---------------- | - | ------------ | -
|                                                                                                                                                                             |  | March 31,2008 |              |   | December 31,2007 |  
|Assets                                                                                                                                                                       |  |               |              |   |                  |   |              |  
|Current assets:                                                                                                                                                              |  |               |              |   |                  |   |              |  
|Cash and cash equivalents                                                                                                                                                    |  | $             | 12,052,151   |   |                  | $ | 15,575,804   |  
|Short-term investments                                                                                                                                                       |  |               | 143,162,480  |   |                  |   | 151,613,695  |  
|Accounts receivable from agreements                                                                                                                                          |  |               | 1,848,407    |   |                  |   | 1,592,009    |  
|Prepaid expenses and other current assets                                                                                                                                    |  |               | 3,926,635    |   |                  |   | 3,953,809    |  
|                                                                                                                                                                             |  |               |              |   |                  |   |              |  
|Total current assets                                                                                                                                                         |  |               | 160,989,673  |   |                  |   | 172,735,317  |  
|Equipment and leasehold improvements, net                                                                                                                                    |  |               | 5,273,716    |   |                  |   | 5,776,410    |  
|Other assets                                                                                                                                                                 |  |               | 151,150      |   |                  |   | 164,925      |  
|                                                                                                                                                                             |  |               |              |   |                  |   |              |  
|Total assets                                                                                                                                                                 |  | $             | 166,414,539  |   |                  | $ | 178,676,652  |  
|                                                                                                                                                                             |  |               |              |   |                  |   |              |  
|Liabilities and Stockholders Equity                                                                                                                                         |  |               |              |   |                  |   |              |  
|Current liabilities:                                                                                                                                                         |  |               |              |   |                  |   |              |  
|Accounts payable                                                                                                                                                             |  | $             | 1,193,407    |   |                  | $ | 874,994      |  
|Accrued expenses                                                                                                                                                             |  |               | 5,593,796    |   |                  |   | 6,703,970    |  
|Deferred licensing fees and rent  current                                                                                                                                   |  |               | 17,612,990   |   |                  |   | 17,612,990   |  
|                                                                                                                                                                             |  |               |              |   |                  |   |              |  
|Total current liabilities                                                                                                                                                    |  |               | 24,400,193   |   |                  |   | 25,191,954   |  
|Deferred licensing fees and rent  non-current                                                                                                                               |  |               | 36,695,012   |   |                  |   | 41,098,260   |  
|Other liabilities                                                                                                                                                            |  |               | 28,800       |   |                  |   | 32,960       |  
|                                                                                                                                                                             |  |               |              |   |                  |   |              |  
|Total liabilities                                                                                                                                                            |  |               | 61,124,005   |   |                  |   | 66,323,174   |  
|                                                                                                                                                                             |  |               |              |   |                  |   |              |  
|Commitments and contingencies                                                                                                                                                |  |               |              |   |                  |   |              |  
|Stockholders equity:                                                                                                                                                        |  |               |              |   |                  |   |              |  
|Series A Junior Participating preferred stock, $0.01 par value; 35,000 shares authorized; none issued and outstanding                                                        |  |               |             |   |                  |   |             |  
|Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding                                                                                   |  |               |             |   |                  |   |             |  
|Common stock, $0.0001 par value; 99,000,000 shares authorized; 46,028,332 and 46,027,003 shares issued and outstanding at March 31, 2008
and December 31, 2007, respectively |  |               | 4,603        |   |                  |   | 4,603        |  
|Additional paid-in capital                                                                                                                                                   |  |               | 538,449,100  |   |                  |   | 536,893,567  |  
|Unrealized gains on available for sale securities                                                                                                                            |  |               | 836,873      |   |                  |   | 399,791      |  
|Deficit accumulated during the development stage                                                                                                                             |  |               | (434,000,042 | ) |                  |   | (424,944,483 | )
|                                                                                                                                                                             |  |               |              |   |                  |   |              |  
|Total stockholders equity                                                                                                                                                   |  |               | 105,290,534  |   |                  |   | 112,353,478  |  
|                                                                                                                                                                             |  |               |              |   |                  |   |              |  
|Total liabilities and stockholders equity                                                                                                                                   |  | $             | 166,414,539  |   |                  | $ | 178,676,652  |  
|                                                                                                                                                                             |  |               |              |   |                  |   |              |  

The accompanying notes are an integral part of the financial statements.



3



---

ADOLOR CORPORATION

(A Development Stage Company)

Statements of Operations

Three months ended March 31, 2008 and 2007, and the period from August 9,
1993

(inception) to March 31, 2008

(Unaudited)



|                                                                                        |  |                              |             |   |                                                       |   |             |   |  |   |              |  
|--------------------------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ----------------------------------------------------- | - | ----------- | - |  | - | ------------ | -
|                                                                                        |  | Three months ended March 31, |             |   | Period from August 9,1993 (inception)
toMarch 31,2008 |  
|                                                                                        |  | 2008                         |             |   | 2007                                                  |   |            
|Contract revenues                                                                       |  | $                            | 6,211,024   |   |                                                       | $ | 1,821,003   |   |  | $ | 122,406,594  |  
|                                                                                        |  |                              |             |   |                                                       |   |             |   |  |   |              |  
|Operating expenses incurred during the development stage:                               |  |                              |             |   |                                                       |   |             |   |  |   |              |  
|Research and development                                                                |  |                              | 11,421,072  |   |                                                       |   | 11,573,017  |   |  |   | 412,413,011  |  
|Marketing, general and administrative                                                   |  |                              | 5,548,530   |   |                                                       |   | 5,817,302   |   |  |   | 187,176,300  |  
|                                                                                        |  |                              |             |   |                                                       |   |             |   |  |   |              |  
|Total operating expenses                                                                |  |                              | 16,969,602  |   |                                                       |   | 17,390,319  |   |  |   | 599,589,311  |  
|                                                                                        |  |                              |             |   |                                                       |   |             |   |  |   |              |  
|Loss from operations                                                                    |  |                              | (10,758,578 | ) |                                                       |   | (15,569,316 | ) |  |   | (477,182,717 | )
|Interest income                                                                         |  |                              | 1,706,185   |   |                                                       |   | 2,222,675   |   |  |   | 42,876,229   |  
|Other (expense) income, net                                                             |  |                              | (3,166      | ) |                                                       |   | 138,190     |   |  |   | 306,446      |  
|                                                                                        |  |                              |             |   |                                                       |   |             |   |  |   |              |  
|Net loss                                                                                |  |                              | (9,055,559  | ) |                                                       |   | (13,208,451 | ) |  |   | (434,000,042 | )
|Undeclared dividends attributable to mandatorily redeemable convertible preferred stock |  |                              |            |   |                                                       |   |            |   |  |   | 10,546,314   |  
|Beneficial conversion feature on mandatorily redeemable convertible preferred stock     |  |                              |            |   |                                                       |   |            |   |  |   | 48,905,779   |  
|                                                                                        |  |                              |             |   |                                                       |   |             |   |  |   |              |  
|Net loss allocable to common stockholders                                               |  | $                            | (9,055,559  | ) |                                                       | $ | (13,208,451 | ) |  | $ | (493,452,135 | )
|                                                                                        |  |                              |             |   |                                                       |   |             |   |  |   |              |  
|Basic and diluted net loss per share                                                    |  | $                            | (0.20       | ) |                                                       | $ | (0.29       | ) |  |   |              |  
|                                                                                        |  |                              |             |   |                                                       |   |             |   |  |   |              |  
|Shares used in computing basic and diluted net loss per share                           |  |                              | 45,948,066  |   |                                                       |   | 45,920,368  |   |  |   |              |  
|                                                                                        |  |                              |             |   |                                                       |   |             |   |  |   |              |  

The accompanying notes are an integral part of the financial statements.



4



---

ADOLOR CORPORATION

(A Development Stage Company)

Statements of Stockholders Equity

For the period from August 9, 1993 (inception) to
December 31, 2004, for the years ended

December 31, 2005, 2006 and 2007, and the three months ended March 31, 2008

(Unaudited)



|                                                                                                                               |  |                 |   |  |                          |       |   |                      |   |             |                                                        |  |   |                                              |   |  |                          |          |   |  |   |              |   |  |   |              |  
|------------------------------------------------------------------------------------------------------------------------------ |  | --------------- | - |  | ------------------------ | ----- | - | -------------------- | - | ----------- | ------------------------------------------------------ |  | - | -------------------------------------------- | - |  | ------------------------ | -------- | - |  | - | ------------ | - |  | - | ------------ | -
|                                                                                                                               |  | Common stock    |   |  | Additionalpaid-incapital |       |   | Deferredcompensation |   |             | Unrealizedgains (losses)on availablefor salesecurities |  |   | Deficitaccumulatedduring thedevelopmentstage |   |  | Totalstockholdersequity |         
|                                                                                                                               |  | Numberof shares |   |  | Amount                   |       |   |                      |   |             |                                                       
|Inception, August 9, 1993                                                                                                      |  |                |   |  | $                        |      |   |                      | $ |            |                                                        |  | $ |                                             |   |  | $                        |         |   |  | $ |             |   |  | $ |             |  
|Issuance of common stock to founder in November 1994 at $.001 per share                                                        |  | 100,000         |   |  |                          | 10    |   |                      |   | 12,490      |                                                        |  |   | (12,400                                      | ) |  |                          |         |   |  |   |             |   |  |   | 100          |  
|Issuance of restricted stock in November 1994 and May 1996                                                                     |  | 565,411         |   |  |                          | 57    |   |                      |   | 72,355      |                                                        |  |   | (66,767                                      | ) |  |                          |         |   |  |   |             |   |  |   | 5,645        |  
|Issuance of common stock for technology license agreements in December 1995 at $.125 per share                                 |  | 50,000          |   |  |                          | 5     |   |                      |   | 6,245       |                                                        |  |   |                                             |   |  |                          |         |   |  |   |             |   |  |   | 6,250        |  
|Issuance of common stock for technology license agreements                                                                     |  | 3,829           |   |  |                          |      |   |                      |   | 50,006      |                                                        |  |   |                                             |   |  |                          |         |   |  |   |             |   |  |   | 50,006       |  
|Issuance of common stock for services in April 1999 at $3.736 per share                                                        |  | 3,570           |   |  |                          |      |   |                      |   | 13,339      |                                                        |  |   |                                             |   |  |                          |         |   |  |   |             |   |  |   | 13,339       |  
|Value attributed to issuance of warrants                                                                                       |  |                |   |  |                          |      |   |                      |   | 60,000      |                                                        |  |   |                                             |   |  |                          |         |   |  |   |             |   |  |   | 60,000       |  
|Notes issued to employees for stock options exercised                                                                          |  |                |   |  |                          |      |   |                      |   | (1,056,488  | )                                                      |  |   |                                             |   |  |                          |         |   |  |   |             |   |  |   | (1,056,488   | )
|Payments on notes granted to employees for stock options                                                                       |  |                |   |  |                          |      |   |                      |   | 973,951     |                                                        |  |   |                                             |   |  |                          |         |   |  |   |             |   |  |   | 973,951      |  
|Interest receivable converted to principal on employee notes                                                                   |  |                |   |  |                          |      |   |                      |   | (131,859    | )                                                      |  |   |                                             |   |  |                          |         |   |  |   |             |   |  |   | (131,859     | )
|Accretion of Series H preferred stock issuance costs                                                                           |  |                |   |  |                          |      |   |                      |   | (281,794    | )                                                      |  |   |                                             |   |  |                          |         |   |  |   |             |   |  |   | (281,794     | )
|Forfeiture of stock options                                                                                                    |  | (71,247         | ) |  |                          | (7    | ) |                      |   | (1,706,296  | )                                                      |  |   | 1,706,303                                    |   |  |                          |         |   |  |   |             |   |  |   |             |  
|Exercise of stock options                                                                                                      |  | 2,793,752       |   |  |                          | 280   |   |                      |   | 4,744,155   |                                                        |  |   |                                             |   |  |                          |         |   |  |   |             |   |  |   | 4,744,435    |  
|Unrealized loss on investments                                                                                                 |  |                |   |  |                          |      |   |                      |   |            |                                                        |  |   |                                             |   |  |                          | (463,457 | ) |  |   |             |   |  |   | (463,457     | )
|Conversion of preferred shares                                                                                                 |  | 18,818,421      |   |  |                          | 1,882 |   |                      |   | 80,381,821  |                                                        |  |   |                                             |   |  |                          |         |   |  |   |             |   |  |   | 80,383,703   |  
|Net proceeds from initial public offering                                                                                      |  | 6,900,000       |   |  |                          | 690   |   |                      |   | 95,775,779  |                                                        |  |   |                                             |   |  |                          |         |   |  |   |             |   |  |   | 95,776,469   |  
|Net proceeds from issuance of newly registered shares of common stock                                                          |  | 9,900,000       |   |  |                          | 990   |   |                      |   | 170,546,726 |                                                        |  |   |                                             |   |  |                          |         |   |  |   |             |   |  |   | 170,547,716  |  
|Issuance of common stock for bonus awards                                                                                      |  | 16,609          |   |  |                          | 1     |   |                      |   | 223,770     |                                                        |  |   | (2,172                                       | ) |  |                          |         |   |  |   |             |   |  |   | 221,599      |  
|Deferred compensation resulting from grant of stock options                                                                    |  |                |   |  |                          |      |   |                      |   | 24,268,613  |                                                        |  |   | (24,268,613                                  | ) |  |                          |         |   |  |   |             |   |  |   |             |  
|Accelerated amortization and cancellation of deferred compensation resulting from the acceleration of vesting of stock options |  |                |   |  |                          |      |   |                      |   | (347,382    | )                                                      |  |   | 3,451,714                                    |   |  |                          |         |   |  |   |             |   |  |   | 3,104,332    |  
|Amortization of deferred compensation                                                                                          |  |                |   |  |                          |      |   |                      |   |            |                                                        |  |   | 19,172,470                                   |   |  |                          |         |   |  |   |             |   |  |   | 19,172,470   |  
|Net loss                                                                                                                       |  |                |   |  |                          |      |   |                      |   |            |                                                        |  |   |                                             |   |  |                          |         |   |  |   | (249,966,500 | ) |  |   | (249,966,500 | )
|                                                                                                                               |  |                 |   |  |                          |       |   |                      |   |             |                                                        |  |   |                                              |   |  |                          |          |   |  |   |              |   |  |   |              |  
|Balance, December 31, 2004                                                                                                     |  | 39,080,345      |   |  | $                        | 3,908 |   |                      | $ | 373,605,431 |                                                        |  | $ | (19,465                                      | ) |  | $                        | (463,457 | ) |  | $ | (249,966,500 | ) |  | $ | 123,159,917  |  
|                                                                                                                               |  |                 |   |  |                          |       |   |                      |   |             |                                                        |  |   |                                              |   |  |                          |          |   |  |   |              |   |  |   |              |  

The accompanying notes are an integral part of the financial statements.



5



---

ADOLOR CORPORATION

(A Development Stage Company)

Statements of Stockholders EquityContinued

For the period from August 9, 1993 (inception) to December 31, 2004, for the years ended

December 31, 2005, 2006 and 2007, and the three months ended March 31, 2008

(Unaudited)



|                                                             |  |                 |  |                          |       |  |                      |             |   |                                                        |   |         |                                              |  |   |                          |   |  |   |              |   |  |   |             |  
|------------------------------------------------------------ |  | --------------- |  | ------------------------ | ----- |  | -------------------- | ----------- | - | ------------------------------------------------------ | - | ------- | -------------------------------------------- |  | - | ------------------------ | - |  | - | ------------ | - |  | - | ----------- | -
|                                                             |  | Common stock    |  | Additionalpaid-incapital |       |  | Deferredcompensation |             |   | Unrealizedgains (losses)on availablefor salesecurities |   |         | Deficitaccumulatedduring thedevelopmentstage |  |   | Totalstockholdersequity |  
|                                                             |  | Numberof shares |  | Amount                   |       |  |                      |             |  
|Balance, December 31, 2004                                   |  | 39,080,345      |  | $                        | 3,908 |  | $                    | 373,605,431 |   |                                                        | $ | (19,465 | )                                            |  | $ | (463,457                 | ) |  | $ | (249,966,500 | ) |  | $ | 123,159,917 |  
|Payments on notes granted to employees for stock options     |  |                |  |                          |      |  |                      | 15,742      |   |                                                        |   |        |                                              |  |   |                         |   |  |   |             |   |  |   | 15,742      |  
|Interest receivable converted to principal on employee notes |  |                |  |                          |      |  |                      | (3,136      | ) |                                                        |   |        |                                              |  |   |                         |   |  |   |             |   |  |   | (3,136      | )
|Exercise of stock options                                    |  | 26,017          |  |                          | 3     |  |                      | 133,195     |   |                                                        |   |        |                                              |  |   |                         |   |  |   |             |   |  |   | 133,198     |  
|Unrealized gain on investments                               |  |                |  |                          |      |  |                      |            |   |                                                        |   |        |                                              |  |   | 165,997                  |   |  |   |             |   |  |   | 165,997     |  
|Amortization of deferred compensation                        |  |                |  |                          |      |  |                      |            |   |                                                        |   | 18,202  |                                              |  |   |                         |   |  |   |             |   |  |   | 18,202      |  
|Net loss                                                     |  |                |  |                          |      |  |                      |            |   |                                                        |   |        |                                              |  |   |                         |   |  |   | (56,796,630  | ) |  |   | (56,796,630 | )
|                                                             |  |                 |  |                          |       |  |                      |             |   |                                                        |   |         |                                              |  |   |                          |   |  |   |              |   |  |   |             |  
|Balance, December 31, 2005                                   |  | 39,106,362      |  | $                        | 3,911 |  | $                    | 373,751,232 |   |                                                        | $ | (1,263  | )                                            |  | $ | (297,460                 | ) |  | $ | (306,763,130 | ) |  | $ | 66,693,290  |  
|                                                             |  |                 |  |                          |       |  |                      |             |   |                                                        |   |         |                                              |  |   |                          |   |  |   |              |   |  |   |             |  

The accompanying notes are an integral part of the financial statements.



6



---

ADOLOR CORPORATION

(A Development Stage Company)

Statements of Stockholders EquityContinued

For the period from August 9, 1993 (inception) to December 31, 2004, for the years ended

December 31, 2005, 2006 and 2007, and the three months ended March 31, 2008

(Unaudited)



|                                                                      |                 |              |        |                          |       |  |                      |             |   |                                                        |   |        |                                              |  |   |                          |   |  |   |              |   |  |   |             |  
|--------------------------------------------------------------------- | --------------- | ------------ | ------ | ------------------------ | ----- |  | -------------------- | ----------- | - | ------------------------------------------------------ | - | ------ | -------------------------------------------- |  | - | ------------------------ | - |  | - | ------------ | - |  | - | ----------- | -
|                                                                      |                 | Common stock |        | Additionalpaid-incapital |       |  | Deferredcompensation |             |   | Unrealizedgains (losses)on availablefor salesecurities |   |        | Deficitaccumulatedduring thedevelopmentstage |  |   | Totalstockholdersequity |  
|                                                                      | Numberof shares |              | Amount |                          |       |  |                      |            
|Balance, December 31, 2005                                            |                 | 39,106,362   |        | $                        | 3,911 |  | $                    | 373,751,232 |   |                                                        | $ | (1,263 | )                                            |  | $ | (297,460                 | ) |  | $ | (306,763,130 | ) |  | $ | 66,693,290  |  
|Net proceeds from issuance of newly registered shares of common stock |                 | 5,750,000    |        |                          | 575   |  |                      | 135,054,860 |   |                                                        |   |       |                                              |  |   |                         |   |  |   |             |   |  |   | 135,055,435 |  
|Compensation expense under SFAS 123R                                  |                 |             |        |                          |      |  |                      | 8,671,724   |   |                                                        |   |       |                                              |  |   |                         |   |  |   |             |   |  |   | 8,671,724   |  
|Reclassification of stock options issued to consultants               |                 |             |        |                          |      |  |                      | (300,428    | ) |                                                        |   |       |                                              |  |   |                         |   |  |   |             |   |  |   | (300,428    | )
|Reclassification of stock options exercised by consultants            |                 |             |        |                          |      |  |                      | 103,652     |   |                                                        |   |       |                                              |  |   |                         |   |  |   |             |   |  |   | 103,652     |  
|Payments on notes granted to employees for stock options              |                 |             |        |                          |      |  |                      | 35,809      |   |                                                        |   |       |                                              |  |   |                         |   |  |   |             |   |  |   | 35,809      |  
|Interest receivable converted to principal on employee notes          |                 |             |        |                          |      |  |                      | (766        | ) |                                                        |   |       |                                              |  |   |                         |   |  |   |             |   |  |   | (766        | )
|Exercise of stock options                                             |                 | 1,063,181    |        |                          | 106   |  |                      | 12,366,024  |   |                                                        |   |       |                                              |  |   |                         |   |  |   |             |   |  |   | 12,366,130  |  
|Restricted stock issued                                               |                 | 80,000       |        |                          |      |  |                      |            |   |                                                        |   |       |                                              |  |   |                         |   |  |   |             |   |  |   |            |  
|Unrealized gain on investments                                        |                 |             |        |                          |      |  |                      |            |   |                                                        |   |       |                                              |  |   | 292,897                  |   |  |   |             |   |  |   | 292,897     |  
|Amortization of deferred compensation                                 |                 |             |        |                          |      |  |                      |            |   |                                                        |   | 1,263  |                                              |  |   |                         |   |  |   |             |   |  |   | 1,263       |  
|Net loss                                                              |                 |             |        |                          |      |  |                      |            |   |                                                        |   |       |                                              |  |   |                         |   |  |   | (69,738,378  | ) |  |   | (69,738,378 | )
|                                                                      |                 |              |        |                          |       |  |                      |             |   |                                                        |   |        |                                              |  |   |                          |   |  |   |              |   |  |   |             |  
|Balance, December 31, 2006                                            |                 | 45,999,543   |        |                          | 4,592 |  |                      | 529,682,107 |   |                                                        |   |       |                                              |  |   | (4,563                   | ) |  |   | (376,501,508 | ) |  |   | 153,180,628 |  
|Compensation expense under SFAS 123R                                  |                 | 16,487       |        |                          | 10    |  |                      | 7,158,474   |   |                                                        |   |       |                                              |  |   |                         |   |  |   |             |   |  |   | 7,158,484   |  
|Payments on notes granted to employees for stock options              |                 |             |        |                          |      |  |                      | 6,681       |   |                                                        |   |       |                                              |  |   |                         |   |  |   |             |   |  |   | 6,681       |  
|Exercise of stock options                                             |                 | 10,973       |        |                          | 1     |  |                      | 46,305      |   |                                                        |   |       |                                              |  |   |                         |   |  |   |             |   |  |   | 46,306      |  
|Unrealized gain on investments                                        |                 |             |        |                          |      |  |                      |            |   |                                                        |   |       |                                              |  |   | 404,354                  |   |  |   |             |   |  |   | 404,354     |  
|Net loss                                                              |                 |             |        |                          |      |  |                      |            |   |                                                        |   |       |                                              |  |   |                         |   |  |   | (48,442,975  | ) |  |   | (48,442,975 | )
|                                                                      |                 |              |        |                          |       |  |                      |             |   |                                                        |   |        |                                              |  |   |                          |   |  |   |              |   |  |   |             |  
|Balance, December 31, 2007                                            |                 | 46,027,003   |        |                          | 4,603 |  |                      | 536,893,567 |   |                                                        |   |       |                                              |  |   | 399,791                  |   |  |   | (424,944,483 | ) |  |   | 112,353,478 |  
|Compensation expense under SFAS 123R                                  |                 |             |        |                          |      |  |                      | 1,552,023   |   |                                                        |   |       |                                              |  |   |                         |   |  |   |             |   |  |   | 1,552,023   |  
|Exercise of stock options                                             |                 | 1,329        |        |                          |      |  |                      | 3,510       |   |                                                        |   |       |                                              |  |   |                         |   |  |   |             |   |  |   | 3,510       |  
|Unrealized gain on investments                                        |                 |             |        |                          |      |  |                      |            |   |                                                        |   |       |                                              |  |   | 437,082                  |   |  |   |             |   |  |   | 437,082     |  
|Net loss                                                              |                 |             |        |                          |      |  |                      |            |   |                                                        |   |       |                                              |  |   |                         |   |  |   | (9,055,559   | ) |  |   | (9,055,559  | )
|                                                                      |                 |              |        |                          |       |  |                      |             |   |                                                        |   |        |                                              |  |   |                          |   |  |   |              |   |  |   |             |  
|Balance, March 31, 2008                                               |                 | 46,028,332   |        | $                        | 4,603 |  | $                    | 538,449,100 |   |                                                        | $ |       |                                              |  | $ | 836,873                  |   |  | $ | (434,000,042 | ) |  | $ | 105,290,534 |  
|                                                                      |                 |              |        |                          |       |  |                      |             |   |                                                        |   |        |                                              |  |   |                          |   |  |   |              |   |  |   |             |  

The accompanying notes are an integral part of the financial statements.



7



---

ADOLOR CORPORATION

(A Development Stage Company)

Statements of Cash Flows Three months ended March 31, 2008 and 2007, and the

period from August 9,
1993 (inception) to March 31, 2008

(Unaudited)



|                                                                                                               |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|-------------------------------------------------------------------------------------------------------------- | ---- | --------------------------- | ----------- | ---- | ----------------------------------------------------- | - | ----------- | - |  | - | -------------- | -
|                                                                                                               |      | Three months endedMarch 31, |             |      | Period fromAugust 9, 1993(inception) toMarch 31, 2008 |  
|                                                                                                               | 2008 |                             |             | 2007 |                                                       |  
|Net cash flows from operating activities:                                                                      |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Net loss                                                                                                       |      | $                           | (9,055,559  | )    |                                                       | $ | (13,208,451 | ) |  | $ | (434,000,042   | )
|Adjustments to reconcile net loss to net cash used in operating activities:                                    |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Non-cash compensation expense                                                                                  |      |                             | 1,547,863   |      |                                                       |   | 2,012,407   |   |  |   | 39,732,115     |  
|Deferred licensing fees and rent                                                                               |      |                             | (4,403,248  | )    |                                                       |   | (861,765    | ) |  |   | (29,305,344    | )
|Non-cash warrant value                                                                                         |      |                             |            |      |                                                       |   |            |   |  |   | 60,000         |  
|Depreciation expense                                                                                           |      |                             | 569,554     |      |                                                       |   | 617,278     |   |  |   | 15,812,809     |  
|Non-cash proceeds from the trade of equipment                                                                  |      |                             |            |      |                                                       |   |            |   |  |   | 120,000        |  
|Gain on the sale of equipment                                                                                  |      |                             |            |      |                                                       |   |            |   |  |   | (42,698        | )
|Issuance of common stock for technology license agreements                                                     |      |                             |            |      |                                                       |   |            |   |  |   | 56,256         |  
|Changes in assets and liabilities:                                                                             |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Accounts receivable from agreements                                                                            |      |                             | (256,398    | )    |                                                       |   | 2,279,505   |   |  |   | (1,848,407     | )
|Prepaid expenses and other current assets                                                                      |      |                             | 27,174      |      |                                                       |   | 12,281      |   |  |   | (3,926,635     | )
|Other assets                                                                                                   |      |                             | 13,775      |      |                                                       |   | 119,343     |   |  |   | (151,150       | )
|Accounts payable                                                                                               |      |                             | 318,413     |      |                                                       |   | (1,298,554  | ) |  |   | 1,193,407      |  
|Accrued expenses                                                                                               |      |                             | (722,934    | )    |                                                       |   | (5,582,556  | ) |  |   | 5,593,796      |  
|Deferred licensing fees and rent                                                                               |      |                             |            |      |                                                       |   |            |   |  |   | 83,613,346     |  
|                                                                                                               |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Net cash used in operating activities                                                                          |      |                             | (11,961,360 | )    |                                                       |   | (15,910,512 | ) |  |   | (323,092,547   | )
|                                                                                                               |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Net cash flows from investing activities:                                                                      |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Purchases of equipment and leasehold improvements                                                              |      |                             | (454,100    | )    |                                                       |   | (385,988    | ) |  |   | (21,320,006    | )
|Proceeds from the sale of equipment                                                                            |      |                             |            |      |                                                       |   |            |   |  |   | 169,518        |  
|Purchase of short-term investments                                                                             |      |                             | (46,611,703 | )    |                                                       |   | (14,195,995 | ) |  |   | (1,402,464,237 | )
|Maturities/sales of short-term investments                                                                     |      |                             | 55,500,000  |      |                                                       |   | 31,500,000  |   |  |   | 1,260,138,630  |  
|                                                                                                               |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Net cash provided by (used in) investing activities                                                            |      |                             | 8,434,197   |      |                                                       |   | 16,918,017  |   |  |   | (163,476,095   | )
|                                                                                                               |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Net cash flows from financing activities:                                                                      |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Net proceeds from issuance of common stock                                                                     |      |                             |            |      |                                                       |   |            |   |  |   | 401,379,620    |  
|Net proceeds from issuance of mandatorily redeemable convertible preferred stock and Series B warrants         |      |                             |            |      |                                                       |   |            |   |  |   | 78,501,909     |  
|Proceeds from Series D mandatorily redeemable convertible preferred stock subscription                         |      |                             |            |      |                                                       |   |            |   |  |   | 600,000        |  
|Net proceeds from exercise of common stock options and issuance of restricted common stock                     |      |                             | 3,510       |      |                                                       |   | 21,001      |   |  |   | 16,242,842     |  
|Proceeds from notes payable-related parties                                                                    |      |                             |            |      |                                                       |   |            |   |  |   | 1,000,000      |  
|Proceeds from notes payable                                                                                    |      |                             |            |      |                                                       |   |            |   |  |   | 1,832,474      |  
|Payment of notes payable                                                                                       |      |                             |            |      |                                                       |   |            |   |  |   | (1,832,474     | )
|Proceeds received on notes receivable                                                                          |      |                             |            |      |                                                       |   | 6,681       |   |  |   | 1,032,183      |  
|Interest receivable converted to principal on notes                                                            |      |                             |            |      |                                                       |   |            |   |  |   | (135,761       | )
|                                                                                                               |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Net cash provided by financing activities                                                                      |      |                             | 3,510       |      |                                                       |   | 27,682      |   |  |   | 498,620,793    |  
|                                                                                                               |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Net (decrease)/increase in cash and cash equivalents                                                           |      |                             | (3,523,653  | )    |                                                       |   | 1,035,187   |   |  |   | 12,052,151     |  
|Cash and cash equivalents at beginning of period                                                               |      |                             | 15,575,804  |      |                                                       |   | 3,278,858   |   |  |   |               |  
|                                                                                                               |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Cash and cash equivalents at end of period                                                                     |      | $                           | 12,052,151  |      |                                                       | $ | 4,314,045   |   |  | $ | 12,052,151     |  
|                                                                                                               |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Supplemental disclosure of cash flow information:                                                              |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Cash paid for interest                                                                                         |      | $                           |            |      |                                                       | $ |            |   |  | $ |               |  
|Cash received from sale of Pennsylvania research and development tax credits                                   |      |                             |            |      |                                                       |   | 142,938     |   |  |   | 694,096        |  
|Supplemental disclosure of non-cash financing activities:                                                      |      |                             |             |      |                                                       |   |             |   |  |   |                |  
|Unrealized gains (losses) on available for sale securities, net                                                |      |                             | 437,082     |      |                                                       |   | (16,979     | ) |  |   | 836,873        |  
|Deferred compensation from issuance of common stock, restricted common stock and common stock options          |      |                             |            |      |                                                       |   |            |   |  |   | 24,496,376     |  
|Issuance of common stock for technology license agreements or for services                                     |      |                             |            |      |                                                       |   |            |   |  |   | 19,589         |  
|Conversion of Series A through H (excluding D) preferred stock for common stock                                |      |                             |            |      |                                                       |   |            |   |  |   | 80,383,703     |  
|Conversion of stock subscription to Series D mandatorily redeemable preferred stock                            |      |                             |            |      |                                                       |   |            |   |  |   | 600,000        |  
|Conversion of bridge financing, including accrued interest, to Series B mandatorily redeemable preferred stock |      |                             |            |      |                                                       |   |            |   |  |   | 1,019,787      |  
|Change in accrued expenses related to purchases of equipment                                                   |      |                             | (387,240    | )    |                                                       |   |            |   |  |   |               |  

The accompanying notes are an integral part of the financial statements.



8



---

Adolor Corporation

(A Development Stage Company)

Notes to Financial Statements

March 31, 2008

(Unaudited)

1. ORGANIZATION AND BUSINESS ACTIVITIES

Adolor Corporation (the Company) is a development stage biopharmaceutical corporation
that was formed in 1993. The Company specializes in the discovery, development and commercialization of prescription pain management products. The Company has a number of product candidates that are in various stages of development ranging from
preclinical studies to advanced stage clinical trials. The Companys lead product candidate, Entereg® (alvimopan), is designed to selectively block the unwanted effects of opioid
analgesics on the gastrointestinal (GI) tract. The Company is collaborating with Glaxo Group Limited (Glaxo) for the global development and commercialization of Entereg in multiple indications. The Companys New
Drug Application (NDA) for Entereg for the proposed indication of acceleration of time to upper and lower gastrointestinal recovery following partial large or small bowel resection surgery with primary anastomosis is currently
pending with the Food and Drug Administration (FDA). The Company is also developing a product that combines alvimopan with an opioid analgesic. In addition, the Company is collaborating with Pfizer Inc. (Pfizer) for the
development and commercialization of delta opioid agonists, with one in Phase 2a clinical testing and one in Phase 1 clinical testing. The Companys other product candidates are in preclinical development for treating moderate-to-severe
pain conditions.

Currently, the Companys revenues are derived from its collaboration agreements with Glaxo and Pfizer. The Company
has not generated any product sales revenues, has incurred operating losses since inception, and has not achieved profitable operations. The Companys deficit accumulated during the development stage through March 31, 2008 aggregated
approximately $434.0 million, and the Company expects to continue to incur substantial losses in future periods. The Company is highly dependent on the success of its research, development and licensing efforts and, ultimately, upon regulatory
approval and market acceptance of its products under development, particularly its lead product candidate, Entereg.

Interim Financial
Information

The information as of March 31, 2008 and for the three months ended March 31, 2008 and 2007 is unaudited but
includes all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly the financial information set forth in accordance with U.S. generally accepted accounting principles. The
interim results are not necessarily indicative of results to be expected for the full fiscal year. These financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2007 included in
the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2008.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the Companys financial statements and accompanying notes. The estimates made are principally in the areas of contract revenue recognition and research and development expense
accruals. Management bases its estimates on historical experience and various assumptions that are believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In September
2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157,Fair Value Measurements (SFAS 157). SFAS 157 clarifies the definition of fair
value, establishes a framework for measuring fair value and expands disclosures on fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years; however, the FASB did provide a one year deferral for the implementation of SFAS 157 for other nonfinancial assets and liabilities.

SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted
prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly
through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on managements own assumptions used to measure assets and liabilities at fair value. A financial asset or
liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2008:



|                       |  |                                         |             |                                                 |   |                                            |  |                                        |   |  |   |  
|---------------------- |  | --------------------------------------- | ----------- | ----------------------------------------------- | - | ------------------------------------------ |  | -------------------------------------- | - |  | - | -
|                       |  |                                         |             | Fair Value Measurements at March 31, 2008 Using
|                       |  | Total Carryingvalue as ofMarch 31, 2008 |             | Quoted prices inactive markets(Level
1)         |   | Significant otherobservableinputs(Level 2) |  | Significantunobservableinputs(Level 3)
|Short-term investments |  | $                                       | 143,162,480 |                                                 | $ | 143,162,480                                |  | $                                      |  |  | $ | 
|                       |  |                                         |             |                                                 |   |                                            |  |                                        |   |  |   |  
|Total                  |  | $                                       | 143,162,480 |                                                 | $ | 143,162,480                                |  | $                                      |  |  | $ | 
|                       |  |                                         |             |                                                 |   |                                            |  |                                        |   |  |   |  

Short-term investments are measured at fair value using quoted market prices and are classified
within Level 1 of the valuation hierarchy. The adoption of SFAS 157 did not have any impact on the Companys results of operations and financial position.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to measure many financial instruments
and certain other items at fair value at specified election dates. Under SFAS 159, any unrealized holding gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. If
elected, the fair value option (1) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (2) is irrevocable (unless a new election date occurs); and (3) is
applied only to entire instruments and not to portions of instruments. SFAS 159 is effective for fiscal years beginning after November 15, 2007 provided the entity also elects to apply the provision of SFAS 157. The adoption of SFAS 159 did not
have any impact on the Companys results of operations and financial position.



9



---

In June 2007, the FASB ratified the consensus reached in Emerging Issues Task Force Issue No. 07-03,
Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (Issue No. 07-03). Issue No. 07-03 requires that nonrefundable advance payments for
future research and development activities should be deferred and recognized as an expense as goods are delivered or the related services are performed. Issue No. 07-03 is effective for fiscal years beginning after December 15, 2007. The
adoption of Issue No. 07-03 did not have a material impact on the Companys results of operations and financial position.

3. COMPREHENSIVE
LOSS

The following is the reconciliation of net loss to comprehensive loss for the three months ended March 31, 2008 and 2007:



|                                                                |  |                              |            |   |      |   |             |  
|--------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                                |  | Three months ended March 31, |           
|                                                                |  | 2008                         |            |   | 2007 |  
|Net loss                                                        |  | $                            | (9,055,559 | ) |      | $ | (13,208,451 | )
|Unrealized gains (losses) on available for sale securities, net |  |                              | 437,082    |   |      |   | (16,979     | )
|                                                                |  |                              |            |   |      |   |             |  
|Comprehensive loss                                              |  | $                            | (8,618,477 | ) |      | $ | (13,225,430 | )
|                                                                |  |                              |            |   |      |   |             |  

4. SHORT-TERM INVESTMENTS

Short-term investments consist of investment grade fixed income securities with original maturities of greater than three months. All investments are classified as available for sale and are considered
current assets as management has the ability to sell them at any time.

The following summarizes the Companys short-term investments
at March 31, 2008 and December 31, 2007:



|                                                 |  |      |             |                      |   |                       |  |   |            |   |  |   |            
|------------------------------------------------ |  | ---- | ----------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | -----------
|                                                 |  | Cost |             | Grossunrealizedgains |   | Grossunrealizedlosses |  |   | Fair value
|U.S. Government obligations at March 31, 2008    |  | $    | 142,325,607 |                      | $ | 836,873               |  | $ | 0          |   |  | $ | 143,162,480
|                                                 |  |      |             |                      |   |                       |  |   |            |   |  |   |            
|U.S. Government obligations at December 31, 2007 |  | $    | 151,213,904 |                      | $ | 419,412               |  | $ | (19,621    | ) |  | $ | 151,613,695
|                                                 |  |      |             |                      |   |                       |  |   |            |   |  |   |            

Short-term investments at March 31, 2008 and December 31, 2007 had maturities of up to twelve months.

5. CONTRACT REVENUES

Contract revenues for the three
months ended March 31, 2008 and 2007 consist of the following:



|                                           |  |                              |           |      |   |          
|------------------------------------------ |  | ---------------------------- | --------- | ---- | - | ---------
|                                           |  | Three months ended March 31,
|                                           |  | 2008                         |           | 2007
|Amortization of upfront license fees       |  | $                            | 4,362,617 |      | $ | 821,134  
|Collaborative agreement cost reimbursement |  |                              | 1,848,407 |      |   | 999,869  
|                                           |  |                              |           |      |   |          
|Total contract revenues                    |  | $                            | 6,211,024 |      | $ | 1,821,003
|                                           |  |                              |           |      |   |          

In April 2002, the Company entered into a
collaboration agreement with Glaxo for the exclusive worldwide development and commercialization of Entereg for certain indications. Under the terms of the agreement, Glaxo paid the Company a non-refundable and non-creditable signing fee of
$50.0 million. The $50.0 million signing fee is reflected in deferred licensing fees and is being recognized as revenue on a straight-line basis over the estimated performance period under the collaboration agreement, which estimated performance
period was extended by two years to March 2016 based on the second approvable letter from the FDA received in November 2006. Revenue related thereto of approximately $0.8 million was recognized in each of the three-month periods ended March 31,
2008 and 2007, respectively.



10



---

External expenses for research and development and marketing activities incurred in the United States by
each company are reimbursed by the other party pursuant to contractually agreed percentages. Reimbursement amounts owed to the Company by Glaxo are recorded gross on the statements of operations as contract revenues. The Company recorded contract
revenues of approximately $1.0 million and $1.0 million, respectively, in the three months ended March 31, 2008 and 2007 under this arrangement. As of March 31, 2008, approximately $1.0 million was receivable from Glaxo for reimbursement
of expenses incurred by the Company pursuant to the collaboration agreement.

Glaxo has certain rights to terminate the collaboration
agreement. Glaxo also has the right to terminate its rights and obligations with respect to the acute-care indications, or its rights and obligations for the chronic-care indications. Glaxo has the right to terminate the collaboration agreement for
breach of the agreement by the Company or for safety related reasons as defined in the collaboration agreement. Glaxos rights to terminate the acute-care indications or the chronic-care indications are generally triggered by failure to achieve
certain milestones within certain timeframes, adverse product developments or adverse regulatory events. For example, because the post operative ileus (POI) product was not commercially sold as of December 31, 2005, Glaxo now
possesses the right to terminate the collaboration agreement with respect to the POI product and the opioid bowel dysfunction chronic product.

In December 2007, the Company entered into a collaboration agreement with Pfizer for the exclusive worldwide development and commercialization of ADL5859 and ADL5747, proprietary delta opioid receptor agonist compounds for the
treatment of pain. Under the terms of the agreement, Pfizer paid the Company an upfront payment of $30.0 million and reimbursement of $1.9 million for Phase 2 development costs incurred prior to entering into the collaboration agreement. The $31.9
million upfront fee is reflected in deferred licensing fees and is being recognized as revenue on a straight-line basis over the estimated performance period under the collaboration agreement. The estimated performance period is expected to be 2.25
years (February 2010). Revenue related thereto of approximately $3.5 million was recognized in the three-month period ended March 31, 2008.

External expenses for research and development and marketing activities incurred in the United States by each company are reimbursed by the other party pursuant to contractually agreed percentages. Reimbursement amounts owed to the Company
by Pfizer are recorded gross on the statements of operations as contract revenues. The Company recorded contract revenues of approximately $0.8 million in the three-month period ended March 31, 2008. As of March 31, 2008, approximately
$0.8 million was receivable from Pfizer for reimbursement of expenses incurred by the Company pursuant to the collaboration agreement.

6.
STOCKHOLDERS EQUITY

Equity-based compensation

During the three-month period ended March 31, 2008, the Company granted approximately 901,000 common stock options to employees. The employee stock
options vest monthly over a four-year period beginning from the date of grant and were granted with an exercise price equal to the fair market value of the Companys common stock on the date of grant. The fair value of the options granted
during the three-month period ended March 31, 2008 was $2.6 million, and such amount will be amortized over the applicable service period. For the three months ended March 31, 2008, compensation expense recognized related to all
outstanding common stock options was $1.4 million.

During the three-month period ended March 31, 2008, the Company granted 154,000
deferred stock awards to employees. The deferred stock awards entitle the employee to receive shares of Company common stock upon the approval of Entereg for POI by the FDA. The fair value of the deferred stock awards granted during the
three-month period was $0.7 million. For the three-month period ended March 31, 2008, compensation expense related to other common stock awards issued in 2007 was $0.2 million.

7. RESTRUCTURING CHARGE

On December 14, 2006, the Company announced that it had disbanded its
sales force of 35 people and had made other selected reductions to the Companys work force. This reduction was due to the November 2006 FDA approvable letter and subsequent delay to possible market entry for the Companys lead product,
Entereg.

The reduction in the Companys work force resulted in a severance charge of $2.5 million, of which none was paid in
2006. Approximately $2.5 million was paid out during the year ended December 31, 2007. The accrued severance balance at December 31, 2007 was approximately $15,000, which was paid out during the three months ended March 31, 2008.

8. LEGAL PROCEEDINGS

On
April 21, 2004, a lawsuit was filed in the United States District Court for the Eastern District of Pennsylvania against the Company, one of its directors and certain of its officers seeking unspecified damages on behalf of a putative class of
persons who purchased Company common stock between September 23, 2003 and January 14, 2004. The complaint alleges violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, in connection with the



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announcement of the results of certain studies in the Companys Phase 3 clinical trials for Entereg, which allegedly had the effect of
artificially inflating the price of the Companys common stock. This suit has been consolidated with three subsequent actions asserting similar claims under the caption: In re Adolor Corporation Securities Litigation,No. 2:04-cv-01728. On December 29, 2004, the District Court issued an order appointing the Greater Pennsylvania Carpenters Pension Fund as Lead Plaintiff. The appointed Lead Plaintiff filed a consolidated amended complaint on
February 28, 2005. That complaint purported to extend the class period, so as to bring claims on behalf of a putative class of Adolor shareholders who purchased stock between September 23, 2003 and December 22, 2004. The complaint
also adds as defendants the Companys Board of Directors asserting claims against them and the other defendants for violation of Section 11 and Section 15 of the Securities Act of 1933 in connection with the Companys public
offering of stock in November 2003. The Company and the management and director defendants moved to dismiss the complaint on April 29, 2005. The plaintiffs responded to the motion to dismiss on June 28, 2005, and the defendants reply
was filed on August 12, 2005. The Company believes that the allegations are without merit and intends to vigorously defend the litigation.

On August 2, 2004, two shareholder derivative lawsuits were filed in the United States District Court for the Eastern District of Pennsylvania, purportedly on behalf of the Company, against its directors and certain of its officers
seeking unspecified damages for various alleged breaches of fiduciary duty and waste. The allegations are similar to those set forth in the class action complaints, involving the announcement of the results of certain studies in the Companys
Phase 3 clinical trials for Entereg. On November 12, 2004, the derivative plaintiff filed an amended complaint. On December 13, 2004, the Company filed a motion challenging the standing of the derivative plaintiff to file the
derivative litigation on its behalf. On December 13, 2004, the Companys directors and officers moved to dismiss the complaint for the failure to state a claim. Plaintiffs responded to the Companys and the directors and
officers motions on January 27, 2005. The Company and the directors and officers filed reply briefs on February 18, 2005.

The Company has not accrued any amount in the financial statements as of March 31, 2008 for these matters.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Various statements made in this Quarterly Report on Form 10-Q are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include those which express plan, anticipation,
intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. We have based these forward-looking statements on our current expectations and projections about future events and they are subject to
risks and uncertainties, known and unknown, which could cause actual results and developments to differ materially from those expressed or implied in such statements. These forward-looking statements include statements about the following:



| |  |  | the status and anticipated timing of regulatory review and approval, if any, for our product candidates;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | our product development efforts, including results from clinical trials;
| | - |  | ------------------------------------------------------------------------



| |  |  | anticipated dates of clinical trial initiation, completion and announcement of trial results by us and our collaborators;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | anticipated trial results and regulatory submission dates for our product candidates by us and our collaborators;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | analysis and interpretation of data by regulatory authorities;
| | - |  | --------------------------------------------------------------



| |  |  | anticipated operating losses and capital expenditures;
| | - |  | ------------------------------------------------------



| |  |  | our intentions regarding the establishment of collaborations;
| | - |  | -------------------------------------------------------------



| |  |  | anticipated efforts of our collaborators;
| | - |  | -----------------------------------------



| |  |  | estimates of the market opportunity and the commercialization plans for our product candidates;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | our intention to rely on third parties for manufacturing;
| | - |  | ---------------------------------------------------------



| |  |  | the scope and duration of intellectual property protection for our products;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the scope of third-party patent rights;
| | - |  | ---------------------------------------



| |  |  | our ability to raise additional capital; and
| | - |  | --------------------------------------------



| |  |  | our ability to acquire or in-license products or product candidates.
| | - |  | --------------------------------------------------------------------

In some cases, you can identify forward-looking statements by terminology such as may, will, should,
could, would, expect, plan, anticipate, believe, estimate, target, goal, continue, or the negative of such terms or other similar
expressions. Factors that might cause or contribute to differences include, but are not limited to, those discussed in Part II Item 1A. Risk Factors of this Quarterly Report and discussed in our other Securities and Exchange Commission
(SEC) filings.

We urge you to carefully review and consider the disclosures found in these filings, all of which are available
in the SEC EDGAR database at www.sec.gov. Given the uncertainties affecting pharmaceutical companies in the development stage, you are cautioned not to place undue reliance on any such forward-looking statements, any of which may turn out to be
wrong due to inaccurate assumptions, unknown risks, uncertainties or other factors. We undertake no obligation to (and expressly disclaim any such obligation to) publicly update or revise the statements made herein or the risk factors that may
relate thereto whether as a result of new information, future events or otherwise.

The following discussions should be read in conjunction
with our financial statements and related notes thereto included elsewhere in this Quarterly Report and the Risk Factors in Part II Item 1A. of this Quarterly Report.

Company Overview

We are a development stage
biopharmaceutical corporation that was formed in 1993. Since inception, we have specialized in the discovery and development of prescription pain management products and expect to commercialize products that are successfully developed. We have a
number of product candidates in various stages of development, ranging from preclinical studies to pivotal clinical trials. Our most advanced product candidate, Entereg® (alvimopan),
is designed to selectively block the unwanted effects of opioid analgesics on the gastrointestinal (GI) tract. For the global development and commercialization of Entereg as a monotherapy, we are collaborating with Glaxo Group
Limited (Glaxo) in two indications. We have a pending New Drug Application (NDA) with the Food and Drug Administration (FDA) for Entereg for the proposed indication of acceleration of time to upper and
lower gastrointestinal recovery following partial large or small bowel resection surgery with primary anastomosis. The Prescription Drug User Fee (PDUFA) date for that NDA is May 10, 2008. We are also developing delta opioid
agonists in collaboration with Pfizer Inc. (Pfizer). One of the delta opioid agonists is in Phase 2a clinical testing and one is in Phase 1 clinical testing. We have additional product candidates in preclinical development for the
treatment of moderate-to-severe pain conditions.



Opioid
analgesics provide pain relief by stimulating opioid receptors located in the central nervous system. There are, however, opioid receptors throughout the body, including the GI tract. By binding to the receptors in the GI tract, opioid analgesics
can slow gut motility and disrupt normal GI function that allows for the passage, absorption and excretion of ingested solid materials. This disruption can cause patients to experience significant discomfort and abdominal pain and may result in
their reducing or eliminating their pain medication.

Enteregis a small molecule, mu-opioid receptor antagonist intended to
block the adverse side effects of opioid analgesics on the GI tract without affecting analgesia. Entereghas been under development for both acute and chronic conditions. The acute indication is for the management of post operative ileus
(POI), a GI condition characterized by the slow return of gut function that can result from GI or other surgeries. The chronic indication is for the treatment of opioid bowel dysfunction (OBD), which is a condition
characterized by a number of GI symptoms, including constipation, that often results from chronic use of opioid analgesics to treat persistent pain conditions.

In April 2002, we entered into a collaboration agreement with Glaxo for the exclusive worldwide development and commercialization of Entereg for certain indications. We are responsible for the development of
acute indications, such as POI, and Glaxo is responsible for the development of chronic indications, such as OBD. In the United States, we and Glaxo are co-developing Enteregand intend to share profits that result from the sale of the
product. For commercial sales of Enteregfor POI in the United States, we would receive 45% and Glaxo would receive 55% of the net sales less certain agreed upon costs, subject to certain adjustments. After the first three years, each
partys share would become 50%. For commercial sales of Enteregfor OBD in the United States, we would receive 35% and Glaxo would receive 65% of the net sales less certain agreed upon costs, subject to certain adjustments. Under the
collaboration agreement, we have the right to convert our right to receive a profit share for OBD in the United States to a royalty on net sales of 20%. Outside the United States, Glaxo is responsible for the development and commercialization of
Entereg, and we would receive royalties on net sales. We may receive additional milestone payments under the collaboration agreement upon the successful achievement, if any, of certain clinical and regulatory objectives, including up to $40.0
million related to the POI indication and up to $25.0 million related to the OBD indication.

POI Development Program

Regulatory Overview

Our pending NDA with the FDA for Entereg is for the proposed indication of acceleration of time to upper and lower gastrointestinal recovery following partial large or small bowel
resection surgery with primary anastomosis. The PDUFA date for that application has been extended from February 10, 2008 to May 10, 2008. On January 23, 2008, the FDAs Gastrointestinal Drug Advisory Committee (GIDAC
or the Committee) met to review Entereg for that proposed indication. The recommendations of the Committee are not binding on the FDA, but are considered by the FDA as it completes its review of the pending NDA. The Committee
voted 9-6 that the overall benefits of treatment with Entereg outweighed potential risks for our proposed indication for short-term, in-hospital use. The Committee voted 13-0 with two abstentions that the efficacy results from the submitted
studies in POI were clinically meaningful. The Committee voted 8-6 with one abstention that based on the currently available cardiovascular events data observed in the long-term (12 month) safety study in patients with OBD, Study 014, there were
concerns for the use of alvimopan 12 mg capsules in the short-term proposed indication. The GIDAC also voted 14-0 with one abstention that our proposed risk management plan was not adequate to address potential risks. We submitted a revised risk
management program to the FDA in February 2008.



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We originally filed an NDA for Entereg 12 mg capsules for the management of POI in June 2004,
which included four Phase 3 clinical studies (Study 302, 308, 313 and 306). An additional Phase 3 clinical study conducted in Europe, Australia, and New Zealand by Glaxo evaluating Entereg in POI (Study 001) was submitted to the FDA in April
2005. In July 2005, we received our first approvable letter from the FDA for this pending NDA. In May 2006, we submitted a complete response to the July 2005 approvable letter which included results from an additional clinical study in POI, Study
314. Following review of this complete response, the FDA issued a second approvable letter in November 2006. In August 2007, we submitted a complete response to the November 2006 approvable letter, which included data from a long-term (12-month)
safety study conducted in patients with OBD, Study 014, and a risk management plan. In January 2008, the FDA reviewed the safety and efficacy of Entereg for the proposed indication with the GIDAC. The current PDUFA date for this pending NDA
is May 10, 2008. There can be no assurance that the FDA will approve the pending NDA for Entereg at the May 10, 2008 PDUFA date or ever.

In April 2007, we announced the results from Study 014, a Phase 3 long-term safety study of alvimopan (Entereg) in patients taking opioids for chronic non-cancer pain and experiencing OBD, and the impact those
results have on the current development program. Results from Study 014 showed numerically more myocardial infarctions and all cardiovascular serious adverse events reported by patients treated with Entereg compared to placebo. The results of
Study 014 also showed an imbalance in the incidence of neoplasms (benign, malignant, skin cancers and unspecified, including polyps), the incidence of malignant neoplasms, and an increase in the incidence of fractures reported in patients receiving
Entereg, compared to placebo. At that time, Glaxo put the OBD development program on-hold and withdrew the protocol for an additional Phase 3 safety and efficacy study in patients with OBD (Study 015). In addition, Glaxo stopped Study 101684,
an extension of Study 008 in a cancer pain population, and we stopped Study 228, a study of our product candidate that combines alvimopan and an opioid analgesic. In June 2007, the FDA placed the alvimopan Investigational New Drug Applications
(INDs) on clinical hold pending submission and analysis of additional information and notification by the FDA that clinical studies with alvimopan may resume. We and Glaxo currently have no studies ongoing with alvimopan. Our request for
removal of the clinical hold is currently pending. There can be no assurance the FDA will lift the clinical hold on the alvimopan INDs.

Clinical Overview

Our Entereg POI Phase 3 clinical program in support of the NDA submitted in June 2004 included
four studies. Three of these studies (POI 14CL302, POI 14CL308 and POI 14CL313) were double-blind, placebo-controlled multi-center studies, each designed to enroll patients scheduled to undergo certain types of major abdominal surgery and receiving
opioids for pain relief. Under the protocols, patients were randomized into three arms to receive placebo, 6 mg or 12 mg doses of Entereg. The primary endpoint in these three efficacy studies was time to recovery of GI function (GI3), a
composite measure of the time to recovery of both upper and lower GI function, as defined by time to tolerability of solid foods, and time to first flatus or first bowel movement, whichever occurred last. These studies also measured GI function by
GI2, a composite measure of the time to recovery of both upper and lower GI function, as defined by tolerability of solid foods and time to first bowel movement, whichever occurred last. The fourth POI clinical study in our Phase 3 program, POI
14CL306, was a double-blind, placebo-controlled multi-center observational safety study under which patients were randomized to receive either Entereg 12 mg (413 patients) or placebo (106 patients). Glaxo also completed a Phase 3 study in
Europe, Australia and New Zealand (Study 3B 767905/001), Study 001, evaluating Entereg in POI and measuring both GI3 and GI2 endpoints. Following our first approvable letter in July 2005 from the FDA, we completed an additional study in
support of our POI NDA, Study 314, in bowel resection patients. The primary endpoint of Study 314 was time to recovery of GI function as measured by GI2. We submitted the results of Study 314 to the FDA in May 2006 in a complete response to the
FDAs July 2005 approvable letter.

At its January 23, 2008 meeting, the GIDAC voted 13 to 0 with two abstentions that the
efficacy results from the submitted POI studies in support of the NDA for Entereg were clinically meaningful. The minutes of the GIDAC report that the GI2 endpoint, where patients are ready to be discharged, was the most important endpoint.

OBD Clinical Development Program

In April 2007, we and Glaxo announced the preliminary results for Study 014 and also announced that the current development program for OBD was being put on-hold and the Special Protocol Assessment that had been
submitted to the FDA for an additional Phase 3 safety and efficacy study in patients with OBD (Study 015) was being withdrawn by Glaxo. At that time, Glaxo stopped Study 101684, an extension of Study 008 in a cancer pain population, which had 15
patients receiving treatment.



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Additionally, on June 11, 2007, we and Glaxo announced that the FDA had placed the alvimopan INDs on
clinical hold pending submission and analysis of the complete clinical data from Study 014, Study 101684 and the final study reports from the two-year carcinogenicity studies in mice and rats. We and Glaxo submitted complete responses to the FDA
requesting a release of the clinical hold for all alvimopan INDs. In September 2007, we announced that the FDA had informed us that it needed additional time to complete its review of the submissions for release of the clinical hold on the alvimopan
INDs and as a result, the clinical hold for all alvimopan INDs remains in effect. The INDs will remain on clinical hold until the FDA has completed its review and notified us and Glaxo that clinical studies with alvimopan may resume. There can be no
assurance that the FDA will lift the clinical hold allowing us and Glaxo to resume clinical testing of alvimopan.

Study
014. In April 2007, we and Glaxo announced the preliminary results from Study 014. Study 014 was a Phase 3, double-blind, placebo-controlled (12 month) study designed to evaluate the long-term safety and tolerability of Entereg
0.5 mg twice daily in patients taking opioids for chronic non-cancer pain and experiencing OBD. A total of 805 patients were enrolled into the study and randomized 2:1; a total of 538 patients received alvimopan and 267 received
placebo. Results from Study 014 showed numerically more myocardial infarctions in patients treated with alvimopan as compared with patients treated with placebo and in all cardiovascular serious adverse events reported by patients treated with
Entereg as compared with patients treated with placebo. Study 014 also showed an imbalance in the incidence of neoplasms (benign, malignant, skin cancers and unspecified, including polyps), malignant neoplasms and fractures reported in
patients receiving Entereg compared to patients receiving placebo.

Other OBD Studies. Glaxo has conducted several other
clinical studies of Entereg for the treatment of OBD in patients taking opioid analgesics for persistent pain conditions. In September 2006, we and Glaxo announced the top-line results from two Phase 3 registration studies, Studies
SB-767905/012 (Study 012) and SB-767905/013 (Study 013) of alvimopan for the treatment of OBD in patients with chronic non-cancer pain. Study 012 enrolled 518 patients with chronic non-cancer pain who had experienced symptoms of OBD. This study
achieved statistical significance for the primary endpoint, the proportion of patients who had a weekly average of three or more spontaneous bowel movements (SBMs) and an increase from baseline of one or more SBMs a week over
the 12-week treatment period in patients treated with alvimopan 0.5 mg twice daily. Study 013 enrolled 485 patients with chronic non-cancer pain and had the same primary endpoint as Study 012. The Study 013 results were not statistically
significant.

Combination Product Program

We have been developing an analgesic product candidate that combines alvimopan and an opioid analgesic. This combination is intended to produce the pain relief of an opioid while reducing constipating side effects.
During the second quarter of 2006, we commenced a Phase 2 dose ranging study in which alvimopan was co-administered with hydrocodone/APAP, Study 228. Based on the data from Study 014, we suspended enrollment in Study 228 in rotator cuff surgery
patients. During the second quarter of 2007, we discontinued Study 228.

We also filed an IND for a co-formulated hydrocodone/APAP and
alvimopan product and have completed a Phase 1 pharmacokinetic study which showed comparable drug levels in the co-formulated product and co-administered products.

We are not currently conducting clinical studies in the Combination Product Program while the alvimopan INDs remain on clinical hold.

Delta Agonists

Through a proprietary research platform based on cloned, human opioid receptors, we
have identified a series of novel, orally active delta agonists that selectively stimulate the delta opioid receptor. The delta receptor is one of three opioid receptors that modulate pain; the other receptors being the
mu and kappa receptors. Today, all marketed opioid drugs interact with the mu receptors in the brain and spinal cord. On the basis of preclinical evaluation in animal models of human conditions, one might expect a delta
agonist to show effect in inflammatory pain, among other pain conditions. In addition, delta agonists are thought to modulate other biological processes that may manifest themselves in disease states or conditions such as overactive bladder
and depression.



On December 4, 2007, we entered into an
exclusive worldwide license and collaboration with Pfizer to develop and commercialize ADL5859 and ADL5747, proprietary delta opioid receptor agonist compounds for the treatment of pain. Additional delta compounds and additional
indications for those compounds may be added to the collaboration on terms specified in the agreement. The collaboration agreement provides for the establishment of a joint steering committee to guide the development and commercialization of the
products. The collaboration agreement also provides that we will be responsible for IND filings and Phase 1 and Phase 2a clinical studies and Pfizer will be responsible for subsequent worldwide development and all regulatory approvals and
commercialization of the products. The companies will share external development expenses in support of regulatory filings in the United States with 60% paid by Pfizer and 40% paid by us. Expenses for development activities required for regulatory
filings outside the United States are the responsibility of Pfizer. Upon commercialization of products, we will share in the net profits/net losses, as defined in the agreement, in the United States with 60% paid to Pfizer and 40% paid to us, and we
will be entitled to receive royalty payments for net sales (as defined in the agreement) of products outside of the United States. We retained an option to co-promote the products in the United States.



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ADL5859 Clinical Development Program. One of the delta compounds we are developing in
collaboration with Pfizer is ADL5859. We have conducted Phase 1 clinical testing of ADL5859 in single and multi-dose administration in healthy volunteers to investigate the safety, tolerability and pharmacokinetics of ADL5859. We are now in Phase 2a
clinical testing of ADL5859 in studies designed to explore the analgesic efficacy of ADL5859.

Study 33CL230.Study 33CL230 was
a randomized double-blind, single-dose, active and placebo controlled parallel group study of ADL5859 for the treatment of acute pain after surgical removal of impacted third molars. The active control in Study 33CL230 was ibuprofen. The study
enrolled 201 subjects. The primary endpoint for the study was a measure of pain relief. Top-line results from Study 33CL230 indicated that ADL5859 was generally well tolerated, but that ADL5859 showed no efficacy signal in this model.

Study 33CL232. Study 33CL232 is a randomized placebo and active controlled study being conducted to explore the analgesic efficacy of ADL5859
in subjects with pain associated with rheumatoid arthritis. Study 33CL232, which is expected to enroll approximately 60 subjects, is scheduled to complete a single-dose phase and a multiple-dose phase of the study. The active control is naproxen. In
the single-dose phase of the study, the primary outcome is the average difference between baseline and post-dose lower extremity pain intensity over six hours after repeated treadmill walking. In the multiple-dose phase, the primary outcome is mean
daily lower extremity pain intensity score over two weeks.

Study 33CL231. Study 33CL231 is a randomized double-blind active
and placebo controlled parallel group study of ADL5859 being conducted to explore the analgesic efficacy of ADL5859 in treating pain associated with diabetic peripheral neuropathy. Study 33CL231 is expected to enroll approximately 210 subjects.
Under the protocol, following a seven-day baseline period, subjects are to be randomized to receive a four-week treatment of either placebo, ADL5859, or an active control, duloxetine. The primary measure of efficacy for the study is the change in
mean pain intensity score.



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ADL5747 Clinical Development Program

We are also developing ADL5747 in collaboration with Pfizer. We are conducting Phase 1 clinical testing of ADL5747 in healthy volunteers to investigate
the safety, tolerability and pharmacokinetics of ADL5747.

Discovery / In-Licensing

Our pain research efforts initially focused on designing small molecules to target peripheral opioid receptors as a means of avoiding the centrally
mediated side effects of currently available opioid analgesics. While work continues on the selective targeting of peripheral opioid receptors, new research is using advancements in molecular biology and medicinal chemistry to design molecules to
avoid prototypical opioid receptor-induced side effects. In addition, our discovery research team is actively assessing other, non-opioid pain targets. The overall goal of these programs is to develop medications that produce pain relief equal to or
superior to traditional narcotics, while reducing or eliminating typical narcotic side effects.

We believe there are opportunities to
expand our product portfolio through the acquisition or in-licensing of products and/or product development candidates and intend to continue to explore and evaluate such opportunities.

Competitive Environment

We operate
in a highly regulated and competitive environment. Our competitors include fully integrated pharmaceutical companies and biotechnology companies, universities and public and private research institutions. Many of the organizations competing with us
have substantially greater capital resources, larger research and development staffs and facilities, greater experience in drug development and in obtaining regulatory approvals, and greater manufacturing and marketing capabilities than we do.

Commercialization

We
intend to maintain a strategic marketing group to support our research and development efforts and commercial activities. We do not currently have our own sales force to sell any products we may develop. We had previously built a 35-person sales
force intended to sell Entereg in the hospital market, but disbanded this sales force in December 2006.

In our collaboration
agreement with Glaxo for the POI indication for Entereg, we are required in the launch year to provide a limited number of full-time equivalent sales personnel to sell the product. We engaged a third-party contract sales organization to meet
these requirements. We have a small manufacturing organization to manage our relationships with third parties for the manufacture and supply of products for preclinical, clinical and commercial purposes. We maintain commercial supply agreements with
certain of these third-party manufacturers. We presently do not maintain our own manufacturing facilities.

In June 2004, we entered into a
distribution agreement with Glaxo under which, upon our receipt of regulatory approvals, Glaxo will perform certain distribution and contracting services for Entereg on our behalf for a fee. Outside the United States, we intend to rely on
Glaxo for sales and marketing of Entereg and expect to supply Glaxo with bulk capsules for commercial sale of POI under a supply agreement we entered into with Glaxo in September 2004.

As we develop additional product candidates, we may enter into strategic marketing or co-promotion agreements with, and grant additional licenses to,
pharmaceutical companies to gain access to additional markets both domestically and internationally.

Collaboration and Other Agreements
with Glaxo

In April 2002, we entered into a collaboration agreement with Glaxo for the exclusive worldwide development and
commercialization of Entereg for certain indications. Under the terms of the collaboration agreement, Glaxo paid us a non-refundable and non-creditable signing fee of $50.0 million during the quarter ended June 30, 2002. Additionally, in
the third quarter of 2004, we received and recognized $10.0 million as revenue under this agreement relating to achieving the milestone of acceptance for review of our NDA by the FDA. We may receive additional milestone payments under the
collaboration agreement upon the successful achievement, if any, of certain clinical and regulatory objectives, including up to $40.0 million related to the POI indication and up to $25.0 million related to the chronic OBD indication. The milestone
payments relate to substantive achievements in the development lifecycle and it is anticipated that these will be recognized as revenue if and when the milestones are achieved.



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We and Glaxo have agreed to develop Entereg for a number of acute and chronic indications which
would potentially involve the use of Entereg in in-patient and out-patient settings. In the United States, we and Glaxo are co-developing Enteregand intend to share profits that result from the sale of product. For commercial sales of
Entereg for POI in the United States, we would receive 45% and Glaxo would receive 55% of the net sales less certain agreed upon costs, subject to certain adjustments. After the first three years, each partys share would
become 50%. For commercial sales of Entereg for OBD in the United States, we would receive 35% and Glaxo would receive 65% of the net sales less certain agreed upon costs, subject to certain adjustments. Under the collaboration
agreement, we have the right to convert our right to receive a profit share for OBD in the United States to a royalty on net sales of 20%. We have overall responsibility for development activities for acute care indications such as POI, and Glaxo
has overall responsibility for development activities for chronic care indications such as OBD. Outside the United States, Glaxo is responsible for the development and commercialization of Entereg for all indications, and we would receive
royalties on net sales, if any.

The term of the collaboration agreement varies depending on the indication and the territory. The term of
the collaboration agreement for the POI indication in the United States is ten years from the first commercial sale of Entereg in that indication, if any. Generally, the term for the OBD indication in the United States is fifteen years from
the first commercial sale of Entereg in that indication, if any. In the rest of the world, the term is generally fifteen years from the first commercial sale of Entereg, if any, on a country-by-country and indication-by-indication
basis.

Glaxo has certain rights to terminate the collaboration agreement. Glaxo also has the right to terminate its rights and obligations
with respect to the acute-care indications, or its rights and obligations for the chronic-care indications. Glaxo has the right to terminate the collaboration agreement for breach of the agreement by us or for safety related reasons as defined in
the collaboration agreement. Glaxos rights to terminate the acute-care indications or the chronic-care indications are generally triggered by failure to achieve certain milestones within certain timeframes, adverse product developments or
adverse regulatory events. For example, because the POI product was not commercially sold as of December 31, 2005, Glaxo now possesses the right to terminate the collaboration agreement with respect to the POI product and the OBD chronic
product.

In June 2004, we entered into a distribution agreement with Glaxo under which, upon our receipt of regulatory approvals, Glaxo
will perform certain distribution and contracting services for Entereg on our behalf for a fee. Outside the United States, we intend to rely on Glaxo for sales and marketing of Entereg, and expect to supply Glaxo with bulk capsules for
commercial sale of POI under a supply agreement that we entered into with Glaxo in September 2004.

External expenses for research and
development and marketing activities incurred in the United States by each company are reimbursed by the other party pursuant to contractually agreed percentages. Contract reimbursement amounts owed to us by Glaxo are recorded gross on our
statements of operations as contract revenue. Amounts reimbursable to Glaxo by us are recorded as research and development or marketing expense, as appropriate, on our statements of operations.

License and Collaboration Agreement with Pfizer

On
December 4, 2007, we entered into an exclusive worldwide license and collaboration agreement with Pfizer to develop and commercialize ADL5859 and ADL5747, proprietary delta opioid receptor agonist compounds for the treatment of pain.
Additional delta compounds and additional indications for those compounds may be added to the collaboration on terms specified in the agreement. The collaboration agreement provides for the establishment of a joint steering committee to guide
the development and commercialization of the products. The collaboration agreement also provides that we will be responsible for IND filings and Phase 1 and Phase 2a clinical studies and Pfizer will be responsible for subsequent worldwide
development and all regulatory approvals and commercialization of the products. We retained an option to co-promote the products in the United States.

We received an upfront payment of $30.0 million from Pfizer and reimbursement of $1.9 million for Phase 2 development costs for the compounds that we had incurred prior to entering into the collaboration agreement.
The agreement also provides that we may receive milestone payments of up to $155.0 million for the first compound and $77.5 million for a second compound. The milestone payments would become payable upon achievement of certain clinical, regulatory
and commercial milestones defined in the agreement. The first milestone event defined is commencement of Phase 2b clinical testing. For development expenses in support of regulatory filings in the United States, the companies share external
development expenses with 60% paid by Pfizer and 40% paid by us. Expenses for development activities required for regulatory filings outside the United States are the responsibility of Pfizer. Upon commercialization of products, we will share in the
net profits/net losses, as defined in the agreement, in the United States with 60% paid to Pfizer and 40% paid to us, and we will be entitled to receive royalty payments for net sales (as defined in the agreement) of products outside of the United
States.



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The agreement expires on a country-by-country basis upon expiration of the royalty term in each country,
which term is a minimum of ten years following first commercial sale of a licensed product. We and Pfizer each have the right to terminate the agreement upon a material default of the other party. Pfizer has the right to terminate the agreement for
certain clinical study results as set forth in the agreement. Following completion of Phase 2b studies for ADL5859 and ADL5747, Pfizer has the right to terminate the agreement without cause upon one hundred eighty days written notice to us.

Liquidity and Capital Resources

We have experienced negative operating cash flow since our inception and have funded our operations primarily from the proceeds received from the sale of our equity securities, as well as from amounts received under
collaboration agreements. Cash, cash equivalents and short-term investments were $155.2 million at March 31, 2008 and $167.2 million at December 31, 2007, representing 93.3% and 93.6% of our total assets, respectively. The decrease was
primarily due to the use of cash in the Companys operating activities. We invest excess cash in United States Treasury obligations.

We believe that our current financial resources and sources of liquidity are adequate to fund operations into 2010 based upon our expectations of the level of research and development, marketing and administrative activities necessary to
achieve our strategic objectives.

The following is a summary of selected cash flow information for the three months ended March 31,
2008 and 2007:



|                                          |  |                              |             |   |      |   |             |  
|----------------------------------------- |  | ---------------------------- | ----------- | - | ---- | - | ----------- | -
|                                          |  | Three months ended March 31, |            
|                                          |  | 2008                         |             |   | 2007 |  
|Net loss                                  |  | $                            | (9,055,559  | ) |      | $ | (13,208,451 | )
|Adjustments for non-cash operating items  |  |                              | (2,285,831  | ) |      |   | 1,767,920   |  
|                                          |  |                              |             |   |      |   |             |  
|Net cash operating loss                   |  |                              | (11,341,390 | ) |      |   | (11,440,531 | )
|Net change in assets and liabilities      |  |                              | (619,970    | ) |      |   | (4,469,981  | )
|                                          |  |                              |             |   |      |   |             |  
|Net cash used in operating activities     |  | $                            | (11,961,360 | ) |      | $ | (15,910,512 | )
|                                          |  |                              |             |   |      |   |             |  
|Net cash provided by investing activities |  | $                            | 8,434,197   |   |      | $ | 16,918,017  |  
|                                          |  |                              |             |   |      |   |             |  
|Net cash provided by financing activities |  | $                            | 3,510       |   |      | $ | 27,682      |  
|                                          |  |                              |             |   |      |   |             |  

Net Cash Used in Operating Activities and Operating Cash Flow Requirements Outlook

Overall Cash Outflows

Net operating
cash outflows of $12.0 million for the three-month period ended March 31, 2008 resulted primarily from research and development expenditures associated with our product candidates, including development and manufacturing costs for
Entereg and our delta programs as well as compensation costs, and marketing, general and administrative expenses. The 2008 outflows were partially offset by payments received under the Entereg and delta collaboration
agreements of $1.6 million.

We expect to continue to use cash resources in 2008 to fund operating activities. We expect to continue to
incur operating losses in 2008 and beyond due to continuing research and development expenses relating to our product development programs. We also expect to incur increased sales and marketing costs in connection with any launch of Entereg.
Further, we may license or acquire product candidates which would require additional cash outlays.

Cash Outflows-Internal Research and
Development Costs

Our internal research and development costs for the three months ended March 31, 2008 were $5.0 million after
adjustment for non-cash compensation and depreciation expenses. We expect these costs will increase in 2008 as we continue to invest in research and development programs and increase headcount.

Cash Outflows-External Research and Development Program Costs

External program costs totaled $5.4 million for the three months ended March 31, 2008.

Program
activities in 2008 may include:

Entereg  POI

The FDA PDUFA date for our pending NDA filing for Entereg is May 10, 2008. The extent of future development expense in 2008
and beyond for the program will be determined upon receipt of the FDAs decision with respect to our pending NDA. The POI clinical development program is currently on clinical hold.



19



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Entereg  OBD

In April 2007, we and Glaxo announced the preliminary results from the completed Study 014 and also announced the current development
program for Entereg in OBD is on hold while findings from Study 014 are evaluated. Future spending associated with this program in near-term periods is not estimable at this time. The OBD clinical development program is currently on clinical hold.

Combination Product Program

We have no studies ongoing in our Combination Product Program. The Combination Product clinical development program is currently on clinical hold.

Delta Program

We
completed Phase 1 clinical testing of ADL5859 and are conducting Phase 2a testing in 2008. We are also conducting Phase 1 clinical testing of our second delta compound, ADL5747. We estimate overall spending relating to our delta
program will increase significantly in 2008; however, 60% of external development expenses will be reimbursed to us pursuant to our December 2007 collaboration agreement with Pfizer.

Cash Outflows-Marketing, General and Administrative Expenses

General and administrative expenses totaled $4.4 million for the three-month period ended March 31, 2008, after adjustment for
non-cash compensation and depreciation expenses, and we expect that these expenses will increase in 2008 in connection with any launch of Entereg.

External marketing and sales expenses included in the above amount totaled $0.9 million for the three-month period ended March 31, 2008, and it is estimated that spending in the remainder of 2008 will also
increase significantly in connection with any launch of Entereg.

Cash Flows-Other

We expect cash inflows relating to contract revenues to increase in 2008 due to increased expenses incurred by us which are reimbursable
by Pfizer. Cash inflows relating to interest income are expected to decrease due to declining investment balances.

We also
expect accruals to increase during 2008 as a result of increased spending in the areas of research and development and external marketing and sales.

Further, we may license or acquire product candidates from others which would require additional cash outlays.

Net Cash
Provided By Investing Activities and Investing Requirements Outlook

Net cash provided by investing activities for the three months
ended March 31, 2008 relates primarily to the purchase and maturities of investment securities. Capital expenditures to date in 2008 and in 2007 were primarily for the purchase of laboratory equipment, furniture and fixtures and office
equipment and leasehold improvements associated with our leased facility.

We expect to continue to fund operations through the maturities
of investments in our portfolio. We expect to continue to require investments in information technology, laboratory and office equipment to support our research and development activities, and potential commercialization activities.

Net Cash Provided by Financing Activities and Financing Requirements Outlook

Net cash inflows provided by financing activities were not significant for the three months ended March 31, 2008 and 2007, respectively.

We may never receive regulatory approval for any of our product candidates, generate product sales revenues, achieve profitable operations or generate
positive cash flows from operations, and even if profitable operations are achieved, they may not be sustained on a continuing basis. We have invested a significant portion of our time and financial resources since our inception in the development
of Entereg, and our potential to achieve revenues from product sales in the foreseeable future is dependent largely upon obtaining regulatory approval for and successfully commercializing Entereg, especially in the United States.
Although we received approvable letters from the FDA for Entereg in July 2005 and November 2006, there is no assurance that the FDA will approve Entereg in the future. We expect to continue to use our cash and investments resources to
fund operating and investing activities. We believe that our existing cash, cash equivalents and short-term investments of approximately $155.2 million as of March 31, 2008 will be sufficient to fund operations into 2010.



20



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Results of Operations

This section should be read in conjunction with the discussion above under Liquidity and Capital Resources.

Contract Revenues. Contract revenues were $6.2 million and $1.8 million for the three months ended March 31, 2008 and 2007, respectively. The increase was primarily the result of an increase in
amortization of upfront fees associated with the Pfizer collaboration agreement of $3.5 million and an increase in expenses incurred by us and that are reimbursable by Pfizer under our collaboration agreement of $0.8 million.

Research and Development Expenses. Our research and development expenses consist primarily of salaries and other personnel-related expense,
costs of clinical trials, costs to manufacture product candidates, technology licensing costs, laboratory supply costs and facility-related costs. Research and development expenses were $11.4 million for the three months ended March 31, 2008 as
compared to $11.6 million for the three months ended March 31, 2007.

Our research and development expenses can be identified as
internal or external expenses. Internal expenses include expenses such as personnel, laboratory and overhead related expenses. These expenses totaled $6.0 million and $6.3 million for the three months ended March 31, 2008 and 2007,
respectively, and are largely related to our development efforts. External expenses include expenses incurred with clinical research organizations, contract manufacturers, and other third-party vendors and can be allocated to significant research
and development programs as follows:



|                    |  |                              |           |      |   |          
|------------------- |  | ---------------------------- | --------- | ---- | - | ---------
|                    |  | Three months ended March 31,
|                    |  | 2008                         |           | 2007
|Entereg Program     |  | $                            | 1,708,744 |      | $ | 2,314,751
|Combination Program |  |                              | 26,204    |      |   | 625,298  
|Delta Program       |  |                              | 1,373,445 |      |   | 1,892,458
|Other Programs      |  |                              | 2,315,771 |      |   | 485,356  
|                    |  |                              |           |      |   |          
|Total               |  | $                            | 5,424,164 |      | $ | 5,317,863
|                    |  |                              |           |      |   |          

External expenses were $5.4 million and $5.3 million for the three months ended March 31,
2008 and 2007, respectively. Expense decreases in the Entereg program of $0.6 million and in the combination program of $0.6 million were the result of reduced spending as a result of the alvimopan INDs being on clinical hold. In
addition, the decrease of $0.5 million in the delta program was due to reduced manufacturing costs as compared to the quarter ended March 31, 2007. These decreases were offset by an increase of $1.8 million in our other preclinical programs.

There are significant risks and uncertainties inherent in the preclinical and clinical studies associated with each of our research and
development programs. These studies may yield varying results that could delay, limit or prevent a programs advancement through the various stages of product development, and significantly impact the costs to be incurred, and time involved, in
bringing a program to completion. As a result, the cost to complete such programs, as well as the period in which net cash inflows from significant programs are expected to commence, are not reasonably estimable.

Marketing,General and Administrative Expenses. Our marketing, general and administrative expenses for the three months ended March 31,
2008 and 2007 were $5.5 million and $5.8 million, respectively.

The expense decrease in 2008 was a result of decreased personnal expenses,
including stock-based compensation expenses associated with Statement of Financial Accounting Standards No. 123R.

Interest
Income. Our interest income decreased to $1.7 million for the three months ended March 31, 2008 from $2.2 million for the three months ended March 31, 2007. This was due to a decrease in short-term investments resulting from the
use of cash in operating activities and a decline in interest rates.

Other (Expense) Income. Our other expense decreased to
$3,166 for the three months ended March 31, 2008 as compared to other income of $138,190 for the three months ended March 31, 2007. The amount in 2007 primarily represents cash received from the sale of certain Pennsylvania research and
development tax credits.

Net Loss Outlook

We have not generated any product sales revenues, have incurred operating activities since inception and have not achieved profitable operations. Our deficit accumulated during the development stage through
March 31, 2008 aggregated $434.0 million, and we expect to continue to incur substantial losses in future periods.

We expect to
continue to incur operating losses in the remainder of 2008 and beyond due to continuing research and development expenses and increased spending relating to our product development programs, including the delta programs. We also expect to
incur marketing costs in preparation for the potential commercialization of Entereg.

We are highly dependent on the success of our
research, development and licensing efforts and, ultimately, upon regulatory approval and market acceptance of our products under development, particularly our lead product candidate, Entereg. We may never receive regulatory approval for any
of our product candidates, generate product sales revenues, achieve profitable operations or generate positive cash flows from operations, and even if profitable operations are achieved, they may not be sustained on a continuing basis.



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|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Our investment assets consist of U.S.
Treasury obligations. The market value of such investments fluctuates with current market interest rates. In general, as rates increase, the market value of a debt instrument would be expected to decrease. The opposite is also true. To minimize such
market risk, we have in the past and, to the extent possible, will continue in the future, to hold such debt instruments to maturity at which time the debt instrument will be redeemed at its stated or face value. Due to the short duration and nature
of these instruments, we do not believe that we have a material exposure to interest rate risk related to our investment portfolio. The investment portfolio at March 31, 2008 totaled $143.2 million, and the weighted-average interest rate was
approximately 3.36% with maturities of investments ranging up to 12 months.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and Procedures

For the quarterly period ended March 31, 2008, we carried out an evaluation, under the supervision and with the participation of our management,
including our President and Chief Executive Officer and our Vice President, Finance and Chief Financial Officer (the principal finance and accounting officer), of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, as of the end of the period covered by this report.

Our management, including our President and Chief Executive Officer and our Vice President, Finance and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors or
fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met and our disclosure controls and procedures are designed to provide this
reasonable assurance. Based upon the evaluation discussed above, our President and Chief Executive Officer and our Vice President, Finance and Chief Financial Officer concluded that, as of March 31, 2008, our disclosure controls and procedures
were effective at providing such reasonable assurance. Because of inherent limitations in all control systems, no evaluation of control can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have
been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three-month period ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

PART II. OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

On April 21, 2004, a lawsuit was filed in the United States District Court
for the Eastern District of Pennsylvania against us, one of our directors and certain of our officers seeking unspecified damages on behalf of a putative class of persons who purchased our common stock between September 23, 2003 and
January 14, 2004. The complaint alleges violations of Section 10(b) and Section 20(a) of the Exchange Act in connection with the announcement of the results of certain studies in our Phase 3 clinical trials for Entereg, which
allegedly had the effect of artificially inflating the price of our common stock. This suit has been consolidated with three subsequent actions asserting similar claims under the caption: In re Adolor Corporation Securities Litigation,No. 2:04-cv-01728. On December 29, 2004, the District Court issued an order appointing the Greater Pennsylvania Carpenters Pension Fund as Lead Plaintiff. The appointed Lead Plaintiff filed a consolidated amended complaint on
February 28, 2005. That complaint purported to extend the class period, so as to bring claims on behalf of a putative class of Adolor shareholders who purchased stock between September 23, 2003 and December 22, 2004. The complaint
also adds as defendants our Board of Directors asserting claims against them and the other defendants for violation of Section 11 and Section 15 of the Securities Act of 1933 (the Securities Act) in connection with our public
offering of stock in November 2003. We and our management and director defendants moved to dismiss the complaint on April 29, 2005. The plaintiffs responded to the motion to dismiss on June 28, 2005, and the defendants reply was
filed on August 12, 2005. We believe that the allegations are without merit and intend to vigorously defend the litigation.

On
August 2, 2004, two shareholder derivative lawsuits were filed in the United States District Court for the Eastern District of Pennsylvania, purportedly on behalf of us, against our directors and certain of our officers seeking unspecified
damages for various alleged breaches of fiduciary duty and waste. The allegations are similar to those set forth in the class action complaints, involving the announcement of the results of certain studies in our Phase 3 clinical trials for
Entereg. On November 12, 2004, the derivative plaintiff filed an amended complaint. On December 13, 2004, we filed a motion challenging the standing of the derivative plaintiff to



22



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file the derivative litigation on its behalf. On December 13, 2004, our directors and officers moved to dismiss the complaint for the failure to state a
claim. Plaintiffs responded to our and our directors and officers motions on January 27, 2005. We and our directors and officers filed reply briefs on February 18, 2005.

We have not accrued any amount in our financial statements as of March 31, 2008 for these matters.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

As further described herein, our performance and financial results are subject to
risks and uncertainties including, but not limited to, the following specific risks:

We are highly dependent on achieving success in
the clinical testing, regulatory approval and commercialization of our lead product candidate, Entereg, which may never be approved for commercial use.

We have invested a significant portion of our time and financial resources since our inception in the development of Entereg, and our potential to achieve revenues from product sales in the foreseeable future
is dependent upon obtaining regulatory approval for and successfully commercializing Entereg, especially in the United States. Prior to commercialization of Entereg in the United States for any indication, the FDA would have to approve
Entereg for commercial sale. Entereg has been under development in two indications, POI and OBD. With respect to POI, we filed an NDA with the FDA in 2004 and have received two approvable letters from the FDA. The FDA is currently
reviewing our NDA for the acceleration of time to upper and lower gastrointestinal recovery following partial large or small bowel resection surgery with primary anastamosis and we expect an FDA action on that application by the current PDUFA date
of May 10, 2008. The FDAs GIDAC reviewed the safety and efficacy ofEntereg for this short-term, in-hospital use on January 23, 2008. While the GIDAC voted 9 to 6 that the overall benefits of treatment with Entereg in
the indication outweighed potential risks, the GIDACs recommendation is not binding on the FDA. The GIDAC expressed, by a vote of 8 to 6 with one abstention, that based on the currently available cardiovascular events data observed in the
long-term (12 month) safety study in patients with OBD, Study 014, there were concerns for the use of alvimopan 12 mg capsules in the short-term proposed indication. At the GIDAC meeting, there was concern expressed that follow-up in the POI studies
was inadequate. The GIDAC also voted 14 to 0 with one abstention that our proposed risk management plan was not adequate to address the potential risks. These concerns may make it more difficult for us to receive approval of our NDA for
Entereg from the FDA. Even if we receive FDA approval, a risk management plan acceptable to the FDA may make it difficult for us to commercialize Entereg. There is no assurance that the FDA will approve our NDA for Entereg by
the May 10, 2008 PDUFA date or ever.

With respect to OBD, the results from Study 014, a Phase 3 long-term safety study of alvimopan
(Entereg) conducted by Glaxo in patients taking opioids for chronic non-cancer pain and experiencing OBD showed numerically more myocardial infarctions and all cardiovascular serious adverse events reported by patients treated with
Entereg compared to placebo, an imbalance in the incidence of neoplasms (benign, malignant, skin cancers and unspecified, including polyps), malignant neoplasms and an increase in the incidence of fractures in patients receiving
Entereg compared to placebo. Following these results, the alvimopan INDs were placed on clinical hold by the FDA and there is no assurance that the clinical hold will be lifted by the FDA. The clinical hold would have to be lifted before
additional clinical testing of Entereg in OBD could resume.

Even if we are able to achieve regulatory approval of Entereg for
use in POI, a risk management plan may adversely affect the commercial prospects for Entereg.

The November 2006 approvable letter
for the NDA for Entereg in POI indicated that we would need to develop a risk management plan. The GIDAC voted unanimously that the risk management plan we submitted in our August 2007 complete response was inadequate. We submitted a revised
risk management program in February 2008. There is no assurance that our revised risk management program will be acceptable to the FDA. To address potential safety concerns, the FDA may require that a risk management plan have significant
restrictions on use of Entereg which would make it more difficult, burdensome and costly to administer. There is a risk that a risk management plan that would be acceptable to the FDA would materially adversely affect the commercial prospects
for Entereg if it is approved for use in bowel resection surgery.

The FDA has placed the Entereg INDs on complete clinical
hold and we will not be able to conduct additional clinical testing of Entereg until the FDA lifts this complete clinical hold.

In
June 2007, the FDA placed the EnteregINDs on complete clinical hold. We and Glaxo submitted complete responses to the FDA requesting a release of the clinical hold for all alvimopan INDs. The complete responses were received by the FDA on
August 13, 2007. In September 2007, the FDA informed us that it needed additional time to complete its review of the submission for release of the clinical hold on alvimopan and as a result, the clinical hold for all alvimopan INDs remains in
effect. The FDA did not indicate a time frame within which its review would be completed. There can be no assurance that we will be able to provide adequate data and analysis to satisfy the FDA that the clinical hold should be lifted.



23



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There can be no assurance that the FDA will lift the clinical hold on the alvimopan INDs and allow clinical testing of alvimopan to resume. Additional
clinical testing in OBD will be required to support any future NDA filing for use of Entereg in OBD. If the FDA does not lift the clinical hold, we and Glaxo will not be able to conduct any such additional clinical testing.

It is possible that Entereg may not be successfully developed for chronic use.

In April 2007, the current development plan for OBD was put on-hold while findings from the long-term safety study, Study 014, were evaluated. In June
2007, the FDA placed the EnteregINDs on clinical hold. Clinical studies with Entereg may not resume until the FDA has lifted the clinical hold. We may be unable to provide the FDA with the information the FDA requires to lift the
clinical hold. There is a risk that OBD clinical development remains on hold indefinitely or that further development of Entereg in OBD is not conducted. Results from Study 014 showed an increase in myocardial infarctions and all
cardiovascular serious adverse events reported by patients treated with Entereg compared to placebo. The results of Study 014 also showed an imbalance in the incidence of neoplasms (benign, malignant, skin cancers and unspecified, including
polyps), malignant neoplasms and an increase in the incidence of fractures in patients receiving Entereg compared to placebo. These findings may make it difficult to design and conduct further clinical investigations that would have the
potential to lead to FDA approval in this indication. Even if we are able to design studies acceptable to the FDA, it may be difficult to recruit patients for OBD studies.

In addition, in September 2006, we along with Glaxo announced the results from two identically designed Phase 3 registration studies in OBD in patients
with chronic non-cancer pain conducted by Glaxo (Studies 012 and 013). Study 012 achieved statistical significance in its primary endpoint while Study 013 did not achieve statistical significance in its primary endpoint. We also announced top-line
results from a Phase 2b investigation of alvimopan in patients with cancer pain treated with opioid analgesics. The results in the primary endpoints for this Phase 2b study were not statistically significant. These mixed efficacy results may make it
more difficult to achieve a positive Phase 3 study in OBD.

If we are unable to successfully commercialize Entereg, our ability to
generate revenues will be impaired and our business will be harmed.

We have not yet commercialized any products or technologies,
and we may never do so. If Entereg is not approved by the FDA, our ability to achieve revenues from product sales will be impaired and our stock price may be materially and adversely affected. FDA approval is contingent on many factors,
including clinical trial results and the evaluation of those results. Even if Entereg is approved by the FDA for marketing, we will not be successful unless Entereg gains market acceptance. The degree of market acceptance of
Entereg will depend on a number of factors, including:



| |  |  | the breadth of the indication for which Entereg may receive approval;
| | - |  | ---------------------------------------------------------------------



| |  |  | the risk management plan;
| | - |  | -------------------------



| |  |  | the interpretation by the medical community of the safety and clinical efficacy of Entereg;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | the potential advantages of Entereg over competitive products; and
| | - |  | ------------------------------------------------------------------



| |  |  | the pricing and reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations and other plan
administrators.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Physicians, patients, payors or the medical community in general may be unwilling to accept, utilize or
recommend Entereg.

We are dependent on our collaborators to perform their obligations under our collaboration agreements.

In April 2002, we and Glaxo entered into a collaboration agreement for the exclusive worldwide development and commercialization of
Entereg for certain indications. We and Glaxo agreed to develop Entereg for a number of indications, both acute and chronic, which would potentially involve the use of Entereg in in-patient and out-patient settings. In the
United States, we have the right to co-develop and to co-promote Entereg with Glaxo, and share development expenses and commercial returns, if any, pursuant to contractually agreed percentages. We have overall responsibility for the
development of acute care indications such as POI, and Glaxo has overall responsibility for the development of chronic care indications such as OBD.

In December 2007, we entered into an exclusive worldwide license and collaboration agreement with Pfizer to develop and commercialize ADL5859 and ADL5747, proprietary delta opioid receptor agonist compounds for
the treatment of pain. Additional delta compounds and additional indications for those compounds may be added to the collaboration on terms specified in the agreement. The collaboration agreement provides for the establishment of a joint
steering committee to guide the development and commercialization of the products. The collaboration agreement also provides that we will be responsible for IND filings and Phase 1 and Phase 2a clinical studies and Pfizer will be responsible for
subsequent worldwide development and all regulatory approvals and commercialization of the products.



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Any failure by our collaborators to perform their obligations under the respective agreements could
negatively impact our product candidates being jointly developed and could lead to our loss of potential revenues from product sales and milestones that may otherwise become due under our collaboration agreements and may also delay our achievement,
if any, of profitability. Both of our collaboration partners, Glaxo and Pfizer, have extensive experience in the successful commercialization of product candidates and we rely heavily on their expertise. Our success will largely depend upon the
success of our collaborations with Glaxo for Entereg and Pfizer for ADL5859 and ADL5747 to develop, gain regulatory approvals and commercialize our product candidates.

Any termination of our collaboration agreement by Glaxo or termination of our collaboration agreement by Pfizer could have a material adverse impact on
our ability to develop, obtain regulatory approval for or commercialize our product candidates being developed under the collaborations. Any termination of our collaboration agreements will terminate the funding we receive under the relevant
collaboration agreement and may materially adversely impact our ability to fund further development efforts and may materially adversely impact our rate of development for our development programs.

Our delta agonist program may not lead to successful drug candidates.

To date there have been no selective delta agonist compounds successfully developed and approved by the FDA. We are developing our delta
agonists, ADL5859 and ADL5747, in collaboration with Pfizer. These product candidates are in clinical development. Drug development is a highly uncertain process and our delta product candidates may not be safe or effective and we may not be
successful in our delta agonist development program. Development of delta agonists may not lead to commercially successful drugs.

Patient enrollment may be slow and patients may discontinue their participation in clinical studies, which may negatively impact the results of these studies, and extend the timeline for completion of our and our collaborators
development programs for our product candidates.

The time required to complete clinical trials is dependent upon, among other
factors, the rate of patient enrollment. Patient enrollment is a function of many factors, including:



| |  |  | the size of the patient population;
| | - |  | -----------------------------------



| |  |  | the nature of the clinical protocol requirements;
| | - |  | -------------------------------------------------



| |  |  | the diversion of patients to other trials or marketed therapies;
| | - |  | ----------------------------------------------------------------



| |  |  | the ability to recruit and manage clinical centers and associated trials;
| | - |  | -------------------------------------------------------------------------



| |  |  | the proximity of patients to clinical sites; and
| | - |  | ------------------------------------------------



| |  |  | the patient eligibility criteria for the study.
| | - |  | -----------------------------------------------

We are subject to the risk that patients enrolled in our and our collaborators clinical studies for our product candidates may discontinue their participation at any time during the study as a result of a number
of factors, including withdrawing their consent or experiencing adverse clinical events which may or may not be related to our product candidates under evaluation. We are subject to the risk that if a large number of patients in any one of our
studies discontinue their participation in the study, the results from that study may not be positive or may not support an NDA for regulatory approval of our product candidates.

We may suffer significant setbacks in advanced clinical trials, even after promising results in earlier trials.

Product candidates that appear to be promising at earlier stages of development may not reach the market or be marketed successfully for a number of
reasons, including, but not limited to, the following:



| |  |  | researchers may find during later preclinical testing or clinical trials that the product candidate is ineffective or has harmful side effects;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the number and types of patients available for extensive clinical trials may vary;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | new information about the mechanisms by which a drug candidate works may adversely affect its development;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | one or more competing products may be approved for the same or a similar disease condition, raising the hurdles to approval of the product candidate;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the product candidate may fail to receive necessary regulatory approval or clearance; or
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | competitors may market equivalent or superior products.
| | - |  | -------------------------------------------------------



25



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Our stock price has been volatile, and your investment in our stock could decline in value.

The market price for our common stock has been highly volatile and may continue to be highly volatile in the future. For example,
since January 1, 2006, the closing price of our common stock reached a low of $3.16 per share on November 17, 2007 and a high of $27.45 per share on March 2, 2006.

The market price for our common stock is highly dependent on the success of our product development efforts, and in particular, clinical trial results
and regulatory review results.

The following additional factors may have a significant impact on the market price of our common stock:



| |  |  | developments concerning our collaborations, including our collaboration with Glaxo and our collaboration with Pfizer;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | announcements of technological innovations or new commercial products by our competitors or us;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | developments concerning proprietary rights, including patents;
| | - |  | --------------------------------------------------------------



| |  |  | publicity regarding actual or potential medical results relating to products under development by our competitors or us;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | regulatory developments in the United States and foreign countries;
| | - |  | -------------------------------------------------------------------



| |  |  | litigation;
| | - |  | -----------



| |  |  | economic and other external factors or other disasters or crises;
| | - |  | -----------------------------------------------------------------



| |  |  | period-to-period fluctuations in our financial results; and
| | - |  | -----------------------------------------------------------



| |  |  | the general performance of the equity markets and, in particular, the biopharmaceutical sector of the equity markets.
| | - |  | ---------------------------------------------------------------------------------------------------------------------

Following periods of volatility and decline in the market price of a particular companys securities, securities class action litigation has often
been brought against that company.

We have been named in a purported class action lawsuit and related derivative lawsuits.

On April 21, 2004, a lawsuit was filed in the United States District Court for the Eastern District of Pennsylvania against us, one of
our directors and certain of our officers seeking unspecified damages on behalf of a putative class of persons who purchased our common stock between September 23, 2003 and January 14, 2004. The complaint alleges violations of
Section 10(b) and Section 20(a) of the Exchange Act, in connection with the announcement of the results of certain studies in our Phase 3 clinical trials for Entereg, which allegedly had the effect of artificially inflating the price of
our common stock. This suit has been consolidated with three subsequent actions asserting similar claims under the caption:In re Adolor Corporation Securities Litigation, No. 2:04-cv-01728. On December 29, 2004, the District Court
issued an order appointing the Greater Pennsylvania Carpenters Pension Fund as Lead Plaintiff. The appointed Lead Plaintiff filed a consolidated amended complaint on February 28, 2005. The complaint purported to extend the class period,
so as to bring claims on behalf of a putative class of Adolor shareholders who purchased stock between September 23, 2003 and December 22, 2004. The complaint also adds as defendants our Board of Directors, asserting claims against them
and the other defendants for violation of Section 11 and Section 15 of the Securities Act in connection with our public offering of stock in November 2003. We and our management and director defendants moved to dismiss the complaint on
April 29, 2005. The plaintiffs responded to the motion to dismiss on June 28, 2005, and the defendants reply was filed on August 12, 2005. We believe that the allegations are without merit and intend to vigorously defend the
litigation.

On August 2, 2004, two shareholder derivative lawsuits were filed in the United States District Court for the Eastern
District of Pennsylvania, purportedly on behalf of us, against our directors and certain of our officers seeking unspecified damages for various alleged breaches of fiduciary duty and waste. The allegations are similar to those set forth in the
class action complaints, involving the announcement of the results of certain studies in our Phase 3 clinical trials for Entereg. On November 12, 2004, the derivative plaintiff filed an amended complaint. On December 13, 2004, we
filed a motion challenging the standing of the derivative plaintiff to file the derivative litigation on its behalf. On December 13, 2004, our directors and officers moved to dismiss the complaint for failure to state a claim. Plaintiffs
responded to ours and our directors and officers motions on January 27, 2005. We and our directors and officers filed reply briefs on February 18, 2005.

We may become involved in additional litigation of this type in the future. Litigation of this type is often extremely expensive, highly uncertain and
diverts managements attention and resources.



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If we continue to incur operating losses for a period longer than anticipated, we may be unable to
continue our operations.

We believe our existing cash, cash equivalents and short-term investments as of March 31, 2008 of
$155.2 million will be sufficient to fund operations into 2010. We have generated operating losses since we began operations in November 1994. We expect to continue to generate such losses and will need additional funds that may not be available in
the future. We have not commercialized any products and, as of March 31, 2008, we have incurred a cumulative net loss of $434.0 million. During the calendar years ended December 31, 2007 and 2006, we incurred operating losses of $56.5
million and $79.3 million, and net losses of $48.4 million and $69.7 million, respectively. During the three-month period ended March 31, 2008, we incurred an operating loss of $10.8 million and a net loss of $9.1 million. We expect to incur
substantial losses for at least the next several years and expect that these losses will increase as we expand our research and development and sales and marketing activities. If we fail to obtain the capital necessary to fund our operations, we
will be forced to curtail our operations and we will be unable to develop products successfully. We do not know whether additional financing will be available when needed, or that, if available, we will obtain financing on terms favorable to our
stockholders or to us. If adequate funds are not available on acceptable terms, our ability to fund our operations, products or technologies or otherwise respond to competitive pressures could be significantly delayed or limited, and we may have to
reduce or cease our operations. If additional funds become available, there can be no assurance that we can predict the time and costs required to complete development programs or that we will not substantially exceed our budgets.

We have limited commercial manufacturing capability and expertise. If we are unable to contract with third parties to manufacture our products in
sufficient quantities, at an acceptable cost and in compliance with regulatory requirements, we may be unable to obtain regulatory approvals, or to meet demand for our products.

Completion of our clinical trials and commercialization of our product candidates require access to, or development of, facilities to manufacture a
sufficient supply of our product candidates. We have depended and expect to continue to depend on third parties for the manufacture of our product candidates for preclinical, clinical and commercial purposes. We may not be able to contract for the
manufacture of sufficient quantities of the products we develop, or even to meet our needs for preclinical or clinical development. Our products may be in competition with other products for access to facilities of third parties and suitable
alternatives may be unavailable. Consequently, our products may be subject to manufacturing delays if outside contractors give other products greater priority than our products. It is difficult and expensive to change contract manufacturers for
pharmaceutical products, particularly when the products are under regulatory review in an NDA process. Our dependence upon others for the manufacture of our products may adversely affect our future profit margin and our ability to commercialize
products, if any are approved, on a timely and competitive basis.

To receive regulatory approval for a product, our contract manufacturers
will be required to obtain approval for their manufacturing facilities to manufacture that product, and there is a risk that such approval may not be obtained. We are required to submit, in an NDA, information and data regarding chemistry,
manufacturing and controls which satisfies the FDA that our contract manufacturers are able to make that product in accordance with current Good Manufacturing Practices, or cGMP. Under cGMPs, we and our manufacturers will be required to manufacture
our products and maintain records in a prescribed manner with respect to manufacturing, testing and quality control activities. We are dependent on our third-party manufacturers to comply with these regulations in the manufacture of our products and
these parties may have difficulties complying with cGMPs. The failure of any third-party manufacturer to comply with applicable government regulations could substantially harm and delay or prevent regulatory approval and marketing of our products.

We maintain a relationship with Torcan Chemical Ltd. for the supply of the active pharmaceutical ingredient in Entereg. We maintain
a relationship with Pharmaceutics International Inc. for the supply of Entereg finished capsules, and a relationship with Sharp Corporation for the packaging of Entereg finished capsules. We also rely upon these parties for the
performance of scale-up and other development activities, and for the maintenance and testing of product pursuant to applicable stability programs.

We also expect to depend on third parties to manufacture product candidates we may acquire or in-license, and will need to develop our own internal capabilities and external relationships in that regard.

If we are unable to fully develop sales, marketing and distribution capabilities or enter into agreements with third parties to perform these
functions, we will not be able to commercialize products.

We currently have no internal distribution capability, limited marketing
capabilities, and no internal sales capabilities. In order to commercialize products, if any are approved, we must internally develop sales, marketing and distribution capabilities or make arrangements with third parties to perform these services.
If we obtain regulatory approval, we intend to sell some products directly in certain markets and rely on relationships with established pharmaceutical companies to sell products in certain markets. To sell any of our products directly, we must
develop marketing and sales capabilities with technical expertise, as well as supporting distribution



27



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capabilities. We may not be able to establish these capabilities or relationships with third parties to effectively market and sell our products. To the
extent that we enter into co-promotion or other licensing arrangements, our product revenues may be lower than if we directly marketed and sold our products, and any revenues we receive will depend upon the efforts of third parties, which efforts
may not be successful.

We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory
approval and depend on third parties to conduct our clinical trials.

We have limited experience in managing clinical trials, and
delays or terminations of clinical trials we are conducting or may undertake in the future could impair our development of product candidates. Delay or termination of any clinical trials could result from a number of factors, including adverse
events, enrollment requirements, rate of enrollment, competition with other clinical trials for eligible patients and other factors. We are subject to the risk that subjects enrolled in our clinical studies may discontinue their participation at any
time during the study as a result of a number of factors, including withdrawing their consent or experiencing adverse clinical events which may or may not be judged related to our product candidates under evaluation.

We contract with third parties to conduct our clinical trials, and are subject to the risk that these third parties fail to perform their obligations
properly and in compliance with applicable FDA and other governmental regulations. The failure of any third party to comply with any governmental regulations would substantially harm our development efforts and delay or prevent regulatory approval
of our product candidates.

Our ability to enter into new collaborations and to achieve success under existing collaborations is
uncertain.

We have entered into, and may in the future enter into, collaborative arrangements, including our arrangements with
Glaxo and Pfizer, for the marketing, sale and distribution of our product candidates, which require, or may require, us to share profits or revenues. We may be unable to enter into additional collaborative licensing or other arrangements that we
need to develop and commercialize our product candidates. Moreover, we may not realize the contemplated benefits from such collaborative licensing or other arrangements. These arrangements may place responsibility on our collaborative partners for
preclinical testing, human clinical trials, the preparation and submission of applications for regulatory approval, or for marketing, sales and distribution support for product commercialization. These arrangements may also require us to transfer
certain material rights or issue our equity securities to corporate partners, licensees and others. Any license or sublicense of our commercial rights may reduce our product revenue. Moreover, we may not derive any revenues or profits from these
arrangements.

We cannot be certain that any of these parties, including Glaxo and Pfizer, will fulfill their obligations in a manner
consistent with our best interests. Collaborators may also pursue alternative technologies or drug candidates, either on their own or in collaboration with others, that are in direct competition with us.

Our quarterly operating results may fluctuate significantly depending on the initiation of new collaboration agreements, the activities under current
collaboration agreements or the termination of existing collaboration agreements.

Because our product candidates are in development,
there is a high risk that further development and testing will demonstrate that our product candidates are not suitable for commercialization.

We have no products that have received regulatory approval for commercial sale. All of our product candidates, including Entereg, are in development, and we face the substantial risks of failure inherent in
developing drugs based on new technologies. Our product candidates must satisfy rigorous standards of safety and efficacy before the FDA and foreign regulatory authorities will approve them for commercial use. There can be no assurance that these
standards will remain consistent over time, further complicating our ability to obtain marketing approvals. To satisfy these standards, we will need to conduct significant additional research, animal testing, or preclinical testing, and human
testing, or clinical trials.

Preclinical testing and clinical development are long, expensive and uncertain processes. Failure can occur
at any stage of testing. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. Based on results at any stage of clinical trials, we may decide to discontinue development of our
product candidates. Even if we obtain approval and begin marketing a product, on-going clinical trials, including for other indications, may result in additional information that could affect our ability or decision to continue marketing the drug.

We intend to explore opportunities to expand our product portfolio by acquiring or in-licensing products and/or product development
candidates. Although we conduct extensive evaluations of product candidate opportunities as part of our due diligence efforts, there can be no assurance that our product development efforts related thereto will be successful or that we will not
become aware of issues or complications that will cause us to alter, delay or terminate our product development efforts.



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The concept of developing peripherally acting opioid antagonist drugs is relatively new and may not
lead to commercially successful drugs.

Peripherally acting compounds given to patients as potential drugs are designed to exert
their effects outside the brain and spinal cord, in contrast to centrally acting compounds which are designed to exert their effects on the brain or spinal cord. We are developing Entereg as a peripherally acting mu-opioid antagonist.
An opioid antagonist is designed to block the effects of the opioid at the receptor level; in the case of Entereg, it is designed to block the unwanted effects of opioid analgesics on the gastrointestinal tract. We do not have any historical
or comparative sales data to rely upon to indicate that our peripherally acting opioid antagonist drugs will achieve commercial success in the marketplace. Market acceptance of our product candidates will depend on a number of factors, including:



| |  |  | perceptions by members of the health care community, including physicians, of the safety and efficacy of our product candidates and competitor product candidates;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | cost-effectiveness of our product candidates relative to competing products;
| | - |  | ----------------------------------------------------------------------------



| |  |  | availability of government or third-party payor reimbursement for our product candidates;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | effectiveness of marketing and distribution efforts by us and our collaborators; and
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the risk management plan.
| | - |  | -------------------------

Other
products that are currently sold for pain management are already recognized as safe and effective and have a history of successful sales in the United States and elsewhere. Our new products in this area, if any, will be competing with drugs that
have been approved by the FDA and have demonstrated commercial success in the United States and elsewhere. Drugs that have been on the market have safety and efficacy profiles that are generally better characterized than new drugs.

As our products are used commercially, unintended side effects, adverse reactions or incidents of misuse may occur that could result in additional
regulatory controls, changes to product labeling, adverse publicity and reduced sales of our products.

During research and
development, the use of pharmaceutical products, such as ours, is limited principally to clinical trial patients under controlled conditions and under the care of expert physicians. The commercial use of our products could identify undesirable or
unintended side effects that have not been evident in our clinical trials.

Reduction in the use of opioid analgesics would reduce
the potential market for Entereg.

If the use of drugs or techniques which reduce the requirement for mu-opioids increases,
the demand for Entereg would be decreased. Various techniques to reduce the use of opioids are used in an attempt to reduce the impact of opioid side effects. The use of local anesthetics in epidural catheters during and after surgery with
the continuation of the epidural into the post-operative period can reduce or eliminate the use of opioids. Non-steroidal inflammatory agents may also reduce total opioid requirements. Continuous infusion of local anesthetic into a wound or near
major nerves can reduce the use of opioids in limited types of procedures and pain states. Novel analgesics which act at non-mu-opioid receptors are under development. Many companies have developed and are developing analgesic products that
compete with opioids or which, if approved, would compete with opioids. If these analgesics reduce the use of opioids, it would have a negative impact on the potential market for Entereg.

If competitors develop and market products that are more effective, have fewer side effects, are less expensive than our product candidates or
offer other advantages, our commercial opportunities will be limited.

Other companies have product candidates in development to
treat the conditions we are seeking to ultimately treat and they may develop effective and commercially successful products. Our competitors may succeed in developing products either that are more effective than those that we may develop, or that
they market before we market any products we may develop.

Progenics Pharmaceuticals, Inc. is collaborating with Wyeth Pharmaceuticals to
develop methylnaltrexone for the treatment of indications in both the acute and chronic settings. On April 24, 2008, Progenics Pharmaceuticals, Inc. and Wyeth Pharmaceuticals announced that FDA had approved methylnaltrexone as a subcutaneous
injection for the treatment of opioid-induced constipation in patients with advanced illness who are receiving palliative care when response to laxative therapy has not been sufficient. There are products already on the market for use in treating
irritable bowel syndrome which may be evaluated for utility in opioid induced bowel dysfunction. There may be additional competitive products about which we are not aware. These products could have a material adverse effect on our ability to
successfully market and sell our products.

Our competitors include fully integrated pharmaceutical companies and biotechnology companies,
universities and public and private research institutions. Many of the organizations competing with us have substantially greater capital resources, larger research and development staffs and facilities, greater experience in drug development and in
obtaining regulatory approvals, and greater manufacturing and marketing capabilities than we do. These organizations also compete with us to:



| |  |  | attract qualified personnel;
| | - |  | ----------------------------



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| |  |  | attract partners for acquisitions, joint ventures or other collaborations; and
| | - |  | ------------------------------------------------------------------------------



| |  |  | license proprietary technology.
| | - |  | -------------------------------

Our business could suffer if we cannot attract, retain and motivate skilled personnel and cultivate key academic collaborations.

We are a small company, and our success depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. We may not be successful in attracting or retaining
qualified individuals. Our success also depends on our ability to develop and maintain important relationships with leading academic institutions and scientists. Competition for personnel and academic collaborations is intense. In particular, our
product development programs depend on our ability to attract and retain highly skilled chemists, biologists and clinical development personnel. If we lose the services of any of these personnel, it could impede significantly the achievement of our
research and development objectives. In addition, we will need to hire additional personnel and develop additional academic collaborations as we continue to expand our research and development activities. We do not know if we will be able to
attract, retain or motivate personnel or maintain relationships. We do not maintain key man life insurance on any of our employees.

Companies and universities that have licensed technology and product candidates to us are sophisticated entities that could develop similar products to compete with products we hope to develop.

Licensing product candidates from other companies, universities or individuals does not prevent such parties from developing competitive products for
their own commercial purposes, nor from pursuing patent protection in areas that are competitive with us. The individuals who created these technologies are sophisticated scientists and business people who may continue to do research and development
and seek patent protection in the same areas that led to the discovery of the product candidates that they licensed to us. The development and commercialization by us of successful products is also likely to attract additional research by our
licensors and by other investigators who have experience in developing products for the pain management market. By virtue of their previous research activities, these companies, universities or individuals may be able to develop and market
competitive products in less time than might be required to develop a product with which they have no prior experience.

If we breach
our licensing agreements, we will lose significant benefits and may be exposed to liability for damages.

We may breach our license
agreements and may thereby lose rights that are important. We are subject to various obligations with respect to license agreements, including development responsibilities, royalty and other payments and regulatory obligations. If we fail to comply
with these requirements or otherwise breach a license agreement or contract, the licensor or other contracting party may have the right to terminate the license or contract in whole or in part or change the exclusive nature of the arrangement. In
such event, we would not only lose all or part of the benefit of the arrangement but also may be exposed to potential liabilities for breach in the form of damages or other penalties.

Because we are not certain we will obtain necessary regulatory approvals to market our products in the United States and foreign jurisdictions, we
cannot predict whether or when we will be permitted to commercialize any of our products.

The pharmaceutical industry is subject to
stringent regulation by a wide range of authorities. We cannot predict whether we will obtain regulatory clearance for any product candidate we develop. We cannot market a pharmaceutical product in the United States until it has completed rigorous
preclinical testing and clinical trials and the FDAs extensive regulatory premarket approval process. Satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and
requires the expenditure of substantial resources for research and development, testing, manufacturing, quality control, labeling and promotion of drugs for human use. Since neither the FDA nor international regulatory authorities have approved
peripherally restricted narcotic antagonist drugs or delta agonist drugs for marketing, there is additional uncertainty as to whether our research and clinical approaches to developing new products for the pain management market will lead to
drugs that the FDA will consider safe and effective for indicated uses. Before receiving FDA approval to market a product, we must demonstrate that the product candidate is safe and effective in the patient population that is intended to be treated.
Outside the United States, our ability to market a product is also contingent upon receiving a marketing authorization from the appropriate regulatory authorities, and is subject to similar risks and uncertainties.



30



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We do not know whether our current or future preclinical and clinical studies will demonstrate sufficient
safety and efficacy necessary to obtain the requisite regulatory approvals, or will result in marketable products. Any failure to adequately demonstrate the safety and efficacy of our product candidates will prevent receipt of FDA and foreign
regulatory approvals and, ultimately, commercialization of our product candidates. Regulatory authorities may refuse or delay approval as a result of many other factors, including changes in regulatory policy during the period of product development
and regulatory interpretations of clinical benefit and clinical risk. Regulatory clearance that we may receive for a product candidate will be limited to those diseases and conditions for which we have demonstrated in clinical trials that the
product candidate is safe and efficacious. Even if we receive regulatory approval for our product candidates, we must comply with applicable FDA post marketing regulations governing manufacturing, promotion, labeling, and reporting of adverse events
and other information, as well as other regulatory requirements. Failure to comply with applicable regulatory requirements could subject us to criminal penalties, civil penalties, recall or seizure of products, withdrawal of marketing approval,
total or partial suspension of production or injunction, as well as other regulatory actions against our product or us.

If we market
products in a manner that violates health care fraud and abuse laws, or if we violate government price reporting laws, we may be subject to civil or criminal penalties.

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal health care fraud and abuse laws have
been applied to restrict certain marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes and false claims statutes.

The federal health care program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or in return for purchasing, leasing,
ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid or other federally financed health care programs. This statute has been interpreted to apply to arrangements between
pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the
exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may
not in all cases meet all of the criteria for safe harbor protection from

anti-kickback liability.

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government,
or knowingly making, or causing to be made, a false statement to get a false claim paid.

Recently, several pharmaceutical and other health
care companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as allegedly providing free trips, free goods, sham consulting fees and grants, and other monetary benefits to customers;
reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicaid for non-covered off-label uses; and
submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply
to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturers
products from reimbursement under government programs, criminal fines and imprisonment.

Because of the breadth of these laws and the
narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws.

If Entereg receives marketing approval for POI, we will be required to submit pricing data to the federal government as a condition of selling the product to health care facilities of the Department of Veterans Affairs
(VA), the Department of Defense (DoD), and other federal agencies and of having the product covered under Medicaid. These price reports are used to determine the amount of discounts that the manufacturer must provide to the
VA and DoD health care networks. Pharmaceutical manufacturers have been prosecuted under false claims laws for knowingly submitting inaccurate pricing information to the government to reduce their liability for providing discounts. The rules
governing the calculation of these reported prices are complex. It is possible that our methodologies for calculating these prices could be challenged under false claims laws or other laws.



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The federal Controlled Substances Act might impose significant restrictions, licensing and
regulatory requirements on the manufacturing, distribution and dispensing of certain of our product candidates.

The federal
Controlled Substances Act imposes significant restrictions, licensing and regulatory requirements on the manufacturing, distribution and dispensing of controlled substances. Therefore, we must determine whether the Drug Enforcement Administration
(DEA) would consider any of our product candidates to be a controlled substance.

Facilities that conduct research, manufacture
or distribute controlled substances must be registered to perform these activities and have the recordkeeping, reporting security, control and accounting systems required by the DEA to prevent loss and diversion. Failure to maintain compliance,
particularly as manifested in loss or diversion, can result in significant regulatory action, including civil, administrative or criminal penalties. In addition, many individual state laws also impose separate regulatory restrictions and
requirements, including licenses, recordkeeping and reporting. We believe that it is unlikely that any of our product candidates, other than those which may act on the central nervous system, may be subject to regulation as controlled substances.

We have been developing products that contain alvimopan and an opioid. For products that contain alvimopan and an opioid, we would be
required to comply with the restrictions, licensing and regulatory requirements relating to controlled substances.

We may not obtain
FDA approval to conduct clinical trials that are necessary to satisfy regulatory requirements.

Clinical trials are subject to
oversight by institutional review boards and the FDA and:



| |  |  | must conform with the FDAs good clinical practice regulations;
| | - |  | ---------------------------------------------------------------



| |  |  | must meet requirements for institutional review board oversight;
| | - |  | ----------------------------------------------------------------



| |  |  | must meet requirements for informed consent;
| | - |  | --------------------------------------------



| |  |  | are subject to continuing FDA oversight; and
| | - |  | --------------------------------------------



| |  |  | may require large numbers of test subjects.
| | - |  | -------------------------------------------

Before commencing clinical trials in humans, we must submit to the FDA an IND application. The FDA may decide not to permit the clinical trial to go forward. In addition, we, or the FDA, may suspend ongoing clinical trials at any time if
the subjects participating in the trials are exposed to unacceptable health risks, or if the FDA finds deficiencies in the IND application or the conduct of the trials. Additional clinical testing will be required to support any future NDA filing
for use of Entereg in OBD. If the FDA does not lift the clinical hold, we and GLAXO will not be able to conduct any such additional clinical testing.

It is difficult and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights; we may be sued by others for infringing their intellectual property.

Our commercial success will depend in part on obtaining patent protection on our products and their uses and successfully defending
these patents against third-party challenges. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal, scientific and factual questions. Accordingly, we cannot predict the breadth of
claims allowed in our patents or those of our collaborators. The patents and patent applications relating to our products, product candidates and technologies may be challenged, invalidated or circumvented by third parties and might not protect us
against competitors with similar products or technology.

Others have filed, and in the future are likely to file, patent applications
covering products and technologies that are similar, identical or competitive to ours, or important to our business. We cannot be certain that any patent application owned by a third party will not have priority over patent applications filed or
in-licensed by us, or that we or our licensors will not be involved in interference proceedings before the United States Patent and Trademark Office.

Although no third party has asserted a claim of infringement against us, others may hold proprietary rights that will prevent our product candidates from being marketed unless we can obtain a license to those
proprietary rights. Patent disputes in our industry are frequent and can preclude commercialization of products. Any patent related legal action against our collaborators or us claiming damages and seeking to enjoin commercial activities relating to
our products and processes could subject us to potential liability for damages and require our collaborators or us to obtain a license to continue to manufacture or market the affected products and processes. We cannot predict whether we or our
collaborators would prevail in any of these actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. There has been, and we believe that there will continue to be,
significant litigation in the industry regarding patent and other intellectual property rights. If we become involved in litigation, it could consume substantial managerial and financial resources.



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The results of patent litigation among third parties may cause changes to the ways patents are
interpreted, enforced and/or challenged. These changes may adversely affect our ability to protect our products.

We rely on trade secrets
to protect technology in cases when we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While we require employees, academic collaborators and consultants to enter into confidentiality
agreements, we may not be able to adequately protect our trade secrets or other proprietary information. Our research collaborators and scientific advisors have rights to publish data and information in which we have rights. If we cannot maintain
the confidentiality of our technology and other confidential information in connection with our collaborations, our ability to receive patent protection or protect our proprietary information may be imperiled.

We are a party to various license agreements that give us rights to use specified technologies in our research and development processes. If we are not
able to continue to license such technology on commercially reasonable terms, our product development and research may be delayed. In addition, we generally do not fully control the prosecution of patents relating to in-licensed technology, and
accordingly are unable to exercise the same degree of control over this intellectual property as we exercise over our internally developed technology.

Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an adequate level of reimbursement for our products from third-party payors.

Our ability to commercialize pharmaceutical products, alone or with collaborators, may depend in part on the extent to which reimbursement for the
products will be available from:



| |  |  | government and health administration authorities; or
| | - |  | ----------------------------------------------------



| |  |  | private health insurers and third-party payors.
| | - |  | -----------------------------------------------

The continuing efforts of government and third-party payors to contain or reduce the costs of health care through various means may limit our commercial opportunity. For example, in some foreign markets, pricing and
profitability of prescription pharmaceuticals are subject to government control. In the United States, we expect that there will continue to be a number of federal and state proposals to implement pharmaceutical pricing and cost control measures
under government health care programs such as Medicare and Medicaid. Increasing emphasis on managed care in the United States will continue to put pressure on the pricing of pharmaceutical products. Significant uncertainty exists as to the
reimbursement status of newly approved health care products. Cost control initiatives could adversely affect our and our collaborators ability to commercialize our products, decrease the price that any of our collaborators or we would receive
for any products in the future, and may impede patients ability to obtain reimbursement under their insurance programs for our products.

Many hospitals establish formularies, which are lists of drugs approved for use in the hospital. If we fail to secure and maintain formulary coverage for our products on favorable terms or are significantly delayed in doing so, we will have
difficultly achieving market acceptance of our products and our business will be materially adversely affected.

If we engage in an
acquisition, reorganization, or business combination, we will incur a variety of risks that could adversely affect our business operations or our stockholders.

From time to time we have considered, and we will continue to consider in the future, if and when any appropriate opportunities become available, strategic business initiatives intended to further the development of
our business. These initiatives may include acquiring businesses, technologies or products or entering into a business combination with another company. If we do pursue such a strategy, we could, among other things:



| |  |  | issue equity securities that would dilute our current stockholders percentage ownership;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | incur substantial debt that may place strains on our operations;
| | - |  | ----------------------------------------------------------------



| |  |  | spend substantial operational, financial and management resources in integrating new businesses, technologies and products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | assume substantial actual or contingent liabilities; or
| | - |  | -------------------------------------------------------



| |  |  | merge with, or otherwise enter into a business combination with, another company in which our stockholders would receive cash or shares of the other company or a
combination of both on terms that our stockholders may not deem desirable.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We are not in a position to predict what, if
any, collaborations, alliances or other transactions may result or how, when or if these activities would have a material effect on us or the development of our business.



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If product liability lawsuits are successfully brought against us, we may incur substantial
liabilities and may have to limit or cease commercialization of our products.

The testing and marketing of medical products entail
an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit or cease commercialization of our products. We currently carry clinical
trial insurance at a level we believe is commercially reasonable but do not carry product liability insurance. Our corporate collaborators or we may not be able to obtain insurance at a reasonable cost, if at all. There is no assurance that our
clinical trial insurance will be adequate to cover claims that may arise.

We enter into various agreements where we indemnify third
parties such as manufacturers and investigators for certain product liability claims related to our products. These indemnification obligations may cause us to pay significant sums of money for claims that are covered by these indemnifications.

If we use biological and hazardous materials in a manner that causes injury or violates laws, we may be liable for damages.

Our research and development activities involve the controlled use of potentially harmful biological materials as well as hazardous
materials, chemicals and various radioactive compounds. We use radioactivity in conducting biological assays and we use solvents that could be flammable in conducting our research and development activities. We cannot completely eliminate the risk
of accidental contamination or injury from the use, storage, handling or disposal of these materials. We do not maintain a separate insurance policy for these types of risks. In the event of contamination or injury, we could be held liable for
damages that result, and any liability could exceed our resources. We are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. The cost of
compliance with these laws and regulations could be significant.

Certain provisions of our charter documents and under Delaware law
may make an acquisition of us, which may be beneficial to our stockholders, more difficult.

Provisions of our amended and restated
certificate of incorporation and restated bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders.

We have shares of our common stock and preferred stock available for future issuance without stockholder approval. The existence of unissued common stock
and preferred stock may enable our Board of Directors to issue shares to persons friendly to current management or to issue preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by
means of a merger, tender offer, proxy contest or otherwise, which would protect the continuity of our management.

Our amended and
restated certificate of incorporation provides for our Board of Directors to be divided into three classes, with the term of one such class expiring each year, and we have eliminated the ability of our stockholders to consent in writing to the
taking of any action pursuant to Section 228 of the Delaware General Corporation Law.

In addition, we adopted a shareholder rights
plan, the effect of which may be to make an acquisition of us more difficult.

Under our collaboration agreement with Glaxo and under our
agreement with Pfizer, there are certain limitations on Glaxos and Pfizers ability to acquire our securities. These limitations make it more difficult for Glaxo or Pfizer to acquire us, even if such an acquisition would benefit our
stockholders. The limitations do not prevent Glaxo or Pfizer, among other things, from acquiring our securities in certain circumstances following initiation by a third party of an unsolicited tender offer to purchase more than a certain percentage
of any class of our publicly traded securities.



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|ITEM 6. | EXHIBITS:
|------- | ---------

The following exhibits are filed as part of this report on Form 10-Q:



|     |  |                                                                                                                                                                  
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.1
|     | 
|31.2 |  | Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.1
|     | 
|32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.1                                         
|     | 
|32.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.1                                         



|1 | Filed or furnished herewith.
|- | ----------------------------



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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.



|                     |  |  |  |                    |  |                          |  |                                                    
|-------------------- |  |  |  | ------------------ |  | ------------------------ |  | ---------------------------------------------------
|                     |  |  |  | ADOLOR CORPORATION
|                     |  |  | 
|Date: April 28, 2008 |  |  |  | By:                |  | /s/ Michael R. Dougherty
|                     |  |  |  |                    |  |                          |  | Michael R. Dougherty                               
|                     |  |  |  |                    |  |                          |  | President and Chief Executive Officer              
|                     |  |  | 
|                     |  |  |  | By:                |  | /s/ Thomas P. Hess      
|                     |  |  |  |                    |  |                          |  | Thomas P. Hess                                     
|                     |  |  |  |                    |  |                          |  | Vice President, Finance and Chief Financial Officer



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